|
| |||||||||||||||
Journal Register Company Reports Third Quarter 2008 Results and Extends Forbearance Agreement YARDLEY, PA--(MARKET WIRE)--Nov 3, 2008 -- Journal Register Company (the "Company")
(Other OTC:JRCO.PK - News) today reported a net loss of $8.7 million,
or $(0.22)
per diluted share, for the third quarter ended September
28, 2008 as
compared to net income of $11.2 million, or $0.28 per diluted
share, for
the prior year quarter ended September 30, 2007.
Effective October 31, 2008, the Company and certain of its lenders agreed to extend the termination date of the Forbearance Agreement entered into by the parties on July 24, 2008 until January 16, 2009. The extension contains substantially the same conditions as the original Forbearance Agreement (more fully described under Debt and Credit Agreements below). Additionally, the amended Forbearance Agreement requires the Company to meet certain milestones during the forbearance period, including the delivery of a term sheet setting forth the terms of a comprehensive restructuring of the Company's capital structure and the delivery of definitive documentation for the implementation of the restructuring. Operating Results Total revenues for the quarter ended September 28, 2008 were $102.1 million, a decrease of 9.6 percent from the same prior year period. Advertising revenues decreased 13.4 percent to $74.3 million, as compared to $85.8 million for the same prior year period. Online revenues, which are included in advertising revenues, increased by 6.2 percent for the quarter ended September 28, 2008 as compared to the same prior year period. Online revenues were 6.9 percent of total advertising revenues for the third fiscal quarter 2008 period, compared to 5.6 percent in the third fiscal quarter of 2007. The Company reported 101.2 million page views for its Web sites for the third fiscal quarter of 2008, an increase of 3.6 percent to the third fiscal quarter of 2007. Circulation revenues totaled $24.0 million for the quarter ended September 28, 2008 increasing approximately $1.2 million, or 5.1 percent, as compared to the prior year period due in large part to price increases and the benefit of delivery outsourcing in the New York and Connecticut clusters. Commercial printing and other revenues for the quarter ended September 28, 2008 decreased by approximately $0.5 million, or 12.4 percent, as compared to the same prior year period, to $3.8 million. Advertising Revenue Performance by Category: The following table sets forth the Company's total advertising revenues, by category:
For the Quarter Ended
September 28, September 30,
2008 2007 % Decrease
------------- ------------- ----------
Local $ 43,499 $ 46,490 6.4%
Classified 28,421 36,141 21.4
National 2,334 3,124 25.3
------------- ------------- ----------
Total advertising revenues $ 74,254 $ 85,755 13.4%
============= ============= ==========Local. Local retail advertising revenues for the third fiscal quarter of 2008 decreased 6.4 percent as compared to the prior year quarter. Weakness in the department/discount store and building/hardware/garden store advertising revenue categories were partially offset by an improvement in local advertising revenues in the financial/insurance category. Classified. Classified advertising revenues decreased 21.4 percent in the third fiscal quarter of 2008, as compared to the prior year fiscal quarter. Classified real estate advertising revenues decreased 26.5 percent in the third fiscal quarter of 2008, as compared to the same prior year period. The overall softness in the housing market continues to exacerbate a general downward trend in real estate advertising in the majority of the Company's clusters. Classified employment advertising revenues were down 31.1 percent for the quarter, as compared to the same prior year period. Classified automotive advertising revenues were down 21.0 percent for the third fiscal quarter of 2008 as compared to the prior year fiscal quarter due, in large part, to the continued weak automotive market. Classified other advertising revenues decreased approximately 3.5 percent in the third fiscal quarter of 2008, as compared to the prior year fiscal quarter. This category, which encompasses private party, legal advertisements and obituaries has been the strongest performing category for over a year and comprised approximately 30.3 percent of the Company's total classified advertising revenues in the third quarter of 2008. National. National advertising revenues decreased 25.3 percent for the fiscal quarter ended September 28, 2008, as compared to the prior year fiscal quarter. Operating Expenses: The Company's non-newsprint operating expenses for the third fiscal quarter of 2008 increased 1.8 percent compared to the same prior year period. Excluding costs related to the Company's restructuring efforts, which consist primarily of advisor fees, non-newsprint operating expenses declined 2.8 percent for the third fiscal quarter of 2008, as a result of the Company's continued commitment to cost containment efforts. Salaries and employee benefits. Salaries and employee benefit expenses were 42.8 percent of the Company's revenues for the fiscal quarter ended September 28, 2008, as compared to 40.6 percent for the fiscal quarter ended September 30, 2007. Salaries and employee benefits decreased $2.2 million, or 4.7 percent, for the fiscal quarter ended September 28, 2008 to $43.7 million, as compared to $45.8 million in the prior year period, primarily due to an 8.6 percent reduction in average head count. The expense reduction resulting from headcount was partially offset by non-contractual severance charges and increases in medical benefit costs. Newsprint, ink and printing charges. For the fiscal quarter ended September 28, 2008, newsprint, ink and printing charges were 10.9 percent of the Company's revenues, as compared to 9.1 percent for the fiscal quarter ended September 30, 2007. Newsprint, ink and printing charges for the fiscal quarter ended September 28, 2008 increased 7.9 percent as compared to the fiscal quarter ended September 30, 2007 due to an increase in newsprint prices of 22.5 percent, which was partially offset by decreases in consumption of approximately 13.4 percent. Selling, general and administrative. Selling, general and administrative expenses were 21.4 percent and 16.1 percent of the Company's revenues for the fiscal quarters ended September 28, 2008 and September 30, 2007, respectively. As compared to the prior year