x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware
|
36-4197635
|
|
(State
or other
jurisdiction of
incorporation
or
organization)
|
(I.R.S.
Employer
Identification
No.)
|
Item 1. | Financial Statements |
March 31, 2008
|
December 31, 2007
|
||||||
(unaudited)
|
|||||||
Assets
|
|||||||
Current
assets:
|
|||||||
Cash
and cash
equivalents
|
$ | 10,622 | $ | 12,096 | |||
Accounts
receivable, net of
allowance for doubtful accounts of $4,933 and $3,874 at March
31, 2008 and December 31, 2007, respectively
|
74,633 | 85,474 | |||||
Inventory
|
10,255 | 9,046 | |||||
Prepaid
expenses
|
4,514 | 4,514 | |||||
Deferred
income
taxes
|
3,890 | 3,890 | |||||
Other
current
assets
|
4,868 | 4,208 | |||||
Assets
held for
sale
|
91 | 1,540 | |||||
Total
current
assets
|
108,873 | 120,768 | |||||
Property,
plant, and
equipment, net of accumulated depreciation of $37,330 and $30,597
at March 31, 2008 and December 31, 2007,
respectively
|
217,283 | 210,209 | |||||
Goodwill
|
698,886 | 701,852 | |||||
Intangible
assets, net of
accumulated amortization of $69,930 and $58,111 at March 31, 2008
and
December 31, 2007, respectively
|
811,906 | 808,794 | |||||
Deferred
financing costs,
net
|
8,318 | 8,416 | |||||
Other
assets
|
1,683 | 1,692 | |||||
Long-term
assets held for sale
|
15,925 | 23,264 | |||||
Total
assets
|
$ | 1,862,874 | $ | 1,874,995 | |||
Liabilities
and
Stockholders’ Equity
|
|||||||
Current
liabilities:
|
|||||||
Current
portion of long-term
liabilities
|
$ | 1,284 | $ | 1,047 | |||
Short-term
note
payable
|
10,000 | 10,000 | |||||
Short-term
debt
|
20,291 | — | |||||
Accounts
payable
|
10,987 | 13,190 | |||||
Accrued
expenses
|
41,890 | 40,672 | |||||
Accrued
interest
|
9,377 | 9,947 | |||||
Deferred
revenue
|
32,761 | 29,840 | |||||
Dividend
payable
|
11,605 | 23,126 | |||||
Liabilities
held for sale
|
40 | 623 | |||||
Total
current
liabilities
|
138,235 | 128,445 | |||||
Long-term
liabilities:
|
|||||||
Long-term
debt
|
1,216,500 | 1,206,000 | |||||
Long-term
liabilities, less
current portion
|
5,352 | 3,809 | |||||
Deferred
income
taxes
|
27,792 | 25,327 | |||||
Derivative
instruments
|
89,145 | 44,101 | |||||
Pension
and other
postretirement benefit obligations
|
15,576 | 13,325 | |||||
Total
liabilities
|
1,492,600 | 1,421,007 | |||||
Stockholders’
equity:
|
|||||||
Preferred
stock, $0.01 par
value, 50,000,000 shares authorized at March 31, 2008; none issued
and
outstanding at March 31, 2008 and December 31, 2007
|
— | — | |||||
Common
stock, $0.01 par value,
150,000,000 shares authorized at March 31, 2008;
58,131,136 and 57,947,073 shares issued,
and 58,071,742 and 57,891,295 outstanding at March 31, 2008
and December 31, 2007, respectively
|
568 | 568 | |||||
Additional
paid-in
capital
|
823,104 | 822,025 | |||||
Accumulated
other
comprehensive loss
|
(94,361 | ) | (49,962 | ) | |||
Accumulated
deficit
|
(358,801 | ) | (318,407 | ) | |||
Treasury
stock, at
cost, 59,394 and 55,778 shares at March 31, 2008 and
December 31, 2007, respectively
|
(236 | ) | (236 | ) | |||
Total
stockholders’ equity
|
370,274 | 453,988 | |||||
Total
liabilities and
stockholders’ equity
|
$ | 1,862,874 | $ | 1,874,995 | |||
Three months
ended March 31, 2008 |
Three months
ended March 31, 2007 |
||||||
Revenues:
|
|||||||
Advertising
|
$ | 122,349 | $ | 71,072 | |||
Circulation
|
36,264 | 17,203 | |||||
Commercial
printing and other
|
10,335 | 6,453 | |||||
Total
revenues
|
168,948 | 94,728 | |||||
Operating
costs and
expenses:
|
|||||||
Operating
costs
|
97,521 | 52,355 | |||||
Selling,
general and
administrative
|
48,864 | 30,599 | |||||
Depreciation
and
amortization
|
18,763 | 8,802 | |||||
Integration
and reorganization
costs
|
2,612 | 838 | |||||
Impairment
of long-lived
assets
|
- | 119 | |||||
(Gain)
loss
