<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File Number: 1-12955
JOURNAL REGISTER COMPANY
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 22-3498615
(State or Other Jurisdiction of Incorporation (I.R.S. Employer
or Organization) Identification No.)
50 WEST STATE STREET, TRENTON, NEW JERSEY 08608-1298
(Address of Principal Executive Offices) (Zip Code)
(609) 396-2200
(Registrant's Telephone Number, Including Area Code)
-----------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, 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 14, 1998.
================================================================================
<PAGE>
JOURNAL REGISTER COMPANY
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION
PAGE NO.
Item 1. Financial Statements:
Consolidated Balance Sheets at June 30, 1998
(Unaudited) and December 31, 1997......................... 1
Consolidated Statements of Income for the three
and six months ended June 30, 1998 and 1997
(Unaudited)............................................... 3
Consolidated Statements of Cash Flows for the
six months ended June 30, 1998 and 1997
(Unaudited)............................................... 4
Notes to Unaudited Consolidated Financial
Statements................................................ 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............. 7
Item 3. Quantitative and Qualitative Disclosures About
Market Risk............................................... 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings......................................... 12
Item 2. Changes in Securities and Use of Proceeds................. 12
Item 3. Defaults Upon Senior Securities........................... 12
Item 4. Submission of Matters to a Vote of Security
Holders................................................... 12
Item 5. Other Information......................................... 13
Item 6. Exhibits and Reports on Form 8-K.......................... 13
Signature......................................................... 14
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JOURNAL REGISTER COMPANY
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
----------- ------------
<S> <C> <C>
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $10,620 $8,183
Accounts receivable, less allowance for doubtful
accounts of $5,193 at June 30, 1998 and $4,055
at December 31, 1997 50,785 48,675
Inventories 10,583 9,865
Deferred income taxes 4,729 6,444
Other current assets 4,622 4,666
----------- ------------
Total current assets 81,339 77,833
----------- ------------
Property, plant and equipment:
Land 7,567 7,567
Buildings and improvements 61,057 60,685
Machinery and equipment 151,259 148,605
----------- ------------
219,883 216,857
Less accumulated depreciation (128,076) (124,237)
----------- ------------
Property, plant and equipment, net 91,807 92,620
Intangible and other assets, net of accumulated
amortization of $27,441 at June 30, 1998 and
$23,973 at December 31, 1997 192,251 157,478
----------- ------------
Total assets $365,397 $327,931
=========== ============
</TABLE>
SEE ACCOMPANYING NOTES.
1
<PAGE>
JOURNAL REGISTER COMPANY
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
------------ ------------
LIABILITIES AND STOCKHOLDERS' DEFICIT (Unaudited)
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt $61,395 $57,060
Accounts payable 11,435 9,277
Income taxes payable 41 535
Accrued interest 3,565 5,067
Deferred subscription revenue 6,809 6,539
Other accrued expenses and current liabilities 19,133 17,616
------------ ------------
Total current liabilities 102,378 96,094
Senior debt, less current maturities 434,965 433,714
Deferred income taxes 9,408 8,049
Accrued retiree benefits and other liabilities 16,316 20,641
Income taxes payable 45,403 35,675
Commitments and contingencies
------------ ------------
Total liabilities 608,470 594,173
------------ ------------
Stockholders' deficit
Common stock, $.01 par value, 300,000,000 shares
authorized and 48,437,500 shares issued and
outstanding 484 484
Additional paid-in capital 358,234 358,234
Accumulated deficit (601,791) (624,960)
------------ ------------
Net stockholders' deficit (243,073) (266,242)
------------ ------------
Total liabilities and stockholders' deficit $365,397 $327,931
============ ============
</TABLE>
SEE ACCOMPANYING NOTES.
