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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended June 30,1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from ______ to ______
Commission File Number: 1-12955
JOURNAL REGISTER COMPANY
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 22-3498615
(State or Other Jurisdiction of Incorporation (I.R.S. Employer
or Organization) Identification No.)
50 WEST STATE STREET, TRENTON, NEW JERSEY 08608-1298
(Address of Principal Executive Offices) (Zip Code)
(609) 396-2200
(Registrant's Telephone Number, Including Area Code)
___________________________________________________________________________
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: common stock, $.01 par value
per share, 46,534,081 shares outstanding (exclusive of treasury shares) as of
August 13, 1999.
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JOURNAL REGISTER COMPANY
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION
PAGE NO.
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets at June
30, 1999 (Unaudited) and December 31, 1998................ 1
Condensed Consolidated Statements of Income for
the three and six months ended June 30, 1999
and 1998 (Unaudited)...................................... 2
Condensed Consolidated Statements of Cash Flows
for the six months ended June 30, 1999 and 1998
(Unaudited)............................................... 3
Notes to Unaudited Condensed Consolidated
Financial Statements...................................... 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............. 6
Item 3. Quantitative and Qualitative Disclosures About
Market Risk............................................... 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings......................................... 12
Item 2. Changes in Securities and Use of Proceeds................. 12
Item 3. Defaults Upon Senior Securities........................... 12
Item 4. Submission of Matters to a Vote of Security
Holders................................................... 12
Item 5. Other Information......................................... 12
Item 6. Exhibits and Reports on Form 8-K.......................... 13
Signature......................................................... 14
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JOURNAL REGISTER COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
June 30, December 31,
1999 1998
-------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 4,791 $ 8,542
Accounts receivable, less allowance for doubtful
accounts of $ 6,319 in 1999 and $4,632 in 1998 58,209 58,244
Inventories 7,794 8,440
Deferred income taxes 2,684 2,522
Other current assets 5,777 4,130
--------- --------
Total current assets 79,255 81,878
Property, plant and equipment: 237,628 230,160
Less accumulated depreciation (136,811) (130,182)
--------- ---------
100,817 99,978
Intangible and other assets, net of accumulated
amortization of $35,641 in 1999
and $28,297 in 1998 484,435 490,013
-------- ---------
Total assets $664,507 $671,869
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current maturities of long-term debt $ 6,500 $ ---
Accounts payable 11,236 12,107
Income taxes payable 524 829
Accrued interest 7,144 6,374
Other accrued expenses and current liabilities 30,984 30,814
--------- ---------
Total current liabilities 56,388 50,124
Senior debt, less current maturities 741,925 765,000
Deferred income taxes 16,069 14,029
Accrued retiree benefits and other liabilities 15,436 17,078
Income taxes payable 62,199 50,951
Commitments and contingencies
Stockholders' deficit:
Common stock, $.01 par value per share, 300,000,000
shares authorized, 48,437,581 issued and outstanding
at June 30, 1999 and December 31, 1998 484 484
Additional paid-in capital 358,236 358,236
Accumulated deficit (562,029) (583,821)
--------- ---------
Total (203,309) (225,101)
Less treasury stock, 1,903,500 shares at cost (23,989) ---
Accumulated other comprehensive loss, net of
tax of $153 (212) (212)
--------- ---------
Net stockholders' deficit (227,510) (225,313)
========= =========
Total liabilities and stockholders' deficit $664,507 $671,869
========= =========
SEE ACCOMPANYING NOTES.
