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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
|_| 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 (I.R.S. EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)
50 WEST STATE STREET
TRENTON, NEW JERSEY 08608-1298
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
Registrant's telephone number, including area code: (609) 396-2200
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, par value $0.01 per share
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. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X].
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 26, 1998 was approximately $234,951,213.
As of March 26, 1998, 48,437,500 shares of the registrant's Common Stock,
par value $0.01 per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE. The information called for by Part III
is incorporated by reference to the definitive Proxy Statement for the Company's
1998 Annual Meeting of Stockholders, which will be filed on or before April 30,
1998.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
STATEMENTS IN THIS ANNUAL REPORT ON FORM 10-K THAT ARE NOT PURELY
HISTORICAL ARE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF
THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF
1934, INCLUDING STATEMENTS REGARDING THE COMPANY'S EXPECTATIONS, HOPES,
INTENTIONS OR STRATEGIES REGARDING THE FUTURE. FORWARD-LOOKING STATEMENTS
INCLUDE: THE PLANS AND OBJECTIVES OF THE COMPANY FOR FUTURE OPERATIONS AND
TRENDS AFFECTING THE COMPANY'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
ALL FORWARD-LOOKING STATEMENTS IN THIS REPORT ARE BASED ON INFORMATION AVAILABLE
TO THE COMPANY (AS HEREINAFTER DEFINED) AS OF THE DATE THIS REPORT IS FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION, AND THE COMPANY ASSUMES NO OBLIGATION TO
UPDATE ANY SUCH FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED BY SUCH
FORWARD-LOOKING STATEMENTS INCLUDE, BUT ARE NOT LIMITED TO, (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,
AND (IV) INCREASED COMPETITIVE PRESSURE FROM CURRENT COMPETITORS AND FUTURE
MARKET ENTRANTS. SEE "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 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.
PART I
ITEM 1. BUSINESS.
GENERAL
Journal Register Company (together with all of its subsidiaries and
their respective predecessors (the "Company")) is a leading U.S. newspaper
publisher, with total paid daily circulation of 532,472 and total non-daily
distribution of approximately 2.9 million. As of December 31, 1997, the Company
owned and operated 18 daily newspapers and 141 non-daily publications
strategically clustered in five geographic areas: Connecticut; Ohio;
Philadelphia and its surrounding areas; the greater St. Louis area; and central
New England. The Company's newspapers are characterized by an intense focus on
coverage of local news and sports and offer compelling graphic design in
colorful, reader-friendly packages.
From 1993 through 1997, the Company successfully completed 9 strategic
acquisitions, acquiring six daily newspapers, 73 non-daily publications and
three commercial printing companies. The Company has generally increased the
revenues and significantly increased the cash flow and profitability of its
acquired newspapers. For the fiscal year ended December 31, 1997, the Company
generated revenues of $359.4 million, EBITDA (as hereinafter defined) of $133.4
million (excluding a 1997 special charge), net income of $23.0 million and net
income, as adjusted, of $48.4 million. Net income for the fiscal year ended
December 31, 1997 has been adjusted to reflect the effects of the Company's
initial public offering, a related special charge and the implementation of
tax-saving strategies. In 1997, the Company's EBITDA of $133.4 million
(excluding the 1997 special charge), as a percentage of revenues ("EBITDA
Margin"), was approximately 37%. From 1992 through 1997, the Company recorded
compound annual growth in revenues and EBITDA (excluding the 1997 special
charge), of approximately 6.6% and 12%, respectively. The Company has achieved
this growth through a combination of expanding revenues in existing geographic
areas, strategic acquisitions and implementing cost controls and ongoing expense
reduction efforts at existing and acquired newspapers.
The majority of the Company's daily newspapers have been published for
more than 100 years and are established franchises with strong identities in the
communities they serve. For example, the NEW HAVEN REGISTER, the Company's
largest newspaper based on daily circulation, has roots in the New Haven,
Connecticut area dating back to 1755. In many cases, the Company's daily
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newspapers are the only general circulation daily newspapers published in their
respective communities. The Company's non-daily publications serve well defined
suburban circulation areas and include the St. Louis, Missouri SUBURBAN JOURNALS
(the "JOURNALS"), the largest group of weekly newspapers in the United States
based on total distribution.
The Company manages its newspapers to best serve the needs of its local
readers and advertisers. The editorial content of its newspapers is tailored to
the specific interests of each community served and includes coverage of local
youth, high school, college and professional sports, as well as local business,
politics, entertainment, and culture. The Company maintains high product quality
standards, using extensive process color and compelling graphic design to
attract new readers and to more fully engage existing readers. The Company's
newspapers typically are produced using advanced prepress pagination technology
and are printed on efficient, high-speed presses.
The Company's revenues are derived from advertising (approximately
74.3% of 1997 revenues), paid circulation, including single copy sales and
subscription sales (22.3% of 1997 revenues), and commercial printing and other
(3.4% of 1997 revenues). The Company's advertiser base is predominantly local.
The Company's newspapers seek to produce desirable results for local advertisers
by targeting readers based on certain geographic and demographic
characteristics. The Company seeks to increase readership, and thereby generate
traffic for its advertisers, by focusing on high product quality, local content
and creative and interactive promotions. The Company promotes single copy sales
of its newspapers because it believes that such sales have higher readership
than subscription sales, and that single copy readers tend to be more active
consumers of goods and services, as indicated by a Newspaper Association of
America ("NAA") study. Single copy sales also tend to generate higher profits
than subscription sales, as single copy sales generally have higher per unit
prices and lower associated distribution costs. Subscription sales, which
provide readers with the convenience of home delivery, are an important
component of the Company's circulation base. The Company also publishes numerous
special sections and niche and special interest publications. Such publications
tend to increase readership within targeted demographic groups and geographic
areas. The Company believes that as a result of these strategies, its newspapers
represent an attractive and cost-effective medium for its readers and
advertisers.
The Company's advertising revenues in 1997 were derived primarily from
a broad group of local retailers (approximately 56.4%) and classified
advertisers (approximately 39.1%). No advertiser accounted for more than 2% of
the Company's 1997 advertising revenues. The Company believes that because its
newspapers rely on a broad base of local retail and local classified advertising
rather than more volatile national and major account advertising, its
advertising revenues tend to be relatively stable.
Substantially all of the Company's operations relate to newspaper
publishing. In addition to its daily newspapers and non-daily publications, the
Company owns other businesses that complement and enhance its publishing
operations, consisting of four commercial printing operations as well as a
company which develops application software for the newspaper industry.
OVERVIEW OF OPERATIONS
The Company's operations are currently clustered in five geographic
areas:
CONNECTICUT. The Company owns the NEW HAVEN REGISTER, an approximately
100,273 circulation daily newspaper, 4 suburban daily newspapers, 51 non-daily
publications and one commercial printing company. The suburban daily newspapers
in this cluster are THE HERALD (New Britain), THE BRISTOL PRESS, THE REGISTER
CITIZEN (Torrington) and THE MIDDLETOWN PRESS. The five daily newspapers have
aggregate daily and Sunday circulation of approximately 162,948 and 171,873,
respectively. The 51 suburban and community non-daily publications have
aggregate distribution of approximately 712,815. Combined, the Company's
Connecticut daily newspapers and non-daily publications serve a state-wide
audience with concentrations in the west (Litchfield and Fairfield Counties)
through Hartford and its suburban areas to the greater New Haven area and the
Connecticut shoreline from New Haven northeast to New London.
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The following table sets forth information regarding the Company's
publications in Connecticut:
<TABLE>
<CAPTION>
Year Year Daily Sunday Non-Daily
PUBLICATION ORIGINATED(1) ACQUIRED LOCATION CIRCULATION(2) CIRCULATION(2) DISTRIBUTION(3)
----------- ------------- -------- -------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
NEW HAVEN REGISTER.............. 1755 1989 New Haven 100,273 113,269
THE HERALD...................... 1881 1995 New Britain 23,197 46,519
THE BRISTOL PRESS............... 1871 1994 Bristol 16,378
THE REGISTER CITIZEN............ 1889 1993 Torrington 12,840 12,085
THE MIDDLETOWN PRESS............ 1884 1995 Middletown 10,260
Shore Line Newspapers
13 publications.............. 1877 1995 Guilford 145,540
Elm City Newspapers
8 publications.............. 1931 1995 Milford 50,486
Imprint Newspapers
15 publications............ 1931 1995 Bristol 132,224
Foothills Trader
3 publications............. 1965 1995 Torrington 50,300
CONNECTICUT'S COUNTY KIDS 1989 1996 Westport 40,000
EAST HARTFORD GAZETTE........... 1885 1995 East Hartford 19,763
THOMASTON EXPRESS............... 1874 1994 Thomaston 4,537
TMC (9 publications)............ 269,965
---------- --------- -------
TOTALS.......................... 162,948 171,873 712,815
========== ========= =======
</TABLE>
(1) For merged properties and newspaper groups, the year given reflects the
date of origination for the earliest publication.
(2) Circulation averages for the six months ended September 30, 1997,
according to ABC Fas-Fax Report.
(3) Non-daily distribution includes both paid (53,174) and free (659,701)
distribution. Paid and free non-daily distribution for Shore Line and Elm
City Newspapers reflects the monthly average for September 1997. All other
non-daily distribution reflects average distribution for December 1997.
The NEW HAVEN REGISTER is the Company's largest newspaper based on
daily circulation and is the second largest daily circulation newspaper in
Connecticut. The NEW HAVEN REGISTER serves a primary circulation area comprised
of the majority of New Haven County and portions of Middlesex and New London
Counties. As a result of its proximity to the large media markets of New York
City, Boston and Hartford, New Haven has only one locally licensed television
station (which serves a state-wide, rather than a local, audience) and a
fragmented radio market. Consequently, the Company believes that the NEW HAVEN
REGISTER is a powerful local news and advertising franchise for the greater New
Haven area. THE HERALD, THE BRISTOL PRESS and THE MIDDLETOWN PRESS serve
contiguous areas between New Haven and Hartford.
The Connecticut publications benefit from considerable cross-selling of
advertising as well as from news-gathering and production synergies. The NEW
HAVEN REGISTER gathers state-wide news for all of the Company's Connecticut
newspapers; the newspapers cross-sell advertising through a one-order, one-bill
system; and THE HERALD and THE MIDDLETOWN PRESS are printed at one facility, as
are THE REGISTER CITIZEN and THE BRISTOL PRESS. Moreover, in August 1996, in
order to take advantage of the contiguous nature of the geographic areas served
by THE HERALD, THE BRISTOL PRESS and THE MIDDLETOWN PRESS, the Company started a
Sunday newspaper, THE HERALD PRESS, serving readers of these three dailies with
three zoned editions and having Sunday circulation of approximately 46,519 as of
September 30, 1997.
OHIO. The Company owns three daily newspapers and a commercial printing
operation in Ohio. The daily newspapers are THE NEWS-HERALD (Lake County), THE
MORNING JOURNAL (Lorain) and THE TIMES REPORTER (Dover-New Philadelphia). The
Ohio newspapers have aggregate daily and Sunday circulation of approximately
112,748 and 131,926, respectively.
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The following table sets forth information regarding the Company's
publications in Ohio:
<TABLE>
<CAPTION>
Year Year Daily Sunday Non-Daily
PUBLICATION ORIGINATED(1) ACQUIRED LOCATION CIRCULATION(2) CIRCULATION (2) DISTRIBUTION(3)
----------- ------------- -------- -------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
THE NEWS-HERALD....... 1878 1987 Lake County 50,444 63,226
THE MORNING JOURNAL .. 1921 1987 Lorain 38,532 42,618
THE TIMES REPORTER.... 1903 1987 Dover-New 23,772 26,082
Philadelphia
TMC (3 publications).. 63,246
------- ------- ------
TOTALS................ 112,748 131,926 63,246
======= ======= ======
</TABLE>
____________________________
(1) For merged properties and newspaper groups, the year given reflects the
date of origination for the earliest publication.
(2) Circulation averages for the six months ended September 30, 1997, according
to ABC Fas-Fax Report.
(3) Non-daily distribution is solely free distribution and reflects average
distribution for December 1997.
THE NEWS-HERALD and THE MORNING JOURNAL serve areas located directly
east and west of Cleveland, respectively. THE NEWS-HERALD, which is one of
Ohio's largest suburban newspapers, serves communities located in Lake and
Geauga Counties, two of Ohio's four most affluent counties. The Company believes
that each of its three Ohio newspapers benefits from a fragmented local media
environment. The Company further believes that THE NEWS-HERALD and THE MORNING
JOURNAL compete effectively with Cleveland's major metropolitan newspaper due to
their focus on coverage of local news and sports. The Company's Ohio cluster
benefits from a variety of synergistic opportunities, including the
cross-selling of advertising and editorial coverage.
PHILADELPHIA AND SURROUNDING AREAS. The Company owns four daily
newspapers and 29 non-daily publications serving areas surrounding Philadelphia,
Pennsylvania. These publications include, in Pennsylvania, the DAILY LOCAL NEWS
(West Chester), THE TIMES HERALD (Norristown), THE PHOENIX (Phoenixville), a
group of non-daily newspapers serving Philadelphia's affluent Main Line and a
group of 17 weekly newspapers acquired in December 1997, serving suburban
Philadelphia and central and southern New Jersey; and also in New Jersey, THE
TRENTONIAN (Trenton). The December 1997 acquisition included two commercial
printing companies, one of which prints the 17 weekly newspapers and one of
which is a premium quality sheet-fed printing operation. The four daily
newspapers have aggregate daily and Sunday circulation of approximately 122,490
and 99,084, respectively. This cluster's non-daily distribution totals
approximately 274,693.
The following table sets forth information regarding the Company's
publications in Philadelphia and surrounding areas:
<TABLE>
<CAPTION>
Year Year Daily Sunday Non-Daily
PUBLICATION ORIGINATED(1) ACQUIRED LOCATION CIRCULATION(2) CIRCULATION(2) DISTRIBUTION(3)
----------- ------------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
DAILY LOCAL NEWS.......... 1872 1986 West Chester, PA 33,975 32,263
THE TIMES HERALD.......... 1799 1993 Norristown, PA 23,886 20,072
THE PHOENIX............... 1888 1986 Phoenixville, PA 4,333
THE TRENTONIAN............ 1945 1985 Trenton, NJ 60,296 46,749
InterCounty Newspaper Group
17 publications....... 1869 1997 Bristol, PA 100,545
Suburban Philadelphia
8 publications......... 1885 1986 Suburban 101,801
Philadelphia
TMC (4 publications)...... 72,347
------- ------- -------
TOTALS.................... 122,490 99,084 274,693
======= ====== =======
</TABLE>
_________________________
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(1) For merged properties and newspaper groups, the year given reflects the
date of origination for the earliest publication.
(2) Circulation averages for the six months ended September 30, 1997, according
to ABC Fas-Fax Report.
(3) Non-daily distribution includes both paid (52,691) and free (222,002)
distribution. Non-daily distribution reflects average distribution for
December 1997.