2
<PAGE>
JOURNAL REGISTER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- ------------------------
1998 1997 1998 1997
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Advertising $75,080 $69,564 $139,020 $129,983
Circulation 20,584 20,082 40,718 39,912
------------ ------------ ----------- -----------
Newspaper revenues 95,664 89,646 179,738 169,895
Commercial printing and other 6,217 3,005 11,804 5,796
------------ ------------ ----------- -----------
101,881 92,651 191,542 175,691
OPERATING EXPENSES:
Salaries and employee benefits 31,951 28,295 62,863 56,958
Newsprint, ink and printing
charges 12,695 10,056 24,591 19,186
Selling, general and
administrative 8,378 7,594 16,536 15,236
Depreciation and amortization 5,085 5,483 10,024 10,901
Special charge 0 31,899 0 31,899
Other 12,033 9,890 23,487 19,433
------------ ------------ ----------- -----------
70,142 93,217 137,501 153,613
------------ ------------ ----------- -----------
Operating income (loss) 31,739 (566) 54,041 22,078
OTHER INCOME (EXPENSE):
Interest expense (8,658) (11,666) (17,349) (24,626)
Interest income 0 6 18 19
Other 141 (6) 116 (47)
------------ ------------ ----------- -----------
Income (loss) before provision
(benefit)for income taxes 23,222 (12,232) 36,826 (2,576)
Provision (benefit) for income
taxes 8,616 (4,965) 13,657 (1,033)
------------ ------------ ----------- -----------
Net income (loss) $14,606 ($7,267) $23,169 ($1,543)
============ ============ =========== ===========
Net income (loss) per common
share (basic and dilutive) $ .30 $ (.16) $ .48 $ (.04)
============ ============ =========== ===========
Weighted average common shares
outstanding 48,437,500 44,178,434 48,437,500 41,087,638
============ ============ =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
JOURNAL REGISTER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1998 1997
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $23,169 ($1,543)
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for losses on accounts receivable 1,216 1,570
Depreciation and amortization 10,024 10,901
Net (gain) on sale of property, plant & equipment
and other assets (149) (169)
Non-cash portion of special charge 0 15,400
Increase (decrease) in income taxes payable 9,234 (2,306)
(Decrease) in accrued interest (1,502) (1,731)
Increase (decrease) in deferred income taxes 3,074 (378)
(Increase) in accounts receivable (2,146) (2,379)
(Increase) in inventories (671) (869)
Increase in accounts payable 2,026 1,596
(Decrease) in deferred subscription revenue (56) (216)
(Decrease) increase in accrued retiree benefits and
other liabilities (4,325) 2,146
(Increase) decrease in other assets, net of increase
(decrease) in other liabilities (2,376) 1,944
---------- ----------
Net cash provided by operating activities 37,518 23,966
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property, plant & equipment 149 519
Additions to property, plant and equipment (4,730) (4,611)
Purchase of newspaper properties (36,086) 0
---------- ----------
Net cash used in investing activities (40,667) (4,092)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt:
Senior debt 37,000 7,000
Accretion on subordinated notes 0 1,205
Repayment of senior debt (31,414) (114,570)
Repayment of subordinated notes and accreted interest 0 (34,524)
Net proceeds from issuance of common stock 0 119,047
---------- ----------
Net cash provided by (used in) financing activities 5,586 (21,842)
---------- ----------
Increase (decrease) in cash and cash equivalents 2,437 (1,968)
Cash and cash equivalents, beginning of period 8,183 8,546
---------- ----------
Cash and cash equivalents, end of period $10,620 $6,578
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $18,862 $24,984
Income taxes $1,349 $1,651
SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING ACTIVITIES:
Issuance of additional subordinated notes $0 $1,205
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
JOURNAL REGISTER COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
1. ORGANIZATION AND BASIS OF PRESENTATION
Journal Register Company (together with its consolidated subsidiaries,
the "Company" or "JRC") primarily publishes daily and non-daily newspapers
serving markets in Connecticut, Ohio, Philadelphia and its surrounding
areas, the greater St. Louis area, central New England, and the
Capital-Saratoga, NY Region and has commercial printing operations in
Connecticut, Ohio and Pennsylvania.
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)
necessary to present fairly its financial position as of June 30, 1998 and
December 31, 1997 and the results of its operations and cash flows for the
periods ended June 30, 1998 and 1997. These financial statements should be
read in conjunction with the December 31, 1997 audited Consolidated
Financial Statements and Notes thereto. The interim operating results are
not necessarily indicative of the results to be expected for an entire year.
