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EXHIBIT 99.1
COMBINED FINANCIAL STATEMENTS
Suburban Newspapers of Greater St. Louis, LLC
and The Ladue News, Inc.
December 26, 1999
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Suburban Newspapers of Greater St. Louis, LLC
and The Ladue News, Inc.
Combined Financial Statements
December 26, 1999
CONTENTS
Report of Independent Auditors................................................1
Combined Balance Sheet........................................................2
Combined Statement of Income..................................................3
Combined Statement of Cash Flows..............................................4
Combined Statement of Shareowners' Net Investment.............................5
Notes to Combined Financial Statements........................................6
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Report of Independent Auditors
The Board of Directors
Journal Register Company
We have audited the accompanying combined balance sheet of Suburban Newspapers
of Greater St. Louis, LLC and The Ladue News, Inc. as of December 26, 1999, and
the related combined statements of income, cash flows, and shareowners' net
investment for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of Suburban Newspapers of
Greater St. Louis, LLC and The Ladue News, Inc. at December 26, 1999, and the
combined results of their operations and their cash flows for the year then
ended in conformity with accounting principles generally accepted in the United
States.
/s/ Ernst & Young LLP
MetroPark, New Jersey
July 27, 2000
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Suburban Newspapers of Greater St. Louis, LLC
and The Ladue News, Inc.
Combined Balance Sheet
December 26, 1999
ASSETS
Current assets:
Cash $ 351,192
Accounts receivable, less allowance for doubtful accounts of $512,546 8,704,911
Inventories 1,474,521
Deferred income taxes 252,933
Other current assets 628,895
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Total current assets 11,412,452
Property, plant and equipment:
Land 524,383
Building and improvements 6,424,157
Machinery and equipment 22,124,921
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29,073,461
Less accumulated depreciation and amortization 20,720,683
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Property, plant and equipment, net 8,352,778
Intangible and other assets, net of accumulated amortization of $895,473 5,104,773
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Total assets $24,870,003
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LIABILITIES AND SHAREOWNERS' NET INVESTMENT
Current liabilities:
Accounts payable $ 763,221
Deferred subscription revenue 37,722
Accrued salaries and vacation 547,238
Other accrued expenses and current liabilities 1,006,514
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Total current liabilities 2,354,695
Deferred income taxes 139,625
Accrued retiree benefits and other liabilities 577,999
Commitments and contingencies
Shareowners' net investment 21,797,684
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Total liabilities and shareowners' net investment $24,870,003
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See accompanying notes.
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Suburban Newspapers of Greater St. Louis, LLC
and The Ladue News, Inc.
Combined Statement of Income
Year ended December 26, 1999
Revenues:
Advertising $ 50,733,213
Circulation 328,309
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Newspaper revenue 51,061,522
Commercial printing and other 85,733
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51,147,255
Operating expenses:
Salaries and employee benefits 13,734,169
Newsprint, ink and printing charges 10,059,025
Selling, general and administrative 8,443,592
Depreciation and amortization 1,818,934
Other 7,312,164
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41,367,884
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Operating income 9,779,371
Other income (expense):
Interest expense (68,000)
Interest income 1,000
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(67,000)
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Income before provision for income taxes 9,712,371
Provision for income taxes 3,955,001
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Net income $ 5,757,370
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See accompanying notes.
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Suburban Newspapers of Greater St. Louis, LLC
and The Ladue News, Inc.
Combined Statement of Cash Flows
Year ended December 26, 1999
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 5,757,370
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for losses on accounts receivable 311,296
Depreciation and amortization 1,818,934
Increase in deferred taxes (297,327)
Increase in accounts receivable (2,597,616)
Increase in inventories (713,807)
Increase in accounts payable and deferred subscription revenue 37,025
Decrease in accrued retiree benefits and other liabilities (366,357)
Increase in other current assets, net of increase in other
current liabilities (65,234)
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Net cash provided by operating activities 3,884,284
CASH FLOWS FROM INVESTING ACTIVITIES
Net additions to property, plant and equipment (2,638,742)
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Net cash used in investing activities (2,638,742)
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in shareowners' net investment (1,292,514)
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Net cash used in financing activities (1,292,514)
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Decrease in cash (46,972)
Cash, beginning of year 398,164
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Cash, end of year $ 351,192
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest $ 69,628
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See accompanying notes.
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Suburban Newspapers of Greater St. Louis, LLC
and The Ladue News, Inc.
Combined Statement of Shareowners' Net Investment
Year ended December 26, 1999
Balance at December 31, 1998 $ 17,332,828
Net income 5,757,370
Net transactions with shareowners (1,292,514)
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Balance at December 26, 1999 $ 21,797,684
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See accompanying notes.