on sale of assets
|
(6 | ) | 13 | ||||
Operating
income
|
1,194 | 2,002 | |||||
Interest
expense
|
24,416 | 10,217 | |||||
Amortization
of deferred
financing costs
|
583 | 223 | |||||
Unrealized
loss on derivative
instrument
|
719 | 383 | |||||
Other
(income)
expense
|
13 | (205 | ) | ||||
Loss
from continuing
operations before income taxes
|
(24,537 | ) | (8,616 | ) | |||
Income
tax expense
(benefit)
|
2,471 | (2,486 | ) | ||||
Loss
from continuing
operations
|
(27,008 | ) | (6,130 | ) | |||
Income
(loss) from
discontinued operations, net of income taxes
|
(1,781 | ) | 51 | ||||
Net
loss
|
$ | (28,789 | ) | $ | (6,079 | ) | |
Loss
per
share:
|
|||||||
Basic
and
diluted:
|
|||||||
Loss
from continuing
operations
|
$ | (0.47 | ) | $ | (0.16 | ) | |
Loss
from
discontinued operations, net of income taxes
|
(0.03 | ) | — | ||||
Net
loss
|
$ | (0.50 | ) | $ | (0.16 | ) | |
Dividends
declared per
share
|
$ | 0.20 | $ | 0.37 | |||
Basic
weighted average shares
outstanding
|
56,968,521 | 38,097,167 | |||||
Diluted
weighted average shares outstanding
|
56,968,521 | 38,097,167 |
Common stock
|
|
Accumulated other
|
|
Treasury stock
|
|||||||||||||||||||||
Shares
|
Amount
|
|
Additional paid-in capital |
|
comprehensive
loss
|
|
Accumulated deficit |
|
Shares
|
|
Amount
|
|
Total
|
||||||||||||
Balance
at January 1, 2008
|
57,947,073
|
$
|
568
|
$
|
822,025
|
$
|
(49,962
|
)
|
$
|
(318,407
|
)
|
55,778
|
$
|
(236
|
)
|
$
|
453,988
|
||||||||
Comprehensive
loss:
|
|
||||||||||||||||||||||||
Net
loss
|
—
|
—
|
—
|
—
|
(28,789
|
)
|
—
|
—
|
(28,789
|
)
|
|||||||||||||||
Unrealized
loss on derivative instruments, net of income taxes of $0
|
—
|
—
|
—
|
(44,324
|
)
|
—
|
—
|
—
|
(44,324
|
)
|
|||||||||||||||
Minimum
pension liability adjustment, net of income taxes of $0
|
—
|
—
|
—
|
(75
|
) |
—
|
—
|
—
|
(75
|
)
|
|||||||||||||||
Comprehensive
loss
|
—
|
(73,188
|
)
|
||||||||||||||||||||||
Restricted
share grants
|
184,063
|
— |
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||||
Non-cash
compensation expense
|
—
|
—
|
1,079
|
—
|
—
|
—
|
—
|
1,079
|
|||||||||||||||||
Restricted
share forfeitures
|
—
|
—
|
—
|
—
|
—
|
986
|
—
|
—
|
|||||||||||||||||
Restricted
stock cancelled for withholding tax
|
—
|
—
|
—
|
—
|
—
|
2,630
|
—
|
—
|
|||||||||||||||||
Common
stock cash dividends
|
—
|
—
|
—
|
—
|
(11,605
|
)
|
—
|
—
|
(11,605
|
)
|
|||||||||||||||
Balance
at March 31, 2008
|
58,131,136
|
$
|
568
|
$
|
823,104
|
$
|
(94,361
|
)
|
$
|
(358,801
|
)
|
59,394
|
$
|
(236
|
)
|
$
|
370,274
|
Unaudited
Condensed Consolidated Statements of Cash Flows
|
|||||||||||||
(In
thousands)
|
|||||||||||||
Three
Months
|
Three
Months
|
||||||||||||
Ended
|
Ended
|
||||||||||||
March
31, 2008
|
March
31, 2007
|
||||||||||||
Cash
flows from operating activities:
|
|||||||||||||
Net
loss
|
$
|
(28,789
|
)
|
$
|
(6,079
|
)
|
|||||||
Income
(loss) from discontinued operations, net of income taxes
|
|
(1,781
|
)
|
|
51
|
||||||||
Net
loss from continuing operations
|
|
(27,008
|
)
|
|
(6,130 | ) | |||||||
Adjustments
to reconcile net loss to net cash
|
|||||||||||||
provided
by operating activities:
|
|||||||||||||
Depreciation
and amortization
|
18,763
|
8,802
|
|||||||||||
Amortization
of deferred financing costs
|
583
|
223
|
|||||||||||
Unrealized
loss on derivative instrument
|
719
|
383
|
|||||||||||
Non-cash
compensation expense
|
1,079
|
1,107
|
|||||||||||
Deferred
income taxes
|
2,437
|
(3,649
|
)
|
||||||||||
(Gain)
loss on sale of assets
|
(6
|
) |
13
|
||||||||||
Pension
and other postretirement benefit obligations
|
395
|
-
|
|||||||||||
Non-cash
interest expense
|
309 | - | |||||||||||
Impairment
of long-lived assets
|
-
|
119
|
|||||||||||
Unrecognized
pension and other postretirement benefit -
|
|||||||||||||
obligations