2. EARNINGS PER COMMON SHARE
Earnings per common share are based upon the weighted average number of
shares outstanding during the periods ended June 30, 1998 and 1997. All
outstanding stock options are not materially dilutive for the 1998 or 1997
periods. The following table sets forth the computation of weighted-average
shares outstanding for calculating both basic and diluted earnings per share
for the three and six months ended June 30, 1998:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1998 JUNE 30, 1998
-------------- -------------
<S> <C> <C>
Weighted-average shares for basic earnings per share 48,437,500 48,437,500
Effect of dilutive securities:
Employee stock options 279,946 274,737
-------------- -------------
Adjusted weighted-average shares for diluted
earnings per share 48,717,446 48,712,237
========== =============
</TABLE>
3. EFFECT OF NEW PRONOUNCEMENTS
Financial Accounting Standards Board issued Statement No. 130,
"Reporting Comprehensive Income" ("SFAS 130") which became effective January
1, 1998; however, SFAS 130 is not applicable to the Company. In June 1997,
the Financial Accounting Standards Board also issued Statement No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131"). SFAS 131 is effective for financial statements for periods beginning
after December 15, 1997 and requires comparative information for earlier
years to be restated. SFAS 131 establishes standards for the way public
companies report information about operating segments in annual financial
statements and requires that those companies report selected information
about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. Management is
currently in the process of evaluating the impact, if any, the standard may
have on future financial statement disclosures. Results of operations and
financial position, however, will be unaffected by implementation of this
standard.
5
<PAGE>
JOURNAL REGISTER COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
4. SUBSEQUENT EVENTS
On July 15, 1998, the Company completed its acquisition of the
Pennsylvania, New York and Ohio newspaper businesses of The Goodson
Newspaper Group (including Mark Goodson Enterprises, Ltd.) for approximately
$300 million in cash. The Company will apply the purchase method of
accounting for this transaction. Accordingly, the total acquisition cost
will be allocated to the assets and liabilities based upon their estimated
fair market value on the effective date of the acquisition. In conjunction
with the acquisition of The Goodson Newspaper Group, the Company entered
into a new credit agreement which increased its available borrowings to $900
million. The proceeds from the new credit facility were used to fund the
acquisition and repay amounts outstanding under the prior credit agreement.
6
<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 daily and non-daily
newspapers. The Company's revenues are derived primarily from advertising, paid
circulation and commercial printing.
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.
The second quarter of 1998 includes the results of the following
acquisitions: Ladue News, Ladue, Missouri, acquired December 12, 1997; The
InterCounty Newspaper Group, Bristol, Pennsylvania, acquired December 22, 1997;
Housatonic Publications, New Milford, Connecticut and Minuteman Newspapers,
Westport, Connecticut, acquired January 2, 1998; and The Saratogian, Saratoga
Springs, New York, acquired March 9, 1998.
On July 15, 1998, the Company completed its acquisition of The Goodson
Newspaper Group (see Note 4 of the Consolidated Financial Statements) for
approximately $300 million in cash. The acquisition of The Goodson Newspaper
Group is the Company's largest acquisition to date, adding five daily newspapers
with approximately 124,000 paid daily circulation and 20 non-daily publications
with combined distribution of approximately 350,000. In connection with the
acquisition of The Goodson Newspaper Group, the Company entered into a new
credit agreement (see Liquidity and Capital Resources).
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
REVENUES. In the three months ended June 30, 1998, revenues increased $9.2
million, or 10.0%, to $101.9 million, primarily due to an increase in
advertising revenues and commercial printing revenues. Newspaper revenues
increased $6.0 million, or 6.7%, to $95.7 million in the second quarter of 1998,
primarily due to acquisitions. Advertising revenues increased $5.5 million, or
7.9%, to $75.1 million in the second quarter of 1998 from $69.6 million in the
second quarter of 1997. Circulation revenues increased $502,000, or 2.5%, to
$20.6 million in the second quarter of 1998 from $20.1 million in the second
quarter of 1997. Commercial printing and other revenues increased $3.2 million
in the second quarter of 1998 to $6.2 million, from $3.0 million in the second
quarter of 1997. The increase is due primarily to commercial printing revenue
generated by companies acquired as part of the InterCounty Newspaper Group
acquisition in December 1997.
SALARIES AND EMPLOYEE BENEFITS. Salaries and employee benefits were 31.4%
of the Company's revenues in the second quarter of 1998, as compared to 30.5% of
the Company's revenue in the second quarter of 1997. In the second quarter of
1998, salaries and employee benefits increased $3.7 million, or 12.9%, to $32.0
million, due to acquisitions.
