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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 28, 2003
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 1-12955
JOURNAL REGISTER COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 22-3498615
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
50 WEST STATE STREET
TRENTON, NEW JERSEY 08608-1298
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
Registrant's telephone number, including area code: (609) 396-2200
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
Common Stock, par value $0.01 per share New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None
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. [X] Yes [ ] 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 [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). [X] Yes [ ] No
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of June 29, 2003 was $714,009,239.
As of March 4, 2004, 41,897,028 shares of the registrant's Common Stock,
par value $0.01 per share, were outstanding (excluding treasury shares).
DOCUMENTS INCORPORATED BY REFERENCE. The information called for by Part III
is incorporated by reference to the definitive Proxy Statement for the Company's
2004 Annual Meeting of Stockholders, which will be filed on or before April 26,
2004.
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CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS
STATEMENTS IN THIS ANNUAL REPORT ON FORM 10-K THAT ARE NOT PURELY
HISTORICAL ARE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF
THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF
1934, INCLUDING STATEMENTS REGARDING THE COMPANY'S EXPECTATIONS, HOPES,
INTENTIONS OR STRATEGIES REGARDING THE FUTURE. FORWARD-LOOKING STATEMENTS
INCLUDE STATEMENTS REGARDING THE PLANS AND OBJECTIVES OF THE COMPANY FOR FUTURE
OPERATIONS AND TRENDS AFFECTING THE COMPANY'S FINANCIAL CONDITION AND RESULTS OF
OPERATIONS. IN ADDITION, THE WORDS "ANTICIPATES," "PROJECTS," "PLANS,"
"INTENDS," "ESTIMATES," "EXPECTS," "MAY," "BELIEVES" AND SIMILAR WORDS ARE
INTENDED TO IDENTIFY THESE FORWARD-LOOKING STATEMENTS. ALL FORWARD-LOOKING
STATEMENTS IN THIS REPORT ARE BASED ON INFORMATION AVAILABLE TO THE COMPANY (AS
HEREINAFTER DEFINED) AS OF THE DATE THIS REPORT IS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION, AND THE COMPANY ASSUMES NO OBLIGATION TO UPDATE ANY SUCH
FORWARD-LOOKING STATEMENTS, EXCEPT AS REQUIRED BY LAW. ALL FORWARD-LOOKING
STATEMENTS INVOLVE RISKS AND UNCERTAINTIES. ACTUAL RESULTS MAY DIFFER MATERIALLY
FROM THOSE EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS AS A RESULT
OF CERTAIN FACTORS INCLUDING, BUT NOT LIMITED TO, THE UNAVAILABILITY OR A
MATERIAL INCREASE IN THE PRICE OF NEWSPRINT, THE SUCCESS OF THE COMPANY'S
ACQUISITION STRATEGY, DISPOSITIONS, THE ABILITY OF THE COMPANY TO ACHIEVE COST
REDUCTIONS AND INTEGRATE ACQUISITIONS, COMPETITIVE PRESSURES, GENERAL OR
REGIONAL ECONOMIC CONDITIONS, ADVERTISING TRENDS AND MATERIAL INCREASES IN
INTEREST RATES, AMONG OTHER THINGS. THESE AND OTHER FACTORS ARE DISCUSSED IN
MORE DETAIL BELOW UNDER "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CERTAIN FACTORS WHICH MAY AFFECT
THE COMPANY'S FUTURE PERFORMANCE." SUCH FACTORS SHOULD NOT BE CONSTRUED AS
EXHAUSTIVE. THE COMPANY UNDERTAKES NO OBLIGATION TO RELEASE PUBLICLY THE RESULTS
OF ANY FUTURE REVISIONS IT MAY MAKE TO FORWARD-LOOKING STATEMENTS TO REFLECT
EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF
UNANTICIPATED EVENTS.
PART I
ITEM 1. BUSINESS.
GENERAL
Journal Register Company (the "Company") is a leading U.S. newspaper
publisher that owns and operates 23 daily newspapers and 237 non-daily
publications (including a January 2004 acquisition) strategically clustered in
six geographic areas: Greater Philadelphia, Connecticut, Greater Cleveland,
Central New England, and the Capital-Saratoga and Mid-Hudson regions of New
York. The Company's total paid daily circulation is approximately 534,000 and
total non-daily distribution is approximately 3.7 million. The Company's
newspapers are characterized by their intense focus on the coverage of local
news and local sports, their compelling graphic design and their colorful,
reader-friendly packages. The Company is also committed to expanding its
business through its Internet initiatives, and currently operates 152 Websites
that are affiliated with the Company's daily newspapers and non-daily
publications.
The principal elements of the Company's strategy are to: (i) expand
advertising revenues and readership; (ii) grow by acquisition; (iii) capture
synergies from geographic clustering; and (iv) implement consistent operating
policies and standards. The Company's objective is to grow its revenues, EBITDA,
free cash flow and net income.
The Company is a leader in the newspaper industry in executing a clustering
strategy. The Company believes that its clustering strategy creates significant
synergies and cost savings within each cluster, including cross-selling of
advertising, centralized news gathering and consolidation of printing,
production and back office activities. The Company also believes that its
clustering strategy enables it to improve print quality and distribution,
introduce new products and services in a cost-effective manner and increase
readership. In addition, clustering enables the Company's advertisers to expand
their reach and target their message both geographically and demographically.
From September 1993 through January 2004, the Company successfully
completed 27 acquisitions and two dispositions.
The majority of the Company's daily newspapers have been published for more
than 100 years and are established franchises with strong identities in the
communities they serve. For example, the NEW HAVEN REGISTER,
1
the Company's largest newspaper based on daily circulation, has roots in the New
Haven, Connecticut area dating back to 1755. In many cases, the Company's daily
newspapers are the only general circulation daily newspapers published in their
respective communities. The Company's non-daily publications serve well-defined
suburban areas.
The Company manages its newspapers to best serve the needs of its local
readers and advertisers. The editorial content of its newspapers is tailored to
the specific interests of each community served and includes coverage of local
youth, high school, college and professional sports, as well as local business,
politics, entertainment and culture. The Company maintains high product quality
standards and uses extensive process color and compelling graphic design to more
fully engage existing readers and to attract new readers. The Company's
newspapers typically are produced using advanced prepress pagination technology,
and are printed on efficient, high-speed presses.
The Company's revenues are derived from advertising (73.6 percent of fiscal
year 2003 revenues), paid circulation (22.2 percent of fiscal year 2003
revenues), including single copy sales and subscription sales, and commercial
printing and other activities (4.2 percent of fiscal year 2003 revenues). The
Company's advertiser base is predominantly local. The Company's newspapers seek
to produce desirable results for local advertisers by targeting readers based on
certain geographic and demographic characteristics. The Company seeks to
increase readership, and thereby generate traffic for its advertisers, by
focusing on high product quality, compelling and often proprietary local content
and creative and interactive promotions. The Company promotes single copy sales
of its newspapers because it believes that such sales have even higher
readership than subscription sales, and that single copy readers tend to be more
active consumers of goods and services, as indicated by a Newspaper Association
of America ("NAA") study. Single copy sales also tend to generate higher profit
margins than subscription sales, as single copy sales generally have higher per
unit prices and lower distribution costs. Subscription sales, which provide
readers with the convenience of home delivery, are an important component of the
Company's circulation base. The Company also publishes numerous special
sections, as well as niche and special interest publications. Such publications
tend to increase readership within targeted demographic groups and geographic
areas. The Company's management believes that as a result of these strategies,
its newspapers represent an attractive and cost-effective medium for its readers
and advertisers.
The Company's advertising revenues in 2003 were derived primarily from a
broad group of local retailers (approximately 55 percent) and classified
advertisers (approximately 40 percent). No single advertiser accounted for more
than one percent of the Company's total fiscal year 2003 revenues. The Company's
management believes that its advertising revenues tend to be relatively stable
because its newspapers rely primarily on a broad base of local retail and local
classified advertising, rather than the generally more volatile national and
major account advertising that accounts for only approximately five percent of
the Company's advertising revenues.
Substantially all of the Company's operations relate to newspaper
publishing. In addition to its daily newspapers and non-daily publications, the
Company currently owns three commercial printing operations that complement and
enhance its publishing operations.
OVERVIEW OF OPERATIONS
The Company's operations are clustered in six geographic areas:
GREATER PHILADELPHIA. The suburban Philadelphia area is one of the fastest
growing and most affluent areas in Pennsylvania. Since 1990, the population of
the areas covered by the Company's Greater Philadelphia Cluster has increased
approximately nine percent, and average household income has increased
approximately 58 percent.
The Company owns seven daily newspapers and 114 non-daily publications
serving areas surrounding Philadelphia. These publications include: in
Pennsylvania, the DELAWARE COUNTY DAILY AND SUNDAY TIMES (Primos); the DAILY
LOCAL NEWS (West Chester); THE MERCURY (Pottstown); THE TIMES HERALD
(Norristown); THE REPORTER (Lansdale); THE PHOENIX (Phoenixville); Montgomery
Newspapers, a group of 25 non-daily publications; News Gleaner Publications,
which includes eight weekly publications serving Northeast Philadelphia and
seven monthly publications serving Montgomery County, Pennsylvania; the
InterCounty Newspaper Group, a group of 18 weekly newspapers serving suburban
Philadelphia and central and southern New Jersey; Chesapeake Publishing, a group
of 15 non-daily publications; Town Talk Newspapers (Media), a group of seven
non-daily publications; Acme Newspapers, a group of four non-daily newspapers,
including the MAIN LINE TIMES, serving Philadelphia's affluent
2
Main Line; the NEWS OF DELAWARE COUNTY, one of the largest community newspapers
in the United States audited by the Audit Bureau of Circulations ("ABC"); and
the Penny Pincher Shopper publications (Pottstown). Also, in New Jersey, the
Company owns THE TRENTONIAN (Trenton, NJ), a daily newspaper operation. The
Company also owns two commercial printing companies in Pennsylvania, one of
which prints more than 60 of the Company's non-daily publications in addition to
printing for other non-affiliated customers, and the other is a premium quality
sheet-fed printing operation.
The seven Greater Philadelphia Cluster daily newspapers have aggregate
daily and aggregate Sunday circulation of approximately 185,000 and 170,000,
respectively. The Company's aggregate non-daily distribution in the Company's
Greater Philadelphia Cluster is approximately 1.2 million.
In 2003, the Company launched HUNTERDON COUNTY TOWN & COUNTRY LIVING
Magazine, a quarterly publication with distribution of approximately 20,000
serving affluent and fast-growing Hunterdon County, New Jersey, as part of the
Company's Town and Country Magazine division.
