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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number _______________
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 29 market dominant daily and 83
non-daily newspapers in nine states (including suburban markets in close
proximity to the San Francisco Bay area, Los Angeles, Philadelphia, Omaha and
Boston). The Company's principal sources of revenue are print advertising and
circulation sales. Other sources of revenue include commercial printing and
electronic advertising. The newspapers published by the Company had a combined
daily and Sunday paid circulation of approximately 1,145,000 and 1,144,000,
respectively, as of March 31, 1998, including the August 22, 1998 acquisition of
the CHARLESTON DAILY MAIL, published in Charleston, West Virginia. The Company
had revenue and EBITDA of $414.3 million and $98.4 million, respectively, for
fiscal 1998.
Garden State has grown significantly through internal growth and by making
strategic acquisitions in markets which the Company believes have above average
growth potential. The Company's main acquisition focus is on newspaper markets
contiguous to its own, allowing it to realize certain operating synergies. The
Company refers to this acquisition strategy as clustering. A majority of the
Company's newspapers are located in regional clusters, allowing them to achieve
higher operating margins through efficient use of labor and equipment and by
providing opportunities to cross-sell advertising. Management occasionally
divests newspaper properties that no longer fit a cluster strategy and when, in
management's opinion, the value of such newspaper properties has been maximized.
This strategy has enabled the Company to reinvest sale proceeds in newspaper
properties that can be clustered, allowing the Company to achieve greater
internal revenue and EBITDA growth in the future while reducing its leverage
ratio (as defined in the Company's Bank Credit Agreement).
Garden State's newspapers are geographically diverse and generally
positioned in markets with limited direct competition for local newspaper
advertising. Management believes the Company's newspaper markets, taken as a
whole, have above average population and sales growth potential. Most suburban
and small city daily newspapers, such as the newspapers owned by the Company,
have leading or sole positions in the geographic areas they serve. Only a few
cities in the United States contain more than one primary daily newspaper, the
majority of which are in major metropolitan markets. Additionally, start-ups of
new daily newspapers in suburban markets with 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 that only it can
provide, making it attractive for both consumers and advertisers.
Sizeable weekly newspapers are generally found in and around metropolitan
areas in addition to smaller towns and cities. Suburban weeklies, such as the
weekly newspapers operated by North Jersey Newspaper Company, Alameda Newspaper
Group and Los Angeles Newspaper Group have several advantages over metropolitan
dailies, including a lower cost structure, the ability to publish only on their
most profitable days (i.e., one midweek and one weekend day), the ability to
more effectively exploit zoned advertising and avoid expensive investments in
wire services and syndicated feature material. Zoned advertising permits small
merchants, individual classified, and other advertisers to advertise solely in
their own local areas at a cost lower than that of a full-run metropolitan daily
newspaper. Thus, the typical suburban weekly newspaper has a broader advertiser
base and does not rely to the same degree as a metropolitan daily on major
retailers for advertising revenues.
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INDUSTRY BACKGROUND
Newspaper publishing is the oldest and largest segment of the media
industry. Due to a focus on local news, newspapers remain the dominant
medium for local advertising and in calendar year 1997 accounted for more
than 47.1% of all local media advertising expenditures in the United States.
In addition, in calendar year 1997 U.S. newspaper advertising expenditures
reached an all time high of approximately $41.3 billion, representing a
compounded annual growth rate of 6.2% since 1980. Newspapers continue to be
the best medium for retail advertising which emphasizes the price of goods,
in contrast to television which is generally used for image advertising.
The number of adult readers of daily and Sunday newspapers is reported to
have increased from 106.0 million and 106.7 million in 1980 to 112.2 million and
127.6 million in 1997, respectively, representing compounded annual growth rates
of 0.33% and 1.06%, respectively. Readers of daily and Sunday newspapers tend to
be more highly educated and have higher incomes than non-newspaper readers. For
instance, 67% of college graduates and 69% of households with income greater
than $75,000 are reported to read a daily newspaper, compared to 59% of high
school graduates and 53% of households with incomes less than $40,000.
Management believes that newspapers continue to be the most cost-effective means
for advertisers to reach this highly targeted demographic group.
Total morning daily and Sunday national circulation has increased from 29.4
million and 54.7 million in 1980 to 45.4 million and 60.5 million in 1997,
respectively, representing compounded annual growth rates of 2.6% and 0.6%,
respectively. Total reported daily circulation, including evening editions,
however, declined nationally from 62.2 million in 1980 to 56.7 million in 1997,
or 0.5% annually. This decrease can be directly attributable to the national
decline in circulation of evening newspapers which is reported to have decreased
from 32.8 million in 1980 to 11.3 million in 1997, or 6.1% annually, as a result
of an inability to compete with existing morning newspapers, in the same city,
which in most cases caused the evening newspaper to shut down, or as a result of
evening newspapers converting to morning. Circulation statistics for suburban
daily newspapers are not published separately from circulation statistics for
daily newspapers as a whole. Reliable circulation statistics for weekly
newspapers are not available.
Newspaper advertising revenues are cyclical and are generally affected by
changes in national and regional economic conditions. Classified advertising,
which makes up approximately one-third of newspaper advertising revenues, is the
most sensitive to economic improvements or slowdowns as it is primarily affected
by the demand for employment, real estate transactions and automotive sales.
Growth in newspaper advertising has exceeded growth in the Gross Domestic
Product ("GDP") in every calendar year since 1993, and in calendar year 1997,
newspaper advertising spending grew 8.5% while the GDP grew only by 5.8%.
RECENT ACQUISITIONS & DISPOSITIONS
Acquisitions:
On August 22, 1998, the Company acquired a 50% interest in Charleston
Newspapers for approximately $47.0 million. Charleston Newspapers is a joint
venture, which publishes the CHARLESTON GAZETTE, (morning) and CHARLESTON DAILY
MAIL (evening), six days a week and the SUNDAY GAZETTE-MAIL, under the terms of
a Joint Operating Agreement (JOA). The acquisition included rights to the
masthead of the CHARLESTON DAILY MAIL; thus, the Company is responsible for the
editorial content of the CHARLESTON DAILY MAIL.
FISCAL 1998
On May 11, 1998 the Company acquired substantially all the assets used in
the publication of THE TRI-CITY WEEKLY, a weekly newspaper published in Eureka,
California for approximately $2.6 million in cash plus a covenant not to compete
with the prior owners with a discounted value of approximately $0.5 million.
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RECENT ACQUISITIONS & DISPOSITIONS (CONTINUED)
On May 1, 1998, the Company acquired substantially all the assets used in
the publication of the VALLEY NEWS TODAY, a morning newspaper published five
times a week in Shenandoah, Iowa, and seven weekly publications distributed
primarily in and around Shenandoah and Dennison, Iowa. These assets were
purchased for approximately $5.1 million in cash plus an adjustment for working
capital and covenant not to compete with the prior owners, with a discounted
value of approximately $0.6 million.
On January 29, 1998, the Company acquired substantially all the assets used
in the publication of the DAILY NEWS, a daily newspaper published in the San
Fernando Valley of Los Angeles, California, for approximately $130.0 million,
which included working capital of approximately $2.0 million.
On December 16, 1997, the Company acquired substantially all the assets
used in the publication of the PRESS-TELEGRAM, a daily newspaper published in
Long Beach, California, for approximately $38.2 million in cash, plus an
adjustment for working capital.
On July 31, 1997, the Company acquired substantially all the assets used in
the publication of THE SUN, an evening newspaper published in Lowell,
Massachusetts. The assets were purchased for $49.0 million in cash plus a
covenant not to compete with the prior owners with a discounted value of
approximately $11.8 million.
FISCAL 1997
On February 28, 1997, the Company acquired substantially all the assets
used in the publication of the SENTINEL & ENTERPRISE, LEBANON DAILY NEWS and THE
DAILY NONPAREIL, daily newspapers distributed primarily in Fitchburg and
Leominster, Massachusetts; Lebanon, Pennsylvania; and Council Bluffs, Iowa,
respectively, and five weekly newspapers distributed in and around the same
cities, for a total of approximately $51.2 million in cash.
On October 31, 1996, the Company acquired substantially all the assets used
in the publication of the PASADENA STAR-NEWS, SAN GABRIEL VALLEY TRIBUNE,
WHITTIER DAILY NEWS, TIMES-STANDARD and THE EVENING SUN, daily newspapers
distributed primarily in Pasadena, West Covina, Whittier and Eureka, California,
and Hanover, Pennsylvania, respectively, and seven weekly newspapers distributed
in and around these same cities, for a total of approximately $130.0 million in
cash.
In conjunction with the sale of the Johnstown Tribune Publishing Company
(discussed below), the Company acquired substantially all the assets used in the
publication of the NORTH ADAMS TRANSCRIPT and the BRIDGETON NEWS, daily
newspapers published in North Adams, Massachusetts, and Bridgeton, New Jersey,
respectively.
FISCAL 1996
On March 10, 1996, a subsidiary of the Company acquired substantially all
the assets used in the publication of the SAN MATEO COUNTY TIMES, a daily
newspaper, and five weekly newspapers published in San Mateo County, California,
for approximately $15.0 million, including discounted obligations to the seller
of approximately $4.3 million and the assumption of newspaper subscription
obligations of approximately $0.7 million.
On August 31, 1995, the Company acquired, for approximately $34.6 million,
substantially all of the assets used in the publication of THE BERKSHIRE EAGLE,
the BRATTLEBORO REFORMER and the BENNINGTON BANNER, daily newspapers published
in Pittsfield, Massachusetts; Brattleboro and Bennington, Vermont, respectively,
and THE MANCHESTER JOURNAL, a weekly newspaper published in Manchester, Vermont.
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RECENT ACQUISITIONS & DISPOSITIONS (CONTINUED)
Dispositions:
FISCAL 1998
On December 5, 1997, the Company sold substantially all the assets used
in the publication of the NORTH JERSEY HERALD & NEWS and sixteen weekly
publications for $43.0 million in cash plus an adjustment for working
capital. The Company recognized a pre-tax gain on the sale of approximately
$31.8 million, net of selling expenses.
FISCAL 1997
On February 13, 1997, the Company sold substantially all the assets used in
the publication of the POTOMAC NEWS and two weekly publications for $47.7
million in cash plus an adjustment for working capital. The Company recognized a
pre-tax gain on the sale of approximately $30.6 million, net of selling
expenses.
FISCAL 1996
On May 1, 1996, the Company sold the common stock of the Johnstown Tribune
Publishing Company, which publishes THE TRIBUNE-DEMOCRAT and two weekly
newspapers distributed in and around Johnstown, Pennsylvania, for $32.6 million
in cash and the assets of six daily newspapers and eight weekly newspapers. The
sale of the Johnstown Tribune Publishing Company resulted in a pre-tax gain of
approximately $8.3 million. Immediately upon the completion of the transaction,
four of the daily and seven of the weekly newspapers acquired were sold for
$15.7 million to The Denver Post Corporation, an affiliate of the Company. No
gain or loss was recognized on the sale to The Denver Post Corporation.
OPERATING STRATEGY
The Company's strategy is to increase revenues and cash flows through
geographic clustering; targeted marketing programs; local news leadership; high
quality editorial content and presentation; circulation growth; cost control;
and strategic technological investments, as described below:
GEOGRAPHIC CLUSTERING. The Company has acquired and assembled
newspapers, and may continue to acquire newspapers, in contiguous
markets ("clustering"). Clustering enables the Company to realize
operating efficiencies and economic synergies, such as the sharing of
management, accounting and production functions. In addition, the
Company seeks to increase operating cash flows at acquired newspapers
through cost reductions, including labor and web width reductions, as
well as overall improved cost management. Clustering also enables
management to maximize revenues through the cross selling of advertising
among contiguous newspaper markets. As a result of clustering,
management believes that the Company's newspapers are able to obtain
higher operating margins than they would otherwise be able to achieve on
a stand-alone basis.
TARGETED MARKETING PROGRAMS. Through a strong local presence and active
community relations, the Company is able to develop programs to maximize
its advertising revenues. The Company utilizes research, demographic
studies and zoning (marketing directed to a particular sub-segment of a
local area) to develop marketing programs and meet the unique needs of
specific advertisers.
LOCAL NEWS LEADERSHIP. The Company's newspapers generally have the
largest local news gathering resources in their markets. As a result of
emphasizing local news, the Company's newspapers generally are able to
generate reader loyalty and create franchise value. Because the
Company's provision of local news is a unique product in its markets,
its newspapers satisfy the demands of both its readers and advertisers.
5
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OPERATING STRATEGY (CONTINUED)
HIGH QUALITY EDITORIAL CONTENT AND PRESENTATION. The Company's
newspapers are committed to editorial excellence, providing the proper
mix of local and national news to effectively serve the needs of their
local markets. The Company's newspapers often receive awards for
excellence in various areas in their respective regions and categories.
In addition, the Company's newspapers are generally produced on modern
offset presses and are designed to attract readers through attractive
layouts and color enhancements.
CIRCULATION GROWTH. The Company believes that circulation growth is
essential to the creation of long-term franchise value at its
newspapers. Accordingly, the Company has and will continue to invest in
telemarketing and promotional campaigns to increase circulation and
readership. The Company has also established management incentive
programs which reward its publishers for circulation growth at each of
its daily newspapers. As a result of management's commitment to
circulation growth, the Company is one of the few newspaper groups which
has consistently grown circulation, year over year, on a combined basis
(excluding the effects of acquisitions).
COST CONTROL. Each of the Company's newspapers emphasizes cost control
with a particular focus on managing staffing requirements. At
newspapers with collective bargaining units, management strives to enter
into long-term agreements with minimal annual increases. In addition,
the Company further controls labor costs through investments in
state-of-the-art production equipment that improves production
efficiencies. Management is equally focused on newsprint cost control.
Each of the Company's newspapers benefits from discounted newsprint
costs through its relationship with MediaNews Group, Inc., ("MNG", see
MediaNews Group, Inc.'s Management of Newspaper Operations) as the
seventh largest newspaper group in the United States in terms of
circulation as of September 30, 1997. The Company's newspapers buy
newsprint from several suppliers, under arrangements covering MNG
affiliates, resulting in what management believes are some of the most
favorable newsprint prices in the industry. Through MNG, the Company
has available to it fixed price newsprint contracts with certain
suppliers expiring over the next twelve months to two years, as well as
newsprint purchasing arrangements with certain of its other suppliers
which delay the adverse effect of newsprint price increases. Based on
expected newsprint utilization at Garden State, excluding fiscal 1999
acquisitions, approximately 41% of the Company's annual newsprint
consumption for fiscal 1999 will be covered by fixed price contracts, at
prices which are currently well below market.
In order to further control newsprint costs while improving customer
satisfaction, beginning in October of 1995, the Company began converting
all its newspapers to a 50-inch web width. Prior to such conversions,
the company's newspapers had either 54 or 55-inch web widths. These
conversions have permanently reduced the Company's newsprint consumption
in excess of 8%. At June 30, 1998, all the Company's newspapers, except
certain recent acquisitions, were printed using a 50-inch web width.
STRATEGIC TECHNOLOGICAL INVESTMENTS. To take advantage of the
increasing use of the world wide web and the future advertising growth
opportunities MNG established MediaNEWS Technologies ("MNT") to develop
and maintain websites for each of the Company's daily newspapers. MNT
has developed websites to provide an online editorial presence and full
online classified services for each of the Company's daily newspapers.
In addition, the Company has established a strategic relationship with
Ad-One, which has provided greater access to the Company's web site and
classified advertising. Although the Company believes that providing an
online product is important to broadening the presence of its newspapers
in their respective communities and ultimately increasing the Company's
revenues through such value added services, the Company believes almost
all of its customers prefer the newspaper in a printed form. By being
the leading, and in certain instances the sole, provider of local news
in most of its markets, management believes that its newspapers are well
positioned to meet and benefit from its customers need for information,
whether in print or electronic form. The Company's newspaper websites
which are currently online can be found at WWW.NEWSCHOICE.COM.
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<TABLE>
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CLUSTERS
<S> <C>
SOUTH EASTERN PENNSYLVANIA NEWSPAPER GROUP
------------------------------------------
The York Dispatch (York, PA) NEW ENGLAND NEWSPAPER GROUP
York Sunday News (York, PA) ---------------------------
Bennington Banner (Bennington, VT)
The Evening Sun (Hanover, PA) Brattleboro Reformer (Brattleboro, VT)
Lebanon Daily News (Lebanon, PA) North Adams Transcript (North Adams, MA)
The Berkshire Eagle (Pittsfield, MA)
The Daily Nonpareil (Council Bluffs, IA) NORTH EASTERN MASSACHUSETTS
The Valley News Today (Shenandoah, IA) ---------------------------
NEWSPAPER GROUP
---------------------------
The Sun (Lowell, MA)
Sentinel & Enterprise (Fitchburg, MA)
Times Standard (Eureka, CA) [MAP]
ALAMEDA NEWSPAPER GROUP The Express Times (Easton, PA)
----------------------- North Jersey Newspaper Co
The Oakland Tribune (Oakland, CA)
The Daily Review (Hayward, CA) The Daily Mail (Charleston, WV)
Tri-Valley Herald (Pleasanton, CA)
Alameda Times-Star (Alameda, CA)
The Argus (Fremont-Newark, CA)
San Mateo County Times (San Mateo, CA)
LOS ANGELES NEWSPAPER GROUP SOUTH JERSEY NEWSPAPER GROUP
--------------------------- ----------------------------
San Gabriel Valley Tribune (West Covina, CA)
Pasadena Star-News (Pasadena, CA) Gloucester County Times, (Woodbury, NJ)
Whittier Daily News (Whittier, CA) Today's Sunbeam (Salem, NJ)
Bridgeton News (Bridgeton, NJ)
LA Daily News (Los Angeles, CA)
Long Beach Press-Telegram (Long Beach, CA)
Las Cruces News (Las Cruces, NM) Graham Newspapers (Graham, TX)
</TABLE>
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OPERATING STRATEGY (CONTINUED)
Management believes that successful implementation of the operating
strategy described above will position the Company to continue to achieve
internal growth. The Company may, from time to time, seek strategic or
targeted newspaper acquisitions and dispositions such as the acquisitions
previously discussed. The Company continually reviews newspaper acquisition
candidates that it believes are underperforming in terms of operating cash
flows but have an established history of strong readership and advertiser
loyalty and are available at attractive prices. Such acquisitions will only
be made in circumstances in which management believes that such acquisitions
would contribute to the Company's overall growth strategy, whether through
revenue growth and/or cost reduction opportunities, and represent attractive
values based on price.
MEDIANEWS GROUP, INC.'S MANAGEMENT OF NEWSPAPER OPERATIONS
MNG provides certain corporate services to Garden State. 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.
Services provided by MNG to the Company include accounting, tax, merger
and acquisition, purchasing, corporate advertising and sales administration,
human resource and labor administration, treasury functions, and budget and
operating plan review. In addition, MNT, a division of MNG, provides
electronic media services, including website development and maintenance, to
each of the Company's daily newspapers.
MNG's commitment to editorial quality is an integral part of its overall
management strategy. While MNG does not maintain any centralized editorial
control over the newspapers it manages, MNG does maintain high standards for
local news coverage by utilizing its extensive contacts, trade reputation and
opportunities for career advancement throughout the Company and its
affiliates to attract and retain talented editorial personnel.
MNG is currently constructing a website to post press releases, annual
and quarterly financial data, as well additional information on MNG and its
affiliates. This website is located at WWW.MEDIANEWSGROUP.COM.
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NEWSPAPER PROPERTIES
The following is a list of newspapers published by the Company as of the
date of this report. The map on the proceeding page, reflects the Company's
clustering strategy.
LOS ANGELES NEWSPAPER GROUP. The Los Angeles Newspaper Group is located in
Los Angeles County, California, and publishes five morning daily newspapers.
The Los Angeles Newspaper Group consists of the DAILY NEWS, the PRESS-TELEGRAM,
the PASADENA STAR-NEWS, the SAN GABRIEL VALLEY TRIBUNE, and WHITTIER DAILY NEWS.