NEWSPRINT, INK AND PRINTING CHARGES. In the second quarter of 1998,
newsprint, ink and printing charges were 12.5% of the Company's revenues, as
compared to 10.9% in the second quarter of 1997. Newsprint, ink and printing
charges increased $2.6 million, or 26.2%, in the second quarter of 1998 to $12.7
million, primarily as a result of an approximately 11.5% increase in the price
per ton of newsprint, and volume increases due to the Company's acquisitions.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses were 8.2% of the Company's revenues in both the second quarters of 1998
and 1997. Selling, general and administrative expenses for the second quarter of
1998 increased $784,000, or 10.3%, to $8.4 million, due to acquisitions.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses were
5.0% and 5.9% of the Company's revenues in the second quarter of 1998 and 1997,
respectively. Depreciation and amortization expenses decreased $398,000, or
7.3%, to $5.1 million in the second quarter of 1998.
OTHER EXPENSES. Other expenses were 11.8% and 10.7% of the Company's
revenues in the second quarter of 1998 and 1997, respectively. Other expenses
increased $2.1 million, or 21.7%, to $12.0 million in the second quarter of
1998, primarily due to acquisitions, circulation promotional expenses, and
postage expense related to the Company's preprint business.
7
<PAGE>
OPERATING INCOME (LOSS). Operating income increased $32.3 million for the
second quarter of 1998 to $31.7 million from an operating loss of $566,000 in
the second quarter of 1997 which included a special charge of $31.9 million
related to the Company's initial public offering ("IPO") in May 1997.
INTEREST EXPENSE. Interest expense was $8.7 million in the second quarter
of 1998, a decrease of $3.0 million, or 25.8% as compared to the second quarter
of 1997. The decrease in interest expense reflects a decrease in average
borrowing rates and an approximately $68.8 million decrease in average debt
outstanding during the second quarter of 1998 as compared to the second quarter
of 1997.
PROVISION (BENEFIT) FOR INCOME TAXES. The Company reported effective tax
rates of 37.1% and 40.6% for the quarters ended June 30, 1998 and 1997,
respectively. This reduction in the effective tax rate for the first quarter
1998 as compared to the first quarter of 1997 is primarily the result of the
Company's corporate restructuring implemented January 1, 1998.
NET INCOME (LOSS). Net income was $14.6 million, or $.30 per share, basic
and diluted, for the quarter ended June 30, 1998 as compared to a net loss of
$7.3 million, or $.16 per share, basic and diluted, for the second quarter of
1997, which included the special charge of $18.9 million (net of income taxes of
$13.0 million) related to the IPO. Net income for the second quarter of 1997, as
adjusted for the IPO, savings related to the Company's corporate restructuring
and excluding the special charge, would have been $13.9 million. On this basis,
net income for the second quarter of 1998 increased 5% over the prior-year
period.
OTHER INFORMATION
EBITDA(1) in the second quarters of 1998 and 1997 (excluding a special
charge of $31.9 million) was $36.8 million. The Company's EBITDA margin was
36.1% for the second quarter of 1998 as compared to 39.7% in the second quarter
of 1997.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
REVENUES. In the six months ended June 30, 1998, revenues increased $15.9
million, or 9.0%, to $191.5 million, primarily due to an increase in advertising
revenues and commercial printing revenues. Newspaper revenues increased $9.8
million, or 5.8%, to $179.7 million in the six months ended June 30, 1998,
primarily due to acquisitions. Advertising revenues increased $9.0 million, or
7.0%, to $139.0 million in the six months ended June 30, 1998, from $130.0
million in the six months ended June 30, 1997. Circulation revenues increased
$806,000, or 2.0%, to $40.7 million for the six months ended June 30, 1998 from
$39.9 million for the prior-year period. Commercial printing and other revenues
increased $6.0 million in the six months ended June 30, 1998 to $11.8 million,
from $5.8 million in the six months ended June 30, 1997. The increase is
due primarily to commercial printing revenue generated by companies acquired as
part of the InterCounty Newspaper Group acquisition in December 1997.