In 2002, the Company launched the Lansdale edition of THE SUNDAY TIMES
HERALD, adding circulation of approximately 15,000 on Sunday in Montgomery
County. This edition provides advertisers with a local Sunday newspaper to reach
the desirable Lansdale market. The Company also added to its Greater
Philadelphia Cluster with the completion of two strategic acquisitions in 2002,
acquiring the News Gleaner publications and the County Press publications.
3
The following table sets forth information regarding the Company's
publications in Greater Philadelphia:
YEAR YEAR PRINCIPAL DAILY SUNDAY NON-DAILY
PUBLICATION ORIGINATED(1) ACQUIRED LOCATION CIRCULATION(2) CIRCULATION(2) DISTRIBUTION(3)
- ----------------------------------------------------------------------------------------------------------------------------
DELAWARE COUNTY DAILY AND
SUNDAY TIMES............. 1876 1998 Primos, PA 47,867 44,092
DAILY LOCAL NEWS.......... 1872 1986 West Chester, PA 26,662 30,152
THE MERCURY............... 1930 1998 Pottstown, PA 24,203 26,502
THE TIMES HERALD.......... 1799 1993 Norristown, PA 17,666 15,408
THE REPORTER.............. 1870 2001 Lansdale, PA 18,195 16,815
THE PHOENIX............... 1888 1986 Phoenixville, PA 3,675
THE TRENTONIAN............ 1945 1985 Trenton, NJ 46,284 36,573
Montgomery Newspapers
25 publications......... 1872 2001 Ft. Washington, PA 274,326
News Gleaner Publications
15 publications......... 1882 2002 Philadelphia, PA 170,889
InterCounty Newspaper
Group
18 publications......... 1869 1997 Newtown, PA 76,007
Chesapeake Publishing
15 publications........ 1869 2001 Kennett Sq., PA 85,256
Town Talk Newspapers
7 publications......... 1964 1998 Ridley, PA 85,000
Acme Newspapers
4 publications......... 1930 1998 Ardmore, PA 56,617
Penny Pincher Shoppers
7 publications......... 1988 1998 Pottstown, PA 58,500
Suburban Publications
3 publications......... 1885 1986 Wayne, PA 32,045
County Press Publications
6 publications......... 1931 2002 Newtown Sq., PA 21,794
LIL' BOOK................. 2001 2001(4) Trenton, NJ 45,000
REAL ESTATE TODAY......... 1978 1998 Pottstown, PA 36,000
TRI-COUNTY RECORD......... 1975 1986 Morgantown, PA 40,200
THE HOMES MAGAZINE........ 1988 1988(4) West Chester, PA 18,000
CHESTER COUNTY KIDS....... 2001 2001(4) West Chester, PA 18,000
THE VILLAGE NEWS.......... 1980 1986 Downingtown, PA 18,000
TOWNSHIP VOICE............ 1991 1991 Phoenixville, PA 15,000
THE TIMES RECORD.......... 1980 1986 Kennett Sq., PA 9,000
BLUE BELL JOURNAL......... 1999 1999(4) Blue Bell, PA 5,225
Total Market Coverage
("TMC") (5 publications).. 103,500
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL 184,552 169,542 1,168,359
===========================================================================================================================
(1) For merged newspapers and newspaper groups, the year given reflects the
date of origination for the earliest publication.
(2) Circulation averages are according to the most recently released Audit
Bureau of Circulation ("ABC") Audit Reports.
(3) Non-daily distribution includes both paid and free distribution. Non-daily
distribution reflects averages according to the most recently released ABC
or Certified Audit of Circulations ("CAC") audit reports or the average
distribution for December 2003.
(4) Represents the year the Company started the publication.
The majority of the Company's Pennsylvania publications are located within
a 30-mile radius of Philadelphia. The Company's newspapers serve geographic
areas with highly desirable demographics. The DELAWARE COUNTY DAILY AND SUNDAY
TIMES serves an area that has a population of 584,488. The population remained
stable from 1980 to 2003. The DELAWARE COUNTY DAILY AND SUNDAY TIMES' market
area has average household income of $76,095, which is 20 percent above the
national average. The DAILY LOCAL NEWS serves an area which has a population of
434,773 and had population growth of approximately 47 percent from 1980 to 2003.
The DAILY LOCAL NEWS serves an area that has average household income of
$89,872, which is 42 percent above the national average. THE MERCURY, located
west of Philadelphia, serves an area that has a population of 479,638 and had
population growth of approximately 30 percent from 1980 to 2003. The area THE
MERCURY serves has average household income of $73,777, which is 17 percent
above the national average. THE TIMES HERALD serves an area that has a
population of 188,342 and had population growth of approximately 18
4
percent from 1980 to 2003. THE TIMES HERALD'S market area has average household
income of $79,920, which is 26 percent above the national average. THE REPORTER
serves an area that has a population of 408,912 and had population growth of
approximately 23 percent from 1990 to 2003. THE REPORTER'S market area has an
average household income of $86,725, which is 37 percent above the national
average. THE PHOENIX serves an area that has a population of 134,666 and had
population growth of approximately 47 percent from 1980 to 2003. THE PHOENIX'S
market area has average household income of $93,765, which is 48 percent above
the national average. The Company's weekly newspaper group, Suburban
Publications, which is located on the Main Line in suburban Philadelphia, serves
an area that has a population of 341,993 and had population growth of
approximately 26 percent from 1980 to 2003. The market area served by Suburban
Publications has average household income of $110,814, which is 75 percent above
the national average. The MAIN LINE TIMES, the flagship of the Company's Acme
Newspapers group, serves an area that has a population of 402,374 and had
population growth of approximately four percent from 1980 to 2003. The MAIN LINE
TIMES' market area has average household income of $136,387, which is 116
percent above the national average. The majority of the Company's Pennsylvania
properties are located within 20 miles of the area's largest retail complex, the
King of Prussia Mall, which is the largest mall in the United States based on
retail square footage.
THE TRENTONIAN is published in Trenton, the capital of New Jersey, which is
located 35 miles north of Philadelphia and 65 miles south of New York City. THE
TRENTONIAN serves an area that has a population of 298,352 and had population
growth of approximately 12 percent from 1980 to 2003. This area has average
household income of $72,869, which is 15 percent above the national average.
As a result of the synergies in the Company's Greater Philadelphia Cluster,
the Company has been able to cross-sell advertising into multiple publications.
The nature of the cluster also allows for the implementation of significant cost
savings programs. For example, in December 2001, the Company commenced
operations at its new production facility, Journal Register Offset, located in
Exton, Pennsylvania. This plant produces five of the Company's seven dailies -
the DAILY LOCAL NEWS, THE MERCURY, THE TIMES HERALD, THE REPORTER and THE
PHOENIX - and 38 of the Company's 114 non-daily publications in the Company's
Greater Philadelphia Cluster. The new facility produces award-winning product
quality and generated approximately $1.5 million and $1.1 million of cash
operating expense savings in fiscal years 2003 and 2002, respectively. In
addition, the Company's publications in its Greater Philadelphia Cluster share
several news gathering resources.
CONNECTICUT. In Connecticut, the Company owns the NEW HAVEN REGISTER, a
small metropolitan daily newspaper with daily circulation of nearly 100,000 and
Sunday circulation of over 100,000, four suburban daily newspapers, 74 suburban
non-daily publications and one commercial printing company. The suburban daily
newspapers in the Connecticut Cluster are THE HERALD (New Britain), THE BRISTOL
PRESS, THE REGISTER CITIZEN (Torrington) and THE MIDDLETOWN PRESS. The five
daily newspapers have aggregate daily and Sunday circulation of approximately
142,000 and 140,000, respectively. The 74 non-daily publications have aggregate
distribution of approximately 1.7 million. Included in the non-daily
publications is CONNECTICUT MAGAZINE, the state's premier lifestyle magazine
that was acquired in September 1999. The Company's Connecticut daily newspapers
and non-daily publications serve a statewide audience with concentrations in
western Connecticut (Litchfield and Fairfield counties) to Hartford and its
suburban areas, to the Greater New Haven area, as well as the Connecticut
shoreline from New Haven northeast to New London.
In 2003, the Company launched PASSPORT, a quarterly regional lifestyle
magazine serving the fast-growing and affluent areas of Litchfield and Fairfield
counties in Connecticut, Dutchess and Columbia counties in New York, and the
Berkshire Mountains region of Massachusetts. PASSPORT had an initial
distribution of 25,000 and was launched by the Litchfield County Times Group,
which is based in New Milford, Connecticut.
5
The following table sets forth information regarding the Company's
publications in Connecticut:
YEAR YEAR PRINCIPAL DAILY SUNDAY NON-DAILY
PUBLICATION ORIGINATED(1) ACQUIRED LOCATION CIRCULATION(2) CIRCULATION(2) DISTRIBUTION(3)
- -----------------------------------------------------------------------------------------------------------------------------
NEW HAVEN REGISTER............... 1755 1989 New Haven 95,902 100,053
THE HERALD....................... 1881 1995 New Britain 15,486 31,388
THE BRISTOL PRESS................ 1871 1994 Bristol 12,091
THE REGISTER CITIZEN............. 1889 1993 Torrington 9,709 8,972
THE MIDDLETOWN PRESS............. 1884 1995 Middletown 9,056
Shore Line Newspapers
10 publications................ 1877 1995 Guilford 82,841
Litchfield County Times Group
4 publications............... 1981 2001 New Milford 96,259
Housatonic Publications
8 publications............... 1825 1998 New Milford 53,490
Imprint Newspapers
12 publications................ 1880 1995 Bristol 93,442
Elm City Newspapers
6 publications............... 1931 1995 Milford 47,150
Minuteman Newspapers
2 publications............... 1993 1998 Westport 35,283
CONNECTICUT COUNTY KIDS
2 publications............... 1989 1996 Westport 40,735
FOOTHILLS TRADER
3 publications............... 1965 1995 Torrington 49,672
CONNECTICUT MAGAZINE
3 publications............... 1938 1999 Trumbull 715,777
Gamer Publications
3 publications............... 1981 1995 Bristol 61,000
MAIN STREET NEWS
3 publications............... 1989 2002 Essex 24,286
EAST HARTFORD GAZETTE............ 1885 1995 East Hartford 19,258
HOMEFINDER....................... 1976 1995 New Britain 15,220
THOMASTON EXPRESS................ 1874 1994 Thomaston 1,581
TMC (14 publications)............ 397,280
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL 142,244 140,413 1,733,274
=============================================================================================================================
(1) For merged newspapers and newspaper groups, the year given reflects the
date of origination for the earliest publication.
(2) Circulation averages are according to the most recently released ABC Audit
Reports.
(3) Non-daily distribution includes both paid and free distribution. Non-daily
distribution reflects averages according to the most recently released ABC
or CAC audit reports or average distribution for December 2003, with the
following exception: two of CONNECTICUT MAGAZINE's publications, which are
published annually, the CONNECTICUT VACATION GUIDE and CONNECTICUT BRIDE,
reflect annual distribution of 600,000 and 30,000, respectively.