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JOURNAL REGISTER COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
---------- --------- --------- ----------
Revenues:
Advertising $ 90,653 $75,080 $170,223 $139,020
Circulation 24,320 20,584 48,628 40,718
---------- --------- --------- -----------
Newspaper revenues 114,973 95,664 218,851 179,738
Commercial printing and other 6,193 6,217 12,217 11,804
---------- --------- --------- -----------
121,166 101,881 231,068 191,542
Operating expenses:
Salaries and employee benefits 39,692 31,951 78,689 62,863
Newsprint, ink and printing
charges 12,598 12,695 25,075 24,591
Selling, general and
administrative 11,107 8,378 21,456 16,536
Depreciation and amortization 7,277 5,085 14,509 10,024
Other 14,510 12,033 28,608 23,487
---------- --------- --------- -----------
85,184 70,142 168,337 137,501
Operating income 35,982 31,739 62,731 54,041
Interest and other expense (12,775) (8,517) (26,237) (17,215)
---------- --------- --------- -----------
Income before provision for
income taxes 23,207 23,222 36,494 36,826
Provision for income taxes 9,355 8,616 14,702 13,657
---------- --------- --------- -----------
Net income $ 13,852 $ 14,606 $ 21,792 $ 23,169
========== ========= ========= ===========
Net income per common share
(basic and diluted): $ .30 $ .30 $ .46 $ .48
Weighted average shares
outstanding:
Basic 46,577 48,438 47,148 48,438
Diluted 46,715 48,717 47,179 48,712
SEE ACCOMPANYING NOTES.
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JOURNAL REGISTER COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Six months ended
June 30,
----------------------------
1999 1998
--------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 21,792 $ 23,169
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for losses on accounts receivable 2,187 1,216
Depreciation and amortization 14,509 10,024
Other, net 6,980 3,109
--------- -----------
Net cash provided by operating activities 45,468 37,518
CASH FLOWS FROM INVESTING ACTIVITIES:
Net additions to property, plant and equipment (8,406) (4,581)
Purchase of newspaper properties (249) (36,086)
---------- -----------
Net cash used in investing activities (8,655) (40,667)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of senior facilities -- 37,000
Repayments of senior debt (16,575) (31,414)
Purchase of treasury shares (23,989) --
--------- -----------
Net cash (used in) provided by financing
activities (40,564) 5,586
--------- -----------
(Decrease)/increase in cash and cash equivalents (3,751) 2,437
Cash and cash equivalents, beginning of period 8,542 8,183
--------- -----------
Cash and cash equivalents, end of period $ 4,791 $10,620
========= ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 25,447 $18,862
Income taxes 1,881 1,349
SEE ACCOMPANYING NOTES.
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JOURNAL REGISTER COMPANY
NOTES TO UNUADITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
1. ORGANIZATION AND BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include
Journal Register Company (the "Company") and all of its wholly-owned
subsidiaries. The Company was incorporated on March 11, 1997 and became a
publicly traded company in May of 1997.
The Company (through its consolidated subsidiaries) primarily publishes
daily and non-daily newspapers serving markets in Connecticut, Philadelphia and
its surrounding areas, Ohio, the greater St. Louis area, central New England and
the Capital-Saratoga and Mid-Hudson, New York regions; and has commercial
printing operations in Connecticut, Ohio and Pennsylvania.
The condensed consolidated interim financial statements included herein
have been prepared by the Company, without audit, in accordance with generally
accepted accounting principles ("GAAP") and pursuant to the rules and
regulations of the Securities and Exchange Commission. The condensed
consolidated interim financial statements do not include all the information and
footnote disclosure required by GAAP for complete financial statements. In the
opinion of the Company's management, the accompanying unaudited condensed
consolidated financial statements contain all material adjustments (consisting
only of normal recurring accruals) necessary to present fairly its financial
position as of June 30, 1999 and December 31, 1998 and the results of its
operations and cash flows for the periods ended June 30, 1999 and 1998. These
financial statements should be read in conjunction with the December 31, 1998
audited Consolidated Financial Statements and Notes thereto. The interim
operating results are not necessarily indicative of the results to be expected
for an entire year.
2. EARNINGS PER COMMON SHARE
The following table sets forth the computation of weighted-average shares
outstanding for calculating both basic and diluted earnings per share:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1999 1998 1999 1998
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Weighted-average shares for basic
earnings per share 46,577,077 48,437,500 47,148,037 48,437,500
Effect of dilutive securities:
Employee stock options 138,114 279,946 30,661 274,737
=========== ========== ========== ==========
Adjusted weighted-average shares for
diluted earnings per share 46,715,191 48,717,446 47,178,698 48,712,237
========== ========== ========== ==========
</TABLE>
Options to purchase 1.7 million and 2.6 million shares of common stock at
a range of $17.63 to $22.50 and $14.75 to $22.50 were outstanding during the
three and six month periods ended June 30, 1999, respectively, but were not
included in the computation of the diluted EPS because the options' exercise
price was greater than the average market price of the common shares.
