<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File Number: 1-12955
Journal Register Company
(Exact name of registrant as specified in its charter)
Delaware 22-3498615
----------------------- ------------------
(State of incorporation) (I.R.S. Employer
Identification No.)
50 West State Street, Trenton, New Jersey 08608-1298
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(Address of principal executive office) (zip code)
(609) 396-2200
----------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
-------------------------------------------------------------
(Former name or former address, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: common stock, $.01 par value -
48,437,500 shares outstanding as of November 13, 1997.
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JOURNAL REGISTER COMPANY
INDEX TO FORM 10-Q
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheets at September 30, 1997
and December 31, 1996 (Unaudited)....................... 2-3
Consolidated Statements of Operations for the three months
and nine months ended September 30, 1997 and 1996
(Unaudited)............................................. 4
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1997 and 1996 (Unaudited)........... 5
Notes to Consolidated Financial Statements (Unaudited)... 6-7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................... 8-11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................... 12
Item 2. Changes in Securities................................ 12
Item 3. Default upon Senior Securities....................... 12
Item 4. Submission of Matters to a Vote of Security Holders.. 12
Item 5. Other Information.................................... 12
Item 6. Exhibits and Reports on Form 8-K..................... 12
Signature 12
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JOURNAL REGISTER COMPANY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents....................................................... $ 6,573 $ 8,546
Accounts receivable, less allowance for doubtful accounts of $5,133 at September
30, 1997 and $4,173 at December 31, 1996...................................... 45,766 44,064
Inventories..................................................................... 7,633 6,204
Deferred income taxes........................................................... 2,948 2,951
Other current assets............................................................ 4,020 4,270
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Total current assets.......................................................... 66,940 66,035
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Property, plant and equipment:
Land.............................................................................. 7,135 7,260
Buildings and improvements........................................................ 59,654 59,001
Machinery and equipment........................................................... 141,553 135,937
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208,342 202,198
Less accumulated depreciation..................................................... 121,061 110,485
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Property, plant and equipment, net.............................................. 87,281 91,713
Deferred income taxes............................................................... -- 223
Intangible and other assets, net of accumulated amortization of $22,733 at September
30, 1997 and $17,611 at December 31, 1996......................................... 145,031 148,014
------------- ------------
$ 299,252 $ 305,985
============= ============
</TABLE>
See accompanying notes.
2
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JOURNAL REGISTER COMPANY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
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<S> <C> <C>
Liabilities and Stockholders' / Members' Deficit
Current liabilities:
Current maturities of long-term debt............................................ $ 53,858 $ 54,174
Accounts payable................................................................ 9,701 7,200
Income taxes payable............................................................ 356 1,196
Accrued interest................................................................ 5,404 7,498
Deferred subscription revenue................................................... 5,651 5,879
Other accrued expenses and current liabilities.................................. 16,767 15,947
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Total current liabilities..................................................... 91,737 91,894
Senior debt, less current maturities................................................ 442,095 566,390
Subordinated notes due to members................................................... -- 33,319
Deferred income taxes............................................................... 1,734 --
Accrued retiree benefits and other liabilities...................................... 13,624 11,603
Income taxes payable................................................................ 29,849 26,438
Commitments and contingencies
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Total liabilities............................................................. 579,039 729,644
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Stockholders' / members' deficit
Membership interests.............................................................. -- 2,104
Common stock, $.01 par value, 300,000,000 shares authorized and 48,437,500 shares
issued and outstanding at September 30, 1997.................................... 484 --
Additional paid-in capital........................................................ 358,234 222,167
Accumulated deficit............................................................... (638,505) (647,930)
------------- ------------
Total stockholders' / members' deficit........................................ (279,787) (423,659)
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$ 299,252 $ 305,985
============= ============
</TABLE>
See accompanying notes.
