================================================================================
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
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 30, 2001
|_| 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 (I.R.S. EMPLOYER IDENTIFICATION NO.)
OF 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 New York Stock
$0.01 per share 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 [ ].
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 27, 2002, was approximately $684,511,028.
As of March 27, 2002, 41,541,448 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
2002 Annual Meeting of Stockholders, which will be filed on or before April 30,
2002.
================================================================================
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 AND GENERAL OR
REGIONAL ECONOMIC CONDITIONS AND ADVERTISING TRENDS, AMONG OTHER THINGS. SEE
"ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- CERTAIN FACTORS WHICH MAY AFFECT THE COMPANY'S FUTURE
PERFORMANCE." 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 with total paid daily circulation of approximately 561,000 and total
non-daily distribution of approximately 3.4 million, as of December 30, 2001. As
of December 30, 2001, the Company owned and operated 23 daily newspapers and 206
non-daily publications strategically clustered in six geographic areas:
Connecticut, Greater Philadelphia, Greater Cleveland Area of Ohio, Central New
England, and the Capital-Saratoga and Mid-Hudson regions of New York. Journal
Register Company maintains 133 Web sites, which represent its various newspapers
and magazines. The Company's newspapers are characterized by an intense focus on
the coverage of local news and local sports and offer compelling graphic design
in colorful, reader-friendly packages.
From September 1993 through December 2001, the Company successfully
completed 22 strategic acquisitions, acquiring 14 daily newspapers, 174
non-daily publications and three commercial printing companies; and two
dispositions.
In 2001, the Company completed five acquisitions. On January 31, 2001, the
Company completed the acquisition of the Pennsylvania and New Jersey newspaper
operations from Chesapeake Publishing Corporation's Mid-Atlantic Division. This
acquisition included 13 publications with non-daily distribution of
approximately 90,000. On June 7, 2001, the Company completed the acquisition of
the Montgomery Newspaper Group operations, which is based in Fort Washington,
Pennsylvania, from Metroweek Corporation. Total distribution of the 24 non-daily
publications acquired from Metroweek Corporation is approximately 283,000. 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. Total
distribution of the two non-daily publications included in this purchase is
approximately 26,000. On September 14, 2001, the Company completed the
acquisition of the assets of THE REPORTER, a 19,000-circulation 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, with circulation of approximately 15,000. The acquisition
also included three lifestyle magazines serving Connecticut and New York, with
total monthly distribution of approximately 90,000.
1
In February of 2000, the Company announced its intention to sell a few
of its operations in the Midwest in order to achieve a strategic repositioning
in six geographic clusters and a reduction in the Company's leverage. The
Company sold certain of its operations in the greater St. Louis area in two
transactions in August and October of 2000. The Company also sold two daily
newspapers and a commercial printing operation in the south central part of Ohio
on January 31, 2001. This sales process was completed on January 31, 2001. The
proceeds from these sales were used to reduce the Company's outstanding debt,
purchase treasury shares and for strategic acquisitions.
In December 2001, the Company commenced operations at its newly
constructed production facility, Journal Register Offset, located in Exton,
Pennsylvania. The plant will ultimately produce five daily and approximately
thirty non-daily Company publications. The Company expects to achieve additional
cost savings and improved product quality as production of these publications is
phased in during 2002.
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, 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 circulation 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 quality product
standards, using 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 (73.0% of 2001
revenues), paid circulation, including single copy sales and subscription sales
(22.2% of 2001 revenues), and commercial printing and other (4.8% of 2001
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, local content and creative and interactive
promotions. The Company promotes single copy sales of its newspapers because it
believes that such sales have 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 profits than subscription sales, as single
copy sales generally have higher per unit prices and lower associated
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.
The Company's advertising revenues in 2001 were derived primarily from a
broad group of local retailers (approximately 53.7%) and classified advertisers
(approximately 40.9%). No single advertiser accounted for more than 1% of the
Company's total 2001 revenues. The Company's management believes that because
its newspapers rely on a broad base of local retail and local classified
advertising, rather than more volatile national and major account advertising,
its advertising revenues tend to be relatively stable.
Substantially all of the Company's operations relate to newspaper
publishing. In addition to its daily newspapers and non-daily publications, the
Company owns other businesses that complement and enhance its publishing
operations, which, as of December 30, 2001, consisted of three commercial
printing operations.
2
OVERVIEW OF OPERATIONS
The Company's operations are clustered in six geographic areas:
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 approximately 106,000, four suburban daily newspapers, 70
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
150,000 and 152,000, respectively. The 70 suburban and community non-daily
publications have aggregate distribution of approximately 1.6 million. Included
in the non-daily publications is CONNECTICUT MAGAZINE, the state's premier
lifestyle magazine that was acquired in September 1999. Combined, the Company's
Connecticut daily newspapers and non-daily publications serve a statewide
audience with concentrations in western Connecticut (Litchfield and Fairfield
counties) through Hartford and its suburban areas to the greater New Haven area;
and the Connecticut shoreline from New Haven northeast to New London.
The following table sets forth information regarding the Company's
publications in Connecticut:
Year Year Daily Sunday Non-Daily
Publication Originated(1) Acquired Location Circulation(2) Circulation(2) Distribution(3)
- ----------- ------------- -------- -------- -------------- -------------- ---------------
NEW HAVEN REGISTER............... 1755 1989 New Haven 99,043 105,974
THE HERALD....................... 1881 1995 New Britain 17,478 35,954
THE BRISTOL PRESS................ 1871 1994 Bristol 12,835
THE REGISTER CITIZEN............. 1889 1993 Torrington 10,839 10,060
THE MIDDLETOWN PRESS............. 1884 1995 Middletown 9,803
Imprint Newspapers
12 publications............... 1880 1995 Bristol 97,378
Shore Line Newspapers
13 publications............... 1877 1995 Guilford 146,330
Elm City Newspapers
9 publications............... 1931 1995 Milford 91,711
Minuteman Newspapers
2 publications............... 1993 1998 Westport 37,121
Housatonic Publications
9 publications............... 1825 1998 New Milford 57,211
Litchfield County Times Group
4 publications............... 1981 2001 New Milford 111,856
CONNECTICUT'S COUNTY KIDS
2 publications............... 1989 1996 Westport 40,200
FOOTHILLS TRADER
3 publications............... 1965 1995 Torrington 49,934
CONNECTICUT MAGAZINE
2 publications............... 1938 1999 Trumbull 686,271
Gamer Publications
3 publications............... 1981 1995 Bristol 57,250
EAST HARTFORD GAZETTE............ 1885 1995 East Hartford 17,950
HOMEFINDER....................... 1976 1995 New Britain 17,503
THOMASTON EXPRESS................ 1874 1994 Thomaston 1,514
Total Market Coverage
("TMC") (8 publications)..... 213,967
------- ------- ----------
TOTALS........................... 149,998 151,988 1,626,196
======= ======= ==========
3
- -------------------
(1) For merged newspapers and newspaper groups, the year given reflects the date
of origination for the earliest publication.
(2) Circulation averages according to Audit Bureau of Circulations ("ABC") most
recently released Audit Report.
(3) Non-daily distribution includes both paid and free distribution. Non-daily
distribution reflects average distribution for December 2001,except for
Housatonic Publications and Minuteman Newspapers, which reflect Certified
Audit of Circulations ("CAC") audit results for the 12 month period ended
June 30, 2001, and CONNECTICUT MAGAZINE. CONNECTICUT MAGAZINE'S non-daily
distribution includes 600,000 for the Connecticut Vacation Guide, which is
published for the Connecticut Department of Tourism. CONNECTICUT MAGAZINE
reflects average circulation based upon the ABC Publisher's Statement Report
for the six month periods ended June 30, 2001 and December 31, 2001.
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 served by related non-daily publications) has a population of 797,400 and
had population growth of approximately 15% from 1980 to 2001. This area has
average household income of $75,900, which is 21% above the national average and
a retail environment comprised of approximately 6,900 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.
On October 25, 2001, the Company added to its Connecticut cluster with
the acquisition of THE LITCHFIELD COUNTY TIMES, a weekly newspaper based in New
Milford, Connecticut, with circulation of approximately 15,000. The acquisition
also included three lifestyle magazines serving Connecticut and New York, with
total monthly distribution of approximately 90,000. These publications cover
Litchfield and Fairfield counties in Connecticut and Westchester County, New
York.
