================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 28, 2003
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 1-12955
JOURNAL REGISTER COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 22-3498615
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
50 WEST STATE STREET
TRENTON, NEW JERSEY 08608-1298
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
Registrant's telephone number, including area code: (609) 396-2200
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
Common Stock, par value $0.01 per share New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). [X] Yes [ ] No
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of June 29, 2003 was $714,009,239.
As of March 4, 2004, 41,897,028 shares of the registrant's Common Stock,
par value $0.01 per share, were outstanding (excluding treasury shares).
DOCUMENTS INCORPORATED BY REFERENCE. The information called for by Part III
is incorporated by reference to the definitive Proxy Statement for the Company's
2004 Annual Meeting of Stockholders, which will be filed on or before April 26,
2004.
================================================================================
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS
STATEMENTS IN THIS ANNUAL REPORT ON FORM 10-K THAT ARE NOT PURELY
HISTORICAL ARE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF
THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF
1934, INCLUDING STATEMENTS REGARDING THE COMPANY'S EXPECTATIONS, HOPES,
INTENTIONS OR STRATEGIES REGARDING THE FUTURE. FORWARD-LOOKING STATEMENTS
INCLUDE STATEMENTS REGARDING THE PLANS AND OBJECTIVES OF THE COMPANY FOR FUTURE
OPERATIONS AND TRENDS AFFECTING THE COMPANY'S FINANCIAL CONDITION AND RESULTS OF
OPERATIONS. IN ADDITION, THE WORDS "ANTICIPATES," "PROJECTS," "PLANS,"
"INTENDS," "ESTIMATES," "EXPECTS," "MAY," "BELIEVES" AND SIMILAR WORDS ARE
INTENDED TO IDENTIFY THESE FORWARD-LOOKING STATEMENTS. ALL FORWARD-LOOKING
STATEMENTS IN THIS REPORT ARE BASED ON INFORMATION AVAILABLE TO THE COMPANY (AS
HEREINAFTER DEFINED) AS OF THE DATE THIS REPORT IS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION, AND THE COMPANY ASSUMES NO OBLIGATION TO UPDATE ANY SUCH
FORWARD-LOOKING STATEMENTS, EXCEPT AS REQUIRED BY LAW. ALL FORWARD-LOOKING
STATEMENTS INVOLVE RISKS AND UNCERTAINTIES. ACTUAL RESULTS MAY DIFFER MATERIALLY
FROM THOSE EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS AS A RESULT
OF CERTAIN FACTORS INCLUDING, BUT NOT LIMITED TO, THE UNAVAILABILITY OR A
MATERIAL INCREASE IN THE PRICE OF NEWSPRINT, THE SUCCESS OF THE COMPANY'S
ACQUISITION STRATEGY, DISPOSITIONS, THE ABILITY OF THE COMPANY TO ACHIEVE COST
REDUCTIONS AND INTEGRATE ACQUISITIONS, COMPETITIVE PRESSURES, GENERAL OR
REGIONAL ECONOMIC CONDITIONS, ADVERTISING TRENDS AND MATERIAL INCREASES IN
INTEREST RATES, AMONG OTHER THINGS. THESE AND OTHER FACTORS ARE DISCUSSED IN
MORE DETAIL BELOW UNDER "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CERTAIN FACTORS WHICH MAY AFFECT
THE COMPANY'S FUTURE PERFORMANCE." SUCH FACTORS SHOULD NOT BE CONSTRUED AS
EXHAUSTIVE. THE COMPANY UNDERTAKES NO OBLIGATION TO RELEASE PUBLICLY THE RESULTS
OF ANY FUTURE REVISIONS IT MAY MAKE TO FORWARD-LOOKING STATEMENTS TO REFLECT
EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF
UNANTICIPATED EVENTS.
PART I
ITEM 1. BUSINESS.
GENERAL
Journal Register Company (the "Company") is a leading U.S. newspaper
publisher that owns and operates 23 daily newspapers and 237 non-daily
publications (including a January 2004 acquisition) strategically clustered in
six geographic areas: Greater Philadelphia, Connecticut, Greater Cleveland,
Central New England, and the Capital-Saratoga and Mid-Hudson regions of New
York. The Company's total paid daily circulation is approximately 534,000 and
total non-daily distribution is approximately 3.7 million. The Company's
newspapers are characterized by their intense focus on the coverage of local
news and local sports, their compelling graphic design and their colorful,
reader-friendly packages. The Company is also committed to expanding its
business through its Internet initiatives, and currently operates 152 Websites
that are affiliated with the Company's daily newspapers and non-daily
publications.
The principal elements of the Company's strategy are to: (i) expand
advertising revenues and readership; (ii) grow by acquisition; (iii) capture
synergies from geographic clustering; and (iv) implement consistent operating
policies and standards. The Company's objective is to grow its revenues, EBITDA,
free cash flow and net income.
The Company is a leader in the newspaper industry in executing a clustering
strategy. The Company believes that its clustering strategy creates significant
synergies and cost savings within each cluster, including cross-selling of
advertising, centralized news gathering and consolidation of printing,
production and back office activities. The Company also believes that its
clustering strategy enables it to improve print quality and distribution,
introduce new products and services in a cost-effective manner and increase
readership. In addition, clustering enables the Company's advertisers to expand
their reach and target their message both geographically and demographically.
From September 1993 through January 2004, the Company successfully
completed 27 acquisitions and two dispositions.
The majority of the Company's daily newspapers have been published for more
than 100 years and are established franchises with strong identities in the
communities they serve. For example, the NEW HAVEN REGISTER,
1
the Company's largest newspaper based on daily circulation, has roots in the New
Haven, Connecticut area dating back to 1755. In many cases, the Company's daily
newspapers are the only general circulation daily newspapers published in their
respective communities. The Company's non-daily publications serve well-defined
suburban areas.
The Company manages its newspapers to best serve the needs of its local
readers and advertisers. The editorial content of its newspapers is tailored to
the specific interests of each community served and includes coverage of local
youth, high school, college and professional sports, as well as local business,
politics, entertainment and culture. The Company maintains high product quality
standards and uses extensive process color and compelling graphic design to more
fully engage existing readers and to attract new readers. The Company's
newspapers typically are produced using advanced prepress pagination technology,
and are printed on efficient, high-speed presses.
The Company's revenues are derived from advertising (73.6 percent of fiscal
year 2003 revenues), paid circulation (22.2 percent of fiscal year 2003
revenues), including single copy sales and subscription sales, and commercial
printing and other activities (4.2 percent of fiscal year 2003 revenues). The
Company's advertiser base is predominantly local. The Company's newspapers seek
to produce desirable results for local advertisers by targeting readers based on
certain geographic and demographic characteristics. The Company seeks to
increase readership, and thereby generate traffic for its advertisers, by
focusing on high product quality, compelling and often proprietary local content
and creative and interactive promotions. The Company promotes single copy sales
of its newspapers because it believes that such sales have even higher
readership than subscription sales, and that single copy readers tend to be more
active consumers of goods and services, as indicated by a Newspaper Association
of America ("NAA") study. Single copy sales also tend to generate higher profit
margins than subscription sales, as single copy sales generally have higher per
unit prices and lower distribution costs. Subscription sales, which provide
readers with the convenience of home delivery, are an important component of the
Company's circulation base. The Company also publishes numerous special
sections, as well as niche and special interest publications. Such publications
tend to increase readership within targeted demographic groups and geographic
areas. The Company's management believes that as a result of these strategies,
its newspapers represent an attractive and cost-effective medium for its readers
and advertisers.
The Company's advertising revenues in 2003 were derived primarily from a
broad group of local retailers (approximately 55 percent) and classified
advertisers (approximately 40 percent). No single advertiser accounted for more
than one percent of the Company's total fiscal year 2003 revenues. The Company's
management believes that its advertising revenues tend to be relatively stable
because its newspapers rely primarily on a broad base of local retail and local
classified advertising, rather than the generally more volatile national and
major account advertising that accounts for only approximately five percent of
the Company's advertising revenues.