SALARIES AND EMPLOYEE BENEFITS. Salaries and employee benefits were 32.8%
of the Company's revenues in the six months ended June 30, 1998, as compared to
32.4% of the Company's revenues in the six months ended June 30, 1997. In the
six months ended June 30, 1998, salaries and employee benefits increased $5.9
million, or 10.4%, to $62.9 million, due to acquisitions.
NEWSPRINT, INK AND PRINTING CHARGES. In the six months ended June 30,
1998, newsprint, ink and printing charges were 12.8% of the Company's revenues,
as compared to 10.9% for the same period in the prior year. Newsprint, ink and
printing charges increased $5.4 million, or 28.2%, in the six months ended June
30, 1998 to $24.6 million, primarily as a result of an approximately 13.5%
increase in the price per ton of newsprint, and volume increases due to the
Company's acquisitions.
- ---------------------
(1) EBITDA is defined by the Company as operating income (loss) plus
depreciation, amortization and other non-cash and non-recurring 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 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.
8
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses were 8.6% and 8.7% of the Company's revenues for the six months ended
June 30, 1998 and 1997, respectively. Selling, general and administrative
expenses for the six months ended June 30, 1998 increased $1.3 million, or 8.5%,
to $16.5 million, due to acquisitions.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses were
5.2% and 6.2% of the Company's revenues for the six months ended June 30, 1998
and 1997, respectively. Depreciation and amortization expenses decreased
$877,000, or 8.0%, to $10.0 million in the six months ended June 30, 1998.
OTHER EXPENSES. Other expenses were 12.3% and 11.1% of the Company's
revenues in the six months ended June 30, 1998 and 1997, respectively. Other
expenses increased $4.1 million, or 20.9%, to $23.5 million in the six months
ended June 30, 1998, primarily due to acquisitions, circulation promotional
expenses, and postage expense related to the Company's preprint business.
OPERATING INCOME. Operating income increased $32.0 million for the six
months ended June 30, 1998 to $54.0 million from $22.0 million for the six
months ended June 30, 1997 which included a special charge of $31.9 million
related to the Company's IPO in May 1997.
INTEREST EXPENSE. Interest expense was $17.3 million in the six months
ended June 30, 1998, a decrease of $7.3 million, or 29.6%, as compared to the
six months ended June 30, 1997. The decrease in interest expense reflects a
decrease in average borrowing rates and an approximately $109.6 million decrease
in average debt outstanding during the six months ended June 30, 1998 as
compared to the six months ended June 30, 1997.
PROVISION (BENEFIT) FOR INCOME TAXES. The Company reported effective tax
rates of 37.1% and 40.1% for the six months ended June 30, 1998 and 1997,
respectively. This reduction in the effective tax rate for the six months ended
June 30, 1998 as compared to the six months ended June 30, 1997 is the result of
the Company's corporate restructuring implemented January 1, 1998.
NET INCOME (LOSS). Net income was $23.2 million, or $.48 per share, basic
and diluted for the six months ended June 30, 1998 as compared to a net loss of
$1.5 million, or $.04 per share, basic and diluted, for the six months ended
June 30, 1997, which included a special charge of $18.9 million (net of income
taxes of $13.0 million) related to the IPO. Net income for the six months ended
June 30, 1998, as adjusted for the IPO, savings related to the Company's
corporate restructuring and excluding the special charge, would have been $22.4
million. On this basis, net income for the six months ended June 30, 1998
increased 3.6% over the prior-year period.
OTHER INFORMATION
EBITDA in the six months ended June 30, 1998 was $64.1 million as compared
to $64.9 million (excluding a special charge of $31.9 million) for the six
months ended June 30, 1997. The Company's EBITDA margin was 33.4% and 36.9% for
the six months ended June 30, 1998 and 1997, respectively.
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 $13.6 million to $37.5 million in the first six months of 1998 as
compared to the first six months of 1997. Net cash provided by operating
activities for the six months ended June 30, 1998 primarily resulted from net
income before non-cash expenses (i.e., depreciation and amortization), of $33.2
million.
CASH FLOWS FROM INVESTING ACTIVITIES. Net cash used in investing
activities increased $36.6 million to $40.7 million in the first six months of
1998. The increase in investing activities was primarily due to the Company's
9
<PAGE>
investment in the purchase of newspaper properties. In the first six months of
1998, the Company's capital expenditures increased by $119,000 and proceeds from
the sale of property, plant and equipment decreased $370,000 as compared to the
first six months of 1997. The Company has a capital expenditure program
(excluding future acquisitions) of approximately $12 million in place for 1998,
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 1998 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 years.