These newspapers cover the San Fernando Valley region of Los Angeles, Long
Beach, Pasadena, West Covina and Whittier, California, respectively. The Los
Angeles Newspaper Group also publishes several weekly newspapers, the HIGHLANDER
NEWSPAPERS, CHEERS, CLASS FORCE, PASADENA COMMERCE, THE REAL ESTATE WEEKLY, STAR
WATCH, THE STAR, WHITTIER REVIEW, THE SHOPPER, and EL ECONOMICO AND VECINOS DEL
VALLE (Spanish language newspapers), which are distributed in and around these
same cities. The Los Angeles Newspaper Group had total daily and Sunday paid
circulation of approximately 418,000 and 450,000, respectively, as of March 31,
1998.
ALAMEDA NEWSPAPER GROUP. The Alameda Newspaper Group is located in Alameda
County, approximately 20 miles east of San Francisco, California, and publishes
six morning newspapers. The Alameda Newspaper Group consists of THE OAKLAND
TRIBUNE, THE DAILY REVIEW, TRI-VALLEY HERALD, THE ARGUS, ALAMEDA TIMES-STAR and
SAN MATEO COUNTY TIMES. All the newspapers except the SAN MATEO COUNTY TIMES
also publish a Sunday newspaper. These newspapers cover the city of Oakland,
California, and affluent suburban markets located immediately south, southeast
and southwest of Oakland in Alameda County and San Mateo County. The Alameda
Newspaper Group also publishes THE ALAMEDA ACCENT, SAN BRUNO HERALD, DALY CITY
RECORD/BRISBANE BEE, TIMES WEEKEND, MILLBRAE RECORDER-PROGRESS and THE COASTSIDE
CHRONICLE on Saturday. The Alameda Newspaper Group had total daily and Sunday
paid circulation of approximately 214,000 and 171,000 as of March 31, 1998.
YORK. York Newspaper Company, a partnership owned 57.5% by York Newspaper,
Inc. ("YNI"), a wholly owned subsidiary of Garden State Investments, Inc.
("GSI"), publishes THE YORK DISPATCH, the YORK SUNDAY NEWS and THE YORK DAILY
RECORD in York, Pennsylvania, approximately 30 miles south of Harrisburg,
Pennsylvania. These newspapers are published under the terms of a joint
operating agreement ("JOA"). Under the terms of the JOA, all operations, other
than news and editorial, are controlled by the partnership. YNI maintains its
own editorial staff and produces the editorial content of both THE YORK DISPATCH
and the YORK SUNDAY NEWS. The York Newspaper Company also publishes the WEEKLY
RECORD each Tuesday. The York Newspaper Company had daily and Sunday paid
circulation of approximately 82,000 and 93,000, respectively, as of March 31,
1998.
LOWELL. THE SUN is located in Lowell, Massachusetts, approximately 30
miles north of Boston, and publishes an evening newspaper five days a week
and morning editions on Saturday and Sunday. THE SUN had daily and Sunday
paid circulation of approximately 52,000 and 56,000, respectively, as of
March 31, 1998.
EASTON. THE EXPRESS-TIMES is located in Easton, Pennsylvania,
approximately 60 miles north of Philadelphia, Pennsylvania, and publishes a
morning newspaper seven days a week. THE EXPRESS-TIMES also publishes five
weekly newspapers: THE BETHLEHEM STAR, TWO RIVERS SHOPPING TIMES, BANGOR
HOMETOWN NEWS, THE NAZARETE US and the HUNTERDON MARKETPLACE, which are
distributed in the area surrounding Easton, Pennsylvania. THE EXPRESS-TIMES had
total daily and Sunday paid circulation of approximately 50,000 and 48,000,
respectively, as of March 31, 1998.
PITTSFIELD. THE BERKSHIRE EAGLE is located in Pittsfield, Massachusetts,
approximately 30 miles southeast of Albany, New York, and publishes a morning
newspaper seven days a week. THE BERKSHIRE EAGLE also publishes a weekly
newspaper, THE SHOPPER, a broadsheet shopper circulated free to non-subscribers
in Berkshire County. THE BERKSHIRE EAGLE had total daily and Sunday paid
circulation of approximately 30,000 and 35,000, respectively, as of March 31,
1998.
WOODBURY. The GLOUCESTER COUNTY TIMES is located in Woodbury, New Jersey,
approximately 15 miles south of Philadelphia, Pennsylvania, and publishes an
evening newspaper five days a week and a Sunday newspaper. The GLOUCESTER COUNTY
TIMES also publishes THE ADVERTISER, a weekly shopper. The GLOUCESTER COUNTY
TIMES had total daily and Sunday paid circulation of approximately 29,000 and
30,000, respectively as of March 31, 1998.
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NEWSPAPER PROPERTIES (CONTINUED)
LAS CRUCES. The LAS CRUCES SUN-NEWS is located in Las Cruces, New Mexico,
approximately 45 miles north of El Paso, Texas, and publishes a morning
newspaper seven days a week. The LAS CRUCES SUN-NEWS also publishes the VOZ DEL
VALLE, a weekly Spanish language newspaper, and THE SHOPPING TIMES, a weekly
shopper. The LAS CRUCES SUN-NEWS had total daily and Sunday paid circulation of
approximately 23,000 and 24,000, respectively, as of March 31, 1998.
EUREKA. The TIMES-STANDARD is located in Eureka, California, approximately
250 miles north of San Francisco, and publishes a morning newspaper seven days a
week. The TIMES-STANDARD also publishes three weekly newspapers, TIMES-STANDARD
PLUS, ON THE MARKET, and TRI-CITY WEEKLY, which are distributed in and around
the areas surrounding Eureka, California. The TIMES-STANDARD had daily and
Sunday circulation of approximately 22,000 and 23,000, respectively, as of March
31, 1998.
LEBANON. The LEBANON DAILY NEWS is located in Lebanon, Pennsylvania,
approximately 35 miles northeast of York, Pennsylvania, and 30 miles east of
Harrisburg, Pennsylvania. The LEBANON DAILY NEWS publishes an evening newspaper
five days a week, and morning editions on Saturday and Sunday. THE LEBANON DAILY
NEWS also publishes the PALM ADVERTISER, a weekly newspaper, which is
distributed around Lebanon, Pennsylvania. Daily and Sunday paid circulation at
the LEBANON DAILY NEWS was approximately 21,000 at March 31, 1998.
HANOVER. THE EVENING SUN is located in Hanover, Pennsylvania, approximately
20 miles southwest of York, Pennsylvania, and 40 miles south of Harrisburg,
Pennsylvania. THE EVENING SUN publishes an evening newspaper five days a week
and morning editions on Saturday and Sunday. THE EVENING SUN also publishes a
weekly newspaper, THE COMMUNITY SUN. THE EVENING SUN had daily and Sunday paid
circulation of approximately 21,000, at March 31, 1998.
FITCHBURG. The SENTINEL & ENTERPRISE is located in Fitchburg,
Massachusetts, approximately 40 miles northwest of Boston, Massachusetts, and
approximately 30 miles west of Lowell, Massachusetts, and publishes an evening
newspaper five days a week and morning editions on Saturday and Sunday. The
SENTINEL & ENTERPRISE also publishes three weekly newspapers: NORTH COUNTY
LEADER, THE WEEKENDER PLUS and THE INDEPENDENT, which are distributed in and
around areas surrounding Fitchburg, Massachusetts. The SENTINEL & ENTERPRISE had
total daily and Sunday paid circulation of approximately 20,000 as of March 31,
1998.
COUNCIL BLUFFS. THE DAILY NONPAREIL is located in Council Bluffs, Iowa,
which is adjacent to Omaha, Nebraska, on the Missouri River. THE DAILY NONPAREIL
publishes an evening newspaper five days a week and morning editions on Saturday
and Sunday. THE DAILY NONPAREIL also publishes THE VALLEY NEWS TODAY, a morning
paper published five days a week distributed in and around Shenandoah, Iowa. In
addition, THE DAILY NONPAREIL also publishes nine weekly newspapers: THE
MIDLANDS SHOPPER GUIDE, ADVISOR, ESSEX INDEPENDENT, DENNISON BULLETIN, DENNISON
REVIEW, MEAT EMPIRE SAVING GUIDE, VALLEY NEWS LIFE, WEEKLY TIME and CLARINDA
HERALD-JOURNAL, which are distributed in the areas surrounding Council Bluffs,
Shenandoah, and Dennison, Iowa. At March 31, 1998, THE DAILY NONPAREIL had
daily and Sunday paid circulation of approximately 17,000 and 18,000,
respectively.
BRATTLEBORO. The BRATTLEBORO REFORMER is located in Brattleboro, Vermont,
approximately 65 miles east of Albany, New York, and publishes a morning
newspaper seven days a week. The BRATTLEBORO REFORMER had daily and weekend
circulation of approximately 11,000 and 12,000, respectively, as of March 31,
1998.
SALEM. TODAY'S SUNBEAM is located in Salem, New Jersey, approximately 35
miles south of Philadelphia, Pennsylvania, and publishes a morning paper six
days a week. TODAY'S SUNBEAM also publishes THE RECORD, a weekly newspaper.
TODAY'S SUNBEAM had total daily and Sunday circulation of approximately 11,000
as of March 31, 1998.
BRIDGETON. The BRIDGETON NEWS is located in Bridgeton, New Jersey,
approximately 40 miles south of Philadelphia, Pennsylvania, and publishes an
evening newspaper six days a week. The BRIDGETON NEWS also publishes the
MILLVILLE SHOPPER NEWS a weekly newspaper. The BRIDGETON NEWS had daily
circulation of approximately 9,000 as of March 31, 1998.
10
<PAGE>
NEWSPAPER PROPERTIES (CONTINUED)
NORTH ADAMS. The NORTH ADAMS TRANSCRIPT is located in North Adams,
Massachusetts, approximately 30 miles east of Albany, New York, and publishes an
evening newspaper six days a week and a weekly newspaper, THE TRANSCRIPT
SPOTLIGHT. The NORTH ADAMS TRANSCRIPT had daily circulation of 8,000 at March
31, 1998.
BENNINGTON. The BENNINGTON BANNER is located in Bennington, Vermont,
approximately 35 miles east of Albany, New York, and publishes a morning
newspaper seven days a week. The BENNINGTON BANNER also publishes the MANCHESTER
JOURNAL, a paid weekly newspaper distributed on Wednesdays in Manchester,
Vermont, and THE BENNINGTON SHOPPER, a free weekly shopper. The BENNINGTON
BANNER had daily circulation of approximately 8,000 as of March 31, 1998.
NORTH JERSEY NEWSPAPERS COMPANY. North Jersey Newspapers Company publishes
29 weekly newspapers which are distributed primarily in central New Jersey. The
weeklies, most of which are free distribution publications in Warren, Somerset,
Morris and Union Counties, have a midweek and weekend distribution of
approximately 38,000 as of March 31, 1998.
GRAHAM. THE GRAHAM LEADER is located in Graham, Texas, approximately 90
miles northwest of Fort Worth, Texas. THE GRAHAM LEADER is a biweekly newspaper
with total paid circulation of approximately 4,900 as of March 31, 1998. The
Graham Leader also publishes the LAKE COUNTRY SUN, the LAKE COUNTRY SHOPPER, and
THE OLNEY ENTERPRISE each Thursday. In addition, the JACKSBORO GAZETTE-NEWS and
THE JACK COUNTY HERALD are weekly newspapers published each Monday and Thursday,
respectively.
RECENT ACQUISITION
CHARLESTON NEWSPAPERS. On August 22, 1998, the Company acquired a 50%
interest in Charleston Newspapers, a joint venture which publishes CHARLESTON
DAILY MAIL, CHARLESTON GAZETTE and, on Sunday, the CHARLESTON GAZETTE-MAIL in
Charleston, West Virginia. These newspapers are published under the terms of a
JOA. Under the terms of the JOA, all operations, other than news and editorial
are controlled by the joint venture. Garden State Newspapers is responsible for
maintaining the editorial staff and producing the editorial content for the
CHARLESTON DAILY MAIL. CHARLESTON NEWSPAPERS had daily and Sunday circulation
of approximately 93,000 and 102,000, respectively, as of March 31, 1998.
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.
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 1998, 1997, and 1996 were as follows:
<TABLE>
<CAPTION>
Fiscal year ended June 30,
--------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Retail 41% 42% 44%
National 4 3 3
Classified 35 35 34
Circulation 16 16 16
Other 4 4 3
--- --- ---
100% 100% 100%
--- --- ---
--- --- ---
</TABLE>
11
<PAGE>
Retail revenues as a percentage of total revenues have declined over the
last two years as a result of the strong performance of Classified advertising
associated with a strong economy and low unemployment and strong National
advertising revenue growth in fiscal year 1998.
NEWSPRINT
Newsprint represents one of the largest costs of producing a newspaper.
The Company's newspapers buy newsprint from several suppliers under arrangements
covering MNG affiliates, resulting in what management believes are some of the
most favorable newsprint prices in the industry. In fiscal years 1998, 1997 and
1996, the Company consumed approximately 99,900, 76,000, and 62,400 tons of
newsprint, respectively, and, during the same periods, incurred newsprint
expense of approximately $54.4 million, $41.1 million, and $42.5 million,
respectively. Newsprint expense as a percentage of revenue for fiscal year
1998, 1997 and 1996 was 13.1%, 13.6%, and 18.5%, respectively. Newsprint
expense varies between years because of fluctuations in prices and consumption.
Newsprint expense as a percentage of revenue showed no significant change in
fiscal 1998 over fiscal 1997. Newsprint expense as a percentage of revenue
decreased in fiscal 1997 over 1996, primarily because of a decrease of
approximately 25.0% in the average cost per ton of newsprint consumed and a
reduction in consumption from the implementation of the 50 inch web width. See
"Near Term Outlook" on page 23 for additional discussion of newsprint pricing.
EMPLOYEE RELATIONS
The Company employs approximately 4,000 full-time and 1,700 part-time
employees, of which approximately 900 are unionized. 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.
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, including electronic 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 local news and
information source, with strong name recognition in their market and no direct
competition from similar daily newspapers published in their markets. However,
as with most suburban small city daily newspapers, some circulation competition
exists from larger daily newspapers which are usually published in nearby
metropolitan areas. Management believes larger daily newspapers with circulation
in Garden State's newspaper markets generally do not compete in any meaningful
way for local advertising revenues, a newspaper's main source of revenues.
Garden State's daily newspapers capture the largest share of local advertising
as a result of their direct coverage of the market. In addition, management
believes advertisers generally regard newspaper advertising as the most
effective method of advertising promotions and pricing as compared to
television, which is generally used to advertise image. The Company may from
time to time compete with other companies, which have greater financial
resources than the Company.
12
<PAGE>
ELECTRONIC MEDIA
Many newspaper companies are now publishing news and other content on the
world wide web. In addition, there are several new start-up companies which have
developed sites on the world wide web which are, by design, advertising and/or
subscription supported. Many of these sites target specific types of advertising
such as employment and automotive classified.
Due to many issues associated with advertising on the world wide web, such
as fragmentation and lack of meaningful research on viewers and penetration
levels, the Company does not view the world wide web as a competitive threat
today. However, as the issues mentioned above are resolved, advertising on the
world wide web is expected to grow to meaningful levels. Accordingly, the
Company has developed a strategy which it believes will allow it to participate
in the advertising growth on the world wide web.
In April 1997, MNG moved the electronic media group of Alameda Newspaper
Group to its Denver headquarters and established MNT, the electronic publishing
division of MNG. MNT is responsible for developing and maintaining the website
for the Company and each of its daily newspapers. In addition, MNT has and is
continuing to develop strategic alliances to enhance content, functionality and
delivery. Such strategic alliances include Microsoft, Pantheon Navidec and
Ad-One Classified. The Company believes the design, functionality, and content
of its websites will attract viewers to continually return to its website(s) for
news and information, a key for advertisers. All of the Company's newspapers
currently on-line can be located at WWW.NEWSCHOICE.COM.
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, Union City, West Covina, Long Beach, Woodland
Hills, Valencia and Eureka, California; Council Bluffs, Denison and Shenandoah
Iowa; Bridgeton and Woodbury, New Jersey; Easton, York, Hanover and Lebanon,
Pennsylvania; Pittsfield, North Adams, Lowell and Fitchburg, Massachusetts; Las
Cruces, New Mexico; Bennington and Brattleboro, Vermont; and Graham, Texas.
Facilities located in Oakland, Pasadena and Pleasanton, California, are operated
under long-term leases.
The Company's management believes that all of its properties are generally
well maintained, in good condition and suitable for current operations. All of
the Company's equipment is adequately insured.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in a number of legal proceedings which have arisen
in the ordinary course of business. In the opinion of management, the outcome of
these legal proceedings will not have a material adverse impact on the Company's
financial position or results of operations.
REGULATION AND ENVIRONMENTAL MATTERS
Substantially all of the Company's facilities are subject to federal, state
and local laws concerning, among other things, emissions to the air, water
discharges, handling and disposal of wastes or otherwise relating to protection
of the environment. Compliance with these laws has not had, and management does
not expect it to have, a material effect upon the capital expenditures, net
income or competitive position of the Company. Environmental laws and
regulations and their interpretation, however, have changed rapidly in recent
years and may continue to do so in the future. Environmental Assessment Reports
of the Company's properties have identified historic activities on certain of
these properties, as well as current and historic uses of properties in
surrounding areas, which may affect the Company's properties and require further
study or remedial measures. No material remedial measures are currently
anticipated or planned by the Company or required by regulatory authorities with
respect to the Company's properties. However, no assurance can be given that
existing Environmental Assessment Reports reveal all environmental liabilities,
that any prior owner of the Company's properties did not create a material
environmental condition not known to the Company, or that a material
environmental condition does not otherwise exist as to any such property.
13
<PAGE>
REGULATION AND ENVIRONMENTAL MATTERS (CONTINUED)
The Company and its subsidiaries 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.
14
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
--------------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA(a):
Revenues
Advertising $ 331,999 $ 242,914 $197,954 $179,268 $159,653
Circulation 67,924 48,451 39,930 30,517 25,198
Other 14,383 11,537 7,546 3,260 1,792
--------- --------- -------- -------- --------
Total Revenues 414,306 302,902 245,430 213,045 186,643
Cost of Sales 145,412 106,939 98,469 79,098 68,531
Selling, General and Administrative 168,022 125,169 100,230 88,847 79,217
Management Fees 2,757 2,205 2,008 1,666 1,552
Depreciation and Amortization 38,857 24,689 21,841 18,710 19,900
Interest Expense 45,311 31,903 27,414 25,806 24,623
Gain on Sale of Newspaper Property 31,829 30,575 8,291 4,153 6,536
Income (Loss) Before Income Taxes
and Extraordinary Items 34,392 34,577 (752) 684 (15,253)
Net Income 29,600 24,739 1,260 1,048 18,716
OTHER FINANCIAL DATA:
Capital Expenditures 9,683 8,836 8,079 4,284 3,380
Cash Flow from:
Operating Activities 55,350 31,438 8,658 22,876 7,039
Investing Activities (207,026) (148,657) 6,900 1,255 (9,840)
Financing Activities 143,731 121,748 (28,226) (15,742) 3,105
EBITDA(b) 98,115 68,589 44,723 43,434 37,343
BALANCE SHEET DATA:
Total Assets 639,643 414,431 240,759 250,500 252,561
Long-Term Debt and
Capital Leases 517,330 350,822 210,589 223,847 235,147
Other Long-Term Liabilities and
Obligations 6,963 5,488 8,101 5,042 3,852
Total Shareholder's Equity (Deficit) 33,547 3,947 (20,792) (22,052) (23,100)
</TABLE>
- ---------------------------------
(FOOTNOTES ON THE FOLLOWING PAGE)
15
<PAGE>
(FOOTNOTES FROM PROCEEDING PAGE)
(a) Revenues and operating expenses are affected by the following acquisition
and disposition transactions. The revenue numbers provided below are from
the actual fiscal year results of operations of the respective newspapers
since the date of acquisition or prior to their disposition.
(I) On May 31, 1994, the Company purchased the assets of THE EXPRESS
TIMES, which contributed $1.5 million to fiscal 1994 revenues of
the Company.
(II) On June 27, 1994, the Company closed the YPSILANTI PRESS, a daily
newspaper published in Ypsilanti, Michigan, and sold its
circulation list for $9.0 million. The sale resulted in a
pre-tax gain of approximately $6.5 million. This newspaper
contributed approximately $4.3 million in fiscal 1993 and $4.1
million of revenues in fiscal 1994 prior to its disposition.
(III) On August 1, 1994, 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.
(IV) 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.
