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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM 10-K
(Mark One)
(X) Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 (Fee Required)
For the fiscal year ended December 31, 1994 or
( ) Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)
For the transition period from ________________ to ______________
Commission file number 0-13834
AMERICAN CITY BUSINESS JOURNALS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 43-1366184
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
128 S. Tryon Street, Suite 2300
Charlotte, North Carolina 28202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (704) 375-7404
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock
$.01 Par Value
(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the common stock, par value $.01 per share
(the "Common Stock"), of the Registrant held by nonaffiliates of the Registrant
as of March 17, 1995, was $125,845,000 based upon the last sale price of these
shares as quoted by The NASDAQ Stock Market.
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Indicate the number of shares outstanding of each of the Registrant's
classes of Common Stock as of March 17, 1995:
Common Shares: 6,895,623 Exclusive of 637,384 Treasury Shares
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Registrant's Proxy Statement for the annual meeting
of Stockholders to be held May 19, 1995 (the "Proxy Statement"); Proxy
Statement for the annual meeting of Stockholders held May 17, 1991 and Proxy
Statement for annual meeting of Stockholders held May 21, 1993 have been
incorporated herein by reference in response to the information required by
Items 5 through 8 and Item 14 of Part II, Part III, and Part IV, respectively.
PART I
ITEM 1. BUSINESS
The Registrant
American City Business Journals, Inc. (the "Registrant"), through its
subsidiaries, publishes a chain of weekly business newspapers in major
metropolitan areas throughout the United States. The Registrant owns through
its subsidiaries 28 business newspapers, one legal newspaper, and three
motorsport publications. The newspapers focus on the local business community
by including information not readily available to business leaders from other
sources, standard features which readers find useful in their own businesses,
profiles and feature stories on local business personalities. Revenue is
generated through advertising sales and paid circulation income. The
Registrant was incorporated under the laws of the State of Delaware in April
1985. The Registrant's principal offices are located at 128 S. Tryon Street,
Suite 2300, Charlotte, North Carolina 28202, and its telephone number is
(704) 375-7404.
On September 1, 1994, the Registrant acquired its second motorsport
publication, "Winston Cup Illustrated". The publication is a monthly magazine
which covers the NASCAR Winston Cup stock car racing series.
On October 1, 1994, the Registrant acquired its 28th business newspaper,
"The Austin Business Journal".
On October 21, 1994, the Registrant acquired its third motorsport
publication, "On Track". The publication is a bi-weekly magazine that covers
all forms of auto racing around the world.
On January 20, 1995, the Registrant acquired 19.9% of the common stock of
Sunbelt Video, Inc ("SBV"). The Registrant also is a party to an Option
Agreement which gives the Company an option to acquire the remaining SBV shares
at their market value in three years from the shareholders of SBV. These
shareholders have a "put" option to require the Registrant to acquire the
remaining SBV shares at their market value in three years. SBV is a video
production company that produces sports programming for cable TV networks and
promotion and training videos for companies.
On January 31, 1995, the Registrant acquired Performance Printing, a
Charlotte, North Carolina based commercial printing company. It will enable
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Registrant to gain some cost advantage in consolidating the printing of its
magazines and other glossy publications.
In January 1995 the Registrant ceased publication of "Biz Magazine". The
publication was owned by a partnership between Biz Publishing, Inc. ("BPI"), a
subsidiary of Registrant and Dow Jones Venture I, Inc., ("DJ"), a subsidiary
of Dow Jones & Company, Inc. The magazine was introduced in early 1994 and
targeted to the heads of America's approximately 500,000 fastest-growing small
businesses. It was a controlled circulation publication.
Date First Date Acquired
Publications Owned Published by Company
------------------------------------------------- ------------- -------------
AUSTIN BUSINESS JOURNAL 02/81 10/94
CAPITAL DISTRICT BUSINESS REVIEW (ALBANY) 03/74 02/86
ATLANTA BUSINESS CHRONICLE 06/78 12/86
BALTIMORE BUSINESS JOURNAL 06/83 10/86
BUSINESS FIRST (BUFFALO) 10/84 10/84
BUFFALO LAW JOURNAL (legal newspaper) 1929 12/86
THE BUSINESS JOURNAL OF CHARLOTTE 04/86 04/86
THE BUSINESS JOURNAL SERVING SAN JOSE
AND THE SILICON VALLEY 05/83 03/93
CINCINNATI BUSINESS COURIER 05/84 10/86
BUSINESS FIRST (COLUMBUS) 09/84 09/84
DALLAS BUSINESS JOURNAL 08/77 12/86
DENVER BUSINESS JOURNAL 10/86 12/86
PACIFIC BUSINESS NEWS (HONOLULU) 05/63 12/84
HOUSTON BUSINESS JOURNAL 07/71 12/86
JACKSONVILLE BUSINESS JOURNAL 10/85 10/85
KANSAS CITY BUSINESS JOURNAL 09/82 09/82
BUSINESS FIRST (LOUISVILLE) 08/84 08/84
ON TRACK 04/81 10/94
ORLANDO BUSINESS JOURNAL 06/84 04/90
PHOENIX BUSINESS JOURNAL 11/80 12/89
BUSINESS JOURNAL OF PORTLAND (OREGON) 03/84 03/84
PUGET SOUND BUSINESS JOURNAL (SEATTLE) 05/80 12/86
SAN ANTONIO BUSINESS JOURNAL 03/82 07/86
SAN FRANCISCO BUSINESS TIMES 09/86 12/89
SOUTH FLORIDA BUSINESS JOURNAL (MIAMI) 09/80 12/86
ST. LOUIS BUSINESS JOURNAL 10/80 10/86
TAMPA BAY BUSINESS JOURNAL 01/81 04/90
TRIANGLE BUSINESS JOURNAL (RALEIGH) 09/85 10/91
WASHINGTON (D.C.) BUSINESS JOURNAL 05/82 12/86
WICHITA BUSINESS JOURNAL 03/86 03/86
WINSTON CUP ILLUSTRATED 09/81 09/94
WINSTON CUP SCENE 04/77 12/92
-------------------------
The Registrant's publications are owned and operated by 19 subsidiaries, listed
in Exhibit 21.
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Capital Stock Transactions
On December 3, 1992 the Board of Directors authorized the issuance of 6%
Convertible Subordinated Debentures ("Debentures") due December 31, 2011 in
exchange for Registrant's then outstanding class of $1.50 Convertible
Exchangeable Preferred Stock ("Preferred Stock"). On the December 31, 1992
exchange date, the Registrant had 1,575,131 shares of Preferred Stock issued.
Upon the completion of the exchange on December 31, 1992, Debentures equal to
$25 for each share of Preferred Stock were issued with a total face value of
$39,378,275. Bonds, with a face value of $7,500,000, are held by the Company
which will be used to meet the sinking fund requirement.
On April 7, 1994, the Board of Directors approved a two for one stock split
of the Registrant's common stock that was distributed as a 100% stock dividend
on April 29, 1994 to holders of record on April 18, 1994. As a result of the
stock split, the conversion rate of Registrant's 6% Convertible Subordinated
Debentures due December 31, 2011, which had been .74627 common shares for each
$25 principal amount of the Debentures, becomes 1.49254 shares of common stock
for each $25 principal amount of the Debentures.
On December 1, 1994, the Board of Directors approved a 5% stock dividend to
be distributed on January 16, 1995 to shareholders of record on December 15,
1994. As a result of the stock dividend the conversion rate of Registrant's 6%
Convertible Subordinated Debentures due December 31, 2011 becomes 1.567167
shares of common stock for each $25 principal amount of the Debentures.
Operations of the Business Newspapers
The Registrant's business strategy is to create a local identity for each
business newspaper, generally including selection of a publisher from the
community and a staff of individuals primarily from the area served, each of
whom is familiar with the local business community. National wire service
articles do not appear in the newspapers and few syndicated stories are
utilized.
Although the papers have local editorial content and a primarily local
advertiser base, they benefit from the support services available from the
corporate office and the sharing of information among the Registrant's various
papers concerning successful and unsuccessful projects, advertising and
circulation promotions. Further, employees of the various papers are sometimes
loaned to another paper for training or to fill interim vacancies. The Network
of City Business Journals, Inc., a subsidiary of the Registrant (the
"Network"), serves as the national advertising agent for the Registrant's
papers and other non-owned papers for the purpose of selling advertising to
national corporations.
The operations of each of the business newspapers are divided into five
departments: editorial, production, advertising sales, circulation and
administration.
