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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 JUNE 30, 1997
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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 offices) (zip code)
(609) 396-2200
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(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 August 5, 1997.
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Journal Register Company
INDEX TO FORM 10-Q
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheets at June 30, 1997
and December 31, 1996 (Unaudited) . . . . . . . . . 2-3
Consolidated Statements of Operations for the
three months and six months ended June 30, 1997
and 1996 (Unaudited). . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows for the
six months ended June 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)
JUNE 30, DECEMBER 31,
1997 1996
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $6,578 $8,546
Accounts receivable, less allowance
for doubtful accounts of $4,550 at
June 30, 1997 and $4,173 at
December 31, 1996 44,873 44,064
Inventories 7,073 6,204
Prepaid income taxes 594 --
Deferred income taxes 4,239 2,951
Other current assets 3,522 4,270
------------ ------------
Total current assets 66,879 66,035
------------ ------------
Property, plant and equipment:
Land 7,135 7,260
Buildings and improvements 59,618 59,001
Machinery and equipment 139,438 135,937
------------ ------------
206,191 202,198
Less accumulated depreciation 117,693 110,485
------------ ------------
Property, plant and equipment, net 88,498 91,713
Deferred income taxes -- 223
Intangible and other assets, net of
accumulated amortization of $21,036 at
June 30, 1997 and $17,611 at
December 31, 1996 146,974 148,014
------------ ------------
$302,351 $305,985
============ ============
See accompanying notes.
2.
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JOURNAL REGISTER COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in thousands, except share and per share amounts)
JUNE 30, DECEMBER 31,
1997 1996
------------ ------------
LIABILITIES AND STOCKHOLDERS'/ MEMBERS' DEFICIT
Current liabilities:
Current maturities of long-term debt $50,634 $54,174
Accounts payable 8,796 7,200
Income taxes payable -- 1,196
Accrued interest 5,767 7,498
Deferred subscription revenue 5,663 5,879
Other accrued expenses and current
liabilities 19,528 15,947
------------ ------------
Total current liabilities 90,388 91,894
Senior debt, less current maturities 462,360 566,390
Subordinated notes due to members -- 33,319
Deferred income taxes 687 --
Accrued retiree benefits and other liabilities 13,749 11,603
Income taxes payable 25,922 26,438
Commitments and contingencies
------------ ------------
Total liabilities 593,106 729,644
------------ ------------
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 June 30, 1997 484 --
Additional paid-in capital 358,234 222,167
Accumulated deficit (649,473) (647,930)
------------ ------------
Total stockholders' / members' deficit (290,755) (423,659)
------------ ------------
$302,351 $305,985
============ ============
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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ---------------------
1997 1996 1997 1996
---- ---- ---- ----
REVENUES:
<S> <C> <C> <C> <C>
Advertising $69,564 $66,562 $129,983 $125,230
Circulation 20,082 20,114 39,912 39,853
------------ ------------ ------------ ------------
Newspaper revenues 89,646 86,676 169,895 165,083
Commercial printing and other 3,005 3,691 5,796 7,493
------------ ------------ ------------ ------------
92,651 90,367 175,691 172,576
OPERATING EXPENSES:
Salaries and employee benefits 28,295 27,689 56,958 55,818
Newsprint, ink and printing charges 10,056 13,692 19,186 26,882
Selling, general and administrative 7,594 7,852 15,236 15,471
Depreciation and amortization 5,483 5,302 10,901 10,259
Special charge 31,899 -- 31,899 --
Other 9,890 9,906 19,433 19,530
------------ ------------ ------------ ------------
93,217 64,441 153,613 127,960
------------ ------------ ------------ ------------
Operating income (loss) (566) 25,926 22,078 44,616
OTHER INCOME (EXPENSE):
Interest expense (11,666) (14,111) (24,626) (29,605)
Interest income 6 52 19 68
Other (6) 155 (47) (111)
------------ ------------ ------------ ------------
Income (loss) before provision
(benefit) for income taxes (12,232) 12,022 (2,576) 14,968
Provision (benefit) for income taxes (4,965) 4,055 (1,033) 5,049
