1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number
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GARDEN STATE NEWSPAPERS, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-2675173
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1560 Broadway
Denver, Colorado 80202
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303)837-0886
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NOT APPLICABLE
(Former name, former address and former fiscal year, if
changed since last report.)
Indicate by check mark whether a registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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INDEX TO GARDEN STATE NEWSPAPERS, INC.
REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1996
Item No. Page
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PART I - FINANCIAL INFORMATION
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1 Financial Statements 3
2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 3
PART II - OTHER INFORMATION
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1 Legal Proceedings 3
2 Changes in Securities 3
3 Defaults Upon Senior Securities 3
4 Submission of Matters to a Vote of Security Holders 3
5 Other Information 4
6 Exhibits and Reports on Form 8-K 4
3
PART I
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ITEM 1. FINANCIAL STATEMENTS
The information required by this item is filed as part of this Form 10-Q. See
Index to Financial Information at page 5 of this Form 10-Q.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this item is filed as part of this Form 10-Q. See
Index to Financial Information at page 5 of this Form 10-Q.
PART II
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ITEM 1. LEGAL PROCEEDINGS
The Company is involved in litigation arising in the ordinary course of
business, none of which is expected to result in material loss.
ITEM 2. CHANGES IN SECURITIES
There were no changes in the rights of security holders during the quarter for
which this report is filed.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
There were no defaults upon senior securities during the quarter for which this
report is filed.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
quarter for which this report is filed.
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4
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
27 - Financial Data Schedule.
Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended September 30, 1996.
SIGNATURES
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Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GARDEN STATE NEWSPAPERS, INC.
Dated: November 11, 1996 By: /s/ Joseph J. Lodovic, IV
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Joseph J. Lodovic, IV
Executive Vice President,
Chief Financial Officer and
Duly Authorized Officer of
Registrant
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GARDEN STATE NEWSPAPERS, INC.
Index to Financial Information
ITEM 1. FINANCIAL STATEMENTS: PAGE
----
Condensed Consolidated Balance Sheets . . . . . . . . . . . . . . . . 6
Unaudited Condensed Consolidated Statements of Operations . . . . . . 8
Unaudited Condensed Consolidated Statements of Cash Flows . . . . . . 9
Notes to Unaudited Condensed Consolidated Financial Statements . . . . 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . 13
5
6
GARDEN STATE NEWSPAPERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, June 30,
ASSETS 1996 1996
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(In thousands)
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . $ 2,630 $ 4,415
Accounts receivable, less allowance for doubtful
accounts of $2,290 and $2,426 at September 30, 1996
and June 30, 1996, respectively . . . . . . . . . . . . . 27,496 27,612
Inventories of newsprint and supplies . . . . . . . . . . . 4,347 3,966
Prepaid expenses and other assets . . . . . . . . . . . . . 3,906 2,780
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Total Current Assets . . . . . . . . . . . . . . . . . 38,379 38,773
PROPERTY, PLANT AND EQUIPMENT
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,184 5,168
Buildings and improvements . . . . . . . . . . . . . . . . 32,702 32,687
Machinery and equipment . . . . . . . . . . . . . . . . . . 89,408 87,522
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Total Property, Plant and Equipment . . . . . . . . . . 127,294 125,377
Less accumulated depreciation and amortization . . . . . . 52,274 50,027
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Net Property, Plant and Equipment . . . . . . . . . . . 75,020 75,350
OTHER ASSETS
Investment in partnership . . . . . . . . . . . . . . . . 6,091 6,369
Subscriber accounts, less accumulated amortization of
$50,248 and $48,594 at September 30, 1996 and June 30,
1996, respectively . . . . . . . . . . . . . . . . . . . 42,565 44,220
Excess of cost over fair value of net assets acquired, less
accumulated amortization of $13,765 and $13,267
at September 30, 1996 and June 30, 1996, respectively . . 65,252 65,715
Covenants not to compete and other identifiable intangible
assets, less accumulated amortization of $20,110 and
$19,673 at September 30, 1996 and June 30, 1996,
respectively . . . . . . . . . . . . . . . . . . . . . . 8,025 8,461
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,896 1,871
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Total Other Assets . . . . . . . . . . . . . . . . . . 123,829 126,636
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TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . $ 237,228 $ 240,759
============ ============
See notes to unaudited condensed consolidated financial statements.