Editorial. Interesting, accurate and readable articles are considered to
be the single most important factor in developing readership and market
acceptance of the business newspapers. The editorial staffs, comprised of
experienced editors and trained reporters, write articles and features which
report business news relevant to the local businessman. The newspapers focus
on the local business community by including articles that contain information
not readily available to businessmen from other sources, standard features
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which readers find useful in their own businesses, and profiles and feature
stories on local business personalities.
Production. Management believes that quality in production is critical to
the success of the newspapers. The Registrant strives for a professional
appearance through typesetting and layout using advanced computer production
processes and by emphasizing the quality of the graphics, newsprint, ink and
all other physical components of the newspaper. The Registrant contracts for
the printing of the business newspapers with unaffiliated printing companies.
To date, there has been a sufficient number of printing companies available to
each newspaper so that the Registrant has never experienced a serious problem
with the availability of quality printing services.
The Registrant's January 31, 1995 acquisition of Performance Printing (see
The Registrant) should enable the Registrant to achieve cost savings and
quality control in printing its magazines and other glossy publications.
Advertising Sales. Advertising is the primary revenue source for the
Registrant. The Registrant directs its marketing efforts toward advertisers
who want to reach the local business market. Members of the advertising sales
staff are paid on a commission basis and in the majority of markets are
assigned to work with specific industries. The Registrant believes that
industry specialization allows the salesperson to become more familiar with the
types of advertising programs which are effective for advertisers in that
industry. In a few markets, due to the geographic size of the city, sales
staff are assigned territories to cover. Advertising sales are supported by
special marketing efforts such as special supplements which target specific
industries.
Advertising revenue is sensitive to economic conditions, and growth rates
generally decline as the publications mature. Each year the Registrant has
experienced declines in certain markets because of local conditions, both from
within the publication and from external economic factors. The dispersion of
the revenue base across multiple markets has enabled the Registrant to maintain
its overall rate of revenue growth, overcoming adverse circumstances in a few
markets with above average results in others.
In November 1986, the Registrant formed The Network of City Business
Journals, Inc., a national sales and marketing organization, for the purpose of
attracting multi-market advertising to be printed in the Registrant's
publications as well as in other unaffiliated business newspapers. The
Network's efforts are facilitated by a national sales force with headquarters
in Kansas City and sales offices in New York, Chicago, Dallas, Detroit,
Atlanta, Los Angeles and San Francisco.
Circulation. In addition to supporting advertising sales, subscriptions
historically have been a significant source of revenue for the Registrant.
Paid subscriptions, on average, account for most of the total paid circulation,
with newsstand and vending box sales representing the balance. During a
publication's start-up phase, subscriptions are initially promoted by mailing
free sample papers to local businesses during a three to four week period.
Telemarketing is used as a follow-up to the sample mailing to maximize the
subscription promotion. In mature markets, direct mail is used in conjunction
with a sampling program. Direct mail and telemarketing are used in obtaining
renewals, a key factor in continued circulation growth. The Registrant has
historically achieved a high percentage of annual renewals.
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Administration. Each business newspaper has a local publisher who is
responsible for publication control and promotion of the business newspaper in
the community. Community involvement is an integral part of the Registrant's
"hometown" business focus. Publishers divide their attention among all five
departments and are responsible for local budgeting and cost control, personnel
decisions, editorial content, production quality, advertising sales and
circulation totals.
Motorsport Publications
On December 31, 1992, the Registrant acquired "Winston Cup Scene", a
national publication which covers the NASCAR Winston Cup stock car racing
series. With a total paid circulation of 119,800, this publication is the
Registrant's largest paid circulation publication. The addition of "Winston
Cup Illustrated" and "On Track" in 1994 (see The Registrant) allows the
Registrant to consolidate the three motorsport publications at its corporate
headquarters in Charlotte, North Carolina.
Employees
On March 1, 1995, the Registrant and its subsidiaries employed 982 full-
time employees, of whom 359 were in editorial, 301 were in advertising, 115
were in circulation, 106 were in production, 137 were in administration, and 43
were in the commercial printing operation. The Registrant has employment
agreements and contracts with certain of its key management and personnel. The
Registrant also has 79 part-time employees.
None of the employees of the Registrant are represented by a union. The
Registrant believes its relations with its employees are good. The Registrant
has generally been successful in retaining key employees of acquired
publications as well as filling any vacancies through internal transfers or
external hires.
Competition
The business newspapers compete with other news publications for readership
and circulation and with all types of media for advertising revenue. With
respect to circulation, local daily newspapers and periodic local business
magazines are the primary competitors of each of the business newspapers.
The Registrant, through its local business newspapers and the Network,
competes with local newspapers, radio, television, and magazines for
advertising revenue. The Registrant seeks to keep its advertising rates
competitive and targets advertisers seeking to reach the more focused audience
of the local business community.
Registrant's publications, "On Track", "Winston Cup Illustrated", and
"Winston Cup Scene", are national publications which compete with national
media for advertising revenue.
ITEM 2. PROPERTIES
The Registrant leases all of the facilities in which its corporate
headquarters and subsidiaries are located. The Registrant does not own any
facility. The present leased space is adequate for the needs of the respective
publications. The Registrant has satisfied additional space requirements
either by acquiring additional space within the same facility or by negotiating
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acceptable terms for space in new facilities. The following table sets forth
the location, approximate square footage and expiration of lease term for each
of the facilities operated and leased by the Registrant:
Square
Location Footage Expiration
------------------------- ------- ----------
Albany, NY 7,000 11/30/97
Atlanta, GA 11,618 12/31/95
Austin, TX 3,140 02/28/98
Baltimore, MD 5,217 09/30/97
Buffalo, NY 10,800 08/31/96
Charlotte, NC 4,964 10/24/99
Charlotte, NC 20,466 10/24/99
Chicago, IL 1,058 10/31/95
Cincinnati OH 6,477 03/31/00
Columbus, OH 7,264 03/21/02
Dallas, TX 8,852 12/31/96
Denver, CO 7,248 03/31/97
Honolulu, HI 7,462 06/30/99
Houston, TX 8,683 10/31/95
Jacksonville, FL 4,500 09/15/99
Kansas City, MO 9,962 05/31/95
Kansas City, MO 3,862 12/31/98
Louisville, KY 8,985 04/09/97
Los Angeles, CA 940 05/31/95
Miami, FL 6,500 08/31/98
New York, NY 2,782 01/31/99
Orlando, FL 5,828 11/30/99
Phoenix, AZ 6,700 02/22/98
Portland, OR 5,755 01/31/97
Raleigh, NC 2,744 08/31/97
St. Louis, MO 7,646 06/30/97
St. Louis, MO 4,088 02/29/96
San Antonio, TX 5,878 05/03/98
San Francisco, CA 912 03/31/95
San Francisco, CA 7,192 12/31/98
San Jose, CA 7,195 04/30/02
Seattle, WA 8,031 03/31/99
Tampa, FL 7,994 02/28/95
Arlington, VA 8,220 03/31/99
Wichita, KS 3,541 07/01/99
ITEM 3. LEGAL PROCEEDINGS
Libel Litigation
The Registrant's business newspapers and their personnel, like other
newspaper reporters and publishers, are sued from time to time for articles
that they publish. Typically, the suit is based on allegations of libel or
defamation and includes a claim for punitive damages. In addition to general
liability insurance, the Registrant carries publisher's liability insurance
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covering libel and defamation with aggregate limits of $5,000,000 prior to 1993
and $10,000,000 after 1993, but statutes in several states do not allow
punitive damages to be paid by insurance. In each of the following legal
proceedings, and considering these proceedings in aggregate, it is the opinion
of the management that the likelihood of recovery in excess of the insurance
coverage is minimal and that such recovery, if it should occur, would not have
a material adverse effect on the results of operation or the financial position
of the Registrant.
"Houston Business Journal" ("HBJ"), a publication of the Registrant, and a
former reporter are co-defendants in an action filed December 7, 1989 in the
District Court of Harris County, Texas by Al Fairfield. The plaintiff alleges
libel arising out of an article printed December 26, 1988 and claims
unspecified damages. Discovery is proceeding as an attempt by the parties to
mediate the case failed. The Registrant believes any recovery should be within
the Registrant's libel insurance coverage.
The "Atlanta Business Chronicle" (the "Chronicle"), a publication of the
Registrant, is the defendant in an action filed February 27, 1990 in the State
Court of Fulton County, Georgia by Thomas Stalvey. The plaintiff alleges libel
arising out of an article printed in April 1989 and claims unspecified damages.