(V) On August 31, 1995, the Company acquired substantially all the
assets used in the publication of THE BERKSHIRE EAGLE, BENNINGTON
BANNER and BRATTLEBORO REFORMER, daily newspapers published in
Pittsfield, Massachusetts; Bennington and Brattleboro, Vermont,
respectively, for approximately $34.6 million. These newspapers
contributed approximately $21.6 million of revenues in fiscal
year 1996.
(VI) On March 10, 1996, the Company acquired substantially all the
assets used in the publication of the SAN MATEO COUNTY TIMES, a
daily newspaper, and five weekly newspapers published in San
Mateo County, California, for approximately $15.0 million. These
newspapers contributed approximately $4.0 million of revenue to
the Company in fiscal 1996.
(VII) On May 1, 1996, the Company sold the common stock of the
Johnstown Tribune Publishing Company which publishes THE
TRIBUNE-DEMOCRAT and two weekly newspapers distributed in and
around Johnstown, Pennsylvania, for $50.6 million. The sale
resulted in a pre-tax gain of approximately $8.3 million. These
newspapers contributed approximately $14.9 million of revenues
in fiscal 1996 prior to its sale and approximately $17.4 million
in fiscal 1995. In connection with the sale of the Johnstown
Tribune Publishing Company described above, the Company acquired
the NORTH ADAMS TRANSCRIPT and the BRIDGETON NEWS, daily
newspapers published in North Adams, Massachusetts, and
Bridgeton, New Jersey, respectively. These newspapers contributed
revenue of approximately $1.2 million in fiscal 1996.
(VIII) On October 31, 1996, the Company acquired substantially all the
assets used in the publication of the PASADENA STAR-NEWS, SAN
GABRIEL VALLEY TRIBUNE, WHITTIER DAILY NEWS, TIMES-STANDARD and
THE EVENING SUN, daily newspapers distributed primarily in
Pasadena, West Covina, Whittier and Eureka, California, and
Hanover, Pennsylvania, respectively, and seven weekly newspapers
distributed in and around these same cities, for a total of
approximately $130.0 million. These newspapers contributed $45.9
million of revenue to the Company in fiscal year 1997.
(IX) On February 13, 1997, the Company sold substantially all the
assets used in the publication of the POTOMAC NEWS and two weekly
publications for $48.0 million in cash plus an adjustment for
working capital. The Company recognized a pre-tax gain on the
sale of approximately $30.6 million, net of selling expenses, in
its third fiscal quarter. These newspapers contributed
approximately $7.5 million of revenues in fiscal year 1997 prior
to their sale and approximately $12.0 million in fiscal year
1996.
(X) On February 28, 1997, the Company acquired substantially all the
assets used in the publication of the SENTINEL & ENTERPRISE,
LEBANON DAILY NEWS and THE DAILY NONPAREIL, daily newspapers
located in Fitchburg and Leominster, Massachusetts; Lebanon,
Pennsylvania; and Council Bluffs, Iowa, respectively, and five
weekly newspapers distributed in and around the same cities, for
a total of approximately $51.2 million in cash. These newspapers
combined contributed approximately $7.9 million of revenue to the
Company in fiscal year 1997.
(XI) On July 31, 1997, the Company acquired substantially all the
assets used in the publication of THE SUN, an evening newspaper
published in Lowell, Massachusetts. The assets were purchased for
approximately $60.8 million. THE SUN contributed $22.3 million of
revenue in fiscal 1998.
(XII) On December 5, 1997, the Company sold substantially all the
assets used in the publication of the NORTH JERSEY HERALD & NEWS
and sixteen weekly publications for $43.0 million in cash plus an
adjustment for working capital. The Company recognized a pre-tax
gain on the sale of approximately $31.8 million, net of selling
expenses. These newspapers contributed $16.2 million of
revenues prior to the sale and $36.2 million in fiscal year 1997.
16
<PAGE>
(footnotes from proceeding page)
(XIII) On December 16, 1997, the Company acquired substantially all the
assets used in the publication of the PRESS-TELEGRAM, a daily
newspaper published in Long Beach, California, for approximately
$38.2 million in cash. Proceeds from the sale of the NORTH
JERSEY HERALD & NEWS were used to fund the acquisition. This
newspaper contributed approximately $22.7 million of revenue in
fiscal year 1998.
(XIV) On January 29, 1998, the Company acquired substantially all the
assets used in the publication of the DAILY NEWS, a daily
newspaper published in the San Fernando Valley of Los Angeles,
California, for approximately $130.0 million. This newspaper
contributed approximately $36.9 million of revenue to the Company
in fiscal year 1998.
(XV) On May 1, 1998, the Company acquired substantially all the assets
used in the publication of the VALLEY NEWS TODAY, a morning
newspaper published five times a week in Shenandoah Iowa, and
seven weekly publications distributed primarily in Shenandoah and
Dennison, Iowa. These assets were purchased for approximately
$5.1 million in cash, plus covenants not to compete with a
discounted value of $0.6 million. These newspapers contributed
approximately $0.3 million of revenue to the Company in fiscal
year 1998.
(XVI) On May 11, 1998 the Company acquired substantially all the assets
used in the publication of THE TRI-CITY WEEKLY, a weekly
newspaper published in Eureka, California for approximately $2.6
million in cash, plus a covenant not to compete with a discounted
value of $0.5 million. This newspaper contributed approximately
$0.2 million of revenue to the Company in fiscal year 1998.
(b) EBITDA represents total revenues less cost of sales, selling, general and
administrative expense and management fees charged by MNG. Although EBITDA
is not a measure of performance calculated in accordance with GAAP, the
Company believes that EBITDA is an indicator and measurement of its
leverage capacity and debt service ability. EBITDA should not be
considered as a measure of profitability, liquidity or as an alternative to
net income, cash flows generated by operating, investing or financing
activities or other financial statement data presented in the Company's
Consolidated Financial Statements or any other GAAP measure as an indicator
of the Company's performance.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
The following analysis of the financial condition and results of
operations of the Company should be read in conjunction with the Selected
Financial Data and the Consolidated Financial Statements of Garden State and
the notes thereto appearing elsewhere herein.
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, debt fees and make whole premiums, and historical dividends in
connection with preferred stock that was redeemed, the Company has
accumulated a significant deficit since its inception. However, since fiscal
year 1994 the Company has reduced the accumulated deficit by approximately
$75.4 million.
Since July 1, 1995, the Company has completed several strategic
transactions that have affected its financial condition and results of
operations. The following is a summary of these transactions.
FISCAL 1998 TRANSACTIONS
On May 11, 1998 the Company acquired substantially all the assets used
in the publication of THE TRI-CITY WEEKLY, a weekly newspaper published in
Eureka, California for approximately $2.6 million in cash plus a covenant not
to compete with the prior owners with a discounted value of approximately
$0.5 million.
17
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
On May 1, 1998 the Company acquired substantially all the assets used in
the publication of the VALLEY NEWS TODAY, a morning newspaper published five
times a week in Shenandoah Iowa, and seven weekly publications distributed
primarily in and around Shenandoah and Dennison, Iowa. These assets were
purchased for approximately $5.1 million in cash plus an adjustment for
working capital and covenant not to compete with the prior owners, with a
discounted value of approximately $0.6 million.
On January 29, 1998 the Company acquired substantially all the assets
used in the publication of the DAILY NEWS, a daily newspaper published in the
San Fernando Valley of Los Angeles, California, for approximately $130.0
million, which included working capital of approximately $2.0 million.
On December 16, 1997 the Company acquired substantially all the assets
used in the publication of the PRESS-TELEGRAM, a daily newspaper published in
Long Beach, California, for approximately $38.2 million in cash, plus an
adjustment for working capital. Proceeds from the sale of the North Jersey
Herald & News (discussed below) were used to fund the acquisition.
On July 31, 1997 the Company acquired substantially all the assets used
in the publication of THE SUN, an evening newspaper published in Lowell,
Massachusetts. The assets were purchased for $49.0 million in cash plus a
covenant not to compete with the prior owners with a discounted value of
approximately $11.8 million.
On December 5, 1997 the Company sold substantially all the assets used
in the publication of the NORTH JERSEY HERALD & NEWS and sixteen weekly
publications for $43.0 million in cash plus an adjustment for working
capital. The Company recognized a pre-tax gain on the sale of approximately
$31.8 million, net of selling expenses
FISCAL 1997 TRANSACTIONS
On February 28, 1997 a subsidiary of the Company acquired substantially
all the assets used in the publication of the SENTINEL & ENTERPRISE, LEBANON
DAILY NEWS and THE DAILY NONPAREIL, daily newspapers located in Fitchburg and
Leominster, Massachusetts; Lebanon, Pennsylvania; and Council Bluffs, Iowa,
respectively, and five weekly newspapers distributed in and around the same
cities.
On February 13, 1997 a subsidiary of the Company sold substantially all
the assets used in the publication of the POTOMAC NEWS and two weekly
publications. The Company recognized a pre-tax gain on the sale of
approximately $30.6 million, net of selling expenses, in its third fiscal
quarter.
On October 31, 1996 the Company acquired substantially all of the assets
used in the publication of the PASADENA STAR-NEWS, SAN GABRIEL VALLEY
TRIBUNE, WHITTIER DAILY NEWS, TIMES-STANDARD and THE EVENING SUN, daily
newspapers distributed primarily in Pasadena, West Covina, Whittier and
Eureka, California, and Hanover, Pennsylvania, respectively, and seven weekly
newspapers distributed in and around these same cities.
FISCAL 1996 TRANSACTIONS
On May 1, 1996 the Company sold the common stock of the Johnstown
Tribune Publishing Company which publishes THE TRIBUNE-DEMOCRAT, and two
weekly newspapers located in Johnstown, Pennsylvania. The sale resulted in a
pre-tax gain of approximately $8.3 million in fiscal 1996. In conjunction
with the sale, the Company also acquired the assets used in the publication
of the NORTH ADAMS TRANSCRIPT and the BRIDGETON NEWS, daily newspapers
published in North Adams, Massachusetts, and Bridgeton, New Jersey,
respectively.
On March 10, 1996 a subsidiary of the Company acquired substantially all
the assets used in the publication of the SAN MATEO COUNTY TIMES, a daily
newspaper, and five weekly newspapers published in San Mateo County,
California.
18
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
On August 31, 1995 a subsidiary of the Company purchased substantially
all the assets used in the publication of THE BERKSHIRE EAGLE, BRATTLEBORO
REFORMER and BENNINGTON BANNER, daily newspapers published in Pittsfield,
Massachusetts; Brattleboro and Bennington, Vermont, respectively, and the
MANCHESTER JOURNAL, a weekly newspaper published in Manchester, Vermont (the
"New England Newspapers" acquisition).
RESULTS OF OPERATIONS
Set forth below is certain summary historical financial data for fiscal
1998, 1997 and 1996, in each case including the percentage change between
fiscal years.
<TABLE>
<CAPTION>
SUMMARY HISTORICAL FINANCIAL DATA
(DOLLARS IN THOUSANDS)
Fiscal Years Ended June 30, Fiscal Years Ended June 30,
------------------------------ ----------------------------
1998 1997 1996 1998 vs. 1997 1997 vs. 1996
-------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Total Revenues $414,306 $302,902 $245,430 36.8% 23.4%
Cost of Sales 145,412 106,939 98,469 36.0 8.6
Selling, General and
Administrative 168,022 125,169 100,230 34.2 24.9
Management Fees 2,757 2,205 2,008 25.0 9.8
Depreciation and
Amortization 38,857 24,689 21,841 57.4 13.0
Interest Expense 45,311 31,903 27,414 42.0 16.4
Other 11,384 7,995 4,511 42.4 77.2
-------- -------- -------- ---- ----
Total Costs and Expenses 411,743 298,900 254,473 37.8 17.5
Net Income $ 29,600 $ 24,739 $ 1,260 19.6% (a)
</TABLE>
(a) not meaningful
COMPARISON OF FISCAL YEARS ENDED JUNE 30, 1998 AND 1997
REVENUES
Revenues increased $111.4 million or 36.8% in fiscal year 1998 as
compared to fiscal year 1997. The increase in revenue was primarily
attributable to the October 31, 1996, acquisition of the PASADENA STAR NEWS,
SAN GABRIEL VALLEY TRIBUNE, WHITTIER DAILY NEWS, TIMES-STANDARD and THE
EVENING SUN; February 28, 1997, acquisition of the SENTINEL & ENTERPRISE,
LEBANON DAILY NEWS and THE DAILY NONPAREIL; the July 31, 1997 acquisition of
THE SUN; the December 16, 1997 acquisition of the PRESS-TELEGRAM; the January
29, 1998 acquisition of the DAILY NEWS and the May, 1998 acquisitions
previously discussed. Combined, the acquisitions discussed above increased
revenues approximately $128.2 million in fiscal year 1998. These revenue
increases were partially offset by a $27.6 million decline in revenue
resulting from the sale of the POTOMAC NEWS and the NORTH JERSEY HERALD &
NEWS on February 13, 1997 and December 5, 1997, respectively. Excluding the
acquisition and disposition transactions, the Company's remaining newspaper
operations ("same newspaper basis") combined posted a $10.8 million or 5.3%
increase in operating revenues for fiscal year 1998. Advertising revenues at
these newspapers increased by approximately 6.6%, driven by strong classified
and national revenue growth. Circulation and other revenue combined on a
same newspaper basis decreased approximately $0.2 million.
19
<PAGE>
COST OF SALES
Cost of sales increased $38.5 million or 36.0% in fiscal year 1998
compared to fiscal 1997. The aforementioned acquisitions caused cost of
sales to increase approximately $44.2 million in fiscal year 1998. However,
this increase was offset in part by a $9.7 million decrease in cost of sales
resulting from the sale of the POTOMAC NEWS and NORTH JERSEY HERALD & NEWS.
On a same newspaper basis, cost of sales increased approximately $4.0 million
or approximately 5.4%, primarily driven by increased production cost,
primarily associated with advertising lineage increases.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative ("SG&A") expenses increased $42.9
million or 34.9 in fiscal year 1998 as compared to fiscal year 1997. The
aforementioned acquisitions resulted in SG&A expense increases of $54.5
million; however, this was in part offset by a $14.6 million reduction in
SG&A expense associated with the sale the POTOMAC NEWS and the NORTH JERSEY
HERALD & NEWS. On a same newspaper basis, SG&A expense increased $3.0 million
or 3.8%. The increase in SG&A expense is associated with increases in
advertising and circulation expenditures, which were primarily related to
ongoing efforts to increase advertising lineage and paid circulation.
OTHER EXPENSE
Other expense increased $3.4 million. The majority of the increase is
attributable to the fiscal year 1998 charge to write off $7.3 million of fees
and other costs associated with Garden State issuing $300.0 million of Senior
Subordinated Notes. The increase was partially offset by $4.4 million of
fees and other cost associated with the Garden State Bank Credit Agreement
entered into in October, 1996.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased $14.2 million in fiscal year
1998 as compared to the same period of fiscal year 1997. The aforementioned
acquisitions caused the majority of the increase in depreciation and
amortization expense; however, the increase was in part offset by a $0.8
million reduction in depreciation and amortization expense associated with
the sale of the POTOMAC NEWS and the NORTH JERSEY HERALD & NEWS.
INTEREST EXPENSE
Interest expense increased $13.4 million in fiscal year 1998 as compared
to the same period of fiscal year 1997. Interest expense increased primarily
as a result of a $147.3 million increase in average debt outstanding, all of
which is associated with acquisitions. This increase was partially offset by
a 36 basis point decrease in the average interest rate, mainly associated
with the refinancing of the Company's 10.89% Notes on October 31, 1996 and a
reduction in the borrowing spread on bank debt, which was offset in part by
an increase associated with the replacement of $300.0 million of bank debt
with the 8.75% Senior Subordinated Notes issued on October 1, 1997 and
February 12, 1998.
NET INCOME
Garden State recorded adjusted net income of approximately $5.1 million
in fiscal year 1998; after excluding the pretax gain on the sale of the
NORTH JERSEY HERALD & NEWS of $31.8 million and $7.3 million of debt issuance
cost, compared to adjusted net income of $7.3 million in fiscal year 1997,
after excluding the $30.6 million pre-tax gain on the sale of the POTOMAC
NEWS, $4.4 million of debt issuance cost and an $8.8 million extraordinary
loss. The $2.2 million decrease in adjusted net income was caused by a $13.4
million increase in interest expense, primarily as a result of acquisitions,
and a $3.7 million increase in tax expense resulting from the sale of the
NORTH JERSEY HERALD & NEWS, which completely offset the $15.4 million
increase in operating profit.
20
<PAGE>
COMPARISON OF FISCAL YEARS ENDED JUNE 30, 1997 AND 1996
REVENUES
Revenues increased $57.5 million or 23.4% in fiscal year 1997 as
compared to fiscal year 1996. The increase in revenue was attributable to
the New England Newspapers acquisition; the March 1996 acquisition of the SAN
MATEO COUNTY TIMES; the April 30, 1996, acquisition of the NORTH ADAMS
TRANSCRIPT and the BRIDGETON NEWS; the October 31, 1996, acquisition of the
PASADENA STAR-NEWS, SAN GABRIEL VALLEY TRIBUNE, WHITTIER DAILY NEWS,
TIMES-STANDARD and THE EVENING SUN; and the February 28, 1997, acquisition of
the SENTINEL & ENTERPRISE, LEBANON DAILY NEWS and THE DAILY NONPAREIL.
Combined, the acquisitions discussed above increased revenues approximately
$78.5 million in fiscal year 1997. These revenue increases were partially
offset by a $19.4 million decline in revenue resulting from the sale of the
Johnstown Tribune Publishing Company on May 1, 1996, and the POTOMAC NEWS on
February 13, 1997. On a same newspaper basis the Company posted a $1.6
million decrease in operating revenues for fiscal year 1997. However,
excluding Alameda Newspaper Group (without San Mateo), on a same newspaper
basis the Company posted a $3.6 million or 3.3% increase in operating
revenues. The increase in operating revenue at these newspapers was primarily
attributable to a combined 9.6% and 2.2% gain in classified and retail
revenue, respectively. Without the acquisition of the SAN MATEO COUNTY TIMES,
year-over-year comparisons of the Alameda Newspaper Group continued to be
negatively affected by declines in circulation revenue caused by increased
use of discounts and a significant number of out-of-business accounts (loss
of certain accounts as a result of store mergers or bankruptcies); however,
such comparisons turned positive late in the fourth quarter of fiscal 1997
and showed substantial improvement throughout fiscal 1998.
COST OF SALES
Cost of sales increased $8.5 million or 8.6% in fiscal year 1997
compared to fiscal 1996. The aforementioned acquisitions caused cost of
sales to increase approximately $25.8 million in fiscal year 1997. However,
this increase was offset in part by a $7.0 million decrease in cost of sales
resulting from the sale of the Johnstown Tribune Publishing Company and the
POTOMAC NEWS. On a same newspaper basis, cost of sales decreased
approximately $10.3 million or 12.8%. The decrease in cost of sales on a
same newspaper basis was almost entirely the result of a 25% decrease in the
average cost of newsprint. Excluding newsprint, cost of sales on a same
newspaper basis increased approximately $0.4 million or 1.0% in fiscal year
1997.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative ("SG&A") expenses increased $24.9
million or 24.9% in fiscal year 1997 as compared to fiscal year 1996. The
aforementioned acquisitions resulted in SG&A expense increases of $29.3
million; however, this was in part offset by a $6.1 million reduction in SG&A
expense associated with the sale of the Johnstown Tribune Publishing Company
and the POTOMAC NEWS. On a same newspaper basis, SG&A expense increased $1.7
million or 2.1%. The increase in SG&A expense is associated with increases
in advertising and circulation expenditures, which were primarily related to
ongoing efforts to increase advertising lineage and paid circulation.
OTHER EXPENSE
Other expense, net, increased $3.5 million. The majority of the
increase is attributable to a second quarter fiscal year 1997 charge to write
off approximately $4.4 million of fees and other costs associated with the
Company's Bank Credit Agreement entered into on October 31, 1996. The
increase was partially offset by $1.1 million of financing costs recorded in
the same period of fiscal year 1996 associated with the New England
Newspapers acquisition.