3
<PAGE>
JOURNAL REGISTER COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Advertising............................................ $ 66,239 $ 63,281 $ 196,222 $ 188,511
Circulation............................................ 20,265 19,945 60,177 59,798
------------ ------------ ------------ ------------
Newspaper revenues..................................... 86,504 83,226 256,399 248,309
Commercial printing and other.......................... 2,989 3,404 8,785 10,897
------------ ------------ ------------ ------------
89,493 86,630 265,184 259,206
Operating expenses:
Salaries and employee benefits......................... 28,443 27,724 85,401 83,542
Newsprint, ink and printing charges.................... 10,348 11,984 29,534 38,866
Selling, general and administrative.................... 7,803 7,611 23,039 23,082
Depreciation and amortization.......................... 5,074 4,937 15,975 15,196
Special charge......................................... -- -- 31,899 --
Other.................................................. 10,387 9,895 29,820 29,425
------------ ------------ ------------ ------------
62,055 62,151 215,668 190,111
------------ ------------ ------------ ------------
Operating income....................................... 27,438 24,479 49,516 69,095
Other income (expense):
Interest expense....................................... (9,102) (14,091) (33,727) (43,697)
Interest income........................................ 14 29 33 97
Other.................................................. (4) (73) (52) (183)
------------ ------------ ------------ ------------
Income before provision for income taxes............. 18,346 10,344 15,770 25,312
Provision for income taxes............................... 7,378 3,489 6,345 8,538
------------ ------------ ------------ ------------
Net income........................................... $ 10,968 $ 6,855 $ 9,425 $ 16,774
============ ============ ============ ============
Net income per common share.............................. $ 0.23 -- $ 0.22 --
============ ============ ============ ============
Weighted average common shares outstanding............... 48,437,500 -- 43,564,515 --
============ ============ ============ ============
Pro forma net income per common share.................... -- $ 0.18 -- $ 0.44
============ ============ ============ ============
Pro forma weighted average common shares outstanding..... -- 37,962,500 -- 37,962,500
============ ============ ============ ============
</TABLE>
See accompanying notes.
4
<PAGE>
JOURNAL REGISTER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1997 1996
---------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................................................ $ 9,425 $ 16,774
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization........................................................... 15,975 15,196
Provision for losses on accounts receivable............................................. 2,210 2,612
(Gain) loss on sale of property, plant and equipment.................................... (169) 1
Non-cash portion of special charge...................................................... 15,400 --
Increase (decrease) in deferred income taxes............................................ 1,960 (2,897)
Increase in accounts receivable......................................................... (3,912) (2,384)
(Increase) decrease in inventories...................................................... (1,429) 9,820
Increase (decrease) in accounts payable................................................. 2,501 (1,910)
Increase in income taxes payable........................................................ 2,571 7,549
Decrease in accrued interest............................................................ (2,094) (1,720)
Decrease in deferred subscription revenue............................................... (228) (819)
Increase in accrued retiree benefits and other liabilities.............................. 2,021 2,976
(Increase) decrease in other assets, net of increase (decrease) in other liabilities.... (1,066) (4,478)
---------- ---------
Net cash provided by operating activities............................................... 43,165 40,720
---------- ---------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment....................................... 544 93
Additions to property, plant and equipment................................................ (6,799) (5,330)
---------- ---------
Net cash used in investing activities................................................... (6,255) (5,237)
---------- ---------
Cash flows from financing activities:
Proceeds from issuance of:
Senior bank debt........................................................................ 1,000 4,000
Accretion of subordinated notes......................................................... 1,205 2,274
Repayment of senior debt.................................................................. (125,611) (43,676)
Repayment of subordinated notes and accreted interest..................................... (34,524) --
Net proceeds from issuance of common stock................................................ 119,047 --
---------- ---------
Net cash used in financing activities................................................... (38,883) (37,402)
---------- ---------
Net decrease in cash and cash equivalents................................................... (1,973) (1,919)
Cash and cash equivalents, beginning of period.............................................. 8,546 8,622
---------- ---------
Cash and cash equivalents, end of period.................................................... $ 6,573 $ 6,703
========== =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest................................................................................ $ 35,821 $ 41,643
Income taxes............................................................................ $ 1,812 $ 3,846
Supplemental disclosures of non-cash financing activities:
Issuance of additional subordinated notes................................................. $ 1,205 $ 2,274
</TABLE>
See accompanying notes.