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7
GARDEN STATE NEWSPAPERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, June 30,
LIABILITIES AND SHAREHOLDER'S DEFICIT 1996 1996
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(In thousands, except share data)
CURRENT LIABILITIES
Trade accounts payable . . . . . . . . . . . . . . . . . . $ 5,183 $ 5,884
Accrued liabilities . . . . . . . . . . . . . . . . . . . . 17,656 18,174
Unearned income . . . . . . . . . . . . . . . . . . . . . . 6,984 7,048
Income taxes . . . . . . . . . . . . . . . . . . . . . . . 488 373
Current portion of long-term debt and
capital lease obligation . . . . . . . . . . . . . . . . 11,237 11,190
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Total Current Liabilities . . . . . . . . . . . . . . . 41,548 42,669
LONG-TERM DEBT AND CAPITAL
LEASE OBLIGATION . . . . . . . . . . . . . . . . . . . . . 199,204 199,399
OTHER LIABILITIES . . . . . . . . . . . . . . . . . . . . . . 6,320 7,728
DEFERRED INCOME TAXES . . . . . . . . . . . . . . . . . . . . 11,686 11,755
SHAREHOLDER'S DEFICIT
Common stock, par value $1.00 per share;
authorized 1,000 shares; 1,000 shares issued
and outstanding . . . . . . . . . . . . . . . . . . . . . 1 1
Additional paid-in capital . . . . . . . . . . . . . . . . 78,570 78,570
Deficit . . . . . . . . . . . . . . . . . . . . . . . . . . (100,101) (99,363)
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Total Shareholder's Deficit . . . . . . . . . . . . . . (21,530) (20,792)
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TOTAL LIABILITIES AND SHAREHOLDER'S DEFICIT . . . . . . . . . $ 237,228 $ 240,759
=========== ============
See notes to unaudited condensed consolidated financial statements.
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GARDEN STATE NEWSPAPERS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended September 30,
--------------------------------
1996 1995
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(In thousands)
REVENUES
Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 49,595 $ 46,208
Circulation . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,401 8,699
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,084 1,399
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TOTAL OPERATING REVENUES . . . . . . . . . . . . . . . . . . 61,080 56,306
COST AND EXPENSES
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . 23,568 22,874
Selling, general and administrative . . . . . . . . . . . . . . . 26,518 24,321
Depreciation and amortization . . . . . . . . . . . . . . . . . . 5,138 4,841
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . 6,334 6,596
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . 207 1,421
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TOTAL COST AND EXPENSES 61,765 60,053
LOSS BEFORE INCOME TAXES . . . . . . . . . . . . . . . . . . . . . (685) (3,747)
INCOME TAX BENEFIT (EXPENSE) . . . . . . . . . . . . . . . . . . . (53) 177
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LOSS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (738) $ (3,570)
============ =============
See notes to unaudited condensed consolidated financial statements.
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GARDEN STATE NEWSPAPERS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended September 30,
---------------------------------
1996 1995
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(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (738) $ (3,570)
Adjustments to reconcile loss to net
cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . 4,836 4,625
Provision for losses on accounts receivable . . . . . . . . . . . . . 634 740
Amortization of debt discount . . . . . . . . . . . . . . . . . . . . 472 344
Distributions in excess of (less than) earnings
from investment in partnership . . . . . . . . . . . . . . . . . . 278 (553)
Deferred income tax benefit . . . . . . . . . . . . . . . . . . . . . (69) (235)
Debt issuance cost . . . . . . . . . . . . . . . . . . . . . . . . . -- 1,092
Change in operating assets and liabilities . . . . . . . . . . . . . (3,283) (7,483)
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NET CASH FLOWS FROM OPERATING ACTIVITIES . . . . . . . . . . . . 2,130 (5,040)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of newspaper properties . . . . . . . . . . . . . . . . . . -- (21,725)
Purchase of machinery, equipment and other, (net) . . . . . . . . . . (1,918) (1,531)
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NET CASH FLOWS FROM INVESTING ACTIVITIES . . . . . . . . . . . . (1,918) (23,256)
CASH FLOWS FROM FINANCING ACTIVITIES:
Reduction of long-term debt . . . . . . . . . . . . . . . . . . . . . (10,174) (492)
Reduction of non-operating liabilities . . . . . . . . . . . . . . . (1,423) (2,571)
Debt issuance cost . . . . . . . . . . . . . . . . . . . . . . . . . -- (1,092)
Issuance of long-term debt . . . . . . . . . . . . . . . . . . . . . 9,600 21,000
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NET CASH FLOWS FROM FINANCING ACTIVITIES . . . . . . . . . . . . (1,997) 16,845
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DECREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . (1,785) (11,451)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,415 17,083
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CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . . . . . . . . . . $ 2,630 $ 5,632
============= ============
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,048 $ 12,088
============= ============
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . $ 143 $ 37
============= ============
See notes to unaudited condensed consolidated financial statements.