actuarial loss
|
-
|
314
|
|||||||||||
Changes
in assets and liabilities, net of acquisitions:
|
|||||||||||||
Accounts
receivable, net
|
11,082
|
2,452
|
|||||||||||
Inventory
|
(1,217
|
)
|
265
|
||||||||||
Prepaid
expenses
|
67
|
342
|
|||||||||||
Other
assets
|
(651
|
)
|
(179
|
) | |||||||||
Accounts
payable
|
(2,401
|
)
|
(1,140
|
)
|
|||||||||
Accrued
expenses
|
1,698
|
74
|
|||||||||||
Accrued
interest
|
(570
|
)
|
1,975
|
||||||||||
Deferred
revenue
|
2,991
|
304
|
|||||||||||
Long-term
liabilities
|
(557
|
)
|
(186
|
)
|
|||||||||
Net
cash provided by operating activities
|
7,713
|
5,089
|
|||||||||||
Cash
flows from investing activities:
|
|||||||||||||
Purchases
of property, plant, and equipment
|
(2,621
|
)
|
(2,185
|
)
|
|||||||||
Proceeds
from sale of publications and other assets
|
9,406
|
180
|
|||||||||||
Acquisition
of The Copley Press, Inc. newspapers, net of cash acquired
|
(5
|
)
|
-
|
||||||||||
Other
acquisitions, net of cash acquired
|
(22,846
|
)
|
(206,046
|
)
|
|||||||||
Net
cash used in investing activities
|
|
(16,066
|
)
|
(208,051
|
)
|
||||||||
Cash
flows from financing activities:
|
|||||||||||||
Payment
of debt issuance costs
|
-
|
|
(3,032
|
)
|
|||||||||
Borrowings
under term loans
|
19,505
|
690,000
|
|||||||||||
Repayments
of term loans
|
-
|
(558,000
|
)
|
||||||||||
Net
borrowings under revolving credit facility
|
10,500
|
-
|
|||||||||||
Payment
of offering costs
|
-
|
(357
|
)
|
||||||||||
Payment
of dividends
|
(23,126
|
)
|
(9,394
|
)
|
|||||||||
Net
cash provided by financing
|
|||||||||||||
activities
|
6,879
|
119,217
|
|||||||||||
Net
decrease in cash and cash
|
|||||||||||||
equivalents
|
(1,474
|
)
|
|
(83,745
|
)
|
||||||||
Cash
and cash equivalents at beginning of period
|
12,096
|
90,302
|
|||||||||||
Cash
and cash equivalents at end of period
|
$
|
10,622
|
|
$
|
6,557
|
|
•
|
Acquisition
costs will be generally expensed as
incurred;
|
|
•
|
Acquired
contingent liabilities will be recorded at fair value at the acquisition
date and subsequently measured at either the higher of such amount
or the
amount determined under existing guidance for non-acquired contingencies;
|
|
•
|
Restructuring
costs associated with a business combination will be generally
expensed
subsequent to the acquisition date; and
|
•
|
Changes
in deferred tax asset valuation allowances and income tax uncertainties
after the acquisition date generally will affect income tax
expense.
|
Number of RSGs
|
Weighted-Average
Grant Date
Fair
Value
|
||||||
Unvested
at December 31,
2007
|
1,035,480 | $ | 13.87 | ||||
Granted
|
184,063 | 8.16 | |||||
Vested
|
(116,990 | ) | 9.86 | ||||
Forfeited
|
(986 | ) | 20.39 | ||||
Unvested
at March 31,
2008
|
1,101,567 | $ | 13.34 |
• |
the
rate
of revenue growth, which is a function of, among other things, anticipated
increases in advertising rates (CPI based), impacts of online strategy
and
the introduction of niche products;
|
• |
the
rate
of the Company’s Adjusted EBITDA growth, which is a function of, among
other things, anticipated revenues, cost reductions and synergies
from the
integration of CP Media and Enterprise NewsMedia, LLC and ongoing
cost
savings resulting from a clustering strategy;
|
• |
estimated
capital expenditures;
|
• |
the
discount rate of 7.8%, based on the Company’s capital structure as of July
2006, the cost of equity, based on a risk free rate of 5.0% and a
market
risk of premium of 7.0% and the Company’s cost of debt; and
|
• |
a
terminal multiple of between 9 and 10 times unlevered cash flow,
based
upon the Company’s anticipated growth prospects and private and public
market valuations of comparable companies. The Company defines unlevered
cash flow as Adjusted EBITDA less interest expense, cash taxes and
capital
expenditures.