3. COMMON STOCK
On January 11, 1999, the Company's Board of Directors authorized a share
repurchase program of up to two million shares of the Company's common stock. On
April 8, 1999, the Company's Board of Directors authorized the repurchase of an
additional one million shares. Shares under the program are to be repurchased at
management's discretion, either in the open market or in privately negotiated
transactions. At June 30, 1999, the Company had repurchased 1,903,500 shares at
a total cost of approximately $24 million.
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JOURNAL REGISTER COMPANY
NOTES TO UNUAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
4. ACQUISITIONS
On July 15, 1998, the Company completed its acquisition of the
Pennsylvania, New York and Ohio newspaper businesses of The Goodson Newspaper
Group (including Mark Goodson Enterprises, Ltd.) for approximately $300 million
in cash (the "Goodson Acquisition"). The Company applied the purchase method of
accounting for this transaction. Accordingly, the total acquisition cost, on a
preliminary basis, was allocated to the tangible assets and liabilities acquired
based upon their estimated fair market value on the effective date of the
acquisition of approximately $17.1 million and $7.9 million, respectively.
Intangible assets of approximately $300 million were recorded for the subscriber
lists and excess of the purchase price over the value of identifiable net assets
and are being amortized in accordance with the Company's policy.
The following table presents the unaudited proforma results of operations
of the Company as though the Goodson Acquisition occurred on January 1, 1998.
SIX MONTHS ENDED
JUNE 30, 1998
----------------
(in thousands)
Net Revenues $ 226,422
Net Income 18,106
Net income per share (basic and diluted): $ .37
The proforma results are not necessarily indicative of what actually would
have occurred if the acquisition had been in effect for the period presented and
are not intended to be a projection of future results.
5. COMPREHENSIVE LOSS
The June 30, 1999 accumulated other comprehensive loss relates to a
minimum pension liability adjustment of $212,000 net of tax recorded at December
31, 1998.
6. SEGMENTS
In 1998, the Company adopted Financial Accounting Standards Board, No.
131, "Disclosure About Segments of an Enterprise and Related Information." In
accordance with FASB 131, the Company concluded that it operates in one
reportable segment. The Company determined its operating segment based on
individual operations that the chief operating decision maker reviews for
purposes of assessing performance and making operational decisions. The combined
operations have similar economic characteristics and each operation has similar
products, services, customers, production processes and distribution systems.
7. RECLASSIFICATIONS
Certain reclassifications were made to the 1998 financial statements to
conform with the 1999 presentation.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company's business is publishing newspapers in the United States,
where its publications are primarily daily and non-daily newspapers. The
Company's revenues are derived primarily from advertising, paid circulation and
commercial printing.
As of June 30, 1999, the Company owned and operated 24 daily newspapers
and 186 non-daily publications strategically clustered in seven geographic
areas: Connecticut; Philadelphia and its surrounding areas; Ohio; the greater
St. Louis area; central New England; and the Capital-Saratoga and Mid-Hudson,
New York regions. As of June 30, 1999, the Company had total paid daily
circulation of approximately 640,000 and total non-daily distribution of
approximately 3.7 million. In addition, the Company has 25 Web sites, featuring
all of the Company's daily and weekly newspapers.
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 present, the Company successfully
completed 14 strategic acquisitions, acquiring 12 daily newspapers, 118
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.
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. Conversely, the
fourth quarter (October-December) tends to be the strongest quarter as it
includes heavy holiday season advertising.
The second quarter and first six months of 1999 include the results of the
following acquisitions: the Goodson Acquisition, completed July 15, 1998;
Taconic Media, Dutchess County, New York, acquired September 21, 1998, THE
SARATOGIAN, Saratoga Springs, New York, acquired March 9, 1998 and THE
FARMINGTON VALLEY POST, Avon CT, acquired June 7, 1999.