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Suburban Newspapers of Greater St. Louis, LLC
and The Ladue News, Inc.
Notes to Combined Financial Statements
December 26, 1999
1. ORGANIZATION AND BASIS OF PRESENTATION
Suburban Newspapers of Greater St. Louis, LLC ("SNGSL") and The Ladue News, Inc.
("Ladue") (collectively, "the Companies") are indirectly wholly-owned
subsidiaries of Journal Register Company ("JRC" or "Parent").
The Companies publish non-daily newspapers serving the greater St. Louis area.
On June 24, 2000, the Parent entered into a definitive agreement with Pulitzer
Inc. to acquire the Companies for approximately $165 million (the
"Acquisition"). The transaction is expected to be completed in the near future.
The sale of the Companies is not believed by management of the Companies or the
Parent to affect the amounts or classifications of assets and liabilities of the
Companies reflected in the accompanying combined financial statements.
The accompanying financial statements present the financial position, results of
operations and cash flows of SNGSL and Ladue. The financial information in these
combined financial statements is not necessarily indicative of results of
operations, financial position and cash flows that would have occurred if SNGSL
and Ladue had been separate stand-alone entities during the period presented or
future periods. The combined financial statements included herein do not reflect
any changes that may occur in the financing and operations of SNGSL and Ladue as
a result of the Acquisition.
On November 9, 1999, the Parent elected to change from a calendar year end to a
fiscal year ending the Sunday closest to December 31st. Accordingly, the
Companies' 1999 fiscal year ended on December 26, 1999.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF COMBINATION
The combined financial statements include the accounts of SNGSL and Ladue and
reflect the historical basis of accounting of JRC. SNGSL is not a distinct legal
entity and there are no customary equity and capital accounts. Ladue is a
distinct legal entity with 30,000 shares of common stock authorized and 240
shares of common stock ($1 par value) issued and outstanding. Transactions
between the Companies and JRC are included in the shareowner's net investment as
well as liabilities for current taxes payable and the aforementioned common
stock. All significant intercompany accounts, and transactions between SNGSL and
Ladue have been eliminated.
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Suburban Newspapers of Greater St. Louis, LLC
and The Ladue News, Inc.
Notes to Combined Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Such estimates would include the allowance for doubtful accounts. Actual results
could differ from those estimates.
INVENTORIES
Inventories, consisting of newsprint, ink and supplies, are stated at the lower
of cost (primarily first-in, first-out method) or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Maintenance and repairs are
charged to expense as incurred; costs of major additions and betterments are
capitalized.
Depreciation is provided for financial reporting purposes primarily by the
straight-line method over the following estimated useful lives:
Buildings and improvements 5 to 30 years
Machinery and equipment 3 to 30 years
INTANGIBLE AND OTHER ASSETS
Intangible assets recorded in connection with the acquisition of newspapers
generally consist of the values assigned to subscriber lists and the excess of
cost over the value of identifiable net assets of the companies acquired. These
assets are carried at the lower of amortized cost or the amount expected to be
recovered by projected future operations after considering attributable general
and administrative expense and interest on debt allocated to the various
newspapers. If, in the opinion of management, an impairment in value occurs, any
necessary write-downs will be charged to expense.
The balance of intangible assets at December 26, 1999 was comprised principally
of excess cost over the value of identifiable net assets of companies acquired.
These assets are being amortized over periods of 4 to 40 years and are amortized
by the straight-line method.
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Suburban Newspapers of Greater St. Louis, LLC
and The Ladue News, Inc.
Notes to Combined Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," the Company reviews the recoverability of intangibles and other
long-lived assets whenever events and circumstances indicate that the carrying
amount may not be recoverable. The carrying amount of the long-lived assets is
reduced by the difference between the carrying amount and estimated fair value.
INCOME TAXES
The Company uses the liability method of accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax basis of assets and liabilities and are
measured using the currently enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
DEFERRED SUBSCRIPTION REVENUE
Deferred subscription revenue arises from subscription payments made in advance
of newspaper delivery. Revenue is recognized in the period in which it is
earned.
3. INTANGIBLE AND OTHER ASSETS
Intangible and other assets as of December 26, 1999, net of accumulated
amortization, are summarized as follows:
Excess of cost over the value of identifiable net assets $3,531,578
Non-compete agreement 1,250,000
Other 323,195
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$5,104,773
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4. RELATED PARTY TRANSACTIONS
SNGSL and Ladue participate in JRC's centralized cash management investment
system. Cash deposits from SNGSL and Ladue are transferred to JRC on a regular
basis. No interest has been imputed on transactions with JRC.