21
<PAGE>
NET INCOME
Garden State recorded adjusted net income of approximately $7.3 million
in fiscal year 1997, after excluding the pretax gain on the sale of the
POTOMAC NEWS of $30.6 million, the effect of the $4.4 million charge
described above, and the $8.8 million extraordinary loss from the prepayment
of the Company's senior notes, as compared to an adjusted net loss of $5.6
million in fiscal year 1996, after excluding the gain on sale of the
Johnstown Tribune Publishing Company, the write-off of fees and other costs
associated with a Garden State credit facility and start up costs associated
with the acquisition and integration of the SAN MATEO COUNTY TIMES. The
increase in adjusted net income is primarily attributable to a $21.0 million
increase in operating profit offset by a $4.5 million increase in interest
expense and a $3.1 million reduction in tax benefits.
LIQUIDITY AND CAPITAL RESOURCES
The principal sources of liquidity for the Company and its subsidiaries
are existing cash and other working capital, cash flow provided from their
operating activities and the borrowing capacity under 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. The Company may, from time to time, increase
its newsprint inventories in anticipation of price increases. In general, the
Company's receivables have been collected on a timely basis.
JUNE 30, 1998 COMPARED TO JUNE 30, 1997
Net cash flows from operating activities were approximately $55.3
million and $31.4 million for fiscal years ended June 30, 1998 and 1997,
respectively. The $23.9 million increase in cash flow from operating
activities was primarily the result of a $29.5 million increase in operating
profit, excluding depreciation and amortization expense, for the fiscal year
1998, compared to the fiscal year 1997, combined with a $9.0 million increase
in the change in operating assets and liabilities, which were offset by a
$12.5 million increase in cash interest expense.
Net cash flows from investing activities were ($207.0) million and
($148.7) million for fiscal years ended June 30, 1998 and 1997, respectively.
The $58.3 million change was primarily the result of the Company spending a
net $197.3 million on acquisitions in fiscal year 1998 compared to $140.0
million in fiscal year 1997.
Net cash flows from financing activities were $143.7 million and $121.7
million for fiscal years ended June 30, 1998 and 1997, respectively. The
change of approximately $22.0 million was primarily attributable to the
Company borrowing a net $141.0 million in fiscal year 1998, compared to the
net borrowing of $135.7 million in fiscal year 1997, the majority of which
was issued in conjunction with the previously discussed acquisitions in each
fiscal year. A $6.7 million reduction in debt issuance and repurchase
premium also contributed to the increase.
JUNE 30, 1997 COMPARED TO JUNE 30, 1996
Net cash flows from operating activities were approximately $31.4
million and $8.7 million for fiscal years ended June 30, 1997 and 1996,
respectively. The $22.7 million increase in cash flow from operating
activities was primarily the result of a $23.9 million increase in operating
profit, before depreciation and amortization expense, for the fiscal year
1997, compared to the fiscal year 1996, which was partially offset by a $4.5
million increase in interest expense for the same period.
Net cash flows from investing activities were ($148.7) million and $6.9
million for fiscal years ended June 30, 1997 and 1996, respectively. The
$155.6 million change was primarily the result of funds totaling
approximately $187.6 million used to acquire the PASADENA STAR-NEWS, WHITTIER
DAILY REVIEW, SAN GABRIEL VALLEY TRIBUNE, TIMES-STANDARD, THE EVENING SUN,
THE SENTINEL & ENTERPRISE, LEBANON DAILY NEWS and THE DAILY NON-PAREIL and
certain other weekly newspapers, in fiscal year 1997 less proceeds received
from the sale of the POTOMAC NEWS and other assets of $47.8 million, compared
to approximately $15.0 million received in fiscal year 1996 related to net
acquisition and disposition activity. Capital expenditures increased by
approximately $0.8 million primarily as a result of the previously announced
press upgrade in Easton and new front-end systems in Potomac and Las Cruces.
22
<PAGE>
JUNE 30, 1997 COMPARED TO JUNE 30, 1996 (CONTINUED)
Net cash flows from financing activities were $121.7 million and ($28.2)
million for fiscal years ended June 30, 1997 and 1996, respectively. The
change of approximately $149.9 million was primarily attributable to the
Company borrowing approximately $133.0 million related to net acquisition and
disposition activity in fiscal 1997 as compared to paydowns of approximately
$15.0 million related to net acquisition and disposition activity and $13.0
million of paydowns in the normal course in fiscal 1996. In addition, the
Company paid make-whole premiums and other financing fees and expenses of
approximately $14.0 million in fiscal 1997 associated with acquisitions and
the prepayment of its 10.89% Senior Notes compared to financing fees and
expenses of $1.1 million paid in fiscal 1996.
CAPITAL EXPENDITURES
The Company has a capital expenditure plan (not including business
acquisitions) which includes normal maintenance capital expenditures of
approximately $1.8 million for fiscal 1999. In addition, the plan anticipates
additional expenditures during fiscal 1999 of $5.1 million, primarily
associated with business and front end computer system year 2000 upgrades
press phone room expansion at Los Angeles Newspaper Group necessary to
capitalize on certain clustering efficiencies, and integration, and
consolidation of production operations in Alameda Newspaper Group to improve
production efficiencies. Management reviews the capital expenditure plan
periodically and modifies it as required to meet the Company's current
business needs. Capital expenditures related to these projects are expected
to be funded either through available cash or borrowings under the Garden
State Bank Credit Agreement.
LIQUIDITY
Giving effect to the issuance of $300.0 million of 8.75% Senior
Subordinated Notes and the corresponding paydown of bank debt, Garden State
had a combined $242.4 million available for future borrowings under its Bank
Credit Agreement, net of approximately $4.6 million in outstanding letters of
credit at June 30, 1998. Approximately $141.0 million of the availability
under the Bank Credit Agreement is available solely for future business
acquisitions. Commitments under the Garden State credit facility will also
continue to reduce in accordance with the terms disclosed in the June 30,
1998, Consolidated Financial Statements and notes thereto appearing elsewhere
herein.
Subsequent to year end Garden State repurchased $36.0 million of its
12.0% Senior Subordinated Secured Notes. Beginning July 1, 1999, the Company
can call its remaining outstanding 12.0% Senior Subordinated Secured Notes at
107.5%. The Company is currently expect 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. Current and future repurchases
of the Senior Subordinated Secured Notes will be financed by borrowing under
the existing Garden State Bank Credit Agreement and cash flows from
operations.
NEAR TERM OUTLOOK
The majority of the large newsprint suppliers have announced a $40 per
metric ton price increase on standard 30 pound newsprint, beginning on
September 1, 1998. If the price increase takes hold, newsprint transaction
prices will increase to approximately $615 per metric ton for large buyers.
Upward pressure in newsprint pricing is being fueled by the Abitibi
Consolidated (the largest newsprint vendor in North America) strike at seven
newsprint mills which began on June 15, 1998. If the September 1, 1998,
price increase is successful, the increase is not expected to have a
significant impact on the Company's cash flows from operations as the Company
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 ton 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.
23
<PAGE>
NEAR TERM OUTLOOK (CONTINUED)
Based upon current and expected operations, 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 $6.0
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 Company and its subsidiaries may, from time to time, consider the
strategic or targeted newspaper acquisitions and dispositions. In the event
an acquisition opportunity is identified, management expects that it would be
able to arrange financing on terms and conditions satisfactory to the Company
to the extent current resources are insufficient.
The purchase of Garden State's Class A common stock and the Series A and
C preferred stock by ANI was financed with debt issued by ANI. The repayment
of ANI's debt, which does not have scheduled interest payments until January
1, 2000, is in part dependent upon Garden State's ability to pay dividends to
ANI. Garden State's debt agreements discussed above prohibit the payment of
dividends to ANI prior to June 30, 1999. The ANI debt can be called
beginning on July 1, 1999 at 106.5%. Based on the current interest rate
environment ANI expects to call their debt on July 1, 1999. Cash flow from
Garden State will be required to service ANI's debt.
IMPACT OF YEAR 2000
The year 2000 issue results from computer programs using two digits
rather than four to define the applicable year. The Company's computer
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a system
failure, disruption of operations, and/or a temporary inability to conduct
normal business activities. Based on a recent assessment, the Company
currently believes that with modifications to existing software and
conversions to new software already scheduled to occur, the year 2000 issue
will not pose significant operational problems. If such modifications and
conversions are not made, or are not completed in a timely way, the year 2000
issue could have a material impact on operations.
The Company's newspapers have completed the process of identifying
computer systems that require modification or replacement and have begun the
systematic replacement or modification of all its computer systems which are
not year 2000 compliant. In addition, the Company has initiated
communications with its significant suppliers to determine the extent to
which the Company's interface systems are vulnerable to those third parties'
failure to resolve their own year 2000 issues.
The Company estimates that the remaining cost of modifying or replacing
its computer systems, which are not year 2000 compliant, will be
approximately $4.0 million. Through the year ended June 30, 1998, the Company
has spent approximately $2.3 million in conjunction with year 2000
compliance, the majority of which has been capitalized as it involved the
replacement of computer hardware and software. The year 2000 compliance cost
is based on management's best estimate and actual results could differ from
those anticipated.
In addition, if the Company or its vendors are unable to resolve the
year 2000 issue in a timely manner, such matters could have a material impact
on the Company's results of operations. The Company believes the necessary
modifications and replacement of computer systems will be completed by the
end of fiscal year 1999, and thus no contingency plan has been developed.
The year 2000 issue is not expected to pose significant operational or
financial problems for the Company.
24
<PAGE>
MARKET RISK
Interest Rate Sensitivity
Principal Amount by Expected Maturity
Average Interest Swap Rate
Year Ended June 30,
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 Thereafter Total 1998
---- ---- ---- ---- ---- ---------- ----- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES
LONG-TERM DEBT, INCLUDING CURRENT PORTION
Fixed Rate -- -- -- -- -- 400,287 400,287 416,500
Average Interest Rate 9.56% 9.56% 9.56% 9.56% 9.56% 9.56%
Variable Rate -- -- -- 3,750 7,500 22,750 34,000 34,000
Average Interest Rate 6.93% 6.93% 6.93% 6.93% 6.93% 6.93%
INTEREST RATE DERIVATIVE FINANCIAL
INSTRUMENT RELATED TO DEBT
INTEREST RATE SWAPS
Pay variable/Receive Fixed 50,000 -- -- -- -- -- 50,000 (0.4)
Average Pay Rate 6.45% -- -- -- -- --
Average Rate Received 5.70% -- -- -- -- --
</TABLE>
FORWARD-LOOKING STATEMENTS
This 10-K includes "Forward-Looking Statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. All
statements other than statements of historical facts included in this 10-K,
including without limitation, certain statements under "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business" and statements located elsewhere herein regarding the Company's
financial position and operating strategy, may constitute forward-looking
statements.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to have been correct. Important factors that could
cause actual results to differ materially from the Company's expectations
("Cautionary Statements") include the following: (1) costs or difficulties
related to the integration of businesses acquired by the Company (including
clustering) may be greater than expected; (2) unanticipated increases may
occur in financing and other costs, such as newsprint or labor costs; (3)
general economic or business conditions, either nationally or in the regions
in which the Company conducts business, may be less favorable than expected;
and (4) competition, including from other newspapers, other traditional forms
of advertising and newer forms made possible by the internet and otherwise.
All subsequent written and oral forward-looking statements attributable to
the Company or persons acting on its behalf are expressly qualified in their
entirety by the cautionary statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is filed as a separate part of this report (see
page 29).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
25
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names, ages and titles as of June 30, 1998, and a
brief account of the business experience of each person who is a director,
executive officer or other significant employee of the Company.
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
Richard B. Scudder 85 Chairman of the Board and Director
William Dean Singleton 46 Vice Chairman, President, Chief Executive Officer
and Director
Joseph J. Lodovic, IV 37 Executive Vice President and Chief Financial Officer
Anthony F. Tierno 53 Executive Vice President and Chief Operating Officer
E. Michael Fluker 61 Senior Vice President, Administration
Ronald A. Mayo 36 Vice President Finance and Controller
Michael C. Bush 43 Vice President Operations
James L. McDougald 44 Treasurer
Jean Scudder 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.
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.
MICHAEL C. BUSH has served as Vice President Operations since October
1997. Prior thereto, he served as Director of Marketing of Morris Newspaper
Corp., and Regional Director and Assistant Administrator of Park Newspapers
from 1986 to 1996.
JAMES L. MCDOUGALD has served as Treasurer since September 1994. Prior
thereto, he was Controller for Garden State from 1988 to 1994.
JEAN SCUDDER has served as a Director of Garden State since July 1998.
Ms. Scudder is the daughter of Richard B. Scudder.
26
<PAGE>
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 1998.
<TABLE>
<CAPTION>
Name and Fiscal Annual Compensation All Other
Principal Position Year Salary Bonus Compensation
------------------ ------ --------- --------- ------------
<S> <C> <C> <C> <C>
William Dean Singleton(a) 1998 $ 360,000 $ 250,000 $ 7,394
Vice Chairman, President 1997 250,000 100,000 3,610
And Chief Executive Officer 1996 100,000 80,000 --
Joseph J. Lodovic IV(b) 1998 $ 181,500 $ 140,000 $ 3,078
Executive Vice President, 1997 165,000 94,700 3,390
Chief Financial Officer 1996 125,550 -- 31,900
Anthony F. Tierno 1998 $ 225,000 $ 60,000 $10,310
Executive Vice President 1997 200,005 7,500 10,396
And Chief Operating Officer 1996 192,503 2,500 9,620
E. Michael Fluker(c)
Senior Vice President, 1998 $ 101,400 $ 3,250 $ 5,265
Administration
Michael C. Bush(d) 1998 $ 133,050 $ 35,000 $ 7,049
Vice President Operations
</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) Other Compensation in 1996 includes a relocation bonus.
(c) In fiscal 1996 and 1997 allocated compensation did not exceed $100,000.
(d) Mr. Bush was not an officer of the Company in fiscal year 1997.
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 $360,000 (of which Garden
State is obligated to pay a portion), subject to annual review and adjustment
by the Board of Directors of Garden State. In addition, Mr. Singleton is
entitled to receive a bonus of up to $100,000 for each fiscal year based on a
comparison of actual profits of Garden State to budgeted profits during such
fiscal year. Other discretionary bonuses may be paid which are not part of
the employment agreements. The Employment Agreement expires by its terms on
June 30, 2001, but will be automatically renewed for successive one-year
terms unless Garden State or Mr. Singleton gives notice terminating the
Employment Agreement at least 120 days prior to the expiration of the
existing term. The Employment Agreement contains a five-year non-compete
covenant for all counties and geographical areas in which newspapers are
owned or circulated by Garden State or its subsidiaries (currently or in the
future).
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Decisions regarding annual compensation 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."
27
<PAGE>
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. The Singleton Shareholder Group and the Scudder Shareholder Group, as
sole holders of the ANI common stock (other than Class B common stock
representing 7.5% of the capital stock of the Company), are each in effect
entitled to elect one-half of all of the members of the Board of Directors of
ANI and Garden State, and to otherwise control both ANI and Garden State,
including as to mergers, liquidations and asset acquisitions and dispositions.
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. The majority of the executive officers of MNG are
also executive officers of the Company, and compensation of the executive
officers of the Company, with the exception of Mr. Singleton whose
compensation is paid as described under "Executive Compensation," are paid by
MNG. The Company believes that the salaries paid to its executive officers,
through either Garden State or MNG, are not greater than those which would be
paid to executives of an unaffiliated management company. Pursuant to the
Management Agreement, MNG allocates its expenses as management fees to each
affiliate based on the amount of time and resources devoted to each
affiliate. The weighted average of the salary allocations is then used to
apportion general overhead of MNG, such as office rent and related operating
expenses. MNG is also party to a consulting agreement, renewable annually,
with Mr. Scudder which requires annual payments of $150,000. Costs related to
such agreement are included in MNG's expenses and, thus, are included in the
management fee allocation discussed above.
MNT, a division of MNG, provides electronic media services including
website development and maintenance, internet access, and online publishing
capabilities for all the newspapers managed by MNG. The cost of providing
these services is allocated based on revenue of the newspapers for which such
services are provided. For fiscal 1998 the Company paid approximately $1.0
million to MNT. The Company records electronic media advertising revenues
earned by the Company's newspapers, in its consolidated statement of
operations.
The Company reimburses MNG for any expenses directly incurred by MNG on
behalf of the Company that are not included in the management fee. For
fiscal 1998, the Company paid approximately $2.7 million to MNG in management
fees. The Company believes that the management fees paid to MNG are not
greater than the costs the Company would expect to bear to obtain these
services elsewhere.
MNG does not own and does not expect to own any interest in the Company,
nor has MNG made any direct capital investment in the Company. While MNG's
principal business is the management of newspaper operations, the Company
does not believe its success is dependent on MNG. If the Management
Agreement should terminate, management believes the Company could obtain
management services from other sources, including current employees of MNG.
28
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (CONTINUED)
TAX SHARING AGREEMENT
ANI and Garden State are part of the same affiliated group and file
consolidated returns for federal income tax purposes. ANI and Garden State
entered into a tax sharing agreement (the "Tax Sharing Agreement") to
determine the manner in which the members of the consolidated group will
share federal income tax benefits and costs. Pursuant to the Tax Sharing
Agreement, the income tax liability of Garden State and any of Garden State's
consolidated subsidiaries is computed separately from ANI on a consolidated
return basis. If income tax is due from Garden State and its consolidated
subsidiaries, Garden State will pay the amount of the tax as a tax sharing
payment to ANI. In the event that Garden State's federal income tax is
reduced due to a net operating loss or credit carryback under applicable
federal income tax law, it will receive credit for the amount of such
reduction from ANI. 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 29).
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 29).
3. Exhibits
The Exhibits listed in the accompanying index to exhibits
are filed as a part of this annual report. (See page 70).
(b) Reports on Form 8-K
The Company filed a Form 8-K/A on April 9, 1998,
regarding the purchase of the DAILY NEWS, of Los Angeles.
29
<PAGE>
GARDEN STATE NEWSPAPERS, INC.
ITEMS 8, AND 14(a) (1) AND (2)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
COVERED BY REPORTS OF INDEPENDENT AUDITORS
The following financial statements of the registrant and its
subsidiaries required to be included in Items 8 and 14(a)(1) are listed below:
<TABLE>
<CAPTION>
GARDEN STATE NEWSPAPERS, INC.
PAGE
----
<S> <C>
Report of Independent Auditors 31
Consolidated Balance Sheets as of June 30, 1998
and 1997 32
Consolidated Statements of Operations for the
Fiscal Years Ended June 30, 1998, 1997 and 1996 34
Consolidated Statements of Changes in Shareholder's Equity
(Deficit) for the Fiscal Years Ended June 30, 1998, 1997 and 1996 35
Consolidated Statements of Cash Flows for the Fiscal Years Ended
June 30, 1998, 1997 and 1996 36
Notes to Consolidated Financial Statements 37
</TABLE>
The following financial statement schedule of the registrant and its
subsidiaries required to be included in Item 14(a)(2) is listed below:
<TABLE>
<S> <C>
Schedule II Valuation and Qualifying Accounts 51
</TABLE>
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and therefore
have been omitted or the information is presented in the consolidated
financial statements or related notes.
<TABLE>
<CAPTION>
GARDEN STATE INVESTMENTS, INC.