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
REVENUES. In the three months ended June 30, 1999, revenues increased
$19.3 million, or 18.9%, to $121.2 million, primarily due to acquisitions.
Newspaper revenues in the second quarter increased $19.3 million, or 20.2%, to
$115.0 million, principally due to the effect of acquisitions. Advertising
revenues increased $15.6 million, or 20.7%, followed by an increase in
circulation revenues of $3.7 million, or 18.2%, as compared to the prior year
period. Commercial printing and other represented 5.1% of the Company's revenues
in the second quarter of 1999, as compared to 6.1% in the second quarter of
1998.
SALARIES AND EMPLOYEE BENEFITS. Salaries and employee benefit expenses
were 32.8% of the Company's revenues in the second quarter of 1999 as compared
to 31.4% in the second quarter of 1998. Salaries and employee benefits increased
$7.7 million, or 24.2%, in the second quarter of 1999 to $39.7 million,
primarily due to acquisitions.
NEWSPRINT, INK AND PRINTING CHARGES. In the second quarter of 1999,
newsprint, ink and printing charges were 10.4% of the Company's revenues, as
compared to 12.5% in the second quarter of 1998. Newsprint, ink and printing
charges in the three months ended June 30, 1999 decreased approximately $97,000
as compared to the prior year period. During the second quarter of 1999,
newsprint prices continued to decline, resulting in a price decrease of
approximately 12% from the prior year period. The decrease in newsprint expense
attributable to cost savings has been offset by volume increases related to the
Company's acquisitions.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses were 9.2% and 8.2% of the Company's revenues for the second quarter of
1999 and 1998, respectively. Selling, general and administrative expenses for
the second quarter of 1999 increased $2.7 million, or 32.6%, to $11.1 million,
due to the Company's acquisitions, agency commissions related to increased sales
and additional costs associated with the company's revenue generating
activities.
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DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses were
6.0% of the Company's revenues in the second quarter of 1999 as compared to 5.0%
in the second quarter of 1998. Depreciation and amortization expenses in the
second quarter of 1999 increased $2.2 million, or 43.1%, to $7.3 million due to
increased amortization resulting from the Company's acquisitions in the third
quarter of 1998.
OTHER EXPENSES. Other expenses accounted for 12.0% and 11.8% of the
Company's revenues in the second quarter of 1999 and 1998, respectively. Other
expenses increased $2.5 million, or 20.6%, to $14.5 million in the second
quarter of 1999, primarily due to acquisitions and increased promotion expenses.
OPERATING INCOME. Operating income increased $4.2 million, or 13.4%, for
the second quarter of 1999 as compared to the second quarter of 1998. The
increase in operating income as compared to the prior year period is
attributable to the growth in the Company's advertising revenue, results of
continued cost savings strategies implemented at the Company's operating
subsidiaries and the effect of acquisitions during the second quarter of 1999.
INTEREST AND OTHER EXPENSE. Interest and other expense increased primarily
due to an increase in interest expense of $4.2 million, or 48.1%, in the second
quarter of 1999 as compared to the second quarter of 1998, as a result of
increased borrowing in connection with the Company's acquisitions including the
Goodson Acquisition, offset in part by a decrease in average borrowing rates.
PROVISION FOR INCOME TAXES. The Company reported an effective tax rate of
40.3% for the second quarter of 1999 as compared to 37.1% for the second quarter
of 1998. The increase in the effective tax rate for the second quarter of 1999
is primarily the result of the Company's 1998 acquisitions, particularly the
Goodson Acquisition completed in the third quarter of 1998.
NET INCOME. Net income was $13.9 million, or $.30 per share, basic and
diluted, for the second quarter of 1999 as compared to $14.6 million or $.30 per
share, basic and diluted, for the second quarter of 1998. The decrease in net
income as compared to the second quarter of 1998 is a direct result of the
current dilutive effect of increased interest and intangible amortization
expense in connection with the Goodson Acquisition.