The Company's Pennsylvania publications are all located within 30 miles of
Philadelphia. Each of the Company's Pennsylvania daily properties and a majority
of its non-daily publications are located within 20 miles of the area's largest
retail complex, the King of Prussia Plaza and Court, which is the largest mall
on the East Coast of the United States in terms of total square footage. THE
TRENTONIAN is published in Trenton, the capital of New Jersey, located 40 miles
north of Philadelphia and 75 miles south of New York City. THE TRENTONIAN'S
tabloid format and emphasis on local sports allow it to compete effectively with
the other local daily newspaper in Trenton. The Company believes that its
newspapers in this cluster compete effectively in the areas they serve with
Philadelphia's major metropolitan newspapers and radio stations due to their
focus on local news and sports. The Company's Philadelphia cluster cross-sells
advertising. The nature of the cluster has allowed for the implementation of
significant cost saving programs. For example, THE TIMES HERALD and several
non-daily suburban publications share printing facilities, as do the DAILY LOCAL
NEWS and THE PHOENIX. THE TRENTONIAN'S television guide is printed at the DAILY
LOCAL NEWS facility. All of these publications share certain news-gathering
resources.
GREATER ST. LOUIS AREA. The Company owns the JOURNALS, the largest
group of suburban and community non-daily newspapers in the United States (in
terms of total distribution); one daily newspaper; the LADUE NEWS, a weekly
newspaper acquired in December 1997; and six other non-daily publications in the
greater St. Louis area. The JOURNALS are a group of 40 newspapers which are
distributed two to three times each week in the St. Louis suburban areas,
including communities in Illinois, with total weekly distribution of
approximately 1.6 million. The Company's daily newspaper in this cluster, THE
TELEGRAPH (Alton, IL), has daily and Sunday circulation of approximately 28,552
and 30,876, respectively.
The following table sets forth information regarding the Company's publications
in the greater St. Louis area:
<TABLE>
<CAPTION>
Year Year Daily Sunday Non-Daily
PUBLICATION ORIGINATED(1) ACQUIRED LOCATION CIRCULATION(2) CIRCULATION(2) DISTRIBUTION(3)
----------- ------------- -------- -------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Suburban Newspapers of
Greater St. Louis (73
editions of 40 JOURNALS) 1922 1984 St. Louis, MO 1,585,321
THE TELEGRAPH............. 1836 1985 Alton, IL 28,552 30,876
LADUE NEWS................ 1981 1997 Ladue, MO 39,500
PERFORMANCE NOTES...... 1992 1997 Ladue, MO 19,550
DIRECT DECOR........... 1994 1997 Ladue, MO 3,000
GENTLEMEN'S CLUB....... 1997 1997 Ladue, MO 5,000
WEST COUNTY KIDS.......... 1996 1996 St. Louis, MO 30,000
(4)
TMC (2 publications)...... 32,000
-------- ------- ---------
TOTALS.................... 28,552 30,876 1,714,371
======== ======== =========
</TABLE>
- -------------------
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(1) For merged properties and newspaper groups, the year given reflects the
date of origination for the earliest publication.
(2) Circulation averages for the six months ended September 30, 1997, according
to ABC Fas-Fax Report.
(3) Non-daily distribution includes both paid 8,390 and free 1,705,981
distribution, and reflects September 1997 net distribution.
(4) Established by the Company in 1996.
The JOURNALS have total distribution of approximately 950,000 mid-week
and approximately 640,000 on Sunday, for total weekly distribution of
approximately 1.6 million. The JOURNALS reach approximately 90% of the homes in
the greater St. Louis area. The JOURNALS have received national recognition and
have been studied by domestic and foreign publishers as a model of successful
neighborhood newspapers. Due to St. Louis' character as a city of neighborhoods
(92 municipalities comprise St. Louis County alone), the Company believes the
JOURNALS offer local retailers a cost-effective way to reach targeted
demographic groups, which enables the JOURNALS to compete effectively with the
major metropolitan daily and other weekly newspapers in the area. The Company
believes that the area's largest radio station competes primarily for major
accounts rather than small advertisers and, thus, is not a significant direct
competitor. The Company believes that the JOURNALS' targeted, highly localized
approach places the JOURNALS in a strong competitive position. THE TELEGRAPH
serves a community located in southeast Illinois, within the greater St. Louis
area and which is connected by a bridge to St. Louis. LADUE NEWS, acquired in
December 1997, serves the affluent suburbs west of St. Louis.
Suburban and community non-daily newspapers, such as the JOURNALS, have
several advantages over national and major metropolitan daily newspapers,
including an intrinsically lower cost structure, the ability to publish only on
what are for dailies the most profitable days (i.e. one midweek day and Sunday)
and the ability to avoid expensive wire services and syndicated feature
material. Moreover, suburban and community non-daily newspapers provide an
alternative outlet for local merchants and advertisers to advertise in their own
local areas at costs lower than those of national and major metropolitan
newspapers. Thus, the JOURNALS have a broader advertiser base and do not rely to
the same degree as national and major metropolitan daily newspapers on major
accounts for advertising revenue.
CENTRAL NEW ENGLAND. The Company owns five daily and 11 non-daily
publications in the central New England area. The Company's publications in this
cluster include THE HERALD NEWS (Fall River, MA), the TAUNTON DAILY GAZETTE
(Taunton, MA), THE CALL (Woonsocket, RI), THE TIMES (Pawtucket, RI), THE RECORD
(Troy, NY) and a group of weekly newspapers serving the Narragansett, Rhode
Island area. The five daily newspapers have aggregate daily circulation of
approximately 105,734 and aggregate Sunday circulation of approximately 78,207.
The non-daily publications in this cluster have total distribution of
approximately 148,867.
The following table sets forth information regarding the Company's
publications in central New England.
<TABLE>
<CAPTION>
Year Year Daily Sunday Non-Daily
PUBLICATION ORIGINATED(1) ACQUIRED LOCATION CIRCULATION(2) CIRCULATION(2) DISTRIBUTION(3)
----------- ------------- -------- -------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
THE HERALD NEWS........... 1872 1985 Fall River, MA 29,536 31,299
TAUNTON DAILY GAZETTE 1848 1996 Taunton, MA 15,002
THE CALL.................. 1892 1984 Woonsocket, RI 19,153 18,263
THE TIMES................. 1885 1984 Pawtucket, RI 16,512
THE RECORD................ 1896 1987 Troy, NY 25,531 28,645
Suburban Rhode Island
Newspapers
6 non-daily publications 1854 1995 Wakefield, RI 38,773
TMC (5 publications)...... 110,094
-------- ------ -------
TOTALS.................... 105,734 78,207 148,867
======== ====== =======
</TABLE>
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(1) For merged properties and newspaper groups, the year given reflects the
date of origination for the earliest publication.
(2) Circulation averages for the six months ended September 30, 1997, according
to ABC Fas-Fax Report.
(3) Non-daily distribution includes both paid (29,267) and free (119,600)
distribution. Paid and free non-daily distribution for Southern Rhode
Island Newspapers (except THE WESTERLY SHOPPER) reflects the June 30, 1997
CAC Audit report. The other non-daily distribution figures reflect average
distribution for December 1997.
THE HERALD NEWS and the TAUNTON DAILY GAZETTE are situated 14 miles
apart. Each is approximately 50 miles south of Boston, Massachusetts and 20
miles east of Providence, Rhode Island. No local television stations exist in
the communities which the central New England newspapers serve. Further, the
Company believes that its central New England properties benefit from fragmented
local radio markets. As a result, the Company believes that each of its
newspapers is a significant media outlet in its respective community, thereby
making these newspapers attractive vehicles for area advertisers. The central
New England newspapers benefit from advertising cross-selling; moreover, the
Company's Massachusetts and Rhode Island newspapers benefit from significant
production and editorial synergies. For example, THE TIMES and THE CALL are
printed at the same facility, as are the TAUNTON DAILY GAZETTE and THE HERALD
NEWS. Moreover, THE TIMES, THE CALL and the group of paid suburban and community
non-daily newspapers serving southern Rhode Island all share certain news
gathering resources. The Company launched a Sunday edition of the TAUNTON DAILY
GAZETTE, acquired in December 1996, in March 1998.
ADVERTISING
Substantially all the Company's advertising revenues are derived from a
diverse group of local retailers and classified advertisers. The Company
believes that because its newspapers rely on a broad base of local retail and
local classified advertising rather than more volatile national and major
account advertising, its advertising revenues tend to be relatively stable.
Local advertising is more stable than national advertising because a community's
need for local services provides a stable base of local businesses and because
local advertisers generally have fewer effective advertising vehicles from which
to choose. Advertising revenues accounted for approximately 74.3% of the
Company's total revenues for 1997. The Company's advertising rate structures
vary among its publications and are a function of various factors, including
results achieved for advertisers, local market conditions and competition, as
well as circulation, readership, demographics and type of advertising (whether
classified or display). In 1997, local and regional advertising accounted for
the largest share of the Company's advertising revenues (56.4%), followed by
classified advertising (39.1%), national advertising (2.3%) and legal
advertising (2.2%). The Company's advertising revenues are not reliant upon any
one company or industry, but rather are supported by a variety of companies and
industries, including realtors, car dealerships, grocery stores and other local
businesses. No advertiser accounted for more than 2% of the Company's total 1997
advertising revenues. The Company's corporate management works with its local
newspaper management to approve advertising rates and to establish goals for
each year during a detailed budget process. Local management is given little
latitude for discounting from the approved rates. Corporate management also
works with local advertising staff to develop marketing kits, presentations and
third-party research studies. A portion of the compensation for the Company's
publishers is based upon increasing advertising revenues. The Company stresses
the timely collection of receivables, and sales compensation depends in part
upon performance relative to goals and timely collection of advertising
receivables. Additionally, corporate management facilitates the sharing of
advertising resources and information across the Company's publications. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Certain Factors Which May Affect the Company's Future Performance
- -- Dependence on Local Economies."
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CIRCULATION
Substantially all of the Company's circulation revenues are derived
from home delivery sales of publications to subscribers and single copy sales
made through retailers and vending racks. Circulation accounted for
approximately 22.3% of the Company's total revenues in 1997. Approximately 68%
of 1997 circulation revenues were derived from subscription sales and
approximately 32% from single copy sales. Single copy sales rates currently
range from $.25 to $.50 per daily copy and $.75 to $1.75 per Sunday copy. The
Company promotes single copy sales of its newspapers because it believes that
such sales have higher readership than subscription sales and that single copy
readers tend to be more active consumers of goods and services, as indicated by
an NAA study. Single copy sales also tend to generate a higher profit than
subscription sales, as single copy sales generally have higher per unit prices
and lower associated distribution costs. In 1997, the Company had total paid
daily circulation of 532,472, paid Sunday circulation of 511,966 and non-daily
distribution of approximately 2.9 million, most of which is distributed free of
charge. The Company's corporate management works with its local newspaper
management to establish subscription and single copy rates. In addition, the
Company tracks rates of newspaper returns and customer service calls through
formal reports which are reviewed weekly in an effort to optimize the number of
newspapers available for sale and to improve delivery and customer service. The
Company also implements creative and interactive programs and promotions to
increase readership, through both subscription and single copy sales.
Circulation has generally declined throughout the newspaper industry in recent
years, and the Company's newspapers have generally experienced this trend, even
as overall operating performance of its newspapers has improved. The Company
seeks to maximize the overall operating performance rather than maximizing
circulation of its individual newspapers.
OTHER OPERATIONS
The Company owns and operates four commercial printing facilities:
Imprint Printing in North Haven, Connecticut; Midwest Offset in New
Philadelphia, Ohio; Nittany Valley Offset in State College, Pennsylvania; and
InterPrint in Bristol, Pennsylvania. These operations also print certain of the
Company's publications. The commercial printing operations accounted for
approximately 3.4% of the Company's 1997 revenues. The Company also owns
Integrated Newspaper Systems, Inc., a company which develops application
software for the newspaper industry.
EMPLOYEE RELATIONS
The Company employs approximately 4,500 employees.
RAW MATERIALS
The basic raw material for newspapers is newsprint. The Company's
newsprint consumption (excluding paper consumed in the Company's commercial
printing operations) totaled approximately $33.3 million in 1997, which was
approximately 9.6% of the Company's newspaper revenues. In 1997, the Company
consumed approximately 61,500 metric tons of newsprint. The Company has no
long-term contracts to purchase newsprint. Generally, the Company has in the
past and currently purchases all of its newsprint from two suppliers, although
in the future the Company may purchase newsprint from other suppliers. The
Company believes that concentrating its newsprint purchases in this way provides
a more secure newsprint supply and lower per unit newsprint prices. The Company
also believes that it purchases newsprint at price levels lower than those which
are available to individually owned small metropolitan and suburban daily
newspapers and suburban and community non-daily publications and consistent with
price levels generally available to the largest newsprint purchasers. The
available sources of newsprint have been, and the Company believes will continue
to be, adequate to supply the Company's needs. The inability of the Company to
obtain an adequate supply of newsprint in the future could have a material
adverse effect on the financial condition and results of operations of the
Company. Historically, the price of newsprint has been cyclical and volatile.
The Company's average cost of newsprint reflected increases of approximately 34%
and 13%, respectively, in 1995 and 1996 and a decrease of approximately 18% in
1997, in each case compared to the previous year. In January 1998, certain
newsprint suppliers announced an April 1998 increase of $50 per metric ton. In
addition, in February 1998, a major supplier announced a price increase of $40
per metric ton as of April 1, 1998. The Company believes that if any price
increase is sustained in the industry, the Company will also be impacted by such
8
<PAGE>
increase. The Company is unable to predict whether, or to what extent, any
increase will be sustained. 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. The Company also has reduced fringe
circulation in response to increased newsprint prices, as it is the Company's
experience that such circulation does not provide adequate response for
advertisers. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Certain Factors Which May Affect the Company's
Future Performance -- Price and Availability of Newsprint."
SEASONALITY
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.
COMPETITION
While many of the Company's small metropolitan and suburban daily
newspapers are the only daily newspapers of general circulation published in
their respective communities, they compete within their own geographic areas
with other daily newspapers of general circulation published in adjacent or
nearby cities and towns. Competition for advertising expenditures and paid
circulation comes from local, regional and national newspapers, shoppers,
television, radio, direct mail, on-line services and other forms of
communication and advertising media. Since 1995, the Company has been developing
on-line publications based on its newspapers and is seeking to attract
advertising for its on-line publications. The Company has published an on-line
version of the NEW HAVEN REGISTER since 1995. In addition, by December 31, 1997,
the Company had established an on-line editorial presence and a full on-line
classified advertising service for each of its daily newspapers, the JOURNALS,
Southern Rhode Island Newspapers in Wakefield, Rhode Island and Suburban
Publications in Wayne, Pennsylvania. Competition for newspaper advertising
expenditures is largely based upon advertiser results, readership, advertising
rates, demographics and circulation levels, while competition for circulation
and readership is based largely upon the content of the newspaper, its price and
the effectiveness of its distribution. The Company's non-daily publications,
including shoppers and real estate guides, primarily compete with direct mail
advertising, shared mail packages and other private advertising delivery
services. As with daily newspapers, competition for advertising expenditures for
suburban and community non-daily publications is largely based upon advertiser
results, readership, advertising rates, demographics and circulation levels. The
Company believes that, because of the relative competitive position of its
suburban and community non-daily publications in the communities which they
serve, such publications generally have been able to compete effectively with
other forms of media advertising. Commercial printing, a highly competitive
business, is largely driven by price and quality. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Certain Factors
Which May Affect the Company's Future Performance -- Newspaper Industry
Competition."
ENVIRONMENTAL MATTERS
As is the case with other newspaper and similar publication companies,
the Company is subject to a wide range of federal, state and local environmental
laws and regulations pertaining to air and water quality, storage tanks and the
management and disposal of wastes at its facilities. To the best of the
Company's knowledge, its operations are in material compliance with applicable
environmental laws and regulations as currently interpreted. The Company
believes that continued compliance with these laws and regulations will not have
a material adverse effect on the Company's financial condition or results of
operations. The Company is in the process of developing a plan to monitor
groundwater contamination which has been detected at one of its facilities. The
Company believes that the remediation of any such groundwater contamination will
not have a material adverse effect on its financial condition or results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Certain Factors Which May Affect the Company's Future
Performance -- Environmental Matters."