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 332,300 and had population growth of approximately 7% from 1980
to 2001. THE BRISTOL PRESS' market area has average household income of $85,800,
which is 37% above the national average. THE MIDDLETOWN PRESS serves an area
that has a population of 104,400 and had population growth of approximately 23%
from 1980 to 2001. The area THE MIDDLETOWN PRESS serves has average household
income of $71,700, which is 15% above the national average. THE HERALD serves an
area that has a population of 108,400, and had population growth of
approximately 5% from 1980 to 2001. THE HERALD'S market area has average
household income of $57,100. THE REGISTER CITIZEN serves an area that has a
population of 249,900 and had population growth of approximately 14% from 1980
to 2001. THE REGISTER CITIZEN'S market area has average household income of
$80,900, which is 29% above the national average.
The Company's Connecticut publications benefit from cross-selling of
advertising, as well as from newsgathering, 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 36,000 as of the September 30, 2000,
according to the ABC Audit Report.
4
GREATER PHILADELPHIA. The suburban Philadelphia area is one of the
fastest growing affluent communities in Pennsylvania. Since 1990, the population
of the areas covered by the Company's Greater Philadelphia Cluster has increased
approximately 9.8%, while average household income has increased approximately
65%. The Company's management believes this area will continue this growth
pattern. On September 14, 2001, the Company completed the acquisition of the
assets of THE REPORTER, a 19,000-circulation daily newspaper based in Lansdale,
Pennsylvania. On June 7, 2001, the Company completed the acquisition of the
Montgomery Newspaper Group operations, which is based in Fort Washington,
Pennsylvania, from Metroweek Corporation. Total distribution of the 24 non-daily
publications acquired from Metroweek Corporation was approximately 340,000. On
January 31, 2001, the Company completed the acquisition of the Pennsylvania and
New Jersey newspaper operations from Chesapeake Publishing Corporation's
Mid-Atlantic Division. Total non-daily distribution of the 13 publications
acquired from Chesapeake Publishing Corporation is approximately 90,000.
The Company owns seven daily newspapers and 90 non-daily publications
serving areas surrounding Philadelphia, Pennsylvania. These publications
include, in Pennsylvania, the DAILY LOCAL NEWS (West Chester), THE TIMES HERALD
(Norristown), THE PHOENIX (Phoenixville), the DELAWARE COUNTY DAILY AND SUNDAY
TIMES (Primos), THE MERCURY (Pottstown), a group of non-daily newspapers,
including the MAIN LINE TIMES, serving Philadelphia's affluent Main Line; the
NEWS OF DELAWARE COUNTY, one of the largest audited community newspapers in the
United States; Town Talk Newspapers (Media); the Penny Pincher Shoppers
(Pottstown) and a group of 18 weekly newspapers, the InterCounty Newspaper
Group, serving suburban Philadelphia and central and southern New Jersey. Also,
in New Jersey, the Company owns THE TRENTONIAN (Trenton, NJ), a daily newspaper
operation. The Company also owns two commercial printing companies, acquired
with InterCounty Newspapers in December 1997, one of which prints the 18 weekly
InterCounty Newspaper Group newspapers and one of which is a premium quality
sheet-fed printing operation, both in Pennsylvania. The seven Greater
Philadelphia Cluster daily newspapers have aggregate daily and Sunday
circulation of approximately 195,000 and 158,000, respectively. The Company
aggregate non-daily distribution in its Greater Philadelphia Cluster is
approximately one million.
The following table sets forth information regarding the Company's
publications in Greater Philadelphia:
Year Year 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 48,392 44,992
DAILY LOCAL NEWS.......... 1872 1986 West Chester, PA 29,355 29,838
THE MERCURY............... 1930 1998 Pottstown, PA 25,566 26,580
THE TIMES HERALD.......... 1799 1993 Norristown, PA 20,835 17,754
THE REPORTER.............. 1870 2001 Lansdale, PA 18,622
THE PHOENIX............... 1888 1986 Phoenixville, PA 3,697
THE TRENTONIAN............ 1945 1985 Trenton, NJ 48,812 38,690
Montgomery Newspapers
24 publications........ 1872 2001 Ft. Washington, PA 282,889
InterCounty Newspaper
Group
18 publications........ 1869 1997 Newtown, PA 96,083
Chesapeake Publishing
13 publications........ 1869 2001 Kennett Square, PA 85,177
CHADDS FORD POST.......... 2001 2001(4) Chadds Ford, PA 4,117
Acme Newspapers
4 publications......... 1930 1998 Ardmore, PA 80,570
Penny Pincher Shoppers
6 publications......... 1988 1998 Pottstown, PA 50,450
Town Talk Newspapers
7 publications......... 1964 1998 Media & Ridley, PA 85,700
Suburban Publications
3 publications......... 1885 1986 Wayne, PA 32,429
LIL' BOOK................. 2001 2001(4) Trenton, NJ 40,000
REAL ESTATE TODAY......... 1978 1998 Pottstown, PA 34,900
TRI-COUNTY RECORD......... 1975 1986 Morgantown, PA 19,370
5
Year Year Daily Sunday Non-Daily
Publication Originated(1) Acquired Location Circulation(2) Circulation(2) Distribution(3)
----------- ------------- -------- -------- -------------- -------------- ---------------
THE HOMES MAGAZINE........ 1988 1988(4) West Chester, PA 19,355
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 Square, PA 9,000
BLUE BELL JOURNAL......... 1999 1999(4) Blue Bell, PA 5,200
TMC (5 publications)...... 106,020
-------- -------- ---------
TOTALS.................... 195,279 157,854 1,002,260
======== ======== =========
- ---------------------
(1) For merged newspapers and newspaper groups, the year given reflects
the date of origination for the earliest publication.
(2) Circulation averages according to the most recently released ABC Audit
Report.
(3) Non-daily distribution includes both paid and free distribution. Non-daily
distribution reflects average distribution for December 2001, with the
following exceptions: Suburban Publications, which includes three
publications, two of which, SUBURBAN ADVERTISER and KING OF PRUSSIA COURIER,
reflect the CAC Publisher's Statements for the six months ended September
2000, and THE SUBURBAN & WAYNE TIMES which reflects the ABC audit for the
24-month period ended September 30, 1999; Acme Newspapers, which includes
four publications, three of which (NEWS OF DELAWARE COUNTY, GERMANTOWN
COURIER and MT. AIRY TIMES EXPRESS) reflect the CAC Newspaper Audit Report
for the 12 months ended March 31, 2001, and MAIN LINE TIMES, which reflects
the ABC Newspaper Audit Report for the 24 months ended September 30, 1999.
(4) Year presented 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 597,100 and had
population growth of approximately 2% from 1980 to 2001. The DELAWARE COUNTY
DAILY AND SUNDAY TIMES market area has average household income of $79,300,
which is 27% above the national average. The DAILY LOCAL NEWS serves an area
which has a population of 428,600 and had population growth of approximately 45%
from 1980 to 2001. The DAILY LOCAL NEWS serves an area that has average
household income of $96,000, which is 54% above the national average. THE
MERCURY, located approximately 40 miles west of Philadelphia, serves an area
that has a population of 477,200 and had population growth of approximately 29%
from 1980 to 2001. The area THE MERCURY serves has average household income of
$75,600, which is 21% above the national average. THE TIMES HERALD serves an
area that has a population of 183,600 and had population growth of approximately
15% from 1980 to 2001. THE TIMES HERALD'S market area has average household
income of $83,100, which is 33% above the national average. THE PHOENIX serves
an area that has a population of 126,800 and had population growth of
approximately 38% from 1980 to 2001. THE PHOENIX'S market area has average
household income of $97,200, which is 55% 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
338,600 and had population growth of approximately 25% from 1980 to 2001. The
Suburban Publication's market area has average household income of $125,500,
which is 101% 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
400,000 and had population growth of approximately 3% from 1980 to 2001. The
MAIN LINE TIMES' market area, which is also on the Main Line, has average
household income of $121,300, which is 94% 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 Plaza and Court, which is
the largest mall on the East Coast of the United States.
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 288,700 and had
population growth of approximately 8% from 1980 to 2001. This area has average
household income of $73,500 which is 18% above the national average.
6
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 will produce five dailies: the DAILY
LOCAL NEWS, THE MERCURY, THE TIMES HERALD, THE REPORTER and THE PHOENIX; and
approximately thirty non-daily Company publications in the Company's Greater
Philadelphia Cluster. In addition, the publications share certain newsgathering
resources.
GREATER CLEVELAND. On January 31, 2001, the Company completed the sale
of the Dover-New Philadelphia and Massillon, Ohio operations, which had combined
daily circulation of approximately 38,100 and Sunday circulation of
approximately 37,600. The Company retained its award-winning Cleveland, Ohio
area newspaper operations, THE NEWS-HERALD (Willoughby) and THE MORNING JOURNAL
(Lorain). The aggregate daily and Sunday circulation of the Cleveland-area
newspapers are approximately 82,000 and 97,000, respectively, excluding the
newspapers sold on January 31, 2001.