Substantially all of the Company's operations relate to newspaper
publishing. In addition to its daily newspapers and non-daily publications, the
Company currently owns three commercial printing operations that complement and
enhance its publishing operations.
OVERVIEW OF OPERATIONS
The Company's operations are clustered in six geographic areas:
GREATER PHILADELPHIA. The suburban Philadelphia area is one of the fastest
growing and most affluent areas in Pennsylvania. Since 1990, the population of
the areas covered by the Company's Greater Philadelphia Cluster has increased
approximately nine percent, and average household income has increased
approximately 58 percent.
The Company owns seven daily newspapers and 114 non-daily publications
serving areas surrounding Philadelphia. These publications include: in
Pennsylvania, the DELAWARE COUNTY DAILY AND SUNDAY TIMES (Primos); the DAILY
LOCAL NEWS (West Chester); THE MERCURY (Pottstown); THE TIMES HERALD
(Norristown); THE REPORTER (Lansdale); THE PHOENIX (Phoenixville); Montgomery
Newspapers, a group of 25 non-daily publications; News Gleaner Publications,
which includes eight weekly publications serving Northeast Philadelphia and
seven monthly publications serving Montgomery County, Pennsylvania; the
InterCounty Newspaper Group, a group of 18 weekly newspapers serving suburban
Philadelphia and central and southern New Jersey; Chesapeake Publishing, a group
of 15 non-daily publications; Town Talk Newspapers (Media), a group of seven
non-daily publications; Acme Newspapers, a group of four non-daily newspapers,
including the MAIN LINE TIMES, serving Philadelphia's affluent
2
Main Line; the NEWS OF DELAWARE COUNTY, one of the largest community newspapers
in the United States audited by the Audit Bureau of Circulations ("ABC"); and
the Penny Pincher Shopper publications (Pottstown). Also, in New Jersey, the
Company owns THE TRENTONIAN (Trenton, NJ), a daily newspaper operation. The
Company also owns two commercial printing companies in Pennsylvania, one of
which prints more than 60 of the Company's non-daily publications in addition to
printing for other non-affiliated customers, and the other is a premium quality
sheet-fed printing operation.
The seven Greater Philadelphia Cluster daily newspapers have aggregate
daily and aggregate Sunday circulation of approximately 185,000 and 170,000,
respectively. The Company's aggregate non-daily distribution in the Company's
Greater Philadelphia Cluster is approximately 1.2 million.
In 2003, the Company launched HUNTERDON COUNTY TOWN & COUNTRY LIVING
Magazine, a quarterly publication with distribution of approximately 20,000
serving affluent and fast-growing Hunterdon County, New Jersey, as part of the
Company's Town and Country Magazine division.
In 2002, the Company launched the Lansdale edition of THE SUNDAY TIMES
HERALD, adding circulation of approximately 15,000 on Sunday in Montgomery
County. This edition provides advertisers with a local Sunday newspaper to reach
the desirable Lansdale market. The Company also added to its Greater
Philadelphia Cluster with the completion of two strategic acquisitions in 2002,
acquiring the News Gleaner publications and the County Press publications.
3
The following table sets forth information regarding the Company's
publications in Greater Philadelphia:
YEAR YEAR PRINCIPAL DAILY SUNDAY NON-DAILY
PUBLICATION ORIGINATED(1) ACQUIRED LOCATION CIRCULATION(2) CIRCULATION(2) DISTRIBUTION(3)
- ----------------------------------------------------------------------------------------------------------------------------
DELAWARE COUNTY DAILY AND
SUNDAY TIMES............. 1876 1998 Primos, PA 47,867 44,092
DAILY LOCAL NEWS.......... 1872 1986 West Chester, PA 26,662 30,152
THE MERCURY............... 1930 1998 Pottstown, PA 24,203 26,502
THE TIMES HERALD.......... 1799 1993 Norristown, PA 17,666 15,408
THE REPORTER.............. 1870 2001 Lansdale, PA 18,195 16,815
THE PHOENIX............... 1888 1986 Phoenixville, PA 3,675
THE TRENTONIAN............ 1945 1985 Trenton, NJ 46,284 36,573
Montgomery Newspapers
25 publications......... 1872 2001 Ft. Washington, PA 274,326
News Gleaner Publications
15 publications......... 1882 2002 Philadelphia, PA 170,889
InterCounty Newspaper
Group
18 publications......... 1869 1997 Newtown, PA 76,007
Chesapeake Publishing
15 publications........ 1869 2001 Kennett Sq., PA 85,256
Town Talk Newspapers
7 publications......... 1964 1998 Ridley, PA 85,000
Acme Newspapers
4 publications......... 1930 1998 Ardmore, PA 56,617
Penny Pincher Shoppers
7 publications......... 1988 1998 Pottstown, PA 58,500
Suburban Publications
3 publications......... 1885 1986 Wayne, PA 32,045
County Press Publications
6 publications......... 1931 2002 Newtown Sq., PA 21,794
LIL' BOOK................. 2001 2001(4) Trenton, NJ 45,000
REAL ESTATE TODAY......... 1978 1998 Pottstown, PA 36,000
TRI-COUNTY RECORD......... 1975 1986 Morgantown, PA 40,200
THE HOMES MAGAZINE........ 1988 1988(4) West Chester, PA 18,000
CHESTER COUNTY KIDS....... 2001 2001(4) West Chester, PA 18,000
THE VILLAGE NEWS.......... 1980 1986 Downingtown, PA 18,000
TOWNSHIP VOICE............ 1991 1991 Phoenixville, PA 15,000
THE TIMES RECORD.......... 1980 1986 Kennett Sq., PA 9,000
BLUE BELL JOURNAL......... 1999 1999(4) Blue Bell, PA 5,225
Total Market Coverage
("TMC") (5 publications).. 103,500
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL 184,552 169,542 1,168,359
===========================================================================================================================
(1) For merged newspapers and newspaper groups, the year given reflects the
date of origination for the earliest publication.
(2) Circulation averages are according to the most recently released Audit
Bureau of Circulation ("ABC") Audit Reports.
(3) Non-daily distribution includes both paid and free distribution. Non-daily
distribution reflects averages according to the most recently released ABC
or Certified Audit of Circulations ("CAC") audit reports or the average
distribution for December 2003.
(4) Represents the year the Company started the publication.
The majority of the Company's Pennsylvania publications are located within
a 30-mile radius of Philadelphia. The Company's newspapers serve geographic
areas with highly desirable demographics. The DELAWARE COUNTY DAILY AND SUNDAY
TIMES serves an area that has a population of 584,488. The population remained
stable from 1980 to 2003. The DELAWARE COUNTY DAILY AND SUNDAY TIMES' market
area has average household income of $76,095, which is 20 percent above the
national average. The DAILY LOCAL NEWS serves an area which has a population of
434,773 and had population growth of approximately 47 percent from 1980 to 2003.
The DAILY LOCAL NEWS serves an area that has average household income of
$89,872, which is 42 percent above the national average. THE MERCURY, located
west of Philadelphia, serves an area that has a population of 479,638 and had
population growth of approximately 30 percent from 1980 to 2003. The area THE
MERCURY serves has average household income of $73,777, which is 17 percent
above the national average. THE TIMES HERALD serves an area that has a
population of 188,342 and had population growth of approximately 18
4
percent from 1980 to 2003. THE TIMES HERALD'S market area has average household
income of $79,920, which is 26 percent above the national average. THE REPORTER
serves an area that has a population of 408,912 and had population growth of
approximately 23 percent from 1990 to 2003. THE REPORTER'S market area has an
average household income of $86,725, which is 37 percent above the national
average. THE PHOENIX serves an area that has a population of 134,666 and had
population growth of approximately 47 percent from 1980 to 2003. THE PHOENIX'S
market area has average household income of $93,765, which is 48 percent above
the national average. The Company's weekly newspaper group, Suburban
Publications, which is located on the Main Line in suburban Philadelphia, serves
an area that has a population of 341,993 and had population growth of
approximately 26 percent from 1980 to 2003. The market area served by Suburban
Publications has average household income of $110,814, which is 75 percent above
the national average. The MAIN LINE TIMES, the flagship of the Company's Acme
Newspapers group, serves an area that has a population of 402,374 and had
population growth of approximately four percent from 1980 to 2003. The MAIN LINE
TIMES' market area has average household income of $136,387, which is 116
percent above the national average. The majority of the Company's Pennsylvania
properties are located within 20 miles of the area's largest retail complex, the
King of Prussia Mall, which is the largest mall in the United States based on
retail square footage.