9
<PAGE>
REGULATION
Paid circulation newspapers which are delivered by second class mail
are required to obtain permits from, and file an annual statement of ownership
and circulation with, the United States Postal Service. There is no significant
regulation with respect to acquisition of newspapers, other than filings under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, if certain
threshold requirements under such Act are satisfied.
ITEM 2. PROPERTIES.
The Company owns and operates 91 facilities used in the course of
producing and publishing its daily and non-daily publications. Approximately 57
of the Company's facilities are leased for terms ranging from one to six years.
These leased facilities range in size from approximately 250 to 70,000 square
feet. The location and approximate size of the principal physical properties
used by the Company at December 31, 1997, as well as the expiration date of the
leases relating to such properties which the Company leases are set forth below:
<TABLE>
<CAPTION>
APPROXIMATE AREA IN SQUARE FEET
--------------------------------------------
LOCATION OWNED SQUARE FEET LEASED SQUARE FEET LEASE EXPIRATION DATE
-------- ----------------- ------------------ ---------------------
<S> <C> <C> <C> <C>
New Haven, CT......................... 205,000(1)(3)
New Britain, CT....................... 44,899(1)(3)
Bristol, CT........................... 40,000(1)(4)
Torrington, CT........................ 36,120(1)(3)
Middletown,CT......................... 30,000(1)(4)
North Haven, CT....................... 24,000(3) 10,000(5) 12/31/99
Guilford, CT.......................... 18,400(1)
West Hartford, CT..................... 14,200(1)
Milford, CT........................... 11,745(1)
Willoughby, OH........................ 113,400(1)(3)
Lorain, OH............................ 68,770(1)(3)
New Philadelphia, OH.................. 85,567(1)(3)
Trenton, NJ........................... 54,642(1)(3) 18,889(2) 11/30/00
Turnersville, NJ...................... 11,032(1)
West Chester, PA...................... 34,000(1)(3)
Norristown, PA........................ 40,000(1)(3)
Phoenixville, PA...................... 10,696(1)(4)
Wayne, PA............................. 11,980(1)(4)
State College, PA..................... 23,365(1) (3) (4)
Bristol, PA........................... 70,000(1) (4) (5) 12/31/04
Fall River, MA........................ 57,571(1)(3)
Taunton, MA........................... 21,100(1)(4)
Troy, NY.............................. 50,000(1)(4)
Woonsocket, RI........................ 49,338(1)(3)
Pawtucket, RI......................... 41,096(1)(4)
Wakefield, RI......................... 11,750(1)(4)
St. Louis, MO......................... 69,415(1)(3) 22,043(1) 12/31/00
Woodson Terrace, MO................... 5,000(1) 02/09/99
St. Charles, MO....................... 4,298(1) 06/30/99
Collinsville, IL...................... 14,587(1)
Granite City, IL...................... 17,550(1)
Belleville, IL........................ 8,400(1)
Alton, IL............................. 48,000(1)(3)
</TABLE>
- ------------------------
(1) Offices
(2) Corporate headquarters
(3) Printing plant
(4) Production facility
(5) Warehouse
The Company believes that all of its properties are in generally good
condition, are well maintained and are adequate for their current operations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
10
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in a number of litigation matters which have
arisen in the ordinary course of business. The Company believes that the outcome
of these legal proceedings will not have a material adverse effect on the
Company's financial condition or results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Certain Factors Which May Affect the Company's Future Performance --
Environmental Matters."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information as of March 25, 1998
with respect to each person who is an executive officer of the Company:
<TABLE>
<CAPTION>
NAME POSITION
---- --------
<S> <C>
Robert M. Jelenic....................................... Chairman, President and Chief Executive Officer
Jean B. Clifton......................................... Executive Vice President, Chief Financial Officer,
Treasurer and Secretary
Allen J. Mailman........................................ Vice President, Technology
William J. Higginson.................................... Vice President, Production
William J. Rush......................................... Vice President of the Company and Publisher and Chief
Executive Officer, NEW HAVEN REGISTER
John Collins............................................ Vice President of Budgets and Planning
Diane B. Pardee......................................... Vice President of Corporate Communications
</TABLE>
ROBERT M. JELENIC is the Chairman, President and Chief Executive Officer
of the Company. He has been President and Chief Executive Officer since the
inception of the Company, and has been a director of the Company and its
predecessors for more than the past five years. A Chartered Accountant, Mr.
Jelenic began his business career with Arthur Andersen in Toronto, Canada. Mr.
Jelenic has 22 years of senior management experience in the newspaper industry,
including 12 years with the Toronto Sun Publishing Corp. Mr. Jelenic graduated
Honors Bachelor of Commerce from Laurentian University, Sudbury, Ontario. Mr.
Jelenic is a director of the NAA and Chairman of the NAA's Technology Committee.
Mr. Jelenic is 47 years old.
JEAN B. CLIFTON is Executive Vice President, Chief Financial Officer,
Treasurer and Secretary of the Company, positions she has held since the
inception of the Company, and has been a director of the Company and its
predecessors for more than the past five years. Prior to joining the Company,
Ms. Clifton, a Certified Public Accountant, had been employed by Arthur Young &
Co. (a predecessor to Ernst & Young LLP). She has 12 years of senior management
experience in the newspaper industry. Ms. Clifton is a graduate of the
University of Michigan School of Business Administration. Ms. Clifton is a
member of the Postal Affairs Committee and the Employee Benefits Committee of
the NAA. Ms. Clifton is 37 years old.
ALLEN J. MAILMAN is Vice President of Technology of the Company, a
position he has held since March 1994. From the Company's inception in 1990 to
March 1994, Mr. Mailman was Corporate Director of Information Services of the
Company. He has 23 years of management experience in the newspaper industry,
including 14 years with Newhouse Publications. Mr. Mailman received a Bachelor
of Arts Degree in Economics and Mathematics from the University of Oklahoma. Mr.
Mailman is 51 years old.
WILLIAM J. HIGGINSON is Vice President of Production of the Company, a
position he has held since July 1995. From January 1994 to July 1995, he was
Corporate Production Director of the Company and, from 1991 to January 1994, was
Production Director of the NEW HAVEN REGISTER. Mr. Higginson has 25 years of
experience in the newspaper industry. Mr. Higginson is 42 years old.
11
<PAGE>
WILLIAM J. RUSH is Vice President of the Company, a position he has
held since January 1996, and Publisher and Chief Executive Officer of the NEW
HAVEN REGISTER, a position he has held since 1990. Mr. Rush, with 40 years of
experience in the newspaper industry, has held, at various times, the top
executive position at seven newspapers in three states. Mr. Rush received a
Bachelor of Arts degree from the Ohio State University School of Journalism. Mr.
Rush is 61 years old.
JOHN COLLINS is Vice President of Budgets and Planning of the Company,
a position he has held since April 1996. From June 1995 to April 1996, Mr.
Collins was Vice President, Finance of the Company and, from December 1991 to
June 1995, was Chief Financial Officer of the NEW HAVEN REGISTER. Mr. Collins
received a Bachelor of Science Degree in Commerce and Finance from Wilkes
College, Wilkesbarre, PA. Mr. Collins has 20 years of experience in the
newspaper industry, including 10 years with Times Mirror Corporation. Mr.
Collins is 45 years old.
DIANE B. PARDEE is Vice President of Corporate Communications of the
Company, a position she has held since August 1996. Prior to her present
position, Ms. Pardee was Director of Corporate Communications of the Company
from September 1993 to August 1996, Director of Public Affairs for the Business
Committee for the Arts, Inc. from April 1992 to June 1993 and prior to that, she
was Editor-in-Chief of UNIQUE HOMES magazine. Ms. Pardee received a Bachelor of
Arts degree in English with honors from East Stroudsburg University, East
Stroudsburg, PA. Ms. Pardee is 38 years old.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock, par value $0.01 per share (the "Common
Stock"), commenced trading on the New York Stock Exchange on May 8, 1997 under
the symbol "JRC." The following table reflects the high and low sale prices for
the Common Stock, based on the daily composite listing of stock transactions for
the New York Stock Exchange, for the periods indicated:
1997 HIGH LOW
---- ---- ---
(Per Share)
Fourth Quarter............................ $21 $16-3/16
Third Quarter........................ .... 19-5/8 16-1/8
Second Quarter (commencing May 8)........ 19-7/8 14
On March 26, 1998, there were approximately 55 stockholders of record of
the Common Stock. The Company believes that it has approximately 2,400
beneficial owners.
The Company has not paid dividends on the Common Stock and does not
anticipate paying dividends on the Common Stock in the foreseeable future. The
Company intends to retain future earnings for reinvestment in the Company. In
addition, the Credit Agreement (as hereinafter defined) places limitations on
the Company's ability to pay dividends or make any other distributions on the
Common Stock. See Note 4 of "Notes to Consolidated Financial Statements." Any
future determination as to the payment of dividends will be subject to such
prohibitions and limitations, will be at the discretion of the Company's Board
of Directors and will depend on the Company's results of operations, financial
condition, capital requirements and other factors deemed relevant by the Board
of Directors.
The Company is a holding company which conducts its operations through
direct and indirect subsidiaries. The Company's available cash will depend upon
the cash flow of its subsidiaries and the ability of such subsidiaries to make
funds available to the Company in the form of loans, dividends or otherwise. The
subsidiaries are separate and distinct legal entities and have no obligation,
contingent or otherwise, to make funds available to the Company, whether in the
form of loans, dividends or otherwise. The Credit Agreement is secured by the
common stock and certain assets of the Company's operating subsidiaries. In
addition, the Company's subsidiaries may, subject to limitations contained in
the Credit Agreement, become parties to financing arrangements which may contain
limitations on the ability of such subsidiaries to pay dividends or to make
loans or advances to the Company. In the event of any insolvency, bankruptcy or
similar proceedings of a subsidiary, creditors of such subsidiary would
generally be entitled to priority over the Company with respect to assets of the
affected subsidiary.
12
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The following selected combined data (except number of newspapers and
per share amounts) for (i) the combined balance sheets of the Company as of
December 31, 1994 and 1993 and the related combined statements of operations and
cash flows for the years then ended have been derived from unaudited financial
statements which include audited financial statements of the Company's material
subsidiaries, and (ii) the combined balance sheet of the Company as of December
31, 1995 and the consolidated balance sheets of the Company as of December 31,
1997 and 1996 and the related consolidated statements of operations and cash
flows for each of the three years in the period ended December 31, 1997 have
been derived from the audited financial statements of the Company. The selected
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements and notes thereto included elsewhere in this Report.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------
1997 1996 1995 1994 1993
---------- -------- -------- ------- -------
(IN THOUSANDS, EXCEPT NUMBER OF NEWSPAPERS AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Advertising........................... $266,914 $ 256,971 $ 249,534 $ 224,071 $ 201,929
Circulation........................... 80,211 79,776 73,797 65,204 58,230
-------- ----------- ---------- ----------- ---------
Newspaper revenues......................... 347,125 336,747 323,331 289,275 260,159
Commercial printing and other.............. 12,282 14,373 15,626 10,875 11,710
-------- ----------- ---------- ----------- ---------
359,407 351,120 338,957 300,150 271,869
Operating expenses:
Salaries and employee benefits........ 114,302 111,626 110,651 105,607 96,252
Newsprint, ink and printing charges... 40,452 50,110 48,243 36,481 35,285
Selling, general and administrative... 30,450 30,993 28,678 25,312 24,017
Depreciation and amortization......... 20,480 20,525 19,178 18,605 24,097
Other................................. 40,783 38,976 38,743 34,187 30,757
Unusual items(1)...................... -- -- -- -- 241,969
Special charge(2)..................... 31,899 -- -- -- --
--------- ----------- ---------- ----------- ---------
278,366 252,230 245,493 220,192 452,377
--------- ----------- ---------- ----------- ---------
Operating income (loss).................... 81,041 98,890 93,464 79,958 (180,508)
Net interest and other expense............. (42,288) (56,472) (64,028) (42,049) (55,295)
--------- ----------- ---------- ----------- ---------
Income (loss) before provision for income
taxes and extraordinary items ............. 38,753 42,418 29,436 37,909 (235,803)
Provision for income taxes................. 15,784 14,309 2,653 4,126 3,067
--------- ----------- ---------- ----------- ---------
Income (loss) before extraordinary
items .............................. 22,969 28,109 26,783 33,783 (238,870)
Extraordinary items (3) .............. -- -- -- (13,100) 7,698
--------- ----------- ---------- ----------- ---------
Net income (loss).......................... $ 22,969 $ 28,109 $ 26,783 $ 20,683 $(231,172)
========= =========== ========== =========== =========
Net income per common share(4)............. $ .51 -- -- -- --
========= =========== ========== =========== =========
Pro forma net income per common share(4)... -- $ .74 -- -- --
========= =========== ========== =========== =========
OTHER DATA:
EBITDA(5) (6).............................. $133,420 $ 119,415 $ 112,642 $ 98,563 $ 5,558
EBITDA Margin(5)........................... 37.1% 34.0% 33.2% 32.8% 31.5%
Net income as adjusted, per common share(5) $ 1.00 -- -- -- --
Capital expenditures....................... $ 9,727 $ 7,675 $ 4,859 $ 8,326 $ 12,457
Net cash provided by operating activities.. 66,030 60,065 26,778 46,268 23,277
Net cash used in investing activities...... 19,447 25,700 50,557 22,614 54,995
Net cash (used in) provided by financing
activities............................ (46,946) (34,441) 24,384 (33,361) 32,055
Number of daily newspapers, end of period.. 18 18 17 16 15
Number of non-daily publications, end of
period................................ 141 118 114 68 65
BALANCE SHEET DATA:
Total current assets....................... $ 77,833 $ 66,035 $ 73,456 $ 56,959 $ 57,901
Property, plant and equipment, net......... 92,620 91,713 99,036 100,842 104,958
Total assets............................... 327,931 305,985 306,434 245,290 244,428
Total current liabilities, less current
maturities of long-term debt............ 39,034 37,720 44,582 33,734 31,028
Total debt, including current maturities... 490,774 654,825 689,256 664,298 625,317
Stockholders'/members' deficit(7).......... (266,242) (423,658) (451,767) (478,548) (437,634)
</TABLE>
13
<PAGE>
- ----------------------
(1) As a result of a restructuring of the Company's debt in 1993 and
management's assessment of certain of the Company's newspaper
properties, the Company reduced the carrying value of its intangible
assets related to prior acquisitions and reflected this charge as an
unusual item in the financial statements.
(2) The special charge of $31.9 million (before benefit for income taxes of
$13.0 million) was 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 1.1 million shares of Common
Stock and a cash portion to satisfy the recipients' tax obligations
arising from the management bonus.
(3) Extraordinary items represent gains or losses related to debt
extinguishment. In connection with certain refinancings, the Company
recognized a net gain of $7.7 million in 1993 and a loss of $13.1
million in 1994 on extinguishment of debt.
(4) Effective December 31, 1997, the Company adopted the requirements of
Financial Accounting Standards Board Statement No. 128, "Earnings Per
Share." Statement 128 requires the disclosure of earnings per share on
a basic and diluted basis. Basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities.