period, selling, general and administrative expenses for the fiscal quarter ended September 28, 2008 increased $3.6 million, or 19.9 percent, to $21.8 million, primarily due to higher professional and consulting fees related to the Company's ongoing strategic review of its business and restructuring efforts. Costs related to these ongoing efforts totaled $3.7 million for the third fiscal quarter of 2008. Other expenses. Other expenses, primarily related to circulation and delivery costs, were 15.5 percent and 14.3 percent of the Company's revenues for the fiscal quarters ended September 28, 2008 and September 30, 2007, respectively. These expenses decreased compared to the same prior period in 2007 by $0.3 million or 2.1 percent, as a result of declines in promotion and circulation costs, which were partially offset by higher outside delivery and gasoline costs. Operating income. The Company reported operating income of $5.1 million during the third fiscal quarter of 2008 as compared to $17.6 million for the fiscal quarter ended September 30, 2007. The decline in operating income for the third fiscal quarter of 2008 as compared to the same prior year period is primarily attributable to declines in revenue and additional professional and consulting fees related to the Company's ongoing strategic review of its business and restructuring efforts incurred in the third fiscal quarter of 2008. Interest and Other Income: Interest expense for the fiscal quarter ended September 28, 2008, includes approximately $2.4 million of debt amendment costs as well as an additional $1.4 million in amortization of accumulated losses in accumulated other comprehensive income ("AOCI") related to terminated interest rate derivatives (interest rate protection agreements). The third fiscal quarter of 2007 by comparison, was favorably impacted by $0.6 million from interest rate hedging activities. Other income, net for the third fiscal quarter of 2008 reflects a noncash $1.5 million benefit for a change in the fair market value of the Company's derivatives. In prior periods, changes in the fair market value of the Company's hedges were reflected in AOCI on its Balance Sheets. The change in treatment is largely a result of recent amendments to the Company's underlying debt agreement. Income Taxes The Company reported benefits from income taxes of $1.9 million and $4.3 million in the third fiscal quarters of 2008 and 2007, respectively. The 2007 benefit was primarily the result of the recognition of $6.1 million of federal tax refunds, including $1.0 million of interest, due to filings amended to carry back/forward a net operating loss generated in 2001. The refund was received in October 2007. Liquidity and Capital Resources Current assets were $85.6 million and current liabilities were $729.7 million as of September 28, 2008 as compared to current assets of $71.2 million and current liabilities of $80.3 as of December 30, 2007. The working capital position of the Company has been impacted by the classification of all of the Company's bank debt as current debt in the third fiscal quarter of 2008. Additionally, the Company's current liabilities at September 28, 2008 include $11.7 million for the termination value of its interest rate derivatives (as described above), which were classified as noncurrent liabilities with a fair value of $8.6 million as of December 30, 2007. Additionally, under the Forbearance Agreement (described more fully under Debt and Credit Agreements below), the Company has continued to accrue, but not pay interest on its bank debt. Accrued interest totaled $14.5 million at September 28, 2008 compared to $6.9 million at December 30, 2007. Cash flows from investing activities. Net cash used in investing activities of continuing operations was $5.9 million for the thirty-nine weeks ended September 28, 2008, primarily reflecting deposits made to a cash collateral account as required by the Forbearance Agreement and amounts used for capital expenditures. Net cash used in investing activities of continuing operations on capital expenditures was $22.3 million for the thirty-nine weeks ended September 30, 2007. Of these capital expenditures, $11.3 million was for costs in connection with the build-out of the Clinton Township, Michigan press and mailroom facility and $4.2 million was related to the Company's investment in its online operations. The net proceeds from the sale of the Company's New England newspaper operations of $78.8 million are included in net cash provided by investing activities of discontinued operations for the thirty-nine week period ended September 30, 2007. Cash flows from financing activities. Net cash provided by financing activities was $19.1 million for the thirty-nine weeks ended September 28, 2008, and was primarily the result of borrowings under the Company's revolving credit facility during the first half of 2008. The Company repaid $12.5 million of its outstanding term loan in the first quarter of 2008. By comparison, net cash used in financing activities was $90.4 million for the thirty-nine weeks ended September 30, 2007, which included $52.5 million for optional prepayments on the Company's term loan and $35.5 million net repayment on its revolving credit facility. The Company made $2.4 million in dividend payments in the same period in 2007. Dividend payments were discontinued in the fourth fiscal quarter of 2007. Debt and Credit Agreements As of September 28, 2008, the Company's bank debt totaled $646.3 million, compared to $624.8 million on December 30, 2007. Effective July 24, 2008, the Company entered into a Forbearance Agreement and Amendment No. 3 (the "Forbearance Agreement") to its Credit Agreement. Under the Forbearance Agreement, the lenders' commitments to make further extensions of credit, including issuing new letters of credit or making swingline loans, were suspended, although certain existing letters of credit can be renewed or replaced. During the forbearance period, certain cash management procedures also apply. In addition, certain restrictive covenants, including covenants with respect to asset sale proceeds, indebtedness, acquisitions and dispositions, were amended and made permanent. During the forbearance period, interest will continue to accrue but will not be paid by the Company. Instead, the Company will make certain payments to the lenders of at least $2.0 million per month into a cash collateral disbursement account maintained by the administrative agent. As of