The following table sets forth information regarding the Company's
publications in Greater Cleveland:
Year Year Daily Sunday Non-Daily
Publication Originated(1) Acquired Location Circulation(2) Circulation (2) Distribution(3)
----------- ------------- -------- -------- -------------- --------------- ---------------
THE NEWS-HERALD......... 1878 1987 Willoughby 47,728 59,129
THE MORNING JOURNAL..... 1921 1987 Lorain 34,137 37,702
COUNTY KIDS Willoughby
2 publications....... 1997 1997(4) & Lorain 38,660
TMC (2 publications).... 74,473
------ ------- -------
TOTALS.................. 81,865 96,831 113,133
====== ====== =======
- --------------------
(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 Report.
(3) Non-daily distribution is solely free distribution and reflects average
distribution for December 2001.
(4) Year presented 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 228,400 and 91,800, respectively, and had
population growth of approximately 8% and 32%, respectively, from 1980 to 2001.
Lake and Geauga counties have average household incomes of $67,400 and $92,400,
respectively. THE MORNING JOURNAL serves an area that has a population of
150,800 and had population growth of approximately 3% from 1980 to 2001, and has
average household income of $59,700. The Company's management believes that THE
NEWS-HERALD and THE MORNING JOURNAL compete effectively with Cleveland's major
metropolitan newspaper due to the focus on coverage of local news and local
sports. The Greater Cleveland Cluster benefits from a variety of synergistic
opportunities, including the cross-selling of advertising and editorial
coverage.
CENTRAL NEW ENGLAND. The Company owns five daily and 22 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), acquired August 13, 1999, and two groups
of weekly newspapers serving southern Rhode Island, including South County. The
five daily newspapers have aggregate daily circulation of approximately 72,000
7
and aggregate Sunday circulation of approximately 54,000. The non-daily
publications in this cluster have total distribution of approximately 264,000.
The following table sets forth information regarding the Company's
publications in Central New England:
Year Year Daily Sunday Non-Daily
Publication Originated(1) Acquired Location Circulation(2) Circulation(2) Distribution(3)
----------- ------------- -------- -------- -------------- -------------- ---------------
THE HERALD NEWS........... 1872 1985 Fall River, MA 23,507 25,912
TAUNTON DAILY GAZETTE..... 1848 1996 Taunton, MA 12,906 12,348
THE CALL.................. 1892 1984 Woonsocket, RI 15,876 16,025
THE TIMES................. 1885 1984 Pawtucket, RI 15,172
KENT COUNTY DAILY TIMES 1892 1999 West Warwick, RI 4,761
Southern Rhode Island
Newspapers
8 publications......... 1854 1995 Wakefield, RI 39,922
Hometown Newspapers
6 publications......... 1969 1999 West Warwick, RI 46,411
Fall River, MA,
COUNTY KIDS Taunton, MA &
3 publications......... 1997 1997(4) Pawtucket, RI 51,287
Pawtucket &
NEIGHBORS................. 1999 1999(4) Woonsocket, RI 19,000
TMC (4 publications)...... 107,525
------- ------- --------
TOTALS.................... 72,222 54,285 264,145
======= ======= ========
- ----------------
(1) For merged newspapers and newspaper groups, the year given reflects the date
of origination for the earliest publication.
(2) Circulation averages according to the most recently released ABC Audit
Report.
(3) Non-daily distribution reflects average distribution for December 2001, 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 CAC Audit Report for the 12 month
period ended June 30, 2001.
(4) Year presented represents the year the Company started the publication.
THE HERALD NEWS and the TAUNTON DAILY GAZETTE are situated 14 miles
apart. Each is approximately 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 167,500, and had population growth of approximately 3% from 1980 to 2001. THE
HERALD NEWS' market area has average household income of $50,300. The TAUNTON
DAILY GAZETTE serves an area that has a population of 137,100 and had population
growth of approximately 32% from 1980 to 2001. The TAUNTON DAILY GAZETTE'S
market area has average household income of $61,500. THE CALL serves an area
that has a population of 186,800 and had population growth of approximately 15%
from 1980 to 2001. THE CALL'S market area has average household income of
$64,200, which is 3% above the national average. THE TIMES serves an area that
has a population of 196,800 and had population growth of approximately 12% from
1980 to 2001. THE TIMES' market area has average household income of $54,100.
Southern Rhode Island Newspapers serve an area that has a population of 162,500
and had population growth of approximately 33% from 1980 to 2001. The Southern
Rhode Island Newspaper market area has average household income of $70,500,
which is 13% above the national average.
No local television stations exist in the communities served by the
Company's Central New England newspapers. Further, the Company believes that its
Central New England properties benefit from fragmented local
8
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-selling, 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 and THE HERALD NEWS. 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 weekly COMMUNITY NEWS, serving Clifton Park, and THE
ONEIDA DAILY DISPATCH. 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 87,000.
The following table sets forth information regarding the Company's
publications in the Capital-Saratoga Region of New York:
Year Year 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 10,856 12,696
Springs
THE ONEIDA DAILY
DISPATCH .............. 1850 1998 Oneida 7,252
Oneida-Chittenango
Pennysavers
2 publications.......... 1957 1998 Oneida 23,085
COMMUNITY NEWS............ 1969 1998 Clifton Park 27,622
TMC (2 publications)...... 35,830
------ ------ ------
TOTALS.................... 40,020 36,129 86,537
====== ====== ======
- ---------------
(1) For merged newspapers and newspaper groups, the year given reflects the date
of origination for the earliest publication.
(2) Circulation averages according to the most recently released ABC Audit
Report.
(3) Non-daily distribution includes both paid and free distribution and reflects
average distribution for December 2001.
THE RECORD and THE SARATOGIAN are situated approximately 26 miles apart.
THE RECORD serves an area that has a population of 177,900, which has remained
substantially unchanged since 1980. THE RECORD'S market has average household
income of $50,000. THE SARATOGIAN serves an area that has a population of
209,300 and had population growth of approximately 24% from 1980 to 2001. THE
SARATOGIAN'S market area has average household income of $59,900. THE ONEIDA
DAILY DISPATCH serves an area that has a population of 72,700, which has
remained substantially unchanged since 1980. THE ONEIDA DAILY DISPATCH'S market
area has average household income of $51,700. No local television stations exist
in the communities which the Company's Capital-Saratoga Region newspapers serve.
Further, the Company believes that its Capital-Saratoga Region properties
benefit from fragmented 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 plant in Troy, taking
advantage of that plant's excess capacity and achieving significant cost
efficiencies.
9
MID-HUDSON REGION OF NEW YORK. The Company owns one daily newspaper and
15 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. 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 301,000.
The following table sets forth information regarding the Company's
publications in the Mid-Hudson Region of New York:
Year Year Daily Sunday Non-Daily
Publication Originated(1) Acquired Location Circulation(2) Circulation(2) Distribution(3)
----------- ------------- -------- -------- -------------- -------------- ---------------
DAILY FREEMAN.............. 1871 1998 Kingston 21,478 28,364
Taconic Press
11 publications.......... 1846 1998 Millbrook 208,799
Roe Jan Independent Publishing
2 publications......... 1973 2001 Hillsdale 25,240
DOORWAYS................... 1983 1998 Kingston 27,697
WHEELS..................... 2001 2001(4) Kingston 38,988
------ ------ -------
TOTALS..................... 21,478 28,364 300,724
====== ====== =======
- ---------------
(1) For merged newspapers and newspaper groups, the year given reflects
the date of origination for the earliest publication.
(2) Circulation averages according to the most recently released ABC Audit
Report.
(3) Non-daily distribution includes both paid and free distribution and is
based on the average distribution for December 2001.
(4) Year presented 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
279,900 and had population growth of approximately 11% from 1980 to 2001. The
DAILY FREEMAN'S market area has average household income of $51,100. Taconic
Press newspapers in Dutchess County serve an area that has a population of
95,400 and had population growth of approximately 8% from 1980 to 2001. The
Taconic Press publications serve markets with average household income of
$74,700, which is 19% above the national average. THE PUTNAM COUNTY COURIER
serves an area that has a population of 97,100 and had population growth of
approximately 32% from 1980 to 2001. THE PUTNAM COUNTY COURIER'S market area has
average household income of $88,600, which is 42% above the national average. On
August 1, 2001, the Company added two non-daily publications to their cluster
with the acquisition of Roe Jan Independent Publishing, Inc., which is based in
Hillsdale, New York.
One independent television station (which serves a regional, rather than
a local audience) exists in the communities that the Mid-Hudson Region
newspapers serve. The Company's management believes that its Mid-Hudson Region
properties benefit from fragmented local radio. 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 benefits from significant cross-selling of advertising,
production synergies and certain shared newsgathering synergies. Certain
publications in this cluster also benefit from advertising cross-selling with
THE REGISTER CITIZEN (Torrington, CT) and certain of the Housatonic Publications
(New Milford, CT), which serve Litchfield County, Connecticut.