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GARDEN STATE NEWSPAPERS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS
Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulations S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete consolidated financial statements and should be read in
conjunction with the consolidated financial statements and footnotes thereto
included in Garden State Newspapers, Inc.'s Annual Report on Form 10-K for the
year ended June 30, 1996. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three month period
ended September 30, 1996, are not necessarily indicative of the results that
may be expected for the year ended June 30, 1997.
The unaudited condensed consolidated financial statements include the
accounts of Garden State Newspapers, Inc. (the "Company" or "Garden State") and
its subsidiaries. All significant intercompany accounts and transactions have
been eliminated upon consolidation. Garden State is a wholly owned subsidiary
of Affiliated Newspapers Investments, Inc.
Income Taxes
The effective income tax rate varies from the federal statutory rate
primarily because of the nondeductibility of certain expenses.
Seasonality
Newspaper companies tend to follow a distinct and recurring seasonal
pattern, with higher advertising revenues in months containing significant
events or holidays. Accordingly, the fourth calendar quarter, or the Company's
second fiscal quarter, is the Company's strongest revenue quarter of the year.
Due to generally poor weather and lack of holidays, the first calendar quarter,
or the Company's third fiscal quarter, is the Company's weakest revenue quarter
of the year.
NOTE 2: SUBSEQUENT EVENTS
Business Acquisitions
On October 31, 1996, the Company acquired substantially all of the assets
used in the publication of the 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 $130.0 million in cash. The daily
newspapers combined had daily and Sunday circulation of approximately 161,000
and 163,000, respectively, at March 31, 1996.
The acquisition will be accounted for as a purchase; accordingly, the
consolidated financial statements will include the operations of the acquired
newspapers from November 1, 1996.
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GARDEN STATE NEWSPAPERS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2: SUBSEQUENT EVENTS--CONTINUED
Long-Term Debt
In conjunction with the acquisitions described above, the Company entered
into a $240.0 million amended and restated bank credit facility (the "Bank
Credit Facility"). The Bank Credit Facility is comprised of the following
components:
I. A $122.0 million Senior Secured Revolving Credit Facility ("Revolver
A") which matures on June 30, 2003. The commitment under Revolver A
is reduced annually, with a $10.0 million reduction on June 30, 1997,
a $20.0 million annual reduction on June 30, 1998 through June 30,
2001, an $18.0 million reduction on June 30, 2002, and a final
maturity of June 30, 2003. Proceeds from Revolver A were used to
purchase the newspaper assets described above.
II. A $27.0 million Senior Secured Revolving Credit Facility ("Revolver
B") 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 Revolver
B until March 31, 2004, at which time the commitment is terminated and
all then outstanding balances are due and payable. As of the date
hereof, approximately $22.0 million of Revolver B is available for
future borrowings.
III. A $15.0 million Senior Secured Term Loan ("Term Loan A") with a final
maturity of March 31, 2004. Term Loan A 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 Loan A
were used in conjunction with Revolver A to fund the aforementioned
acquisitions and to prepay a previously outstanding term loan which
had a balance of $7.5 million.
IV. A $76.0 million Senior Secured Term Loan ("Term Loan B") with a final
maturity of March 31, 2004. Term Loan B requires quarterly principal
payments commencing on September 30, 1997, with annual reductions of
$4.0 million in fiscal year 1998, $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. Proceeds from Term Loan B were
used to prepay the Company's 10.89% Senior Secured Notes on October
31, 1996, as further described below.