September 28, 2008, the Company has made the $4.0 million in cash collateral deposits as it is required to do under the Forbearance Agreement. The Company has the right to request transfers of funds from the cash collateral disbursement account under certain conditions and the lenders will forbear from exercising certain remedies with respect to the interest payments not made during the forbearance period. As noted above and explained in more detail in Note 3 to the unaudited condensed consolidated financial statements, the terms of the Forbearance Agreement have been extended through January 16, 2009. The Forbearance Agreement's termination date may be further extended with the agreement of all parties. As a condition to entry into the Forbearance Agreement, the Company appointed Robert P. Conway, a Principal of Conway, Del Genio, Gries & Co., LLC, ("CDG") as its Chief Restructuring Officer and engaged CDG to provide certain financial services effective July 23, 2008. Mr. Conway continues to serve as Chief Restructuring Officer and the services provided by CDG are still in full force and effect. On October 13, 2008, the Company announced that it had appointed John O. Strek, a Managing Director with CDG, as its acting Chief Financial Officer, effective October 31, 2008. Mr. Strek will replace Julie A. Beck who resigned as the Company's Executive Vice President and CFO, effective October 31, 2008 to pursue another opportunity. Reconciliation of Certain Non-GAAP Financial Measures. The Company believes that the use of certain non-GAAP financial measures enables the Company and its analysts, investors and other interested parties to evaluate and compare the Company's results from operations and cash resources generated from its business in a more meaningful and consistent manner. Accordingly, this information has been disclosed in this report to permit a more complete comparative analysis of the Company's operating performance and capitalization relative to other companies in the industry and to provide an analysis of operating results used by the Company's chief operating decision makers to measure the operating results and performance of the Company and its operations. The Company believes the use of EBITDA is appropriate given the short period of time it takes to convert new orders to cash. In addition, the Company believes that free cash flow is useful as a supplemental measure of evaluating financial performance because it provides an alternative measure of the cash generated by the Company after payment of expenses, including capital expenditures, interest and income taxes, and therefore available for further investment in the business, or for other uses such as repayment of indebtedness. All EBITDA, EBITDAR and free cash flow figures in this report are non-GAAP financial measures. The Company defines EBITDA as income from continuing operations plus provision for income taxes, net interest expense, depreciation, amortization and other non-cash, special or non-recurring charges. EBITDAR is defined as EBITDA plus expenses related to the Company's current restructuring activities, including severance costs, advisor fees, and certain other legal and consulting fees. EBITDA and EBITDAR margin is defined as either EBITDA or EBITDAR divided by total revenues. Free cash flow is defined as EBITDAR minus net capital expenditures, and cash payments for interest and income taxes. Since EBITDA, EBITDAR and free cash flow are not measures of performance calculated in accordance with GAAP, it should not be considered in isolation of, or as a substitute for, net income as an indicator of operating performance (or in the case of free cash flow, net cash flow provided by operating activities as a measure of liquidity). In addition, these measures do not necessarily represent funds available for discretionary use, and are not necessarily a measure of the Company's ability to fund its cash needs. As these measures exclude certain financial information as compared to net income, the most directly comparable GAAP financial measure, users of this financial information should consider the types of events and transaction which are excluded. In addition, the Company's calculations of these measures may not be consistent with the calculations of these measures by other companies. The table below provides reconciliations of the difference between the Company's loss or income from continuing operations and EBITDA, EBITDAR and free cash flow, for the thirteen and thirty-nine week periods ended September 28, 2008 and September 30, 2007.
Non-GAAP Financial Measures
Thirteen Weeks Thirty-nine Weeks
Ended Ended
------------------------ ------------------------
Sept. 28, Sept. 30, Sept. 28, Sept. 30,
(In thousands) 2008 2007 2008 2007
----------- ----------- ----------- -----------
(Loss) income from
continuing operations $ (8,716) $ 11,239 $ (255,466) $ 18,271
Add: Income tax
(benefit) provision (1,937) (4,293) (136,311) 4,184
Add: Net interest
expense and other 15,751 10,664 35,466 31,657
----------- ----------- ----------- -----------
Operating income (loss) 5,098 17,610 (356,311) 54,112
Add: Depreciation and
amortization 4,653 4,934 14,151 14,305
Add: Impairment charges - - 382,403 -
----------- ----------- ----------- -----------
EBITDA 9,751 22,544 40,243 68,417
EBITDA margin 9.5% 20.0% 12.9% 19.7%
Add: Restructuring
charges 3,781 - 6,855 -
----------- ----------- ----------- -----------
EBITDAR 13,532 22,544 47,098 68,417
EBITDAR margin 13.3% 20.0% 15.1% 19.7%
Less: Capital
expenditures, net (1) (833) (6,165) (1,876) (22,333)
Less: Cash interest and
bank fees (2) (7,479) (9,728) (30,438) (30,636)
Less: Cash income
taxes (3) (258) (449) (1,327) (1,224)
----------- ----------- ----------- -----------
Free cash flow (4) $ 4,962 $ 6,202 $ 13,457 $ 14,224
=========== =========== =========== ===========
Notes:
(1) Capital expenditures, net consists of purchases of property, plant and
equipment net of proceeds from dispositions of assets.
(2) Cash interest and bank fees consist of interest paid on bank debt,
capital leases, bank fees and for the 2008 periods only costs associated
with the Forbearance Agreement.
(3) Cash income taxes represent the application of the Company's expected
current year income tax liability rate to the income before provision for
income taxes for each period presented, without regard to the actual timing
of such payment, reduced by the benefit of the anticipated utilization of
available net operating loss carry forwards.