OTHER INFORMATION. EBITDA(1) for the second quarter of 1999 was $43.3
million, an increase of $6.4 million, or 17.5%, from the prior year period.
Tangible net income1 per share, on a diluted basis, increased 9.8% to $.36 in
the second quarter of 1999 as compared to $.32 per share in the second quarter
of 1998.
__________________________
(1) EBITDA is defined by the Company as operating income (loss) plus
depreciation, amortization and other non-cash, special or non-recurring charges.
Tangible net income is defined as net income plus after-tax amortization. EBITDA
and tangible net income are not intended to represent cash flow from operations
and should not be considered as alternatives to operating or net income computed
in accordance with generally accepted accounting principles ("GAAP"), as
indicators of the Company's operating performance, as alternatives to cash from
operating activities (as determined in accordance with GAAP) or as measures 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 and tangible net income using the same methods;
therefore, the EBITDA and tangible net income figures set forth above may not be
comparable to EBITDA and tangible net income reported by other companies.
Certain covenants contained in the Company's credit agreement are based upon
EBITDA.
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SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
REVENUES. In the six months ended June 30, 1999, revenues increased $39.5
million, or 20.6%, to $231.1 million, primarily due to acquisitions. Newspaper
revenues in the six months ended June 30, 1999 increased $39.1 million, or
21.8%, to $218.9 million, principally due to increased advertising revenue as a
result of acquisitions. Circulation revenues increased approximately $7.9
million, or 19.4%, to $48.6 million during the six months ended June 30, 1999.
Commercial printing and other represented 5.3% of the Company's revenues in the
six months ended June 30, 1999 as compared to 6.2% in the six months ended June
30, 1998.
SALARIES AND EMPLOYEE BENEFITS. Salaries and employee benefit expenses
were 34.1% of the Company's revenues for the six months ended June 30, 1999 as
compared to 32.8% for the six months ended June 30, 1998. Salaries and employee
benefits increased $15.8 million, or 25.2%, during the six months ended June 30,
1999 to $78.7 million, primarily due to acquisitions.
NEWSPRINT, INK AND PRINTING CHARGES. In the six months ended June 30,
1999, newsprint, ink and printing charges were 10.9% of the Company's revenues,
as compared to 12.8% in the six months ended June 30, 1998. Newsprint, ink and
printing charges in the six months ended June 30, 1999 increased approximately
$484,000, or 2.0%, as compared to the prior year period. During the six months
ended June 30, 1999, newsprint prices declined approximately 8% from the prior
year period. The decrease in newsprint expense attributable to cost savings has
been offset by volume increases related to the Company's acquisitions.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses were 9.3% and 8.6% of the Company's revenues in the six months ended
June 30, 1999 and 1998, respectively. Selling, general and administrative
expenses for the six months ended June 30, 1999 increased $4.9 million, or
29.8%, to $21.5 million, due to the Company's acquisitions, agency commissions
related to increased sales and additional costs associated with the company's
revenue generating activities.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses were
6.3% of the Company's revenues in the six months ended June 30, 1999 as compared
to 5.2% in the six months ended June 30, 1998. Depreciation and amortization
expenses in the six months ended June 30, 1999 increased $4.5 million, or 44.7%,
to $14.5 million due to increased amortization resulting from the Company's
acquisitions in the third quarter of 1998.
OTHER EXPENSES. Other expenses accounted for approximately 12.4% and 12.3%
of the Company's revenues in the six months ended June 30, 1999 and 1998,
respectively. Other expenses increased $5.1 million, or 21.8%, to $28.6 million
in the six months ended June 30, 1999, primarily due to acquisitions and
increased circulation promotion and distribution expenses.
OPERATING INCOME. Operating income increased $8.7 million, or 16.1%, for
the six months ended June 30, 1999 as compared to the six months ended June 30,
1998. The increase in operating income as compared to the prior year period is
attributable to the growth in the Company's advertising revenue, results of
continued cost savings strategies implemented at the Company's operating
subsidiaries and the effect of acquisitions during the six month period ended
June 30, 1999.