JRC provides certain general management and administrative services to SNGSL and
Ladue including finance, accounting, legal and tax. These expenses were
allocated to
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Suburban Newspapers of Greater St. Louis, LLC
and The Ladue News, Inc.
Notes to Combined Financial Statements (continued)
4. RELATED PARTY TRANSACTIONS (CONTINUED)
SNGSL and Ladue by JRC. Expense allocations to SNGSL and Ladue were $859,000 for
the year ended December 26, 1999.
SNGSL provides certain finance and accounting services to The Alton Telegraph
(another newspaper entity of JRC - "Alton"). SNGSL charged Alton approximately
$191,000 in 1999 for their services.
In addition, Alton provides printing services for SNGSL. Alton charged SNGSL
approximately $2,932,000 in 1999 for their services.
The above expenses for these services are not necessarily indicative of the
expenses that would have been incurred if these newspaper operations had been
separate, independent entities.
Certain liabilities associated with the acquisition of Ladue have not been
reflected in these combined financial statements because JRC has the
responsibility for payment of these liabilities. JRC will retain certain
liabilities due to the former owner of Ladue in accordance with the asset
purchase agreement.
5. PENSION AND POST RETIREMENT PLANS
SNGSL has a defined contribution plan covering certain employees. Company
contributions to the plan are based on a percentage of participants' salaries
and amounted to approximately $144,000 in 1999.
6. INCOME TAXES
SNGSL and Ladue file a consolidated federal income tax return with their Parent.
The SNGSL and Ladue tax provisions have been prepared on a separate company
basis and do not necessarily reflect the actual tax positions as determined on a
consolidated basis with JRC for the year ended December 26, 1999. The separate
company liabilities for current taxes payable have been treated as amounts due
to the Parent and have been included in the shareowners' net investment.
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Suburban Newspapers of Greater St. Louis, LLC
and The Ladue News, Inc.
Notes to Combined Financial Statements (continued)
6. INCOME TAXES (CONTINUED)
The provision for income taxes is as follows:
Current tax expense:
Federal $ 3,562,441
State 689,887
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Total current 4,252,328
Deferred tax expense (benefit):
Federal (249,098)
State (48,229)
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Total deferred (297,327)
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Total provision for taxes $ 3,955,001
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The reconciliation of income tax computed at the U.S. federal statutory tax rate
to income tax expense for the year ended December 26, 1999 is as follows:
Tax at U.S. statutory rates $3,399,329
State taxes, net of federal effect 417,078
Other 138,594
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$3,955,001
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Deferred income taxes reflect the net effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Significant components of the
deferred tax liabilities and assets as of December 26, 1999 are as follows:
Deferred tax liabilities:
Property, plant and equipment $360,060
Other 15,446
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Total deferred tax liabilities 375,506
Deferred tax assets:
Allowance for doubtful accounts 200,540
Retiree benefits 31,893
Intangible assets 188,542
Accrued vacation pay 67,839
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Total deferred tax assets 488,814
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Net deferred tax assets $113,308
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Suburban Newspapers of Greater St. Louis, LLC
and The Ladue News, Inc.
Notes to Combined Financial Statements (continued)
7. COMMITMENTS AND CONTINGENCIES
SNGSL and Ladue lease office space under noncancellable operating leases. These
leases contain several renewal options for periods up to five years. SNGSL and
Ladue's future minimum lease payments under operating leases at December 26,
1999 are as follows (in thousands):
2000 $ 684,000
2001 554,000
2002 569,000
2003 587,000
2004 115,000
Thereafter 7,000
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Total minimum rentals $2,516,000
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Total rent expense was $646,000 for the year ended December 26, 1999.
SNGSL and Ladue are involved in certain litigation matters which have arisen in
the ordinary course of business. In the opinion of management, the outcome of
these legal proceedings should not have a material adverse impact on SNGSL and
Ladue's financial position or results of operations.
8. IMPACT OF YEAR 2000 (UNAUDITED)
SNGSL and Ladue experienced no significant disruptions in mission critical
information technology and non-information technology systems and believe those
systems successfully responded to the Year 2000 date change. SNGSL and Ladue are
not aware of any material problems resulting from Year 2000 issues, either with
its products, its internal systems, or the products and services of third
parties. They will continue to monitor their mission critical computer
applications and those of its suppliers and vendors throughout the Year 2000 to
ensure that any latent Year 2000 matters that may arise are addressed promptly.
9. SUBSEQUENT EVENT (UNAUDITED)
On August 10, 2000, the Companies were sold to Pulitzer Inc. for approximately
$165 million plus a working capital adjustment.
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