THE TRENTONIAN is published in Trenton, the capital of New Jersey, which is
located 35 miles north of Philadelphia and 65 miles south of New York City. THE
TRENTONIAN serves an area that has a population of 298,352 and had population
growth of approximately 12 percent from 1980 to 2003. This area has average
household income of $72,869, which is 15 percent above the national average.
As a result of the synergies in the Company's Greater Philadelphia Cluster,
the Company has been able to cross-sell advertising into multiple publications.
The nature of the cluster also allows for the implementation of significant cost
savings programs. For example, in December 2001, the Company commenced
operations at its new production facility, Journal Register Offset, located in
Exton, Pennsylvania. This plant produces five of the Company's seven dailies -
the DAILY LOCAL NEWS, THE MERCURY, THE TIMES HERALD, THE REPORTER and THE
PHOENIX - and 38 of the Company's 114 non-daily publications in the Company's
Greater Philadelphia Cluster. The new facility produces award-winning product
quality and generated approximately $1.5 million and $1.1 million of cash
operating expense savings in fiscal years 2003 and 2002, respectively. In
addition, the Company's publications in its Greater Philadelphia Cluster share
several news gathering resources.
CONNECTICUT. In Connecticut, the Company owns the NEW HAVEN REGISTER, a
small metropolitan daily newspaper with daily circulation of nearly 100,000 and
Sunday circulation of over 100,000, four suburban daily newspapers, 74 suburban
non-daily publications and one commercial printing company. The suburban daily
newspapers in the Connecticut Cluster are THE HERALD (New Britain), THE BRISTOL
PRESS, THE REGISTER CITIZEN (Torrington) and THE MIDDLETOWN PRESS. The five
daily newspapers have aggregate daily and Sunday circulation of approximately
142,000 and 140,000, respectively. The 74 non-daily publications have aggregate
distribution of approximately 1.7 million. Included in the non-daily
publications is CONNECTICUT MAGAZINE, the state's premier lifestyle magazine
that was acquired in September 1999. The Company's Connecticut daily newspapers
and non-daily publications serve a statewide audience with concentrations in
western Connecticut (Litchfield and Fairfield counties) to Hartford and its
suburban areas, to the Greater New Haven area, as well as the Connecticut
shoreline from New Haven northeast to New London.
In 2003, the Company launched PASSPORT, a quarterly regional lifestyle
magazine serving the fast-growing and affluent areas of Litchfield and Fairfield
counties in Connecticut, Dutchess and Columbia counties in New York, and the
Berkshire Mountains region of Massachusetts. PASSPORT had an initial
distribution of 25,000 and was launched by the Litchfield County Times Group,
which is based in New Milford, Connecticut.
5
The following table sets forth information regarding the Company's
publications in Connecticut:
YEAR YEAR PRINCIPAL DAILY SUNDAY NON-DAILY
PUBLICATION ORIGINATED(1) ACQUIRED LOCATION CIRCULATION(2) CIRCULATION(2) DISTRIBUTION(3)
- -----------------------------------------------------------------------------------------------------------------------------
NEW HAVEN REGISTER............... 1755 1989 New Haven 95,902 100,053
THE HERALD....................... 1881 1995 New Britain 15,486 31,388
THE BRISTOL PRESS................ 1871 1994 Bristol 12,091
THE REGISTER CITIZEN............. 1889 1993 Torrington 9,709 8,972
THE MIDDLETOWN PRESS............. 1884 1995 Middletown 9,056
Shore Line Newspapers
10 publications................ 1877 1995 Guilford 82,841
Litchfield County Times Group
4 publications............... 1981 2001 New Milford 96,259
Housatonic Publications
8 publications............... 1825 1998 New Milford 53,490
Imprint Newspapers
12 publications................ 1880 1995 Bristol 93,442
Elm City Newspapers
6 publications............... 1931 1995 Milford 47,150
Minuteman Newspapers
2 publications............... 1993 1998 Westport 35,283
CONNECTICUT COUNTY KIDS
2 publications............... 1989 1996 Westport 40,735
FOOTHILLS TRADER
3 publications............... 1965 1995 Torrington 49,672
CONNECTICUT MAGAZINE
3 publications............... 1938 1999 Trumbull 715,777
Gamer Publications
3 publications............... 1981 1995 Bristol 61,000
MAIN STREET NEWS
3 publications............... 1989 2002 Essex 24,286
EAST HARTFORD GAZETTE............ 1885 1995 East Hartford 19,258
HOMEFINDER....................... 1976 1995 New Britain 15,220
THOMASTON EXPRESS................ 1874 1994 Thomaston 1,581
TMC (14 publications)............ 397,280
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL 142,244 140,413 1,733,274
=============================================================================================================================
(1) For merged newspapers and newspaper groups, the year given reflects the
date of origination for the earliest publication.
(2) Circulation averages are according to the most recently released ABC Audit
Reports.
(3) Non-daily distribution includes both paid and free distribution. Non-daily
distribution reflects averages according to the most recently released ABC
or CAC audit reports or average distribution for December 2003, with the
following exception: two of CONNECTICUT MAGAZINE's publications, which are
published annually, the CONNECTICUT VACATION GUIDE and CONNECTICUT BRIDE,
reflect annual distribution of 600,000 and 30,000, respectively.
The Company's Connecticut publications serve communities with attractive
demographics. The NEW HAVEN REGISTER is the Company's largest newspaper based on
daily circulation and is the second largest daily circulation newspaper in
Connecticut. The NEW HAVEN REGISTER serves a primary circulation area comprised
of the majority of New Haven County and portions of Fairfield, Middlesex and New
London counties. This area (including the portions of Fairfield County, which
are also served by related non-daily publications) has a population of 812,340
and had population growth of approximately 17 percent from 1980 to 2003. This
area has average household income of $75,969, which is 20 percent above the
national average, and a retail environment comprised of approximately 7,300
stores. The NEW HAVEN REGISTER'S primary circulation area is home to a number of
large and well-established institutions, including Yale University and Yale-New
Haven Hospital. As a result of its proximity to the large media markets of New
York City, Boston and Hartford, New Haven has only two locally licensed
television stations (which serve a statewide, rather than a local audience). The
radio market in New Haven is also fragmented. Consequently, the Company's
management believes that the NEW HAVEN REGISTER is a very powerful local news
and advertising franchise for the Greater New Haven area.
THE HERALD, THE BRISTOL PRESS and THE MIDDLETOWN PRESS serve contiguous
areas between New Haven and Hartford. THE BRISTOL PRESS serves an area that has
a population of 340,501 and had population growth of approximately nine percent
from 1980 to 2003. THE BRISTOL PRESS' market area has average household income
of
6
$81,783, which is 29 percent above the national average. THE MIDDLETOWN PRESS
serves an area that has a population of 107,360 and had population growth of
approximately 26 percent from 1980 to 2003. The area served by THE MIDDLETOWN
PRESS has average household income of $75,151, which is 19 percent above the
national average. THE HERALD serves an area that has a population of 108,861,
and had population growth of approximately five percent from 1980 to 2003. THE
HERALD'S market area has average household income of $55,348. THE REGISTER
CITIZEN serves an area that has a population of 255,826 and had population
growth of approximately 17 percent from 1980 to 2003. THE REGISTER CITIZEN'S
market area has average household income of $81,588 which is 29 percent above
the national average.