Diluted earnings per share is very similar to the previously required
fully diluted earnings per share. The new pronouncement had no dilutive
effect on earnings per share in 1997 and no impact on the pro forma
earnings per share amount for 1996. 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.
(5) The 1997 other data excludes the effect of the special charge of $31.9
million and reflects (i) the interest savings resulting from the
initial public offering and the Company's amended bank agreement for
the period prior to May 13, 1997; (ii) tax saving strategies the
Company implemented January 1, 1998, as if they had been implemented at
January 1, 1997; and (iii) shares outstanding of 48,437,500 for the
year ended December 31, 1997.
(6) 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 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. Certain covenants contained in the Company's Credit
Agreement are based upon EBITDA. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Note 4
of "Notes to Consolidated Financial Statements."
(7) During 1994, the Company was converted into a limited liability company
and in March 1997 the Company was converted into a C corporation. In
connection with such conversion, the Company's preferred stock and
dividends in arrears thereon were redeemed for approximately $61.6
million.
14
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION
WITH THE HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO AND THE
OTHER FINANCIAL INFORMATION APPEARING ELSEWHERE IN THIS REPORT.
GENERAL
The 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 primarily from advertising, paid circulation and commercial
printing.
As of December 31, 1997, the Company owned and operated 18 daily
newspapers and 141 non-daily publications strategically clustered in five
geographic areas: Connecticut; Ohio; Philadelphia and its surrounding areas; the
greater St. Louis area; and central New England. As of December 31, 1997, the
Company had total paid daily circulation of 532,472, total paid Sunday
circulation of 511,966 and total non-daily distribution of approximately 2.9
million.
The Company's objective is to continue its growth in revenues, EBITDA
and net income. The principal elements of the Company's strategy are to: (i)
expand advertising revenues and readership; (ii) grow by acquisition; (iii)
capture synergies from geographic clustering; and (iv) implement consistent
operating policies and standards. From 1993 through 1997, the Company
successfully completed 9 strategic acquisitions, acquiring six daily newspapers,
73 non-daily publications and three commercial printing companies, two of which
print a number of the non-daily publications. The third is a premium quality
sheet-fed printing company.
The Company believes that small metropolitan and suburban daily
newspapers and suburban and community non-daily newspapers are generally
effective in addressing the needs of local readers and advertisers under widely
varying economic conditions. The Company believes that because its newspapers
rely on a broad base of local retail and local classified advertising rather
than more volatile national and major account advertising, its advertising
revenues tend to be relatively stable.
As part of the Company's strategy, the Company focuses on increasing
advertising and circulation revenues and expanding readership at its existing
and newly acquired properties. The Company has also developed certain operating
policies and standards which it believes have resulted in significant
improvements in the cash flow and profitability of its existing and acquired
newspapers, including: (i) focusing on local content; (ii) maintaining and
improving product quality; (iii) enhancing distribution, and (iv) promoting
community involvement.
RECENT EVENTS AND TRENDS
On December 12, 1997, the Company acquired the LADUE NEWS, Ladue, MO, a
44 times-per-year newspaper serving the affluent suburbs west of St. Louis.
LADUE NEWS has circulation of approximately 40,000, reaching more than 200,000
residents in the affluent communities west of St. Louis, and features coverage
of society, fashion, entertainment, dining, distinctive properties and
gardening. Also included in the acquisition were DIRECT DECOR, a biannual
magazine covering home decor, and GENTLEMEN'S CLUB, a recently launched, monthly
men's style magazine, both of which are distributed to readers of LADUE NEWS;
and PERFORMANCE NOTES, a playbill for St. Louis-area, not-for-profit performing
arts organizations.
On December 22, 1997, the Company completed its acquisition of the
InterCounty Newspaper Group from AUS, Inc., Mt. Laurel, NJ. The InterCounty
Newspaper Group includes 17 weekly newspapers in suburban Philadelphia and
central and southern New Jersey with total weekly distribution of approximately
100,000. Also included in the acquisition were Nittany Valley Offset, a premium
quality sheet-fed printing company in State College, PA, and InterPrint, Inc., a
commercial printing company in Bristol, PA, which prints the InterCounty
newspapers.
15
<PAGE>
On January 2, 1998, the Company acquired the assets of HVM, L.L.C., New
Milford, CT. Included in the acquisition were eight weekly newspapers, two TMC's
(Total Market Coverage vehicles) and three monthly magazines, with combined
distribution of approximately 150,000. HVM, L.L.C. includes Housatonic Valley
Publishing, serving primarily Fairfield and Litchfield Counties, CT, and Putnam
County, NY; and Minuteman Newspapers, serving Westport and Fairfield, CT.
On March 9, 1998, the Company acquired THE SARATOGIAN, Saratoga
Springs, NY, and a weekly newspaper, the COMMUNITY NEWS, serving Clifton Park,
NY, from the Gannett Foundation. THE SARATOGIAN, founded in 1855, has 11,831
daily and 13,822 Sunday circulation, as reported in the September 30, 1997 ABC
Fas-Fax. COMMUNITY NEWS has weekly distribution of approximately 26,000. THE
SARATOGIAN and COMMUNITY NEWS acquisition created the Company's sixth geographic
cluster, in the Capital-Saratoga Region of New York, where the Company also owns
THE RECORD, located in Troy, NY.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
REVENUES. In 1997, revenues increased $8.3 million, or 2.4%, to $359.4
million, primarily due to an increase in advertising revenues. Newspaper
revenues increased $10.4 million, or 3.1%, to $347.1 million in 1997,
principally due to increased classified advertising revenues and the December
1996 acquisition of the TAUNTON DAILY GAZETTE (the "Taunton acquisition").
Circulation revenues increased approximately $435,000, or 0.5%, to $80.2 million
in 1997. Commercial printing and other represented 3.4% of the Company's
revenues in 1997, as compared to 4.1% in 1996.
SALARIES AND EMPLOYEE BENEFITS. Salaries and employee benefit expenses
were 31.8% of the Company's revenues in both 1997 and 1996. Salaries and
employee benefits increased $2.7 million, or 2.4%, in 1997 to $114.3 million,
primarily due to the Taunton acquisition.
NEWSPRINT, INK AND PRINTING CHARGES. In 1997, newsprint, ink and
printing charges were 11.3% of the Company's revenues, as compared to 14.3% in
1996. Newsprint, ink and printing charges decreased $9.7 million, or 19.3%, in
1997 as compared to 1996, primarily due to a decrease of approximately 18.0% in
the average price per ton of newsprint in 1997 as compared with 1996, which
accounts for approximately $7.8 million of this decrease, and a decrease in the
consumption of paper in the Company's commercial printing operations.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses accounted for 8.5% of the Company's revenues in 1997, as
compared to 8.8% in 1996. Selling, general and administrative expenses decreased
by approximately $543,000, or 1.8%, to $30.5 million in 1997. This decrease was
due primarily to higher expenses in 1996 related to the Company's website
development.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
was 5.7% of the Company's revenues in 1997 as compared to 5.8% in 1996, and was
basically flat in 1997 at $20.5 million as compared to 1996.
OTHER EXPENSES. Other expenses accounted for 11.3% of the Company's
revenues in 1997 as compared to 11.1% in 1996. Other expenses increased $1.8
million, or 4.6% in 1997, primarily due to (i) increased circulation expenses,
and (ii) an increase in postage expense due primarily to an increase in preprint
volume.
SPECIAL CHARGE. In connection with the Company's initial public
offering of Common Stock, the Company incurred a special charge in 1997 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 1.1 million
shares of Common Stock and a cash portion to satisfy the recipients' tax
obligations arising from the management bonus.
OPERATING INCOME. Reflecting the effect of the 1997 special charge
described above, operating income decreased $17.8 million, or 18.0%, to $81.0
million as compared to 1996 operating income. On the same basis, operating
income was 22.5% of revenues in 1997 and 28.2% in 1996. Excluding the 1997
special charge, operating income increased $14.1 million, or 14.2%, to $112.9
million in 1997. On the same basis, as a percentage of revenues, operating
income increased to 31.4% in 1997 as compared to 28.2% in 1996.
16
<PAGE>
INTEREST EXPENSE. Interest expense decreased by $14.1 million, or
25.0%, from 1996 to 1997 reflecting a decrease in average borrowing rates and a
decrease of approximately $124 million in average debt outstanding in 1997 as
compared to 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
revised terms of the Company's Credit Agreement. Interest expense as adjusted to
reflect the effects of the Company's initial public offering and Credit
Agreement as if they had occurred on January 1, 1997 would have been $36.1
million for 1997. See "-- Liquidity and Capital Resources."
PROVISION FOR INCOME TAXES. The Company reported effective tax rates of
40.7% and 33.7% for the years ended December 31, 1997 and 1996, respectively. In
1996, the effective tax rate was lower than the combined federal and state
statutory rates primarily due to recognition of tax benefits which had been
offset by a valuation allowance in previous years. If the Company had
implemented its corporate restructuring which was implemented January 1, 1998,
as of January 1, 1997, the Company's effective tax rate for 1997 would have been
approximately 37%.
NET INCOME. Net income as reported on an historical basis was $23.0
million, or $.51 per share, for the year ended December 31, 1997. See "Other
information," below, for net income, as adjusted for the effects of the
Company's initial public offering and tax savings related to the Company's
January 1, 1998 corporate restructuring.
OTHER INFORMATION. EBITDA (1) rose $14.0 million, or 11.7%, to $133.4
million in 1997, excluding the 1997 special charge. On the same basis, the
Company's EBITDA Margin reached 37.1% for 1997, as compared to 34.0% for the
prior year.
Net income as adjusted for the effects of the Company's initial public
offering and the Company's January 1, 1998 corporate restructuring as if they
had occurred and been implemented, respectively, as of January 1, 1997 and
excluding the 1997 special charge described above, would have been $48.4
million, or $1.00 per share, in 1997.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
REVENUES. In 1996, revenues increased $12.1 million, or 3.6%, to $351.1
million from $339.0 million in 1995, primarily as a result of acquisitions.
Revenues in 1995 reflect the results of operations since the 1995 acquisitions
of the New England Acquisition Corp. (42 non-daily publications and one
commercial printing company), THE HERALD and THE MIDDLETOWN PRESS, as compared
to the full 12 months of results for each of these acquired companies in 1996.
Newspaper revenues for operations owned during the full 12 months in both
periods were basically flat, at $304.2 million in 1995 and $304.0 million in
1996. Advertising revenues increased $7.5 million, or 3.0%, to $257.0 million in
1996 from $249.5 million in 1995. For newspapers operated during the full 12
months in both periods, advertising revenues declined 1.0% to $231.7 million in
1996 from $234.1 million in 1995. In 1996, advertising revenues were negatively
impacted by record-breaking snowfalls in the first quarter in the eastern United
States and the soft retail environment in such areas. Circulation revenues
increased $6.0 million, or 8.1%, to $79.8 million in 1996 from $73.8 million in
1995. For newspapers operated during the full 12 months in both periods,
circulation revenues increased $2.2 million, or 3.3%, from $70.1 million in 1995
to $72.3 million in 1996, as a result of increased subscription and single copy
- ------------
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 flows 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.
17
<PAGE>
rates. Commercial printing and other revenues decreased $1.2 million, or 8.0%,
from $15.6 million in 1995 to $14.4 million in 1996, reflecting highly
competitive conditions in the commercial printing industry offset, in part, by a
full year of revenues in 1996 attributable to the commercial printing business
acquired in 1995. Commercial printing and other revenues represented 4.1% of the
Company's revenues in 1996.
SALARIES AND EMPLOYEE BENEFIT EXPENSES. In 1996, salaries and employee
benefit expenses accounted for 31.8% of the Company's revenues, as compared to
32.6% in 1995. Salaries and employee benefit expenses increased $1.0 million to
$111.6 million in 1996 from $110.6 million in 1995, primarily as a result of the
1995 acquisitions, which added approximately 450 full-time and 240 part-time
employees. For operations owned during the full 12 months in both periods,
salaries and employee benefit expenses decreased $5.2 million, or 5.1%, in 1996
as compared to 1995, due to a reduction in the number of employees resulting
from operating efficiencies.
NEWSPRINT, INK AND PRINTING CHARGES. In 1996, newsprint, ink and
printing charges accounted for 14.3% of the Company's revenues, as compared to
14.2% in 1995. Newsprint, ink and printing charges increased $1.9 million, or
3.9%, in 1996 to $50.1 million from $48.2 million in 1995, as a result of the
1995 acquisitions. For operations owned during the full 12 months in both
periods, newsprint, ink and printing charges were basically flat, at $43.5
million in 1995 and $43.4 million in 1996, primarily due to an increase of
approximately 3.0% in newsprint expense (excluding paper consumed in the
Company's commercial printing operations) offset by a decrease in commercial
printing expense. The 3.0% increase in newsprint expense is a result of a 13.0%
increase in the average price of newsprint offset by a decrease in volume. The
consumption decrease was primarily related to web-width reductions at a majority
of the Company's newspapers which reduced page sizes and produced a
corresponding decrease in newsprint consumption of approximately 8%. The Company
also reduced fringe circulation, as it is the Company's belief that such
circulation does not provide adequate response for advertisers.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. In 1996, selling,
general, and administrative expenses accounted for 8.8% of the Company's
revenues, as compared to 8.5% in 1995. Selling, general and administrative
expenses increased $2.3 million, or 8.1%, to $31.0 million in 1996 from $28.7
million in 1995, primarily due to acquisitions. For operations owned during the
full 12 months in both periods, selling, general and administrative expenses
increased $413,000, or 1.5%, from $26.7 million to $27.1 million.
DEPRECIATION AND AMORTIZATION EXPENSE. In 1996, depreciation and
amortization expense accounted for 5.8% of the Company's revenues, as compared
to 5.7% in 1995. Depreciation and amortization expense increased $1.3 million,
or 7.0%, to $20.5 million in 1996 from $19.2 million in 1995, primarily as a
result of acquisitions made during the period.
OTHER EXPENSES. In 1996, other expenses accounted for 11.1% of the
Company's revenues, as compared to 11.4% in 1995. Other expenses increased
$233,000, or .6%, to $39.0 million in 1996 from $38.8 million in 1995. For
operations owned during the full 12 months in both periods, other expenses
decreased $2.5 million, or 7.1%, from $35.1 million to $32.6 million primarily
as a result of cost controls related to the Company's clustering strategy.
OPERATING INCOME. Operating income increased 5.8% to $98.9 million in
1996 from $93.5 million in 1995. As a percentage of revenues, operating income
increased from 27.6% in 1995 to 28.2% in 1996 primarily for the reasons
discussed above.
NET INTEREST EXPENSE. Net interest expense was $56.3 million in 1996,
an 11.1% decrease from $63.3 million in 1995. The decrease of $7.0 million
reflected a decrease in average borrowing rates and a decrease in average debt
outstanding during 1996 of approximately $18.0 million.
PROVISION FOR INCOME TAXES. The Company reported effective tax rates of
9.0% in 1995 and 33.7% in 1996, which were lower than the combined federal and
state statutory rates. In both years, this was primarily due to the recognition
of tax benefits which had been offset by a valuation allowance in previous
years. See Note 10 of "Notes to Consolidated Financial Statements." The Company
18
<PAGE>
expects to report an effective tax rate which is higher than those effective
rates previously reported, but lower than the combined federal and state
statutory rates as a result of the various tax strategies which the Company
implemented effective January 1, 1998.
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 by approximately $6.0 million to $66.0 million in 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 the 1997 special charge,
increase in income taxes payable and deferred income taxes) of $75.4 million,
offset by a decrease resulting from variations in other operating items
(including accounts receivables, income taxes payable and inventories) of $9.4
million.