5
<PAGE>
Journal Register Company
Notes to Consolidated Financial Statements
September 30, 1997
(Unaudited)
1. Organization and Basis of Presentation
Journal Register Company (together with its consolidated subsidiaries,
the "Company" or "JRC") primarily publishes small metropolitan and
suburban daily and suburban and community non-daily newspapers in
Connecticut, Ohio, Philadelphia and its surrounding areas, the greater
St. Louis area and central New England and has commercial printing
operations in Connecticut and Ohio.
The consolidated interim financial statements included herein include
the accounts of JRC and have been prepared by the Company, without
audit, in accordance with generally accepted accounting principles
("GAAP") and pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC"). The consolidated
interim financial statements do not include all the information and
footnote disclosure required by GAAP for complete financial
statements. In the opinion of the Company's management, the
accompanying unaudited consolidated financial statements contain
all material adjustments (consisting only of normal recurring
accruals and the special charge relating to the management bonus and
discontinuance of a management incentive plan) necessary to present
fairly its financial position as of September 30, 1997 and December 31,
1996 and the results of its operations and cash flows for the
periods ended September 30, 1997 and 1996. These financial
statements should be read in conjunction with the December 31, 1996
Audited Combined Financial Statements and Notes thereto. The
interim operating results are not necessarily indicative of the
results to be expected for an entire year.
2. Amendment to Credit Agreement
In May 1997, the Company consummated an amended and restated credit
agreement (as amended, the "Credit Agreement") to amend the terms of the
Senior Secured Term Loans (the "Term Loan") and a Senior Secured
Revolving Credit Facility (the "Revolver") (collectively, the "Senior
Facilities"). The Credit Agreement provided for the $398.0 million Term
Loan and the $235.0 million Revolver.
The amounts outstanding under the Senior Facilities bear interest at
(i) 1 1/2% to 1/2% above the London Interbank Offered Rate ("LIBOR") or
(ii) 0% to 1/4% above the higher of the Prime Rate or 1/2% above the
Federal Funds Rate. The interest rate spreads are dependent upon the debt
to twelve months trailing cash flow ratio (as defined in the Credit
Agreement) and reduce as such ratio declines. The Term Loan provides for
quarterly repayment of principal as scheduled in the Credit Agreement.
The Revolver has a step-down of availability of $40.0 million on each of
December 31, 2000, 2001 and 2002. The final $115.0 million of
availability expires and, if outstanding, is due on December 31, 2003.
3. Initial Public Offering and Special Charge
In May 1997, the Company completed an initial public offering of
9,375,000 shares of its common stock (the "Offering") at a price of $14
per share. In connection therewith, the Company's shares began trading
on the New York Stock Exchange under the symbol JRC. The net proceeds
to the Company from the Offering were approximately $119.0 million,
which the Company used to repay a portion of the amounts outstanding
under the Term Loan and to retire all of the outstanding principal
amount of and accrued and unpaid interest on the Company's Subordinated
Notes.
6
<PAGE>
3. Initial Public Offering and Special Charge (Continued)
On June 6, 1997, pursuant to an agreement with the underwriters of
the Offering (the "Underwriting Agreement"), the underwriters exercised
their option to purchase 1,406,250 additional shares of common stock at
a price of $14 per share. In accordance with the Underwriting
Agreement, these shares were purchased directly from Warburg, Pincus
Capital Partners, L.P., a shareholder of the Company prior and
subsequent to the Offering, and were purchased solely for the purpose of
covering over-allotments made in connection with the Offering.