The Company's Connecticut publications benefit from cross-selling of
advertising, as well as from editorial, production and back office synergies.
For example, the NEW HAVEN REGISTER gathers statewide news for all of the
Company's Connecticut newspapers; the newspapers cross-sell advertising through
a one-order, one-bill system; and THE HERALD and THE MIDDLETOWN PRESS are
printed at one facility, as are THE REGISTER CITIZEN and THE BRISTOL PRESS.
Moreover, in August 1996, in order to take advantage of the contiguous nature of
the geographic areas served by THE HERALD, THE BRISTOL PRESS and THE MIDDLETOWN
PRESS, the Company launched a combined Sunday newspaper, THE HERALD PRESS, which
serves the readers of these three daily newspapers with three zoned editions and
has a Sunday circulation of approximately 31,400 as of September 30, 2002,
according to the ABC Audit Report.
GREATER CLEVELAND. The Company owns two Cleveland, Ohio area newspaper
operations, THE NEWS-HERALD (Willoughby) and THE MORNING JOURNAL (Lorain). The
aggregate daily and aggregate Sunday circulation of the Cleveland-area
newspapers is approximately 78,000 and 92,000, respectively. The four non-daily
publications in the Greater Cleveland cluster have aggregate distribution of
approximately 106,000.
The following table sets forth information regarding the Company's
publications in Greater Cleveland:
YEAR YEAR PRINCIPAL DAILY SUNDAY NON-DAILY
PUBLICATION ORIGINATED(1) ACQUIRED LOCATION CIRCULATION(2) CIRCULATION(2) DISTRIBUTION(3)
- ----------------------------------------------------------------------------------------------------------------------------
THE NEWS-HERALD............ 1878 1987 Willoughby 45,893 56,790
THE MORNING JOURNAL........ 1921 1987 Lorain 32,568 34,729
COUNTY KIDS Willoughby
2 publications.......... 1997 1997(4) and Lorain 33,900
TMC (2 publications) ...... 71,630
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL 78,461 91,519 105,530
============================================================================================================================
(1) For merged newspapers and newspaper groups, the year given reflects the
date of origination for the earliest publication.
(2) Circulation averages are according to the most recently released ABC Audit
Reports.
(3) Non-daily distribution is free distribution and reflects average
distribution for December 2003.
(4) Represents the year the Company started the publication.
THE NEWS-HERALD and THE MORNING JOURNAL serve areas located directly east
and west of Cleveland, respectively. THE NEWS-HERALD, which is one of Ohio's
largest suburban newspapers, serves communities located in Lake and Geauga
counties, two of Ohio's five most affluent counties. Lake and Geauga counties
have populations of 228,267 and 93,931, respectively, and had population growth
of approximately eight percent and 36 percent, respectively, from 1980 to 2003.
Lake and Geauga counties have average household incomes of $65,047 and $89,406,
respectively, which are three percent and 41 percent above the national average.
THE MORNING JOURNAL serves an area that has a population of 153,920 with
population growth of approximately five percent from 1980 to 2003. Average
household income is $64,224 in the area served by THE MORNING JOURNAL. The
Greater Cleveland Cluster benefits from a variety of synergies, including
advertising cross-sell arrangements and certain news gathering resources.
CENTRAL NEW ENGLAND. The Company owns five daily and 25 non-daily
publications in the central New England area. The Company's publications in this
cluster include THE HERALD NEWS (Fall River, MA), the TAUNTON DAILY GAZETTE
(Taunton, MA), THE CALL (Woonsocket, RI), THE TIMES (Pawtucket, RI), the KENT
COUNTY DAILY TIMES (West Warwick, RI), and two groups of weekly newspapers
serving southern Rhode Island, including South County, THE NORTH ATTLEBOROUGH
FREE PRESS (North Attleborough, MA), and O JORNAL (Fall River, MA), a
Portuguese-
7
language weekly newspaper acquired in January 2004. The five daily newspapers
have aggregate daily circulation of approximately 68,000 and aggregate Sunday
circulation of approximately 56,000. The non-daily publications in this cluster
have total distribution of approximately 302,000.
The following table sets forth information regarding the Company's
publications in Central New England:
YEAR YEAR PRINCIPAL DAILY SUNDAY NON-DAILY
PUBLICATION ORIGINATED(1) ACQUIRED LOCATION CIRCULATION(2) CIRCULATION(2) DISTRIBUTION(3)
- ----------------------------------------------------------------------------------------------------------------------------
THE HERALD NEWS........... 1872 1985 Fall River, MA 22,930 24,401
TAUNTON DAILY GAZETTE..... 1848 1996 Taunton, MA 12,906 12,348
THE CALL.................. 1892 1984 Woonsocket, RI 14,131 19,223
THE TIMES................. 1885 1984 Pawtucket, RI 13,673
KENT COUNTY DAILY TIMES 1892 1999 West Warwick, RI 4,134
Southern Rhode Island
Newspapers
8 publications........ 1854 1995 Wakefield, RI 39,960
Hometown Newspapers
6 publications........ 1969 1999 West Warwick, RI 44,611
COUNTY KIDS
3 publications......... 1997 1997(4) Fall River, MA,
Taunton, MA and
Pawtucket, RI 49,301
NEIGHBORS................. 1999 1999(4) Pawtucket and
Woonsocket, RI 19,260
NORTHWEST NEIGHBORS....... 2002 2002 Woonsocket, RI 9,948
THE NORTH ATTLEBOROUGH North
FREE PRESS................ 1987 2003 Attleborough, MA 13,673
O JORNAL.................. 1975 2004 Fall River, MA 14,300
TMC (4 publications)...... 110,466
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL 67,774 55,972 301,519
============================================================================================================================
(1) For merged newspapers and newspaper groups, the year given reflects the
date of origination for the earliest publication.
(2) Circulation averages are according to the most recently released ABC Audit
Reports.
(3) Non-daily distribution reflects average distribution for December 2003,
with the exception of THE COVENTRY COURIER, THE EAST GREENWICH PENDULUM,
THE NARRAGANSETT TIMES, THE STANDARD TIMES, AND THE CHARIHO TIMES (all
Southern Rhode Island Newspapers), which reflect the ABC Audit Report for
the 12 month period ended December 31, 2002.
(4) Represents the year the Company started the publication.
THE HERALD NEWS and the TAUNTON DAILY GAZETTE are situated 14 miles apart.
Each is less than 40 miles south of Boston, Massachusetts and 25 miles east of
Providence, Rhode Island. The region's second largest shopping mall, located in
Taunton, contains one million square feet of retail space and approximately 150
stores. THE HERALD NEWS serves an area that has a population of 167,673 and had
population growth of approximately three percent from 1980 to 2003. The market
area served by THE HERALD NEWS has average household income of $53,318. The
TAUNTON DAILY GAZETTE serves an area that has a population of 142,720 and had
population growth of approximately 37 percent from 1980 to 2003. The TAUNTON
DAILY GAZETTE's market area has average household income of $67,138. THE CALL
serves an area that has a population of 191,905 and had population growth of
approximately 18 percent from 1980 to 2003. THE CALL's market area has average
household income of $67,545, which is seven percent above the national average.
THE TIMES serves an area that has a population of 202,948 and had population
growth of approximately 16 percent from 1980 to 2003. The market area served by
THE TIMES has average household income of $57,378. Southern Rhode Island
Newspapers serve an area that has a population of 167,319 and had population
growth of approximately 37 percent from 1980 to 2003. The market area served by
Southern Rhode Island Newspapers has average household income of $78,038, which
is 23 percent above the national average.
In 2003, the Company added to its Central New England cluster with the
acquisition of THE NORTH ATTLEBOROUGH FREE PRESS, a weekly newspaper based in
North Attleborough, Massachusetts, with distribution of approximately 13,500. In
January 2004, the Company further expanded its reach to the large Portuguese
community
8
in Central New England by acquiring O JORNAL, a weekly Portuguese-language
newspaper based in Fall River, Massachusetts, with distribution of 14,300. O
JORNAL serves a Portuguese community in Massachusetts and Rhode Island estimated
to have a population of 370,000.