CASH FLOWS FROM INVESTING ACTIVITIES. Net cash used in investing
activities decreased $6.3 million to $19.4 million in 1997. This decrease is
primarily due to a decrease of $7.4 million in the Company's investment in the
purchase of newspaper properties. In addition, the Company increased capital
expenditures by approximately $2.1 million, which was offset by an increase of
approximately $900,000 in proceeds from the sale of property, plant and
equipment. The Company has a capital expenditure program (excluding
acquisitions) of approximately $11.0 million planned 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 Company has been able to maintain a low
ratio of capital expenditures to depreciation and amortization expenses due to
its: (i) maintenance program for existing presses and facilities; (ii) ability
to transfer redundant presses, mechanical and computer equipment and other
capital items among the Company's locations; and (iii) strategy of evaluating
acquisitions partially based on the condition of the facilities and production
equipment. In 1997, the Company had capital expenditures of $9.7 million and
depreciation and amortization of $20.5 million. 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 estimated to be approximately $25.0 million. The
Company expects to fund this construction project with cash flow 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 June 1,
1999.
CASH FLOWS FROM FINANCING ACTIVITIES. Net cash used in financing
activities increased $12.5 million from 1996 to 1997. The 1997 activity reflects
net 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 amended and restated its credit agreement (as
amended, the "Credit Agreement") to amend the terms of the Senior Facilities.
The Credit Agreement provides for, among other things, a $398.0 million Term
Loan, a $235.0 million Revolver and a reduction in the Applicable Margin (as
defined in the Credit Agreement).
19
<PAGE>
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 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 are
dependent upon the debt to 12 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 December 31, 1997, the Company had outstanding indebtedness, due
and payable in installments through 2003, of approximately $490.8 million, of
which $123.0 million was outstanding under the Revolver. There was $112.0
million of unused and available balance under the Revolver at December 31, 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 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 swap and collar agreements. During 1997, the Company's weighted average
effective interest rate on its outstanding balance was approximately 7.6%, which
takes into account the interest rate protection agreements in effect at that
time.
INFLATION. The Company's results of operations and financial condition
have not been significantly affected by inflation. Subject to normal competitive
conditions, the Company generally has been able to pass along rising costs
through increased advertising and circulation rates.
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-K include forward-looking statements, which 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, the factors discussed
below under "-- Certain Factors Which May Affect the Company's Future
Performance." The following 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.
CERTAIN FACTORS WHICH MAY AFFECT THE COMPANY'S FUTURE PERFORMANCE
NEWSPAPER INDUSTRY COMPETITION
The Company's business is concentrated in newspapers and other
publications located primarily in small metropolitan and suburban areas in the
United States. Revenues in the newspaper industry primarily consist of
advertising and paid circulation. Competition for advertising expenditures and
paid circulation comes from local, regional and national newspapers, shopping
guides, television, radio, direct mail, on-line services and other forms of
communication and advertising media. Competition for newspaper advertising
expenditures is based largely upon advertiser results, readership, advertising
rates, demographics and circulation levels, while competition for circulation
and readership is based largely upon the content of the newspaper, its price and
the effectiveness of its distribution. Many of the Company's competitors are
larger and have greater financial resources than the Company.
DEPENDENCE ON LOCAL ECONOMIES
The Company's advertising revenues and, to a lesser extent, circulation
revenues are dependent on a variety of factors specific to the communities which
the Company's newspapers serve. These factors include, among others, the size
and demographic characteristics of the local population, local economic
conditions in general, and the related retail segments in particular, and local
weather conditions.
20
<PAGE>
INDEBTEDNESS
The Company has a substantial amount of indebtedness. As of December
31, 1997, the consolidated indebtedness of the Company was approximately $490.8
million, which represents a multiple of 3.68 times the Company's twelve months
trailing EBITDA of approximately $133.4 million (excluding the 1997 special
charge). As of December 31, 1997, the Company had a net stockholders' deficit of
approximately $266.2 million and a total capitalization of $224.5 million, and,
thus, the percentage of the Company's indebtedness to total capitalization was
218.6%. The Company may incur additional indebtedness to fund operations,
capital expenditures or future acquisitions.
The Company believes that cash provided by operating activities will be
sufficient to fund its operations and to meet payment requirements under its
Term Loan and the Revolver under the Credit Agreement. However, a decline in
cash provided by operating activities, which could result from factors beyond
the Company's control, such as unfavorable economic conditions, an overall
decline in advertising expenditures or increased competition, could impair the
Company's ability to service its debt. The Credit Agreement requires the
maintenance of certain financial ratios and imposes certain operating and
financial restrictions on the Company which restrict, among other things, the
Company's ability to declare dividends, redeem stock, incur indebtedness, create
liens, sell assets, consummate mergers and make capital expenditures,
investments and acquisitions.
ENVIRONMENTAL MATTERS
The Company's operations are subject to federal, state and local
environmental laws and regulations pertaining to air and water quality, storage
tanks and the management and disposal of wastes at its facilities. To the best
of the Company's knowledge, its operations are in material compliance with
applicable environmental laws and regulations as currently interpreted. The
Company cannot predict with any certainty whether future events, such as changes
in existing laws and regulations or the discovery of conditions not currently
known to the Company, may give rise to additional costs which could be material.
Furthermore, actions by federal, state and local governments concerning
environmental matters could result in laws or regulations that could have a
material adverse effect on the financial condition or results of operations of
the Company. The Company is not aware of any pending legislation by federal,
state or local governments relating to environmental matters which, if enacted,
would reasonably be expected to have a material adverse effect on the financial
condition or results of operations of the Company.
ACQUISITION STRATEGY
The Company has grown through, and anticipates that it will continue to
grow through, acquisitions of daily and non-daily newspapers and similar
publications. Acquisitions may expose the Company to particular risks,
including, without limitation, diversion of management's attention, assumption
of liabilities and amortization of goodwill and other acquired intangible
assets, some or all of which could have a material adverse effect on the
financial condition or results of operations of the Company. Depending on the
value and nature of the consideration paid by the Company for acquisitions, such
acquisitions may have a dilutive impact on the Company's earnings per share. In
making acquisitions, the Company competes for acquisition targets with other
companies, many of which are larger and have greater financial resources than
the Company. There can be no assurance that the Company will continue to be
successful in identifying acquisition opportunities, assessing the value,
strengths and weaknesses of such opportunities, evaluating the costs of new
growth opportunities at existing operations or managing the publications it owns
and improving their operating efficiency. Historically, the Company has financed
acquisitions through cash on hand and borrowings, which borrowings have
increased the Company's indebtedness. The Company anticipates that it will
finance future acquisitions through cash on hand, borrowings and issuances of
capital stock. The Credit Agreement limits acquisitions to certain permitted
investments and newspapers in the United States, and requires that acquisitions
be financed through certain permitted sources. In addition, the financial
covenants contained in the Credit Agreement may limit the Company's ability to
make acquisitions.
21
<PAGE>
PRICE AND AVAILABILITY OF NEWSPRINT
The basic raw material for newspapers is newsprint. The Company's
newsprint consumption (excluding paper consumed in the Company's commercial
printing operations) totaled approximately $33.3 million in 1997, which was
approximately 9.6% of the Company's newspaper revenues. In 1997, the Company
consumed approximately 61,500 metric tons of newsprint. The average price per
metric ton of newsprint based on East Coast transaction prices in 1997, 1996 and
1995 was $555, $645 and $668, respectively, as reported by the trade publication
PULP AND PAPER WEEKLY. The Company has no long-term contracts to purchase
newsprint. Generally, the Company has in the past and currently purchases all of
its newsprint from two suppliers, Abitibi Consolidated and Kruger Inc.
Historically, the percentage of the Company's newsprint supplied by each of such
suppliers has varied. The Company believes that it would not be materially
adversely effected if it were no longer able to purchase its newsprint supply
from its two current suppliers and that, in such event, other newsprint
suppliers would be readily available to the Company. In the future, the Company
may purchase newsprint from other suppliers. The inability of the Company to
obtain an adequate supply of newsprint in the future could have a material
adverse effect on the financial condition or results of operations of the
Company. Historically, the price of newsprint has been cyclical and volatile.
The Company's average cost of newsprint consumed reflected increases of
approximately 34% and 13%, respectively, in 1995 and 1996 and a decrease of
approximately 18% in 1997, in each case compared to the previous year. In
January 1998, certain newsprint suppliers announced an April 1998 increase of
$50 per metric ton. In addition, in February 1998, a major supplier announced a
price increase of $40 per metric ton effective as of April 1, 1998. The Company
believes that if any price increase is sustained in the industry, the Company
will also be impacted by such increase. The Company is unable to predict
whether, or to what extent, any increase will be sustained. 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. The
Company also has reduced fringe circulation in response to increased newsprint
prices, as it is the Company's experience that such circulation does not provide
adequate response for advertisers.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not currently applicable to the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
PAGE
------
FINANCIAL STATEMENTS:
Report of Independent Auditors................................... 23
Consolidated Balance Sheets...................................... 24
Consolidated Statements of Income................................ 25
Consolidated Statements of Stockholders'/Members' Deficit........ 26
Consolidated Statements of Cash Flows............................ 27
Notes to Consolidated Financial Statements....................... 28
FINANCIAL STATEMENT SCHEDULE:
Schedule II, Valuation and Qualifying Accounts................... S-1
All other schedules are omitted because they are not applicable or the
requested information is shown in the consolidated financial statements or
related notes.
22
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Journal Register Company
We have audited the accompanying consolidated balance sheets of Journal
Register Company as of December 31, 1997 and 1996, and the related consolidated
statements of income, stockholders'/members' deficit, and cash flows for each of
the three years in the period ended December 31, 1997. Our audits also included
the financial statement schedule listed in the Index at Item 14(a). These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Journal Register Company, as of December 31, 1997 and 1996 and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
February 6, 1998
MetroPark, New Jersey
23
<PAGE>
<TABLE>
<CAPTION>
JOURNAL REGISTER COMPANY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
December 31,
-------------------------------
1997 1996
------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ $
8,183 8,546
Accounts receivable, less allowance for doubtful accounts of $4,055 in
1997 and $4,173 in 1996 48,675 44,064
Inventories 9,865 6,204
Deferred income taxes 6,444 2,951
Other current assets 4,666 4,270
------------- --------------
Total current assets 77,833 66,035
Property, plant and equipment:
Land 7,567 7,260
Buildings and improvements 60,685 59,001
Machinery and equipment 148,605 135,937
------------- --------------
216,857 202,198
Less accumulated depreciation (124,237) (110,485)
------------- --------------
Property, plant and equipment, net 92,620 91,713
Deferred income taxes -- 223
Intangible and other assets, net of accumulated amortization of $23,973 in 1997
and $17,611 in 1996 157,478 148,014
============= ==============
Total assets $ $
327,931 305,985
============= ==============
LIABILITIES AND STOCKHOLDERS'/MEMBERS' DEFICIT
Current liabilities:
Current maturities of long-term debt $ 57,060 $ 54,174
Accounts payable 9,277 7,200
Income taxes payable 535 1,196
Accrued interest 5,067 7,498
Deferred subscription revenue 6,539 5,879
Other accrued expenses and current liabilities 17,616 15,946
------------- --------------
Total current liabilities 96,094 91,893
Senior debt, less current maturities 433,714 566,390
Subordinated notes and accrued interest due to members -- 33,319
Deferred income taxes 8,049 --
Accrued retiree benefits and other liabilities 20,641 11,603
Income taxes payable 35,675 26,438
Commitments and contingencies
Stockholders'/Members' deficit:
Common stock, $.01 par value per share, 300,000,000 shares authorized
and 48,437,500 shares issued and outstanding 484 --
Membership interests -- 2,104
Additional paid-in capital 358,234 222,167
Accumulated deficit (624,960) (647,929)
------------- --------------
Net stockholders'/members' deficit (266,242) (423,658)
------------- --------------
Total liabilities and stockholders'/members' deficit $ $
327,931 305,985
============= ==============
SEE ACCOMPANYING NOTES.
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
JOURNAL REGISTER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Year Ended December 31,
-----------------------------------------------------
1997 1996 1995
-------------- ---------------- ----------------
<S> <C> <C> <C>
Revenues:
Advertising $ 266,914 $ 256,971 $ 249,534
Circulation 80,211 79,776 73,797
-------------- ---------------- ----------------
Newspaper revenues 347,125 336,747 323,331
Commercial printing and other 12,282 14,373 15,626
-------------- ---------------- ----------------
359,407 351,120 338,957
Operating expenses:
Salaries and employee benefits 114,302 111,626 110,651
Newsprint, ink and printing charges 40,452 50,110 48,243
Selling, general and administrative 30,450 30,993 28,678
Depreciation and amortization 20,480 20,525 19,178
Other 40,783 38,976 38,743
Special charge 31,899 -- --
-------------- ---------------- ----------------
278,366 252,230 245,493
-------------- ---------------- ----------------
Operating income 81,041 98,890 93,464
Other income (expense):
Interest expense (42,282) (56,410) (63,468)
Interest income 46 107 158
Other (52) (169) (718)
-------------- ---------------- ----------------
Income before provision for income taxes 38,753 42,418 29,436
Provision for income taxes 15,784 14,309 2,653
-------------- ---------------- ----------------
Net income $ 22,969 $ 28,109 $ 26,783
============== ================ ================
Net income per common share:
Basic $ .51 -- --
Diluted $ .51 -- --
Pro forma (unaudited) -- $ .74 --
</TABLE>
SEE ACCOMPANYING NOTES.
25
<PAGE>
<TABLE>
<CAPTION>
JOURNAL REGISTER COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS'/MEMBERS' DEFICIT
(IN THOUSANDS)
Additional Total
Common Membership Paid-in Accumulated Stockholders'/
Stock Interest Capital Deficit Members' Deficit
------- ---------- ---------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995 $ 2,104 $ 222,167 $(702,821) $(478,550)
Net income -- 26,783 26,783 26,783
--------- ---------- ---------- -----------
Balance at December 31, 1995 2,104 222,167 (676,038) (451,767)
Net income -- -- 28,109 28,109
--------- ---------- --------- -----------
Balance at December 31, 1996 2,104 222,167 (647,929) (423,658)
Net income -- -- 22,969 22,969
Conversion of membership
interest $ 379 (2,104) 1,725 -- --
Issuance of common stock 105 -- 134,342 -- 134,447
----------- --------- ---------- ----------- ------------
Balance at December 31, 1997 $ 484 $ -- $358,234 $(624,960) $(266,242)
=========== ========== ========== =========== =============
</TABLE>
SEE ACCOMPANYING NOTES.