Costs for this facility are currently estimated to be approximately $25 million.
The Company expects to fund this construction project with cash flows from
operations and borrowings.
The Company has completed an assessment of the effect of Year 2000 on its
computer systems and production equipment and has determined that it will have
to modify or replace portions of its computer systems. The Company has an action
plan in place. The Company's capital expenditure program also includes amounts
necessary to have all of its systems Year 2000 compliant by September 30, 1999.
CASH FLOWS FROM FINANCING ACTIVITIES. Net cash provided by financing
activities was $5.6 million in the first six months of 1998 as compared to net
cash used in financing activities of $21.8 million in the first six months of
1997. The 1997 activity reflects proceeds of approximately $119.0 million from
the sale of Common Stock in the Company's IPO, which were used to repay a
portion of the amounts outstanding under the Company's then-existing senior
secured term loans (the "Prior Term Loan") and a senior secured revolving credit
facility (the "Prior Revolver") (collectively, the "Prior Senior Facilities")
and to retire all of the outstanding principal amount of and accrued and unpaid
interest on the Company's subordinated notes.
The amounts outstanding under the Prior Senior Facilities bore interest at
(i) 1-1/2% to 1/2% above the London Interbank Offered Rate ("LIBOR") or (ii) the
higher of 0% to 1/4% above the higher of the Prime Rate or 1/2% above the
Federal Funds Rate (collectively, the "Base Rate"). The interest rate spreads
were dependent upon the debt to 12 months trailing cash flow ratio (as defined
in the "Prior Credit Agreement", as amended and restated in May 1997) and were
reduced as such ratio declined.
As of June 30, 1998, the Company had outstanding indebtedness under the
Prior Credit Agreement, due and payable in installments through 2003, of $496.4
million, of which $336.4 million was outstanding under the Prior Revolver. There
was $ 75.0 million of unused and available balance under the Prior Revolver at
June 30, 1998.
The Company generally manages its exposure to interest rate fluctuations
for its variable rate debt by entering into interest rate protection agreements.
The Company was required under the Prior Credit Agreement and is required under
the Credit Agreement (as defined herein) to have interest rate protection for a
minimum of 50% of its outstanding balance under the Credit Agreement. During
1996, the Company entered into interest rate swap and collar agreements. For the
six months ended June 30, 1998, the Company's weighted average effective
interest rate on its outstanding balance was 6.7%. This takes into account the
interest rate protection agreements in effect during that period.
On July 15, 1998, the Company entered into a new credit agreement ("Credit
Agreement") with the banks and other financial institutions signatories thereto
and The Chase Manhattan Bank, as agent for the lenders thereunder. The Credit
Agreement provides for $500 million in term loans and a $400 million revolving
facility. The proceeds from the Credit Agreement were used to repay amounts
outstanding under the Prior Credit Agreement and to fund the acquisition of The
Goodson Newspaper Group (see Note 4 of "Notes to Unaudited Consolidated
Financial Statements"). The term loans have a final maturity on September 30,
2006 and the revolving facility matures on March 31, 2006.
The amounts outstanding under the Credit Agreement bear interest at (i)
1/2% to 0% above the higher of (a) the Prime Rate or (b) 1/2% above the Federal
Funds Rate or (ii) 1-3/4% to 1/2% above LIBOR. The interest rate spreads are
10
<PAGE>
dependent upon the debt to trailing four quarter cash flow ratio (as defined in
the Credit Agreement) and reduce as such ratios decline.
INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS. Management's
Discussion and Analysis of Financial Condition and Results of Operations include
forward-looking statements, which may be identified by use of terms such as
"believes," "anticipates," "plans," "will," "likely," "continues," "intends" or
"expects," as well as other similar terms. 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, (v) sales of
substantial amounts of the Common Stock in the public markets, or the perception
that such sales could occur, and (vi) the factors discussed in the Company's
Form 10-K for 1997 in Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations--Certain Factors Which May Affect the
Company's Future Performance. 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 3 is not currently applicable to the Company.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on May 15, 1998.