|
Current
assets
|
$
|
1,812
|
||
Property,
plant and equipment
|
5,686
|
|||
Noncompete
agreements
|
1,602 | |||
Advertising relationships | 7,606 | |||
Subscriber relationships | 1,760 | |||
Mastheads | 3,261 | |||
Customer relationships | 1,567 | |||
Goodwill | 3,327 | |||
Total
assets
|
26,621 | |||
Current liabilities | 1,271 | |||
Long-term liabilites | 2,100 | |||
Total
liabilities
|
3,371 | |||
Net assets acquired |
$
|
23,250 |
Current
assets
|
$
|
9,414
|
||
Other
assets
|
10,685
|
|||
Property,
plant and equipment
|
21,923
|
|||
Advertising
relationships
|
38,011
|
|||
Subscriber
relationships
|
8,341
|
|||
Mastheads
|
12,244
|
|||
Customer
relationships
|
3,659
|
|||
Goodwill
|
21,244
|
|||
Total
assets
|
125,521
|
|||
Current
liabilities
|
4,249
|
|||
Long-term
liabilities
|
59
|
|||
Total
liabilities
|
4,308
|
|||
Net
assets acquired
|
$
|
121,213
|
Current
assets
|
$ | 14,153 | |
Other
assets
|
75,632 | ||
Property,
plant and
equipment
|
39,092 | ||
Advertising
relationships
|
96,503 | ||
Subscriber
relationships
|
26,964 | ||
Mastheads
|
24,450 | ||
Goodwill
|
147,232 | ||
Total
assets
|
424,026 | ||
Total
liabilities
|
5,065 | ||
Net
assets
acquired
|
$ | 418,961 |
Current
assets
|
$ | 21,204 | |
Other
assets
|
18 | ||
Property,
plant and
equipment
|
71,114 | ||
Advertising
relationships
|
95,466 | ||
Subscriber
relationships
|
40,083 | ||
Mastheads
|
34,719 | ||
Goodwill
|
164,610 | ||
Total
assets
|
427,214 | ||
Current
liabilities
|
15,451 | ||
Long-term
liabilities
|
23,518 | ||
Total
liabilities
|
38,969 | ||
Net
assets
acquired
|
$ | 388,245 |
Current
assets
|
$ | 15,041 | |
Property,
plant and
equipment
|
51 | ||
Advertising
relationships
|
40,955 | ||
Trade
name
|
5,493 | ||
Publication
rights
|
345 | ||
Goodwill
|
48,454 | ||
Total
assets
|
110,339 | ||
Total
liabilities
|
183 | ||
Net
assets
acquired
|
$ | 110,156 |
Current
assets
|
$ | 2,614 | |
Property,
plant and
equipment
|
7,159 | ||
Advertising
relationships
|
27,268 | ||
Subscriber
relationships
|
6,397 | ||
Mastheads
|
4,393 | ||
Goodwill
|
25,357 | ||
Total
assets
|
73,188 | ||
Total
liabilities
|
817 | ||
Net
assets
acquired
|
$ | 72,371 |
Current
assets
|
$ | 2,630 | |
Other
assets
|
225 | ||
Property,
plant and
equipment
|
5,683 | ||
Noncompete
agreements
|
1,577 | ||
Advertising
relationships
|
7,432 | ||
Subscriber
relationships
|
1,716 | ||
Mastheads
|
3,375 | ||
Customer
relationships
|
967 | ||
Goodwill
|
8,662 | ||
Total
assets
|
32,267 | ||
Current
liabilities
|
2,519 | ||
Long-term
liabilities
|
2,153 | ||
Total
liabilities
|
4,672 | ||
Net
assets
acquired
|
$ | 27,595 |
• |
the
acquisition of all the issued and outstanding capital stock of SureWest
Directories from SureWest Communications for an aggregate purchase
price
of approximately $110,156 in February of 2007;
|
• |
the
acquisition of eight publications from the Journal Register Company
for an
aggregate purchase price of approximately $72,371 in February of
2007;
|
|
• |
the
acquisition of 37 publications from Morris
Publishing
Group for an aggregate purchase price of $121,213 in November
of 2007; and
|
|
• |
the
acquisition of 17 publications for an aggregate purchase price of
$23,250 during the three months ended March 31,
2008.
|
Three
Months Ended
March
31, 2007
|
||||
Revenues
|
$
|
153,832
|
||
Net
loss from continuing operations
|
$
|
(13,327
|
)
|
|
Net
loss per common share:
|
||||
Basic
|
$
|
(0.35
|
)
|
|
Diluted
|
$
|
(0.35
|
)
|
March
31, 2008
|
|||||||||
Gross carrying
amount |
Accumulated amortization |
Net carrying
amount |
|||||||
Amortized
intangible
assets:
|
|||||||||
Noncompete
agreements
|
$ | 4,775 | $ | 1,578 | $ | 3,197 | |||
Advertiser
relationships
|
572,747 | 54,052 | 518,695 | ||||||
Customer
relationships
|
8,256 | 523 | 7,733 | ||||||
Subscriber
relationships
|
148,379 | 13,157 | 135,222 | ||||||
Trade
name
|
5,493 | 595 | 4,898 | ||||||
Publication
rights
|