(4) Free cash flow amounts for the 2007 periods have been revised in order
to conform to the current presentation.About Journal Register Company Journal Register Company owns 22 daily newspapers, approximately 300 non-daily publications and operates 239 individual Web sites that are affiliated with the Company's daily newspapers, non-daily publications and its network of employment Web sites. These Web sites can be accessed at www.JournalRegister.com. All of the Company's operations are strategically clustered in six geographic areas: Greater Philadelphia; Michigan; Connecticut; Greater Cleveland; and the Capital-Saratoga and Mid-Hudson regions of New York. The Company also owns JobsInTheUS, a network of 20 employment Web sites. Safe-Harbor This release contains forward-looking information about Journal Register Company that is intended to be covered by the safe harbor for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that are not historical facts. These statements can be identified by the use of forward-looking terminology such as "believe," "expect," "may," "will," "should," "project," "plan," "seek," "intend," or "anticipate" or the negative thereof or comparable terminology, and include discussions of strategy, financial projections and estimates and their underlying assumptions, the extent or timing of cost savings, charges, the extent of employees impacted, and statements about the future performance, operations, products and services of the Company. These forward-looking statements involve a number of risks and uncertainties, which could cause actual results to differ materially. These risks and uncertainties include, but are not limited to, the success of the Company's asset sales and divestiture activities, the ability of the Company to achieve cost reductions and integrate acquisitions, competitive pressures including competition from non-newspaper forms of media, general or regional economic conditions and advertising trends, the unavailability or a material increase in the price of newsprint and increases in interest rates, changes in performance that affect financial covenant compliance or funds available for borrowing, the Company's ability to meet its obligations under the Forbearance Agreement, the lenders' decision to extend or not extend the Forbearance Agreement (or the terms of any such extension or alternative arrangement), the Company's ability to implement a capital restructuring, technological changes, the adoption of new accounting standards or changes in accounting standards and the possibility that, in connection with the conclusion of our year end review process and the completion of the year end audit, the Company may determine that adjustments to previously announced preliminary and unaudited results are necessary. These and additional risk factors are outlined in the Company's most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission. The Company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events, or otherwise. AN IMPORTANT NOTE ABOUT THIS REPORT Journal Register Company (the "Company") does not have a class of securities registered pursuant to Section 12 of the Securities Act of 1934 (the "Act"), and the Company is not subject to the reporting requirements of Section 13(a) or 15(d) of the Act. Accordingly, this report is not filed with the Securities and Exchange Commission (the "SEC"), is not available on the SEC's EDGAR system and it does not purport to meet the requirements for the companies that are subject to the Act's reporting requirements. The Company does intend in this report to provide accurate, timely financial information that is materially consistent with accounting principles generally accepted in the United States of America ("GAAP"); however, shareholders and other readers are cautioned that this information is not and cannot be deemed to be the substantial equivalent of the information required of reporting companies under the Act.
JOURNAL REGISTER COMPANY (1)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Thirteen Weeks Ended Thirty-nine Weeks Ended
(In thousands, except per Sept. 28, Sept. 30, Sept. 28, Sept. 30,
share data) 2008 2007 2008 2007
========== ========== ========== ==========
Revenues:
Advertising $ 74,254 $ 85,755 $ 230,708 $ 264,767
Circulation 24,027 22,852 70,313 68,763
Commercial printing and
other 3,841 4,387 11,634 14,275
---------- ---------- ---------- ----------
Total revenues 102,122 112,994 312,655 347,805
---------- ---------- ---------- ----------
Operating expenses:
Salaries and employee
benefits 43,662 45,831 133,618 140,614
Newsprint, ink and
printing charges 11,090 10,276 31,225 33,295
Selling, general and
administrative 21,818 18,196 60,016 56,424
Depreciation and
amortization 4,653 4,934 14,151 14,305
Other 15,801 16,147 47,553 49,055
---------- ---------- ---------- ----------
Total operating expenses
before impairment charges 97,024 95,384 286,563 293,693
Impairment charges - - 382,403 -
---------- ---------- ---------- ----------
Operating income (loss) 5,098 17,610 (356,311) 54,112
Interest expense (17,333) (10,669) (40,766) (32,058)
Other income, net 1,582 5 5,300 401
---------- ---------- ---------- ----------
(Loss) income from
continuing operations
before income taxes (10,653) 6,946 (391,777) 22,455
Income tax (benefit)
provision (1,937) (4,293) (136,311) 4,184
---------- ---------- ---------- ----------
(Loss) income from
continuing operations (8,716) 11,239 (255,466) 18,271
Loss from discontinued
operations of New England
cluster, net of income
taxes - - - (86)
Gain on sales of New
England cluster operations,
net of income taxes - - - 27,660
---------- ---------- ---------- ----------
Net (loss) income $ (8,716) $ 11,239 $ (255,466) $ 45,845
========== ========== ========== ==========
(Loss) income per common
share (diluted) (2)
(Loss) income from
continuing operations $ (0.22) $ 0.28 $ (6.49) $ 0.47
Loss from discontinued
operations of New England
cluster, net of income
taxes - - - -
Gain on sales of New
England cluster operations,
net of income taxes - - - 0.70
---------- ---------- ---------- ----------
Net (loss) income per
common share (diluted) (2) $ (0.22) $ 0.28 $ (6.49) $ 1.17
========== ========== ========== ==========
Dividends declared per
common share - $ 0.02 - $ 0.06
Weighted-average shares
outstanding:
Diluted 39,373 39,519 39,370 39,327
See accompanying notes to condensed consolidated financial statements.
(1) Journal Register Company is not a SEC reporting Company, please see "An
Important Note About This Report."
(2) The (loss) income per common share-basic was the same as the diluted
per share amounts for all periods presented except the thirteen weeks ended
September 30, 2007. Income per common share-basic for that period was
$0.29, based on weighted average shares outstanding-basic of 39,146.
JOURNAL REGISTER COMPANY (1)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 28, December 30,
(In thousands, except share data) 2008 2007
------------ ------------
ASSETS:
Current assets:
Cash and cash equivalents $ 14,584 $ 4,214
Accounts receivable, net 46,061 52,056
Inventories, consisting of newsprint and
other raw materials 5,058 6,301
Deferred income taxes 4,231 2,285
Federal income tax receivable 3,896 -
Restricted cash collateral account 4,000 -
Other current assets 7,799 6,342
------------ ------------
Total current assets 85,629 71,198
------------ ------------
Property, plant and equipment, net of
accumulated depreciation of $166,538 and
$156,357, respectively 154,337 166,744
Intangible and other assets:
Goodwill 262,693 613,096
Other intangible assets, net of accumulated
amortization 43,235 76,412
Deferred income taxes 39,990 -
Other assets 6,226 5,017
------------ ------------
Total assets $ 592,110 $ 932,467
============ ============
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY:
Current liabilities:
Current bank debt $ 646,300 $ -
Derivative liabilities 11,655 -
Accounts payable 10,931 18,176
Accrued interest 14,546 6,900
Accrued expenses 27,920 30,788
Other current liabilities 18,358 24,403
------------ ------------
Total current liabilities 729,710 80,267
------------ ------------
Noncurrent bank debt - 624,800
Deferred income taxes - 95,192
Fair market value of hedges - 8,558
Other noncurrent liabilities 29,322 32,540
Stockholders'(deficit) equity:
Preferred stock, $.01 par value per share,
1,000,000 shares authorized, none issued and
outstanding - -
Common stock, $.01 par value per share,
300,000,000 shares authorized, 48,437,581
issued 484 484
Additional paid-in capital 360,182 359,929
Accumulated deficit (379,649) (124,183)
Accumulated other comprehensive loss, net of
income taxes (14,276) (11,152)
Treasury stock, 9,064,428 shares and
9,085,143 shares, respectively, at cost (133,663) (133,968)
------------ ------------
Stockholders' (deficit) equity (166,922) 91,110
------------ ------------
Total liabilities and stockholders' (deficit)
equity $ 592,110 $ 932,467
============ ============
See accompanying notes to condensed consolidated financial statements.