INTEREST AND OTHER EXPENSE. Interest and other expense increased primarily
due to an increase in interest expense of $8.9 million, or 51.1%, in the six
months ended June 30, 1999 as compared to the six months ended June 30, 1998, as
a result of increased borrowing in connection with the Company's acquisitions
including the Goodson Acquisition, offset in part by a decrease in average
borrowing rates.
PROVISION FOR INCOME TAXES. The Company reported an effective tax rate of
40.3% for the six months ended June 30, 1999 as compared to 37.1% for the six
months ended June 30, 1998. The increase in the effective tax rate for the six
months ended June 30, 1999 is primarily the result of the Company's 1998
acquisitions, particularly the Goodson Acquisition completed in the third
quarter of 1998.
NET INCOME. Net income was $21.8 million, or $.46 per share, basic and
diluted, for the six months ended June 30, 1999 as compared to $23.2 million or
$.48 per share, basic and diluted, for the six months ended June 30, 1998. The
decrease as compared to the six months ended June 30, 1998 is a direct result of
the dilutive effect of increased interest and intangible amortization expense in
connection with the Goodson Acquisition.
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OTHER INFORMATION. EBITDA for the six months ended June 30, 1999 was $77.2
million, an increase of $13.2 million from the prior year period. Tangible net
income per share, on a diluted basis, increased 11.2% to $.58 for the six months
ended June 30, 1999 as compared to $.52 per share in the six months ended June
30, 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 in
the first six months of 1999 increased $8.0 million to $45.5 million as compared
to the first six months of 1998. Net cash provided by operating activities in
1999 primarily resulted from net income before non-cash expenses (i.e.,
depreciation and amortization), of $36.3 million.
CASH FLOWS FROM INVESTING ACTIVITIES. Net cash used in investing
activities decreased $32.0 million to $8.7 million in the first six months of
1999. In 1999, the Company's capital expenditures increased by $3.7 million. The
Company has a capital expenditure program (excluding future acquisitions) of
approximately $17.0 million in place for 1999, which includes spending on
technology, including prepress and business systems, computer hardware and
software, other machinery and equipment, plants and property, 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. The Company expects to continue to fund the 1999 capital
expenditure program from operating cash flow. The success of the Company's
operations in Philadelphia and surrounding areas has necessitated the
construction of a centralized production facility, scheduled to begin in the
first quarter of 2000. Costs for this facility are currently estimated to be
approximately $35.0 million. In addition to the Company's capital expenditure
program noted above, approximately $5.0 million will be expended in 1999 in
connection with the Philadelphia facility. The Company expects to fund this
construction project with cash flows from operations and borrowings.
CASH FLOWS FROM FINANCING ACTIVITIES. Net cash used in financing
activities was $40.6 million in the first six months of 1999 as compared to net
cash provided by financing activities of $5.6 million in the first six months of
1998. The cash provided in 1998 includes borrowed funds of approximately $37.0
million used to finance the Company's acquisitions. The 1999 activity reflects
the use of funds of approximately $24.0 million in connection with the Company's
stock repurchase program.
The amounts outstanding under the Company's credit agreement bear interest
at (i) 1 3/4% to 1/2% above LIBOR (as defined in the credit agreement) or (ii)
1/2% to 0% above the higher of (a) the Prime Rate (as defined in the credit
agreement) or (b) 1/2% above the Federal Funds Rate (as defined in the credit
agreement). The interest rate spreads ("the applicable margins") are dependent
upon the ratio of debt to trailing four quarters Cash Flow (as defined in the
credit agreement) and reduce as such ratio declines.
In connection with the requirements of the Company's credit facility, the
Company is required to maintain interest rate protection agreements for a
certain percentage of its outstanding debt, based upon the Total Leverage Ratio
(as defined in the credit agreement). On January 29, 1999, certain SWAP
agreements entered into during 1998 became effective. The agreements exchange a
floating LIBOR rate plus the applicable margin for a fixed LIBOR rate of
approximately 5.85% plus the applicable margin on $400.0 million of debt, in the
aggregate. The $400.0 million interest rate protection agreements are
specifically attributable to certain LIBOR loans (as defined in the Company's
credit agreement), reduce by $75.0 million per year and expire in October 2002.