345 | 25 | 320 | ||||||
Total
|
$ | 739,995 | $ | 69,930 | $ | 670,065 | |||
Nonamortized
intangible
assets:
|
|||||||||
Goodwill
|
$ | 698,886 | |||||||
Mastheads
|
141,841 | ||||||||
Total
|
$ | 840,727 | |||||||
December 31,
2007
|
|||||||||
Gross
carrying
amount |
Accumulated amortization |
Net
carrying
amount |
|||||||
Amortized
intangible
assets:
|
|||||||||
Noncompete
agreements
|
$ | 3,172 | $ | 1,295 | $ | 1,877 | |||
Advertiser
relationships
|
565,663 | 45,097 | 520,566 | ||||||
Customer
relationships
|
6,689 | 383 | 6,306 | ||||||
Subscriber
relationships
|
146,751 | 10,859 | 135,892 | ||||||
Trade
name
|
5,493 | 458 | 5,035 | ||||||
Publication
rights
|
345 | 19 | 326 | ||||||
Total
|
$ | 728,113 | $ | 58,111 | $ | 670,002 | |||
Nonamortized
intangible
assets:
|
|||||||||
Goodwill
|
$ | 701,852 | |||||||
Mastheads
|
138,792 | ||||||||
Total
|
$ | 840,644 |
For
the year ending December
31:
|
||||
2008
|
$ | 36,186 | ||
2009
|
48,138 | |||
2010
|
48,138 | |||
2011
|
48,138 | |||
2012
|
48,138 | |||
Thereafter
|
441,327 | |||
Total
|
$ | 670,065 |
Balance
at January 1,
2008
|
$ | 701,852 | |
Additions | 3,327 | ||
Goodwill
impairment on
discontinued operations
|
(1,113) | ||
Other
adjustments
|
(5,180) | ||
Balance
at March 31, 2008
|
$ | 698,886 |
Three
Months Ended
March
31, 2008
|
Three Months Ended
March
31, 2007
|
||||||||||||
Pension
|
|
Postretirement
|
|
Pension
|
|
Postretirement
|
|||||||
Components
of Net Periodic Benefit Costs:
|
|||||||||||||
Service
cost
|
$
|
128
|
$
|
126
|
$
|
160
|
$
|
108
|
|||||
Interest
cost
|
323
|
247
|
308
|
143
|
|||||||||
Expected
return on plan assets
|
(358
|
)
|
—
|
(345
|
)
|
—
|
|||||||
Special
termination benefits
|
69
|
—
|
—
|
—
|
|||||||||
|
|||||||||||||
Total
|
$
|
162
|
$
|
373
|
$
|
123
|
$
|
251
|
Pension | Postretirement | |||||
Weighted
average discount
rate
|
6.4 | % | 6.5 | % | ||
Rate
of increase in future
compensation levels
|
3.5 | % | — | % | ||
Expected
return on
assets
|
8.5 | % | — | % | ||
Current
year
trend
|
— | 8.5% - 9.5 | % | |||
Ultimate
year
trend
|
— | 5.0% - 5.5 | % | |||
Year
of ultimate
trend
|
— | 2012 |
March
31, 2008
|
December
31, 2007
|
|||||
Assets
held for sale:
|
|
|
|
|||
Accounts
receivable, net
|
$
|
55
|
$
|
1,314
|
||
Inventory
|
22
|
152
|
||||
Prepaid
expenses and other current assets
|
|
14
|
74
|
|||
Total
assets held for sale
|
$
|
91
|
$
|
1,540
|
||
Long-term
assets held for sale:
|
|
|||||
Property,
plant and equipment, net
|
|
$
|
14,961
|
$
|
15,842 | |
Intangible
assets
|
|
|
964
|
7,422 | ||
Total
long-term assets held for sale
|
|
$
|
15,925
|
$
|
23,264 | |
Liabilities
held for sale
|
|
$
|
40
|
$
|
623 |
Fair
Value Measurements at Reporting Date Using
|
|||||||||||||
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level
1)
|
Significant
Other
Observable
Inputs
(Level
2)
|
Significant
Unobservable
Inputs
(Level
3)
|
March
31,
2008
|
||||||||||
Liabilities
|
|||||||||||||
Derivatives
(1)
|
$ | 89,145 | $ | 89,145 |
(1)
|
Derivative
assets and liabilities include interest rate swaps which are measured
using observable quoted prices for similar assets and liabilities.
The
calculation of fair value of the Company’s derivatives in a liability
position includes the Company’s own credit
risk.
|
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
• |
98 daily
newspapers with total paid circulation of
approximately 872,000;
|
• |
292
weekly newspapers (published up to three times per week) with total
paid
circulation of approximately 656,000 and total free circulation of
approximately 933,000;
|
• |
133
shoppers (generally advertising-only publications) with total circulation
of approximately 2.1 million;
|
• |
over
260
locally focused websites, which extend our franchises onto the internet;
and
|
• |
7
yellow
page directories, with a distribution of approximately 810,000,
that
covers a population of approximately 2.0 million people.