PAGE
----
<S> <C>
Report of Independent Auditors 52
Consolidated Balance Sheets as of June 30, 1998
and 1997 53
Consolidated Statements of Operations for the Fiscal
Years Ended June 30, 1998, 1997 and 1996 55
Consolidated Statements of Changes in Shareholder's Deficit for the
Fiscal Years Ended June 30, 1998, 1997 and 1996 56
Consolidated Statements of Cash Flows for the Fiscal Years Ended
June 30, 1998, 1997 and 1996 57
Notes to Consolidated Financial Statements 58
Schedule II Valuation and Qualifying Accounts 69
</TABLE>
30
<PAGE>
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, 1998
and 1997, and the related consolidated statements of operations, changes in
shareholder's equity, and cash flows for each of the three years in the
period ended June 30, 1998. Our audits also included the financial statement
schedule II. These financial statements and schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the 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, 1998 and 1997,
and the consolidated results of their operations and their cash flows for
each of the three years in the period ended June 30, 1998, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
ERNST & YOUNG LLP
Denver, Colorado
September 4, 1998
31
<PAGE>
GARDEN STATE NEWSPAPERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
--------------------------
1998 1997
-------- --------
(In thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 999 $ 8,944
Trade accounts receivable, less allowance for doubtful accounts of
$6,239 and $4,252 at June 30, 1998 and 1997, respectively 48,241 32,849
Receivable from affiliates 956 1,968
Other receivables 2,534 1,353
Inventories of newsprint and supplies 7,286 6,170
Prepaid expenses and other assets 3,475 3,295
Income taxes receivable 1,687 --
-------- --------
TOTAL CURRENT ASSETS 65,178 54,579
PROPERTY, PLANT AND EQUIPMENT
Land 16,658 8,307
Buildings and improvements 61,060 43,462
Machinery and equipment 179,670 126,450
-------- --------
TOTAL PROPERTY, PLANT AND EQUIPMENT 257,388 178,219
Less accumulated depreciation and amortization 63,588 57,670
-------- --------
NET PROPERTY, PLANT AND EQUIPMENT 193,800 120,549
OTHER ASSETS
Investment in partnership 7,479 6,365
Subscriber accounts, less accumulated amortization of
$53,446 and $45,808 at June 30, 1998 and 1997, respectively 98,712 69,960
Excess of cost over fair value of net assets acquired, less
accumulated amortization of $18,492 and $12,718 at
June 30, 1998 and 1997, respectively 251,196 154,294
Covenants not to compete and other identifiable intangible
assets, less accumulated amortization of $19,846 and
$15,861 at June 30, 1998 and 1997, respectively 15,810 6,684
Other 7,468 2,000
-------- --------
TOTAL OTHER ASSETS 380,665 239,303
-------- --------
TOTAL ASSETS $639,643 $414,431
-------- --------
-------- --------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
32
<PAGE>
<TABLE>
<CAPTION>
June 30
LIABILITIES AND SHAREHOLDER'S EQUITY ------------------------------
1998 1997
-------- --------
(In thousands, except share data)
<S> <C> <C>
CURRENT LIABILITIES
Trade accounts payable $ 5,684 $ 6,286
Accrued employee compensation 13,938 7,208
Accrued interest 14,465 7,830
Other accrued liabilities 20,876 8,676
Unearned income 14,829 10,746
Income taxes -- 1,308
Current portion of long-term debt and obligations under capital leases 5,644 6,247
-------- --------
TOTAL CURRENT LIABILITIES 75,436 48,301
OBLIGATIONS UNDER CAPITAL LEASES 7,484 7,477
LONG-TERM DEBT 504,202 337,098
OTHER LIABILITIES 6,479 5,092
DEFERRED INCOME TAXES 12,495 12,516
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 (45,024) (74,624)
-------- --------
TOTAL SHAREHOLDER'S EQUITY 33,547 3,947
-------- --------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $639,643 $414,431
-------- --------
-------- --------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
33
<PAGE>
GARDEN STATE NEWSPAPERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Fiscal Years Ended June 30,
-------------------------------------
1998 1997 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
REVENUES
Advertising $331,999 $242,914 $197,954
Circulation 67,924 48,451 39,930
Other 14,383 11,537 7,546
-------- -------- --------
TOTAL REVENUES 414,306 302,902 245,430
COSTS AND EXPENSES
Cost of sales 145,412 106,939 98,469
Selling, general and administrative 168,022 125,169 100,230
Management fees 2,757 2,205 2,008
Depreciation and amortization 38,857 24,689 21,841
Interest expense 45,311 31,903 27,414
Other 11,384 7,995 4,511
-------- -------- --------
TOTAL COSTS AND EXPENSES 411,743 298,900 254,473
GAIN ON SALE OF NEWSPAPER PROPERTY 31,829 30,575 8,291
-------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY LOSS 34,392 34,577 (752)
INCOME TAX BENEFIT (EXPENSE) (4,792) (1,066) 2,012
-------- -------- --------
INCOME BEFORE EXTRAORDINARY LOSS 29,600 33,511 1,260
EXTRAORDINARY LOSS (net of taxes of $689) -- 8,772 --
-------- -------- --------
NET INCOME $ 29,600 $ 24,739 $ 1,260
-------- -------- --------
-------- -------- --------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
34
<PAGE>
GARDEN STATE NEWSPAPERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY (DEFICIT)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN- SHAREHOLDER'S
STOCK CAPITAL DEFICIT EQUITY (DEFICIT)
------ ---------- ------- ----------------
<S> <C> <C> <C> <C>
(In thousands)
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)
Net income -- -- 24,739 24,739
--- ------- --------- --------
BALANCE AT JUNE 30, 1997 1 78,570 (74,624) 3,947
Net income -- -- 29,600 29,600
--- ------- --------- --------
BALANCE AT JUNE 30, 1998 $1 $78,570 $ (45,024) $ 33,547
--- ------- --------- --------
--- ------- --------- --------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
35
<PAGE>
GARDEN STATE NEWSPAPERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
------------------------------------------------------
1998 1997 1996
--------- --------- --------
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 29,600 $ 24,739 $ 1,260
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 16,038 10,707 9,762
Amortization 22,194 12,775 11,499
Gain on sale of newspaper assets (31,539) (30,579) (8,621)
Provision for losses on accounts receivable 4,596 3,092 2,510
Amortization of debt discount 2,937 2,060 1,696
Debt issue cost and repurchase premiums 7,287 13,969 1,092
Distributions in excess of (less than)
earnings from investment in partnership (1,114) 23 (610)
Deferred income tax (benefit) (1,520) (3,226) (2,529)
Change in operating assets and liabilities:
Accounts receivable 1,211 (5,408) (3,403)
Inventories 3,538 (1,163) 1,799
Prepaid expenses and other assets 1,898 (455) (558)
Accounts payable and accrued liabilities (5,550) 5,139 (5,047)
Unearned income (541) 746 22
Affiliate account balances 1,012 (445) 303
Change in other assets and liabilities 5,303 (366) (517)
Other -- (170) --
--------- --------- --------
NET CASH FLOWS FROM OPERATING ACTIVITIES 55,350 31,438 8,658
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of newspaper property and other assets 43,030 47,776 50,647
Business acquisitions (240,373) (187,597) (35,668)
Purchase of machinery and equipment (9,683) (8,836) (8,079)
--------- --------- --------
NET CASH FLOWS FROM INVESTING ACTIVITIES (207,026) (148,657) 6,900
CASH FLOW FROM FINANCING ACTIVITIES:
Issuance of long-term debt 490,988 259,450 37,300
Reduction of long-term debt (337,779) (120,773) (60,240)
Reduction of non-operating liabilities (2,191) (2,960) (4,194)
Debt issuance cost and repurchase premiums (7,287) (13,969) (1,092)
--------- --------- --------
NET CASH FLOWS FROM FINANCING ACTIVITIES 143,731 121,748 (28,226)
--------- --------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (7,945) 4,529 (12,668)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 8,944 4,415 17,083
--------- --------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 999 $ 8,944 $ 4,415
--------- --------- --------
--------- --------- --------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
36
<PAGE>
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"), a wholly owned subsidiary of Garden State, 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 6 to 15 years, with a weighted average remaining
life based on the dates of acquisitions of 9 years. Other intangibles
recognized are being amortized using the straight-line method, generally over
periods not exceeding 10 years.
LONG-LIVED ASSETS
The carrying value of long-lived assets is reviewed annually; 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.
37
<PAGE>
GARDEN STATE NEWSPAPERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS (CONTINUED)
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 GSI,
entered into a general partnership; York Newspaper Company (the "Agency"),
with York Daily Record, Inc. ("YDR"). YNI, YDR and the Agency entered into a
joint operating agreement 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 consolidated
balance sheets under the equity method. The Company's investment in the
Agency, which originally represented the net book value of assets and
liabilities contributed to the Agency, was approximately $7.5 million and
$6.4 million at each of the fiscal years ended June 30, 1998 and 1997,
respectively. The Agency made cash distributions to YNI in the amount of $7.3
million, $7.2 million and $4.9 million in fiscal years 1998, 1997 and 1996.
In September, 1996, the Company signed a call/put agreement under which YNI
can purchase YDR's interest in the agency or YDR can put its interest in the
Agency to YNI. The base call and put price is $32.0 million and $25.0
million, respectively, and is adjusted annually based on changes in the
consumer price index (not to exceed 2-1/2%). The call option may be
exercised on January 1, 2004 and expires on January 1, 2005. The put may be
exercised at any time after the expiration of the call through June 30, 2008.
The Company is not currently responsible for any liabilities of the Agency,
contingent or otherwise. Management believes that the Agency is well
capitalized and does not anticipate the Agency requiring any capital
contributions from its partners in the near future.
NOTE 3: ACQUISITIONS AND DISPOSITIONS
ACQUISITIONS
FISCAL 1998
On May 11, 1998 the Company acquired substantially all the assets used in
the publication of THE TRI-CITY WEEKLY, a weekly newspaper published in
Eureka, California for approximately $2.6 million in cash plus a covenant not
to compete with the prior owners with a discounted value of approximately
$0.5 million.
On May 1, 1998, the Company acquired substantially all the assets used in
the publication of the VALLEY NEWS TODAY, a morning newspaper published five
times a week in Shenandoah, Iowa and seven weekly publications distributed
primarily in Shenandoah and Dennison, Iowa. These assets were purchased for
approximately $5.1 million in cash plus an adjustment for working capital and
covenant not to compete with the prior owners, with a discounted value of
approximately $0.6 million.
38
<PAGE>
GARDEN STATE NEWSPAPERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3: ACQUISITIONS AND DISPOSITIONS (CONTINUED)
On January 29, 1998, the Company acquired substantially all the assets used
in the publication of the DAILY NEWS, a daily newspaper published in the San
Fernando Valley region of Los Angeles, California and a weekly newspaper
distributed in the same area, for approximately $130.0 million, which
included working capital of approximately $2.0 million.
On December 16, 1997, the Company acquired substantially all the assets
used in the publication of the PRESS-TELEGRAM, a daily newspaper published in
Long Beach, California and two weekly newspapers distributed in and around
Long Beach, for approximately $38.2 million in cash, plus an adjustment for
working capital. Proceeds from the sale of the NORTH JERSEY HERALD & NEWS
(discussed below) were used to fund the acquisition.
On July 31, 1997, the Company acquired substantially all the assets used in
the publication of THE SUN, an evening newspaper published in Lowell,
Massachusetts. The assets were purchased for $49.0 million in cash plus a
covenant not to compete with the prior owners with a discounted value of
approximately $11.8 million.
FISCAL 1997
On February 28, 1997, the Company acquired substantially all the assets
used in the publication of the SENTINEL & ENTERPRISE, LEBANON DAILY NEWS and
THE DAILY NONPAREIL, daily newspapers distributed primarily in Fitchburg and
Leominster, Massachusetts; Lebanon, Pennsylvania; and Council Bluffs, Iowa,
respectively, and five weekly newspapers distributed in and around the same
cities, for a total of approximately $51.2 million in cash. Proceeds from the
sale of the POTOMAC NEWS (discussed below) and borrowings under the Company's
Bank Credit Agreement were used to fund the acquisition.
On October 31, 1996, the Company acquired substantially all of the assets
used in the publication of the PASADENA STAR-NEWS, SAN GABRIEL VALLEY
TRIBUNE, WHITTIER DAILY NEWS, TIMES-STANDARD and THE EVENING SUN, daily
newspapers distributed primarily in Pasadena, West Covina, Whittier and
Eureka, California, and Hanover, Pennsylvania, respectively, and seven weekly
newspapers distributed in and around these same cities, for a combined total
of approximately $130.0 million in cash.
In conjunction with the sale of the Johnstown Tribune Publishing Company
described below, the Company acquired substantially all the assets used in
the publication of the NORTH ADAMS TRANSCRIPT and the BRIDGETON NEWS, daily
newspapers published in North Adams, Massachusetts, and Bridgeton, New
Jersey, respectively. In conjunction with acquiring the assets of the
BRIDGETON NEWS, the Company also assumed $0.8 million of payments due on
non-competition agreements.
FISCAL 1996
On March 10, 1996, the Company acquired substantially all the assets used
in the publication of the SAN MATEO COUNTY TIMES, a daily newspaper, and five
weekly newspapers published in San Mateo County, California, for
approximately $15.0 million, including obligations to the seller with a
discounted value of approximately $4.3 million and the assumption of
newspaper subscription obligations of approximately $0.7 million.
On August 31, 1995, the Company completed the acquisition of substantially
all the assets used in the publication of THE BERKSHIRE EAGLE, the
BRATTLEBORO REFORMER and the BENNINGTON BANNER, daily newspapers published in
Pittsfield, Massachusetts; Brattleboro, Vermont; and Bennington, Vermont,
respectively, and the MANCHESTER JOURNAL, a weekly newspaper published in
Manchester, Vermont (collectively referred to as "New England Newspapers").
The purchase price consisted of $1.1 million in cash, the assumption of $20.5
million of long-term debt and a covenant not to compete payable to the prior
owners with a discounted value of approximately $2.7 million. In addition,
the Company assumed a working capital deficit of approximately $2.0 million
and an underfunded pension plan liability and other obligations, valued at
approximately $8.3 million.
All the acquisitions described above were accounted for as purchases.
Accordingly, the results of their operations were included since the date of
acquisition. The assets acquired and liabilities assumed have been recorded
at their estimated fair market value at the date of acquisition. The fair
values of the newspapers acquired in fiscal 1998 are based on independent
appraisals and management's best estimate and are subject to change in the
final allocation of the purchase price. The excess of cost over fair value
of net assets acquired and intangible assets related to subscriber lists are
being amortized on a straight line basis over 40 and 15 to 6 years,
respectively.
39
<PAGE>
GARDEN STATE NEWSPAPERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3: ACQUISITIONS AND DISPOSITIONS (CONTINUED)
DISPOSITIONS
FISCAL 1998
On December 5, 1997, the Company sold substantially all the assets used in
the publication of the NORTH JERSEY HERALD & NEWS and sixteen weekly
publications for $43.0 million in cash plus an adjustment for working
capital. The Company recognized a pre-tax gain on the sale of approximately
$31.8 million, net of selling expenses.
FISCAL 1997
On February 13, 1997, the Company sold substantially all the assets used in
the publication of the POTOMAC NEWS and two weekly publications for $47.7
million in cash plus an adjustment for working capital. The Company
recognized a pre-tax gain on the sale of approximately $30.6 million, net of
selling expenses.
FISCAL 1996
On May 1, 1996, Garden State sold the common stock of The Johnstown Tribune
Publishing Company, which publishes THE TRIBUNE-DEMOCRAT, to American
Publishing (1991), Inc. in exchange for $32.6 million in cash and
substantially all the assets used in the publication of the following daily
and weekly newspapers:
<TABLE>
<CAPTION>
Newspaper Location Daily Publication Weekly Publication
------------------ ----------------- ------------------
<S> <C> <C>
Bridgeton, New Jersey BRIDGETON NEWS None
Fort Morgan, Colorado FORT MORGAN TIMES MORGAN TIMES REVIEW(a)
Sterling, Colorado JOURNAL-ADVOCATE J. A. SHOPPER(a)
Lamar, Colorado LAMAR DAILY NEWS TRI-STATE TRADER(a)
Sidney, Nebraska SIDNEY TELEGRAPH HIGH PLAINS SHOPPING GUIDE(a)
North Adams, Massachusetts NORTH ADAMS TRANSCRIPT THE TRANSCRIPT SPORTLIGHT(a)
Akron, Colorado None AKRON NEWS REPORTER(b)
Brush, Colorado None BRUSH NEWS-TRIBUNE(b)
Julesburg, Colorado None JULESBURG ADVOCATE(b)
</TABLE>
- ---------------------------
(a) Free weekly distribution
(b) Paid weekly distribution
In connection with the above newspaper acquisitions, Garden State assumed
non-compete and other long-term obligations with a discounted value of
approximately $1.0 million. In addition, Garden State purchased net working
capital for approximately $1.0 million. As a result of the exchange, Garden
State recognized a pre-tax gain of approximately $8.3 million.
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.
40
<PAGE>
GARDEN STATE NEWSPAPERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3: ACQUISITIONS AND DISPOSITIONS (CONTINUED)
UNAUDITED PRO FORMA OPERATING RESULTS
The following table sets forth the unaudited pro forma operating results had
the July 31, 1997 and January 29, 1998 acquisitions (described above) occurred
as of July 1, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
Revenues $ 470,593 $ 427,947
--------- ---------
--------- ---------
Net Income Before Extraordinary Items $ 27,708 $ 27,027
--------- ---------
--------- ---------
Net Income $ 27,708 $ 18,255
--------- ---------
--------- ---------
</TABLE>
NOTE 4: LONG-TERM DEBT
DEBT RESTRUCTURING
On October 1, 1997 and February 12, 1998, the Company issued $250.0
million and $50.0 million, respectively, of 8.75% Senior Subordinated Notes
due 2009. Proceeds from the sale of these notes of $300.3 million were used
to paydown balances then outstanding under the Company's Bank Credit
Agreement. In conjunction with the issuance of the 8.75% Senior Subordinated
Notes, the Company paid approximately $7.3 million of fees and expenses. The
Company elected to charge the $7.3 million of debt issuance cost to fiscal
year 1998 expense and, accordingly, the cost has been included in other
expense in the accompanying Consolidated Statement of Operations.
As a result of certain refinancing and debt prepayments on October 31,
1996, associated with acquisitions, the Company incurred debt issuance costs
of approximately $4.4 million, and paid approximately $9.5 million of
make-whole premiums to the holders of the senior secured notes, who were
prepaid in full. The make-whole premiums have been included in the
accompanying Consolidated Statements of Operations as an extraordinary loss
net of applicable income tax benefits. The Company elected to charge the $4.4
million of the debt issuance cost to fiscal year 1997 expense and,
accordingly, the cost has been included in other expense in the accompanying
Consolidated Statements of Operations.
LONG-TERM DEBT
LONG-TERM DEBT CONSISTED OF THE FOLLOWING AT EACH YEAR-END:
<TABLE>
<CAPTION>
June 30,
----------------------------
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Bank Credit Agreement . . . . . . . . . . . . . . . . . . . . . . (I) $ 34,000 $211,000
NJNI bank credit facility . . . . . . . . . . . . . . . . . . . . (II) -- 16,750
Various Notes, payable through December, 2002 . . . . . . . . . . (III) 24,988 12,966
12.00% Senior Subordinated Secured Notes due July 1, 2004 . . . . (IV) 100,000 100,000
8.75% Senior Subordinated Notes, due 2009 . . . . . . . . . . . . (V) 300,287 --
9.00% Subordinated Promissory Note . . . . . . . . . . . . . . . (VI) 47,600 --
Notes payable to certain shareholders of ANI . . . . . . . . . . (VII) 2,971 2,629
-------- --------
509,846 343,345
Less current portion of long-term debt . . . . . . . . . . . . . 5,644 6,247
-------- --------
$504,202 $337,098
-------- --------
-------- --------
</TABLE>
41
<PAGE>
GARDEN STATE NEWSPAPERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
I. In conjunction with the October 31, 1996, acquisition previously discussed,
the Company entered into a $285.0 million amended and restated bank credit
facility (the "Bank Credit Agreement") which has been subsequently reduced
to $271.0 million as a result of required annual reductions. The Bank
Credit Agreement is comprised of the following components at June 30, 1998:
a. A $157.0 million Senior Secured Revolving Credit Facility ("RCA") for
acquisition financing which matures on June 30, 2003. The commitment
under RCA is subject to a reduction schedule as follows: $31.0 million
reduction on June 30, 1999; $31.0 million reduction on June 30, 2000
through 2002, and a final maturity on June 30, 2003. As of June 30,
1998, $141.0 million was available under RCA for business
acquisitions. Borrowings under RCA are secured by the asset acquired
with the proceeds of the borrowings under RCA.
b. A $27.0 million Senior Secured Revolving Credit Facility ("RCB") with
sublimits of $7.0 million available for standby letters of credit and
$5.0 million available for same day borrowings under a swingline
facility. No principal payments are required under RCB until March 31,
2004, at which time the commitment is terminated and all then
outstanding balances are due and payable. As of June 30, 1998,
approximately $22.0 million was available under RCB. RCB is secured by
a first priority lien on the common stock and substantially all of the
assets of GSI.
c. A $15.0 million Senior Secured Term Loan ("Term A Loan") with a final
maturity of March 31, 2004. Term A Loan requires quarterly
installments beginning June 30, 2002, with total annual payments of
$3.75 million, $7.5 million and $3.75 million in fiscal years ending
June 30, 2002, 2003 and 2004, respectively. Proceeds from Term A Loan
were used to refinance debt assumed in the August 1995 New England
Newspapers acquisition. Term A Loan is secured by a first priority
lien on substantially all of the assets of New England Newspapers,
Inc.
d. A $72.0 million Senior Secured Revolving Credit Facility ("RCC") with
a final maturity of March 31, 2004. The commitment under RCC requires
quarterly principal payments beginning on September 30, 1997, with
total annual payments of $7.5 million in fiscal years 1999 and 2000,
$12.0 million in fiscal years 2001 and 2002, $14.0 million in 2003 and
$19.0 million in 2004. RCC is secured by a first priority lien on the
common stock and substantially all the assets of GSI.