26
<PAGE>
<TABLE>
<CAPTION>
JOURNAL REGISTER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Year Ended December 31,
--------------------------------------------------------------
1997 1996 1995
------------- ------------- ----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $22,969 $ 28,109 $26,783
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for losses on accounts receivable 3,291 3,914 2,872
Depreciation and amortization 20,480 20,525 19,178
Net (gain) loss on disposal of property, plant and
equipment and other assets (464) (110) 263
Non-cash portion of special charge 15,400 -- --
Increase in income taxes payable 8,526 14,693 497
(Decrease) increase in accrued interest (2,431) (2,068) 8,760
Increase (decrease) in deferred taxes 4,779 (4,836) (483)
(Increase) in accounts receivable (4,546) (3,972) (6,947)
(Increase) decrease in inventories (2,431) 10,476 (7,209)
Increase (decrease) in accounts payable 2,001 (2,664) (5,320)
Increase (decrease) in deferred subscription revenue 310 (401) 183
Increase (decrease) in accrued retiree benefits and
other liabilities 1,964 (1,227) (1,803)
(Increase) decrease in other assets, net of increase
(decrease) in other liabilities (3,818) (2,374) (9,997)
-------- --------- -------
Net cash provided by operating activities 66,030 60,065 26,777
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (9,727) (7,675) (4,859)
Net proceeds from sale of property, plant and equipment and
other assets 1,186 237 41
Purchase of newspaper properties, net of cash acquired (10,906) (18,262) (45,739)
--------- --------- -----------
Net cash used in investing activities (19,447) (25,700) (50,557)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of debt:
Senior facilities 4,000 7,000 133,000
Accretion on subordinated notes 1,205 3,029 2,746
Repayments of:
Senior debt (136,674) (44,470) (29,000)
Subordinated notes (34,524) -- (82,362)
Net proceeds from issuance of common stock 119,047 -- --
---------- ---------- ---------
Net cash (used in) provided by financing activities (46,946) (34,441) 24,384
--------- ---------- ----------
(Decrease) increase in cash and cash equivalents (363) (76) 604
Cash and cash equivalents, beginning of year 8,546 8,622 8,018
--------- ---------- ----------
Cash and cash equivalents, end of year $ 8,183 $ 8,546 $ 8,622
======== ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 44,713 $ 54,244 $ 51,673
Income taxes 2,479 4,452 1,940
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND
FINANCING ACTIVITIES
Issuance of additional subordinated notes $ 1,205 $ 3,029 $ 2,746
Issuance of note payable in connection with
an acquisition 2,884 -- --
</TABLE>
SEE ACCOMPANYING NOTES.
27
<PAGE>
JOURNAL REGISTER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION AND BASIS OF PRESENTATION
The accompanying consolidated financial statements include Journal
Register Company (the "Company") and all of its wholly owned subsidiaries,
Journal Newspapers, Inc. ("JNI"), Journal Company, Inc. ("JCI"), Journal
Register Newspapers, Inc. ("JRNI") and INS Holdings, Inc. ("INSI"),
(collectively, the "Company"). The Company was incorporated on March 11, 1997
and became a publicly traded company in May of 1997.
Effective December 21, 1994, JNI and JCI (collectively, the
"Companies") entered into an exchange agreement with the Company whereby Journal
Register Company, LLC, ("JRC, LLC") issued 2 million membership interests,
representing all of the issued and outstanding membership interests in JRC, LLC
to the stockholders of JNI and JCI in exchange for all the issued and
outstanding common stock of the Companies. Since the combined Companies were
under common control, this transaction was accounted for in a manner similar to
a pooling of interests.
In March of 1997, certain entities (namely, JRC, LLC, JRNI and INSI)
were combined with the Company. Substantially all of the membership interests
and equity securities of these entities were owned by affiliates of E.M.
Warburg, Pincus & Co., LLC (collectively, "Warburg, Pincus"). Since the
companies were under common control, this transaction was accounted for on a
basis similar to a pooling of interests. The accompanying financial statements
include the accounts and operations of JRC (or its predecessor JRC, LLC); JRNI;
and INSI for all periods presented.
The Company primarily publishes small metropolitan and suburban daily
and suburban and community non-daily newspapers serving markets 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 Pennsylvania.
The Company has authorized 1,000,000 shares of Preferred Stock, none of
which were issued or outstanding as of December 31, 1997.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and all of its wholly owned subsidiaries. All significant intercompany
activity has been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Such estimates would include the allowance for doubtful
accounts and valuation allowance for deferred taxes. Actual results could differ
from those estimates.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For purposes of the accompanying consolidated statements of cash flows,
the Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents. The carrying value of
cash equivalents approximates fair value due to the short-term maturity of these
instruments.
28
<PAGE>
JOURNAL REGISTER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES
Inventories, consisting of newsprint, ink and supplies, are stated at
the lower of cost (primarily first-in, first-out method) or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Maintenance and
repairs are charged to expense as incurred; costs of major additions and
betterments are capitalized.
Depreciation is provided for financial reporting purposes primarily by
the straight-line method over the following estimated useful lives:
Buildings and improvements 5 to 30 years
Machinery and equipment 3 to 20 years
INTANGIBLE ASSETS AND OTHER ASSETS
Intangible assets recorded in connection with the acquisition of
newspapers generally consist of the values assigned to subscriber lists and the
excess of cost over the value of identifiable net assets of the companies
acquired. These assets are carried at the lower of amortized cost or the amount
expected to be recovered by projected future operations after considering
attributable general and administration expense and interest on debt allocated
to the various newspapers. If, in the opinion of management, an impairment in
value occurs, any necessary write-downs will be charged to expense.
The balance of intangible assets at December 31, 1997 and 1996 was
comprised of subscriber lists and excess cost over the value of identifiable net
assets of companies acquired. These assets are being amortized over a period of
4 to 40 years and are amortized by the straight-line method.
In the beginning of 1996, the Company adopted SFAS No. 121 "ACCOUNTING
FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED
OF". The adoption of SFAS No. 121 did not materially impact the financial
statements. In accordance with SFAS No. 121, the Company reviews the
recoverability of intangibles and other long-lived assets whenever events and
circumstances indicate that the carrying amount may not be recoverable. The
carrying amount of the long-lived assets is reduced by the difference between
the carrying amount and estimated fair value.
Other assets consist principally of capitalized costs associated with
the Term Loan and the Revolver (as defined in Note 4, Long-Term Debt) that are
being amortized over the terms of such loans.
INCOME TAXES
The Company uses the liability method of accounting for income taxes.
Under this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax basis of assets and liabilities
and are measured using the currently enacted tax rates and laws that will be in
effect when the differences are expected to reverse.
29
<PAGE>
JOURNAL REGISTER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED SUBSCRIPTION REVENUE
Deferred subscription revenue arises from subscription payments made in
advance of newspaper delivery. Revenue is recognized in the period in which it
is earned.
INTEREST-RATE PROTECTION AGREEMENTS
The Company enters into Interest-Rate Protection Agreements ("IRPAs")
to modify the interest characteristics of its outstanding debt. Each IRPA is
designated for all or a portion of the principal balance and term of a specific
debt obligation. These agreements involve the exchange of amounts based on a
fixed interest rate for amounts based on variable interest rates over the life
of the agreement without an exchange of the notional amount upon which the
payments are based. The differential to be paid or received as interest rates
change is accrued and recognized as an adjustment of interest expense related to
the debt. The related amount payable to or receivable from counterparties is
included in accrued interest. The fair values of IRPAs are not recognized in the
financial statements. Gains and losses on terminations of IRPAs would be
deferred as an adjustment to the carrying amount of the outstanding debt and
amortized as an adjustment to interest expense related to the debt over the
remaining term of the original contract life of the IRPAs. In the event of the
early extinguishment of a designated debt obligation, any realized or unrealized
gain or loss from the IRPA would be recognized in income coincident with the
extinguishment. Any IRPAs that were not designated with outstanding debt or
notional amounts (or durations) of IRPAs in excess of the principal amounts (or
maturities) of the underlying debt would be recorded as an asset or liability at
fair value, with changes in fair value recorded in other income (expense).
STOCK OPTION PLAN
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock options. Under APB 25, when
the exercise price of the Company's employee stock options equals the market
price of the underlying stock on the date of grant, no compensation expense is
recognized.
EARNINGS PER SHARE
Effective December 31, 1997, the Company adopted the requirements of
Financial Accounting Standards Board Statement No. 128, "Earnings Per Share".
Statement 128 requires the disclosure of earnings per share on a basic and
diluted basis. Basic earnings per share excludes any dilutive effects of
options, warrants and convertible securities. Diluted earnings per share is very
similar to the previously required fully diluted earnings per share. The new
pronouncement had no impact on the pro forma earnings per share amount for 1996.
CONCENTRATION OF RISK
Certain employees of the Company's newspapers are employed under
collective bargaining agreements.
30
<PAGE>
JOURNAL REGISTER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
3. INTANGIBLE AND OTHER ASSETS
Intangible and other assets as of December 31, net of accumulated
amortization, are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
-------------------- -------------------
<S> <C> <C>
Excess of cost over the value of identifiable net
assets and subscriber lists $138,370,000 $125,847,000
Prepaid pension cost 7,784,000 7,153,000
Other 11,324,000 15,014,000
-------------------- -------------------
$157,478,000 $148,014,000
==================== ===================
</TABLE>
4. LONG-TERM DEBT
The Company's long-term debt as of December 31 was comprised of the
following:
<TABLE>
<CAPTION>
1997 1996
-------------------- --------------------
<S> <C> <C>
Senior Secured Term Loans $364,890,000 $501,530,000
Senior Secured Revolving Credit Facility 123,000,000 119,000,000
Subordinated Notes and accrued interest due to members -- 33,319,000
Other debt 2,884,000 976,000
-------------------- --------------------
490,774,000 654,825,000
Less current portion (57,060,000) (54,174,000)
-------------------- --------------------
$433,714,000 $600,651,000
==================== ====================
</TABLE>
Effective December 21, 1994 (the "Effective Date"), the Company entered
into a definitive credit agreement (as amended, the "Credit Agreement") to
obtain Senior Secured Term Loans (the "Term Loan") and a Senior Secured
Revolving Credit Facility (the "Revolver"). In May 1997, the Company amended and
restated the Credit Agreement to amend certain terms of a Term Loan and the
Revolver (collectively, the "Senior Facilities"). The amended Credit Agreement
provides for the $398.0 million Term Loan and a $235.0 million Revolver. The
Company had $112.0 million and $26.0 million unused and available under the
Revolver at December 31, 1997 and 1996, respectively. The Term Loan matures in
May 2003 and the Revolver matures on December 31, 2003.
During 1997, the Company had net borrowings under the Revolver of $4.0
million. The Company borrowed approximately $11.0 million under the Revolver to
fund the acquisitions of the InterCounty Newspaper Group and THE LADUE NEWS (see
Note 12, Acquisitions) which was offset by $7.0 million of net paydowns of the
Revolver. During 1996, the Company had net borrowings under the Revolver of $7.0
million. In 1996, the Company borrowed approximately $18.0 million under the
Revolver to fund the acquisition of the TAUNTON DAILY GAZETTE (see Note 12,
Acquisitions) which was offset by $11.0 million of net paydowns of the Revolver.
The aggregate annual maturities of long-term debt payable under the
Term Loan are as follows:
1998............................... $57,060,000
1999............................... 65,730,000
2000............................... 74,650,000
2001............................... 83,340,000
2002............................... 78,820,000
2003............................... 5,290,000
31
<PAGE>
JOURNAL REGISTER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
4. LONG-TERM DEBT (CONTINUED)
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. The Term Loan provides
for quarterly repayment of principal as scheduled in the Credit Agreement. In
addition, commencing in the year 2000, the Credit Agreement requires a mandatory
prepayment of the debt equal to 50.0% of Excess Cash Flows (as defined in the
Credit Agreement).
The Senior Facilities are secured by substantially all of the assets of
the Company and the common stock and assets of the Company's subsidiaries. The
Senior Facilities require compliance with certain covenants, which require,
among other things, maintenance of certain financial ratios, and restricts the
Company's ability to declare dividends, redeem stock, incur additional
indebtedness, create liens, sell assets, consummate mergers and make capital
expenditures, investments and acquisitions.
The amounts outstanding under the Senior Facilities bear interest at
(i) 1/2% to 1-1/2% 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
(collectively, the "Base 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. As of
December 31, 1997 and 1996, the Company was paying .75% and 2% above LIBOR,
respectively. At December 31, 1997 and 1996, the Company had outstanding $472.9
million and $615.5 million of LIBOR loans and $15.0 million and $5.0 million of
Base Rate loans, respectively. The average all-in interest rates on the Senior
Facilities were approximately 7.6% and 8.4% for the years ended December 31,
1997 and 1996, respectively. The average all-in interest rates reflect the
effects of the IRPAs.
An annual commitment fee of 1/4% - 3/8% (depending on the ratio of debt
to twelve months trailing cash flow, as defined by the Credit Agreement) is
incurred on the unused portion of the commitment under the Revolver. As of
December 31, 1997, the Company's commitment fee was 1/4%.
The Credit Agreement requires the Company to maintain interest rate
protection for at least fifty percent of the outstanding debt in order to manage
interest rate risk. In accordance with this requirement, the Company
participates in various interest rate protection agreements whereby the Company
has assumed a fixed rate of interest and a counterparty has assumed the variable
rate (the "SWAP"). The Company has also entered into interest rate collar
agreements. The IRPAs are with major financial institutions which are expected
to fully perform under the terms of the agreements thereby mitigating the credit
risk from the transactions. The notional amounts of such IRPAs are used to
measure interest to be paid or received with respect to such IRPAs and do not
represent the amount of exposure to credit risk. Pursuant to the SWAP agreement,
the Company agrees to exchange with certain banks at specific dates the
difference between the fixed rate in the SWAP agreement and the LIBOR floating
rate applied to the notional principal amount. Under the collar agreements, the
Company assumes the fixed rate position on an agreed upon ceiling rate and
receives payment if the LIBOR exceeds such fixed rate. Alternatively, the
Company assumes the LIBOR fixed rate position and makes payments to the banks if
LIBOR is below the fixed floor rate. No payments are made if the LIBOR remains
between the fixed ceiling and fixed floor rates.
Interest rate protection agreements relating to the Company's
borrowings include a SWAP agreement with a notional principal amount of $300
million maturing on January 30, 1999, and with a fixed LIBOR rate of
approximately 6.22%. The agreements also include interest rate collars with an
aggregate notional principal amount of $286.0 million with ceiling interest
rates ranging from 7.29% through 7.41% and floor interest rates of 5.48%. The
collars expire on various dates between April 30, 1998 and June 30, 1998. If the
SWAP was marked to market at December 31, 1997, it would result in a net loss of
approximately $1.3 million. If the collars were marked to market at December 31,
1997, they would result in no loss to the Company. The fair value as of December
31, 1997 of the IRPAs was obtained from the Company's bank.
32
<PAGE>
JOURNAL REGISTER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
4. LONG-TERM DEBT (CONTINUED)
The estimated fair value of the Term Loan and Revolver approximates
their carrying value since the interest rates are variable.
As of December 31, 1996, affiliates of Warburg, Pincus owned
approximately $33.3 million of the Company's subordinated notes. The
subordinated notes had an interest rate of 10% per annum. These subordinated
notes were fully paid in 1997.
5. INITIAL PUBLIC OFFERING AND SPECIAL CHARGE
In May 1997, the Company completed an initial public offering of
9,375,000 shares (the "Offering") of its common stock, par value $0.01 per share
(the "Common Stock"), at a price of $14 per share. The Common Stock began
trading on the New York Stock Exchange under the symbol "JRC" on May 8, 1997.
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.
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 and were purchased solely for the
purpose of covering over-allotments made in connection with the Offering.
In connection with the Offering, in the second quarter of 1997 the
Company incurred a special charge 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.
6. ADOPTION OF 1997 STOCK INCENTIVE PLAN
Prior to the completion of the Offering (see Note 5), 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 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 of the Board or
such other committee of the Board as the Board may designate.
Incentive stock options are granted at no less than fair market value
of the Common Stock on the date of grant. The option price per share of Common
Stock for all other stock options are established by the Compensation Committee.
Stock 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 10 years after issuance.