|
Three months
ended
March
31,
2008
|
Three months
ended
March
31,
2007
|
Three months
ended
March
31,
2007
|
||||||||
(Actual)
|
(Pro forma)
|
(Actual)
|
||||||||
(in
thousands)
|
||||||||||
Revenues:
|
||||||||||
Advertising
|
$
|
122,349
|
$
|
111,178
|
$
|
71,072
|
||||
Circulation
|
36,264
|
32,806
|
17,203
|
|||||||
Commercial
printing and other
|
10,335
|
9,848
|
6,453
|
|||||||
Total
revenues
|
168,948
|
153,832
|
94,728
|
|||||||
Operating
costs and expenses:
|
||||||||||
Operating
costs
|
97,521
|
87,345
|
52,355
|
|||||||
Selling,
general and administrative
|
48,864
|
44,464
|
30,599
|
|||||||
Depreciation
and amortization
|
18,763
|
15,413
|
8,802
|
|||||||
Integration
and reorganization costs
|
2,612
|
838
|
838
|
|||||||
Impairment
of long-lived assets
|
—
|
119
|
119
|
|||||||
(Gain)
loss on sale of assets
|
(6
|
)
|
13
|
13
|
||||||
Operating
income
|
1,194
|
|
5,640
|
2,002
|
||||||
Interest
expense
|
24,416
|
25,983
|
10,217
|
|||||||
Amortization
of deferred financing costs
|
583
|
317
|
223
|
|||||||
Unrealized
loss on derivative instrument
|
719
|
383
|
383
|
|||||||
Other
(income) expense
|
13
|
(225
|
)
|
(205
|
)
|
|||||
Loss
from continuing operations before income taxes
|
(24,537
|
)
|
(20,818
|
)
|
(8,616
|
)
|
||||
Income
tax expense (benefit)
|
2,471
|
|
(7,251
|
) |
(2,486
|
)
|
||||
Loss
from continuing operations
|
$
|
(27,008
|
)
|
$
|
(13,567
|
)
|
$
|
(6,130
|
)
|
GateHouse
Media
(A)
|
Copley
(B)
|
Gannett
(C)
|
Adjustments
(D)
|
Pro forma
|
|||||||||||||
Revenues: | |||||||||||||||||
Advertising
|
$
|
71,072
|
$
|
23,341
|
$
|
20,189
|
$
|
(3,424
|
)(1)
|
$
|
111,178
|
||||||
Circulation
|
17,203
|
10,994
|
5,682
|
(1,073
|
)(1)
|
32,806
|
|||||||||||
Commercial
printing and other
|
6,453
|
2,745
|
1,421
|
(771
|
)(1)
|
9,848
|
|||||||||||
Total
revenues
|
94,728
|
37,080
|
27,292
|
(5,268
|
)
|
153,832
|
|||||||||||
Operating
costs and expenses:
|
|||||||||||||||||
Operating
costs
|
52,355
|
22,944
|
15,620
|
(3,574
|
)(1,2)
|
87,345
|
|||||||||||
Selling,
general and administrative
|
30,599
|
10,690
|
4,909
|
(1,734
|
)(1,3)
|
44,464
|
|||||||||||
Depreciation
and amortization
|
8,802
|
2,423
|
999
|
3,189
|
(1,4) |
15,413
|
|||||||||||
Integration
and reorganization
|
838
|
—
|
—
|
—
|
838
|
||||||||||||
Impairment
of long-lived assets
|
119
|
—
|
—
|
—
|
119
|
||||||||||||
Other
expense
|
13
|
—
|
—
|
—
|
13
|
||||||||||||
Total
operating expenses
|
92,726
|
36,057
|
21,528
|
(2,119
|
)
|
148,192
|
|||||||||||
Operating
income (loss)
|
2,002
|
1,023
|
5,764
|
(3,149
|
)
|
5,640
|
|||||||||||
Interest
expense
|
|||||||||||||||||
Debt
|
10,217
|
—
|
—
|
15,766
|
(5)
|
25,983
|
|||||||||||
Other
interest expense
|
—
|
3,817
|
—
|
(3,817
|
)(5)
|
—
|
|||||||||||
Amortization
of deferred financing costs
|
223
|
—
|
—
|
94
|
(6)
|
317
|
|||||||||||
Unrealized
loss on derivative instrument
|
383
|
—
|
—
|
—
|
383
|
||||||||||||
Other
income
|
(205
|
)
|
(20
|
)
|
—
|
—
|
(225
|
)
|
|||||||||
Income
(loss) from operations before tax
|
(8,616
|
)
|
(2,774
|
)
|
5,764
|
(15,192
|
)
|
(20,818
|
)
|
||||||||
Income
tax expense (benefit)
|
(2,486
|
) |
(1,120
|
)
|
2,312
|
(5,957
|
)(1,7)
|
(7,251
|
)
|
||||||||
Income
(loss) from continuing operations
|
$
|
(6,130
|
)
|
$
|
(1,654
|
)
|
$
|
3,452
|
$
|
(9,235
|
)
|
$
|
(13,567
|
)
|
Adjustments
to Pro Forma Condensed Consolidated Statement of Operations
|
|
(A)
|
GateHouse
Media, Inc.
|
|
(B)
|
Copley
|
|
(C)
|
Gannett
|
|
(D)
|
Adjustments
|
|
(1)
|
Reflects
the adjustment to eliminate the revenue and expenses related
to the group
of assets and liabilities from the Gannett Acquisition
held for sale:
|
|
Total three
months ended
March 31,
2007
|
|||
Revenues:
|
|
|||
Advertising
|
$
|
3,424
|
||
Circulation
|
1,073
|
|||
Commercial
printing and other
|
771
|
|||
Operating
costs and expenses:
|
||||
Operating
costs
|
3,166
|
|||
Selling,
general and administrative
|
869
|
|||
Depreciation
and amortization
|
151
|
|||
Income
tax expense
|
433
|
|||
Income
from operations
|
$
|
649
|
|
(2)
|
Reflects
the elimination of expenses related to the pension
and postretirement
plans not continued by the
Company.