As of June 30, 1999, the Company had outstanding indebtedness under the
credit facility, due and payable in installments through 2006, of $748.4
million, of which $248.4 million was outstanding under the revolving credit
facility. There was $151.6 million of unused and available funds under the
revolving credit facility at June 30, 1999.
-9-
<PAGE>
YEAR 2000
In 1996, the Company began the initial planning of a comprehensive
initiative to address the Year 2000 issue. The Company organized a Year 2000
oversight team led by the Company's senior information technology officer to
develop a strategy of evaluation, implementation, testing and contingency
planning to address the Company's Year 2000 readiness. The evaluation phase,
which began in September 1996 and was completed by December 1996, involved
performing a complete, company-wide inventory to identify all internal and
external, general purpose and production hardware and software systems, commonly
referred to as information technology ("IT") systems, that required modification
to become Year 2000 compliant. In conjunction with the Company's internal
assessment, the Company communicated with key third parties, namely suppliers of
production equipment as well as financial institutions to determine their state
of Year 2000 readiness, implementation of Year 2000 compliant systems and
related contingency plans. The Company has received a substantial number of
responses and is now focusing on non-replies from key third parties. The Company
will continue to correspond with critical vendors and modify the Company's
contingency plans as necessary. The Company expects to have its contingency
plans finalized by September 30, 1999.
In January of 1997, the Company began the implementation phase of
replacing or modifying system hardware and software as required. To date the
Company has completed the implementation and testing phase at approximately 75%
of its operating properties. The remaining properties are in the process of
implementation and are expected to be completed within the Company's target
deadline of September 30, 1999. Although no formal plan has been documented, the
Company has contracted with consultants to assist in the development of
contingency plans to address potential non-compliance both internally and
externally.
In accordance with GAAP, the Company's direct Year 2000 costs, including
modifying computer software or converting to new programs, are expensed as
incurred. Additionally, a majority of the hardware costs for replacement systems
will be capitalized as ordinarily accounted for in the normal course of
business. These system replacements represent upgrades consistent with the
Company's goal to maintain and improve operational efficiencies. The Company has
capitalized approximately $1.3 million during the six-month period ended June
30, 1999 related to new hardware and software in connection with its Year 2000
compliance plan and expects to capitalize an additional $4.7 million during the
remainder of the year.
Although the Company believes it has taken all of the necessary steps to
ensure that the Company will be Year 2000 compliant, there can be no assurances
that the Company will be able to complete all of the modifications in the
required time frame, that all third parties will be Year 2000 compliant or that
unforeseen Year 2000 issues will not arise. The Company's assessment at this
time is that the failure of any of the Company's IT or non-IT systems, or
failure by a third party to become Year 2000 compliant would not have a material
adverse effect on the Company, although there can be no assurances that a
material adverse effect could not result.
RECENT EVENTS
On July 12, 1999 the Company announced the planned launch of six new
Friday editions of the St. Louis Suburban Journals effective August 13, 1999.
On July 13, 1999 the Company announced the acquisition of TOWN TALK
SOUTHERN, TOWN TALK EASTERN and the DELAWARE COUNTY JOURNAL from Sue-Lew, Inc.
All three publications are based in Holmes, PA with a combined total weekly
distribution of approximately 38,000.
INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS
Management's Discussion and Analysis of Financial Condition and Results of
Operations and other sections of this Form 10-Q include forward-looking
statements, which 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
-10-
<PAGE>
that the objectives or plans of the Company will be achieved. Many factors could
cause the Company's actual results to differ materially from those in the
forward-looking statements, including, among other things: (i) a decline in
general economic conditions, (ii) the unavailability or material increase in the
price of newsprint, (iii) an adverse judgement in pending or future litigation,
(iv) increased competitive pressure from current competitors and future market
entrants, (v) sales of substantial amounts of the common stock in the public
markets, or the perception that such sales could occur, and (iv) the factors
discussed in the Company's Form 10-K for 1998 in "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Certain Factors Which May Affect the Company's Future Performance."