33
<PAGE>
JOURNAL REGISTER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
6. ADOPTION OF 1997 STOCK INCENTIVE PLAN (CONTINUED)
Pro forma information regarding net income and earnings per share is
required by FASB Statement No. 123, "Accounting for Stock-Based Compensation",
and has been determined as if the Company had accounted for its employee stock
options under the fair value method of that Statement. The fair value for these
options was estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted-average assumptions for 1997: risk-free
interest rate of 5.76%; dividend yield of 0%; volatility factor of the expected
market price of the Common Stock of .31; and a weighted-average expected life of
the option of seven years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information for the year ended December 31, 1997 is as follows:
Pro forma net income $22,259,000
Pro forma earnings per share:
Basic $.50
Diluted $.49
A summary of the Company's stock option activity and related
information for the year ended December 31, 1997 is as follows:
<TABLE>
<CAPTION>
Weighted-Average
Options Exercise Price
-------- ----------------
<S> <C> <C>
Outstanding-beginning of year - - - -
Granted 1,959,992 $17.50
Exercised - - - -
Forfeited 134,803 $17.52
---------
Outstanding-end of year 1,825,189 $17.50
==========
Exercisable at end of year - -
Weighted-average fair value of
options granted during the year $5.42
</TABLE>
Exercise prices for options outstanding as of December 31, 1997 ranged
from $14.00 to $21.00 per share. The weighted-average remaining contractual life
of those options is 9.4 years.
34
<PAGE>
JOURNAL REGISTER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
7. EARNINGS PER COMMON SHARE
The following table sets forth the computation of weighted-average
shares outstanding for calculating basic and diluted earnings per share for the
year ended December 31, 1997. Income available to common stockholders for both
basic and diluted earnings per share is the same as net income presented in the
statement of income for the year ended December 31, 1997.
Weighted-average shares for basic earnings per share 44,792,774
Effect of diluted securities:
Employee stock options 190,747
------------
Adjusted weighted-average shares for diluted
earnings per share 44,983,521
============
PRO FORMA NET INCOME PER COMMON SHARE (UNAUDITED):
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.
8. PENSION PLANS
The Company and its subsidiaries have separate defined benefit pension
plans, certain of which are successors to prior plans. The benefits are based on
years of service and primarily on the employees' career average pay. The
Company's funding policy is to contribute annually an amount that can be
deducted for federal income tax purposes under a different actuarial cost method
and different assumptions from those used for financial reporting. Assets of the
plans consist principally of short-term investments, equity securities and
corporate and U.S. Government obligations.
The Company has changed the date it uses to measure pension plan assets
and liabilities from December 31 to September 30, in order to meet the Company's
reporting requirements. The change in measurement date had no effect on 1997
pension income.
35
<PAGE>
JOURNAL REGISTER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
8. PENSION PLANS (CONTINUED)
The following table sets forth the plans' funded status and the amount
recognized in the Company's consolidated balance sheet:
<TABLE>
<CAPTION>
1997 1996
---------------------------------------- --------------------------------------
Overfunded Underfunded Overfunded Underfunded
------------------ ------------------ ----------------- ----------------
<S> <C> <C> <C> <C>
Actuarial present value of benefit
obligation:
Vested benefit obligation $ 50,118,000 $ 5,815,000 $ 43,197,000 $ 10,234,000
================== ================== ================= ================
Accumulated benefit obligation $ 51,277,000 $ 5,962,000 $ 44,209,000 $ 10,462,000
================== ================== ================= ================
Projected benefit obligation $ 51,649,000 $ 6,048,000 $44,489,000 $10,641,000
Fair value of plan assets 73,546,000 4,818,000 60,027,000 9,027,000
------------------ ------------------ ----------------- ----------------
Plan assets in excess of (less than)
projected benefit obligation 21,897,000 (1,230,000) 15,538,000 (1,614,000)
Unrecognized net transition (asset)
obligation being amortized over 15
years 57,000 284,000 (275,000) 717,000
Adjustment required to recognize minimum
liability -- (203,000) -- (400,000)
Unrecognized net (gain) (10,909,000) (89,000) (4,833,000) (113,000)
Unrecognized prior service cost (3,261,000) (76,000) (3,277,000) (426,000)
------------------ ------------------ ----------------- ----------------
Prepaid (accrued) pension cost $ 7,784,000 $ (1,314,000) $ 7,153,000 $ (1,836,000)
================== ================== ================= ================
Assumptions used in determining the funded status of the pension plans are as follows:
1997 1996
----------------- ---------------
<S> <C> <C>
Discount rate 7.50% 7.75%
Average rate of increase in compensation levels 3.0 3.0
Expected long-term rate of return on assets 9.0 9.0
Mortality rates 83GAM 83GAM
Unloaded Unloaded
Components of net periodic pension income include:
1997 1996 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Service cost $1,328,000 $1,366,000 $955,000
Interest cost 4,115,000 3,864,000 3,126,000
Expected return on plan assets (6,051,000) (5,705,000) (4,631,000)
Net amortization (265,000) (280,000) (364,000)
Other -- -- 93,000
================= ================= =================
Net periodic pension expense $ (873,000) $ (755,000) $ (821,000)
================= ================= =================
</TABLE>
Net amortization consists of amortization of net assets or obligations
at transition, subsequent plan amendments and of subsequent net gains and
losses.
36
<PAGE>
JOURNAL REGISTER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
8. PENSION PLANS (CONTINUED)
The Company also has defined contribution pension plans covering
certain employees. Contributions to these plans are based on a percentage of
participants' salaries and amounted to approximately $325,000, $417,000 and
$438,000 in 1997, 1996 and 1995, respectively.
The Company contributes to various multi-employer union administered
pension plans. Contributions to these plans amounted to approximately $68,000,
$71,000 and $98,000 in 1997, 1996 and 1995, respectively.
9. POSTRETIREMENT BENEFITS
The Company has changed the date it uses to measure postretirement
benefit obligations from December 31 to September 30, in order to meet the
Company's reporting requirements. The change in measurement date had no effect
on 1997 postretirement benefit costs.
The following table sets forth the postretirement medical plans' funded
status as of September 30, 1997 and December 31, 1996:
<TABLE>
<CAPTION>
1997 1996
--------------- --------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $6,517,000 $6,807,000
Fully eligible active plan participants 138,000 127,000
Other active plan participants 196,000 169,000
---------- ----------
6,851,000 7,103,000
Plan assets at fair value -- --
--------------- -----------
Accumulated postretirement benefit obligation in excess
of plan assets 6,851,000 7,103,000
Unrecognized net gain 591,000 321,000
Unrecognized prior service cost 693,000 786,000
------------- -------------
Accrued postretirement benefit obligation $8,135,000 $8,210,000
============= =============
Net periodic postretirement benefit costs include the following
components:
1997 1996 1995
--------------- ------------- -----------
<S> <C> <C> <C>
Service cost-benefits earned during the period $ 13,000 $ 11,000 $ 11,000
Interest cost on accumulated postretirement benefit obligation 520,000 525,000 461,000
Other (100,000) (96,000) (128,000)
---------- ------------ ----------
$ 433,000 $ 440,000 $ 344,000
========= ============= ==========
</TABLE>
Future benefit costs were estimated assuming medical costs would
increase at a 9.0% annual rate during 1997 and decreasing 1.0% per year to a
6.5% annual increase in the year 2000 and beyond. The discount rates used to
estimate the accumulated postretirement obligation were 7.5%, 7.75% and 7.5% at
December 31, 1997, 1996 and 1995, respectively. If the assumed trend rate were
to change by 1.0% the accumulated postretirement benefit obligation would change
by approximately $354,000 and the net periodic postretirement benefit costs
would change by approximately $30,000.
37
<PAGE>
JOURNAL REGISTER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
10. INCOME TAXES
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------------- ---------------- ---------------
<S> <C> <C> <C>
Current tax expense:
Federal $ 8,035,000 $ 9,812,000 $ 23,000
State 2,970,000 9,333,000 2,414,000
---------------- ---------------- ---------------
Total current 11,005,000 19,145,000 2,437,000
Deferred tax expense (benefit):
Federal 5,027,000 (4,322,000) --
State (248,000) (514,000) 216,000
---------------- ---------------- ---------------
Total deferred 4,779,000 (4,836,000) 216,000
---------------- ---------------- ---------------
Total provision for taxes $ 15,784,000 $ 14,309,000 $ 2,653,000
================ ================ ===============
The reconciliation of income tax computed at the U.S. federal statutory tax rate to income tax expense
is as follows:
1997 1996 1995
---------------- ---------------- ----------------
<S> <C> <C> <C>
Tax at U.S. statutory rates $13,564,000 $14,846,000 $10,303,000
State taxes, net of federal effect 1,769,000 5,732,000 1,709,000
Reduction in valuation allowance -- (6,632,000) (9,893,000)
Other 451,000 363,000 534,000
================ ================ ================
$15,784,000 $14,309,000 $ 2,653,000
================ ================ ================
</TABLE>
The reduction in the valuation allowance in 1996 reflects the
recognition of approximately $4.3 million in deferred tax benefits expected to
be realized in future years, as well as the reversal of certain temporary
differences. The reduction in the valuation allowance in 1995 reflects the use
of approximately $6.1 million of federal net operating loss carryforwards, as
well as the reversal of certain temporary differences.
State net operating loss carryforwards were utilized as follows:
$700,000 in 1997, $300,000 in 1996, and $5.5 million in 1995.
At December 31, 1997, certain subsidiaries had net operating loss
carry-forwards available ranging from approximately $500,000 to $43.9 million in
various state and local jurisdictions. Substantial portions of the related
deferred tax assets are offset by valuation allowances. The carryforwards at
December 31, 1997 expire in various years through 2012.
38
<PAGE>
JOURNAL REGISTER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
10. INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets as of December 31 are as
follows:
<TABLE>
<CAPTION>
1997 1996
------------------- -----------------
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment $ 14,333,000 $ 14,986,000
Other -- 394,000
------------- ------------
Total deferred tax liabilities 14,333,000 15,380,000
Deferred tax assets:
Intangible assets 2,042,000 7,866,000
Retiree benefits 793,000 1,015,000
Net operating loss carryforwards 1,915,000 2,791,000
Deferred interest expense 4,121,000 5,468,000
Other 5,649,000 3,764,000
--------------- -------------
Total deferred tax assets 14,520,000 20,904,000
Valuation allowance 1,792,000 2,350,000
--------------- -------------
Net deferred tax assets 12,728,000 18,554,000
---------------- -------------
Net deferred tax liabilities (assets) $ 1,605,000 $ (3,174,000)
================ ==============
</TABLE>
The Company's valuation allowances for deferred tax assets decreased
by approximately $600,000 and $7.7 million in 1997 and 1996, respectively.
The Company's federal income tax returns, which consisted, prior to the
Offering, of three separate consolidated groups and two individual entities,
have not been examined by the Internal Revenue Service. Effective with the
Offering that occurred in May of 1997, the Company will file its federal income
tax return as one consolidated group.
11. COMMITMENTS AND CONTINGENCIES
The Company leases office space and equipment under noncancellable
operating leases which expire over the next five years. These leases contain
several renewal options for periods up to five years. The Company's future
minimum lease payments under operating leases at December 31, 1997 are as
follows:
1998............................................. $1,445,000
1999............................................. $1,364,000
2000............................................. $1,112,000
2001............................................. $ 245,000
2002............................................. $ --
Total rent expense was $2.0 million, $1.4 million and $1.4 million
for the years ended December 31, 1997, 1996 and 1995, respectively.
The Company is involved in certain litigation matters which have arisen
in the ordinary course of business. In the opinion of management, the outcome of
these legal proceedings should not have a material adverse impact on the
Company's financial position or results of operations.
39
<PAGE>
JOURNAL REGISTER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
12. ACQUISITIONS
On December 22, 1997, the Company acquired for approximately $12.8
million certain assets and liabilities of the InterCounty Newspaper Group from
AUS, Inc. The InterCounty Newspaper Group includes 17 weekly newspapers in
suburban Philadelphia and central and southern New Jersey with total weekly
distribution of approximately 100,000. The Company applied the purchase method
of accounting for this transaction. Accordingly, the total acquisition cost was
preliminarily allocated to the assets and liabilities, respectively, of
InterCounty Newspaper Group based on their relative estimated fair values on the
effective date of the acquisition of approximately $6.2 million and $1.8
million, respectively.
On December 12, 1997, the Company acquired certain assets and
liabilities of the LADUE NEWS in Ladue, MO, a 44 times-per-year newspaper
serving suburban St. Louis. The Company applied the purchase method of
accounting for this transaction. Accordingly, the total acquisition cost was
preliminarily allocated to the assets and liabilities, respectively, of the
LADUE NEWS based on their relative estimated fair values on the effective date
of the acquisition.
Intangible assets of $14.1 million related to the aforementioned 1997
acquisitions were recorded for the excess of the purchase price over the value
of identifiable net assets and are being amortized according to the Company's
policy.
On December 13, 1996, the Company acquired for approximately $18.0
million certain assets and liabilities of a daily newspaper, published in
Taunton, Massachusetts. The Company applied the purchase method of accounting
for this transaction. Accordingly, the total acquisition cost was allocated to
the assets and liabilities of the TAUNTON DAILY GAZETTE based on their relative
estimated fair values on the effective date of the acquisition of $1.8 million
and $500,000, respectively. Intangible assets of approximately $17.0 million
were recorded for the subscriber list and excess of the purchase price over the
value of identifiable net assets and are being amortized according to the
Company's policy.
On May 5, 1995, the Company acquired for approximately $31.0 million
certain assets and liabilities of a group of newspapers, which include 42
publications and a commercial printing company located in both Connecticut and
Rhode Island (collectively, the "New England Acquisition Corp."). The Company
applied the purchase method of accounting for this transaction. Accordingly, the
total acquisition cost was allocated to the assets and liabilities of the New
England Acquisition Corp. based on the relative estimated fair values on the
effective date of the acquisition of approximately $5.0 million and $2.1
million, respectively.
On June 21, 1995, the Company acquired the stock of THE HERALD, located
in New Britain, Connecticut, for $11.0 million plus the assumption of certain
noncurrent liabilities. THE HERALD publishes a daily newspaper in Connecticut.
The Company applied the purchase method of accounting for this transaction. The
estimated fair values of identifiable net assets and liabilities on the
effective date of the acquisition were $2.5 million and $7.5 million,
respectively.
On August 31, 1995, the Company acquired for $5.5 million certain
assets and liabilities of THE MIDDLETOWN PRESS, a daily newspaper published in
Middletown, Connecticut. The Company applied the purchase method of accounting
for this transaction. The estimated fair values of identifiable assets and
liabilities on the effective date of the acquisition were $4.1 million and
$500,000, respectively.
Intangible assets of $45.9 million related to the aforementioned 1995
acquisitions were recorded for the subscriber lists and excess of the purchase
price over the value of identifiable net assets and are being amortized
according to the Company's policy.