A summary judgment was granted in favor of the Chronicle on January 23, 1991.
The plaintiff successfully appealed the summary judgment and the case is
waiting for a trial date to be assigned. The Registrant believes any recovery
should be within the Registrant's libel insurance coverage.
The "Kansas City Business Journal", ("KCBJ"), a publication of the
Registrant, is a defendant in an action filed July 19, 1993 in the Circuit
Court of Jackson County, Missouri at Kansas City by John M. Chezik. The
plaintiff alleges libel and false light arising out of an article published in
the "Kansas City Business Journal" on August 2, 1991 and republished on
December 31, 1991 and is claiming unspecified actual damages, plus punitive
damages in excess of $1,000,000. The matter was settled by the parties in
November 1994.
The "Dallas Business Journal", ("DBJ"), a publication of the Registrant, is
the defendant in an action filed November 16, 1993 in the District Court,
Dallas County, Texas by James Dennis Allen. The plaintiff alleges libel
arising out of two articles printed by DBJ on January 22, 1993 and September 3,
1993 and claims unspecified damages. The Registrant believes any recovery
should be within Registrant's libel insurance coverage.
DBJ is a defendant in an action filed May 10, 1994 in the District Court,
Henderson County, Texas by Bill C. Hunter. The plaintiff alleges libel arising
out of an article printed April 22, 1994 and claims unspecified damages. The
Registrant believes any recovery should be within Registrant's libel insurance
coverage.
"Business First of Columbus" ("BFC"), a publication of the Registrant, and
a reporter are co-defendants in an action filed August 24, 1994 in the Common
Pleas Court of Franklin County, Ohio, by David T. McLaughlin Work Well Company
and David T. McLaughlin. The plaintiffs allege libel arising out of an article
printed August 30, 1993 in excess of $200,000 in damages. Registrant has filed
a Motion for Summary Judgment. The Registrant believes any recovery should be
within the Registrant's libel insurance coverage.
The "Business Journal Serving San Jose and the Silicon Valley" ("SJBJ"), a
publication of the Registrant, a reporter and other non-related companies and
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individuals, including the Maxtor Corporation, Gray Cary Ware & Freidenrich, a
professional corporation, are defendants in an action filed December 12, 1994
in the Superior Court of the State of California for the County of Santa Clara
by Peter Van Beckum. The plaintiff alleges libel out of an article published
by SJBJ on May 23, 1994 and claims unspecified damages. The Registrant
believes any recovery should be within Registrant's libel insurance coverage.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock trades on The NASDAQ Stock Market under the
symbol "AMBJ." The Common Stock has been traded on The NASDAQ Stock Market
since October 1, 1985. The following table sets forth the high and low last
sale prices for the periods indicated as reported by The NASDAQ Stock Market.
These market quotations reflect inter-dealer prices without retail mark-ups,
mark-downs and commissions and have been adjusted for the 2 for 1 stock split
in 1994.
1994 High Low
-------------- ------- -------
First Quarter $16-5/8 $14
Second Quarter 16-1/4 14-1/8
Third Quarter 16-3/4 14-3/4
Fourth Quarter 17 15-1/2
1993 High Low
-------------- ------- -------
First Quarter $ 9-1/2 $ 7-5/8
Second Quarter 11 8-3/4
Third Quarter 12-5/8 10-1/2
Fourth Quarter 14-1/2 12-1/8
The policy of the Company is to retain earnings to provide funds for the
operation and expansion of its business. Accordingly, the Company has never
paid a cash dividend on its Common Stock. At March 19, 1995, there were
approximately 1510 participants in security position listings, as defined in
Rule 17Ad-8 under the Securities Act of 1934, for the Company's common stock.
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ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
For the Five Years Ended December 31, 1994
1994 1993 1992 1991 1990
------------ ------------ ------------ ------------ ------------
Revenues $97,696,000 $86,672,000 $70,727,000 $68,712,000 $70,014,000
Operating expenses 83,346,000 75,860,000 64,069,000 63,085,000 66,084,000
------------ ------------ ------------ ------------ ------------
Operating income 14,350,000 10,812,000 6,658,000 5,627,000 3,930,000
Percent of revenues 14.7% 12.5% 9.4% 8.2% 5.6%
Gain on sale of assets -- -- -- -- 3,231,000
Interest expense - net (4,637,000) (4,932,000) (1,874,000) (1,593,000) (1,551,000)
Other income (expense) (582,000) (5,000) 50,000 (7,000) (63,000)
------------ ------------ ------------ ------------ ------------
Income before income taxes 9,131,000 5,875,000 4,834,000 4,027,000 5,547,000
Provision for income taxes 3,835,000 2,475,000 943,000 200,000 217,000
------------ ------------ ------------ ------------ ------------
Net income 5,296,000 3,400,000 3,891,000 3,827,000 5,330,000
Preferred stock dividends -- -- 1,926,000 2,032,000 2,187,000
------------ ------------ ------------ ------------ ------------
Income attributable
to common stockholders $ 5,296,000 $ 3,400,000 $ 1,965,000 $ 1,795,000 $ 3,143,000
============ ============ ============ ============ ============
Income per share
- Primary $.74 $.50 $.29 $.27 $.45
- Fully diluted $.71 -- -- -- --
Operating income before depreciation
and amortization $19,860,000 $15,910,000 $10,636,000 $ 9,776,000 $ 7,890,000
AS OF DECEMBER 31:
Total assets $92,130,000 $82,886,000 $76,077,000 $68,178,000 $67,257,000
Long-term debt 35,788,000 36,785,000 36,514,000 33,263,000 33,297,000
Convertible Subordinated Debentures 31,878,000 31,878,000 31,878,000 -- --
Stockholders' investment (1,461,000) (6,249,000) (10,081,000) 20,541,000 19,764,000
PUBLICATIONS OWNED:
Business Journals 28 27 26 26 25
Other 4 2 3 2 2
------------ ------------ ------------ ------------ ------------
32 29 29 28 27
============ ============ ============ ============ ============
-------------------------
The comparability of this data is affected by (1) acquisitions in 1990, 1991, 1992, 1993 and 1994
(see Note 2); (2) restatement of the consolidated financial statements for adoption in 1992 of SFAS
109-Accounting For Income Taxes; and (3) the exchange on December 31, 1992 of the Convertible
Preferred Stock for Convertible Subordinated Debentures (see Note 7).
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Adjusted for 2 for 1 stock split distributed April 29, 1994 to stockholders of record April 18, 1994
and for 5% stock dividend payable January 16, 1995 to stockholders of record December 15, 1994 (see
Note 1).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition and Liquidity
At December 31, 1994 the Company had a current ratio of 1.4:1 and over $17
million in cash and cash equivalents.
The Company believes its existing liquidity and cash flow from operations
is sufficient in 1995 to fund (a) interest ($5 million) and principal ($1
million) on long-term debt and convertible subordinated debentures; (b) capital
additions of approximately $1.2 million for new production systems, computer
software and hardware upgrades and miscellaneous items of furniture and
equipment; (c) working capital requirements which are not expected to be
significant; and (d) the $2,488,000 of federal income taxes relating to years
prior to 1994 under the settlement initiative with the Internal Revenue Service
as described in Note 5.
The Company has no agreements in place for the extension of credit because
no such arrangements are deemed necessary.
Results of Operations
Comparison of 1994 to 1993
Comparative operating results were modestly impacted by acquisitions in
1994 (see Note 2).
Total revenues increased 12.7% in 1994 (11.6% excluding acquisitions).
Advertising revenue increased 11.9% (11.2% excluding acquisitions) from
increases in local and national advertising in the business journals and a
53.4% increase in advertising revenue in Winston Cup Scene. 24 of the 26
business journals operated throughout 1993 and 1994 increased advertising
revenue. Advertising revenue, which comprised 77.1% of total revenue in 1994,
is sensitive to changes in general economic conditions and a deterioration in
the economy could have an adverse impact on this revenue source.
Circulation revenue increased 16.3% (13.5% excluding acquisitions) from
increases in paid circulation and rate increases. Paid circulation of the
business journals increased 3.8% for the year and was 327,788 (including
Austin) at December 31, 1994. Paid circulation of Winston Cup Scene increased
13.5% to 119,844 at year end.
Other revenue increased 10.4% (9.8% excluding acquisitions) from increased
advertising in non-newspaper publications.
Total operating expenses increased 9.9% (7.7% excluding acquisitions).