10
ONLINE OPERATIONS
Since 1995, for each of its publications, the Company has been
developing Web sites, which attract readers and advertisers. The Company has
published an online version of the NEW HAVEN REGISTER since 1995 and as of
December 30, 2001 had 133 Web sites, which represent its various newspapers and
magazines. The Company has online editorial content and classified advertising
and automotive advertising through CarCast for each of its daily newspapers and
weekly newspaper groups. The Web sites include local news and sports,
advertising and information, which supplement the Company's newspaper and
magazine publications.
A number of the Web sites can be accessed either individually or through
the Company's "cluster" portal sites, which combine publications within a
specific geographic area. The remaining Company newspapers, along with
CONNECTICUT MAGAZINE, have individual Web sites. All Web sites can be accessed
through the corporate Web site (www.journalregister.com). The following is a
list of the Company's cluster/portal Web sites:
Cluster/portal Site(number of Individual Web
Geographic Cluster Sites)
------------------ --------------------------------------------
Connecticut....................www.CTCentral.com (42)
Greater Philadelphia...........www.allaroundphilly.com (60)
Greater Cleveland..............www.allaroundcleveland.com (3)
Capital-Saratoga Region of
New York.......................www.CapitalCentral.com (4)
Central New England............www.RICentral.com (11)
Mid-Hudson Region of
New York.......................www.midhudsoncentral.com (13)
The primary source of online revenue is classified advertising. For the
year ended December 30, 2001, the 133 Web sites generated approximately $3.5
million of revenue as compared to approximately $3.7 million for the year ended
December 31, 2000. On a same-store basis, which excludes the results of the
Company's newspapers sold in 2000 and 2001 and the Company's acquisitions
completed in 2001, online revenue for the years ended December 30, 2001 and
December 31, 2000 were $3.5 million and $3.0 million, respectively.
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 because its newspapers rely on a broad base of local
retail and local classified advertising, rather than more volatile national and
major account advertising, its advertising revenues tend to be relatively
stable. Local advertising is 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
73.0% of the Company's total revenues for 2001. 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 2001, local and regional advertising accounted for
the largest share of the Company's advertising revenues (53.7%), followed by
classified advertising (40.9%) and national advertising (5.4%). 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
realtors, car dealerships, grocery stores and other local businesses. No single
advertiser accounted for more than 1% of the Company's total 2001 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
11
given little latitude for discounting from the approved rates. Corporate
management also works with local advertising staff to develop marketing kits and
presentations utilizing the results of third-party research studies. 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.
Additionally, corporate management facilitates the sharing of advertising
resources and information across the Company's publications. 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 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% of the Company's
total revenues in 2001. Approximately 64% of 2001 revenues were derived from
subscription sales and approximately 36% from single copy sales. Single copy
rates range from $.35 to $.50 per daily copy and $.75 to $1.75 per Sunday copy.
The Company promotes single copy sales of its newspapers because it believes
these sales have higher readership than subscription sales and that single copy
readers tend to be more active consumers of goods and services, as indicated in
a Newspaper Association of America readership study. Single copy sales also tend
to generate a higher profit than subscription sales, as single copy sales
generally have higher per unit prices and lower distribution costs. As of
December 30, 2001, the Company had total daily paid circulation of 561,000, paid
Sunday circulation of 525,000 and non-daily distribution of approximately 3.4
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 through
formal reports which are reviewed weekly 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. In recent
years, circulation has generally declined throughout the newspaper industry and
the Company's newspapers have generally experienced this trend, even as overall
operating performance of its newspapers has improved. The Company seeks to
maximize the overall operating performance rather than maximizing circulation of
its individual newspapers.
OTHER OPERATIONS
In December 2001, the Company commenced operations at its newly
constructed production facility, Journal Register Offset, located in Exton,
Pennsylvania. The plant will produce five daily and approximately thirty
non-daily publications of the Company. The Company expects to achieve additional
cost savings and improved product quality as production of these publications is
phased in during 2002.
As of December 30, 2001, the Company owned and operated three commercial
printing facilities: Imprint Printing in North Haven, Connecticut; Nittany
Valley Offset in State College, Pennsylvania; and InterPrint in Bristol,
Pennsylvania. These operations also print certain of the Company's publications.
Commercial printing operations and other revenues accounted for approximately
4.8% of the Company's 2001 revenues.
EMPLOYEES
The Company employed as of December 30, 2001 approximately 4,800
full-time and part-time employees, or 4,100 full-time equivalents. Certain
employees of the Company's newspapers are employed under collective bargaining
agreements.
RAW MATERIALS
The basic raw material for newspapers is newsprint. The Company's
newsprint cost (excluding paper consumed in the Company's commercial printing
operations) was approximately $28 million in 2001, or approximately 7.3% of the
Company's newspaper revenues. In 2001, the Company consumed approximately 47,000
12
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 2001, 2000 and 1999 was $585, $565 and $510,
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 all of its
newsprint requirements from 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 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 9% in 2001, increased approximately 6% in 2000 and
decreased approximately 13% in 1999. 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, including web-width reductions, inventory management and
advertising and circulation price increases. The Company also has reduced fringe
circulation in response to increased newsprint prices, as it is the Company's
experience that such circulation does not provide adequate response for
advertisers.
COMPETITION
While many of the Company's metropolitan and suburban daily newspapers
are the only daily newspapers of general circulation published in their
respective communities, they compete within their own geographic areas with
other daily and weekly newspapers of general circulation published in adjacent
or nearby cities and towns. Competition for advertising revenue 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 newspaper 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 non-daily publications, including shoppers and
real estate guides, primarily compete with direct mail advertising, shared mail
packages and other private advertising delivery services. The Company's
management believes that, because of the relative competitive position of its
suburban and community non-daily publications in the communities which they
serve, such publications generally have been able to compete effectively with
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 wastes 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 would not
have a material adverse effect on the Company's financial condition or results
of operations.
13
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. 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.
ITEM 2. PROPERTIES.
As of December 30, 2001, the Company operated 139 facilities used in the
course of producing and publishing its daily and non-daily publications.
Approximately 100 of these facilities are leased for terms ranging from one to
five years. These leased facilities range in size from approximately 160 to
70,000 square feet. The location and approximate size of the principal physical
properties (greater than 1,500 square feet) used by the Company at December 30,
2001, as well as the expiration date of the leases relating to such properties
which the Company leases are set forth below:
APPROXIMATE AREA IN SQUARE FEET
-------------------------------
LOCATION OWNED SQUARE FEET LEASED SQUARE FEET LEASE EXPIRATION DATE
-------- ----------------- ------------------ ---------------------
Ansonia, CT........................... 18,400(1) 2,500(1) 6/14/02
Bristol, CT........................... 40,000(1)
Colchester, CT........................ 1,900(1) 12/31/02
Middletown, CT........................ 30,000(1)
Milford, CT........................... 11,745(1)
New Britain, CT....................... 33,977(1)(3)
New Haven, CT......................... 205,000(1)(3) 13,000(4) 1/31/04
New Milford, CT....................... 6,840(1) 8/15/03
North Haven, CT....................... 24,000(1)(3) 10,000(3)(4) 12/31/05
Old Saybrook, CT...................... 1,950(1) 3/31/04
Torrington, CT........................ 36,120(1)(3)
Trumbull, CT.......................... 5,628(1) 1/9/04
Westport, CT.......................... 1,620(1) 12/31/02
Fall River, MA........................ 57,571(1)(3)
Taunton, MA........................... 21,100(1)
Medford, NJ........................... 4,629(1) 12/31/04
Moorestown, NJ........................ 2,000(1) 8/31/02
Trenton, NJ........................... 54,600(1)(3) 18,889(2) 11/30/05
Turnersville, NJ...................... 11,032(1)
Kingston, NY.......................... 25,800(1)(3)
Millbrook, NY......................... 5,000(1)
Oneida, NY............................ 24,000(1)(3)
Rhinebeck, NY......................... 2,000(1)
Saratoga, NY.......................... 11,000(1)
Troy, NY.............................. 50,000(1)(3)
Lorain, OH............................ 68,770(1)(3)
Willoughby, OH........................ 80,400(1)(3)
Ardmore, PA........................... 25,250(1) 2,368(1) 12/31/02
Bristol, PA........................... 70,000(1)(3) 12/31/04
Exton, PA............................. 86,395(3)
Fort Washington, PA................... 23,490(1)(3) 7,500(1) 9/30/03
Holmes, PA............................ 8,000(1)
Kennett Square, PA.................... 2,500(1) 8/31/02
Lansdale, PA.......................... 22,400(1)(3)
Media, PA............................. 4,500(1) 4/30/04
Newtown, PA........................... 2,700(1) 3/31/03
Philadelphia, PA...................... 6,010(1) 1,500(1) 9/30/02
Phoenixville, PA...................... 10,696(1)
Norristown, PA........................ 40,000(1)(3)
Pottstown, PA......................... 48,000(1)(3) 7,031(3) 10/31/02
Primos, PA............................ 85,000(1)(3)
Quarryville, PA....................... 4,755(1) 4/3/06
14
APPROXIMATE AREA IN SQUARE FEET
-------------------------------
LOCATION OWNED SQUARE FEET LEASED SQUARE FEET LEASE EXPIRATION DATE
-------- ----------------- ------------------ ---------------------
Souderton, PA......................... 1,750(1) 12/31/05
State College, PA..................... 23,365(1)(3) 2,800(4) 8/31/02
Wayne, PA............................. 11,980(1)
West Chester, PA...................... 34,000(1)(3)
Pawtucket, RI......................... 41,096(1)
Wakefield, RI......................... 11,750(1)
West Warwick, RI...................... 13,650(1)
Woonsocket, RI........................ 49,338(1)(3)
- ----------------------------------
(1) Offices
(2) Corporate headquarters
(3) Production facility
(4) 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."