(1) Journal Register Company is not a SEC reporting Company, please see "An
Important Note About This Report."
JOURNAL REGISTER COMPANY (1)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Thirty-nine Weeks Ended
September 28, September 30,
(In thousands) 2008 2007
============ ============
Cash flows from operating activities:
Net (loss) income $ (255,466) $ 45,845
Less: (Loss) from discontinued operations - (86)
Less: Gain from sales of discontinued
operations - 27,660
------------ ------------
(Loss) income from continuing operations (255,466) 18,271
Adjustments to reconcile net (loss) income to
net cash (used in) provided by operating
activities:
Impairment charges 382,403 -
Provision for losses on accounts receivable 3,335 2,230
Depreciation and amortization expense 14,151 14,304
(Gain) loss on sale of assets (348) 247
Noncash interest and changes in derivative
values, net (134) 4,463
Deferred income tax (benefit) provision (134,912) 7,658
Other 518 495
Changes in operating assets and liabilities:
Decrease in accounts receivable 2,660 2,063
Decrease in accounts payable (7,245) (5,483)
Decrease in income taxes payable (8,511) (11,878)
Decrease in executive separation liability (4,994) -
Decrease in accrued expenses (1,819) (250)
Change in other operating assets and
liabilities, net 7,536 1,647
------------ ------------
Net cash (used in) provided by operating
activities of continuing operations (2,826) 33,767
Net cash (used in) operating activities of
discontinued operations - (23)
------------ ------------
Net cash (used in) provided by operating
activities (2,826) 33,744
------------ ------------
Cash flows from investing activities:
Purchase of property, plant and equipment (2,692) (22,508)
Net proceeds from sale of property, plant and
equipment 816 175
Increase in cash collateral account (4,000) -
------------ ------------
Net cash used in investing activities of
continuing operations (5,876) (22,333)
Net cash provided by investing activities of
discontinued operations - 78,838
------------ ------------
Net cash (used in) provided by investing
activities (5,876) 56,505
------------ ------------
Cash flows from financing activities:
Debt forbearance fees (2,428) -
Repayments of term loan debt (12,500) (52,500)
Borrowings from revolving credit facility 75,870 100,300
Repayment of revolving credit facility (41,870) (135,800)
Dividends paid - (2,350)
------------ ------------
Net cash provided by (used in) financing
activities 19,072 (90,350)
------------ ------------
Increase (decrease) in cash and cash
equivalents 10,370 (101)
Cash and cash equivalents, beginning of period 4,214 3,930
------------ ------------
Cash and cash equivalents, end of period $ 14,584 $ 3,829
============ ============
See accompanying notes to condensed consolidated financial statements.
(1) Journal Register Company is not a SEC reporting Company, please see "An
Important Note About This Report."NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Organization and Basis of Presentation The accompanying condensed consolidated financial statements include Journal Register Company and all of its wholly-owned subsidiaries (the "Company"). The Company publishes daily and non-daily newspapers, in print and online, serving markets in the Greater Philadelphia area, Michigan, Connecticut, the Greater Cleveland area, and the Capital-Saratoga and Mid-Hudson regions of New York. The Company owns and manages commercial printing operations in Connecticut and Pennsylvania and owns JobsInTheUS, a network of employment Web sites. The Company operates on a 52/53 week fiscal year generally ending on the Sunday closest to the end of the calendar year. Each quarter is 13/14 weeks, also generally ending on the Sunday closest to the end of the calendar quarter. The periods presented for both 2008 and 2007 encompass 13 and 39 week periods. The periods presented are hereinafter referred to as either "the thirteen weeks" or "quarter ended" and either "the thirty-nine weeks" or "nine months ended." The condensed consolidated balance sheet as of December 30, 2007, which has been derived from audited financial statements, and the unaudited condensed consolidated interim financial statements included herein have been prepared by the Company similar to interim financial statements following the rules and regulations of the SEC. The condensed consolidated interim financial statements do not include all of the information and footnote disclosures required by accounting principles generally accepted in the United States of America ("GAAP"). In the opinion of the Company's management, the accompanying unaudited condensed consolidated financial statements contain all material adjustments (consisting only of normal and recurring accruals) necessary to present fairly its financial position as of September 28, 2008 and the results of its operations and cash flows for the thirteen and thirty-nine weeks ended September 28, 2008 and September 30, 2007. These financial statements should be read in conjunction with the audited Consolidated Financial Statements and Notes thereto filed with the SEC on Form 10-K for the year ended December 30, 2007. The interim operating results are not necessarily indicative of the results to be expected for an entire year. On July 22, 2008, the Company filed Form 15 Certification and Notice of Termination of Registration under Section 12(g) of the Securities Exchange Act of 1934 or Suspension of Duty to File Reports under Sections 13 and 15(d) of the Securities Exchange Act. As such, the Company is no longer filing financial statements as required under the Act. For the fiscal periods ended September 28, 2008, the Company has used the same significant accounting policies and estimates which are disclosed in the Annual Report on Form 10-K for the year ended December 30, 2007. The Company has reclassified certain 2007 balances to conform to the current year presentation. Discontinued operations presented in the condensed consolidated financial statements reflect the results of operations, the associated cash flows, and assets and liabilities of the New England newspaper properties sold in February 2007. Results of discontinued operations include an allocation of interest expense based on a ratio of net assets of the discontinued operations to the total consolidated net assets of the Company. 