Excluding acquisitions, percentage increases by expense category were;
editorial - 8.0%, sales - 4.7%, circulation - 9.3%, production - 11.8%,
administration - 7.5% and depreciation and amortization - 3.5%. The increase in
editorial and administration is from normal compensation increases, increased
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training and a small increase in total staff. Increased sales expense is from
commissions on additional volume partially offset by reduced promotional
activity. Excluding Winston Cup Scene which had increases in circulation and
production expenses of 32.8% and 30.6%, respectively, as a result of increased
volume, circulation expenses increased 5.8% primarily from increased volume and
production expenses increased 9.8% from increased volume, additional focus and
special sections and compensation increases. Increases in newsprint prices did
not have a significant impact on operating results for 1994 and are not
expected to materially impact 1995's results as newsprint is not a significant
component of total operating expenses. The increase in depreciation and
amortization is related to capital additions in 1993 and 1994.
Operating income increased $3,538,000 or 32.7% primarily as a result of the
increases in advertising and circulation revenue. In 1994, 32.1% of the
increase in total revenue was added to operating income vs. 26.1% in 1993.
Operating income as a percent of total revenue increased from 12.5% in 1993 to
14.7% in 1994.
Interest expense increased $19,000 from modest changes in debt outstanding
and an increase, in the fourth quarter of the year, in the interest rate on the
Company's $20 Series Promissory Notes to 8 1/2%.
Interest income increased $314,000 from increased yield and a higher level
of invested funds.
Other expense includes $554,000 representing the Company's share of joint
venture losses (see Note 2) on the BIZ publication which was discontinued in
January 1995.
The provision for income taxes was based on a 42% effective rate in both
1993 and 1994. A reconciliation of this rate to the statutory rate is set forth
in Note 5.
Comparison of 1993 to 1992
The comparative operating results are impacted by the acquisition of
Winston Cup Scene on December 31, 1992 and by the acquisition of the San Jose
Business Journal on March 1, 1993 (see Note 2). Both acquisitions were
accounted for as purchases and the operating results for 1993 include Winston
Cup Scene for the entire year and the San Jose Business Journal for ten months.
Total revenue increased 22.5% in 1993 (9.9% excluding acquisitions).
Advertising revenue increased 20.0% (11.5% excluding acquisitions) from
increases in both local and national advertising aided by an improving economy.
23 of the 26 business journals operated throughout 1993 and 1992 increased
advertising revenue. Advertising revenue, which comprised 77.7% of total
Company revenue in 1993, is sensitive to change in economic conditions and a
deterioration of the overall economy could have an adverse impact on this
revenue source.
Circulation revenue increased 38.0% primarily from the inclusion of Winston
Cup Scene where circulation revenue comprises 65.0% of total revenue. Excluding
acquisitions, circulation revenue increased 5.4% from a 3.7% increase in paid
circulation and modest rate increases. Paid circulation was 312,952 (includes
San Jose Business Journal) at December 31, 1993 compared to 288,724 at
December 31, 1992.
Other revenue increased 7.4% primarily from including acquisitions.
13
Total operating expenses increased 18.4% (6.3% excluding acquisitions).
Excluding acquisitions, percentage increases by expense category were;
editorial - 3.2%, sales - 12.2%, circulation - 9.1%, production - 7.8% and
administration - 4.7%. Depreciation and amortization declined 9.4%. The
increase in editorial and administration expenses is from normal compensation
increases. The increase in sales expense is from commissions on an 11.5%
increase in advertising sales and increased promotional activity. The increase
in circulation expense is from compensation increases, increased volume from a
3.7% increase in paid circulation and increased promotional activity. The
increase in production expense is from compensation increases and increased
volume.
Operating income increased $4,154,000 or 62.4%. Excluding acquisitions,
operating income increased 44.5% primarily from the increase in advertising
revenue.
Interest expense increased $2,129,000. The increase resulted primarily from
$1,913,000 of interest on the convertible subordinated debentures (the
preferred stock was converted to subordinated debentures effective December 31,
1992, see Note 7) and $262,000 of interest on the note issued in connection
with the acquisition of Winston Cup Scene on December 31, 1992 (see Note 2).
Interest income declined $929,000 primarily from a reduced level of
invested funds. The Company used $17,325,000 of cash and a $4,610,000 interest
bearing note for acquisitions (see Note 2) and there was a slight decline in
the average rate on invested funds.
The effective income tax rate increased from 19.5% in 1992 to 42.1% in 1993
from utilization of remaining tax loss carryovers in 1992 (see Note 5 for the
components of income tax expense).
The preferred stock dividends in 1992 are classified as interest expense in
1993 as a result of the conversion on December 31, 1992 of the preferred stock
to subordinated debentures.
14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS PAGE
----------------------------------------------------------------------- ------
Consolidated Statement of Income for the Three Years Ended
December 31, 1994 15
Consolidated Balance Sheets at December 31, 1994 and 1993 16, 17
Consolidated Statement of Stockholder's Investment for the Three Years
Ended December 31, 1994 18
Consolidated Statement of Cash Flows for the Three Years Ended
December 31, 1994 19
Notes to Consolidated Financial Statements 20
(1) Significant Accounting Policies 20
(2) Acquisitions 21
(3) Intangibles and Other Assets 22
(4) Long-Term Debt 23
(5) Income Taxes 24
(6) Lease Commitments 26
(7) Capital Stock and Convertible Subordinated Debentures 26
(8) Commitments and Contingencies 27
(9) Unaudited Quarterly Data 28
Statement of Management Responsibility 29
Report of Independent Public Accountants 30
For the Three Years Ended December 31, 1994
VIII -- Valuation and Qualifying Accounts 31
All other schedules have been omitted as the information is either not required
or is included in the Consolidated Financial Statements or notes hereto.
15
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
----------------------------------------------------
1994 1993 1992
------------ ------------ ------------
REVENUES:
Advertising $75,357,000 $67,314,000 $56,107,000
Circulation 19,186,000 16,502,000 11,960,000
Other 3,153,000 2,856,000 2,660,000
------------ ------------ ------------
97,696,000 86,672,000 70,727,000
------------ ------------ ------------
OPERATING EXPENSES:
Editorial 14,328,000 13,016,000 11,665,000
Sales 18,638,000 17,575,000 14,734,000
Circulation 12,525,000 11,241,000 8,515,000
Production 14,467,000 12,490,000 10,172,000
Administration 17,878,000 16,440,000 15,005,000
Depreciation and amortization 5,510,000 5,098,000 3,978,000
------------ ------------ ------------
83,346,000 75,860,000 64,069,000
------------ ------------ ------------
OPERATING INCOME 14,350,000 10,812,000 6,658,000
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense and discount amortization (5,260,000) (5,241,000) (3,112,000)
Interest income 623,000 309,000 1,238,000
Other (Note 2) (582,000) (5,000) 50,000
------------ ------------ ------------
(5,219,000) (4,937,000) (1,824,000)
------------ ------------ ------------
INCOME BEFORE PROVISION FOR INCOME TAXES 9,131,000 5,875,000 4,834,000
PROVISION FOR INCOME TAXES (Note 5) 3,835,000 2,475,000 943,000
------------ ------------ ------------
NET INCOME 5,296,000 3,400,000 3,891,000
PREFERRED STOCK DIVIDENDS -- -- 1,926,000
------------ ------------ ------------
NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS $ 5,296,000 $ 3,400,000 $ 1,965,000
============ ============ ============
INCOME PER SHARE (Note 1) -- Primary $.74 $.50 $.29
-- Fully diluted $.71 -- --
WEIGHTED AVERAGE SHARES OUTSTANDING (Note 1)
-- Primary 7,154,000 6,779,000 6,733,000
-- Fully diluted 9,152,000 -- --
-------------------------
The accompanying notes are an integral part of this financial statement.
16
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1994 AND 1993
--------------------------------
ASSETS
------
1994 1993
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents (Note 8) $17,815,000 $13,992,000
Accounts receivable, net of allowance for uncollectible accounts of
$462,000 in 1994 and $399,000 in 1993 13,205,000 10,822,000
Prepaid expenses 668,000 616,000
Deferred income taxes (Note 5) 476,000 676,000
------------ ------------
Total current assets 32,164,000 26,106,000
FURNITURE AND EQUIPMENT 12,487,000 11,347,000
Less - Accumulated depreciation (8,015,000) (7,350,000)
------------ ------------
4,472,000 3,997,000
DEFERRED INCOME TAXES (Note 5) 2,094,000 --
INTANGIBLES AND OTHER ASSETS, principally cost in excess of assets acquired
(Notes 2 and 3) 53,400,000 52,783,000
------------ ------------
Total assets $92,130,000 $82,886,000
============ ============
The accompanying notes are an integral part of this balance sheet.