In connection with the Offering, the Company incurred a special
charge in the 1997 second quarter of $31.9 million (before benefit for
income taxes of $13.0 million) comprised of $28.4 million for a
management bonus and $3.5 million for the discontinuance of a management
incentive plan. The management bonus was comprised of 1,100,000 shares
of the Company's common stock and a cash portion to satisfy the
recipients' tax obligations arising from the management bonus.
4. Adoption of 1997 Stock Incentive Plan
Prior to the completion of the Offering, the Company's Board of
Directors (the "Board") adopted and the stockholders approved the
Company's 1997 Stock Incentive Plan (the "1997 Plan"). Subject to
adjustment as provided in the 1997 Plan, the 1997 Plan authorizes the
granting of up to 4,843,750 shares of the Company's common stock through:
(i) incentive stock options and non-qualified stock options (in each case,
with or without stock appreciation rights) to acquire common stock; (ii)
awards of restricted shares of common stock; and (iii) performance units
to such directors, officers and other employees of, and consultants to,
the Company and its subsidiaries and affiliates as may be designated by
the Compensation Committee or such other committee of the Board as the
Board may designate.
On May 21, 1997, the Company filed with the Securities and Exchange
Commission a Registration Statement on Form S-8 to register the
4,843,750 shares of the Company's common stock covered by the 1997 Plan.
The Company has granted options to purchase 968,750 shares of the
Company's common stock at an exercise price equal to fair market value
at the date of grant (substantially all at $14 per share) and options to
purchase 968,750 shares of the Company's common stock at an exercise
price of $21 per share. These options are exercisable at cumulative
intervals of 20% commencing on the first anniversary of issuance and
continuing through the fifth anniversary, at which time 100% may be
exercised. These options expire ten (10) years after issuance. The 1997
Plan will be accounted for in accordance with APB Opinion No. 25.
5. Earnings Per Common Share
Earnings per common share are based upon the weighted average number
of shares outstanding during the periods in 1997. All outstanding stock
options are not materially dilutive for 1997 and, therefore, they are
not included as common stock equivalents in earnings per share
calculations.
Pro forma net income per common share for 1996 was calculated
reflecting the 37,962,500 shares which were issued and outstanding prior
to the Offering, but subsequent to December 31, 1996.
Statement of Financial Accounting Standards No. 128, Earnings Per
Share ("SFAS 128") established standards for computing and presenting
earnings per share ("EPS"). SFAS 128 is effective for financial
statements for both interim and annual periods ending after December 15,
1997. EPS computed using SFAS 128 would not be materially different
from EPS for all periods presented.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
Journal Register Company's principal business is publishing newspapers in
the United States, where its publications are primarily small metropolitan and
suburban daily newspapers and suburban and community non-daily newspapers. The
Company's revenues are derived from advertising, paid circulation and commercial
printing and other.
Newspaper companies tend to follow a distinct and recurring seasonal
pattern. The first quarter of the year (January-March) tends to be the weakest
quarter because advertising volume is then at its lowest level.
Correspondingly, the fourth quarter (October-December) tends to be the strongest
quarter as it includes heavy holiday season advertising.
Operating Summary
Revenues. In the three months ended September 30, 1997, revenues increased
$2.9 million, or 3.3%, to $89.5 million, primarily due to an increase in
advertising revenues. In the first nine months of 1997, revenues increased $6.0
million, or 2.3%, to $265.2 million, also primarily due to advertising revenues.