All borrowings under the Bank Credit Agreement, except loans under the
swingline facility, bear interest at rates based upon, at the Company's
option, Eurodollar or prime, plus a spread based on the Company's leverage.
Borrowings under the swingline facility bear interest at prime plus a
spread based on the Company's leverage. Interest on prime borrowings under
the Bank Credit Agreement is payable quarterly. Interest on Eurodollar
borrowings is due at the end of the applicable interest rate period or
quarterly if the interest rate period exceeds three months. In addition,
the Company pays an annual commitment fee of 0.50% on the unused commitment
under RCA and RCB. If the ratio of total debt to operating cash flow is
less than 4.00 to 1.00, the commitment fee is reduced to 0.375%.
II. In fiscal year 1998, the Company paid off and terminated the NJNI bank
credit facility, in conjunction with the previously discussed sale of the
NORTH JERSEY HERALD & NEWS.
III. In connection with various acquisitions, 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%.
IV. In May, 1994, the Company issued $100.0 million of 12.0% Senior
Subordinated Secured Notes due July 1, 2004. Interest accruing on the 12%
Senior Subordinated Secured Notes is payable semi-annually, in arrears, on
January 1 and July 1. The indebtedness evidenced by the 12% Senior
Subordinated Secured Notes is subordinated and junior in right of payment
to obligations under the Bank Credit Agreement and notes payable to prior
owners. No principal payments are required until July 1, 2004, at which
time the outstanding principal amount is due and payable. The 12% Senior
Subordinated Secured Notes are secured by a second lien on the stock of
GSI, a subsidiary of Garden State and holding company for certain
newspapers of Garden State.
42
<PAGE>
GARDEN STATE NEWSPAPERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4: LONG-TERM DEBT (CONTINUED)
V. On October 1, 1997, and February 12, 1998, the Company issued $250.0
million and $50.0 million, respectively, of 8.75% Senior Subordinated Notes
due 2009. The 8.75% Senior Subordinated Notes were issued at a slight
premium, resulting in net proceeds to the Company of $300.3 million,
excluding related debt issuance cost. Interest accruing on the 8.75%
Senior Subordinated Notes is payable semi-annually in arrears on October 1
and April 1. No principal payments are required until October 1, 2009, at
which time the outstanding principal amount is due and payable. The 8.75%
Senior Subordinated Notes are general unsecured obligations of the Company
ranking PARI PASSU in right of payment with the existing 12.0% Senior
Subordinated Secured Notes and all other future senior subordinated
indebtedness of the Company and senior in right of payment to all existing
and future subordinated indebtedness of the Company, which is made
expressly junior thereto; however, the Company's 12.0% Senior Subordinated
Secured Notes are secured by a second priority lien only on all of the
capital stock of GSI. Secured PARI PASSU debt will, to the extent such
security is then available, have a claim prior to the holders of the Senior
Subordinated Notes with respect to the value of the GSI Stock. The Company
used the net proceeds to reduce bank debt at Garden State.
VI. In the third quarter of fiscal year 1998, the Company entered into a
subordinated note purchase agreement pursuant to which the Company issued a
$47.6 million, 9.0% Subordinated Promissory Note (the "Promissory Note")
due January 31, 2010. Interest accruing on the Promissory Note is payable
quarterly beginning on March 31, 1998, provided that on each interest
payment date occurring on or prior to 2002, the Company may elect to defer
payment of any or all accrued and unpaid interest. However, in calendar
years 2000, 2001 and 2002 the Company must pay the lesser of $3.0 million
or all accrued and unpaid interest due in such year. The Promissory Note
is subordinated and junior in right of payment to the Company's Bank Credit
Agreement, 12.0% Senior Subordinated Secured Notes and the 8.75% Senior
Subordinated Notes. No scheduled principal payments are required until
January 31, 2010, at which time the outstanding principal amount is due and
payable. ANI has guaranteed the Promissory Note. Proceeds from this
Promissory Note were used for acquisition funding.
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.
The Bank Credit Agreement contains certain restrictive covenants which
relate to the incurrence of additional debt, capital expenditures and
distributions. Additionally, the agreement requires the maintenance of
certain financial ratios based on leverage, debt service coverage, interest
coverage and fixed charges coverage.
Maturities of the Company's long-term debt as of June 30, 1998, for the
five fiscal years ending June 30, 2003 and thereafter, are shown below.
<TABLE>
<S> <C>
1999 . . . . . . . . . . . . . . . . . . . . . . . . $ 5,644
2000 . . . . . . . . . . . . . . . . . . . . . . . . 4,856
2001 . . . . . . . . . . . . . . . . . . . . . . . . 4,787
2002 . . . . . . . . . . . . . . . . . . . . . . . . 8,106
2003 . . . . . . . . . . . . . . . . . . . . . . . . 27,925
Thereafter . . . . . . . . . . . . . . . . . . . . . 458,528
--------
$509,846
--------
--------
</TABLE>
Interest paid during the fiscal years ended June 30, 1998, 1997 and 1996
was approximately $36.9 million, $30.8 million and $27.2 million,
respectively.
Letters of credit have been issued in favor of an insurance company
providing workers compensation insurance coverage to the Company totaling
approximately $2.1 million as of June 30, 1998. In addition, the Company
issued approximately $2.5 million of additional letters of credit in support
of its obligations under non-compete agreements entered into in connection
with the August 31, 1995, acquisition.
43
<PAGE>
GARDEN STATE NEWSPAPERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4: LONG-TERM DEBT (CONTINUED)
The fair market value of the 12.0% Senior Subordinated Secured Notes and
the 8.75% Senior Subordinated Notes at June 30, 1998 was approximately $112.0
million and $304.5 million, respectively. 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.
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 June 30, 1998, the interest rate
swap had a market loss of $0.4 million. Upon termination or sale of the
interest rate swap agreement any gain or loss associated with the termination
or sale will be immediately recognized. The Company is exposed to credit loss
related to the interest rate swap to the extent such interest rate swap has a
market gain and the counterparty to the agreement fails to perform under the
agreement. The Company does not anticipate that the counterparty will fail to
meet its obligation because of its high credit rating.
NOTE 5: 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,
-------------------
1998 1997
------ ------
(In thousands)
<S> <C> <C>
Building . . . . . . . . . . . . . . . . . . . . . . $6,934 $6,934
Accumulated amortization . . . . . . . . . . . . . . 2,042 1,811
------ ------
Assets under capital leases, net . . . . . . . . . $4,892 $5,123
------ ------
------ ------
</TABLE>
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 $2.3 million, $2.0 million and $2.1 million
for the fiscal years ended June 30, 1998, 1997 and 1996, respectively.
Contingent rentals are not significant. Future minimum payments on capital
and operating leases are as follows:
<TABLE>
<CAPTION>
Capital Operating
Fiscal Years Ending Leases Leases
------------------- ------- ---------
<S> <C> <C>
(In thousands)
1999 . . . . . . . . . . . . . . . . . . . . . . $ 821 $1,968
2000 . . . . . . . . . . . . . . . . . . . . . . 867 1,973
2001 . . . . . . . . . . . . . . . . . . . . . . 931 1,652
2002 . . . . . . . . . . . . . . . . . . . . . . 931 1,043
2003 . . . . . . . . . . . . . . . . . . . . . . 931 485
Thereafter . . . . . . . . . . . . . . . . . . . 14,972 210
------- ------
Total minimum lease payments . . . . . . . . . 19,453 $7,331
------
------
Less amount representing interest . . . . . . . 11,990
-------
Present value of net future lease payments . . $ 7,463
-------
-------
</TABLE>
44
<PAGE>
GARDEN STATE NEWSPAPERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6: EMPLOYEE BENEFIT PLANS
PENSION PLANS
In conjunction with the July 31, 1997 and the January 29, 1998
acquisitions, the Company assumed overfunded non-contributory defined benefit
pension plans, which covered substantially all the employees at the acquired
newspapers. Shortly after the January 29, 1998 acquisition, the Company
elected to freeze the plan assumed in conjunction with that acquisition.
Accordingly all current service cost under that plan has been terminated.
Participants in the plan assumed in conjunction with the July 31, 1997
acquisition continue to accrue benefits associated with current services,
based on years of service and estimated compensation prior to retirement.
Prior to fiscal year 1998, the Company had assumed a defined benefit
pension plan in conjunction with its August 31, 1995 acquisition. The plan
was frozen in September, 1995, accordingly, all current service costs under
the plan were terminated. As of June 30, 1997, the net present value of
accumulated benefits obligations exceeded the fair market value of plan
assets by approximately $2.0 million. Due to the immateriality of the plan
assets and liabilities in years prior to fiscal year 1998 and the fact that
current benefits were frozen, only current year pension plan disclosures have
been included. The Company's funding policy for all plans is to make the
minimum annual contributions required by the Employee Retirement Income
Security Act of 1974.
The components of net periodic pension for the Company's defined benefit
plans for the year ended June 30, 1998, are as follows:
<TABLE>
<CAPTION>
1998
--------------
(In thousands)
<S> <C>
Service cost-benefits earned during the period. . . . . . . $ 270
Interest cost on projected benefit obligations. . . . . . . 2,358
Return on plan assets . . . . . . . . . . . . . . . . . . . (4,527)
Net amortization and deferral . . . . . . . . . . . . . . . 1,923
-------
Net pension expense . . . . . . . . . . . . . . . . . . . . $ 24
-------
-------
</TABLE>
The following table sets forth the funding status and amounts recognized
in the Company's consolidated balance sheets at June 30, 1998 related to the
Company's defined benefit plans:
<TABLE>
<CAPTION>
1998
--------------
(In thousands)
<S> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligations, including vested benefits
of $43,913, for 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $44,507
-------
-------
Plan assets at fair value comprised of common stocks, bonds and U.S.
Government obligation funds . . . . . . . . . . . . . . . . . . . . . . . . . . 48,434
Projected benefit obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,027
-------
Excess of plan assets over projected benefit obligations . . . . . . . . . . . . . 3,407
Unrecognized gain from past experience different from that assumed . . . . . . . . 860
-------
Net pension asset recognized in the consolidated balance sheets . . . . . . . . . . $ 4,267
-------
-------
</TABLE>
The weighted-average discount rate used in determining the actuarial
present value of the projected benefit obligations was 7.25% for June 30,
1998. The rate of increase in future compensation levels used in determining
the actuarial present value of the projected benefit obligations was 4.0% and
the expected long-term rate of return on plan assets was 8.0% to 8.5%.
45
<PAGE>
GARDEN STATE NEWSPAPERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6: EMPLOYEE BENEFIT PLANS (CONTINUED)
OTHER RETIREMENT PLANS
Garden State and a majority of its newspaper properties participate in
retirement/savings plans and, in addition, contribute to several
multi-employer plans on behalf of certain union-represented employee groups.
Substantially all of Garden State's full-time employees are covered by one of
these plans. Total expense for these plans for the fiscal years ended June
30, 1998, 1997 and 1996, was approximately $2.1 million, $2.1 million, and
$1.4 million, respectively.
In general, Garden State contributes one or two percent of an employee's
salary to the plan for each employee who works at least 1,000 hours annually
and is not covered by a collective bargaining agreement. Garden State, at
its discretion, may contribute an additional one or two percent for each
participant in the plan who makes a voluntary contribution of at least two
percent of his or her salary. Garden State's contribution may be suspended
annually at management's discretion.
NOTE 7: INCOME TAXES
The income tax provision (benefit) for each of the three years ended
June 30, 1998, 1997 and 1996, consists of the following:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Current:
State . . . . . . . . . . . . . . . . . . . . . $ 2,592 $ 3,429 $ 441
Federal . . . . . . . . . . . . . . . . . . . . 3,720 863 76
Deferred:
State . . . . . . . . . . . . . . . . . . . . . 1,062 (213) (695)
Federal . . . . . . . . . . . . . . . . . . . (2,582) (3,013) (1,834)
-------- -------- --------
Net provision (benefit) . . . . . . . . . . . . . $ 4,792 $ 1,066 $ (2,012)
-------- -------- --------
-------- -------- --------
</TABLE>
A reconciliation between the actual income tax expense for financial
statement purposes and income taxes computed by applying the statutory Federal
income tax rate to financial statement earnings before income taxes for the
three years ended June 30, 1998, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Statutory Federal income tax rate 35% 35% (35%)
Effect of:
State income tax net of federal benefit 7 7 22
Utilization of net operating losses (22) (24) (55)
Book/tax basis difference associated with
acquisitions and non-deductible acquisition costs 1 1 (200)
Sales of assets (6) (17) --
Other, net (1) 2 --
---- ---- -----
Financial statement effective tax rate 14% 4% (268%)
---- ---- -----
---- ---- -----
</TABLE>
46
<PAGE>
GARDEN STATE NEWSPAPERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7: INCOME TAXES (CONTINUED)
Components of the long-term deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
June 30,
-------------------------
1998 1997
------- --------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Net operating losses and other credits $14,826 $ 14,566
Other 13,665 8,604
------- --------
28,491 23,170
Valuation allowance (9,273) (14,904)
------- --------
Deferred tax assets 19,218 8,266
Deferred tax liabilities:
Fixed assets 16,624 8,679
Intangibles 14,254 8,391
Other 835 3,712
------- --------
Deferred tax liabilities 31,713 20,782
Net deferred tax liabilities $12,495 $12,516
------- --------
------- --------
</TABLE>
In fiscal years 1998 and 1997, the Company generated federal taxable
income which was offset by operating loss carryforwards. However, since the
Federal tax laws do not allow the Company to completely offset taxable income
with loss carryforwards, the Company did incur alternative minimum tax which
can be carried forward as a credit to future taxes payable. Other deferred
tax assets are the result of timing differences associated with bad debt,
capital leases, deferred compensation and debt issuance cost.
At June 30, 1998, the Company has approximately $27.9 million of net
operating loss carryforwards for tax reporting purposes available to offset
its future taxable income which expire in 2006 through 2011 and $5.1 million
of alternative minimum tax credit carryforwards.
The Company made state and federal income tax payments of approximately
$9.0 million, $3.0 million and $0.6 million during fiscal years 1998, 1997
and 1996, respectively.
NOTE 8: RELATED PARTY TRANSACTIONS
MediaNEWS Group, Inc. ("MNG"), 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 9: COMMITMENTS AND 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.
Under the terms of a newsprint contract, the Company, through MNG, has
agreed to purchase approximately 4,300 tons per month of newsprint at a fixed
price under contracts expiring December 31, 1999 and August 31, 2000.
Management does not expect that it will purchase less than the required
amount; however, if it should default on the purchase obligation, MNG and/or
the Company would be responsible for damages, if any, incurred by the seller.
Based on the above monthly purchases of newsprint the Company is expected to
purchase $27.3 and $17.1 of newsprint during fiscal years 1999 and 2000,
respectively, under these agreements.
47
<PAGE>
GARDEN STATE NEWSPAPERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9: COMMITMENTS AND CONTINGENCIES (CONTINUED)
In fiscal year 1998, in exchange for $2.4 million, Garden State granted
an option to a third party to purchase substantially all the assets used in
the publication of a certain newspaper beginning in 2003 and expiring in 2010
at the newspapers fair market value. The holder of the option can also
require Garden State to repurchase the option anytime beginning in 2003
through 2010, based on a fixed formula. If the option holder has not
exercised the option by the twelfth anniversary of the option grant, Garden
State must repurchase the option based on the same fixed formula.
NOTE 10: SUBSEQUENT EVENTS
ACQUISITION
On August 22, 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 JOA. Charleston Newspapers has
daily and Sunday circulation of approximately 93,000 and 102,000,
respectively, as of March 31, 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 RCC of the
Company's Bank Credit Agreement.
The Company has agreed to acquire substantially all the assets used in
the publication of a morning newspaper in New Mexico. The assets will be
purchased for $5.0 million in cash, a note with a discounted value of $7.7
million, plus a covenant not to compete with the prior owners with a
discounted value of approximately $3.2 million. The cash portion of the
acquisition will be funded with borrowings under the Company's Bank Credit
Agreement. The newspaper has daily and Sunday circulation of approximately
17,000 and 18,000, respectively as of March 31, 1998. Closing is expected
to occur on September 30, 1998.
The acquisitions above will be accounted for as purchases; accordingly,
the consolidated financial statements will include the operations of the
acquired newspapers from the date of acquisition.
LONG-TERM DEBT
In the first quarter of fiscal 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 will be 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.
48
<PAGE>
GARDEN STATE NEWSPAPERS, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FISCAL YEARS ENDED JUNE 30, 1998, 1997 AND 1996
(In thousands)
<TABLE>
<CAPTION>
Balance at Additions Balance at
Beginning of charged to Net Acquisitions End of
Period Expense, Net Deductions (Dispositions) Period
------------ ------------ ---------- -------------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1998
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful
accounts $4,252 $4,596 $3,636 $1,027 $6,239
YEAR ENDED JUNE 30, 1997
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful
accounts $2,426 $3,567 $3,595 $1,854 $4,252
YEAR ENDED JUNE 30, 1996
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful
accounts $1,931 $2,510 $2,474 $ 459 $2,426
</TABLE>
49
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Garden State Investments, Inc.
We have audited the accompanying consolidated balance sheets of Garden
State Investments, Inc. and subsidiaries (the "Company") as of June 30, 1998
and 1997, and the related consolidated statements of operations, changes in
shareholder's equity (deficit), and cash flows for each of the three years in
the period ended June 30, 1998. Our audits also included the financial
statement schedule II. These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audits.