The Company's Connecticut publications serve communities with attractive
demographics. The NEW HAVEN REGISTER is the Company's largest newspaper based on
daily circulation and is the second largest daily circulation newspaper in
Connecticut. The NEW HAVEN REGISTER serves a primary circulation area comprised
of the majority of New Haven County and portions of Fairfield, Middlesex and New
London counties. This area (including the portions of Fairfield County, which
are also served by related non-daily publications) has a population of 812,340
and had population growth of approximately 17 percent from 1980 to 2003. This
area has average household income of $75,969, which is 20 percent above the
national average, and a retail environment comprised of approximately 7,300
stores. The NEW HAVEN REGISTER'S primary circulation area is home to a number of
large and well-established institutions, including Yale University and Yale-New
Haven Hospital. As a result of its proximity to the large media markets of New
York City, Boston and Hartford, New Haven has only two locally licensed
television stations (which serve a statewide, rather than a local audience). The
radio market in New Haven is also fragmented. Consequently, the Company's
management believes that the NEW HAVEN REGISTER is a very powerful local news
and advertising franchise for the Greater New Haven area.
THE HERALD, THE BRISTOL PRESS and THE MIDDLETOWN PRESS serve contiguous
areas between New Haven and Hartford. THE BRISTOL PRESS serves an area that has
a population of 340,501 and had population growth of approximately nine percent
from 1980 to 2003. THE BRISTOL PRESS' market area has average household income
of
6
$81,783, which is 29 percent above the national average. THE MIDDLETOWN PRESS
serves an area that has a population of 107,360 and had population growth of
approximately 26 percent from 1980 to 2003. The area served by THE MIDDLETOWN
PRESS has average household income of $75,151, which is 19 percent above the
national average. THE HERALD serves an area that has a population of 108,861,
and had population growth of approximately five percent from 1980 to 2003. THE
HERALD'S market area has average household income of $55,348. THE REGISTER
CITIZEN serves an area that has a population of 255,826 and had population
growth of approximately 17 percent from 1980 to 2003. THE REGISTER CITIZEN'S
market area has average household income of $81,588 which is 29 percent above
the national average.
The Company's Connecticut publications benefit from cross-selling of
advertising, as well as from editorial, production and back office synergies.
For example, the NEW HAVEN REGISTER gathers statewide news for all of the
Company's Connecticut newspapers; the newspapers cross-sell advertising through
a one-order, one-bill system; and THE HERALD and THE MIDDLETOWN PRESS are
printed at one facility, as are THE REGISTER CITIZEN and THE BRISTOL PRESS.
Moreover, in August 1996, in order to take advantage of the contiguous nature of
the geographic areas served by THE HERALD, THE BRISTOL PRESS and THE MIDDLETOWN
PRESS, the Company launched a combined Sunday newspaper, THE HERALD PRESS, which
serves the readers of these three daily newspapers with three zoned editions and
has a Sunday circulation of approximately 31,400 as of September 30, 2002,
according to the ABC Audit Report.
GREATER CLEVELAND. The Company owns two Cleveland, Ohio area newspaper
operations, THE NEWS-HERALD (Willoughby) and THE MORNING JOURNAL (Lorain). The
aggregate daily and aggregate Sunday circulation of the Cleveland-area
newspapers is approximately 78,000 and 92,000, respectively. The four non-daily
publications in the Greater Cleveland cluster have aggregate distribution of
approximately 106,000.
The following table sets forth information regarding the Company's
publications in Greater Cleveland:
YEAR YEAR PRINCIPAL DAILY SUNDAY NON-DAILY
PUBLICATION ORIGINATED(1) ACQUIRED LOCATION CIRCULATION(2) CIRCULATION(2) DISTRIBUTION(3)
- ----------------------------------------------------------------------------------------------------------------------------
THE NEWS-HERALD............ 1878 1987 Willoughby 45,893 56,790
THE MORNING JOURNAL........ 1921 1987 Lorain 32,568 34,729
COUNTY KIDS Willoughby
2 publications.......... 1997 1997(4) and Lorain 33,900
TMC (2 publications) ...... 71,630
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL 78,461 91,519 105,530
============================================================================================================================
(1) For merged newspapers and newspaper groups, the year given reflects the
date of origination for the earliest publication.
(2) Circulation averages are according to the most recently released ABC Audit
Reports.
(3) Non-daily distribution is free distribution and reflects average
distribution for December 2003.
(4) Represents the year the Company started the publication.
THE NEWS-HERALD and THE MORNING JOURNAL serve areas located directly east
and west of Cleveland, respectively. THE NEWS-HERALD, which is one of Ohio's
largest suburban newspapers, serves communities located in Lake and Geauga
counties, two of Ohio's five most affluent counties. Lake and Geauga counties
have populations of 228,267 and 93,931, respectively, and had population growth
of approximately eight percent and 36 percent, respectively, from 1980 to 2003.
Lake and Geauga counties have average household incomes of $65,047 and $89,406,
respectively, which are three percent and 41 percent above the national average.
THE MORNING JOURNAL serves an area that has a population of 153,920 with
population growth of approximately five percent from 1980 to 2003. Average
household income is $64,224 in the area served by THE MORNING JOURNAL. The
Greater Cleveland Cluster benefits from a variety of synergies, including
advertising cross-sell arrangements and certain news gathering resources.
CENTRAL NEW ENGLAND. The Company owns five daily and 25 non-daily
publications in the central New England area. The Company's publications in this
cluster include THE HERALD NEWS (Fall River, MA), the TAUNTON DAILY GAZETTE
(Taunton, MA), THE CALL (Woonsocket, RI), THE TIMES (Pawtucket, RI), the KENT
COUNTY DAILY TIMES (West Warwick, RI), and two groups of weekly newspapers
serving southern Rhode Island, including South County, THE NORTH ATTLEBOROUGH
FREE PRESS (North Attleborough, MA), and O JORNAL (Fall River, MA), a
Portuguese-
7
language weekly newspaper acquired in January 2004. The five daily newspapers
have aggregate daily circulation of approximately 68,000 and aggregate Sunday
circulation of approximately 56,000. The non-daily publications in this cluster
have total distribution of approximately 302,000.
The following table sets forth information regarding the Company's
publications in Central New England:
YEAR YEAR PRINCIPAL DAILY SUNDAY NON-DAILY
PUBLICATION ORIGINATED(1) ACQUIRED LOCATION CIRCULATION(2) CIRCULATION(2) DISTRIBUTION(3)
- ----------------------------------------------------------------------------------------------------------------------------
THE HERALD NEWS........... 1872 1985 Fall River, MA 22,930 24,401
TAUNTON DAILY GAZETTE..... 1848 1996 Taunton, MA 12,906 12,348
THE CALL.................. 1892 1984 Woonsocket, RI 14,131 19,223
THE TIMES................. 1885 1984 Pawtucket, RI 13,673
KENT COUNTY DAILY TIMES 1892 1999 West Warwick, RI 4,134
Southern Rhode Island
Newspapers
8 publications........ 1854 1995 Wakefield, RI 39,960
Hometown Newspapers
6 publications........ 1969 1999 West Warwick, RI 44,611
COUNTY KIDS
3 publications......... 1997 1997(4) Fall River, MA,
Taunton, MA and
Pawtucket, RI 49,301
NEIGHBORS................. 1999 1999(4) Pawtucket and
Woonsocket, RI 19,260
NORTHWEST NEIGHBORS....... 2002 2002 Woonsocket, RI 9,948
THE NORTH ATTLEBOROUGH North
FREE PRESS................ 1987 2003 Attleborough, MA 13,673
O JORNAL.................. 1975 2004 Fall River, MA 14,300
TMC (4 publications)...... 110,466
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL 67,774 55,972 301,519
============================================================================================================================
(1) For merged newspapers and newspaper groups, the year given reflects the
date of origination for the earliest publication.
(2) Circulation averages are according to the most recently released ABC Audit
Reports.
(3) Non-daily distribution reflects average distribution for December 2003,
with the exception of THE COVENTRY COURIER, THE EAST GREENWICH PENDULUM,
THE NARRAGANSETT TIMES, THE STANDARD TIMES, AND THE CHARIHO TIMES (all
Southern Rhode Island Newspapers), which reflect the ABC Audit Report for
the 12 month period ended December 31, 2002.
(4) Represents the year the Company started the publication.
THE HERALD NEWS and the TAUNTON DAILY GAZETTE are situated 14 miles apart.
Each is less than 40 miles south of Boston, Massachusetts and 25 miles east of
Providence, Rhode Island. The region's second largest shopping mall, located in
Taunton, contains one million square feet of retail space and approximately 150
stores. THE HERALD NEWS serves an area that has a population of 167,673 and had
population growth of approximately three percent from 1980 to 2003. The market
area served by THE HERALD NEWS has average household income of $53,318. The
TAUNTON DAILY GAZETTE serves an area that has a population of 142,720 and had
population growth of approximately 37 percent from 1980 to 2003. The TAUNTON
DAILY GAZETTE's market area has average household income of $67,138. THE CALL
serves an area that has a population of 191,905 and had population growth of
approximately 18 percent from 1980 to 2003. THE CALL's market area has average
household income of $67,545, which is seven percent above the national average.
THE TIMES serves an area that has a population of 202,948 and had population
growth of approximately 16 percent from 1980 to 2003. The market area served by
THE TIMES has average household income of $57,378. Southern Rhode Island
Newspapers serve an area that has a population of 167,319 and had population
growth of approximately 37 percent from 1980 to 2003. The market area served by
Southern Rhode Island Newspapers has average household income of $78,038, which
is 23 percent above the national average.
In 2003, the Company added to its Central New England cluster with the
acquisition of THE NORTH ATTLEBOROUGH FREE PRESS, a weekly newspaper based in
North Attleborough, Massachusetts, with distribution of approximately 13,500. In
January 2004, the Company further expanded its reach to the large Portuguese
community
8
in Central New England by acquiring O JORNAL, a weekly Portuguese-language
newspaper based in Fall River, Massachusetts, with distribution of 14,300. O
JORNAL serves a Portuguese community in Massachusetts and Rhode Island estimated
to have a population of 370,000.
No local television stations exist in the communities served by the
Company's Central New England newspapers. Furthermore, the Company believes that
its Central New England properties benefit from the fragmentation of local radio
markets. As a result, the Company believes that each of its newspapers is a
significant media outlet in its respective community, thereby making these
newspapers attractive vehicles for area advertisers. The Central New England
newspapers benefit from advertising cross-sell arrangements, as well as
significant production and editorial synergies. For example, THE TIMES, THE CALL
and the KENT COUNTY DAILY TIMES are printed at the same facility, as are the
TAUNTON DAILY GAZETTE, THE HERALD NEWS and O JORNAL. Southern Rhode Island
Newspapers are printed at the Company's NEW HAVEN REGISTER facility.