2. Liquidity The Company entered into a Forbearance Agreement with the lenders under its Credit Agreement on July 24, 2008. As more thoroughly described in Note 3 under the subheading of Forbearance Agreement Provisions, the lenders have agreed to forbear from exercising their rights to make the principal and accrued interest immediately payable as a result of the Company's failure to make interest payments during the forbearance period from July 24, 2008 through October 31, 2008. As a result of the Forbearance Agreement, all amounts outstanding under the Credit Agreement have been classified as current liabilities as of September 28, 2008. There can be no assurance that the Company's capital restructuring plan will be satisfactory to the lenders and that the lenders will continue to forbear on exercising their rights under the Credit Agreement. During the forbearance period, the Company is restricted from requesting any borrowing (including the issuance of new letters of credit and swingline loans), and must make payments of at least $2.0 million per month into a cash collateral account established in the name of the administrative agent. The Company has currently paid $4.0 million into the cash collateral account in accordance with the Forbearance Agreement. These conditions of the Forbearance Agreement could materially and negatively impact the Company's liquidity, results of operations and financial condition during the forbearance period. Subsequent Event Effective October 31, 2008, the Company and its lenders agreed to extend the termination date of the Forbearance Agreement to January 16, 2009. Further details regarding this extension of the Forbearance Agreement are provided under the "Subsequent event" section of Note 3 below. 3. Bank Debt and Interest Rate Derivatives The Company's bank debt was comprised of the following:
September 28, December 30,
(In thousands) 2008 2007
------------- -------------
Term Loan A $ 542,500 $ 555,000
Revolving Credit Facility 103,800 69,800
------------- -------------
Total bank debt 646,300 624,800
Less: current bank debt 646,300 -
------------- -------------
Noncurrent bank debt $ - $ 624,800
============= =============The Company's Credit Agreement was amended pursuant to Amendment No. 1 dated December 6, 2007 (the "First Amendment") and Amendment No. 2 (the "Second Amendment") dated April 29, 2008 (the "Second Amendment Effective Date"), the Forbearance Agreement and Amendment No.3 dated July 24, 2008, as amended (the "Forbearance Agreement"). The Credit Agreement and these three amendments are collectively referred to as the Amended Credit Agreement. Forbearance Agreement Provisions On July 24, 2008, the Company and the lenders under the Amended Credit Agreement entered into the Forbearance Agreement. The Forbearance Agreement became effective on July 24, 2008 and was originally scheduled to terminate on October 31, 2008 (see subsequent event). During the forbearance period, interest will accrue but will not be paid by the Company. The lenders will forbear from exercising certain remedies with respect to the interest payments not paid during the forbearance period, including, declaring the principal and interest on the outstanding debt immediately due and payable. Instead of making interest payments during the forbearance period, the Company will make certain payments, of at least $2.0 million per month, into a cash collateral disbursement account maintained by the administrative agent. As of September 28, 2008, the Company has paid $4.0 million into the cash collateral account in accordance with the Forbearance Agreement. The Company will have the right to request transfers of funds from the disbursement account under certain conditions. The Forbearance Agreement prohibits any additional borrowings under the Amended Credit Agreement, including the issuance of new letters of credit or the making of swingline loans, and reduced the aggregate Revolving Credit Facility to $130.0 million. During the forbearance period, the total leverage and interest coverage ratio covenants will not apply. The post-default interest rate will apply during the forbearance period, and all outstanding LIBOR reference rate loans will be converted to base rate loans at the end of the applicable LIBOR period. The Forbearance Agreement also required the appointment of a Chief Restructuring Officer ("CRO") and outlined specific milestones to be met by the CRO and the Company during the forbearance period. General Provisions of the Amended Credit Agreement The Amended Credit Agreement provided for (i) a secured term-loan facility ("Term Loan A") and (ii) a secured revolving credit facility (the "Revolving Credit Facility"). The Amended Credit Agreement also suspended borrowings under an uncommitted, multiple-draw term-loan facility (the "Incremental Facility"). Prior to the Forbearance Agreement, amounts outstanding under the Amended Credit Agreement bore interest at either (i) 250 basis points to 275 basis points above LIBOR (as defined in the Amended Credit Agreement) or (ii) 150 basis points to 175 basis points above the higher of (a) the Prime Rate (as defined in the Amended Credit Agreement) or (b) 50 basis points above the Federal Funds Rate (as defined in the Amended Credit Agreement). These interest rate spreads were determined based upon the ratio of the Company's debt to the Company's trailing four quarters cash flow (as defined in the First Amendment) and were reduced or increased as such ratio declined or increased, respectively. Prior to the First Amendment, amounts outstanding with a LIBOR based rate bore interest at a 125 basis points to 50 basis points margin above the reference rate. A commitment fee is incurred on the average daily unused portion of the Revolving Credit Facility, payable quarterly in arrears, at a fixed rate of 50 basis points beginning on the effective date of the First Amendment. Prior to the First Amendment, the commitment fee varied from 37.5 basis points to 25 basis points based on the quarterly calculation of the specified leverage ratio. The Amended Credit Agreement prohibits the payment of dividends and repurchase of the Company's common stock and requires the Company to maintain specified financial ratios, and subjects it to specified operational limitations, including, among others, limitations on its ability to incur additional indebtedness, to make certain fundamental Company changes (such as mergers and dispositions of assets), and to undertake certain capital expenditures. The borrowings are fully and unconditionally guaranteed by each of the Company's subsidiaries. The Company and its guarantor subsidiaries have pledged substantially all of their assets as collateral for the borrowings. Additionally, the lenders have perfected their interest in certain real estate assets by the Company's issuance of mortgages on those real estate assets. The Amended Credit Agreement provides for mandatory prepayments with the proceeds of