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in a number of litigation matters, which 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. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Certain Factors Which May Affect the Company's Future Performance -
Environmental Matters."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information as of December 30,
2001 with respect to each person who is an executive officer of the Company as
of such date:
OFFICER POSITION
- ------- --------
Robert M. Jelenic....................................... Chairman, President and Chief Executive Officer
Jean B. Clifton......................................... Executive Vice President, Chief Financial
Officer and Secretary
Thomas E. Rice.......................................... Senior Vice President, Operations
Allen J. Mailman........................................ Senior Vice President, Technology
W. Wilson Dorward....................................... Senior Vice President, Finance and Treasurer
William J. Higginson.................................... Vice President, Production
Edward J. Melando....................................... Vice President, Corporate Controller
ROBERT M. JELENIC is the 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 more than the past ten years. A Chartered Accountant, Mr.
Jelenic began his business career with Arthur Andersen in Toronto, Canada. Mr.
Jelenic has 26 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 NAA. Mr. Jelenic is 51 years old.
15
JEAN B. CLIFTON has been a director of the Company and its predecessors
for more than the past ten years. Ms. Clifton is the Executive Vice President,
Chief Financial Officer and Secretary of the Company, positions she has held
since the Company's inception. Prior to joining the Company, Ms. Clifton, a
Certified Public Accountant, was employed by Arthur Young & Co. (a predecessor
to Ernst & Young LLP). Ms. Clifton has 16 years of senior management experience
in the newspaper industry. Ms. Clifton is a member of the Honorary Advisory
Board of KidsBridge Children's Cultural Center in Trenton, the Board of
Directors of the Fresh Air Fund, the Board of Directors of the Lower Bucks
Chapter of the American Red Cross and the Employee Benefits Committee of the
Newspaper Association of America. Ms. Clifton is 40 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 Co., Times Mirror, Media News and the Chicago
Sun Times. Mr. Rice has 39 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 57 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 27 years of management experience in the
newspaper industry, including 14 years with Newhouse Publications. Mr. Mailman
received a Bachelor of Arts degree in Economics and Mathematics from the
University of Oklahoma. Mr. Mailman is 54 years old.
W. WILSON DORWARD is Senior Vice President, Finance and Treasurer of the
Company, a position he has held since joining the Company in March 1999. Prior
to joining the Company, Mr. Dorward held positions as Chief Financial Officer of
GOCOM Communications, LLC, a television and radio operator, and as Vice
President and Treasurer of Susquehanna Pfaltzgraff Co., a media and
manufacturing company. Mr. Dorward has 21 years of media industry experience.
Mr. Dorward received a Master of Business Administration from the Wharton
Graduate Division, University of Pennsylvania and a Juris Doctor from the
Dickinson School of Law. Mr. Dorward is 53 years old.
WILLIAM J. HIGGINSON is Vice President of Production of the Company, a
position he has held since July 1995. From January 1994 to July 1995, he was
Corporate Production Director of the Company. Prior to that, from January 1991
to January 1994, he was Production Director of the NEW HAVEN REGISTER and from
1989 to January 1991 he was Production Director of THE TRENTONIAN. Mr. Higginson
has 29 years of experience in the newspaper industry. Mr. Higginson is 46 years
old.
EDWARD J. MELANDO is Vice President and Corporate Controller of the
Company, a position he was promoted to in September 2001. Mr. Melando joined
Journal Register Company in August 2000 as Corporate Controller. Prior to
joining the Company, Mr. Melando was Controller for Asarco Incorporated, a
public multinational Fortune 500 mining company, where he had worked for 16
years in various financial positions. Prior to that he was a senior auditor at
Deloitte, Haskins and Sells (a predecessor to Deloitte and Touche). Mr. Melando
is a Certified Public Accountant and has a Bachelor of Science degree in
Management Science from Kean College of New Jersey. Mr. Melando is 46 years old.
16
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:
December 31, 2001 December 31, 2000
--------------------- ----------------------
HIGH LOW HIGH LOW
---- --- ---- ---
Fourth Quarter $21.13 $15.00 $18.50 $15.13
Third Quarter 18.25 15.69 19.38 15.75
Second Quarter 18.25 15.13 18.88 12.88
First Quarter 17.63 15.75 15.88 11.44
On March 27, 2002, there were approximately 84 stockholders of record of
the Common Stock. The Company believes that it has approximately 2,329
beneficial owners.
The Company has not paid dividends on the Common Stock and does not
currently anticipate paying dividends on the Common Stock. The Company currently
intends to retain future cash flow to increase shareholder value by acquiring
additional newspapers, reducing debt, purchasing 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 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 which 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 assets of the
affected subsidiary.
17
ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial data (except number of newspapers) 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:
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 30, DECEMBER 31, DECEMBER 26, DECEMBER 31,
----------------------
2001 2000(1) 1999(2) 1998 1997
----------- ----------- ------------ ------ ------
(Dollars in thousands, except per share amounts and number of newspapers)
STATEMENT OF INCOME DATA:
Revenues:
Advertising........................................ $ 287,859 $ 343,130 $ 348,995 $ 312,908 $ 266,914
Circulation........................................ 87,737 96,852 96,783 89,388 80,211
Newspaper revenues....................................... 375,596 439,982 445,778 402,296 347,125
Commercial printing and other............................ 18,809 23,987 23,787 24,484 12,282
394,405 463,969 469,565 426,780 359,407
Operating expenses:
Salaries and employee benefits..................... 140,522 155,161 157,110 139,216 114,302
Newsprint, ink and printing charges................ 37,741 46,533 48,432 53,594 40,452
Selling, general and administrative................ 47,810 47,008 45,318 39,047 30,450
Depreciation and amortization...................... 26,317 27,616 28,798 23,844 20,480
Other.............................................. 53,474 58,395 57,975 52,012 40,783
Special charge(3).................................. - - - - 31,899
305,804 334,713 337,663 307,713 278,366
Operating income......................................... 88,541 129,256 131,932 119,067 81,041
Net interest and other expense........................... (30,490) (48,020) (52,347) (45,321) (42,288)
Gain on sale of newspaper properties..................... 32,212 180,720 - - -
Income before provision for income taxes,
equity interest and extraordinary item............. 90,263 261,956 79,585 73,746 38,753
Provision for income taxes............................... 10,818 90,951 31,694 28,112 15,784
Income before extraordinary item
and equity interest................................ 79,445 171,005 47,891 45,634 22,969
Equity interest.......................................... (1,313) (1,625) (226) - -
Income before extraordinary item......................... 78,132 169,381 47,665 45,634 22,969
Extraordinary item (4)................................... - - - (4,495) -
Net income............................................... $ 78,132$ $ 169,381 $ 47,665 $ 41,139 $ 22,969
Income before extraordinary item per common share:
Basic.............................................. $ 1.85 $ 3.74 $ 1.02 $ 0.94 $ 0.51
Diluted............................................ $ 1.83 $ 3.72 $ 1.02 $ 0.94 $ 0.51
Net income per common share:
Basic.............................................. $ 1.85 $ 3.74 $ 1.02 $ 0.85 $ 0.51
Diluted............................................ $ 1.83 $ 3.72 $ 1.02 $ 0.85 $ 0.51
OTHER DATA:
EBITDA(5)(6)............................................. $ 114,858 $ 156,871 $ 160,730 $ 146,706 $ 133,420
EBITDA Margin(5)(6)...................................... 29.1% 33.8% 34.2% 34.4% 37.1%
Tangible net income, as adjusted(5)(6)................... $ 46,641 $ 60,960 $ 58,887 $ 55,537 $ 46,042
Tangible net income, as adjusted, per common share(5)(6). $ 1.09 $ 1.34 $ 1.26 $ 1.14 $ 1.02
Capital expenditures(7).................................. $ 34,929 $ 21,550 $ 18,081 $ 14,353 $ 9,727
Net cash provided by (used in):
Operating activities............................... $ 77,666 $ 62,915 $ 90,595 $ 80,344 $ 66,030
Investing activities............................... $ (58,107) $ 195,206 $ (32,727) $ (354,213) $ (19,447)
Financing activities............................... $ (25,944) $ (254,716) $ (63,320) $ 274,228 $ (46,946)
Number of newspapers, end of period:
Daily.............................................. 23 24 25 24 18
Non-Daily.......................................... 206 158 200 185 141
18
ITEM 6. SELECTED FINANCIAL DATA. (CONTINUED)
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 30, DECEMBER 31, DECEMBER 26, DECEMBER 31,
--------------------------
2001 2000(1) 1999(2) 1998 1997
------------ -------------- ------------- ---------- ----------
BALANCE SHEET DATA: (Dollars in thousands)
Total current assets.............................. $ 66,573 $ 79,359 $ 88,397 $ 81,878 $ 77,833
Property, plant and equipment, net................ 124,440 104,178 107,522 99,978 92,620
Total assets...................................... 711,171 657,350 687,180 671,869 327,931
Total current liabilities, less current
maturities of long-term debt....................... 62,877 51,542 53,380 50,124 39,034
Total debt, including current maturities.......... 522,771 494,635 731,467 765,000 490,774
Stockholders' deficit.............................. (36,198) (55,726) (207,383) (225,313) (266,242)
- -------------------
(1) The Company's fiscal year ends on the nearest Sunday to the end of the
calendar year, consequently, the Company's fiscal year ended December 31,
2000 consisted of 53 weeks.