Newspaper revenues increased $3.3 million, or 3.9%, to $86.5 million in the 1997
third quarter, principally due to increased classified advertising revenues
(resulting from both volume and rate increases) and the December 13, 1996
acquisition of the Taunton Daily Gazette (the "Taunton acquisition"). Newspaper
revenues increased $8.1 million, or 3.3%, to $256.4 million in the first nine
months of 1997, also principally due to increased classified advertising
revenues (resulting from both volume and rate increases) and the Taunton
acquisition. Circulation revenues increased $320,000, or 1.6%, to $20.3
million in the 1997 third quarter, and increased $379,000, or 0.6%, to $60.2
million in the year-to-date period. Commercial printing and other represented
3.3% of the Company's revenues in both the third quarter and first nine months
of 1997, as compared to 3.9% and 4.2% in the third quarter and first nine months
of 1996, respectively.
Salaries and employee benefits. Salaries and employee benefits were 31.8%
and 32.0% of the Company's revenues in the third quarters of 1997 and 1996,
respectively. For the first nine months of both 1997 and 1996, salaries and
employee benefits were 32.2% of the Company's revenues. In the third quarter of
1997, salaries and employee benefits increased $719,000, or 2.6%, to $28.4
million, primarily due to the Taunton acquisition. In the first nine months of
1997, salaries and employee benefits increased $1.9 million, or 2.2%, to $85.4
million, also primarily due to the Taunton acquisition.
Newsprint, ink and printing charges. In the third quarter and first nine
months of 1997, newsprint, ink and printing charges were 11.6% and 11.1% of the
Company's revenues, respectively, as compared to 13.8% and 15.0% in the third
quarter and first nine months of 1996, respectively. Newsprint, ink and
printing charges decreased $1.6 million, or 13.7%, in the third quarter of 1997
to $10.3 million, primarily as a result of a decrease in the average price per
ton of newsprint, which accounts for approximately $1.5 million of this
decrease. In the first nine months of 1997, newsprint, ink and printing charges
decreased $9.3 million, or 24.0%, to $29.5 million, also primarily as a result
of the decrease in the average price per ton of newsprint, which accounts for
approximately $7.8 million of this decrease.
8
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Selling, general and administrative. Selling, general and administrative
were 8.7% and 8.8% of the Company's revenues in the third quarters of 1997 and
1996, respectively, and 8.7% and 8.9% in the first nine months of 1997 and 1996,
respectively. Selling, general and administrative for the third quarter of 1997
increased $192,000, or 2.5%, to $7.8 million, primarily as a result of increased
promotion, partially offset by decreases in certain other expenses. For the
first nine months of 1997, selling, general and administrative decreased
$43,000, or 0.2%, to $23.0 million, primarily due to web site development
costs incurred in the prior-year period, offset by increased promotion in
1997.
Depreciation and amortization. Depreciation and amortization were 5.7% of
the Company's revenues in the third quarters of both 1997 and 1996, and 6.0% and
5.9% in the first nine months of 1997 and 1996, respectively. Depreciation and
amortization increased $137,000, or 2.8%, to $5.1 million in the 1997 third
quarter and increased $779,000, or 5.1%, to $16.0 million in the first nine
months of 1997, primarily due to the effects of the Taunton acquisition.
Other expenses. Other expenses were 11.6% and 11.4% of the Company's
revenues in the third quarters of 1997 and 1996, respectively, and 11.2% and
11.4% in first nine months of 1997 and 1996, respectively. Other expenses
increased $492,000, or 5.0%, to $10.4 million in the 1997 third quarter
primarily as a result of increased postage due to an increase in preprint
volume and increased circulation promotion expense. Other expenses increased
$395,000, or 1.3%, to $29.8 million for the first nine months of 1997 also
primarily as a result of increased postage due to an increase in preprint
volume and increased circulation promotion expense.
Special charge. In connection with the Company's initial public offering
of common stock, the Company incurred a special charge in the 1997 second
quarter of $31.9 million (before benefit for income taxes of $13.0 million)
comprised of $28.4 million for a management bonus and $3.5 million for the
discontinuance of a management incentive plan. The management bonus was
comprised of 1,100,000 shares of common stock and a cash portion to satisfy the
recipients' tax obligations arising from the management bonus.