|
|
Total three
months ended
March 31,
2007
|
|||
Copley—LIFO
adjustment
|
$ | — | ||
Gannett—Pension
and postretirement adjustment
|
408 | |||
$ | 408 |
|
(3)
|
Reflects
the elimination of certain expenses related to liabilities
included in the
historical statement of operations of Copley and Gannett
but not assumed
by the Company.
|
|
Total three
months ended
March 31,
2007
|
|||
Copley:
|
|
|||
Pension,
postretirement and other retirement plans
|
$
|
729
|
||
Gannett:
|
||||
Pension,
postretirement and other retirement plans
|
136
|
|||
$
|
865
|
|
(4)
|
Copley:
|
|
|
|
Pro
forma expense
|
|||||||
Asset
Category
|
Fair
value
|
Remaining
estimated
useful
life
in
years
|
Three months
ended
March
31,
2007
|
|||||||
Buildings
|
$
|
25,691
|
25
|
$
|
256
|
|||||
Machinery
& Equipment
|
33,866
|
10
|
847
|
|||||||
Furniture
& Fixtures
|
589
|
10
|
15
|
|||||||
Auto
& Trucks
|
2,144
|
5
|
107
|
|||||||
Computer
Software & Equipment
|
2,344
|
3
|
196
|
|||||||
|
||||||||||
Total
pro forma depreciation expense
|
1,421
|
|||||||||
|
||||||||||
Subscriber
Relationships
|
40,083
|
14
|
716
|
|||||||
Advertiser
Relationships
|
95,466
|
14
|
1,705
|
|||||||
|
||||||||||
Total
pro forma amortization expense
|
2,421
|
|||||||||
|
||||||||||
Total
pro forma depreciation and amortization expense
|
$
|
3,842
|
Gannett:
|
|
|
|
|||||||
Remaining
|
Pro
forma expense
|
|||||||||
Asset
Category
|
Fair
value
|
estimated
useful
life
in
years
|
Three months
ended March 31, 2007
|
|||||||
Buildings
|
$
|
10,623
|
25
|
$
|
106
|
|||||
Machinery
& Equipment
|
25,722
|
10
|
643
|
|||||||
Furniture
& Fixtures
|
379
|
10
|
9
|
|||||||
Auto and Trucks |
641
|
5
|
32
|
|||||||
Computer Software and Equipment |
565
|
3
|
49
|
|||||||
Total
pro forma depreciation expense
|
839
|
|||||||||
|
||||||||||
Subscriber
Relationships
|
26,964
|
16
|
422
|
|||||||
Advertiser
Relationships
|
96,503
|
16
|
1,508
|
|||||||
|
||||||||||
Total
pro forma amortization expense
|
1,930
|
|||||||||
|
||||||||||
Total
pro forma depreciation and amortization expense
|
$
|
2,769
|
|
Copley
|
Gannett
|
Total
three
months
ended
March 31,
2007
|
|||||||
Pro
forma depreciation expense
|
$
|
1,421
|
$
|
839
|
$
|
2,260
|
||||
Pro
forma amortization expense
|
2,421
|
1,930
|
4,351
|
|||||||
Less:
historical depreciation expense
|
(2,304
|
)
|
(828
|
)
|
(3,132
|
)
|
||||
Less:
historical amortization expense
|
(119
|
)
|
(20
|
)
|
(139
|
)
|
||||
$
|
1,419
|
$
|
1,921
|
$
|
3,340
|
|
(5)
|
Represents
adjustment to reflect the interest expense of the 2007
Financings for the
periods presented. The following table illustrates the
assumed interest
rates and amounts of borrowings the pro forma interest
expense calculation
is based on. The term loan, delayed draw term loan, bridge
facility and
the revolving loan facility average rate is LIBOR based.
The term loan and
delayed draw term loan variable interest rate is effectively
converted to
a fixed rate loan under five interest rate swap agreements
for notional
amounts of $300,000, $270,000, $100,000, $250,000 and
$200,000, except for
a $75,000 unhedged portion of the term loan. Unused commitment
fees are
based on the remaining balance of the $40,000 of the
total revolving
credit facility. Letter of credit fees are a quarterly
fee equal to the
applicable margin for the LIBOR based loans on the aggregate
amount of
outstanding letters of credit.