40
<PAGE>
JOURNAL REGISTER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
13. MEMBERSHIP INTERESTS
Membership interests at December 31, 1996 and 1995 are summarized as
follows:
<TABLE>
<CAPTION>
MEMBERSHIP INTERESTS Additional
Par ----------------------------------- Membership Paid-in
Value Authorized Issued Outstanding Interest Capital
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Journal Register Company, LLC:
Class A Membership Interest $ 1.00 1,000,000 1,000,000 1,000,000 $ 1,000,000
Class B Membership Interest $ 1.00 1,000,000 1,000,000 1,000,000 1,000,000
Additional paid-in capital -- $216,982,319
-------------- --------------
2,000,000 216,982,319
INS Holdings, Inc.:
Common stock voting $ .10 2,000 2,000 2,000 200
Common stock non-voting $ .10 1,000,000 1,000,000 1,000,000 100,000
Preferred Stock, Class A $ 1.00 4,000 4,000 4,000 4,000
Additional paid-in-capital -- 5,185,016
-------------- ---------------
104,200 5,185,016
-------------- ---------------
$ 2,104,200 $222,167,335
============== ===============
</TABLE>
On March 11, 1997, membership interests in JRC, LLC and the capital
stock of INSI were converted to 37,962,500 shares of Common Stock (see Note 1).
14. SUBSEQUENT EVENTS (UNAUDITED)
On January 2, 1998, the Company acquired for approximately $3.8 million
certain assets and liabilities of HVM, L.L.C. in New Milford, Connecticut, which
publishes a group of newspapers, shoppers and monthly magazines. The Company
applied the purchase method of accounting for this transaction.
On March 9, 1998, the Company acquired THE SARATOGIAN, a daily
newspaper in Saratoga Springs, New York and the COMMUNITY NEWS, a weekly
newspaper serving Clifton Park, New York. The Company applied the purchase
method of accounting for this transaction.
41
<PAGE>
JOURNAL REGISTER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
15. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of operations for
years ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
Mar. 31 Jun. 30 Sept. 30 Dec. 31
------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
(In thousands, except per share data)
1997
- ----
Revenues $ 83,040 $92,651 $89,493 $94,223
Operating income (loss) $ 22,644 $ (566) $27,438 $31,525
Net income (loss) $ 5,724 $(7,267) $10,968 $13,544
Net income (loss) per common share:
Basic -- $ (0.16) $ 0.23 $ 0.28
Diluted -- $ (0.16) $ 0.23 $ 0.28
Pro forma net income per common share(1) $ 0.15 -- -- --
1996
- ----
Revenues $ 82,209 $90,367 $86,630 $91,914
Operating income $ 18,690 $25,926 $24,479 $29,795
Net income $ 1,953 $ 7,967 $ 6,855 $11,334
Pro forma net income per common share(1) $ 0.05 $ 0.21 $ 0.18 $ 0.30
</TABLE>
(1) Pro forma net income per common share for 1996 and the first quarter of
1997 was calculated reflecting the 37,962,500 shares which were issued
and outstanding prior to the Offering.
42
<PAGE>
<TABLE>
<CAPTION>
JOURNAL REGISTER COMPANY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
BALANCE AT CHARGES TO BALANCE AT
BEGINNING OF COSTS AND END OF
DESCRIPTION PERIOD ADJUSTMENTS(2) EXPENSES DEDUCTIONS(1) PERIOD
----------- ------------ ------------- ---------- ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Allowance for doubtful accounts $4,173 $847 $3,291 $4,256 $4,055
Valuation allowance for deferred tax assets $2,350 -- -- $558 $1,792
YEAR ENDED DECEMBER 31, 1996
Allowance for doubtful accounts $2,874 -- $3,914 $2,615 $4,173
Valuation allowance for deferred tax assets $10,034 -- -- $7,684 $2,350
YEAR ENDED DECEMBER 31, 1995
Allowance for doubtful accounts $1,974 -- $2,871 $1,971 $2,874
Valuation allowance for deferred tax assets $18,637 $1,957 -- $10,560 $10,034
</TABLE>
- ----------------------------
(1) Write-off of uncollectable accounts for the allowance for doubtful accounts
and reduction of the valuation allowance for deferred tax assets.
(2) Allowance for doubtful accounts additions related to 1997 acquisitions
and valuation allowance related to 1995 acquisitions.
S-1
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information with respect to executive officers of the Company is
presented in Item 4 of this Report under the caption "Executive Officers of the
Company."
The information appearing under the captions "Proposal 1 - Election of
Directors", "Certain Transactions" and "Section 16(a) Beneficial Ownership
Reporting Compliance" in the Company's Proxy Statement for its 1998 Annual
Meeting of Stockholders (the "1998 Proxy Statement") is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION.
Information appearing under the caption "Executive Compensation" in the
1998 Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information appearing under the caption "Security Ownership of
Beneficial Owners and Management" in the 1998 Proxy Statement is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information appearing under the caption "Certain Transactions" in the
1998 Proxy Statement is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(A) 1. FINANCIAL STATEMENTS.
The financial statements are included in Part II, Item 8. of this
Report.
2. FINANCIAL STATEMENT SCHEDULES AND SUPPLEMENTARY INFORMATION
REQUIRED TO BE SUBMITTED.
Schedule of Valuation and Qualifying Accounts as attached hereto on
Schedule II.
All other schedules have been omitted because they are inapplicable or
the required information is shown in the consolidated financial
statements or notes.
(B) REPORTS ON FORM 8-K.
No Reports on Form 8-K were filed by the Company during the fourth
quarter of 1997.
(C) INDEX TO EXHIBITS.
The following is a list of all Exhibits filed as part of this Report:
43
<PAGE>
EXHIBIT NO. DESCRIPTION
*3(i) Amended and Restated Certificate of Incorporation (filed
as Exhibit 3(i) to Journal Register Company's Form 10-Q
for the fiscal quarter ended June 30, 1997 (the "June
1997 Form 10-Q")).
*3(ii) Amended and Restated By-laws (filed as Exhibit 3(ii) to
the June 1997 Form 10-Q).
*4.1 Company Common Stock Certificate (filed as Exhibit 4.1
to Journal Register Company's Registration Statement on
Form S-1, Registration No. 333-23425 (the "Form S-1")).
*10.1 Amended and Restated Credit Agreement among Journal
Register Company, each of the banks and other financial
institutions that is a signatory thereto or which,
pursuant to Section 11.06(b) thereof, becomes a "Bank"
thereunder and The Chase Manhattan Bank (National
Association), as agent for the Banks(filed as Exhibit
10.1 to the June 1997 Form 10-Q).
*10.2 1997 Stock Incentive Plan (filed as Exhibit 10.2 to the
June 1997 Form 10-Q).+
*10.3 Management Bonus Plan (filed as Exhibit 10.3 to the June
1997 Form 10-Q).+
*10.4 Supplemental 401(k) Plan (filed as Exhibit 10.4 to the
FormS-1).+
*10.5 Voting Agreement by and among Journal Register
Company, Warburg, Pincus Capital Company, L.P., Warburg,
Pincus Capital Partners, L.P. and Warburg, Pincus
Investors, L.P. (filed as Exhibit 10.5 to the June 1997
Form 10-Q).
*10.6 Registration Rights Agreement by and among Journal
Register Company, Warburg, Pincus Capital Company, L.P.,
Warburg, Pincus Capital Partners, L.P. and Warburg,
Pincus Investors, L.P. (filed as Exhibit 10.6 to the
June 1997 Form 10-Q).
**21.1 Subsidiaries of Journal Register Company.
**23.1 Consent of Ernst & Young LLP.
**24 Power of Attorney (appears on signature page).
**27.1 Financial Data Schedule.
- ----------------
+ Management contract or compensatory plan or arrangement.
* Incorporated by reference.
** Filed herewith.
44
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Trenton, State of New Jersey, on the 24th day of March, 1998.
JOURNAL REGISTER COMPANY
By: /S/ ROBERT M. JELENIC
----------------------------------
Chairman, President and
Chief Executive Officer
KNOWN BY ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints both Robert M. Jelenic and Jean B.
Clifton his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this Annual Report on
Form 10-K, and to file the same, with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or their or his substitutes
or substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on the 24th day of March, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE(S)
--------- --------
<S> <C> <C>
/S/ ROBERT M. JELENIC Chairman, President, Chief Executive Officer and
- --------------------------------------------- Director (Principal Executive Officer)
Robert M. Jelenic
/S/ JEAN B. CLIFTON Executive Vice President, Chief Financial Officer
- -------------------------------------------- (Principal Financial and Accounting Officer), Treasurer and Director
Jean B. Clifton
/S/ JOHN L. VOGELSTEIN Director
- --------------------------------------------
John L. Vogelstein
/S/ DOUGLAS M. KARP Director
- --------------------------------------------
Douglas M. Karp
/S/ SIDNEY LAPIDUS Director
- ---------------------------------------------
Sidney Lapidus
/S/ JOHN R. PURCELL Director
- ---------------------------------------------
John R. Purcell
/S/ JOSEPH A. LAWRENCE Director
- ----------------------------------------------
Joseph A. Lawrence
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
--------------
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION OF DOCUMENT NUMBERED PAGE
- ---------- ----------------------- --------------
<S> <C> <C>
*3(i) Amended and Restated Certificate of Incorporation (filed as
Exhibit 3(i) to Journal Register Company's Form 10-Q for the
fiscal quarter ended June 30, 1997 (the "June 1997 Form 10-Q")).
*3(ii) Amended and Restated By-laws (filed as Exhibit 3 (ii) to the June
1997 Form 10-Q).
*4.1 Company Common Stock Certificate (filed as Exhibit 4.1 to Journal
Register Company's Registration Statement on Form S-1,
Registration No. 333-23425 (the "Form S-1")).
*10.1 Amended and Restated Credit Agreement among Journal Register
Company, each of the banks and other financial institutions that
is a signatory thereto or which, pursuant to Section 11.06(b)
thereof, becomes a "Bank" thereunder and The Chase Manhattan Bank
(National Association), as agent for the Banks (filed as Exhibit
10.1 to the June 1997 Form 10-Q).
*10.2 1997 Stock Incentive Plan (filed as Exhibit 10.2 to the June 1997
Form 10-Q).+
*10.3 Management Bonus Plan (filed as Exhibit 10.3 to the June 1997 Form
10-Q).+
*10.4 Supplemental 401(k) Plan (filed as Exhibit 10.4 to the Form S-1).
+ *10.5 Voting Agreement by and among Journal Register Company,
Warburg, Pincus Capital Company, L.P., Warburg, Pincus Capital
Partners, L.P. and Warburg, Pincus Investors, L.P. (filed as
Exhibit 10.5 to the June 1997 Form 10-Q).
*10.6 Registration Rights Agreement by and among Journal Register
Company, Warburg, Pincus Capital Company, L.P., Warburg, Pincus
Capital Partners, L.P. and Warburg, Pincus Investors, L.P. (filed
as Exhibit 10.6 to the June 1997 Form 10-Q).
**21.1 Subsidiaries of Journal Register Company.
**23.1 Consent of Ernst & Young LLP.
**24 Power of Attorney (appears on signature page).
**27.1 Financial Data Schedule.
</TABLE>
- --------------------------------------
+ Management contract or compensatory plan or arrangement.
* Incorporated by reference.
** Filed herewith.
46
EXHIBIT 21.1
LIST OF SUBSIDIARIES OF JOURNAL REGISTER COMPANY
The following is a list of the corporations that are subsidiaries of
Journal Register Company, a Delaware corporation. If indented, the corporation
listed is a wholly-owned subsidiary of the corporation under which it is listed.
State of
Name of Corporation Incorporation
- ------------------- -------------
Journal News, Inc. Delaware
1
Journal Register East, Inc. Delaware
2
Northeast Publishing Company, Inc. Delaware
- ----------------------------
1
Doing business as the New Haven Register, The Herald, The Bristol Press,
The Register Citizen, The Middletown Press, Shore Line Times, Pictorial Gazette,
The Dolphin, Branford Review, Clinton Recorder, Regional Standard, Regional
Express, The County Trader, Pennysaver, Shoreliner West, Shoreliner East,
Shoreliner Shopper East, Shoreliner Shopper West, Milford Reporter, Milford
Sunday, Hamden Chronicle, The Stratford Bard, The Post, The Orange Bulletin, The
Advertiser, West Haven News, West Hartford News, Weathersfield Post, Newington
Town Crier, Windsor Journal, Valley News, Rocky Hill Post, Bloomfield Journal,
Windsor Locks Journal, East Hartford Gazette, Thomaston Express, Connecticut's
County Kids, Tradewinds, Rhode Island Homes, Homes Pictorial, Hartford Homes,
Springfield Homes, Foothills Trader, Daily Local News, The Times Herald, The
Phoenix, The Suburban & Wayne Times, The Suburban Advertiser, The King of
Prussia Courier, The Village News, The Times Record, The Tri-County Record, The
Tri-County Record-Pottstown, The Weekly Saver, The Record, The Narragansett
Times, The Standard Times, The East Greenwich Pendulum, The Chariho Times, The
Coventry Courier, The Westerly Shopper, The Telegraph, Cahokia-Dupo Journal,
Collinsville Herald Journal, County Journal, Edwardsville Journal, Granite City
Press Record, Enterprise Journal, O'Fallon Journal, Belleville Journal,
Collinsville Herald, East St. Louis News Journal, Fairview Heights Journal,
Granite City Press Record Journal, Clarion Journal, Granite City Journal,
Central West End Journal, Citizen Journal, Jefferson County Journal, Meramec
Journal, News Democrat Journal, Press Journal, South County Journal, Southwest
City Journal, St. Charles Journal, Tri-County Journal, Webster-Kirkwood Journal,
County Star Journal - (East Edition), County Star Journal - (West Edition), West
County Journal, Chesterfield Journal, Mid-County Journal, North Side Journal,
Oakville-Mehlville Journal, South City Journal, South Side Journal, Southwest
County Journal, St. Peters Journal, Warrenton Journal, Wentzville Journal, North
County Journal (East Edition), North County Journal (West Edition), West County
Kids, St. Charles County Kids, Valley Express, Shore Line Express, Hamden
Express, US Express, Press Plus, Herald Extra, Voice, Cover Story, Township
Voice, Suburban Extra, Alton Cover Story and Edwardsville Cover Story.
2
Doing business as The News-Herald, The Morning Journal, The Times
Reporter, The Trentonian, The Herald News, Tauton Daily Gazette, The Call, The
Times, Closer Look, Chatter, Express Line, Cover Story, Cumberland Cover Story
and Times Plus.
EXHIBIT 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-27555) pertaining to the 1997 Stock Incentive Plan of Journal
Register Company of our report dated February 6, 1998, with respect to the
consolidated financial statements and schedule of Journal Register Company
included in the Annual Report (Form 10-K) of Journal Register Company for the
year ended December 31, 1997.
/s/ Ernst & Young LLP
MetroPark, New Jersey
March 26, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF JOURNAL REGISTER COMPANY AT DECEMBER 31, 1997 AND
THE CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1997,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 8,183
<SECURITIES> 0
<RECEIVABLES> 52,730
<ALLOWANCES> 4,055
<INVENTORY> 9,865
<CURRENT-ASSETS> 77,833
<PP&E> 216,857
<DEPRECIATION> 124,237
<TOTAL-ASSETS> 327,931
<CURRENT-LIABILITIES> 96,094
<BONDS> 490,774
0
0
<COMMON> 484
<OTHER-SE> (266,726)
<TOTAL-LIABILITY-AND-EQUITY> 327,931
<SALES> 0
<TOTAL-REVENUES> 359,407
<CGS> 0
<TOTAL-COSTS> 227,436<F1>
<OTHER-EXPENSES> 20,480
<LOSS-PROVISION> 3,291
<INTEREST-EXPENSE> 42,282
<INCOME-PRETAX> 38,753
<INCOME-TAX> 15,784
<INCOME-CONTINUING> 22,969
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,969
<EPS-PRIMARY> 0.51
<EPS-DILUTED> 0.51
<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>