Operating income. Operating income increased $3.0 million, or 12.1%, to
$27.4 million in the 1997 third quarter, and, reflecting the effect of the
special charge described above, decreased $19.6 million to $49.5 million in the
first nine months of 1997. Excluding the special charge, operating income
increased $12.3 million, or 17.8%, in the first nine months of 1997 to $81.4
million. Also on the same basis, as a percentage of revenues, operating income
increased to 30.7% in the first nine months of 1997 from 26.7% in the first nine
months of 1996.
Interest expense. Interest expense was $9.1 million in the third quarter
of 1997, a decrease of $5.0 million, or 35.7%. The third quarter change
reflects a decrease in average borrowing rates and a $151.3 million decrease in
average debt outstanding during the third quarter of 1997 as compared to the
third quarter of 1996. The decrease in average borrowing rates is primarily a
result of a decrease in the applicable margin due to: (i) reduced leverage and
(ii) the Company's amended credit agreement. Interest expense was $33.7 million
in the first nine months of 1997, a decrease of $10.0 million, or 22.8%. The
nine-month period-to-period change also reflects a decrease in average borrowing
rates as noted above and a $95.9 million decrease in average debt outstanding in
the 1997 period as compared to the 1996 period. Pro forma interest expense
reflecting the effects of the Company's initial public offering and amended
Credit Agreement as if they had occurred on January 1, 1997 would have been
$27.6 million for the nine-month period ended September 30, 1997.
Provision for income taxes. The Company reported effective tax rates of
40.2% and 33.7% for the quarters ended September 30, 1997 and 1996,
respectively, and 40.2% and 33.7% for the first nine months of 1997 and 1996,
respectively. In 1996, the effective tax rate was lower than the combined
federal and state statutory rates primarily due to the recognition of tax
benefits which had been offset by a valuation allowance in previous years. In
the third quarter and first nine months of 1997, the effective tax rate
approximates the combined federal and state statutory rates. As a result of tax
saving strategies the Company expects to implement by year end, the Company
expects an effective tax rate of approximately 37% for 1998, excluding the
effects of any future acquisitions.
9
<PAGE>
Net income. Net income as reported on an historical basis was $11.0
million, or $.23 per share, and $9.4 million or $.22 per share, for the three-
and nine-month periods ended September 30, 1997, respectively. See "Other
Information," below, for net income, as adjusted for the effects of the
Company's initial public offering and tax saving strategies the Company expects
to implement by year end.
Other Information
EBITDA(1) rose 10.5% to $32.5 million in the 1997 third quarter. The
Company's EBITDA margin reached 36.3% for the 1997 third quarter, as compared to
34.0% in the prior-year quarter. For the first nine months of 1997, excluding
the special charge, EBITDA rose 15.5% to $97.4 million. Also on the same basis,
the Company's EBITDA margin was 36.7% for the first nine months of 1997 as
compared to 32.5% for the first nine months of 1996.
Net income as adjusted for the effects of the Company's initial public
offering and tax saving strategies the Company expects to implement by year end
as if they had occurred and been implemented, respectively, as of January 1,
1997 and excluding the special charge described above, would have been $11.6
million or $.24 per share in the third quarter of 1997, and $33.9 million or
$.70 per share in the first nine months of 1997.
Liquidity and Capital Resources
The Company's operations have historically generated strong positive cash
flow. The Company believes cash flows from operations will be sufficient to
fund its operations, capital expenditures and long-term debt obligations. The
Company also believes that cash flows from operations and future borrowings and
its ability to issue common stock as consideration for future acquisitions, will
provide it with the flexibility to fund its acquisition strategy while
continuing to meet its operating needs, capital expenditures and long-term debt
obligations.