|
|
Three
months ended March 31, 2007
|
|
|
|||||||||||||||||||
|
Average Rate
|
Margin
|
Total Rate
|
Amount of
borrowing
|
Pro forma
interest
expense
|
Less:
Historical
interest
expense
|
Net
adjustment
to
interest
expense
|
|||||||||||||||
Term
Loan Facility - B
|
4.778
|
%
|
2.00
|
%
|
6.778
|
%
|
$
|
670,000
|
$
|
11,354
|
||||||||||||
Delayed
Draw Term Loan Facility
|
4.971
|
%
|
2.00
|
%
|
6.971
|
%
|
250,000
|
4,357
|
||||||||||||||
Term
Loan Facility - C
|
5.156
|
%
|
2.25
|
%
|
7.406
|
%
|
275,000
|
5,091
|
||||||||||||||
Bridge
Facility
|
5.320
|
%
|
1.50
|
%
|
6.820
|
%
|
300,000
|
5,115
|
||||||||||||||
Unused
commitment fees
|
0.50
|
%
|
—
|
0.500
|
%
|
40,000
|
50
|
|||||||||||||||
Letter
of credit fees
|
2.00
|
%
|
—
|
2.000
|
%
|
3,269
|
16
|
|||||||||||||||
$
|
25,983
|
$
|
10,217
|
$
|
15,766
|
|||||||||||||||||
Historical
weighted average debt balance
|
$
|
624,000
|
||||||||||||||||||||
Weighted
average interest rate
|
7.32
|
%
|
|
(6)
|
Deferred
financing costs consist of costs incurred in connection
with debt
financings. Such costs are amortized to interest expense
on a
straight-line basis over the remaining terms of the related
debt. Reflects
the net adjustment to a total deferred financing cost
amount of $13,091
amortized over a weighted average life of 2.7 years as
follows:
|
|
Three months
ended
March
31, 2007
|
|||
Pro
forma deferred financing costs
|
$ | 317 | ||
Less:
historical costs
|
(223 | ) | ||
Net
adjustment
|
$ | 94 |
|
(7)
|
The
pro forma adjustment reflects the income tax effect of
pro forma
adjustments. The tax effect is calculated based on a 39.15%
effective tax
rate.
|
Three
months ended
|
Three
months ended
|
||||||
March
31, 2008
|
March
31, 2007
|
||||||
Cash
provided by operating activities
|
$
|
7,713
|
$
|
5,089
|
|||
Cash
used in investing activities
|
(16,066
|
)
|
(208,051
|
)
|
|||
Cash
provided by financing activities
|
6,879
|
119,217
|
• |
Net
income tax expense (benefit);
|
• |
interest/financing
expense;
and
|
• |
depreciation
and
amortization
|
|
|
Three Months Ended
March
31, 2008
|
|
|
Three Months Ended
March
31, 2007
|
|
||
q
|
|
(in
thousands)
|
|
|||||
Loss
from continuing operations
|
|
$
|
(27,008
|
)
|
|
$
|
(6,130
|
)
|
Income
tax expense (benefit)
|
|
|
2,471
|
|
|
|
(2,486
|
)
|
Unrealized
loss on derivative instrument
|
|
|
719
|
|
|
|
383
|
|
Amortization
of deferred financing costs
|
|
|
583
|
|
|
|
223
|
|
Interest
expense
|
|
|
24,416
|
|
|
|
10,217
|
|
Impairment
of long-lived assets
|
|
|
-
|
|
|
|
119
|
|
Depreciation
and amortization
|
|
|
18,763
|
|
|
|
8,802
|
|
Adjusted
EBITDA from continuing operations
|
|
$
|
19,944
|
(a)
|
|
$
|
11,128
|
(b)
|
|
(a) |
Adjusted
EBITDA for
the three months ended March 31, 2008 included net expenses of
$10,129 which are one-time in nature or non-cash compensation. Included
in
these net expenses of $10,129 is non-cash compensation and other
expense
of $6,965, non-cash portion of postretirement benefits expense of
$558 and
integration and reorganization costs of $2,612, which are partially
offset by a $6 gain on the sale of assets.
Adjusted EBITDA also does not include $10 from
our
discontinued operations.
|
(b) |
Adjusted
EBITDA for
the three months ended March 31, 2007 included net expenses of
$3,318, which are one-time in nature or non-cash compensation. Included
in
these net expenses of $3,318 is non-cash compensation and other expense
of
$2,153, non-cash portion of postretirement benefits expense of $314,
integration and reorganization costs of $838 and a $13 loss on the
sale of
assets.
Adjusted
EBITDA also does not
include $1,015 from SureWest Directories due to the impact of purchase
accounting and $51
from our discontinued
operations.
|
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Item 4. | Controls and Procedures |
Item 1. | Legal Proceedings |
Item 1A. | Risk Factors |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
Item 3. | Defaults Upon Senior Securities |
Item 4. | Submission of Matters to Vote of Security Holders |
Item 5. | Other Information |
Item 6. | Exhibits |
Incorporated by Reference Herein | ||||||||||
Exhibit
No.
|
Description
of
Exhibit
|
Included
Herewith
|
Form
|
Exhibit
|
Filing
Date
|
|||||
*10.1
|
Certain
executive compensation information
|
8-K
|
-
|
January
3, 2008
|
||||||
*10.2
|
Form
of Restricted Stock Award Agreement for awarded RSGs
|
8-K
|
99.1
|
January
3, 2008
|
||||||
*10.3
|
Form
of Restricted Stock Award Agreement for chosen RSGs
|
8-K
|
99.2
|
January
3, 2008
|
||||||
31.1
|
Rule
13a-14(a)/15d-14(a) Certification of the Chief Executive Officer
(principal executive officer).
|
x
|
||||||||
31.2
|
Rule
13a-14(a)/15d-14(a) Certification of the Chief Financial Officer
(principal financial officer).
|
x
|
||||||||
32.1
|
Section
1350 Certifications.
|
x
|
||||||||
*
|
Asterisks identify management contracts and compensatory plans or arrangements. |
GATEHOUSE MEDIA, INC. | ||
Date: May 12, 2008 |
/s/
Mark R.
Thompson
|
|
Mark R. Thompson | ||
Chief Financial Officer |