certain dispositions and casualty events and with specified percentages of excess cash flow (all as defined in the Amended Credit Agreement). At any time, the Company may prepay borrowings without premium or penalty in accordance with the provisions of the Amended Credit Agreement, which limit any optional, non pro-rata prepayment to the next twelve months of future Term Loan A amortization payments. The Amended Credit Agreement eliminated the requirement to maintain Interest Rate Protection Agreements ("IRPAs") and limited the maximum cash balances held in the Company's bank accounts to $10.0 million. Subsequent Event Effective October 31, 2008, the Company and its lenders agreed to extend the termination date of its Forbearance Agreement to January 16, 2009. The extension contains substantially the same conditions as the original Forbearance Agreement (more fully described above). Additionally, the amended Forbearance Agreement requires the Company to meet certain milestones during the forbearance period, including the delivery of a term sheet setting forth the terms of a comprehensive restructuring of the Company's capital structure and the delivery of definitive documentation for the implementation of the restructuring. Interest Rate Derivatives Prior to the Second Amendment Effective Date, the Company was required to maintain IRPAs on a portion of its debt to reduce the potential exposure of the Company's future cash flows to fluctuations in variable interest rates on which the interest on the outstanding debt is calculated. The minimum requirement varied depending on the Company's Total Leverage Ratio, as defined in the Amended Credit Agreement. Each IRPA was designated for all or a portion of the principal balance and term of a specific debt obligation. After the Second Amendment Effective Date, the Company was no longer required to maintain IRPAs. During the second fiscal quarter of 2008, the Company entered into termination agreements with the counterparties of some of its interest rate derivatives. The Company agreed to pay $5.3 million, in the aggregate, to terminate these derivative agreements. Additionally, because these derivatives no longer qualified for hedge accounting, the accumulated mark-to-market losses in accumulated other comprehensive income are being amortized over the terms of the original hedge and reported as a component of interest expense. All of the interest rate derivatives, which were not settled in the second fiscal quarter of 2008, were dedesignated as cash flow hedges shortly after the Second Amendment Effective Date; accordingly, hedge accounting no longer applied to the change in fair value of the derivative instruments. Therefore, the change in fair value of these instruments was reflected in the earnings of the Company beginning after the Second Amendment Effective Date. Additionally, the accumulated mark-to-market losses in accumulated other comprehensive income are being amortized over the terms of the original hedged instrument and is reported as a component of interest expense. These remaining derivatives were all terminated prior to the effective date of the Forbearance Agreement. The derivative liabilities at September 28, 2008 were $11.7 million which were classified as current. Additionally, the Forbearance Agreement and a separate standstill agreement entered into with the swap counterparties provide that these liabilities will not be paid through October 31, 2008. Subsequent Event Effective October 31, 2008, the Company and the swap counterparties entered into an amendment to the separate standstill agreement referred to above extending the due date for payments of amounts owing in respect of the interest rate derivative liabilities through January 16, 2009. Interest Expense The Company's weighted average effective interest rate was approximately 8.2 percent and 6.5 percent for the thirteen weeks ended September 28, 2008 and September 30, 2007, respectively. The following table shows components of interest expense included in the accompanying condensed consolidated statements of operations for the thirteen and thirty-nine weeks ended September 28, 2008 and September 30, 2007:
Thirteen Weeks Thirty-nine Weeks
Ended Ended
-------------------- --------------------
Sept. 28, Sept. 30, Sept. 28, Sept. 30,
(In thousands) 2008 2007 2008 2007
--------- --------- --------- ---------
Interest incurred $ 12,641 $ 11,043 $ 32,926 $ 33,938
IRPA expense (benefit) 304 (645) 1,984 (2,720)
Amortization of debt issuance
costs 292 238 877 714
Amortization of gain on sale of
derivatives (395) (197) (1,184) (197)
Amortization of accumulated
losses in AOCI 1,784 - 2,997 -
Capitalized interest (1) (17) (8) (461)
Other interest and fees 2,708 247 3,174 784
--------- --------- --------- ---------
Interest expense $ 17,333 $ 10,669 $ 40,766 $ 32,058
========= ========= ========= =========4. Comprehensive (Loss) Income and Accumulated Other Comprehensive (Loss) Income The components of comprehensive (loss) income for the thirteen and thirty-nine weeks ended September 28, 2008 and September 30, 2007 are as follows:
Thirteen Weeks Ended Thirty-nine Weeks Ended
---------------------- ----------------------
Sept. 28, Sept. 30, Sept. 28, Sept. 30,
(In thousands) 2008 2007 2008 2007
---------- ---------- ---------- ----------
Net (loss) income $ (8,716) $ 11,239 $ (255,466) $ 45,845
Net change in fair value of
highly effective hedges,
net of income taxes - (4,025) (4,305) (3,104)
Amortization of deferred
gain on sale of
derivatives, net of income
taxes (231) (115) (693) (115)
Amortization of accumulated
losses associated with
terminated and dedesignated
hedges, net of income taxes 1,044 - 1,753 -
Retirement and
post-retirement benefit
plans changes, net of
income taxes 40 77 121 177
Mark-to-market adjustment
of investments, net of
income taxes - - - (3)
---------- ---------- ---------- ----------
Comprehensive (loss)
income $ (7,863) $ 7,176 $ (258,590) $ 42,800
========== ========== ========== ==========The components of accumulated other comprehensive (loss) income and changes therein are shown, net of income taxes, in the following table for the thirty-nine weeks ended September 28, 2008:
Unrealized Accumulated
Unrealized Gain on Post Other
Loss Sale of Pension Retirement Comprehensive
(In thousands, net on Hedges Derivatives Plans Plans (Loss) Income
of income taxes) --------- ---------- ------- --------- ------------
Balance at
December 30, 2007 $ (4,730) $ 1,752 $(9,645) $ 1,471 $ (11,152)
--------- ---------- ------- --------- ------------
Change in fair value (4,305) (4,305)
Amortization of
gain to income (693) (693)
Amortization of
accumulated
losses of