Cash flows from operations. Net cash provided by operating activities
increased $2.5 million to $43.2 million in the first nine months of 1997. Net
cash provided by operating activities in 1997 primarily resulted from net income
before non-cash expenses (i.e., depreciation and amortization, provision for
losses on accounts receivable, non-cash portion of special charge and deferred
income taxes) of $45.0 million, offset by a decrease resulting from variations
in other operating items (including accounts receivables, income taxes payable
and inventories) of $1.8 million.
Cash flows from investing activities. Net cash used in investing
activities increased $1.1 million to $6.3 million in the first nine months of
1997. In 1997, the Company increased capital expenditures by $1.5 million,
which was offset by an increase of $451,000 in proceeds from the sale of
property, plant and equipment. The Company has a capital expenditure program
(excluding acquisitions) of approximately $9.5 million in place for 1997, which
includes spending on technology, including prepress and business systems;
computer hardware; other machinery and equipment; plants and properties; and
vehicles and other assets. The Company believes its capital expenditure program
is sufficient to maintain its current level and quality of operations. The
Company reviews its capital expenditure program periodically and modifies it as
required to meet current needs. It is expected that the 1997 capital
expenditure program will be funded from operating cash flow. The success of the
Company's operations in Philadelphia and surrounding areas may necessitate the
construction of a centralized production facility within the next two to three
years. Costs for this facility are estimated to be $25.0 million overall. The
Company expects to fund this construction project with cash flows from
operations and borrowings.
- -------------------------------------------------------------------------------
(1) EBITDA is defined by the Company as operating income plus depreciation,
amortization and other non-cash charges. EBITDA is not intended to represent
cash flows from operations and should not be considered as an alternative to
operating or net income computed in accordance with generally accepted
accounting principles ("GAAP"), as an indicator of the Company's operating
performance, as an alternative to cash flows from operating activities (as
determined in accordance with GAAP) or as a measure of liquidity. The Company
believes that EBITDA is a standard measure commonly reported and widely used by
analysts, investors and other interested parties in the media industry.
Accordingly, this information has been disclosed herein to permit a more
complete comparative analysis of the Company's operating performance relative to
other companies in the industry. However, not all companies calculate EBITDA
using the same methods; therefore, the EBITDA figures set forth above may not be
comparable to EBITDA reported by other companies.
10
<PAGE>
Cash flows from financing activities. Net cash used in financing
activities increased $1.5 million to $38.9 million in the first nine months of
1997. The net cash used in financing activities remained relatively constant in
the year-to-year periods; however, the 1997 activity reflects proceeds of
approximately $119.0 million, from the sale of common stock in the Company's
initial public offering, which were used to repay a portion of the amounts
outstanding under the Senior Secured Term Loans (the "Term Loan") and a Senior
Secured Revolving Credit Facility (the "Revolver") (collectively, the "Senior
Facilities") and to retire all of the outstanding principal amount of and
accrued and unpaid interest on the Company's Subordinated Notes.
In May 1997, the Company consummated an amended and restated credit
agreement (as amended, the "Credit Agreement") to amend the terms of the Senior
Facilities. The Credit Agreement provides for, among other things, $398.0
million of Term Loan, $235.0 million of Revolver and a reduction in the
Applicable Margin (as defined in the Credit Agreement).
The amounts outstanding under the Senior Facilities bear interest at (i)
1 1/2% to 1/2% above the London Interbank Offered Rate ("LIBOR") or (ii) 0%
to 1/4% above the higher of the Prime Rate or 1/2% above the Federal Funds
Rate. The interest rate spreads are dependent upon the debt to twelve months
trailing cash flow ratio (as defined in the Credit Agreement) and reduce as
such ratio declines. The Term Loan provides for quarterly repayment of
principal as scheduled in the Credit Agreement. The Revolver has a step-down
of availability of $40.0 million on each of December 31, 2000, 2001 and 2002.
The final $115.0 million of availability expires and, if outstanding, is due
on December 31, 2003.