The 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk arising from changes in interest
rates associated with its long-term debt obligations. The Company's long-term
debt is at variable interest rates based on certain interest rate spreads
applied to LIBOR, the Prime Rate or Federal Funds Rate each as defined in the
credit agreement. To manage its exposure to fluctuations in interest rates, the
Company, as required by its credit agreement, enters into certain interest rate
protection agreements, which allows the Company to exchange variable rate
interest for fixed rate, maturing at specific intervals. The difference 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
Company's use of these agreements is limited to hedging activities and not for
trading or speculative activity.
At June 30, 1999, the Company had in effect SWAP agreements for a notional
amount of $400 million. The fair market value of the SWAPs at June 30, 1999, had
the SWAPs been marked to market, would have resulted in a gain of approximately
$610,000. Assuming a 10% increase or reduction in interest rates for the six
months ended June 30, 1999, the effect on the Company's pre-tax earnings and
cash flows would be approximately $1.2 million.
-11-
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on May 18, 1999.
Proposals presented for a stockholder vote were (i) the election of three Class
B directors, (ii) the approval of the executive incentive compensation plan; and
(iii) the ratification of the appointment of Ernst & Young LLP as independent
auditors for the Company for the fiscal year 1999.
Each of the incumbent Class B directors nominated by the Company were
elected with the following voting results:
VOTES FOR VOTES WITHHELD
--------- --------------
Gary D. Nusbaum 44,870,896 7,410
Jean B. Clifton 44,870,886 7,420
Joseph A. Lawrence 44,870,896 7,410
The names of the Class A and Class C directors remaining in office
following the 1999 Annual Meeting of Stockholders are as follows: Douglas M.
Karp and John R. Purcell, each a Class A director; and John L. Vogelstein and
Robert M. Jelenic, each a Class C director.
The executive incentive compensation plan was approved with the
following voting results:
VOTES CAST FOR VOTES CAST AGAINST ABSTENTIONS
-------------- ------------------ -----------
44,798,035 59,446 20,825
The appointment of Ernst & Young LLP as the Company's independent
auditors for the fiscal year 1999 was approved with the following voting
results:
VOTES CAST FOR VOTES CAST AGAINST ABSTENTIONS
-------------- ------------------ -----------
44,868,103 5,403 4,800
ITEM 5. OTHER INFORMATION
None.
-12-
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K
None.
-13-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: August 13, 1999 JOURNAL REGISTER COMPANY
By: /s/ JEAN B.CLIFTON
--------------------------------------
Jean B. Clifton
Executive Vice President &
Chief Financial Officer
(signing on behalf of the registrant
and as principal financial officer)
-14-
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
27.1 Financial Data Schedule for the six month period ended
June 30, 1999
<TABLE> <S> <C>
<ARTICLE>5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEETS AND THE CONDENSED CONSOLIDATED STATEMENTS
OF INCOME OF JOURNAL REGISTER COMPANY FOR THE PERIOD ENDED JUNE 30, 1999, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 4,791
<SECURITIES> 0
<RECEIVABLES> 64,528
<ALLOWANCES> 6,319
<INVENTORY> 7,794
<CURRENT-ASSETS> 79,255
<PP&E> 237,628
<DEPRECIATION> 136,811
<TOTAL-ASSETS> 664,507
<CURRENT-LIABILITIES> 56,388
<BONDS> 748,425
0
0
<COMMON> 484
<OTHER-SE> (227,994)
<TOTAL-LIABILITY-AND-EQUITY> 664,507
<SALES> 0
<TOTAL-REVENUES> 231,068
<CGS> 0
<TOTAL-COSTS> 132,372
<OTHER-EXPENSES> 14,509
<LOSS-PROVISION> 2,187
<INTEREST-EXPENSE> 26,217
<INCOME-PRETAX> 36,494
<INCOME-TAX> 14,702
<INCOME-CONTINUING> 21,792
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,792
<EPS-BASIC> 0.46
<EPS-DILUTED> 0.46
</TABLE>