------------ ------------ ------------ ------------
Net income (loss) ($7,267) $7,967 ($1,543) $9,919
============ ============ ============ ============
Net loss per common share $0.16 -- $0.04 --
============ ============ ============ ============
Weighted average common shares
outstanding 44,178,434 -- 41,087,638 --
============ ============ ============ ============
Pro forma net income per
common share -- $0.21 -- $0.26
============ ============ ============ ============
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)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------------
1997 1996
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ($1,543) $9,919
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 10,901 10,259
Provision for losses on accounts receivable 1,570 1,689
(Gain) loss on sale of property, plant and equipment (169) 18
Non-cash portion of special charge 15,400 --
Deferred income tax benefit (378) (1,718)
Increase in accounts receivable (2,379) (1,499)
(Increase) decrease in inventories (869) 7,076
Increase (decrease) in accounts payable 1,596 (2,292)
(Decrease) increase in income taxes payable, net of
(increase) decrease in prepaid income taxes (2,306) 3,554
Decrease in accrued interest (1,731) (1,738)
Decrease in deferred subscription revenue (216) (387)
Increase (decrease) in accrued retiree benefits and
other liabilities 2,146 (1,088)
(Increase) decrease in other assets, net of increase
(decrease) in other liabilities 1,944 (63)
--------- ---------
Net cash provided by operating activities 23,966 23,730
--------- ---------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment 519 3
Additions to property, plant and equipment (4,611) (3,137)
--------- ---------
Net cash used in investing activities (4,092) (3,134)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of:
Senior bank debt 7,000 5,000
Accretion of subordinated notes 1,205 1,506
Repayment of senior bank debt (114,570) (29,110)
Repayment of subordinated notes and accreted interest (34,524) --
Net proceeds from issuance of common stock 119,047 --
--------- ---------
Net cash used in financing activities (21,842) (22,604)
--------- ---------
Net decrease in cash and cash equivalents (1,968) (2,008)
Cash and cash equivalents, beginning of period 8,546 8,623
--------- ---------
Cash and cash equivalents, end of period $6,578 $6,615
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $24,984 $29,332
Income taxes $ 1,651 $ 3,206
Supplemental disclosures of non-cash financing activities:
Issuance of additional subordinated notes $1,205 $1,506
</TABLE>
See accompanying notes.
5.
<PAGE>
JOURNAL REGISTER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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, Ohio and
Missouri.
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 June
30, 1997 and December 31, 1996 and the results of its operations and cash
flows for the periods ended June 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 provides 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)
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 (described above), 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 of $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 after issuance, 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 antidilutive 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 June 30, 1997, revenues increased
$2.3 million, or 2.5%, to $92.7 million, primarily due to an increase in
advertising revenues. In the first six months of 1997, revenues increased
$3.1 million, or 1.8%, to $175.7 million, also primarily due to advertising
revenues. Newspaper revenues increased $3.0 million, or 3.4%, to $89.6
million in the 1997 second quarter, principally due to increased classified
advertising revenues (primarily volume increases and the December 13, 1996
acquisition of the Taunton Daily Gazette (the "Taunton acquisition")).
Newspaper revenues increased $4.8 million, or 2.9%, to $169.9 million in the
first six months of 1997, also principally due to increased classified
advertising revenues (primarily volume increases and the Taunton
acquisition). Circulation revenues were steady at $20.1 million in the 1997
second quarter, and at $39.9 million in the year-to-date period. Commercial
printing and other represented 3.2% and 3.3% of the Company's revenues in the
second quarter and first six months of 1997, respectively, as compared to
4.1% and 4.3% in the second quarter and first six months of 1996,
respectively.