CAPITAL-SARATOGA REGION OF NEW YORK. The Company owns three daily and five
non-daily publications in the Capital-Saratoga Region of New York. The Company's
publications in this cluster include THE RECORD (Troy), THE SARATOGIAN (Saratoga
Springs), THE ONEIDA DAILY DISPATCH and the weekly COMMUNITY NEWS, serving
Clifton Park. The daily newspapers have aggregate daily circulation of
approximately 40,000 and aggregate Sunday circulation of approximately 36,000.
The non-daily publications in this cluster have total distribution of
approximately 96,000.
The following table sets forth information regarding the Company's
publications in the Capital-Saratoga Region of New York:
YEAR YEAR PRINCIPAL DAILY SUNDAY NON-DAILY
PUBLICATION ORIGINATED(1) ACQUIRED LOCATION CIRCULATION(2) CIRCULATION(2) DISTRIBUTION(3)
- ----------------------------------------------------------------------------------------------------------------------------
THE RECORD................ 1896 1987 Troy 21,912 23,433
THE SARATOGIAN............ 1855 1998 Saratoga 10,924 12,303
Springs
THE ONEIDA
DAILY DISPATCH ........... 1850 1998 Oneida 6,795
Oneida-Chittenango
Pennysavers
2 publications......... 1957 1998 Oneida 23,085
COMMUNITY NEWS............ 1969 1998 Clifton Park 28,669
TMC (2 publications)...... 43,848
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL 39,631 35,736 95,602
============================================================================================================================
(1) For merged newspapers and newspaper groups, the year given reflects the
date of origination for the earliest publication.
(2) Circulation averages are according to the most recently released ABC Audit
Reports.
(3) Non-daily distribution includes both paid and free distribution and
reflects average distribution for December 2003.
THE RECORD and THE SARATOGIAN are situated approximately 26 miles apart in
the Capital-Saratoga region of New York. THE RECORD serves an area that has a
population of 174,821, which has remained relatively stable since 1980. THE
RECORD's market has average household income of $54,071. THE SARATOGIAN serves
an area that has a population of 211,238 and had population growth of
approximately 25 percent from 1980 to 2003. THE SARATOGIAN's market area has
average household income of $65,270. THE ONEIDA DAILY DISPATCH serves an area
that has a population of 74,652, and had population growth of approximately four
percent from 1980 to 2003. THE ONEIDA DAILY DISPATCH's market area has average
household income of $57,478. No local television stations exist in the
communities that the Company's Capital-Saratoga Region newspapers serve.
Furthermore, the Company believes that its Capital-Saratoga Region properties
benefit from the fragmentation of local radio markets. As a result, the Company
believes that each of its newspapers is a significant media outlet in its
respective community, thereby making these newspapers attractive vehicles for
area advertisers. THE RECORD, THE SARATOGIAN and the COMMUNITY NEWS benefit from
significant cross-selling of advertising. These newspapers also benefit from
significant production and news gathering synergies. THE RECORD, THE SARATOGIAN
and the COMMUNITY NEWS are printed at the Company's operating facility in Troy,
taking advantage of that facility's excess capacity and achieving significant
cost efficiencies.
9
MID-HUDSON REGION OF NEW YORK. The Company owns one daily newspaper and 16
non-daily publications in the Mid-Hudson Region of New York. The daily newspaper
in this cluster is the DAILY FREEMAN in Kingston. The Company's non-daily
publications in this cluster are the Taconic Press group, a group of 10
non-daily newspapers serving Dutchess County, New York, and THE PUTNAM COUNTY
COURIER, serving Putnam County, New York; and Roe Jan Independent Publishing,
which includes two non-daily publications. The Mid-Hudson Region cluster has
daily circulation of approximately 21,000, Sunday circulation of approximately
28,000 and total non-daily distribution of approximately 294,000.
The following table sets forth information regarding the Company's
publications in the Mid-Hudson Region of New York:
YEAR YEAR PRINCIPAL DAILY SUNDAY NON-DAILY
PUBLICATION ORIGINATED(1) ACQUIRED LOCATION CIRCULATION(2) CIRCULATION(2) DISTRIBUTION(3)
- ----------------------------------------------------------------------------------------------------------------------------
DAILY FREEMAN.............. 1871 1998 Kingston 21,480 28,221
Taconic Press
11 publications.......... 1846 1998 Millbrook 207,753
Roe Jan Independent
Publishing
2 publications........... 1973 2001 Hillsdale 18,804
WHEELS..................... 2001 2001(4) Kingston 38,350
DOORWAYS................... 1983 1998 Kingston 29,587
TMC (1 publication)........ 17,992
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL 21,480 28,221 312,486
============================================================================================================================
(1) For merged newspapers and newspaper groups, the year given reflects the
date of origination for the earliest publication.
(2) Circulation averages are according to the most recently released ABC Audit
Reports.
(3) Non-daily distribution includes both paid and free distribution and is
based on the average distribution for December 2003.
(4) Represents the year the Company started the publication.
The DAILY FREEMAN and TACONIC PRESS serve markets in the Mid-Hudson region
of New York. The DAILY FREEMAN serves an area that has a population of 283,304
and had population growth of approximately 13 percent from 1980 to 2003. The
DAILY FREEMAN's market area has average household income of $58,728. The Taconic
Press newspaper group based in Dutchess County serves an area that has a
population of 101,898 and had population growth of approximately 15 percent from
1980 to 2003. The Taconic Press publications serve markets with average
household income of $73,644, which is 17 percent above the national average. THE
PUTNAM COUNTY COURIER, the largest TACONIC PRESS non-daily publication, serves
an area that has a population of 98,970 and had population growth of
approximately 34 percent from 1980 to 2003. THE PUTNAM COUNTY COURIER's market
area has average household income of $97,200, which is 54 percent above the
national average. Roe Jan Independent Publishing, Inc., which is based in
Hillsdale, New York, publishes two non-daily publications. Markets served by Roe
Jan have average household income of $67,081, which is six percent above the
national average. Roe Jan's publications serve an area that has a population of
171,672 and had population growth of approximately five percent from 1990 to
2003.
The Company's management believes that its Mid-Hudson Region properties are
the leading sources of local information in the markets they serve. Only one
independent television station (which serves a regional, rather than a local
audience) exists in the communities that the Mid-Hudson Region publications
serve, and the local radio markets are fragmented. Consequently, each of these
newspapers is a significant media outlet in its respective community, thereby
making these newspapers attractive vehicles for area advertisers. The Mid-Hudson
Region newspapers benefit from significant cross-selling of advertising, as well
as production and editorial synergies. Certain publications in this cluster also
benefit from advertising cross-selling with certain newspapers in the Company's
Connecticut cluster, including THE REGISTER CITIZEN (Torrington, CT) and certain
of the Housatonic Publications (New Milford, CT), which serve Litchfield County,
Connecticut.
10
ONLINE OPERATIONS
Journal Register Company operates 152 Websites, which are affiliated with
the Company's daily newspapers and non-daily publications, as well as portal
sites for each of its six geographic clusters. The Company's online objective is
to have its Websites complement its print publications by providing certain
content from these publications, as well as unique content and interactive
features. The Company's Websites also provide an online marketplace for its
advertisers.
A number of the Websites can be accessed individually, through the
Company's "cluster" portal sites, which combine publications within a specific
geographic area, or through the Company's Corporate Website
(www.journalregister.com). The remaining Company newspapers, along with
Connecticut Magazine, have individual Websites.
The following is a list of the Company's cluster/portal Websites:
GEOGRAPHIC CLUSTER CLUSTER/PORTAL SITE
- ------------------ -------------------
(number of individual Websites)
Connecticut................................www.ctcentral.com (43)
Greater Philadelphia.......................www.allaroundphilly.com (70)
Greater Cleveland..........................www.allaroundcleveland.com (5)
Central New England........................www.ricentral.com (15)
Capital-Saratoga Region of New York........www.capitalcentral.com (6)
Mid-Hudson Region of New York..............www.midhudsoncentral.com (13)
The primary source of online revenue is classified advertising. For the
year ended December 28, 2003, the Company's Websites generated approximately
$4.7 million of revenue as compared to approximately $4.0 million for the fiscal
year ended December 29, 2002, an increase of 19.4 percent.
ADVERTISING
Substantially all of the Company's advertising revenues are derived from a
diverse group of local retailers and classified advertisers. The Company's
management believes that its advertising revenues tend to be relatively stable
because its newspapers rely on a broad base of local retail and local classified
advertising, rather than the generally more volatile national and major account
advertising. Local advertising is typically more stable than national
advertising because a community's need for local services provides a stable base
of local businesses and because local advertisers generally have fewer effective
advertising vehicles from which to choose.
Advertising revenues accounted for approximately 73.6 percent of the
Company's total revenues for fiscal year 2003. The Company's advertising rate
structures vary among its publications and are a function of various factors,
including advertising effectiveness, local market conditions and competition, as
well as circulation, readership, demographics and type of advertising (whether
classified or display). In fiscal year 2003, local and regional display
advertising accounted for the largest share of the Company's advertising
revenues (approximately 55 percent), followed by classified advertising
(approximately 40 percent) and national advertising (approximately 5 percent).
The Company's advertising revenues are not reliant upon any one company or
industry, but rather are supported by a variety of companies and industries,
including financial institutions, realtors, car dealerships, grocery stores,
universities, hospitals and many other local businesses. No single advertiser
accounted for more than one percent of the Company's total fiscal year 2003
revenues.
The Company's corporate management works with its local newspaper
management to approve advertising rates and to establish goals for each year
during a detailed annual budget process. As a result, local management is given
little latitude for discounting from the approved rates. Corporate management
also works with local advertising staffs to develop marketing kits and
presentations utilizing the results of third-party research studies and internal
marketing resources. A portion of the compensation for the Company's publishers
is based upon increasing advertising revenues. The Company stresses the timely
collection of receivables. Compensation of the Company's sales personnel depends
in part upon performance relative to goals and timely collection of advertising
receivables.
11
Additionally, corporate management facilitates the sharing of advertising
resources and information across the Company's publications and the Company's
publishers aggressively pursue cross-selling of advertising within their
respective geographic areas. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Certain Factors Which May Affect
the Company's Future Performance - Dependence on Local Economies."
CIRCULATION
The Company's circulation revenues are derived from home delivery sales of
publications to subscribers and single copy sales made through retailers and
vending racks. Circulation accounted for approximately 22.2 percent of the
Company's total revenues in fiscal year 2003. Approximately 62 percent of fiscal
year 2003 circulation revenues were derived from subscription sales and
approximately 38 percent from single copy sales. Single copy rates range from
$0.35 to $0.50 per daily copy and $0.75 to $1.75 per Sunday copy. The Company
promotes single copy sales of its newspapers because it believes that such sales
have even higher readership than subscription sales, and that single copy
readers tend to be more active consumers of goods and services, as indicated in
an NAA readership study. Single copy sales also tend to generate a higher profit
margin than subscription sales, as single copy sales generally have higher per
unit prices and lower distribution costs. As of December 28, 2003, the Company
had total daily paid circulation of approximately 534,000, paid Sunday
circulation of approximately 521,000 and non-daily distribution of approximately
3.7 million, most of which is distributed free of charge.