17
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1994 AND 1993
--------------------------------
LIABILITIES AND STOCKHOLDERS' INVESTMENT
----------------------------------------
1994 1993
------------ ------------
CURRENT LIABILITIES:
Current portion of long-term debt (Note 4) $ 934,000 $ 983,000
Accounts payable 2,738,000 2,049,000
Accrued payroll and payroll taxes 2,211,000 1,373,000
Other accrued liabilities 1,335,000 1,254,000
Deferred subscription revenue 12,867,000 10,741,000
Accrued income taxes (Note 5) 3,163,000 739,000
------------ ------------
Total current liabilities 23,248,000 17,139,000
LONG-TERM DEBT (Note 4) 35,788,000 36,785,000
DEFERRED SUBSCRIPTION REVENUE 2,677,000 2,443,000
DEFERRED INCOME TAXES (Note 5) -- 890,000
CONVERTIBLE SUBORDINATED DEBENTURES 31,878,000 31,878,000
COMMITMENTS AND CONTINGENCIES (Notes 5, 6 and 8)
STOCKHOLDERS' INVESTMENT:
Serial Preferred Stock, $.01 par value - 2,500,000 shares authorized;
No shares issued -- --
Common stock, $.01 par value-30,000,000 shares authorized; 7,216,000 and
10,246,000 shares issued; 6,539,000 and 6,484,000 shares outstanding 72,000 51,000
Paid-in capital 7,691,000 43,550,000
Accumulated deficit (1,856,000) (7,152,000)
------------ ------------
5,907,000 36,449,000
Treasury stock, 677,000 and 3,762,000 common shares at cost (7,368,000) (42,698,000)
------------ ------------
Total stockholders' investment (1,461,000) (6,249,000)
------------ ------------
Total liabilities and stockholders' investment $92,130,000 $82,886,000
============ ============
The accompanying notes are an integral part of this balance sheet.
18
CONSOLIDATED STATEMENT OF STOCKHOLDERS' INVESTMENT
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
----------------------------------------------------
(Note 7)
Preferred Common Paid-In Accumulated Treasury
Stock Stock Capital Deficit Stock
------------ ------------ ------------- -------------- -------------
BALANCE AT DECEMBER 31, 1991 $ 16,000 $ 51,000 $ 80,072,000 ($ 12,517,000) ($47,081,000)
Issuance of common stock,
26,000 shares 172,000 90,000
Purchase of treasury stock,
48,804 preferred shares
at cost (968,000)
Exchange of convertible
subordinated debentures
for convertible preferred
stock (16,000) (36,978,000) 5,113,000
Net income 3,891,000
Preferred stock dividends
($1.50 per share) (1,926,000)
------------ ------------ ------------- -------------- -------------
BALANCE AT DECEMBER 31, 1992 -- 51,000 43,266,000 (10,552,000) (42,846,000)
------------
Issuance of common stock,
57,060 shares 284,000 148,000
Net income 3,400,000
------------ ------------- -------------- -------------
BALANCE AT DECEMBER 31, 1993 51,000 43,550,000 (7,152,000) (42,698,000)
Issuance of common stock,
185,295 shares 604,000 931,000
Retirement of treasury
stock, 3,110,646 shares (15,000) (36,427,000) 36,442,000
Split of common stock (2 for 1)
-- par value of shares issued 36,000 (36,000)
Purchase of treasury stock,
131,279 common shares at cost (2,043,000)
Net income 5,296,000
------------ ------------- -------------- -------------
BALANCE AT DECEMBER 31,1994 $ 72,000 $ 7,691,000 ($ 1,856,000) ($ 7,368,000)
============ ============= ============== =============
The accompanying notes are an integral part of this financial statement.
19
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
----------------------------------------------------
1994 1993 1992
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,296,000 $ 3,400,000 $ 3,891,000
Adjustments to reconcile net income to net cash
provided by operating activities -
Depreciation and amortization 5,510,000 5,098,000 3,978,000
Provision for bad debts 593,000 670,000 523,000
Loss on sale of assets 58,000 46,000 36,000
Net activity from trades (25,000) 10,000 (32,000)
Recognized imputed interest 267,000 238,000 215,000
Changes in assets and liabilities, net of assets
acquired --
Increase in accounts receivable and other current
assets (3,027,000) (2,028,000) (1,197,000)
(Increase) decrease in intangibles and other assets 15,000 965,000 (1,243,000)
Increase (decrease) in accounts payable and
accrued expenses 1,179,000 (663,000) (691,000)
Increase in deferred subscription revenue 1,295,000 458,000 1,693,000
------------ ------------ ------------
Net cash provided by operating activities 11,161,000 8,194,000 7,173,000
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 1,535,000 432,000 262,000
Purchase of treasury stock (2,043,000) -- (968,000)
Payment of preferred stock dividends -- -- (1,926,000)
Payment of long-term debt (1,738,000) (615,000) (210,000)
------------ ------------ ------------
Net cash used for financing activities (2,246,000) (183,000) (2,842,000)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of assets (3,100,000) (6,325,000) (11,000,000)
Capital expenditures (1,992,000) (2,116,000) (960,000)
------------ ------------ ------------
Net cash used for investing activities (5,092,000) (8,441,000) (11,960,000)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,823,000 (430,000) (7,629,000)
CASH AND CASH EQUIVALENTS, beginning of year 13,992,000 14,422,000 22,051,000
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of year $17,815,000 $13,992,000 $14,422,000
============ ============ ============
The accompanying notes are an integral part of this financial statement.
20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation and Consolidation -- The financial statements
include American City Business Journals, Inc. and its wholly owned
subsidiaries (the Company) with all significant intercompany accounts
and transactions eliminated. The cost ($925,000 in 1993 and $892,000
in 1992) of printing certain special publications has been
reclassified from editorial to production expense consistent with
1994.
(b) Revenue Recognition -- Circulation (subscription) revenue is deferred
and recognized as income on a pro-rata basis over the subscription
period, which is generally one to three years. Advertising revenue is
recognized when the advertisement is published.
(c) Furniture and Equipment -- Furniture and equipment is stated at cost
and depreciated over its estimated useful life (5 years) on the
straight-line method. Maintenance and repairs are expensed as
incurred.
(d) Non-monetary Transactions -- The Company sells advertising space in
its publications in return for goods and services. Trade revenue is
recorded at the market value of the advertising space provided when
the advertisements are published and trade expense is charged to
operations when the goods or services are received or the time limit
on the trade has expired.
(e) Statement of Cash Flows -- The Company invests all excess cash in U.S.
Treasury Securities, institutional trust accounts, certificates of
deposit and money market accounts and considers these amounts cash
equivalents. Interest payments were $5,006,000, $4,942,000, and
$2,898,000, in 1994, 1993, and 1992, respectively. Income taxes paid
were $3,915,000, $2,018,000, and $1,155,000 in 1994, 1993, and 1992,
respectively.
(f) Employee Benefits -- The Company maintains a Section 401(k) plan which
allows for employee elective contributions and employer profit sharing
contributions. The discretionary profit sharing contributions are
determined by the Board of Directors. In 1993 the Company began a
matching program of 25% of employee elective contributions limited to
4% of salary. Total expense of the profit sharing and matching program
was $175,000 in 1992, $228,000 in 1993 and $223,000 in 1994.
(g) Per Share Data -- Earnings per share are based on the weighted average
number of common and common equivalent shares outstanding during the
respective periods adjusted retroactively for a 2 for 1 common stock
split distributed as a common stock dividend April 29, 1994 to
stockholders of record April 18, 1994 and for a 5% common stock
dividend payable January 16, 1995 to stockholders of record December
15, 1994. Fully diluted computations assume conversion of the
convertible subordinated debentures at the beginning of the period.
21
(2) ACQUISITIONS
On December 31, 1992 the Company acquired Winston Cup Scene for $15,000,000
consisting of $11,000,000 cash and a $4,000,000 note payable over 5 years with
7% interest. The purchase price plus $2,680,000 of subscription liabilities
assumed was allocated to the assets based upon an independent appraisal with
the excess ($12,216,000) charged to goodwill.