No local television stations exist in the communities served by the
Company's Central New England newspapers. Furthermore, the Company believes that
its Central New England properties benefit from the fragmentation of local radio
markets. As a result, the Company believes that each of its newspapers is a
significant media outlet in its respective community, thereby making these
newspapers attractive vehicles for area advertisers. The Central New England
newspapers benefit from advertising cross-sell arrangements, as well as
significant production and editorial synergies. For example, THE TIMES, THE CALL
and the KENT COUNTY DAILY TIMES are printed at the same facility, as are the
TAUNTON DAILY GAZETTE, THE HERALD NEWS and O JORNAL. Southern Rhode Island
Newspapers are printed at the Company's NEW HAVEN REGISTER facility.
CAPITAL-SARATOGA REGION OF NEW YORK. The Company owns three daily and five
non-daily publications in the Capital-Saratoga Region of New York. The Company's
publications in this cluster include THE RECORD (Troy), THE SARATOGIAN (Saratoga
Springs), THE ONEIDA DAILY DISPATCH and the weekly COMMUNITY NEWS, serving
Clifton Park. The daily newspapers have aggregate daily circulation of
approximately 40,000 and aggregate Sunday circulation of approximately 36,000.
The non-daily publications in this cluster have total distribution of
approximately 96,000.
The following table sets forth information regarding the Company's
publications in the Capital-Saratoga Region of New York:
YEAR YEAR PRINCIPAL DAILY SUNDAY NON-DAILY
PUBLICATION ORIGINATED(1) ACQUIRED LOCATION CIRCULATION(2) CIRCULATION(2) DISTRIBUTION(3)
- ----------------------------------------------------------------------------------------------------------------------------
THE RECORD................ 1896 1987 Troy 21,912 23,433
THE SARATOGIAN............ 1855 1998 Saratoga 10,924 12,303
Springs
THE ONEIDA
DAILY DISPATCH ........... 1850 1998 Oneida 6,795
Oneida-Chittenango
Pennysavers
2 publications......... 1957 1998 Oneida 23,085
COMMUNITY NEWS............ 1969 1998 Clifton Park 28,669
TMC (2 publications)...... 43,848
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL 39,631 35,736 95,602
============================================================================================================================
(1) For merged newspapers and newspaper groups, the year given reflects the
date of origination for the earliest publication.
(2) Circulation averages are according to the most recently released ABC Audit
Reports.
(3) Non-daily distribution includes both paid and free distribution and
reflects average distribution for December 2003.
THE RECORD and THE SARATOGIAN are situated approximately 26 miles apart in
the Capital-Saratoga region of New York. THE RECORD serves an area that has a
population of 174,821, which has remained relatively stable since 1980. THE
RECORD's market has average household income of $54,071. THE SARATOGIAN serves
an area that has a population of 211,238 and had population growth of
approximately 25 percent from 1980 to 2003. THE SARATOGIAN's market area has
average household income of $65,270. THE ONEIDA DAILY DISPATCH serves an area
that has a population of 74,652, and had population growth of approximately four
percent from 1980 to 2003. THE ONEIDA DAILY DISPATCH's market area has average
household income of $57,478. No local television stations exist in the
communities that the Company's Capital-Saratoga Region newspapers serve.
Furthermore, the Company believes that its Capital-Saratoga Region properties
benefit from the fragmentation of local radio markets. As a result, the Company
believes that each of its newspapers is a significant media outlet in its
respective community, thereby making these newspapers attractive vehicles for
area advertisers. THE RECORD, THE SARATOGIAN and the COMMUNITY NEWS benefit from
significant cross-selling of advertising. These newspapers also benefit from
significant production and news gathering synergies. THE RECORD, THE SARATOGIAN
and the COMMUNITY NEWS are printed at the Company's operating facility in Troy,
taking advantage of that facility's excess capacity and achieving significant
cost efficiencies.
9
MID-HUDSON REGION OF NEW YORK. The Company owns one daily newspaper and 16
non-daily publications in the Mid-Hudson Region of New York. The daily newspaper
in this cluster is the DAILY FREEMAN in Kingston. The Company's non-daily
publications in this cluster are the Taconic Press group, a group of 10
non-daily newspapers serving Dutchess County, New York, and THE PUTNAM COUNTY
COURIER, serving Putnam County, New York; and Roe Jan Independent Publishing,
which includes two non-daily publications. The Mid-Hudson Region cluster has
daily circulation of approximately 21,000, Sunday circulation of approximately
28,000 and total non-daily distribution of approximately 294,000.
The following table sets forth information regarding the Company's
publications in the Mid-Hudson Region of New York:
YEAR YEAR PRINCIPAL DAILY SUNDAY NON-DAILY
PUBLICATION ORIGINATED(1) ACQUIRED LOCATION CIRCULATION(2) CIRCULATION(2) DISTRIBUTION(3)
- ----------------------------------------------------------------------------------------------------------------------------
DAILY FREEMAN.............. 1871 1998 Kingston 21,480 28,221
Taconic Press
11 publications.......... 1846 1998 Millbrook 207,753
Roe Jan Independent
Publishing
2 publications........... 1973 2001 Hillsdale 18,804
WHEELS..................... 2001 2001(4) Kingston 38,350
DOORWAYS................... 1983 1998 Kingston 29,587
TMC (1 publication)........ 17,992
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL 21,480 28,221 312,486
============================================================================================================================
(1) For merged newspapers and newspaper groups, the year given reflects the
date of origination for the earliest publication.
(2) Circulation averages are according to the most recently released ABC Audit
Reports.
(3) Non-daily distribution includes both paid and free distribution and is
based on the average distribution for December 2003.
(4) Represents the year the Company started the publication.
The DAILY FREEMAN and TACONIC PRESS serve markets in the Mid-Hudson region
of New York. The DAILY FREEMAN serves an area that has a population of 283,304
and had population growth of approximately 13 percent from 1980 to 2003. The
DAILY FREEMAN's market area has average household income of $58,728. The Taconic
Press newspaper group based in Dutchess County serves an area that has a
population of 101,898 and had population growth of approximately 15 percent from
1980 to 2003. The Taconic Press publications serve markets with average
household income of $73,644, which is 17 percent above the national average. THE
PUTNAM COUNTY COURIER, the largest TACONIC PRESS non-daily publication, serves
an area that has a population of 98,970 and had population growth of
approximately 34 percent from 1980 to 2003. THE PUTNAM COUNTY COURIER's market
area has average household income of $97,200, which is 54 percent above the
national average. Roe Jan Independent Publishing, Inc., which is based in
Hillsdale, New York, publishes two non-daily publications. Markets served by Roe
Jan have average household income of $67,081, which is six percent above the
national average. Roe Jan's publications serve an area that has a population of
171,672 and had population growth of approximately five percent from 1990 to
2003.
The Company's management believes that its Mid-Hudson Region properties are
the leading sources of local information in the markets they serve. Only one
independent television station (which serves a regional, rather than a local
audience) exists in the communities that the Mid-Hudson Region publications
serve, and the local radio markets are fragmented. Consequently, each of these
newspapers is a significant media outlet in its respective community, thereby
making these newspapers attractive vehicles for area advertisers. The Mid-Hudson
Region newspapers benefit from significant cross-selling of advertising, as well
as production and editorial synergies. Certain publications in this cluster also
benefit from advertising cross-selling with certain newspapers in the Company's
Connecticut cluster, including THE REGISTER CITIZEN (Torrington, CT) and certain
of the Housatonic Publications (New Milford, CT), which serve Litchfield County,
Connecticut.
10
ONLINE OPERATIONS
Journal Register Company operates 152 Websites, which are affiliated with
the Company's daily newspapers and non-daily publications, as well as portal
sites for each of its six geographic clusters. The Company's online objective is
to have its Websites complement its print publications by providing certain
content from these publications, as well as unique content and interactive
features. The Company's Websites also provide an online marketplace for its
advertisers.