The Company's corporate management works with its local newspaper
management to establish subscription and single copy rates. In addition, the
Company tracks rates of newspaper returns and customer service calls in an
effort to optimize the number of newspapers available for sale and to improve
delivery and customer service. The Company also implements creative and
interactive programs and promotions to increase readership through both
subscription and single copy sales. The most recent Fall 2003 Scarborough
Research studies, which measured 20 of the Company's 23 daily newspapers and
several of its non-daily publications, reported a gain in overall readership as
compared to the results from Scarborough Research's Spring 2003 studies for the
papers measured. In recent years, circulation has generally declined throughout
the newspaper industry, and the Company's newspapers have generally experienced
this trend. The Company seeks to maximize the overall operating performance
rather than maximizing circulation of its individual newspapers.
OTHER OPERATIONS
As of December 28, 2003, the Company owned and operated three commercial
printing facilities: Imprint Print in North Haven, Connecticut; Nittany Valley
Offset in State College, Pennsylvania; and InterPrint in Bristol, Pennsylvania.
These facilities also print certain of the Company's publications. Commercial
printing operations and other revenues accounted for approximately 4.2 percent
of the Company's total revenues in fiscal year 2003.
EMPLOYEES
As of December 28, 2003, the Company employed approximately 4,600 full-time
and part-time employees, or 4,100 full-time equivalents ("FTEs"). Approximately
20 percent of the Company's employees are employed under collective bargaining
agreements. The Company anticipates that collective bargaining agreements at six
newspapers, constituting approximately 20 percent of the employees covered by
collective bargaining agreements, will be renegotiated in 2004.
RAW MATERIALS
The basic raw material for newspapers is newsprint. In fiscal year 2003,
the Company consumed approximately 47,000 metric tons of newsprint, excluding
paper consumed in its commercial printing operations. The average price per
metric ton of newsprint based on East Coast transactions prices in 2003, 2002
and 2001 was $503, $465 and $585, respectively, as reported by the trade
publication, PULP AND PAPER WEEKLY. The Company purchases the majority of its
newsprint through its central purchasing group, Journal Register Supply. The
Company has no long-term contracts to purchase newsprint. Generally, Journal
Register Supply purchases most of its newsprint from one or two suppliers,
although in the future the Company may purchase newsprint from other suppliers.
Historically, the percentage of newsprint from each supplier has varied. The
Company's management believes that concentrating its newsprint purchases in this
way provides a more secure newsprint supply and lower unit prices. The Company's
management also believes that it purchases newsprint at price levels lower than
those that are available to individually-owned small metropolitan and suburban
newspapers, and consistent with price levels generally available to the largest
newsprint purchasers. The available sources of newsprint have been, and the
12
Company believes will continue to be, adequate to supply the Company's needs.
The inability of the Company to obtain an adequate supply of newsprint in the
future could have a material adverse effect on the financial condition and
results of operations of the Company.
Historically, the price of newsprint has been cyclical and volatile. The
Company's average price per ton of newsprint for the full fiscal year increased
approximately eight percent in 2003, decreased approximately 22 percent in 2002
and increased approximately nine percent in 2001, each as compared to the
preceding year. The Company believes that if any price decrease or increase is
sustained in the industry, the Company will also be impacted by such change. The
Company seeks to manage the effects of increases in prices of newsprint through
a combination of, among other things, technology improvements, inventory
management and advertising and circulation price increases. In fiscal year 2003,
the Company's newsprint cost (excluding paper consumed in the Company's
commercial printing operations) was approximately six percent of the Company's
newspaper revenues.
COMPETITION
While most of the Company's newspapers do not have daily newspaper
competitors that are published in the same city, in certain of the Company's
markets, there is such direct competition. Most of the Company's newspapers
compete with other newspapers published in nearby cities and towns and with free
distribution and paid advertising weeklies, as well as other print and non-print
media. Competition for advertising and paid circulation comes from local,
regional and national newspapers, shoppers, television, radio, direct mail,
online services and other forms of communication and advertising media.
Competition for advertising revenue is largely based upon advertiser results,
readership, advertising rates, demographics and circulation levels, while
competition for circulation and readership is based largely upon the content of
the newspaper, its price and the effectiveness of its distribution. The
Company's management believes that its publications generally have been able to
compete effectively with other publications and other forms of media
advertising. Commercial printing, a highly competitive business, is largely
driven by price and quality. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Certain Factors Which May Affect
the Company's Future Performance - Newspaper Industry Competition."
SEASONALITY
Newspaper companies tend to follow a distinct and recurring seasonal
pattern. The first quarter of the year (January-March) tends to be the weakest
quarter because advertising volume is then at its lowest level. Correspondingly,
the fourth quarter (October-December) tends to be the strongest quarter, as it
includes heavy holiday season advertising.
ENVIRONMENTAL MATTERS
As is the case with other newspaper and similar publishing companies, the
Company is subject to a wide range of federal, state and local environmental
laws and regulations pertaining to air and water quality, storage tanks and the
management and disposal of waste at its facilities. To the best of the Company's
knowledge, its operations are in material compliance with applicable
environmental laws and regulations as currently interpreted. Management believes
that continued compliance with these laws and regulations will not have a
material adverse effect on the Company's financial condition or results of
operations.
REGULATION
Paid or requestor circulation newspapers with "periodical" mailing
privileges are required to obtain a "periodical" permit from, and file an annual
Statement of Ownership, Mailing and Circulation with the United States Postal
Service. Recent changes in telemarketing rules and regulations may impact the
ability of the Company to solicit new subscribers as well as the cost of such
solicitation. There is no significant regulation with respect to acquisition of
newspapers other than filings under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
CORPORATE GOVERNANCE AND AVAILABLE INFORMATION
The Board of Directors has elected a lead independent director, who will
preside over executive sessions of the Board. Currently, six of the eight
members of the Board of Directors, constituting all of the non-management
directors, are independent under the listing standards adopted by the New York
Stock Exchange, and all directors who serve on the Board's Audit Committee,
Compensation Committee and Corporate Governance Committee are
13
independent. Pursuant to the Company's pre-approval policy, the Audit Committee
approves in advance the services to be provided by the Company's independent
auditors.
The Company makes available a wide variety of information free of charge on
its Website at WWW.JOURNALREGISTER.COM. The Company's filings with the U.S.
Securities and Exchange Commission (the "SEC") are available on the Company's
Website as soon as reasonably practicable after the reports are electronically
filed with the SEC. The Company's Website also contains news releases, financial
information, Company profiles and certain corporate governance information.
Copies of the Company's Corporate Governance Guidelines, the Company's Code of
Business Conduct and Ethics, the Company's Code of Ethics for CEO and Other
Senior Financial Officers, the Company's Audit Committee Pre-Approval Policy,
the charters of each of the Committees of the Board of Directors, and
information regarding how interested parties may contact the Board, the lead
director or the non-management directors as a group will be available on the
Website on or prior to the Company's 2004 Annual Meeting of Shareholders. Mailed
copies of such information can be obtained free of charge by writing to the
Company at Journal Register Company, Investor Relations, State Street Square, 50
West State Street, Trenton, NJ 08608-1298, Attention: Corporate Secretary. The
contents of the Company's Websites are not incorporated into this filing.
14
ITEM 2. PROPERTIES.
As of December 28, 2003, the Company operated 137 facilities in the course
of producing and publishing its daily and non-daily publications. Approximately
96 of these facilities are leased for terms ranging from month-to-month to seven
years. These leased facilities range in size from approximately 180 to
approximately 19,000 square feet. Except as otherwise noted, the facilities are
utilized for office space. The location and approximate size of the principal
physical properties (1,500 square feet or greater) used by the Company at
December 28, 2003, as well as the expiration date of the leases relating to such
properties that the Company leases are set forth below:
OWNED LEASED LEASE
LOCATION SQUARE FEET SQUARE FEET EXPIRATION DATE
- ------------------------------------------------------------------------------------------------------------------
Ansonia, CT........................... 2,500(2)(3) 5/15/04
Bristol, CT........................... 40,000
Colchester, CT........................ 1,900 12/31/07
Guilford, CT.......................... 2,500 6/14/05
Hamden, CT............................ 15,000 8/20/07
Madison, CT........................... 2,900 9/30/08
Middletown, CT........................ 30,000
Milford, CT........................... 11,745
New Britain, CT....................... 33,977(2)
New Haven, CT......................... 205,000(2) 13,000(3) 3/31/04
New Milford, CT....................... 6,840 8/14/08
North Haven, CT....................... 24,000(2) 10,000(2)(3) 12/31/05
Old Saybrook, CT...................... 1,950 3/31/04
Torrington, CT........................ 41,370(2)
Trumbull, CT.......................... 6,187 4/1/04
Westport, CT.......................... 3,240 12/31/05
Fall River, MA........................ 53,371(2) 1,840 1/2/06
Taunton, MA........................... 21,100
Medford, NJ........................... 4,259 12/31/04
Moorestown, NJ........................ 2,000 3/31/08
Trenton, NJ........................... 51,489(2)(3) 18,889(1) 11/30/10
Turnersville, NJ...................... 11,032
Hillsdale, NY......................... 3,500 3/14/07
Kingston, NY.......................... 25,800(2)
Millbrook, NY......................... 5,000
Oneida, NY............................ 24,000(2)
Rhinebeck, NY......................... 2,000
Saratoga, NY.......................... 12,390
Troy, NY.............................. 140,000(2)
Lorain, OH............................ 68,770(2)
Willoughby, OH........................ 80,400(2)(3)
Ardmore, PA........................... 25,250
Bristol, PA........................... 70,000(2)
Exton, PA............................. 86,395(2)
Fort Washington, PA................... 23,490(2) 7,500 12/31/04
Holmes, PA............................ 8,000
Kennett Square, PA.................... 2,400 8/31/07
Lansdale, PA.......................... 22,400(2)
Media, PA............................. 4,500 4/30/04
Newtown, PA........................... 2,700 1/31/07
Newtown Square, PA.................... 3,000
Philadelphia, PA...................... 6,010 9/30/04
Phoenixville, PA...................... 10,696 4,800
Norristown, PA........................ 40,000(2)
Pottstown, PA......................... 48,000(2)
Primos, PA............................ 85,000(2)
Quarryville, PA....................... 4,755 4/3/06
Souderton, PA......................... 1,750 12/31/05
State College, PA..................... 23,365(2) 3,000(3) 7/31/04
Wayne, PA............................. 11,980
West Chester, PA...................... 34,000
Pawtucket, RI......................... 41,096
Wakefield, RI......................... 11,750 1,500 12/31/05
West Warwick, RI...................... 13,650
Woonsocket, RI........................ 50,938(2)(3)
- ---------------------------------------------------------------------------------------------------------------------
(1) Corporate headquarters
(2) Production facility
(3) Warehouse
Management believes that all of its properties are in good condition, are
generally well maintained and are adequate for their current operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
15
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in a number of litigation matters that have arisen
in the ordinary course of business. The Company believes that the outcome of
these legal proceedings will not have a material adverse effect on the Company's
financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
16
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information as of March 4, 2004 with
respect to each person who is an executive officer of the Company:
OFFICER POSITION
------- --------
Robert M. Jelenic Chairman, President and Chief Executive
Officer
Jean B. Clifton Executive Vice President, Chief Financial
Officer and Director
Thomas E. Rice Senior Vice President, Operations
Allen J. Mailman Senior Vice President, Technology
Marc S. Goldfarb Vice President, General Counsel and
Corporate Secretary
ROBERT M. JELENIC is Chairman, President and Chief Executive Officer of the
Company. He has been President and Chief Executive Officer since the inception
of the Company, and has been a director of the Company and its predecessors for
over ten years. A Chartered Accountant, Mr. Jelenic began his business career
with Arthur Andersen in Toronto, Canada. Mr. Jelenic has 28 years of senior
management experience in the newspaper industry, including 12 years with the
Toronto Sun Publishing Corp. Mr. Jelenic graduated Honors, Bachelor of Commerce
from Laurentian University, Sudbury, Ontario. Mr. Jelenic is a director of the
Audit Bureau of Circulations ("ABC") and Lamar Advertising Company. Mr. Jelenic
is 53 years old.