(2) In 1999, the Company changed its fiscal year from a calendar year to a
52/53 week fiscal year ending on the nearest Sunday to the end of the
calendar year.
(3) The 1997 special charge of $31.9 million (before benefit for income taxes
of $13.0 million) was incurred in connection with the Company's initial
public offering and was comprised of a $28.4 million management bonus and
$3.5 million for the discontinuance of a management incentive plan. The
management bonus was comprised of 1.1 million shares of Common Stock and a
cash portion to satisfy the recipients' tax obligations arising from the
management bonus.
(4) The 1998 extraordinary item represents a charge of $4.5 million (net of
tax) related to the early extinguishment of debt in connection with the
prior credit agreement.
(5) The 1998 data excludes the effects of special charges ($3.8 million, before
tax benefit, $3.2 million of which was recorded in selling, general and
administrative, and approximately $630,000 in other expenses) related to
the cancellation of the Company's convertible debt offering, the
integration of the acquired assets of the Goodson Newspaper Group, and an
increase to certain receivable reserves and the extraordinary item ($4.5
million, net of tax) discussed in Note (4) above. The 1997 data excludes
the effect of the special charge of $31.9 million (before benefit for
income taxes of $13.0 million) as discussed above in Note (3).
(6) EBITDA is defined by the Company as operating income (loss) plus
depreciation, amortization and other non-cash, special or non-recurring
charges. Tangible net income is defined as net income, excluding equity
interest, plus after-tax amortization. EBITDA and tangible net income 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 accounting principles generally accepted 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 is a standard measure 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 relative to other companies in the industry. However, not all
companies calculate EBITDA and tangible net income using the same methods;
therefore, the EBITDA and tangible net income figures set forth above may
not be comparable to EBITDA and tangible net income 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." Tangible net income per
share is calculated using the weighted-average shares outstanding on a
diluted basis.
19
(7) Capital expenditures, excluding capitalized interest, associated with the
Company's new Philadelphia printing facility (Journal Register Offset) were
$22.8, $10.8 and $1.8 million in fiscal years 2001, 2000 and 1999,
respectively. Capitalized interest associated with Journal Register Offset
was $1.3 million and $601,000 in fiscal years 2001 and 2000, respectively.
The plant began operating in December 2001.
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 business is publishing newspapers in the United States,
where its publications are primarily daily and non-daily newspapers. The
Company's revenues are derived primarily from advertising, paid circulation and
commercial printing.
As of December 30, 2001, the Company owned and operated 23 daily
newspapers and 206 non-daily publications strategically clustered in six
geographic areas: Connecticut; Greater Philadelphia; Greater Cleveland Area of
Ohio; Central New England; and the Capital-Saratoga and Mid-Hudson, New York
regions. As of December 30, 2001, the Company had total paid daily circulation
of approximately 561,000, total paid Sunday circulation of approximately 525,000
and total non-daily distribution of approximately 3.4 million.
The Company's objective is to continue its growth in revenues, EBITDA
and net income. 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. From 1993 through 2001, the Company
successfully completed 22 strategic acquisitions, acquiring 14 daily newspapers,
172 non-daily publications and three commercial printing companies, two of which
print a number of the non-daily publications; the third is a premium quality
sheet-fed printing company.
The Company sold certain of its operations in the Greater St. Louis area
in two transactions in August and October of 2000. The Company also sold two
daily newspapers and a commercial printing operation in the south central part
of Ohio on January 31, 2001. This sales process, which was announced in February
2000 and completed on January 31, 2001, resulted in a strategic repositioning of
the Company's operation in six geographic clusters and a reduction in the
Company's leverage. The proceeds were used to reduce the Company's outstanding
debt, to purchase treasury shares and for strategic acquisitions.
On January 31, 2001, the Company completed the acquisition of the
Pennsylvania and New Jersey newspaper operations from Chesapeake Publishing
Corporation. Total non-daily distribution of the 13 publications acquired from
Chesapeake Publishing Corporation is approximately 90,000. On June 7, 2001, the
Company completed the acquisition of the weekly Montgomery Newspaper Group
community newspaper operations, which are based in Fort Washington,
Pennsylvania, from Metroweek Corporation. Total distribution of these 24
non-daily publications is approximately 283,000. On August 1, 2001, the Company
completed the acquisition of Roe Jan Independent Publishing, Inc., which is
based in Hillsdale, New York. Total distribution of the two non-daily
publications included in this purchase is approximately 26,000. On September 14,
2001, the Company completed the acquisition of THE REPORTER, a
19,000-circulation 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, with circulation of
approximately 15,000. The acquisition also included three lifestyle magazines
serving Connecticut and New York, with total monthly distribution of
approximately 90,000.
The Company's management believes that its newspapers are effective in
addressing the needs of local readers and advertisers. The Company's management
believes that because its newspapers rely on a broad base of local retail and
local classified advertising, rather than more volatile national and major
account advertising, its advertising revenues tend to be relatively stable.
20
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 which 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.
In addition, the Company is committed to expanding its business through
its Internet initiatives. The Company's online objective is to make
journalregister.com Web sites the indispensable source of useful and reliable
community news, sports and information in their markets by making its Web sites
the local information portal for their markets. As of December 30, 2001, the
Company operated 133 Web sites featuring the Company's daily newspapers and
non-daily publications.
In 1999, the Company elected to change its fiscal year from a calendar
year end to a fiscal year ending on the nearest Sunday to the end of the
calendar year. Accordingly, the Company's recent fiscal years ended on December
30, 2001, December 31, 2000, and December 26, 1999.
YEAR ENDED DECEMBER 30, 2001 COMPARED TO THE YEAR ENDED DECEMBER 31, 2000
FOR COMPARISON PURPOSES, WHERE NOTED, THE COMPANY'S FISCAL YEARS 2001 AND 2000
RESULTS ARE PRESENTED ON A SAME-STORE BASIS, WHICH EXCLUDES THE RESULTS OF THE
GREATER ST. LOUIS CLUSTER NEWSPAPERS SOLD IN 2000, THE OHIO NEWSPAPERS SOLD IN
2001, AND THE COMPANY'S ACQUISITIONS COMPLETED IN 2001. ALSO, WHERE NOTED, THE
COMPANY'S RESULTS ARE PRESENTED ON A COMPARABLE DAY BASIS, WHICH REFLECTS AN
ADJUSTMENT TO ELIMINATE THE ESTIMATED IMPACT OF THE ADDITIONAL WEEK INCLUDED IN
THE COMPANY'S 2000 RESULTS. IN 2000, THE COMPANY HAD A 53-WEEK FISCAL YEAR AS
COMPARED TO A 52-WEEK FISCAL YEAR IN 2001.