SALARIES AND EMPLOYEE BENEFITS. Salaries and employee benefits were
30.5% and 30.6% of the Company's revenues in the second quarters of 1997 and
1996, respectively. For the first six months of 1997 and 1996, salaries and
employee benefits were 32.4% and 32.3% of the Company's revenues,
respectively. In the second quarter of 1997, salaries and employee benefits
increased $606,000, or 2.2%, to $28.3 million, primarily due to the Taunton
acquisition. In the first six months of 1997, salaries and employee benefits
increased $1.1 million, or 2.0%, to $57.0 million, also primarily due to the
Taunton acquisition.
NEWSPRINT, INK AND PRINTING CHARGES. In the second quarter and first six
months of 1997, newsprint, ink and printing charges were 10.9% of the
Company's revenues, as compared to 15.2% and 15.6% in the second quarter and
first six months of 1996, respectively. Newsprint, ink and printing charges
decreased $3.6 million, or 26.6%, in the second quarter of 1997 to $10.1
million, primarily as a result of a decrease in the average price per ton of
newsprint, which accounts for approximately $3.2 million of this decrease.
In the first six months of 1997, newsprint, ink and printing charges
decreased $7.7 million, or 28.6%, to $19.2 million, also primarily as a
result of the decrease in the average price per ton of newsprint, which
accounts for approximately $6.3 million of this decrease.
Significant increases in newsprint costs could have a
material adverse effect on the financial condition or results of operations
of the Company. The Company seeks to manage the effects of increases in
prices of newsprint through a combination of, among other things, technology
improvements including web width reductions, inventory management and
advertising and circulation price increases.
8.
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
were 8.2% and 8.7% of the Company's revenues in the second quarters of 1997
and 1996, respectively, and 8.7% and 9.0% in the first six months of 1997 and
1996, respectively. Selling, general and administrative for the second
quarter of 1997 decreased $258,000, or 3.3%, to $7.6 million. For the first
six months of 1997, selling, general and administrative decreased $235,000, or
1.5%, to $15.2 million, primarily due to web site development costs incurred
in the prior-year period, coupled with general cost control in 1997.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization were 5.9%
of the Company's revenues in both the second quarters of 1997 and 1996, and
6.2% and 5.9% in the first six months of 1997 and 1996, respectively.
Depreciation and amortization increased $181,000, or 3.4%, to $5.5 million in
the 1997 second quarter and increased $642,000, or 6.3%, to $10.9 million in
the first six months of 1997, primarily due to an overall increase in
capitalized assets, including the effects of the Taunton acquisition.
OTHER EXPENSES. Other expenses were 10.7% and 11.0% of the Company's
revenues in the second quarters of 1997 and 1996, respectively, and 11.1% and
11.3% in the first six months of 1997 and 1996, respectively. Other
expenses remained basically flat for the first quarter and first six months
of 1997, decreasing $16,000 and $97,000, respectively.
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 (LOSS). Operating income (loss) decreased $26.5 million
to ($566,000) in the 1997 second quarter, and decreased $22.5 million to
$22.1 million in the first six months of 1997. Excluding the special charge
described above, second quarter 1997 operating income increased $5.4 million,
or 20.9%, to $31.3 million. On the same basis, operating income increased
$9.4 million, or 21.0%, in the first six months of 1997 to $54.0 million.
Also on the same basis, as a percentage of revenues, operating income
increased to 33.8% in the second quarter of 1997 from 28.7% in the second
quarter of 1996, and to 30.7% in the first six months of 1997 from 25.9% in
the first six months of 1996.
INTEREST EXPENSE. Interest expense was $11.7 million in the second
quarter of 1997, a decrease of $2.4 million, or 17.3%. The quarter-to-quarter
change reflects a decrease in average borrowing rates and a $96.7 million
decrease in average debt outstanding during the second quarter of 1997. 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 $24.6 million in the first six
months of 1997, a decrease of $5.0 million, or 16.8%. The six-month
period-to-period change also reflects a decrease in average borrowing rates
as noted above and a $72.2 million decrease in average debt outstanding in
the 1997 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 $9.2 million and $18.5 million
for the three- and six-month periods ended June 30, 1997, respectively.