A number of the Websites can be accessed individually, through the
Company's "cluster" portal sites, which combine publications within a specific
geographic area, or through the Company's Corporate Website
(www.journalregister.com). The remaining Company newspapers, along with
Connecticut Magazine, have individual Websites.
The following is a list of the Company's cluster/portal Websites:
GEOGRAPHIC CLUSTER CLUSTER/PORTAL SITE
- ------------------ -------------------
(number of individual Websites)
Connecticut................................www.ctcentral.com (43)
Greater Philadelphia.......................www.allaroundphilly.com (70)
Greater Cleveland..........................www.allaroundcleveland.com (5)
Central New England........................www.ricentral.com (15)
Capital-Saratoga Region of New York........www.capitalcentral.com (6)
Mid-Hudson Region of New York..............www.midhudsoncentral.com (13)
The primary source of online revenue is classified advertising. For the
year ended December 28, 2003, the Company's Websites generated approximately
$4.7 million of revenue as compared to approximately $4.0 million for the fiscal
year ended December 29, 2002, an increase of 19.4 percent.
ADVERTISING
Substantially all of the Company's advertising revenues are derived from a
diverse group of local retailers and classified advertisers. The Company's
management believes that its advertising revenues tend to be relatively stable
because its newspapers rely on a broad base of local retail and local classified
advertising, rather than the generally more volatile national and major account
advertising. Local advertising is typically more stable than national
advertising because a community's need for local services provides a stable base
of local businesses and because local advertisers generally have fewer effective
advertising vehicles from which to choose.
Advertising revenues accounted for approximately 73.6 percent of the
Company's total revenues for fiscal year 2003. The Company's advertising rate
structures vary among its publications and are a function of various factors,
including advertising effectiveness, local market conditions and competition, as
well as circulation, readership, demographics and type of advertising (whether
classified or display). In fiscal year 2003, local and regional display
advertising accounted for the largest share of the Company's advertising
revenues (approximately 55 percent), followed by classified advertising
(approximately 40 percent) and national advertising (approximately 5 percent).
The Company's advertising revenues are not reliant upon any one company or
industry, but rather are supported by a variety of companies and industries,
including financial institutions, realtors, car dealerships, grocery stores,
universities, hospitals and many other local businesses. No single advertiser
accounted for more than one percent of the Company's total fiscal year 2003
revenues.
The Company's corporate management works with its local newspaper
management to approve advertising rates and to establish goals for each year
during a detailed annual budget process. As a result, local management is given
little latitude for discounting from the approved rates. Corporate management
also works with local advertising staffs to develop marketing kits and
presentations utilizing the results of third-party research studies and internal
marketing resources. A portion of the compensation for the Company's publishers
is based upon increasing advertising revenues. The Company stresses the timely
collection of receivables. Compensation of the Company's sales personnel depends
in part upon performance relative to goals and timely collection of advertising
receivables.
11
Additionally, corporate management facilitates the sharing of advertising
resources and information across the Company's publications and the Company's
publishers aggressively pursue cross-selling of advertising within their
respective geographic areas. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Certain Factors Which May Affect
the Company's Future Performance - Dependence on Local Economies."
CIRCULATION
The Company's circulation revenues are derived from home delivery sales of
publications to subscribers and single copy sales made through retailers and
vending racks. Circulation accounted for approximately 22.2 percent of the
Company's total revenues in fiscal year 2003. Approximately 62 percent of fiscal
year 2003 circulation revenues were derived from subscription sales and
approximately 38 percent from single copy sales. Single copy rates range from
$0.35 to $0.50 per daily copy and $0.75 to $1.75 per Sunday copy. The Company
promotes single copy sales of its newspapers because it believes that such sales
have even higher readership than subscription sales, and that single copy
readers tend to be more active consumers of goods and services, as indicated in
an NAA readership study. Single copy sales also tend to generate a higher profit
margin than subscription sales, as single copy sales generally have higher per
unit prices and lower distribution costs. As of December 28, 2003, the Company
had total daily paid circulation of approximately 534,000, paid Sunday
circulation of approximately 521,000 and non-daily distribution of approximately
3.7 million, most of which is distributed free of charge.
The Company's corporate management works with its local newspaper
management to establish subscription and single copy rates. In addition, the
Company tracks rates of newspaper returns and customer service calls in an
effort to optimize the number of newspapers available for sale and to improve
delivery and customer service. The Company also implements creative and
interactive programs and promotions to increase readership through both
subscription and single copy sales. The most recent Fall 2003 Scarborough
Research studies, which measured 20 of the Company's 23 daily newspapers and
several of its non-daily publications, reported a gain in overall readership as
compared to the results from Scarborough Research's Spring 2003 studies for the
papers measured. In recent years, circulation has generally declined throughout
the newspaper industry, and the Company's newspapers have generally experienced
this trend. The Company seeks to maximize the overall operating performance
rather than maximizing circulation of its individual newspapers.
OTHER OPERATIONS
As of December 28, 2003, the Company owned and operated three commercial
printing facilities: Imprint Print in North Haven, Connecticut; Nittany Valley
Offset in State College, Pennsylvania; and InterPrint in Bristol, Pennsylvania.
These facilities also print certain of the Company's publications. Commercial
printing operations and other revenues accounted for approximately 4.2 percent
of the Company's total revenues in fiscal year 2003.
EMPLOYEES
As of December 28, 2003, the Company employed approximately 4,600 full-time
and part-time employees, or 4,100 full-time equivalents ("FTEs"). Approximately
20 percent of the Company's employees are employed under collective bargaining
agreements. The Company anticipates that collective bargaining agreements at six
newspapers, constituting approximately 20 percent of the employees covered by
collective bargaining agreements, will be renegotiated in 2004.
RAW MATERIALS
The basic raw material for newspapers is newsprint. In fiscal year 2003,
the Company consumed approximately 47,000 metric tons of newsprint, excluding
paper consumed in its commercial printing operations. The average price per
metric ton of newsprint based on East Coast transactions prices in 2003, 2002
and 2001 was $503, $465 and $585, respectively, as reported by the trade
publication, PULP AND PAPER WEEKLY. The Company purchases the majority of its
newsprint through its central purchasing group, Journal Register Supply. The
Company has no long-term contracts to purchase newsprint. Generally, Journal
Register Supply purchases most of its newsprint from one or two suppliers,
although in the future the Company may purchase newsprint from other suppliers.
Historically, the percentage of newsprint from each supplier has varied. The
Company's management believes that concentrating its newsprint purchases in this
way provides a more secure newsprint supply and lower unit prices. The Company's
management also believes that it purchases newsprint at price levels lower than
those that are available to individually-owned small metropolitan and suburban
newspapers, and consistent with price levels generally available to the largest
newsprint purchasers. The available sources of newsprint have been, and the
12
Company believes will continue to be, adequate to supply the Company's needs.
The inability of the Company to obtain an adequate supply of newsprint in the
future could have a material adverse effect on the financial condition and
results of operations of the Company.
Historically, the price of newsprint has been cyclical and volatile. The
Company's average price per ton of newsprint for the full fiscal year increased
approximately eight percent in 2003, decreased approximately 22 percent in 2002
and increased approximately nine percent in 2001, each as compared to the
preceding year. The Company believes that if any price decrease or increase is
sustained in the industry, the Company will also be impacted by such change. The
Company seeks to manage the effects of increases in prices of newsprint through
a combination of, among other things, technology improvements, inventory
management and advertising and circulation price increases. In fiscal year 2003,
the Company's newsprint cost (excluding paper consumed in the Company's
commercial printing operations) was approximately six percent of the Company's
newspaper revenues.
COMPETITION
While most of the Company's newspapers do not have daily newspaper
competitors that are published in the same city, in certain of the Company's
markets, there is such direct competition. Most of the Company's newspapers
compete with other newspapers published in nearby cities and towns and with free
distribution and paid advertising weeklies, as well as other print and non-print
media. Competition for advertising and paid circulation comes from local,
regional and national newspapers, shoppers, television, radio, direct mail,
online services and other forms of communication and advertising media.