terminated and
dedesignated
hedges 1,753 1,753
Reclassification
adjustment of
amounts
recognized in net
periodic pension
costs 207 (86) 121
--------- ---------- ------- --------- ------------
Other comprehensive
(loss) income (2,552) (693) 207 (86) (3,124)
--------- ---------- ------- --------- ------------
Balance at
September 28,
2008 $ (7,282) $ 1,059 $(9,438) $ 1,385 $ (14,276)
========= ========== ======= ========= ============5. Goodwill and Impairment Charges Goodwill and indefinite-lived intangible assets are not amortized but are evaluated, at least annually, for impairment. The Company performs its annual impairment test as of the first day of the fourth quarter of each fiscal year, or more frequently if circumstances warrant. Other identifiable intangible assets that are not deemed to have an indefinite life are amortized over their estimated useful lives and are subject to tests of impairment when indicators of impairment are present. Changes in the carrying amount of goodwill during the thirty-nine weeks ended September 28, 2008 and for the 2007 fiscal year are as follows:
(In thousands) 2008 2007
--------- ---------
Balance, beginning of period $ 613,096 $ 726,896
Impairment charges (350,403) (113,800)
--------- ---------
Balance, end of period $ 262,693 $ 613,096
========= =========
Aggregate goodwill impairment charges to date $ 497,863 $ 147,460
========= =========
Aggregate masthead impairment charges to date $ 99,500 $ 67,500
========= =========The impairment charges shown above include a $287.0 million charge during the Company's second fiscal quarter of 2008 related to the indefinite-lived intangible assets of the Michigan and Philadelphia reporting units, writing down the goodwill for its Michigan and Philadelphia reporting units by $105.0 million and $157.0 million, respectively. The aggregate charge also included a $25.0 million impairment of the Company's mastheads in Michigan. In the first fiscal quarter of 2008, impairment charges of $95.4 million were recorded against the indefinite-lived intangible assets of the Company's Michigan and New York reporting units. During 2007, the Company also recorded $181.3 million of impairment charges primarily against the goodwill and mastheads of the Michigan reporting unit. It is reasonably possible that the Company may recognize additional impairment losses in the near term as the details of its capital restructuring plan are developed and finalized. 6. Contingencies There are various legal actions that have arisen in the ordinary course of business and are now pending against the Company. It is the opinion of management, after reviewing these actions with legal counsel to the Company, that the ultimate liability that might result from these actions is not expected to have a material adverse effect on the Company's condensed consolidated balance sheets, statements of operations, or statements of cash flows. 7. 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 are expected to be in effect when the differences are expected to reverse. A valuation allowance is recorded against deferred tax assets when realization is not considered to be more-likely-than-not. As of September 28, 2008, the Company had net deferred tax assets of $44.2 million. Based primarily upon the Company's history of generating taxable income and projections of future taxable income, the Company's management has concluded that it is more likely than not that the net deferred tax asset will be realizable. However, it is reasonably possible, pending the outcome of the uncertainties described more fully in Note 2, that this conclusion may change in future reporting periods. As of September 28, 2008, the Company had approximately $27.4 million (before federal benefit) of unrecognized tax benefits. If recognized, $18.1 million of the unrecognized tax benefits would reduce income tax expense and the Company's effective tax rate. During the thirty-nine weeks ended September 28, 2008, the amount of unrecognized tax benefits decreased $2.1 million (before federal benefit), as the Company settled state and federal tax issues previously provided for as an unrecognized tax benefit. The Company recognizes interest and penalties related to unrecognized tax benefits as a component of tax expense. As of September 28, 2008, the Company has accrued $11.8 million (before federal benefit) of interest related to the unrecognized tax benefits. For the thirteen and thirty-nine weeks ended September 28, 2008, the Company accrued additional interest of $0.6 million (before federal benefit) and $1.8 million (before federal benefit), respectively. The Company and its subsidiaries are subject to U.S. federal income tax as well as income taxes of multiple state jurisdictions. The Company's effective tax rate fluctuates based on income tax rates in the various tax jurisdictions in which the Company operates and based on the level of earnings in those jurisdictions. During the second fiscal quarter of 2008, the Internal Revenue Service completed its audit of the Company for the 2004, 2005, and 2006 tax years. The resulting assessment of $0.3 million (including interest) was paid early in the third fiscal quarter of 2008. The statute of limitations for certain states is open from 1998 to 2007. Management believes that its accrual for tax liabilities is adequate for all open years. However, this assessment relies on estimates and assumptions and may involve a series of complex judgments about future events. It is possible that state and local tax examinations will be settled during the next twelve months. If any of these tax audit settlements occur within the next twelve months, the Company would make any necessary adjustments to the accrual for uncertain tax benefits. Until formal resolutions are reached between the Company and the tax authorities, the determination of a possible audit settlement range with respect to the impact on uncertain tax benefits is not practicable. On the basis of the information available at September 28, 2008, it is the judgment of the Company's management that any assessments resulting from these current tax audits will not have a material adverse effect on the Company's condensed consolidated financial statements because any such assessment would be less than the aggregate liability established by the Company. (1) Journal Register Company is not a SEC reporting Company, please see "An Important Note About This Report." Contact: For more information:
Gary Struening
Vice President, Finance
Tel: (215) 504-4200
Journal Register Company
790 Township Line Road
Yardley, PA 19067
Fax: (215) 504-4201
Source: Journal Register Company
|  | ||||||||||||||