PROVISION (BENEFIT) FOR INCOME TAXES. The Company reported effective tax
rates of 40.6% and 33.7% for the quarters ended June 30, 1997 and 1996,
respectively, and 40.1% and 33.7% for the first six 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 second quarter and first six months of 1997, the effective tax rate
approximates the combined federal and state statutory rates. As a result of
the Company's planned implementation of various tax saving strategies, the
Company expects an effective tax rate of approximately 37% for 1998,
excluding the effects of any future acquisitions.
NET LOSS. Net loss as reported on an historical basis was $7.3 million
or $.16 per share, and $1.5 million or $.04 per share for the three- and
six-month periods ended June 30, 1997, respectively.
9.
<PAGE>
OTHER INFORMATION
EBITDA(1). EBITDA excluding the special charge, rose 17.9% to $36.8
million in the 1997 second quarter. On the same basis, the Company's EBITDA
margin reached 39.7% for the 1997 second quarter, as compared to 34.6% in the
prior-year quarter. For the first six months of 1997, on the same basis,
EBITDA rose 18.2% to $64.9 million. Also on the same basis, the Company's
EBITDA margin was 36.9% for the first six months of 1997 as compared to 31.8%
for the first six months of 1996.
Net income adjusted for the effects of the Company's initial public
offering and the planned implementation of tax saving strategies as if they
had occurred and been implemented, respectively, as of January 1, 1997 and
excluding the special charge described above, would have been $13.9 million
or $.29 per share in the second quarter of 1997, and $22.4 million or $.46
per share in the first six months of 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations have historically generated strong positive
cash flow. The Company believes cash flow from operations will be sufficient
to fund its operations, capital expenditures and long-term debt obligations.
The Company also believes that cash flow 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
remained relatively constant, increasing $236,000 to $24.0 million in
the first six months of 1997.
CASH FLOWS FROM INVESTING ACTIVITIES. Net cash used in investing
activities increased $1.0 million to $4.1 million in the first six months of
1997. This increase was primarily due to increased capital expenditures,
partially offset by increased proceeds on 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.
- --------------------------------
(1) EBITDA is defined by the Company as operating income (loss) plus
depreciation, amortization and other non-cash charges. EBITDA is not intended
to represent cash flow 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 accodance 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 decreased $762,000 to $21.8 million in the first six months of
1997. The net cash used in financing activities has 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 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) 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 June 30, 1997, the Company had outstanding indebtedness, due and
payable in installments through 2003, of $513.0 million, of which $126.0
million was outstanding under the Revolver. There was $109.0 million of
unused and available balance under the Revolver at June 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 six months of
1997, the Company's weighted average effective interest rate on its
outstanding balance was approximately 7.7%, 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 judgement 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>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q FOR
THE PERIOD ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 6,578
<SECURITIES> 0
<RECEIVABLES> 49,423
<ALLOWANCES> 4,550
<INVENTORY> 7,073
<CURRENT-ASSETS> 66,879
<PP&E> 206,191
<DEPRECIATION> 117,693
<TOTAL-ASSETS> 302,351
<CURRENT-LIABILITIES> 90,388
<BONDS> 512,994
0
0
<COMMON> 484
<OTHER-SE> (291,239)
<TOTAL-LIABILITY-AND-EQUITY> (290,755)
<SALES> 0
<TOTAL-REVENUES> 175,691
<CGS> 0
<TOTAL-COSTS> 127,476
<OTHER-EXPENSES> 10,901
<LOSS-PROVISION> 1,570
<INTEREST-EXPENSE> 24,626
<INCOME-PRETAX> (2,576)
<INCOME-TAX> (1,033)
<INCOME-CONTINUING> (1,543)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,543)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)<F1>
<FN>
<F1>Total costs and expenses applicable to sales and revenues include 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>