Competition for advertising revenue is largely based upon advertiser results,
readership, advertising rates, demographics and circulation levels, while
competition for circulation and readership is based largely upon the content of
the newspaper, its price and the effectiveness of its distribution. The
Company's management believes that its publications generally have been able to
compete effectively with other publications and other forms of media
advertising. Commercial printing, a highly competitive business, is largely
driven by price and quality. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Certain Factors Which May Affect
the Company's Future Performance - Newspaper Industry Competition."
SEASONALITY
Newspaper companies tend to follow a distinct and recurring seasonal
pattern. The first quarter of the year (January-March) tends to be the weakest
quarter because advertising volume is then at its lowest level. Correspondingly,
the fourth quarter (October-December) tends to be the strongest quarter, as it
includes heavy holiday season advertising.
ENVIRONMENTAL MATTERS
As is the case with other newspaper and similar publishing companies, the
Company is subject to a wide range of federal, state and local environmental
laws and regulations pertaining to air and water quality, storage tanks and the
management and disposal of waste at its facilities. To the best of the Company's
knowledge, its operations are in material compliance with applicable
environmental laws and regulations as currently interpreted. Management believes
that continued compliance with these laws and regulations will not have a
material adverse effect on the Company's financial condition or results of
operations.
REGULATION
Paid or requestor circulation newspapers with "periodical" mailing
privileges are required to obtain a "periodical" permit from, and file an annual
Statement of Ownership, Mailing and Circulation with the United States Postal
Service. Recent changes in telemarketing rules and regulations may impact the
ability of the Company to solicit new subscribers as well as the cost of such
solicitation. There is no significant regulation with respect to acquisition of
newspapers other than filings under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
CORPORATE GOVERNANCE AND AVAILABLE INFORMATION
The Board of Directors has elected a lead independent director, who will
preside over executive sessions of the Board. Currently, six of the eight
members of the Board of Directors, constituting all of the non-management
directors, are independent under the listing standards adopted by the New York
Stock Exchange, and all directors who serve on the Board's Audit Committee,
Compensation Committee and Corporate Governance Committee are
13
independent. Pursuant to the Company's pre-approval policy, the Audit Committee
approves in advance the services to be provided by the Company's independent
auditors.
The Company makes available a wide variety of information free of charge on
its Website at WWW.JOURNALREGISTER.COM. The Company's filings with the U.S.
Securities and Exchange Commission (the "SEC") are available on the Company's
Website as soon as reasonably practicable after the reports are electronically
filed with the SEC. The Company's Website also contains news releases, financial
information, Company profiles and certain corporate governance information.
Copies of the Company's Corporate Governance Guidelines, the Company's Code of
Business Conduct and Ethics, the Company's Code of Ethics for CEO and Other
Senior Financial Officers, the Company's Audit Committee Pre-Approval Policy,
the charters of each of the Committees of the Board of Directors, and
information regarding how interested parties may contact the Board, the lead
director or the non-management directors as a group will be available on the
Website on or prior to the Company's 2004 Annual Meeting of Shareholders. Mailed
copies of such information can be obtained free of charge by writing to the
Company at Journal Register Company, Investor Relations, State Street Square, 50
West State Street, Trenton, NJ 08608-1298, Attention: Corporate Secretary. The
contents of the Company's Websites are not incorporated into this filing.
14
ITEM 2. PROPERTIES.
As of December 28, 2003, the Company operated 137 facilities in the course
of producing and publishing its daily and non-daily publications. Approximately
96 of these facilities are leased for terms ranging from month-to-month to seven
years. These leased facilities range in size from approximately 180 to
approximately 19,000 square feet. Except as otherwise noted, the facilities are
utilized for office space. The location and approximate size of the principal
physical properties (1,500 square feet or greater) used by the Company at
December 28, 2003, as well as the expiration date of the leases relating to such
properties that the Company leases are set forth below:
OWNED LEASED LEASE
LOCATION SQUARE FEET SQUARE FEET EXPIRATION DATE
- ------------------------------------------------------------------------------------------------------------------
Ansonia, CT........................... 2,500(2)(3) 5/15/04
Bristol, CT........................... 40,000
Colchester, CT........................ 1,900 12/31/07
Guilford, CT.......................... 2,500 6/14/05
Hamden, CT............................ 15,000 8/20/07
Madison, CT........................... 2,900 9/30/08
Middletown, CT........................ 30,000
Milford, CT........................... 11,745
New Britain, CT....................... 33,977(2)
New Haven, CT......................... 205,000(2) 13,000(3) 3/31/04
New Milford, CT....................... 6,840 8/14/08
North Haven, CT....................... 24,000(2) 10,000(2)(3) 12/31/05
Old Saybrook, CT...................... 1,950 3/31/04
Torrington, CT........................ 41,370(2)
Trumbull, CT.......................... 6,187 4/1/04
Westport, CT.......................... 3,240 12/31/05
Fall River, MA........................ 53,371(2) 1,840 1/2/06
Taunton, MA........................... 21,100
Medford, NJ........................... 4,259 12/31/04
Moorestown, NJ........................ 2,000 3/31/08
Trenton, NJ........................... 51,489(2)(3) 18,889(1) 11/30/10
Turnersville, NJ...................... 11,032
Hillsdale, NY......................... 3,500 3/14/07
Kingston, NY.......................... 25,800(2)
Millbrook, NY......................... 5,000
Oneida, NY............................ 24,000(2)
Rhinebeck, NY......................... 2,000
Saratoga, NY.......................... 12,390
Troy, NY.............................. 140,000(2)
Lorain, OH............................ 68,770(2)
Willoughby, OH........................ 80,400(2)(3)
Ardmore, PA........................... 25,250
Bristol, PA........................... 70,000(2)
Exton, PA............................. 86,395(2)
Fort Washington, PA................... 23,490(2) 7,500 12/31/04
Holmes, PA............................ 8,000
Kennett Square, PA.................... 2,400 8/31/07
Lansdale, PA.......................... 22,400(2)
Media, PA............................. 4,500 4/30/04
Newtown, PA........................... 2,700 1/31/07
Newtown Square, PA.................... 3,000
Philadelphia, PA...................... 6,010 9/30/04
Phoenixville, PA...................... 10,696 4,800
Norristown, PA........................ 40,000(2)
Pottstown, PA......................... 48,000(2)
Primos, PA............................ 85,000(2)
Quarryville, PA....................... 4,755 4/3/06
Souderton, PA......................... 1,750 12/31/05
State College, PA..................... 23,365(2) 3,000(3) 7/31/04
Wayne, PA............................. 11,980
West Chester, PA...................... 34,000
Pawtucket, RI......................... 41,096
Wakefield, RI......................... 11,750 1,500 12/31/05
West Warwick, RI...................... 13,650
Woonsocket, RI........................ 50,938(2)(3)
- ---------------------------------------------------------------------------------------------------------------------
(1) Corporate headquarters
(2) Production facility
(3) Warehouse
Management believes that all of its properties are in good condition, are
generally well maintained and are adequate for their current operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
15
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in a number of litigation matters that have arisen
in the ordinary course of business. The Company believes that the outcome of
these legal proceedings will not have a material adverse effect on the Company's
financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
16
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information as of March 4, 2004 with
respect to each person who is an executive officer of the Company:
OFFICER POSITION
------- --------
Robert M. Jelenic Chairman, President and Chief Executive
Officer
Jean B. Clifton Executive Vice President, Chief Financial
Officer and Director
Thomas E. Rice Senior Vice President, Operations
Allen J. Mailman Senior Vice President, Technology
Marc S. Goldfarb Vice President, General Counsel and
Corporate Secretary
ROBERT M. JELENIC is Chairman, President and Chief Executive Officer of the
Company. He has been President and Chief Executive Officer since the inception
of the Company, and has been a director of the Company and its predecessors for
over ten years. A Chartered Accountant, Mr. Jelenic began his business career
with Arthur Andersen in Toronto, Canada. Mr. Jelenic has 28 years of senior
management experience in the newspaper industry, including 12 years with the
Toronto Sun Publishing Corp. Mr. Jelenic graduated Honors, Bachelor of Commerce
from Laurentian University, Sudbury, Ontario. Mr. Jelenic is a director of the
Audit Bureau of Circulations ("ABC") and Lamar Advertising Company. Mr. Jelenic
is 53 years old.