On March 1, 1993 the Company acquired the San Jose Business Journal. The
purchase price of $11,617,000 consisted of a $6,325,000 cash payment,
forgiveness of a note receivable and accrued interest thereon in the total
amount of $5,232,000 and $60,000 of acquisition expenses. The purchase price
plus $456,000 of net liabilities assumed was less than the appraised value of
the business as determined by an independent appraisal. The excess ($9,278,000)
of the purchase price over the appraised value of the assets acquired was
charged to goodwill.
If these transactions had occurred on January 1, 1992, unaudited pro forma
results of operations for 1992 would have been as follows:
Revenues $79,002,000
Income attributable to common stockholders $ 1,752,000
Income per share $.26
A note receivable at December 31, 1992 of $4,610,000 due May 31, 1993 from MCP,
Inc. less a $2,305,000 valuation reserve and accrued interest thereon was
cancelled and the litigation between the Company and MCP, Inc. was dismissed as
part of the San Jose acquisition. The valuation reserve, which was established
in prior years, was restored to non-operating income and was substantially
offset by the expense of a consulting and non-competition agreement with the
former president and a provision for discontinuing certain unprofitable
publications.
The Company entered into a 50/50 joint venture with Dow Jones & Company, Inc.
in October 1993 to publish a monthly magazine, beginning in 1994, targeted to
the country's fastest growing small businesses. The Company's share ($554,000)
of the joint venture loss in 1994 is included in other non-operating expense.
This publication was discontinued in January 1995.
In 1994 the Company acquired Winston Cup Illustrated magazine (September 1),
The Austin Business Journal (October 1) and On Track magazine (October 21) for
an aggregate purchase price of $3,525,000 comprised of $3,100,000 in cash,
$300,000 in notes and $125,000 in non-competition agreements. The excess
($2,314,000) of the purchase price plus the liabilities assumed ($1,077,000)
over the appraised value of the assets acquired was charged to goodwill. If
these transactions had occurred at the beginning of the year they would not
have had a material impact on the results of operations.
22
(3) INTANGIBLES AND OTHER ASSETS
Intangible assets are amortized using the straight-line method and include the
following:
December 31,
--------------------------
Amortization
1994 1993 Period
------------ ------------ ------------
Goodwill $47,335,000 $45,012,000 40 years
Advertising base 11,745,000 10,700,000 5-15 years
Subscription base 7,038,000 6,652,000 5-12 years
Noncompete agreements and other 6,513,000 5,680,000 3-20 years
------------ ------------
72,631,000 68,044,000
Less-Accumulated amortization (19,231,000) (15,261,000)
------------ ------------
$53,400,000 $52,783,000
============ ============
Annually, the Company evaluates the recoverability of goodwill and other
intangible assets by comparing the recorded amount to the estimated cash flows
from either operations or disposition of the publishing property. If the
estimated cash flows is less than the recorded amount an impairment loss would
be recognized.
23
(4) LONG-TERM DEBT
Long-term debt is as follows:
December 31,
--------------------------
1994 1993
------------ ------------
$20.00 Series Promissory Notes, due 1999, interest payable monthly at prime rate
(minimum 8%, maximum 12%, 8 1/2% at December 31, 1994), less $1,603,000 and
$1,841,000 unamortized discount; secured by common stock and assets of nine
business journals (combined assets of $19,080,000 at December 31, 1994) $32,996,000 $32,758,000
$3.00 Series Promissory Notes, 6% interest, due 1999, non-compete and capital
lease obligations, less $180,000 and $208,000 unamortized discount 971,000 1,525,000
7% Unsecured Note payable $200,000 quarterly including interest until
December, 1997 2,755,000 3,485,000
------------ ------------
36,722,000 37,768,000
Less-Current maturities (934,000) (983,000)
------------ ------------
$35,788,000 $36,785,000
============ ============
Scheduled maturities during the next five years are as follows:
Year
-------------------------
1995 $ 934,000
1996 1,003,000
1997 1,058,000
1998 247,000
1999 35,263,000
-----------
38,505,000
Less-unamortized discount (1,783,000)
-----------
$36,722,000
===========
24
(5) INCOME TAXES
The components of the net deferred tax asset are as follows:
December 31,
--------------------------
1994 1993
------------ ------------
Current deferred taxes:
Gross assets excluding net operating loss carryforwards and alternative
minimum tax credit carryforwards $ 716,000 $581,000
Gross liabilities (240,000) (211,000)
Alternative minimum tax credit carryforwards -- 306,000
------------ ------------
Net current deferred tax asset 476,000 676,000
------------ ------------
Noncurrent deferred taxes:
Gross assets excluding net operating loss carryforwards and alternative
minimum tax credit carryforwards 2,153,000 361,000
Gross liabilities (271,000) (1,459,000)
Net operating loss carryforwards 212,000 208,000
------------ ------------
Net noncurrent deferred tax asset (liability) 2,094,000 (890,000)
------------ ------------
Net deferred tax asset (liability) $ 2,570,000 ($ 214,000)
============ ============
The tax effect of significant temporary differences representing deferred tax
assets and liabilities are as follows:
December 31,
--------------------------
1994 1993
------------ ------------
Accelerated tax depreciation ($ 230,000) ($ 173,000)
Bad debt-specific write-off 130,000 102,000
Accrued vacation pay 280,000 242,000
Prepaid expenses (230,000) (207,000)
Amortization of intangibles 1,755,000 (1,219,000)
Non-competition and consulting agreements 407,000 485,000
Other 246,000 42,000
Alternative minimum tax credit carryforwards -- 306,000
Net operating loss carryforwards 212,000 208,000
------------ ------------
Net deferred tax asset (liability) $ 2,570,000 ($ 214,000)
============ ============
25
Following are the components of the federal and state income tax provision:
1994 1993 1992
---------------------- ---------------------- ---------------------
Federal State Federal State Federal State
----------- --------- ----------- --------- ----------- --------
Currently payable $3,084,000 $604,000 $1,819,000 $400,000 $ 463,000 $19,000
Deferred exclusive of items below (137,000) (25,000) (1,199,000) (183,000) 431,000 27,000
Net operating loss carryforwards 2,000 1,000 518,000 79,000 1,404,000 90,000
Change in valuation allowance -- -- -- -- (746,000) (49,000)
Alternative minimum tax credit
carryforwards 306,000 -- 1,086,000 -- (696,000) --
Other -- -- (43,000) (2,000) -- --
----------- --------- ----------- --------- ----------- --------
Total income tax provision $3,255,000 $580,000 $2,181,000 $294,000 $ 856,000 $87,000
=========== ========= =========== ========= =========== ========
The provision for federal income taxes differs from that computed at the
statutory corporate tax rate as follows:
1994 1993 1992
------------ ------------ ------------
Federal income tax at statutory rate $3,105,000 $1,998,000 $1,644,000
Benefit of state income taxes (279,000) (178,000) (100,000)
Tax effect of:
Goodwill amortization 199,000 202,000 203,000
Other permanent differences 230,000 159,000 (145,000)
Change in valuation allowance -- -- (746,000)
------------ ------------ ------------
Federal income tax provision $3,255,000 $2,181,000 $ 856,000
============ ============ ============
As of December 31, 1994, the Company and certain of its subsidiaries have
remaining tax net operating loss carryforwards of $530,000. Under current
income tax law, these carryforwards may be used to reduce future taxable income
of the companies generating the carryforwards and expire in years 2000 through
2002. The tax effect of these carryforwards is recognized as a deferred tax
asset of $212,000 at December 31, 1994.
In November 1994 the Company agreed to participate in a settlement
initiative proposed by the Internal Revenue Service ("IRS") whereby the Company
agreed to extend the useful lives of certain intangible assets. Under this
settlement initiative, the Company has agreed, subject to final IRS approval,
to pay $2,488,000 in additional income taxes for years prior to 1994 which will
be recovered in future years from additional income tax deductions for
intangibles amortization. Management estimates that approximately 75% of this
26
amount will be recovered over the next 9 years. Participation in the settlement
initiative had no impact on operating results for 1994 and the $2,488,000 is
included in income taxes currently payable and as a deferred tax asset in the
December 31, 1994 balance sheet.
(6) LEASE COMMITMENTS
In addition to office space, the Company also leases various equipment
under operating leases. Future minimum payments are as follows:
Year Amount
------------------------------- -----------
1995 $ 2,986,000
1996 2,676,000
1997 2,265,000
1998 1,820,000
1999 1,091,000
Thereafter 785,000
-----------
Total minimum lease commitments $11,623,000
===========
Total rent expense for the years ended December 31, 1994, 1993 and 1992 was
approximately $2,863,000, $2,944,000 and $2,731,000, respectively.