We conducted the 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 Investments, Inc. and subsidiaries at June 30, 1998 and 1997,
and the consolidated results of their operations and their cash flows for
each of the three years in the period ended June 30, 1998, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
ERNST & YOUNG LLP
Denver, Colorado
September 4, 1998
50
<PAGE>
GARDEN STATE INVESTMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
--------------------------
ASSETS 1998 1997
-------- --------
(In thousands)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents.................................................... $ 996 $ 7,736
Trade accounts receivable, less allowance for doubtful accounts of
$3,226 and $2,696 at June 30, 1998 and 1997, respectively................... 29,367 27,280
Receivable from affiliates and parent........................................ 29,191 3,888
Other receivables ........................................................... 1,504 1,150
Inventories of newsprint and supplies........................................ 4,261 5,315
Prepaid expenses and other assets........................................... 2,712 3,011
Income tax receivable........................................................ 694 --
-------- --------
TOTAL CURRENT ASSETS...................................................... 68,725 48,380
PROPERTY, PLANT AND EQUIPMENT
Land......................................................................... 5,485 4,954
Buildings and improvements................................................... 39,467 37,138
Machinery and equipment...................................................... 98,622 96,851
-------- --------
TOTAL PROPERTY, PLANT AND EQUIPMENT..................................... 143,574 138,943
Less accumulated depreciation and amortization............................... 57,752 56,233
-------- --------
NET PROPERTY, PLANT AND EQUIPMENT....................................... 85,822 82,710
OTHER ASSETS
Investment in partnership.................................................... 7,479 6,365
Subscriber accounts, less accumulated amortization of
$48,260 and $44,466 at June 30, 1998 and 1997, respectively................ 52,919 50,924
Excess of cost over fair value of net assets acquired, less
accumulated amortization of $14,330 and $11,468 at
June 30, 1998 and 1997, respectively ...................................... 107,934 84,401
Covenants not to compete and other identifiable intangible
assets, less accumulated amortization of $17,669 and
$15,861 at June 30, 1998 and 1997, respectively............................ 5,686 6,685
Other........................................................................ 1,351 1,985
-------- --------
TOTAL OTHER ASSETS........................................................ 175,369 150,360
-------- --------
TOTAL ASSETS................................................................... $329,916 $281,450
-------- --------
-------- --------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
51
<PAGE>
<TABLE>
<CAPTION>
June 30,
--------------------------
1998 1997
-------- --------
(In thousands, except share data)
<S> <C> <C>
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)
CURRENT LIABILITIES
Trade accounts payable................................................... $ 4,962 $ 5,712
Accrued employee compensation............................................ 7,714 5,134
Accrued interest......................................................... 8,135 7,671
Other accrued liabilities................................................ 13,765 6,913
Unearned income.......................................................... 9,627 8,378
Income taxes............................................................ -- 1,256
Current portion of long-term debt and obligations under capital leases... 2,520 6,247
-------- --------
TOTAL CURRENT LIABILITIES................................. 46,723 41,311
OBLIGATIONS UNDER CAPITAL LEASES............................................ 7,484 7,477
LONG-TERM DEBT.............................................................. 240,307 230,586
OTHER LIABILITIES........................................................... 3,379 5,092
DEFERRED INCOME TAXES....................................................... 13,081 12,215
SHAREHOLDER'S EQUITY (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................................................ 34,734 34,734
Deficit................................................................... (15,793) (49,966)
-------- --------
TOTAL SHAREHOLDER'S EQUITY (DEFICIT)...................... 18,942 (15,231)
-------- --------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)........................ $329,916 $281,450
-------- --------
-------- --------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
52
<PAGE>
GARDEN STATE INVESTMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Fiscal Years Ended June 30,
----------------------------------
1998 1997 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
REVENUES
Advertising.................................... $230,175 $209,541 $197,954
Circulation.................................... 42,957 38,707 39,930
Other.......................................... 10,104 8,734 7,546
-------- -------- --------
TOTAL REVENUES............................. 283,236 256,982 245,430
COSTS AND EXPENSES
Cost of sales.................................. 100,824 92,274 98,469
Selling, general and administrative............ 114,894 107,283 100,230
Management fees................................ 682 1,550 2,008
Depreciation and amortization.................. 25,497 20,688 21,841
Interest expense............................... 27,641 27,079 29,345
Other.......................................... 5,334 5,151 4,511
-------- -------- --------
TOTAL COSTS AND EXPENSES................... 274,872 254,025 256,404
GAIN ON SALE OF NEWSPAPER PROPERTY............... 31,829 30,575 8,291
-------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY LOSS......................... 40,193 33,532 (2,683)
INCOME TAX BENEFIT (EXPENSE)..................... (6,020) (426) 2,012
-------- -------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY LOSS......... 34,173 33,106 (671)
EXTRAORDINARY LOSS (net of taxes of $689)........ -- 8,772 --
-------- -------- --------
NET INCOME (LOSS)................................ $ 34,173 $ 24,334 $ (671)
-------- -------- --------
-------- -------- --------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
53
<PAGE>
GARDEN STATE INVESTMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY (DEFICIT)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN- SHAREHOLDER'S
STOCK CAPITAL DEFICIT EQUITY (DEFICIT)
----- ---------- ------- ----------------
(In thousands)
<S> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1995 ................... $1 $34,734 $(73,629) $(38,894)
Loss ..................................... -- -- (671) (671)
-- ------- -------- --------
BALANCE AT JUNE 30, 1996 ................... 1 34,734 (74,300) (39,565)
Net income ............................... -- -- 24,334 24,334
-- ------- -------- --------
BALANCE AT JUNE 30, 1997 ................... 1 34,734 (49,966) (15,231)
Net income ............................... -- -- 34,173 34,173
-- ------- -------- --------
BALANCE AT JUNE 30, 1998 ................... $1 $34,734 $(15,793) $ 18,942
-- ------- -------- --------
-- ------- -------- --------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
54
<PAGE>
GARDEN STATE INVESTMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Fiscal Years Ended June 30,
-----------------------------------
1998 1997 1996
---- ---- ----
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .............................. $ 34,173 $ 24,334 $ (671)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation ................................. 11,639 9,269 9,762
Amortization ................................. 13,234 10,211 11,499
Gain on sale of newspaper assets ............. (31,820) (30,579) (8,621)
Provision for losses on accounts receivable .. 2,737 2,538 2,510
Amortization of debt discount ................ 1,741 2,060 1,696
Debt issue cost and repurchase premiums ...... 2,244 11,327 1,092
Distributions in excess of (less than)
earnings from investment in partnership .... (1,114) 23 (610)
Deferred income tax benefit .................. (609) (3,527) (2,529)
Deferred interest ............................ 2,335 2,100 1,931
Change in operating assets and liabilities:
Accounts receivable ........................ (1,109) (4,278) (3,403)
Inventories ................................ 2,235 (1,146) 1,799
Prepaid expense and other assets ........... 939 (308) (558)
Accounts payable and accrued liabilities ... (4,243) 2,539 (5,047)
Unearned income ............................ (458) 703 22
Affiliate account balances ................. (25,303) (2,365) 303
Other assets and liabilities ............... 3,447 (350) (517)
Other ...................................... (74) (170) --
--------- --------- --------
NET CASH FLOWS FROM OPERATING ACTIVITIES.. 10,142 22,381 8,658
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of newspaper property and other assets .... 43,030 47,776 50,647
Business acquisitions .......................... (49,768) (55,573) (35,668)
Purchase of machinery and equipment ............ (7,206) (8,267) (8,079)
--------- --------- --------
NET CASH FLOWS FROM INVESTING ACTIVITIES.. (13,944) (16,064) 6,900
CASH FLOW FROM FINANCING ACTIVITIES:
Issuance of long-term debt ..................... 103,914 132,064 37,300
Reduction of long-term debt .................... (102,470) (120,773) (60,240)
Reduction of non-operating liabilities ......... (2,138) (2,960) (4,194)
Debt issuance cost and repurchase premiums...... (2,244) (11,327) (1,092)
--------- --------- --------
NET CASH FLOWS FROM FINANCING ACTIVITIES.. (2,938) (2,996) (28,226)
--------- --------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.. (6,740) 3,321 (12,668)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.... 7,736 4,415 17,083
--------- --------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR.......... $ 996 $ 7,736 $ 4,415
--------- --------- --------
--------- --------- --------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
55
<PAGE>
GARDEN STATE INVESTMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Garden State
Investments, Inc. (the "Company" or "GSI"). All intercompany accounts have been
eliminated. The Company is a wholly owned subsidiary of Garden State Newspapers,
Inc. ("Garden State").
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 6 to 15 years, with a weighted average remaining life based
on the dates of acquisitions of 9 years. Other intangibles recognized are being
amortized using the straight-line method, generally over periods not exceeding
10 years.
LONG-LIVED ASSETS
The carrying value of long-lived assets is reviewed annually; 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.
56
<PAGE>
GARDEN STATE INVESTMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS (CONTINUED)
INCOME TAXES
The Company files a consolidated tax return with Affiliated Newspapers
Investments, Inc. ("ANI"), the parent of Garden State. 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 basis of existing assets and
liabilities.
USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles at times requires the use of estimates and
assumptions that affect the reported amount of assets, liabilities, revenues
and expenses. Actual results could differ from these estimates.
NOTE 2: INVESTMENT IN PARTNERSHIP
Effective March 1990, York Newspapers, Inc. ("YNI"), a subsidiary of the
Company, entered into a general partnership; York Newspaper Company (the
"Agency"), with York Daily Record, Inc. ("YDR"). YNI, YDR and the Agency entered
into a joint operating agreement 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 consolidated balance
sheets under the equity method. The Company's investment in the Agency, which
originally represented the net book value of assets and liabilities contributed
to the Agency, was approximately $7.5 million and $6.4 million in fiscal years
ended June 30, 1998 and 1997, respectively. The Agency made cash distributions
to YNI in the amount of $7.3 million, $7.2 million and $4.9 million in fiscal
years 1998, 1997 and 1996.
In September 1996, the Company signed a call/put agreement under which YNI
can purchase YDR's interest in the Agency or YDR can put its interest in the
Agency to YNI. The base call and put price is $32.0 million and $25.0 million,
respectively, and is adjusted annually based on changes in the consumer price
index (not to exceed 2-1/2%). The call option may be exercised on January 1,
2004 and expires on January 1, 2005. The put may be exercised at any time after
the expiration of the call through June 30, 2008.
The Company is not currently responsible for any liabilities of the Agency,
contingent or otherwise. Management believes that the Agency is well capitalized
and does not anticipate the Agency requiring any capital contributions from its
partners in the near future.
NOTE 3: ACQUISITIONS AND DISPOSITIONS
ACQUISITIONS
FISCAL 1998
On May 1, 1998, the Company acquired substantially all the assets used in
the publication of the VALLEY NEWS TODAY, a morning newspaper published five
times a week in Shenandoah, Iowa and three weekly publications distributed
primarily in Shenandoah and Dennison, Iowa. These assets were purchased for
approximately $5.1 million in cash plus an adjustment for working capital and
covenant not to complete with the prior owners, with a discounted value of
approximately $0.6 million.
57
<PAGE>
GARDEN STATE INVESTMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3: ACQUISITIONS AND DISPOSITIONS (CONTINUED)
On December 16, 1997, the Company acquired substantially all the assets
used in the publication of the PRESS-TELEGRAM, a daily newspaper published in
Long Beach, California, for approximately $38.2 million in cash, plus an
adjustment for working capital. Proceeds from the sale of the NORTH JERSEY
HERALD & NEWS (discussed below) were used to fund the acquisition.
FISCAL 1997
On February 28, 1997, the Company acquired substantially all the assets
used in the publication of the SENTINEL & ENTERPRISE, LEBANON DAILY NEWS and THE
DAILY NONPAREIL, daily newspapers located in Fitchburg and Leominster,
Massachusetts; Lebanon, Pennsylvania; and Council Bluffs, Iowa, respectively,
and five weekly newspapers distributed in and around the same cities, for a
total of approximately $51.2 million in cash. Proceeds from the sale of the
POTOMAC NEWS (discussed below) and borrowings under the Company's Bank Credit
Agreement were used to fund the acquisition.
FISCAL 1996
In conjunction with the sale of the Johnstown Tribune Publishing Company
described below, the Company acquired substantially all the assets used in the
publication of the NORTH ADAMS TRANSCRIPT and the BRIDGETON News, daily
newspapers published in North Adams, Massachusetts, and Bridgeton, New Jersey,
respectively. In conjunction with acquiring the assets of the BRIDGETON NEWS,
the Company also assumed $0.8 million of payments due on non-competition
agreements.
On March 10, 1996, the Company acquired substantially all the assets used
in the publication of the SAN MATEO COUNTY TIMES, a daily newspaper, and five
weekly newspapers published in San Mateo County, California, for approximately
$15.0 million, including obligations to the seller with a discounted value of
approximately $4.3 million and the assumption of newspaper subscription
obligations of approximately $0.7 million.
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.
All the acquisitions described above were accounted for as purchases.
Accordingly, the results of their operations were included since the date of
acquisition. The assets acquired and liabilities assumed have been recorded at
their estimated fair market value at the date of acquisition. The fair values of
the newspapers acquired in fiscal 1998 are based on independent appraisals and
management's best estimate and are subject to change in the final allocation of
the purchase price. The excess of cost over fair value of net assets acquired
and intangible assets related to subscriber lists are being amortized on a
straight line basis over 40 and 15 to 6 years, respectively.
DISPOSITIONS
FISCAL 1998
On December 5, 1997, the Company sold substantially all the assets used in
the publication of the NORTH JERSEY HERALD & NEWS and sixteen weekly
publications for $43.0 million in cash plus an adjustment for working capital.
The Company recognized a pre-tax gain on the sale of approximately $31.8
million, net of selling expenses.
58
<PAGE>
GARDEN STATE INVESTMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3: ACQUISITIONS AND DISPOSITIONS (CONTINUED)
DISPOSITIONS (CONTINUED)
FISCAL 1997
On February 13, 1997, the Company sold substantially all the assets used in
the publication of the POTOMAC NEWS and two weekly publications for $47.7
million in cash plus an adjustment for working capital. The Company recognized a
pre-tax gain on the sale of approximately $30.6 million, net of selling
expenses.
FISCAL 1996
On May 1, 1996, the Company sold the common stock of The Johnstown Tribune
Publishing Company, which publishes THE TRIBUNE-DEMOCRAT, to American Publishing
(1991), Inc. in exchange for $32.6 million in cash and substantially all the
assets used in the publication of the following daily and weekly newspapers:
<TABLE>
<CAPTION>
Newspaper Location Daily Publication Weekly Publication
- -------------------------- ----------------- -----------------------------
<S> <C> <C>
Bridgeton, New Jersey BRIDGETON NEWS None
Fort Morgan, Colorado FORT MORGAN TIMES MORGAN TIMES REVIEW(a)
Sterling, Colorado JOURNAL-ADVOCATE J.A. SHOPPER(a)
Lamar, Colorado LAMAR DAILY NEWS TRI-STATE TRADER(a)
Sidney, Nebraska SIDNEY TELEGRAPH HIGH PLAINS SHOPPING GUIDE(a)
North Adams, Massachusetts NORTH ADAMS TRANSCRIPT THE TRANSCRIPT SPOTLIGHT(a)
Akron, Colorado None AKRON NEWS REPORTER(b)
Brush, Colorado None BRUSH NEWS-TRIBUNE(b)
Julesburg, Colorado None JULESBURG ADVOCATE(b)
</TABLE>
- --------------------------
(a) Free weekly distribution
(b) Paid weekly distribution
In connection with the above newspaper acquisitions, the Company assumed
non-compete and other long-term obligations with a discounted value of
approximately $1.0 million. In addition, the Company purchased net working
capital for approximately $1.0 million. As a result of the exchange, the Company
recognized a pre-tax gain of approximately $8.3 million.
Immediately after the purchase of the above described newspapers, the
Company 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.
NOTE 4: LONG-TERM DEBT
For purposes of these financial statements, certain long-term debt
obligations of Garden State have been allocated to the Company in conjunction
with purchase accounting. Below is a description and the terms of the long-term
debt allocated to the Company as well as obligations of the Company's
subsidiaries.
59
<PAGE>
GARDEN STATE INVESTMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4: LONG-TERM DEBT (CONTINUED)
DEBT RESTRUCTURING
On October 1, 1997 and February 12, 1998, Garden State issued $250.0
million and $50.0 million, respectively, of 8.75% Senior Subordinated Notes due
2009. Proceeds from the sale of these notes of $300.3 million were used to
paydown balances then outstanding under the Garden State Bank Credit Agreement.
In conjunction with the issuance of the 8.75% Senior Subordinated Notes Garden
State paid approximately $7.3 million of fees and expenses of which $2.2 million
was allocated to the Company. The Company elected to charge the debt issuance
cost to fiscal year 1998 expense and, accordingly, the cost has been included in
other expense in the accompanying Consolidated Statement of Operations.
As a result of certain refinancing and debt prepayments on October 31,
1996, Garden State allocated to the Company debt issuance costs of approximately
$1.9 million. In addition, the Company paid approximately $9.5 million of
make-whole premiums to the holders of the senior secured notes, who were prepaid
in full. The make-whole premiums have been included in the accompanying
Consolidated Statements of Operations as an extraordinary loss net of applicable
income tax benefits. The Company elected to charge the $1.9 million of debt
issuance cost to fiscal year 1997 expense and accordingly, the cost has been
included in other expense in the accompanying Consolidated Statements of
Operations.
LONG-TERM DEBT
Allocated long-term debt consisted of the following at each year end:
<TABLE>
<CAPTION>
June 30,
---------------------
1998 1997
-------- --------
(In thousands)
<S> <C> <C> <C>
Bank Credit Agreement....................................... (I) $ 12,600 $ 83,614
NJNI bank credit facility................................... (II) -- 16,750
Various Notes, payable through December 2002................ (III) 11,565 12,966
12.00% Senior Subordinated Secured Notes, Due July 1, 2004.. (IV) 100,000 100,000
8.75% Senior Subordinated Notes, due 2009................... (V) 92,482 --
Notes payable to certain shareholders of ANI................ (VI) 2,971 2,629
Subordinated Term Note to Parent............................ (VII) 23,209 20,874
-------- --------
242,827 236,833
Less current portion of long-term debt...................... 2,520 6,247
-------- --------
$240,307 $230,586
-------- --------
-------- --------
</TABLE>
I. In conjunction with the October 31, 1996, refinancing previously discussed,
Garden State entered into an amended and restated bank credit facility (the
"Bank Credit Agreement"). The following components of the Bank Credit
Agreement are secured by certain assets of the Company at June 30, 1998:
a. A $27.0 million Senior Secured Revolving Credit Facility ("RCB")
with sublimits of $7.0 million available for standby letters of
credit and $5.0 million available for same day borrowings under a
swingline facility. No principal payments are required under RCB
until March 31, 2004, at which time the commitment is terminated
and all then outstanding balances are due and payable. As of June
30, 1998, approximately $22.0 million was available under RCB.
RCB is secured by a first priority lien on the common stock and
substantially all of the assets of GSI.
60
<PAGE>
GARDEN STATE INVESTMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4: LONG-TERM DEBT (CONTINUED)
b. A $15.0 million Senior Secured Term Loan ("Term A Loan") with a
final maturity of March 31, 2004. Term A Loan requires quarterly
installments beginning June 30, 2002, with total annual payments
of $3.75 million, $7.5 million and $3.75 million in fiscal years
ending June 30, 2002, 2003 and 2004, respectively. Proceeds from
Term A Loan were used to refinance debt assumed in the August
1995 New England Newspapers acquisition. Term A Loan is secured
by a first priority lien on substantially all of the assets of
New England Newspapers, Inc.
c. A $72.0 million Senior Secured Revolving Credit Facility ("RCC")
with a final maturity of March 31, 2004. The commitment under RCC
requires quarterly principal payments beginning on September 30,
1997, with total annual payments of $7.5 million in fiscal years
1999 and 2000, $12.0 million in fiscal years 2001 and 2002, $14.0
million in 2003 and $19.0 million in 2004. RCC is secured by a
first priority lien on the common stock and substantially all the
assets of GSI.
All borrowings under the Bank Credit Agreement, except loans
under the swingline facility, bear interest at rates based upon,
at Garden State's option, Eurodollar or prime, plus a spread
based on Garden State's leverage. Borrowings under the swingline
facility bear interest at prime plus a spread based on Garden
State's leverage. Interest on prime borrowings under the Bank
Credit Facility is payable quarterly. Interest on Eurodollar
borrowings is due at the end of the applicable interest rate
period or quarterly if the interest rate period exceeds three
months. In addition, the Company and Garden State pay an annual
commitment fee of 0.50% on the unused commitment under RCB. If
the ratio of Garden State total debt to operating cash flow is
less than 4.00 to 1.00, the commitment fee is reduced to 0.375%.
II. In fiscal year 1998, the Company paid off and terminated the NJNI Bank
Credit Facility, in conjunction with the previously discussed sale of the
NORTH JERSEY HERALD & NEWS.
III. In connection with various acquisitions, Garden State and the Company have
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%.
IV. In May 1994, Garden State issued $100.0 million of 12.0% Senior
Subordinated Secured Notes due July 1, 2004. Interest accruing on the
Senior Subordinated Secured Notes is payable semi-annually, in arrears, on
January 1 and July 1. The indebtedness evidenced by the 12.0% Senior
Subordinated Secured Notes is subordinated and junior in right of payment
to obligations under the Bank Credit Agreement and notes payable to prior
owners. No principal payments are required until July 1, 2004, at which
time the outstanding principal amount is due and payable. The 12.0% Senior
Subordinated Secured Notes are secured by a second lien on the stock of the
Company.
V. On October 1, 1997, and February 12, 1998, Garden State issued $250.0
million and $50.0 million, respectively, of 8.75% Senior Subordinated Notes
due 2009. The 8.75% Senior Subordinated Notes were issued at a slight
premium resulting in net proceeds to Garden State of $300.3 million,
excluding related debt issuance cost. Interest accruing on the 8.75% Senior
Subordinated Notes is payable semi-annually in arrears on October 1 and
April 1. No principal payments are required until October 1, 2009, at which
time the outstanding principal amount is due and payable. The 8.75% Senior
Subordinated Notes are general unsecured obligations of Garden State
ranking PARI PASSU in right of payment with the existing Senior
Subordinated Secured Notes and all other future senior subordinated
indebtedness of Garden State and senior in right of payment to all existing
and future subordinated indebtedness of Garden State, which is made
expressly junior thereto; however, the Company's 12.0% Senior Subordinated
Secured Notes are secured by a second priority lien only on all of the
capital stock of GSI. Secured PARI PASSU debt will, to the extent such
security is then available, have a claim prior to the holders of the 8.75%
Senior Subordinated Notes with respect to the value of the GSI Stock.