All borrowings under the Bank Credit Facility, 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
Facility is payable quarterly. Interest on Eurodollar borrowings is due at the
end of the applicable interest rate contract or quarterly if the interest rate
contract exceeds three months. In addition, the Company pays an annual
commitment fee of 0.50% on the unused commitment under Revolvers A and B. 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%.
The Garden State Bank Credit Facility contains certain restrictive covenants
which relate to, among other things, 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. Borrowings under the
Garden State Bank Credit Facility are secured by substantially all of the
Company's tangible and intangible assets and stock of the Company and its
subsidiaries.
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GARDEN STATE NEWSPAPERS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2: SUBSEQUENT EVENTS--CONTINUED
Long-Term Debt--continued
In addition to proceeds from Term Loan B, Garden State received a
distribution of $17.4 million from borrowings under an existing bank credit
facility of a subsidiary. These funds were used to prepay in full the Company's
10.89% Senior Secured Notes in the amount of $77,577,686, including interest of
$697,686, and $1.8 million was used to reduce the outstanding balance of
Revolver B to zero. The remaining funds were used to pay a make-whole payment
of $9.5 million and bank fees and other transactional expenses of approximately
$4.5 million. The majority of these costs, which related to the refinancings,
will be expensed in the Company's second fiscal quarter.
Maturities of the Company's long-term debt as of October 31, 1996, for the
five fiscal years ending June 30, 2001, after giving effect to the October 31,
1996, transactions previously described, are as follows (in thousands):
1997. . . . . . . . . . . . . . . . . . . $ 13,269
1998. . . . . . . . . . . . . . . . . . . 26,409
1999. . . . . . . . . . . . . . . . . . . 47,465
2000. . . . . . . . . . . . . . . . . . . 30,055
2001. . . . . . . . . . . . . . . . . . . 34,383
Thereafter . . . . . . . . . . . . . . 197,687
---------
$ 349,268
=========
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OPERATING RESULTS
Three Months Ended September 30, 1996 and 1995
Revenues
Revenues increased $4.8 million or 8.5% in the first quarter of fiscal year
1997 as compared to the same quarter of fiscal year 1996. The increase in
revenue was primarily attributable to the August 31, 1995, acquisition of The
Berkshire Eagle, Brattleboro Reformer and Bennington Banner ("New England
Newspapers"); the March, 1996, acquisition of the San Mateo Times; and the
April 30, 1996, acquisition of The Transcript and The Evening News. Combined,
the acquisitions discussed above increased in revenues approximately $9.2
million in the first quarter of fiscal year 1997. These revenue increases were
partially offset by a $4.4 million decline in revenue resulting from the sale
of the Johnstown Tribune Publishing Company on April 30, 1996. Excluding the
newspaper operations described above, the Company's remaining newspaper
operations combined, posted flat operating revenues for the first quarter of
fiscal year 1997. While operating revenues on a same newspaper basis were
flat, all the Company's newspapers except Alameda Newspaper Group (excluding
San Mateo) and North Jersey Newspaper Company posted an increase in operating
revenue. The increase in operating revenue at these newspapers was
approximately $1.5 million and was primarily attributable to a combined 3.8%
and 2.3% gain in classified and circulation revenue, respectively. Alameda
Newspaper Group and North Jersey Newspaper Company continue to be negatively
affected by a significant number of out-of-business accounts (either from store
mergers or bankruptcies) which have not yet been cycled through. The Company
currently expects that Alameda Newspaper Group and North Jersey Newspaper
Company will begin showing year-over-year quarterly improvements in operating
revenues in the fiscal third quarter.
Cost of Sales
Cost of sales increased $0.7 million or 3.0% in first quarter of fiscal year
1997 compared to the same quarter of fiscal year 1996. The aforementioned
acquisitions caused cost of sales to increase approximately $3.5 million for
the quarter ended September 30, 1996. However, this increase was offset in
part by a $1.5 million decrease in cost of sales resulting from the sale of the
Johnstown Tribune Publishing Company. Excluding acquisition and disposition
transactions, cost of sales decreased approximately $1.3 million or 6.6%. The
decrease in cost of sales at existing newspapers was entirely the result of
declines in the average cost of newsprint of approximately 5.2% combined with a
5.3% decrease in consumption, primarily associated with efforts to conserve
newsprint, including the conversion to the 50-inch web width which began in
October of 1995 and was completed at the majority of newspapers during fiscal
1996. Excluding newsprint, cost of sales on a same newspaper basis decreased
$0.1 million in the first quarter of fiscal 1997.