The Company utilizes common headquarters office space and a common phone
system with a partnership that is the Company's principal stockholder. The cost
of each is allocated based on actual usage.
(7) CAPITAL STOCK AND CONVERTIBLE SUBORDINATED DEBENTURES
The Company's Directors authorized the exchange of 6% Convertible
Subordinated Debentures ("the Debenture") for the Convertible Exchangeable
Preferred Stock ("the Preferred Stock") effective December 31, 1992. Each share
of Preferred Stock was exchanged for a Debenture in the principal amount of $25
due December 31, 2011 with interest at 6% payable semi-annually. Each Debenture
is convertible, at the holder's option, into 1.567167 shares of Common Stock,
the same conversion rate as the Preferred Stock. At the date of exchange, there
were 1,275,131 shares of Preferred Stock outstanding. The Debentures require
annual sinking fund payments of $1,969,000 beginning in 1996; however,
Preferred Stock repurchases are credited toward sinking fund payments and
previous repurchases made by the Company fulfills its sinking fund requirements
until 2000.
In March 1994 the Directors authorized the retirement of 3,110,646 shares
of common stock held as treasury stock. The excess ($36,427,000) of the cost of
the shares retired over their par value was charged to paid-in capital.
27
On May 20, 1994 the stockholders approved an amendment to the Company's
Articles of Incorporation to increase the authorized shares of common stock
from 10,000,000 shares to 30,000,000 shares.
On April 7, 1994 the Company split its common stock 2 for 1 in the form of
a common stock dividend distributed April 29, 1994 to stockholders of record
April 18, 1994. The consolidated financial statements and per share data have
been adjusted to retroactively reflect the increase in outstanding shares.
On December 1, 1994 the Directors declared a 5% common stock dividend
payable January 16, 1995 to stockholders of record December 15, 1994. Per share
data has been adjusted retroactively to reflect the additional shares.
In 1992, 1993 and 1994 the Company granted options to purchase 92,610,
102,480 and 56,805 shares, respectively, of common stock under the Employee
Stock Purchase Plan at an option price of the lower of $7.09, $8.50 and $12.34
per share, respectively, or 85% of the market price on date of exercise.
Options were exercised for 27,090 shares in 1992, 37,800 shares in 1993 and
84,310 shares in 1994. Options for 14,495 shares have expired and options for
55,020 shares were outstanding at December 31, 1994.
The Company has granted options to certain officers and key employees to
purchase shares of common stock at an option price equal to the fair market
value at date of grant. The options granted become exercisable in one year. At
December 31, 1994 there were 581,700 shares under option at an option price of
from $5.24 to $14.93 per share (average of $9.12 per share) of which options
for 573,300 shares were exercisable at an option price of from $5.24 to $12.27
per share (average of $9.04 per share). Options were exercised for 13,650
shares at $6.01 per share (average) in 1992, 22,050 shares at $7.71 per share
(average) in 1993 and 110,250 shares at $7.35 per share (average) in 1994.
Options for 2,100 shares in 1992 and 423,150 shares in 1993 were canceled and
the option price ranged from $5.24 to $10.83 per share. All option shares and
prices have been adjusted retroactively for the stock split and stock dividend
in 1994.
In June, 1994 the Directors authorized the purchase of 100,000 shares of
common stock in the open market. At December 31, 1994 the Company had purchased
as treasury stock 65,100 shares at a cost of $1,001,000. The Directors also
authorized the purchase in December 1994 of 66,179 shares of common stock from
the Company's section 401(k) plan at a cost of $1,042,000 which was based on
the average market price for the preceding month.
(8) COMMITMENTS AND CONTINGENCIES
The Company has various lawsuits outstanding incidental to its operations.
Management believes the outcome of this litigation will not have a material
adverse effect on the financial position or operating results of the Company.
In connection with the purchase of Business Journal Publications
Corporation (BJPC) in 1986, the Company granted certain rights to a former
major stockholder of BJPC, which included a call option to acquire 20% of the
issued and outstanding stock in St. Louis Business Journal Corp. and St. Louis
Magazine, Inc., for $1,600,000, a put option to require the Company to
repurchase the 20% interest at fair market value plus a contingent option to
acquire the remaining 80% in the event any person or group of persons, other
than the then principal stockholders, control in excess of 40% of the Company's
common stock, as well as a right of first refusal if the publications are sold.
28
During 1989 this agreement was amended whereby the former BJPC stockholder
agreed not to exercise the contingent option or the put option for a period of
3 years in exchange for an amendment of the right to put the 20% option to the
Company. This agreement was extended for an additional 3 years in 1992. The
Company has issued a letter of credit of $1,500,000, backed by $1,500,000 in
certificates of deposit, to secure its obligations under this agreement.
(9) UNAUDITED QUARTERLY DATA
Following is a summary of unaudited quarterly results for the years ended
December 31, 1994 and 1993:
March 31 June 30 September 30 December 31
------------ ------------ ------------ ------------
(Unaudited)
1994
-----------------------
Revenues $20,578,000 $24,099,000 $23,572,000 $29,447,000
Operating income 1,279,000 3,922,000 3,314,000 5,835,000
Net income 30,000 1,597,000 1,154,000 2,515,000
Income per share:
Primary -- $.23 $.16 $.35
Fully diluted -- $.21 N/A $.31
1993
-----------------------
Revenues $18,105,000 $21,854,000 $21,673,000 $25,040,000
Operating income 767,000 3,111,000 2,632,000 4,302,000
Net income (loss) (296,000) 1,158,000 766,000 1,772,000
Income (loss) per share
-- primary ($.04) $.17 $.11 $.26
29
Statement of Management Responsibility
Management is primarily responsible for the preparation, accuracy and
integrity of the financial information presented in this annual report. The
financial statements have been prepared in accordance with generally accepted
accounting principles and, of necessity, include amounts that are based on
management's best estimates and judgments.
The Company maintains a system of internal accounting control designed to
provide reasonable assurance of the reliability of financial records and the
safeguard of assets. The controls are based on established policies and
procedures, are implemented by qualified people and are monitored by a
financial review program and internal and independent audits.
The independent accountants were engaged to perform an audit of the
consolidated financial statements which provides an objective review of
management's responsibility to report operating results and financial position.
They review and make tests as appropriate of the data included in the financial
statements and this report.
The Board of Directors, through its Audit Committee, is responsible for an
oversight role with respect to the Company's financial statements and internal
controls. The Audit Committee meets periodically with management and
independent accountants to discuss auditing, accounting and financial matters.
The independent accountants and internal auditors have direct access to the
Audit Committee to discuss the scope and results of their work as well as any
other matters concerning internal accounting controls and financial reporting.
Ray Shaw Grant L. Hamrick
Chairman of the Board Senior Vice President
and Chief Executive Officer and Chief Financial Officer
30
Report of Independent Public Accountants
To the Stockholders of
American City Business Journals, Inc.:
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements included in American City Business Journals,
Inc. (a Delaware corporation) and Subsidiaries' annual report to shareholders,
included with this Form 10-K, and have issued our report thereon dated
February 10, 1995. Our audit was made for the purpose of forming an opinion on
those statements taken as a whole. Schedule VIII is the responsibility of the
Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all materials respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Charlotte, North Carolina,
February 10, 1995.