SUMMARY. Net income for the year ended December 30, 2001 was $78.1
million, or $1.83 per diluted share, versus $169.4 million, or $3.72 per diluted
share, for the year ended December 31, 2000. Excluding special items, earnings
per diluted share were $0.80 and $1.07 for the years ended December 30, 2001 and
December 31, 2000, respectively.
The special items reported in the 2001 and 2000 results include a $32.2
million pre-tax ($42.1 million after-tax) gain on the sale of the Company's Ohio
operations in 2001, and a $180.7 million pre-tax ($113.0 million after-tax) gain
on the sale of the Company's St. Louis cluster operations in 2000 and reversals
of certain tax accruals in both years.
REVENUES. Reported revenues were $394.4 million for the year ended
December 30, 2001 as compared to $464.0 million for the year ended December 31,
2000. The decline was mainly due to the sale of the Company's St. Louis cluster
and Ohio operations, a 52-week fiscal year in 2001 versus a 53-week fiscal year
in 2000, and lower advertising revenues resulting from a decline in the U.S.
economy.
SAME-STORE REVENUES. Same-store revenues decreased by 6.7% to $375.5
million or approximately 4.9% on a comparable day basis. On a same-store,
comparable day basis, advertising revenues decreased 6.0%, circulation revenues
decreased 1.4% and commercial print revenues decreased 4.3%. Online revenues on
the same basis, included in advertising revenues, increased approximately 15.5%
to $3.5 million.
SALARIES AND EMPLOYEE BENEFITS. Salaries and employee benefit expenses
were 35.6% of the Company's revenues for the year ended December 30, 2001,
compared to 33.4% for the year ended December 31, 2000. Salaries and employee
benefits decreased $14.6 million, or 9.4%, in 2001 to $140.5 million. Same-store
salaries and employee benefits decreased $6.1 million, or 4.5%, primarily due to
a reduction in headcount, lower cost of retiree benefits, and one less week in
fiscal year 2001.
NEWSPRINT, INK AND PRINTING CHARGES. For the year ended December 30,
2001, newsprint, ink and printing charges were 9.6% of the Company's revenues,
as compared to 10.0% for the year ended December 31, 2000. Newsprint, ink and
printing charges decreased $8.8 million, or 18.9%, for the year ended December
30, 2001 as compared to the prior year due to the dispositions of certain
newspaper properties. On a same-store, compariable day basis, newsprint, ink and
21
printing charges increased approximately $1.2 million, or 3.6%, primarily due to
an increase of approximately 9.2% in newsprint prices, offset partially by a
decrease in newsprint consumption of approximately 7.0%.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses were 12.1% and 10.1% of the Company's revenues for the years ended
December 30, 2001 and December 31, 2000, respectively. On a same-store basis,
selling, general and administrative expenses for the year ended December 30,
2001 increased $4.2 million from $40.7 million to $44.9 million, due primarily
to increased promotional activity associated with the Company's focus on
increasing revenues.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
were 6.7% and 6.0% of the Company's revenues for the years ended December 30,
2001 and December 31, 2000, respectively. Depreciation and amortization expenses
decreased $1.3 million, or 4.7%, to $26.3 million for the year ended December
30, 2001 primarily due to the dispositions of certain newspaper properties. On a
same-store basis, depreciation and amortization expense was flat for the year
ended December 30, 2001 as compared to the year ended December 31, 2000.
OTHER EXPENSES. Other expenses were $53.5 million for the year ended
December 30, 2001 as compared to $58.4 million for the year ended December 31,
2000. On a same-store basis, other expenses increased approximately $700,000, or
1.4%, to $50.7 million due in part to increases in promotional expenses.
OPERATING INCOME. Operating income decreased $40.7 million, or 31.5%,
for the year ended December 30, 2001 to $88.5 million as compared to $129.3
million in 2000. Same-store operating income decreased $26.2 million, or 23.1%,
to $87.1 million.
NET INTEREST AND OTHER EXPENSES. Net interest and other expense
decreased $17.5 million for the year ended December 30, 2001 as compared to the
year ended December 31, 2000, principally due to a reduction in average net debt
outstanding and lower weighted average interest rates during 2001 as compared to
2000. The reduction in average net debt is due primarily to the sales of the St.
Louis cluster and Ohio properties and strong free cash flow generated from
operations, partially offset by funds used for share repurchases, acquisitions
and the Philadelphia plant in 2001.
GAINS ON THE SALES OF NEWSPAPER PROPERTIES. On August 10, 2000, the
Company completed its sale of substantially all of the assets of the Suburban
Newspapers of Greater St. Louis and all of the issued and outstanding capital
stock of The Ladue News, Inc. (collectively, "St. Louis") and reported a pre-tax
gain of $141.1 million ($88.4 million after-tax) on the sale. On October 24,
2000, the Company sold substantially all the assets of its Alton, Illinois
newspaper, THE TELEGRAPH ("Alton") and reported a pre-tax gain of $39.6 million
on the sale ($24.6 million after-tax). On January 31, 2001, the Company
completed the sale of the assets of THE TIMES REPORTER, Dover/New Philadelphia,
Ohio (including Midwest Offset, one of the Company's commercial printing
companies co-located with THE TIMES REPORTER), and THE INDEPENDENT, Massillon,
Ohio and reported a pre-tax gain of $32.2 million ($42.1 million gain
after-tax).
PROVISION FOR INCOME TAXES. The provision for income taxes was $10.8
million for the fiscal year ended December 30, 2001 as compared to $91.0 million
for the fiscal year ended December 31, 2000. Included in the tax provision for
fiscal year 2001 is a $9.9 million tax benefit on the gain on sale of the
Company's Dover/New Philadelphia and Massillon properties, which was recorded
due to the realization of previously unrecognized book/tax differences and a
$1.8 million reversal of certain accruals which were determined to no longer be
required. Included in the provision for fiscal 2000 is $67.7 million of income
taxes provided for the sale of the St. Louis cluster partially offset by a $8.0
million reversal of certain accruals which were determined to be no longer
required. Excluding these special items in each year, the Company's effective
tax rate for fiscal years 2001 and 2000 were 38.9% and 38.4%, respectively.
EQUITY INTEREST. The loss on equity interest of $1.3 million recorded
for the year ended December 30, 2001 represents the Company's pro rata share
(7.56%) of the net loss for the period of AdOne, LLC, a provider of classified
advertising on the Internet, and compares to a loss on equity interest of $1.6
million in the prior year.
22
OTHER INFORMATION. Tangible net income for the year ended December 30,
2001 was $46.6 million, or $1.09 per share, as compared to $61.0 million, or
$1.34 per share, for the year ended December 31, 2000.
YEAR ENDED DECEMBER 31, 2000 COMPARED TO THE YEAR ENDED DECEMBER 26, 1999
FOR COMPARISON PURPOSES, WHERE NOTED, THE COMPANY'S FISCAL YEARS 2000 AND 1999
RESULTS ARE PRESENTED ON A PRO FORMA BASIS, WHICH EXCLUDES THE RESULTS OF THE
GREATER ST. LOUIS CLUSTER NEWSPAPERS SOLD IN 2000. ALSO, WHERE NOTED, THE
COMPANY'S RESULTS ARE PRESENTED ON A COMPARABLE DAY BASIS, WHICH ADJUSTS FOR THE
ESTIMATED IMPACT OF THE ADDITIONAL DAYS RESULTING FROM THE COMPANY'S 53-WEEK
FISCAL YEAR 2000 AS COMPARED TO THE 52-WEEK FISCAL YEAR 1999.
SUMMARY. Net income for the year ended December 31, 2000 was $169.4
million, or $3.72 per diluted share, versus $47.7 million, or $1.02 per diluted
share, for the year ended December 26, 1999. Excluding special items, earnings
per diluted share were $1.07 for the year ended December 31, 2000. EBITDA for
the year ended December 31, 2000, on a pro forma basis, increased $3.8 million
to $145.9 million as compared to the prior year.
The special items reported in the 2000 results include a $180.7 million
pre-tax gain on the sale of the Company's St. Louis cluster operations and the
reversal of certain tax accruals.
REVENUES. Reported revenues were $464.0 million for the year ended
December 31, 2000 as compared to $469.6 million for the year ended December 26,
1999. The decline was mainly due to the sale of St. Louis cluster, partially
offset by increased revenues resulting from the Company's change to a fiscal
52/53-week year and higher advertising revenues.
PRO FORMA REVENUES. Pro forma revenues increased by 4.1% to $420.4
million or approximately 1.8% on a comparable day basis. On a comparable day
basis, increases in advertising revenues of approximately 3.1% and commercial
print revenues of 1.5% were partially offset by lower circulation revenues.
Online revenues, included in advertising revenues, were approximately $3.3
million, an increase of approximately 30.0%.