JEAN B. CLIFTON is Executive Vice President and Chief Financial Officer of
the Company, positions she has held since the Company's inception. Ms. Clifton
has also been a director of the Company and its predecessors for over ten years.
Ms. Clifton, a Certified Public Accountant, began her business career at Arthur
Young & Co. (a predecessor to Ernst & Young LLP). Ms. Clifton has 18 years of
senior management experience in the newspaper industry. Ms. Clifton is a member
of the Board of Directors of the NAA, as well as a member of the Board of
Directors of the Fresh Air Fund, and the Board of Directors of the Lower Bucks
County Chapter of the American Red Cross. Ms. Clifton received a Bachelor of
Business Administration in 1983 from the University of Michigan. Ms. Clifton is
43 years old.
THOMAS E. RICE is Senior Vice President of Operations of the Company, a
position he has held since November 2000. From the inception of the Company to
November 2000, Mr. Rice was located in St. Louis, Missouri, where he was
President and Chief Executive Officer of Suburban Newspapers of Greater St.
Louis and THE TELEGRAPH in Alton, Illinois, which the Company sold in 2000. Mr.
Rice began his career with Lee Enterprises in 1963 and has held senior
management positions with Tribune Company, The Times Mirror Company, MediaNews
Group and the Chicago Sun Times. Mr. Rice has 41 years of experience in the
newspaper industry. Mr. Rice is a member of the Newsprint Committee of the NAA.
Mr. Rice attended the University of Nebraska and Roosevelt University in
Chicago. Mr. Rice is 59 years old.
ALLEN J. MAILMAN is Senior Vice President of Technology of the Company, a
position he has held since February 1999. From March 1994 to February 1999, he
was Vice President of Technology of the Company. From the Company's inception in
1990 to March 1994, Mr. Mailman was Corporate Director of Information Services
of the Company. Mr. Mailman has 29 years of management experience in the
newspaper industry, including 14 years with Advance Publications, Inc. Mr.
Mailman received a Bachelor of Arts degree in Economics and Mathematics from the
University of Oklahoma. Mr. Mailman is 57 years old.
MARC S. GOLDFARB is Vice President, General Counsel and Corporate Secretary
of the Company. He has been Vice President and General Counsel since January
2003, and was appointed Corporate Secretary of the Company in May 2003. From
July 1998 to January 2003, he served as Managing Director and General Counsel of
The Vertical Group, an international private equity firm. Prior to that, Mr.
Goldfarb was a Partner at Bacher, Tally, Polevoy & Misher LLP. Mr. Goldfarb has
16 years of diverse legal, financial and strategic experience. Mr. Goldfarb
earned his Juris Doctor from the University of Pennsylvania and his Bachelor of
Science from Cornell University. Mr. Goldfarb is 40 years old.
17
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock, par value $0.01 per share (the "Common Stock"),
commenced trading on the New York Stock Exchange on May 8, 1997 under the symbol
"JRC." The following table reflects the high and low sale prices for the Common
Stock, based on the daily composite listing of stock transactions for the New
York Stock Exchange, for the periods indicated:
YEAR QUARTER LOW HIGH
----------------------------------------------------------
2002 First $19.30 $21.55
Second $19.85 $21.86
Third $16.14 $19.99
Fourth $17.00 $19.47
----------------------------------------------------------
2003 First $14.85 $18.26
Second $15.10 $18.90
Third $17.90 $19.49
Fourth $18.69 $20.40
On March 4, 2004, there were approximately 75 stockholders of record of the
Company's Common Stock. The Company believes that it has approximately 4,200
beneficial owners.
The Company has not paid dividends on its Common Stock and does not
currently anticipate paying dividends. The Company currently intends to retain
future cash flow to increase shareholder value by acquiring additional
newspapers, reducing debt, repurchasing the Company's stock and reinvesting in
the Company's operations. In addition, the Company's Credit Agreement (as
hereinafter defined) places limitations on the Company's ability to pay
dividends or make any other distributions on the Common Stock. See Note 4 of
"Notes to Consolidated Financial Statements." Any future determination as to the
payment of dividends will be subject to such prohibitions and limitations, will
be at the discretion of the Company's Board of Directors and will depend on the
Company's results of operations, financial condition, capital requirements and
other factors deemed relevant by the Board of Directors.
Journal Register Company conducts its operations through direct and
indirect subsidiaries. The Company's available cash will depend upon the cash
flow of its subsidiaries and the ability of such subsidiaries to make funds
available to the Company in the form of loans, dividends or otherwise. The
subsidiaries are separate and distinct legal entities and have no legal
obligation, contingent or otherwise, except as required by the Credit Agreement,
to make funds available to the Company, whether in the form of loans, dividends
or otherwise. The Credit Agreement is secured by substantially all of the assets
of the Company and the common stock and assets of the Company's subsidiaries. In
addition, the Company's subsidiaries may, subject to limitations contained in
the Credit Agreement, become parties to financing arrangements that may contain
limitations on the ability of such subsidiaries to pay dividends or to make
loans or advances to the Company. In the event of any insolvency, bankruptcy or
similar proceedings of a subsidiary, creditors of such subsidiary would
generally be entitled to priority over the Company with respect to financial
assets of the affected subsidiary.
18
ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial data (except number of publications) has
been derived from the audited financial statements of the Company and should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
and notes thereto included elsewhere in this report:
(DOLLARS IN THOUSANDS, EXCEPT PER
SHARE DATA AND RATIOS) DEC. 28, DEC. 29, DEC. 30, DEC. 31, DEC. 26,
FISCAL YEAR ENDED 2003 2002 2001 2000(1) 1999(1)
- ------------------------------------------------------------------------------------------------------------------------------
STATEMENT OF INCOME DATA:
Revenues:
Advertising $ 298,986 $ 297,056 $ 287,859 $ 343,130 $ 348,995
Circulation 90,034 91,123 87,737 96,852 96,783
- ------------------------------------------------------------------------------------------------------------------------------
Newspaper revenues 389,020 388,179 375,596 439,982 445,778
Commercial printing and other 16,966 19,575 18,809 23,987 23,787
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL 405,986 407,754 394,405 463,969 469,565
- ------------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Salaries and employee benefits 155,355 150,614 140,522 155,161 157,110
Newsprint, ink and printing charges(2) 31,181 32,023 37,741 46,533 48,432
Selling, general and administrative(2) 51,932 52,976 47,810 47,008 45,318
Depreciation and amortization 15,447 14,927 26,317 27,616 28,798
Other 58,334 56,866 53,474 58,395 57,975
- ------------------------------------------------------------------------------------------------------------------------------
312,249 307,406 305,864 334,713 337,633
- ------------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 93,737 100,348 88,541 129,256 131,932
- ------------------------------------------------------------------------------------------------------------------------------
Net interest expense and other (15,627) (23,677) (30,490) (48,020) (52,347)
Gains on sales of newspaper properties - - 32,212 180,720 -
- ------------------------------------------------------------------------------------------------------------------------------
Income before provision for income taxes and
equity interest 78,110 76,671 90,263 261,956 79,585
Provision for income taxes 6,120 27,444 10,818 90,951 31,694
- ------------------------------------------------------------------------------------------------------------------------------
Income before equity interest 71,990 49,227 79,445 171,005 47,891
Equity interest - - (1,313) (1,624) (226)
- ------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 71,990 $49,227 $78,132 $ 169,381 $47,665
==============================================================================================================================
Net income per common share:
Basic $ 1.75 $ 1.18 $ 1.85 $ 3.74 $ 1.02
Diluted $ 1.72 $ 1.16 $ 1.83 $ 3.72 $ 1.02
==============================================================================================================================
OTHER DATA:
EBITDA(3) $ 109,184 $115,275 $ 114,858 $ 156,871 $ 160,730
EBITDA Margin(3) 26.9% 28.3% 29.1% 33.8% 34.2%
Free cash flow, as adjusted(3) $ 58,916 $ 61,631 $ 57,136 $ 86,701 $ 87,371
Free cash flow, as adjusted, per diluted share(3) $ 1.41 $ 1.46 $ 1.34 $ 1.91 $ 1.86
Capital expenditures(4) $ 15,129 $ 13,010 $ 34,929 $ 21,550 $ 18,081
Number of publications, end of period:
Daily 23 23 23 24 25
Non-Daily 236 233 206 158 200
==============================================================================================================================
BALANCE SHEET DATA:
Total current assets $ 58,087 $ 65,383 $ 66,573 $ 79,359 $ 88,397
Property, plant and equipment, net 126,013 125,680 124,440 104,178 107,522
Total assets 693,060 701,703 711,171 657,350 687,180
Total current liabilities, less current
maturities of long-term debt 45,632 52,069 62,877 51,542 53,380
Total debt, including current maturities 418,345 483,369 522,771 494,635 731,467
Stockholders' equity $ 72,344 $(3,879) $ (36,198) $ (55,726) $(207,383)
- ------------------------------------------------------------------------------------------------------------------------------
19
- ------------------------
(1) In 1999, the Company changed its fiscal year from a calendar year to a
52/53 week fiscal year ending generally on the closest Sunday to the end of
the calendar year. As a result of this change, the Company's fiscal year
ended December 26, 1999 consisted of 360 days. The Company's fiscal year
ended December 31, 2000 consisted of 53 weeks.