31
AMERICAN CITY BUSINESS JOURNALS, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
----------------------------------------------------
Collection
Balance at Charged of Accounts Accounts Balance
Beginning of (Credited) Previously Written at End of
Period to Income Written Off Off Period
------------ ------------ ------------ ------------ ------------
ACCOUNTS RECEIVABLE -- ALLOWANCE
FOR UNCOLLECTIBLE ACCOUNTS:
For the year ended December 31, 1994 $ 399,000 $ 593,000 $ 313,000 $ 843,000 $ 462,000
============ ============ ============ ============ ============
For the year ended December 31, 1993 $ 305,000 $ 670,000 $ 275,000 $ 851,000 $ 399,000
============ ============ ============ ============ ============
For the year ended December 31, 1992 $ 465,000 $ 522,000 $ 320,000 $ 1,002,000 $ 305,000
============ ============ ============ ============ ============
NOTES RECEIVABLE -- ALLOWANCE FOR
UNCOLLECTIBLE ACCOUNTS:
For the year ended December 31, 1994 $ 0 -- -- $ 0 $ 0
============ ============ ============ ============ ============
For the year ended December 31, 1993 $ 2,305,000 ($2,305,000) -- -- $ 0
============ ============ ============ ============ ============
For the year ended December 31, 1992 $ 2,822,000 -- -- $ 517,000 $ 2,305,000
============ ============ ============ ============ ============
32
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated herein by reference
to "Election of Directors," "Executive Officers," and compliance with Section
16(a) of the Exchange Act of the Registrant's Proxy Statement for the 1995
Annual Meeting of Stockholders to be filed pursuant to Regulation 14A.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference
to "Executive Compensation" (specifically exclusive of disclosures in such
section relating to Item 402(i), (k), and (l) of Regulation S-K) of the
Registrant's Proxy Statement for the 1995 Annual Meeting of Stockholders to be
filed pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The information required by this Item is incorporated herein by reference
to "Security Ownership of Certain Beneficial Owners, Directors and Management"
of the Registrant's Proxy Statement for the 1995 Annual Meeting of Stockholders
to be filed pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by reference
to "Transactions with Management," "Executive Compensation, Compensation
Committee Interlocks, and Insider Participation" of the Registrant's Proxy
Statement for the 1995 Annual Meeting of Stockholders to be filed pursuant to
Regulation 14A.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
The following documents are filed as part of this Report.
(a) All financial statement schedules filed as part of this report are
included in Item 8 and reference is made to the index on page 14
on this report.
(b) Reports on Form 8-K
No report on Form 8-K was filed during the last quarter of the
period covered by this report.
33
(c) Exhibits
Certain of the exhibits to this Report, indicated by an asterisk,
are hereby incorporated by reference to other documents on file
with the Commission with which they are physically filed, to be a
part hereof as of their respective dates.
Exhibit
Number Description
------- -----------------------------------------------------------------
3(a) Certificate of Incorporation of the Registrant, as amended.
*3(b)27 Amended and Restated Bylaws, effective March 3, 1987.
(Incorporated by Reference to Exhibit 3(d) to Annual Report on
Form 10-K for year ended December 31, 1986 (File No. 0-13834))
*3(c) Amendment to Bylaws, effective July 23, 1987. (Incorporated by
reference to Exhibit 3(e) to Annual Report on Form 10-K for year
ended December 31, 1987 (File No. 0-13834))
*3(d) Sections 3 through 11 and 48 through 52 of the Amended and
Restated Bylaws. (Incorporated by reference to Exhibit 3(b) to
Registration Statement on Form S-4 (Registration No. 33-10643) of
the Registrant)
*4(a) Specimen Common Stock Certificate. (Incorporated by reference to
Exhibit 1 to the Registration Statement on Form 8-A, effective
September 4, 1985 (File No. 0-13834))
*4(b) Specimen 6% Convertible Subordinated Debenture, Due December 31,
2011. (Incorporated by reference to Exhibit 1 to the
Registration Statement on Form 8-A, filed November 27, 1992 File
No. 0-13834))
*4(c)(1) Indenture between the Registrant and Boatmen's First National
Bank of Kansas City, dated as of February 1, 1987, including form
of Debenture. (Incorporated by reference to Exhibit 4(c) to
Annual Report on Form 10-K for year ended December 31, 1986 (File
No. 0-13834))
*4(c)(2) Written Instrument of Transfer of Trustee for the American City
Business Journals, Inc. 6% Convertible Subordinated Debentures
Due December 31, 2011, dated as of November 18, 1992.
(Incorporated by reference to Exhibit 1 to the Registration
Statement on Form 8-A, filed November 27, 1992 (File No. 0-
13823))
*4(d) Specimen $3.00 Series Promissory Note due October 31, 1999,
issued in reliance on an exemption under Regulation D, Rule 506.
Form D filed November 2, 1989. (Incorporated by reference to
Exhibit 4(e) to Annual Report on Form 10-K for year ended
December 31, 1989 (File No. 0-13834) of the Registrant (the "1989
Form 10-K"))
34
Exhibit
Number Description
------- -----------------------------------------------------------------
*4(e) Specimen $20 Series Promissory Note due October 31, 1999, issued
in reliance on an exemption under Regulation D, Rule 506. Form D
filed November 2, 1989. (Incorporated by reference to Exhibit
4(f) to the 1989 Form 10-K)
*4(f) Stock Pledge and Security Agreement pledging 80% of St. Louis
Business Journal, Inc. corporation stock and 100% of stock of
Kansas City Business Journal, Inc., Atlanta Business Chronicle,
Inc., Seattle Business Journal, Inc., Washington Business
Journal, Inc., Crossroads Press, Inc., and Business First of
Columbus, Inc. as collateral for $20 Series Promissory Note. See
4(f). (Incorporated by reference to Exhibit 4(g) to the 1989
Form 10-K)
*4(g) Specimen Security Agreement pledging assets of Seattle Business
Journal, Inc. as collateral for $20 Series Promissory Note. See
Exhibit 4(f). Assets of Kansas City Business Journal, Inc.,
Atlanta Business Chronicle, Inc., Washington Business Journal,
Inc., Crossroads Press, Inc., and Business First of Columbus,
Inc. also pledged. (Incorporated by reference to Exhibit 4(h) to
the 1989 Form 10-K)
*10(a) Sublease Agreement dated November 30, 1984 between Crossroads and
George Mason. (Incorporated by Reference to Exhibit 10(q) to the
Form S-1)
*10(b) Consulting and Non-Competition Agreement dated October 19, 1989
between Michael K. Russell and the Registrant. (Incorporated by
reference to Exhibit 10(i) to the 1989 Form 10-K)
*10(c) Consulting and Non-Competition Agreement dated October 19, 1989
between William H. Worley and the Registrant. (Incorporated by
reference to Exhibit 10(j) to the 1989 Form 10-K)
*10(d) Consulting and Non-Competition Agreement dated January 16, 1993
between Darwin Wile and the Registrant. (Incorporated by
reference to Exhibit 10(d) to the 1992 Form 10-K)
*10(e) American City Business Journals, Inc. 1989 Stock Option Plan.
(Incorporated by reference to Exhibit 4.14 to Form S-8
(Registration No. 33-38189))
*10(f) American City Business Journals, Inc. Amended and Restated
Employee Stock Purchase Plan (Incorporated by reference to 1991
Proxy Statement of Registrant to Exhibit A. (File No. 0-13834))
*10(g) American City Business Journals, Inc. Formula Stock Option Plan
for Directors (Incorporated by reference to 1993 Proxy Statement
to Exhibit A. (File No. 0-13834))
35
Exhibit
Number Description
------- -----------------------------------------------------------------
*10(h) Biz Associates Partnership Agreement between Biz Publishing, Inc.
("BPI"), a subsidiary of Registrant, and Dow Jones Venture I,
Inc., a subsidiary of Dow Jones Company, Inc., dated as of
October 28, 1993. (Incorporated by reference to Exhibit 10(h) to
the 1993 Form 10-K)
11 Computations of Per Share Earnings. (See Consolidated Statement
of Income and Note 1 of Notes to Consolidated Financial
Statements)
21 Subsidiaries of the Registrant.
23 Consent of Arthur Andersen LLP.
27 Financial Data Schedule (provided for the use of the
Securities and Exchange Commission only).
364
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
AMERICAN CITY BUSINESS JOURNALS, INC.
(Registrant)
By /s/ Ray Shaw
---------------------------------------------
Ray Shaw, Chairman of the Board of Directors
Chief Executive Officer
By /s/ Grant L. Hamrick
---------------------------------------------
Grant L. Hamrick, Senior Vice President
Chief Financial Officer
Director
Dated: March 28, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ ------------------------------ ---------------
/s/ Ray Shaw Chief Executive March 28, 1995
- ------------------------------ Officer and Chairman of the
RAY SHAW Board of Directors
/s/ Grant L. Hamrick Chief Financial Officer and March 28, 1995
- ------------------------------ and Senior Vice President
GRANT L. HAMRICK Director
/s/ Wedge Abels Controller March 28, 1995
- ------------------------------ Principal Accounting Officer
WEDGE ABELS
/s/ James H. Hance, Jr. Director March 28, 1995
- ------------------------------
JAMES H. HANCE, JR.
/s/ John P. McMeel Director March 28, 1995
- ------------------------------
JOHN P. McMEEL
/s/ Glenn M. Stinchcomb Director March 28, 1995
- ------------------------------
GLENN M. STINCHCOMB
/s/ George A. Wiegers Director March 28, 1995
- ------------------------------
GEORGE A. WIEGERS