SALARIES AND EMPLOYEE BENEFITS. Salaries and employee benefit expenses
were 33.4% of the Company's revenues for the year ended December 31, 2000
compared to 33.5% for the year ended December 26, 1999. Salaries and employee
benefits decreased $1.9 million, or 1.2%, in 2000 to $155.2 million. Pro forma
salaries and employee benefits increased $3.4 million, or 2.5%, mainly due to
the additional days in 2000 resulting from the Company's change to a fiscal
52/53-week year.
NEWSPRINT, INK AND PRINTING CHARGES. For the year ended December 31,
2000, newsprint, ink and printing charges were 10.0% of the Company's revenues,
as compared to 10.3% for the year ended December 26, 1999. Newsprint, ink and
printing charges decreased $1.9 million, or 3.9%, for the year ended December
31, 2000 as compared to the prior year due to the sale of the St. Louis cluster.
Pro forma newsprint, ink and printing charges increased $2.0 million, or 5.6%,
primarily due to an increase of approximately 6% in newsprint prices and the
estimated impact of the additional days in 2000 as compared to 1999 resulting
from the Company's change to a fiscal year, partially offset by a reduction in
consumption.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses were 10.1% and 9.7% of the Company's revenues for the years ended
December 31, 2000 and December 26, 1999, respectively. On a pro forma basis,
selling, general and administrative expenses for the year ended December 31,
2000 increased $4.1 million from $37.8 million to $41.9 million, due primarily
to increased promotional activity associated with the Company's revenue growth
and the estimated impact of the additional days in 2000 as compared to 1999
resulting from the Company's change to a fiscal year.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
were 6.0% and 6.1% of the Company's revenues for the years ended December 31,
2000 and December 26, 1999, respectively. Depreciation and amortization expenses
decreased $1.2 million, or 4.1%, to $27.6 million for the year ended December
31, 2000 primarily due to the sale of the St. Louis cluster. Goodwill
amortization for the year ended December 31, 2000 was
23
$12.5 million, including approximately $500,000 related to the operations sold
in 2000 and 2001. On a pro forma basis, depreciation and amortization decreased
$430,000, or 1.6%, to $26.6 million.
OTHER EXPENSES. Other expenses were $58.4 million for the year ended
December 31, 2000 as compared to $58.0 million for the year ended December 26,
1999. On a pro forma basis, other expenses increased to $3.3 million, or 6.7%,
to $52.2 million due in part to increases in expenses associated with the
Company's Internet operations and the estimated impact of the additional days in
2000 resulting from the Company's change to a fiscal year.
OPERATING INCOME. Operating income decreased $2.7 million, or 2.0%, for
the year ended December 31, 2000 to $129.3 million as compared to $131.9 million
in 1999. Pro forma operating income increased $4.2 million, or 3.7%, to $119.4
million.
NET INTEREST AND OTHER EXPENSES. Net interest and other expense
decreased $4.3 million from the year ended December 31, 2000 as compared to the
year ended December 26, 1999, principally due to a reduction in average net debt
outstanding during 2000 as compared to 1999. The reduction in average net debt
is due primarily to the sale of the St. Louis cluster and cash flows from
operations.
GAIN ON THE SALE OF NEWSPAPER PROPERTIES. On August 10, 2000, the
Company completed its sale of substantially all of the assets of the Suburban
Newspapers of Greater St. Louis and all of the issued and outstanding capital
stock of The Ladue News, Inc. (collectively, "St. Louis") and reported a pre-tax
gain of $141.1 million ($88.4 million after-tax) on the sale. On October 24,
2000, the Company sold substantially all the assets of its Alton, Illinois
newspaper, THE TELEGRAPH ("Alton") and reported a pre-tax gain of $39.6 million
on the sale ($24.6 million after-tax).
PROVISION FOR INCOME TAXES. The provision for income taxes increased by
$59.3 million from December 26, 1999 to December 31, 2000, primarily due to
$67.7 million of income taxes provided for the sale of the St. Louis cluster
partially offset by an approximately $8.0 million reduction of income taxes due
to the reversal of certain accruals which were determined to no longer be
required.
EQUITY INTEREST. The loss on equity interest of $1.6 million recorded
for the year ended December 31, 2000 represents the Company's pro rata share
(7.14%) of the net loss for the period of AdOne, LLC, a provider of classified
advertising on the Internet, and compares to a loss on equity interest of
$226,000 in the prior year. The Company's investment interest in AdOne, LLC
commenced in August 1999.
OTHER INFORMATION. Tangible net income for the year ended December 31,
2000 was $61.0 million, or $1.34 per share, as compared to $58.9 million, or
$1.26 per share, for the year ended December 26, 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations have historically generated strong positive
cash flow. The Company believes cash flows from operations will be sufficient to
fund its operations, capital expenditures and long-term debt obligations. The
Company also believes that cash flows from operations and future borrowings and
its ability to issue common stock as consideration for future acquisitions, will
provide it with the flexibility to fund its acquisition strategy and repurchase
treasury shares while continuing to meet its operating needs, capital
expenditures and long-term debt obligations.
CASH FLOWS FROM OPERATING ACTIVITIES. Net cash provided from operating
activities was $77.7 million for the year ended December 30, 2001 as compared to
$62.9 million in the prior year. Current assets were $66.6 million and current
liabilities, excluding $30.3 million of current maturities of long-term debt,
were $62.9 million as of December 30, 2001. The Company manages its working
capital through the utilization of its Revolving Credit Facility; the
outstanding balance on the Revolving Credit Facility is classified as a
long-term liability.
CASH FLOWS FROM INVESTING ACTIVITIES. For the year ended December 30,
2001, net cash used in investing activities was $58.1 million. Cash used to fund
the Company's acquisitions of five strategic newspaper properties further
described in Note 10 to the Consolidated Financial Statements was partially
offset by proceeds from the January 2001 sale of the assets of two of the
Company's Ohio newspapers. In December 2001, the Company completed the
construction of its new Philadelphia printing facility, Journal Register Offset.
The total cost of the
24
project, which was completed on budget and on time, was $35.4 million, excluding
capitalized interest. Capital expenditures incurred in connection with Journal
Register Offset were $22.8 million and $10.8 million in 2001 and 2000,
respectively, excluding capitalized interest.
Net cash provided from investing activities was $195.2 million for the
fiscal year ended December 31, 2000. Proceeds from the sale of the Company's St.
Louis cluster were partially offset by capital investments in property, plant
and equipment.
The Company has a capital expenditure program (excluding future
acquisitions) of approximately $13.0 million in place for 2002, which includes
spending on technology, including prepress and business systems, computer
hardware and software, other machinery and equipment and vehicles. The Company
believes its capital expenditure program is sufficient to maintain its current
level and quality of operations. The Company reviews its capital expenditure
program periodically and modifies it as required to meet current needs.
CASH FLOWS FROM FINANCING ACTIVITIES. Net cash used in financing
activities was $25.9 million in 2001 as compared to $254.7 million in 2000. The
fiscal year 2001 and 2000 activity reflects expenditures of $54.3 million and
$18.1 million, respectively, in connection with the Company's common stock
repurchase program. The fiscal year 2000 activity also reflects $236.8 million
for the repayment of senior debt.
DEBT AND DERIVATIVE ACTIVITY. On July 15, 1998, the Company entered into
a credit agreement (the "Credit Agreement") with a group of banks and other
financial institutions, led by J.P. Morgan Chase & Co. as administrative agent
for the lenders thereunder. The Credit Agreement provides for $500.0 million in
Term Loans and a $400.0 million Revolving Credit Facility. The proceeds from the
Credit Agreement were used to repay amounts outstanding under the prior senior
facilities and to purchase the Pennsylvania, New York and Ohio newspaper
business of The Goodson Newspaper Group for approximately $300 million. The
Credit Agreement also provides for an uncommitted, multiple draw term loan
facility (the "Incremental Facility") in the amount of up to $500.0 million, as
permitted by the administrative agent, to be repaid under conditions as defined
in the Credit Agreement.
The Term Loans mature on March 31, 2006 and September 30, 2006, and the
Revolving Credit Facility matures on March 31, 2006. Under the terms of the
Company's Credit Agreement net proceeds, as defined in the Credit Agreement,
from the sale of newspaper properties which are not reinvested within 365 days
must be used to prepay debt. Accordingly, the Company's excess borrowing
capacity under the Term Loans was reduced in the first quarter of 2002 by
approximately $30 million in connection with the Company's January 2001 asset
sale.
The amounts outstanding under the Credit Agreement bear interest at (i)
1 3/4% to 1/2% above LIBOR (as defined in the Credit Agreement) or (ii) 1/2% to
0% above the higher of (a) the Prime Rate (as defined in the Credit Agreement)
or (b) 1/2% a