Garden State used the net proceeds to reduce bank debt at Garden State.
61
<PAGE>
GARDEN STATE INVESTMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4: LONG-TERM DEBT (CONTINUED)
VI. 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.
VII. In May 1994, North Jersey Newspapers Company ("NJNCO"), a subsidiary of
NJNI, issued a $15.0 million subordinated term note to Garden State. The
subordinated term note bears interest at 10.89% compounded semi-annually.
As of June 30, 1998 and 1997, no interest payments have been made on this
note and, accordingly, $8.2 million and $5.9 million, respectively, of
accrued and unpaid interest has been included in the balance.
The Bank Credit Agreement contains certain restrictive covenants which relate to
the incurrence of additional debt, capital expenditures and distributions.
Additionally, the agreement requires the maintenance of certain financial ratios
based on leverage, debt service coverage, interest coverage and fixed charges
coverage.
Maturities of long-term debt as of June 30, 1998, for the five fiscal years
ending June 30, 2003 and thereafter, are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1999........................ $ 2,520
2000........................ 2,727
2001........................ 2,422
2002........................ 5,475
2003........................ 7,348
Thereafter.................. 222,335
--------
$242,827
--------
--------
</TABLE>
Interest paid during the fiscal years ended June 30, 1998, 1997 and 1996
was approximately $21.5 million, $24.0 million and $27.2 million, respectively.
Letters of credit have been issued in favor of an insurance company
providing workers compensation insurance coverage to Garden State totaling
approximately $2.1 million as of June 30, 1998. In addition, the Company issued
approximately $2.5 million of additional letters of credit in support of its
obligations under non-compete agreements entered into in connection with the
August 31, 1995, acquisition.
The fair market value of the 12.0% Senior Subordinated Secured Notes and
the 8.75% Senior Subordinated Notes at June 30, 1998 was approximately $112.0
million and $93.9 million, respectively. 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 of 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.
INTEREST RATE SWAPS
Effective April 1, 1997, Garden State entered into a two-year interest rate
swap agreement with a notional principal amount of $50.0 million and a fixed
annual interest rate of 6.455%, plus the applicable spread. Garden State uses
interest rate swaps to manage its floating rate debt to minimize, in part,
Garden State's exposure to the uncertainty of floating interest rates. Garden
State accounts for the differences paid or received under this agreement as an
adjustment to interest expense. As of June 30, 1998, the interest rate swap had
a market loss of $0.4 million. Upon termination of the hedge or sale of the
interest rate swap agreement, any
62
<PAGE>
GARDEN STATE INVESTMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTEREST RATE SWAPS (CONTINUED)
gain or loss associated with the termination or sale will be immediately
recognized. Garden State is exposed to credit loss related to the interest rate
swap to the extent such interest rate swap has a market gain and the
counterparty to the agreement fails to perform under the agreement. Garden State
does not anticipate that the counterparty will fail to meet its obligation
because of its high credit rating.
NOTE 5: LEASES
A subsidiary of 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,
-----------------
1998 1997
------- -------
(In thousands)
<S> <C> <C>
Building.................................. $ 6,934 $ 6,934
Accumulated amortization.................. 2,042 1,811
------- -------
Assets under capital leases, net........ $ 4,892 $ 5,123
------- -------
------- -------
</TABLE>
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 $1.8 million, $1.9 million and $2.1 million for
the fiscal years ended June 30, 1998, 1997 and 1996, respectively. Contingent
rentals are not significant. Future minimum payments on capital and operating
leases are as follows:
<TABLE>
<CAPTION>
Fiscal Years Ending Capital Operating
------------------- Leases Leases
------- ---------
(In thousands)
<S> <C> <C>
1999.............................................. $ 821 $ 1,563
2000.............................................. 867 1,561
2001.............................................. 931 1,285
2002.............................................. 931 751
2003.............................................. 931 309
Thereafter........................................ 14,972 --
------- --------
Total minimum lease payments................... 19,453 $ 5,469
--------
--------
Less amount representing interest................ 11,990
-------
Present value of net future lease payments..... $ 7,463
-------
-------
</TABLE>
NOTE 6: 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 one of these plans. Total
expense for these plans for the fiscal years ended June 30, 1998, 1997 and 1996,
was approximately $1.8 million, $1.9 million, and $1.4 million, respectively.
In general, the Company contributes one or two percent of an employee's
salary to the plan for each employee who works at least 1,000 hours annually and
is not covered by a collective bargaining agreement. The Company, at its
discretion, may contribute an additional one or two percent for each participant
in the plan who makes a voluntary contribution of at least two percent of his or
her salary. The Company's contribution may be suspended annually at management's
discretion.
63
<PAGE>
GARDEN STATE INVESTMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7: INCOME TAXES
The income tax provision (benefit) for each of the three years ended
June 30, 1998, 1997 and 1996, consists of the following:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
State ............... $ 2,367 $ 3,221 $ 441
Federal ............. 4,261 773 76
Deferred:
State ............... 112 (769) (695)
Federal ............. (721) (2,799) (1,834)
------- ------- -------
Net (benefit) provision $ 6,019 $ 426 $(2,012)
------- ------- -------
------- ------- -------
</TABLE>
A reconciliation between the actual income tax expense for financial
statement purposes and income taxes computed by applying the statutory
Federal income tax rate to financial statement earnings before income
taxes for the three years ended June 30, 1998, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- -----
<S> <C> <C> <C>
Statutory Federal income tax rate ....................... 35% 35% (35%)
Effect of:
State income tax net of federal benefit ............ 4 5 22
Utilization of net operating losses ................ (16) (25) (55)
Book/tax basis difference associated with
acquisitions and non-deductible acquisition costs 1 1 (200)
Sales of assets .................................... (5) (18) --
Extraordinary loss ................................. -- 3 --
Other, net ......................................... (4) 1 --
---- ---- -----
Financial statement effective tax rate .................. 15% 2% (268%)
---- ---- -----
---- ---- -----
</TABLE>
Components of the long-term deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
June 30,
1998 1997
------- --------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Net operating losses and other credits.......................... $10,673 $ 14,258
Other........................................................... 9,435 7,648
------- --------
20,108 21,906
Valuation allowance............................................. (9,109) (14,947)
------- --------
Deferred tax assets............................................. 10,999 6,959
Deferred tax liabilities:
Fixed assets.................................................... 11,085 7,583
Intangibles..................................................... 12,178 8,241
Other........................................................... 817 3,350
------- --------
Deferred tax liabilities........................................ 24,080 19,174
------- --------
Net deferred tax liabilities....................................... $13,081 $ 12,215
------- --------
------- --------
</TABLE>
64
<PAGE>
GARDEN STATE INVESTMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7: INCOME TAXES (CONTINUED)
In fiscal years 1998 and 1997, the Company generated federal taxable
income which was offset by operating loss carryforwards. However, since the
federal tax laws do not allow the Company to completely offset taxable income
with loss carryforwards, the Company did incur alternative minimum tax which
can be carried forward as a credit to future taxes payable. Other deferred
tax assets are the result of timing differences associated with bad debt
allowances, capital leases and acquisition related items. The Company's
current year utilization of operating loss carryforwards also reduced the
Company's valuation allowance by $16.0 million, which was recorded as a
benefit in current year income tax expense.
At June 30, 1998, Garden State has approximately $27.9 million of net
operating loss carryforwards for tax reporting purposes available to offset
its future taxable income which expire in 2006 through 2011 and $5.1 million
of alternative minimum tax credit carryforwards.
The Company and Garden State made state and federal income tax payments
of approximately $9.0 million, $3.0 million and $0.6 million during fiscal
years 1998, 1997 and 1996, respectively.
NOTE 8: RELATED PARTY TRANSACTIONS
MediaNEWS Group, Inc., an affiliate of ANI, provides management services
to Garden State and the Company. Management fees charged to Garden State by
MediaNEWS Group are allocated to the individual newspaper operations based on
the revenues of the newspaper operations. Related management fees are shown
on the accompanying consolidated statements of operations.
NOTE 9: COMMITMENTS AND 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.
Under the terms of a newsprint contract, the Company and Garden State,
through MNG, has agreed to purchase approximately 4,300 tons per month of
newsprint at a fixed price under contracts expiring December 31, 1999 and
August 31, 2000. Management does not expect that it will purchase less than
the required amount; however, if it should default on the purchase
obligation, MNG, Garden State and/or the Company would be responsible for
damages, if any, incurred by the seller.
NOTE 10: SUBSEQUENT EVENTS
On August 22, 1998 the Company acquired a 50% interest in Charleston
Newspapers, a joint venture, which publishes the CHARLESTON GAZETTE
(morning), and CHARLESTON DAILY MAIL (evening) newspapers, six days a week
and the SUNDAY GAZETTE-MAIL, under the terms of a JOA. The acquisition
included rights to the masthead of the CHARLESTON DAILY MAIL; thus, the
Company is responsible for the editorial content of the CHARLESTON DAILY
MAIL. Charleston Newspapers had daily and Sunday circulation of approximately
93,000 and 102,000, respectively, as of March 31, 1998. The acquisition price
of approximately $47.0 million was funded with borrowings under the Company's
Bank Credit Agreement.
65
<PAGE>
GARDEN STATE INVESTMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10: SUBSEQUENT EVENTS (CONTINUED)
Garden State has agreed to acquire substantially all the assets used in
the publication of a morning newspaper in New Mexico. The assets will be
purchased for $5.0 million in cash, a note with a discounted value of $7.7
million, plus a covenant not to compete with the prior owners with a
discounted value of approximately $3.2 million. The newspaper has daily and
Sunday circulation of approximately 17,000 and 18,000 , respectively. Closing
is expected to occur on September 30, 1998.
The acquisitions above will be accounted for as purchases; accordingly,
the consolidated financial statements will include the operations of the
acquired newspapers from the date of acquisition.
LONG-TERM DEBT
In the first quarter of fiscal year 1999, Garden State repurchased $36.0
million of its 12% Senior Subordinated Secured Notes at a premium of
approximately $3.6 million. The premium will be recognized as an
extraordinary loss in the first quarter of fiscal year 1999. Proceeds from
borrowings under RCC and RCB of Garden State's Bank Credit Agreement were
used to repurchase the 12.0% Senior Subordinated Secured Notes.
66
<PAGE>
GARDEN STATE INVESTMENTS, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FISCAL YEARS ENDED JUNE 30, 1998, 1997 AND 1996
(In thousands)
<TABLE>
<CAPTION>
Balance at Additions Balance at
Beginning of Charged to Net Acquisitions End of
Period Expense, Net Deductions (Dispositions) Period
------------ ------------ ---------- -------------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1998
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful
Accounts..................... $2,696 $2,737 $2,514 $ 307 $3,226
YEAR ENDED JUNE 30, 1997
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful
Accounts..................... $2,426 $2,923 $3,003 $ 350 $2,696
YEAR ENDED JUNE 30, 1996
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful
Accounts..................... $1,931 $2,510 $2,474 $ 459 $2,426
</TABLE>
67
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
3.1* -Second Amended and Restated Certificate of Incorporation.
3.2* -Form of Fourth Amended and Restated Certificate of Incorporation.
3.5* -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 rust Company, a
New York banking corporation, Wilmington Trust Company, a Delaware
banking corporation, and William J. Wade.
</TABLE>
68
<PAGE>
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 New 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.
10.26* -Asset Purchase Agreement by and among Thomson Newspapers, Inc.,
Seller, and Garden State Newspapers, Inc., Purchaser, relating to the
PASADENA STAR-NEWS, WHITTIER DAILY NEWS, SAN GABRIEL VALLEY TRIBUNE
and Various Related Publications Collectively Referred to by Seller as
The Thomson L.A. News Group Published in Pasadena, Whittier and West
Covina, California; The TIMES-STANDARD and Various Related
Publications Published in Eureka, California; and THE EVENING SUN and
Various Related Publications Published in Hanover, Pennsylvania, dated
October 30, 1996.
10.27* -$240,000,000 Credit Agreement Dated as of August 31, 1995, as Amended
and Restated as of October 31, 1996, among Garden State Newspapers,
Inc., the Banks listed in the signature pages hereof (including
Bankers Trust Company, as Documentation Agent) and The Bank of New
York (including in its capacity as Administrative and Syndication
Agent), as Agent.
10.28* -Asset Purchase Agreement dated as of February 13, 1997, by and among
Mid-States Newspapers, Inc., as Seller, and Newspaper Holdings, Inc.,
as Buyer.
10.29* -Asset Purchase Agreement by and among Thomson Newspapers, Inc.,
Seller, and Garden State Newspapers, Inc., Purchaser, relating to the
SENTINEL & ENTERPRISE and various related publications published in
Fitchburg, Massachusetts; THE DAILY NEWS and various related
publications published in Lebanon, Pennsylvania; and THE DAILY
NONPAREIL and various related publications published in Council
Bluffs, Iowa, dated February 27, 1997.
10.30* -Asset Purchase Agreement by and among Lowell Sun Publishing Company
and Lowell Sun Realty Company (Sellers), Garden State Newspapers, Inc.
(Purchaser), and John H. Costello, Jr., Alexander S. Costello, Thomas
F. Costello, Andrew G. Costello, Charlotte E. LaPierre and Dana Biadi
(Guarantors), Relating to the Acquisition of THE SUN and THE SUNDAY
SUN dated July 31, 1997
10.31* -Asset Purchase and Sale Agreement by and between Tower Media, Inc.,
as Seller; Jack Kent Cooke Incorporated as Guarantor; and Garden State
Newspapers, Inc., as Purchaser, dated as of December 1, 1997
10.32* -Indenture dated as of October 1, 1997, between Garden State
Newspapers, Inc., and The Bank of New York, as Trustee, for the
issuance of up to $300,000,000 of Series A & B 8-3/4% Senior
Subordinated Notes due 2009
10.33* -Subordinated Note Purchase Agreement between Garden State Newspapers,
Inc., and Greenco, Inc., dated as of January 30, 1998
</TABLE>
69
<PAGE>
INDEX TO EXHIBITS (CONTINUED)
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
10.34* - Note Purchase Agreement dated February 6, 1998, by and among Garden
State Newspapers, Inc., and the Purchasers of $50,000,000 of 8-3/4%
Notes due 2009
12.1* -Computation of Ratio of Earnings to Fixed Charges.
21.1 -Subsidiaries of Registrant
27 -Financial Data Schedule
</TABLE>
- -----------------
*Previously Filed
70
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
GARDEN STATE NEWSPAPERS, INC.
Date: September 18, 1997 By:
-------------------------------------
Joseph J. Lodovic, IV
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1934, this report
has been signed below by the following persons on behalf of the registrant in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------ ------------------
<S> <C> <C>
/S/ William Dean Singleton Vice Chairman, President, September 18, 1998
- ------------------------------------------ Chief Executive Officer and Director
(William Dean Singleton) (Chief Executive Officer)
/S/ Joseph J. Lodovic, IV Executive Vice President and Chief September 18, 1998
- ------------------------------------------ Financial Officer (Chief Financial
(Joseph J. Lodovic, IV) Officer)
/S/ Richard B. Scudder Director September 18, 1998
- ------------------------------------------
(Richard B. Scudder)
/S/ Peter M. Miller Director September 18, 1998
- ------------------------------------------
(Peter M. Miller)
/S/ Ronald A. Mayo Vice President Finance and September 18, 1998
- ------------------------------------------ Controller (Principal Accounting
(Ronald A. Mayo) Officer)
</TABLE>
71
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF GARDEN STATE NEWSPAPERS, INC.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Subsidiaries State of Incorporation Names Under Which It Conducts Business
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Garden State Investments, Inc. Delaware Alameda Newspapers, Inc.
Brattleboro Publishing Company
Easton Publishing Company
Graham Newspapers, Inc.
Mid-States Newspapers, Inc.
New England Newspapers, Inc.
NJN Investments, Inc.
North Adams Publishing Company
North Eastern Publishing Company
North Jersey Newspaper Company
Pittsfield Publications, Inc.
South Jersey Newspaper Company
The York Newspaper Company
York Newspapers, Inc.
Charleston Newspapers
Alameda Newspapers, Inc. Delaware The Oakland Tribune
The Tri-Valley Herald
The Argus
The Daily Review
Alameda Times Star
San Mateo County Times
Alameda Accent
Times Weekend
San Bruno Herald
Coastside Chronicle
Daly City Record
Brisbane Bee
Millbrae Recorder-Progress
The Pacifica Tribune
The Wave
Brattleboro Publishing Company Delaware The Brattleboro Reformer
Easton Publishing Company Delaware The Express Times
Two Rivers Shopping Times
The Bethlehem Star
Hunterdon Marketplace
Graham Newspapers, Inc. Delaware The Graham Leader
The Lake Country Sun
The Jacksboro Gazette
The Jack County Herald
Lake Country Shopper
The Olney Enterprise
<PAGE>
- --------------------------------------------------------------------------------------------------------------
Subsidiaries State of Incorporation Names Under Which It Conducts Business
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Mid-States Newspaper, Inc. Delaware Las Cruces Sun-News
The Daily Nonpareil
Sentinel & Enterprise
Lebanon Daily News
The Shopper Bulletin
Southwest Iowa Shopper Guide
North Country Leader
The Independent
The Palm Advertiser
The Shopping Times
Vos del Valle
North Adams Publishing Company Delaware North Adams Transcript
The Transcript Spotlight
North Eastern Publishing Company Delaware Bennington Banner
The Manchester Journal
The Bennington Shopper
North Jersey Newspaper Company Delaware Herald-News
Community Life
Community Forum
The Ridgewood News
Shopper News
South Bergenite
Suburban News
Paramas Town News
The Dateline Journal
Suburban Life
Suburban Trends
Today
Summit Independent Press
Berkeley Heights and News
Phillipsburg Free Press
Star Gazette
Blairstown Press
Belvidere News
Star Journal
The News Leader
The News
The Hills Bedminster Press
Somerset Messenger Gazette
Highland Park Herald
The Review
The Chronicle
The Piscataway Review
The Reporter
Cranford Chronicle
The Westfield Record-Press
<PAGE>
- --------------------------------------------------------------------------------------------------------------
Subsidiaries State of Incorporation Names Under Which It Conducts Business
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Pittsfield Publications, Inc. Delaware The Berkshire Eagle
The Shopper
South Jersey Newspaper Company Delaware The Gloucester County Times
Today's Sunbeam
Bridgeton Evenings News
The Millville Shopper News
The Record
The Advertiser
V&P Publishing, Inc. California Tri-City Weekly
York Newspapers, Inc. Delaware The York Newspaper Company
York Newspaper Company Pennsylvania The York Dispatch
General Partnership The York Sunday News
Weekly Record
- -------------------------------------------------------------------------------------------------------------
</TABLE>
GARDEN STATE NEWSPAPERS, INC. OPERATING NAMES
San Gabriel Valley Times
Whittier Daily News
Pasadena Star-News
Cheers
Whittier Review Shopper
The Star
Highlander Newspapers
Eureka Times Standard
The Buyers' Guide
On the Market
The Sun
The Sunday Sun
The Evening Sun
The Community Sun
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30,
1998 FORM 10K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUL-30-1998
<CASH> 999
<SECURITIES> 0
<RECEIVABLES> 51,731
<ALLOWANCES> 6,239
<INVENTORY> 7,286
<CURRENT-ASSETS> 65,178
<PP&E> 257,388
<DEPRECIATION> 63,588
<TOTAL-ASSETS> 639,643
<CURRENT-LIABILITIES> 75,436
<BONDS> 504,202
0
0
<COMMON> 1
<OTHER-SE> 33,547
<TOTAL-LIABILITY-AND-EQUITY> 639,643
<SALES> 414,306
<TOTAL-REVENUES> 414,306
<CGS> 145,412
<TOTAL-COSTS> 355,048
<OTHER-EXPENSES> 56,695
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 45,311
<INCOME-PRETAX> 34,392
<INCOME-TAX> 4,792
<INCOME-CONTINUING> 29,600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,600
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