Proposals presented for a stockholder vote were (i) the election of two Class A
directors; and (ii) the ratification of the appointment of Ernst & Young LLP as
independent auditors for the Company for the fiscal year 1998.
Each of the incumbent Class A directors nominated by the Company were
elected with the following voting results:
VOTES FOR VOTES WITHHELD
--------- --------------
Douglas M. Karp 39,781,129 36,541
John R. Purcell 39,781,129 36,541
The names of the Class B and Class C directors remaining in office
following the 1998 Annual Meeting of Stockholders are as follows: Sidney
Lapidus, Jean B. Clifton and Joseph A. Lawrence, each a Class B director; and
John L. Vogelstein and Robert M. Jelenic, each a Class C director.
11
<PAGE>
The appointment of Ernst & Young LLP as the Company's independent
auditors for the fiscal year 1998 was approved with the following voting
results:
VOTES CAST FOR VOTES CAST AGAINST ABSTENTIONS
-------------- ------------------ -----------
39,831,445 1,110 1,760
ITEM 5. OTHER INFORMATION
In accordance with the advance notice provisions contained in the
Company's By-laws, the Company must receive notice of a stockholder's intent to
propose business or make a nomination for the election of directors at an annual
meeting no later than the close of business on the 60th day and no earlier than
the close of business on the 90th day prior to the first anniversary of the
preceding year's annual meeting. In order for a proposal or nomination to be
presented at the 1999 Annual Meeting of Stockholders, such proposal must be
received by the Company between February 14, 1999 and March 16, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a). EXHIBITS
*2.1 Master Agreement, dated as of May 17, 1998, by and among each of the
persons listed on Annex A and Annex B thereto, Richard G.
Schneidman, as Designated Stockholder, and the Company (filed as
Exhibit 99.2 to the Company's Current Report on Form 8-K/A, dated
June 30, 1998).
27. Financial Data Schedule
(b) REPORTS ON FORM 8-K
A report on Form 8-K was filed by the Company on May 20, 1998
pursuant to Item 5 thereof reporting the announcement of the
Company's agreement to acquire The Goodson Newspaper Group's
Pennsylvania, New York and Ohio newspapers. An amendment to the May
20, 1998 Form 8-K was filed by the Company on June 30, 1998 pursuant
to Item 5 and Item 7 (c) whereby a copy of the Master Agreement,
dated as of May 17, 1998, in connection with the acquisition of The
Goodson Newspaper Group, was filed.
- ----------------------
* Incorporated herein by reference.
12
<PAGE>
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: August 14, 1998 JOURNAL REGISTER COMPANY
By: /S/ JEAN B. CLIFTON
---------------------------------------
Jean B. Clifton
Executive Vice President,
Chief Financial Officer & Treasurer
(signing on behalf of the registrant
and as principal financial officer)
13
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
*2.1 Master Agreement, dated as of May 17, 1998, by and among each
of the persons listed on Annex A and Annex B thereto, Richard
G. Schneidman, as Designated Stockholder, and the Company
(filed as Exhibit 99.2 to the Company's Current Report on
Form 8-K/A, dated June 30, 1998).
27. Financial Data Schedule
- ----------------------
* Incorporated herein by reference.
<TABLE> <S> <C>
<ARTICLE>5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet and the consolidated statements of income of Journal
Register Company for the quarter ended June 30, 1998, 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-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 10,620
<SECURITIES> 0
<RECEIVABLES> 55,978
<ALLOWANCES> 5,193
<INVENTORY> 10,583
<CURRENT-ASSETS> 81,339
<PP&E> 219,883
<DEPRECIATION> 128,076
<TOTAL-ASSETS> 365,397
<CURRENT-LIABILITIES> 102,378
<BONDS> 496,360
0
0
<COMMON> 484
<OTHER-SE> (243,557)
<TOTAL-LIABILITY-AND-EQUITY> 365,397
<SALES> 0
<TOTAL-REVENUES> 101,881
<CGS> 0
<TOTAL-COSTS> 56,679
<OTHER-EXPENSES> 5,085
<LOSS-PROVISION> 598
<INTEREST-EXPENSE> 8,658
<INCOME-PRETAX> 23,222
<INCOME-TAX> 8,616
<INCOME-CONTINUING> 14,606
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,606
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0.30
</TABLE>