Selling, General and Administrative
Selling, general and administrative ("SG&A") expenses increased $2.2 million
or 9.0% in the first quarter of fiscal year 1997 as compared to the same
quarter of fiscal year 1996. The aforementioned acquisitions resulted in SG&A
expense increases of $3.4 million; however, this was in part offset by a $1.4
million reduction in SG&A expense associated with the sale of the Johnstown
Tribune Publishing Company. Excluding the acquisition and disposition
transactions, SG&A expense increased $0.2 million or 1.1%. The entire increase
in SG&A is associated with increases in advertising and circulation
expenditures, which were primarily related to ongoing efforts to increase
advertising lineage and circulation. The overall small increase in SG&A
expense on a same newspaper basis was the result of the Company's continuing
efforts to control its general and administrative expenses.
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Other Expense
Other expense, net, decreased $1.2 million. The majority of the decrease is
attributable to a first quarter fiscal year 1996 charge to write-off
approximately $1.1 million of fees and other costs associated with the
Company's term loan and revolving credit facility entered into on August 31,
1995. Proceeds from the term loan and revolving credit facility were used to
fund the aforementioned August 31, 1995, acquisition.
Net Income
Garden State recorded a loss of approximately $0.7 million in the first
quarter of fiscal year 1997 as compared to an adjusted loss of $2.5 million in
the first quarter of fiscal year 1996, after excluding the write-off of fees
and other costs associated with the term loan and revolving credit facility
entered into on August 31, 1995. The decrease in the loss is primarily
attributable to a $1.6 million increase in operating profit and a $0.3 million
decrease in interest expense offset by a $0.2 million increase in tax expense
resulting from the Company's improved operating results.
Financial Condition and Liquidity
Net cash flows from operating activities were approximately $2.1 million and
$(5.0) million for the three months ended September 30, 1996 and 1995,
respectively. The $7.1 million increase in cash flow from operating activities
was primarily the result of a $1.8 million decrease in the loss for the three
months ended September 30, 1996, compared to the adjusted loss for September
30, 1995, combined with a $4.7 million decrease in the change in the interest
payable associated with the timing of interest payments.
Net cash flows from investing activities were $(1.9) million and $(23.3)
million for the three months ended September 30, 1996 and 1995, respectively.
The $21.4 million change was primarily the result of the Company spending $21.7
million related to the acquisition of the Berkshire Eagle, Brattleboro Reformer
and Bennington Banner in the first quarter of fiscal year 1996.
Net cash flows from financing activities were $(2.0) million and $16.8
million for the three months ended September 30, 1996 and 1995, respectively.
The change of approximately $18.8 million was primarily attributable to the
Company borrowing $21.0 million in the first quarter of fiscal 1996 in
conjunction with the previously discussed August 31, 1995, acquisitions.
Giving effect to the October 31, 1996, Bank Credit Facility, Garden State
and subsidiaries had a combined $29.8 million available for future borrowings,
net of $5.0 million in outstanding letters of credit at October 31, 1996.
NEAR TERM OUTLOOK
The steady increase in newsprint prices came to a halt in the second quarter
of calendar 1996 and, beginning in May, 1996, newsprint suppliers began
lowering prices. Since May, 1996, the discounts offered by newsprint suppliers
have continued to accelerate as newsprint supply is outpacing demand.
Management expects newsprint prices will continue to soften throughout calendar
year 1996. As a result of the recent declines in newsprint prices, the Company
has begun to experience year-over-year favorable comparisons in the average
cost of newsprint consumed. Management expects this trend will accelerate and
continue throughout fiscal year 1997.
Additionally, the Company's operating margins should also continue to
improve as the Company begins to realize the full annualized effect of reduced
consumption resulting from the conversion to 50-inch web widths.
Based upon current operations and future reductions in newsprint prices and
consumption, management believes that the Company will have sufficient cash to
pay interest when due on outstanding indebtedness and that cash flow from
operations, together with the Garden State Bank Credit Facility and other
resources available to the Company, will be adequate to fund scheduled payments
of principal and interest and to meet anticipated capital expenditure and
working capital requirements for at least the next twelve months.
14
15
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
27 - Financial Data Schedule