As of September 30, 1997, the Company had outstanding indebtedness, due and
payable in installments through 2003, of $495.9 million, of which $120.0 million
was outstanding under the Revolver. There was $115.0 million of unused and
available balance under the Revolver at September 30, 1997.
The Company manages its exposure to interest rate fluctuations by entering
into interest rate protection agreements. If the Company's Total Debt Ratio (as
defined in the Credit Agreement) is 3.0 to 1.0 or greater, the Company is
required to have interest rate protection for a minimum of 50% of its
outstanding balance under the Senior Facilities. The Company has in place
interest rate swap and collar agreements. During the first nine months of
1997, the Company's weighted average effective interest rate on its outstanding
balance was approximately 7.5%, which takes into account the interest rate
protection agreements in effect at that time.
Information relating to forward-looking statements. Management's Discussion
and Analysis of Financial Condition and Results of Operations and other sections
of this Form 10-Q include forward-looking statements, which are statements other
than historical information or statements of current condition. Some
forward-looking statements may be identified by use of terms such as "believes,"
"anticipates," "plans," "will," "likely," "continues," "intends" or "expects."
These forward-looking statements relate to the plans and objectives of the
Company for future operations. In light of the risks and uncertainties inherent
in all future projections, the inclusion of forward-looking statements herein
should not be regarded as a representation by the Company or any other person
that the objectives or plans of the Company will be achieved. Many factors
could cause the Company's actual results to differ materially from those in the
forward-looking statements, including, among other things: (i) a decline in
general economic conditions, (ii) the unavailability or material increase in the
price of newsprint, (iii) an adverse judgment in pending or future litigation,
(iv) increased competitive pressure from current competitors and future market
entrants, and (v) sales of substantial amounts of the Common Stock in the public
markets, or the perception that such sales could occur. The foregoing review of
important factors should not be construed as exhaustive. The Company undertakes
no obligation to release publicly the results of any future revisions it may
make to forward-looking statements to reflect events or circumstances after the
date hereof or to reflect the occurrence of unanticipated events.
11.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
NONE
Item 2. Changes in Securities
NONE
Item 3. Default upon Senior Securities
NONE
Item 4. Submission of Matters to a Vote of Security Holders
NONE
Item 5. Other Information
NONE
Item 6. Exhibits and Reports on Form 8-K
NONE
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: _______________ JOURNAL REGISTER COMPANY
By: ____________________________
Jean B. Clifton
Executive Vice President,
Chief Financial Officer & Treasurer
(signing on behalf of the
registrant and as principal
financial officer)
12.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE PERIOD ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 6,573
<SECURITIES> 0
<RECEIVABLES> 50,899
<ALLOWANCES> 5,133
<INVENTORY> 7,633
<CURRENT-ASSETS> 66,940
<PP&E> 208,342
<DEPRECIATION> 121,061
<TOTAL-ASSETS> 299,252
<CURRENT-LIABILITIES> 91,737
<BONDS> 495,953
0
0
<COMMON> 484
<OTHER-SE> (280,271)
<TOTAL-LIABILITY-AND-EQUITY> 299,252
<SALES> 0
<TOTAL-REVENUES> 265,184
<CGS> 0
<TOTAL-COSTS> 176,654<F1>
<OTHER-EXPENSES> 15,975
<LOSS-PROVISION> 2,210
<INTEREST-EXPENSE> 33,727
<INCOME-PRETAX> 15,770<F1>
<INCOME-TAX> 6,345
<INCOME-CONTINUING> 9,425<F1>
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,425<F1>
<EPS-PRIMARY> 0.22<F1>
<EPS-DILUTED> 0.22<F1>
<FN>
<F1>Total costs and expenses applicable to sales and revenues includes a 31,899
special charge comprised of 28,443 for a management bonus (consisting primarily
of Company common stock) and 3,456 for the discontinuance of a management
incentive plan.
</FN>
</TABLE>