(2) Certain operating expenses related to certain of the Company's acquisitions
have been reclassified in 2002 and 2003 to conform to the Company's
financial presentation. The reclassification had no impact on total
operating expenses, operating income, EBITDA or net income.
(3) EBITDA is defined by the Company as operating income plus depreciation,
amortization and other non-cash, special or non-recurring charges. Free
cash flow is defined as EBITDA minus capital expenditures, interest and
cash income taxes. The Company's cash income taxes prior to 2001 were
reduced substantially as a result of the utilization of net operating loss
carryforwards. EBITDA and free cash flow are not intended to represent cash
flow from operations and should not be considered as alternatives to
operating or net income computed in accordance with generally accepted
accounting principles in the United States ("GAAP") as indicators of the
Company's operating performance, as alternatives to cash from operating
activities (as determined in accordance with GAAP) or as measures of
liquidity.
The Company believes that EBITDA and free cash flow are standard measures
commonly reported and widely used by analysts, investors and other
interested parties in the media industry. Accordingly, this information has
been disclosed herein to permit a more complete comparative analysis of the
Company's operating performance and capitalization relative to other
companies in the industry and to provide an analysis of operating results
using certain principal measures utilized by Journal Register Company's
chief operating decision makers to measure the operating results and
performance of the Company and its field operations. However, not all
companies calculate EBITDA and free cash flow using the same methods;
therefore, the EBITDA and free cash flow figures set forth above may not be
comparable to EBITDA and free cash flow reported by other companies.
Certain covenants contained in the Company's Credit Agreement are based
upon EBITDA. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." EBITDA Margin is the ratio of EBITDA
to Total Revenues. Free cash flow per share is calculated using the
weighted-average shares outstanding on a fully diluted basis.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Reconciliation of Certain Non-GAAP Financial
Measures" for a reconciliation of non-GAAP financial measures used in this
report to the most directly comparable GAAP financial measures.
(4) Capital expenditures, excluding capitalized interest, related to the
Company's Philadelphia printing facility (Journal Register Offset) were
$22.8 million, $10.8 million and $1.8 million in fiscal years 2001, 2000
and 1999, respectively. Capitalized interest associated with Journal
Register Offset was $1.3 million in fiscal year 2001 and $601,000 in fiscal
year 2000. Journal Register Offset began operating in December 2001.
20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH
THE HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO AND THE OTHER
FINANCIAL INFORMATION APPEARING ELSEWHERE IN THIS REPORT.
GENERAL
The Company's principal business is publishing newspapers in the United
States, and its publications are primarily daily and non-daily newspapers and
similar publications. The Company's revenues are derived primarily from
advertising, paid circulation and commercial printing.
As of December 28, 2003, the Company owned and operated 23 daily newspapers
and 236 non-daily publications strategically clustered in six geographic areas:
Greater Philadelphia; Connecticut; Greater Cleveland; Central New England; and
the Capital-Saratoga and Mid-Hudson regions of New York. As of December 28,
2003, the Company had total paid daily circulation of approximately 534,000,
total paid Sunday circulation of approximately 521,000 and total non-daily
distribution of approximately 3.7 million.
The principal elements of the Company's strategy are to: (i) expand
advertising revenues and readership; (ii) grow by acquisition; (iii) capture
synergies from geographic clustering; and (iv) implement consistent operating
policies and standards.
As part of the Company's strategy, the Company focuses on increasing
advertising and circulation revenues and expanding readership at its existing
and newly acquired properties. The Company has also developed certain operating
policies and standards that it believes have resulted in significant
improvements in the cash flow and profitability of its existing and acquired
newspapers, including: (i) focusing on local content; (ii) maintaining and
improving product quality; (iii) enhancing distribution; and (iv) promoting
community involvement.
The Company is a leader in the newspaper industry in executing a clustering
strategy. The Company believes that its clustering strategy creates significant
synergies and cost savings within each cluster, including cross-selling of
advertising, centralized news gathering and consolidation of printing,
production and back office activities. The Company also believes that its
clustering strategy enables it to improve print quality and distribution,
introduce new products and services in a cost-effective manner and increase
readership. In addition, clustering enables the Company's advertisers to expand
their reach and target their message both geographically and demographically.
The Company's revenues are derived from advertising (73.6 percent of fiscal
year 2003 revenues), paid circulation (22.2 percent of fiscal year 2003
revenues), including single copy sales and subscription sales, and commercial
printing and other activities (4.2 percent of fiscal year 2003 revenues).
Advertising revenues are comprised of three basic categories: retail
(approximately 55 percent of fiscal year 2003 advertising revenues), classified
(approximately 40 percent of fiscal year 2003 advertising revenues) and national
(approximately 5 percent of fiscal year 2003 advertising revenues). The
Company's advertiser base is predominantly local. The Company's newspapers seek
to produce desirable results for local advertisers by targeting readers based on
certain geographic and demographic characteristics. The Company seeks to
increase readership, and thereby generate traffic for its advertisers, by
focusing on high product quality, compelling and often proprietary local content
and creative and interactive promotions.
The Company's advertising revenues for fiscal year 2003 were derived
primarily from a broad group of local advertisers. No single advertiser
accounted for more than one percent of the Company's total fiscal year 2003
revenues. The Company's management believes that its advertising revenues tend
to be relatively stable because its newspapers rely on a broad base of local
retail and local classified advertising, rather than the generally more volatile
national and major account advertising. However, the Company's advertising
revenues are susceptible to economic swings, particularly those that affect the
local economies in the markets in which the Company operates, and can be
difficult to predict.
In addition, the Company is committed to expanding its business through its
Internet initiatives. Online revenues are included in advertising revenues and
constituted approximately 1.6 percent of total advertising revenues in fiscal
year 2003. The Company's online objective is to make its Websites, all of which
are accessible through www.journalregister.com, the indispensable source of
useful and reliable community news, sports and information in their markets by
making the Websites the local information portal for their respective markets.
The
21
Company currently operates 152 Websites, which are affiliated with the
Company's daily newspapers and non-daily publications.
The Company promotes single copy sales of its newspapers because it
believes that such sales have even higher readership than subscription sales,
and that single copy readers tend to be more active consumers of goods and
services, as indicated by an NAA study. Single copy sales also tend to generate
higher profit margins than subscription sales, as single copy sales generally
have higher per unit prices and lower distribution costs. Subscription sales,
which provide readers with the convenience of home delivery, are an important
component of the Company's circulation base. The Company also publishes numerous
special sections and niche and special interest publications. Such publications
tend to increase readership within targeted demographic groups and geographic
areas. The Company's management believes that as a result of these strategies,
its newspapers represent an attractive and cost-effective medium for its readers
and advertisers.
In 1999, the Company elected to change its fiscal year from a calendar year
end to a fiscal year generally ending on the Sunday closest to the end of the
calendar year. Accordingly, the Company's recent fiscal years ended on December
28, 2003, December 29, 2002, and December 30, 2001.
ACQUISITIONS AND DISPOSITIONS
From September 1993 through January 2004, the Company successfully
completed 27 strategic acquisitions, acquiring 14 daily newspapers, 194
non-daily publications and four commercial printing companies.
On January 28, 2004, the Company completed the acquisition of O JORNAL, a
weekly Portuguese-language newspaper based in Fall River, Massachusetts, with
circulation of approximately 14,300 serving more than 30 communities in
Massachusetts and Rhode Island.
On November 17, 2003, the Company completed the acquisition of the assets
of THE NORTH ATTLEBOROUGH FREE PRESS, based in North Attleborough,
Massachusetts. This acquisition included a weekly newspaper serving North
Attleborough, Attleboro Falls and certain neighboring communities, including
Plainville, South Attleboro and Attleboro.
On March 18, 2002, the Company completed the acquisition of the assets of
News Gleaner Publications, Inc. and Big Impressions Web Printing, Inc., based in
Northeast Philadelphia, Pennsylvania. This acquisition included eight weekly
newspapers serving Northeast Philadelphia, seven monthly publications serving
Montgomery County, Pennsylvania, and a commercial printing operation. On March
22, 2002, the Company completed the acquisition of the assets of the Essex,
Connecticut-based Hull Publishing, Inc. This acquisition included a weekly
newspaper and two annual magazines. On October 14, 2002, the Company completed
the acquisition of County Press Publications, which included seven weekly
newspapers serving Delaware County, Pennsylvania.
On January 31, 2001, the Company completed the acquisition of the
Pennsylvania and New Jersey newspaper operations from Chesapeake Publishing
Corporation, which included 13 non-daily publications. On June 7, 2001, the
Company completed the acquisition of Montgomery Newspaper Group's community
newspaper and magazine operations, a group of 24 non-daily publications based in
Fort Washington, Pennsylvania, from Metroweek Corporation. On August 1, 2001,
the Company completed the acquisition of the assets of Roe Jan Independent
Publishing, Inc., which is based in Hillsdale, New York. Roe Jan publishes two
non-daily publications. On September 14, 2001, the Company completed the
acquisition of THE REPORTER, a daily newspaper based in Lansdale, Pennsylvania.
On October 25, 2001, the Company completed the acquisition of THE LITCHFIELD
COUNTY TIMES, a weekly newspaper based in New Milford, Connecticut. This
acquisition also included three lifestyle magazines serving Litchfield and
Fairfield counties in Connecticut, and Westchester County, New York.
The Company sold two daily newspapers and a commercial printing operation
in the southern part of central Ohio on January 31, 2001. The Company also sold
its operations in the Greater St. Louis area in two transactions in August and
October of 2000.
22
RESULTS OF OPERATIONS
FISCAL YEAR ENDED DECEMBER 28, 2003 COMPARED TO FISCAL YEAR ENDED
DECEMBER 29, 2002
FOR COMPARISON PURPOSES, WHERE NOTED, THE COMPANY'S FISCAL YEAR 2003 AND
2002 RESULTS ARE PRESENTED ON A SAME-STORE BASIS, WHICH EXCLUDES THE COMPANY'S
ACQUISITIONS COMPLETED IN 2003 AND 2002.
SUMMARY. Net income for the fiscal year ended December 28, 2003 ("fiscal
year 2003") was $72.0 million, or $1.72 per diluted share, as compared to $49.2
million, or $1.16 per diluted share, for the fiscal year ended December 29, 2002
("fiscal year 2002"). Excluding the reversal of certain tax accruals in fiscal
year 2003 and in fiscal year 2002, which increased net income by $22.8 million
in fiscal year 2003 and $1.2 million in fiscal year 2002, as well as a special
charge of approximately $553,000 (net of related tax effect) recorded in fiscal
year 2003 related to a potential acquisition that was not consummated, earnings
for fiscal year 2003 were $49.8 million, or $1.19 per diluted share, as compared
to $48.1 million, or $1.14 per diluted share, for fiscal year 2002, an increase
in earnings per diluted share of 4.8 percent.
REVENUES. The Company's reported revenues were $406.0 million for fiscal
year 2003 as compared to $407.8 million for fiscal year 2002. Newspaper revenues
for fiscal year 2003 as compared to the prior year period increased
approximately $840,000, or 0.2 percent, primarily as a result of an increase in
advertising revenues of $1.9 million, or 0.6 percent, partially offset by a
decline in circulation revenues of $1.1 million, or 1.2 percent. The decrease in
circulation revenues was impacted by harsh winter weather in the first quarter
and at the end of fiscal year 2003. Online revenues for fiscal year 2003, which
are included in advertising revenues, were approximately $4.7 million, an
increase of approximately 19.4 percent as compared to the prior year period.
Commercial printing and other revenues for fiscal year 2003 decreased $2.6
million, or 13.3 percent, to $17.0 million as compared to the prior year period,
and represented approximately 4.2 percent of the Company's revenues for fiscal
year 2003.
The following table sets forth the Company's total advertising revenues, by
category, for fiscal years 2003 and 2002:
FISCAL YEAR ENDED
-------------------------------------------------------------------
(DOLLARS IN THOUSANDS) DEC. 28, DEC. 29, INCREASE/
2003 2002 (DECREASE)
---------------------------------------------------------------------------------------------------------------
Local $ 164,882 $ 164,012 0.5%
Classified 119,591 117,757 1.6 %
National 14,513 15,287 (5.1)%
---------------------------------------------------------------------------------------------------------------
Total advertising revenues $ 298,986 $297,056 0.6 %
===============================================================================================================
SAME-STORE NEWSPAPER REVENUES. On a same-store basis, total newspaper
revenues for fiscal year 2003 decreased 0.4 percent to $383.2 million from
$384.8 million in fiscal year 2002. Same-store advertising revenues for fiscal
year 2003 were $293.5 million, or basically even with same-store advertising
revenues of $293.7 million in fiscal year 2002, primarily as a result of an
increase in classified advertising revenues of 1.2 percent, offset by a 0.6
percent decrease in retail advertising revenues and a 5.1 percent decrease in
national advertising revenues, in each case as compared to fiscal year 2002. The
increase in classified advertising revenues during fiscal year 2003 resulted
from a 13.9 percent increase in classified real estate advertising revenues,
partially offset by a 2.2 percent decrease in classified automotive advertising
revenues and a decline in classified employment advertising revenues of 8.7
percent. Classified employment advertising revenues improved significantly
during the second half of fiscal year 2003, and were positive during each period
of the fourth quarter. Same-store circulation revenues, impacted by the harsh
winter weather, decreased 1.4 percent in fiscal year 2003 to $89.7 million from
$91.0 million in fiscal year 2002. Recent changes in telemarketing rules and
regulations may impact the ability of the Company to solicit new subscribers as
well as the cost of such solicitation.
SALARIES AND EMPLOYEE BENEFITS. Salaries and employee benefit expenses were
38.3 percent of the Company's total revenues for fiscal year 2003, compared to
36.9 percent for fiscal year 2002. Salaries and employee benefits increased $4.7
million, or 3.1 percent, in fiscal year 2003 to $155.4 million, principally as a
result of an increase in pension costs, as well as additional salaries and
benefits associated with the Company's 2002 and 2003 acquisitions. Same-store
salaries and employee benefits increased $4.0 million, or 2.7 percent, primarily
due to an increase in pension costs.
23
NEWSPRINT, INK AND PRINTING CHARGES. For fiscal year 2003, newsprint, ink
and printing charges were 7.7 percent of the Company's revenues, as compared to
7.9 percent for fiscal year 2002. Newsprint, ink and printing charges decreased
$0.8 million, or 2.6 percent, for fiscal year 2003 to $31.2 million as compared
to the prior year, due principally to a decrease in newsprint consumption,
partially offset by an increase in newsprint prices of approximately eight
percent. On a same-store basis, newsprint, ink and printing charges decreased
approximately $1.4 million, or 4.4 percent, primarily due to a decrease in
newsprint consumption, partially offset by an increase in newsprint prices.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses were 12.8 percent and 13.0 percent of the Company's revenues for fiscal
years 2003 and 2002, respectively. Selling, general, and administrative expenses
decreased $1.0 million, or 2.0 percent, for fiscal year 2003 to $51.9 million as
compared to the prior year, primarily due to a reduction in bad debt expense,
resulting from increased monitoring and improved collections of accounts
receivable, as well as lower professional fees, partially offset by increased
general insurance costs and additional selling, general and administrative costs
associated with the Company's 2002 and 2003 acquisitions. On a same-store basis,
selling, general and administrative expenses for fiscal year 2003 decreased $1.2
million, or 2.4 percent, principally as a result of a reduction in bad debt
expense and professional fees, partially offset by increased general insurance
costs.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses were
3.8 percent and 3.7 percent of the Company's revenues for fiscal years 2003 and
2002, respectively. Depreciation and amortization expenses increased $0.5
million, or 3.5 percent, to $15.4 million for fiscal year 2003 as compared to
fiscal year 2002. This increase was primarily due to an increase in depreciation
related to recent capital expenditures.
OTHER EXPENSES. Other expenses were 14.4 percent and 13.9 percent of the
Company's revenues for fiscal year 2003 and 2002, respectively. Other expenses
increased 2.6 percent to $58.3 million in fiscal year 2003 from $56.9 million in
fiscal year 2002, primarily as a result of increased circulation expenses. On a
same-store basis, other expenses increased approximately $1.2 million, or 2.1
percent.
OPERATING INCOME. Operating income decreased $6.6 million, or 6.6 percent,
for fiscal year 2003 to $93.7 million as compared to $100.3 million in fiscal
year 2002 primarily due to the items described above.
NET INTEREST EXPENSE AND OTHER. Net interest expense and other decreased
$8.1 million, or 34.0 percent, from $23.7 million in fiscal year 2002 to $15.6
million in fiscal year 2003. This decrease was due to lower interest expense,
which resulted from lower interest rates and a reduction in the Company's
weighted average debt outstanding during fiscal year 2003 as compared to fiscal
year 2002, partially offset by an $850,000 special charge (excluding related tax
benefit) incurred in connection with a potential acquisition that was not
consummated.
PROVISION FOR INCOME TAXES. The Company's effective tax rate was 37.0
percent for fiscal year 2003 as compared to 37.3 percent for fiscal year 2002,
excluding the reversal in each year of certain tax accruals which were
determined to no longer be required. Primarily as a result of certain tax law
changes, the Company currently expects that its effective tax rate for fiscal
year 2004 will be approximately 39 percent.
OTHER INFORMATION. EBITDA for fiscal year 2003 was $109.2 million as
compared to $115.3 million for fiscal year 2002. Free cash flow was $58.9
million, or $1.41 per diluted share, for fiscal year 2003 as compared to $61.6
million, or $1.46 per diluted share, for fiscal year 2002. See "Reconciliation
of Certain Non-GAAP Financial Measures" below for more information regarding
non-GAAP financial measures and a reconciliation of EBITDA and free cash flow to
net income.
FISCAL YEAR ENDED DECEMBER 29, 2002 COMPARED TO FISCAL YEAR ENDED
DECEMBER 30, 2001
FOR COMPARISON PURPOSES, WHERE NOTED, THE COMPANY'S FISCAL YEAR 2002
AND 2001 RESULTS ARE PRESENTED ON A SAME-STORE BASIS, WHICH EXCLUDES THE RESULTS
OF THE OHIO NEWSPAPERS SOLD IN 2001 AND THE COMPANY'S ACQUISITIONS COMPLETED IN
2002 AND 2001.
SUMMARY. Net income for fiscal year 2002 was $49.2 million, or $1.16
per diluted share, as compared to $78.1 million, or $1.83 per diluted share, for
the year ended December 30, 2001 ("fiscal year 2001"). Excluding the gain on the
sale of the Company's two Ohio properties in fiscal year 2001, the reversal of
certain tax accruals in fiscal years 2002 and 2001, and the elimination of
goodwill amortization as if SFAS No. 142 had been adopted on
24
January 1, 2001, earnings for fiscal year 2002 were $1.14 per diluted share as
compared to $1.03 per diluted share for fiscal year 2001.
REVENUES. The Company's reported revenues were $407.8 million for fiscal
year 2002 as compared to $394.4 million for fiscal year 2001. The increase was
mainly due to acquisitions. Newspaper revenues for fiscal year 2002 as compared
to the prior year period increased $12.6 million, or 3.4 percent, primarily as a
result of an increase in advertising revenues of $9.2 million, or 3.2 percent,
an increase in circulation revenues of $3.4 million, or 3.9 percent, and an
increase in commercial printing revenues of approximately $766,000, or 4.1
percent. Online revenues, which are included in advertising revenues, increased
approximately 12.8 percent to $4.0 million in fiscal year 2002 as compared to
fiscal year 2001.
The following table sets forth the Company's total advertising revenues, by
category, for the fiscal years ended December 29, 2002, and December 30, 2001:
FISCAL YEAR ENDED
-------------------------------------------------------------------
(DOLLARS IN THOUSANDS) DEC. 29, DEC. 30, INCREASE/
2002 2001 (DECREASE)
---------------------------------------------------------------------------------------------------------------
Local $164,012 $ 154,638 6.1%
Classified 117,757 117,585 0.1%
National 15,287 15,636 (2.2)%
---------------------------------------------------------------------------------------------------------------
Total advertising revenues $297,056 $ 287,859 3.2%
===============================================================================================================
SAME-STORE NEWSPAPER REVENUES. On a same-store basis, total newspaper
revenues for fiscal year 2002 decreased 1.0 percent to $354.2 million from
$357.6 million in fiscal year 2001. Same-store advertising revenues for fiscal
year 2002 were $268.2 million, a decrease of 1.6 percent from same-store
advertising revenues of $272.7 million in fiscal year 2001, primarily as a
result of an increase in retail advertising revenues of 0.1 percent, offset by a
3.7 percent decrease in classified advertising revenues and a 2.4 percent
decrease in national advertising revenues, in each case as compared to fiscal
year 2001. The decrease in classified advertising revenues during fiscal year
2002 resulted from a 9.7 percent increase in classified real estate advertising
revenues and a 7.8 percent increase in classified automotive advertising
revenues, offset by a 20.3 percent decrease in classified employment advertising
revenues. Same-store circulation revenues increased 1.2 percent in fiscal year
2002 to $86.0 million from $84.9 million in fiscal