JEAN B. CLIFTON is Executive Vice President and Chief Financial Officer of
the Company, positions she has held since the Company's inception. Ms. Clifton
has also been a director of the Company and its predecessors for over ten years.
Ms. Clifton, a Certified Public Accountant, began her business career at Arthur
Young & Co. (a predecessor to Ernst & Young LLP). Ms. Clifton has 18 years of
senior management experience in the newspaper industry. Ms. Clifton is a member
of the Board of Directors of the NAA, as well as a member of the Board of
Directors of the Fresh Air Fund, and the Board of Directors of the Lower Bucks
County Chapter of the American Red Cross. Ms. Clifton received a Bachelor of
Business Administration in 1983 from the University of Michigan. Ms. Clifton is
43 years old.
THOMAS E. RICE is Senior Vice President of Operations of the Company, a
position he has held since November 2000. From the inception of the Company to
November 2000, Mr. Rice was located in St. Louis, Missouri, where he was
President and Chief Executive Officer of Suburban Newspapers of Greater St.
Louis and THE TELEGRAPH in Alton, Illinois, which the Company sold in 2000. Mr.
Rice began his career with Lee Enterprises in 1963 and has held senior
management positions with Tribune Company, The Times Mirror Company, MediaNews
Group and the Chicago Sun Times. Mr. Rice has 41 years of experience in the
newspaper industry. Mr. Rice is a member of the Newsprint Committee of the NAA.
Mr. Rice attended the University of Nebraska and Roosevelt University in
Chicago. Mr. Rice is 59 years old.
ALLEN J. MAILMAN is Senior Vice President of Technology of the Company, a
position he has held since February 1999. From March 1994 to February 1999, he
was Vice President of Technology of the Company. From the Company's inception in
1990 to March 1994, Mr. Mailman was Corporate Director of Information Services
of the Company. Mr. Mailman has 29 years of management experience in the
newspaper industry, including 14 years with Advance Publications, Inc. Mr.
Mailman received a Bachelor of Arts degree in Economics and Mathematics from the
University of Oklahoma. Mr. Mailman is 57 years old.
MARC S. GOLDFARB is Vice President, General Counsel and Corporate Secretary
of the Company. He has been Vice President and General Counsel since January
2003, and was appointed Corporate Secretary of the Company in May 2003. From
July 1998 to January 2003, he served as Managing Director and General Counsel of
The Vertical Group, an international private equity firm. Prior to that, Mr.
Goldfarb was a Partner at Bacher, Tally, Polevoy & Misher LLP. Mr. Goldfarb has
16 years of diverse legal, financial and strategic experience. Mr. Goldfarb
earned his Juris Doctor from the University of Pennsylvania and his Bachelor of
Science from Cornell University. Mr. Goldfarb is 40 years old.
17
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock, par value $0.01 per share (the "Common Stock"),
commenced trading on the New York Stock Exchange on May 8, 1997 under the symbol
"JRC." The following table reflects the high and low sale prices for the Common
Stock, based on the daily composite listing of stock transactions for the New
York Stock Exchange, for the periods indicated:
YEAR QUARTER LOW HIGH
----------------------------------------------------------
2002 First $19.30 $21.55
Second $19.85 $21.86
Third $16.14 $19.99
Fourth $17.00 $19.47
----------------------------------------------------------
2003 First $14.85 $18.26
Second $15.10 $18.90
Third $17.90 $19.49
Fourth $18.69 $20.40
On March 4, 2004, there were approximately 75 stockholders of record of the
Company's Common Stock. The Company believes that it has approximately 4,200
beneficial owners.
The Company has not paid dividends on its Common Stock and does not
currently anticipate paying dividends. The Company currently intends to retain
future cash flow to increase shareholder value by acquiring additional
newspapers, reducing debt, repurchasing the Company's stock and reinvesting in
the Company's operations. In addition, the Company's Credit Agreement (as
hereinafter defined) places limitations on the Company's ability to pay
dividends or make any other distributions on the Common Stock. See Note 4 of
"Notes to Consolidated Financial Statements." Any future determination as to the
payment of dividends will be subject to such prohibitions and limitations, will
be at the discretion of the Company's Board of Directors and will depend on the
Company's results of operations, financial condition, capital requirements and
other factors deemed relevant by the Board of Directors.
Journal Register Company conducts its operations through direct and
indirect subsidiaries. The Company's available cash will depend upon the cash
flow of its subsidiaries and the ability of such subsidiaries to make funds
available to the Company in the form of loans, dividends or otherwise. The
subsidiaries are separate and distinct legal entities and have no legal
obligation, contingent or otherwise, except as required by the Credit Agreement,
to make funds available to the Company, whether in the form of loans, dividends
or otherwise. The Credit Agreement is secured by substantially all of the assets
of the Company and the common stock and assets of the Company's subsidiaries. In
addition, the Company's subsidiaries may, subject to limitations contained in
the Credit Agreement, become parties to financing arrangements that may contain
limitations on the ability of such subsidiaries to pay dividends or to make
loans or advances to the Company. In the event of any insolvency, bankruptcy or
similar proceedings of a subsidiary, creditors of such subsidiary would
generally be entitled to priority over the Company with respect to financial
assets of the affected subsidiary.
18
ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial data (except number of publications) has
been derived from the audited financial statements of the Company and should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
and notes thereto included elsewhere in this report:
(DOLLARS IN THOUSANDS, EXCEPT PER
SHARE DATA AND RATIOS) DEC. 28, DEC. 29, DEC. 30, DEC. 31, DEC. 26,
FISCAL YEAR ENDED 2003 2002 2001 2000(1) 1999(1)
- ------------------------------------------------------------------------------------------------------------------------------
STATEMENT OF INCOME DATA:
Revenues:
Advertising $ 298,986 $ 297,056 $ 287,859 $ 343,130 $ 348,995
Circulation 90,034 91,123 87,737 96,852 96,783
- ------------------------------------------------------------------------------------------------------------------------------
Newspaper revenues 389,020 388,179 375,596 439,982 445,778
Commercial printing and other 16,966 19,575 18,809 23,987 23,787
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL 405,986 407,754 394,405 463,969 469,565
- ------------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Salaries and employee benefits 155,355 150,614 140,522 155,161 157,110
Newsprint, ink and printing charges(2) 31,181 32,023 37,741 46,533 48,432
Selling, general and administrative(2) 51,932 52,976 47,810 47,008 45,318
Depreciation and amortization 15,447 14,927 26,317 27,616 28,798
Other 58,334 56,866 53,474 58,395 57,975
- ------------------------------------------------------------------------------------------------------------------------------
312,249 307,406 305,864 334,713 337,633
- ------------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 93,737 100,348 88,541 129,256 131,932
- ------------------------------------------------------------------------------------------------------------------------------
Net interest expense and other (15,627) (23,677) (30,490) (48,020) (52,347)
Gains on sales of newspaper properties - - 32,212 180,720 -
- ------------------------------------------------------------------------------------------------------------------------------
Income before provision for income taxes and
equity interest 78,110 76,671 90,263 261,956 79,585
Provision for income taxes 6,120 27,444 10,818 90,951 31,694
- ------------------------------------------------------------------------------------------------------------------------------
Income before equity interest 71,990 49,227 79,445 171,005 47,891
Equity interest - - (1,313) (1,624) (226)
- ------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 71,990 $49,227 $78,132 $ 169,381 $47,665
==============================================================================================================================
Net income per common share:
Basic $ 1.75 $ 1.18 $ 1.85 $ 3.74 $ 1.02
Diluted $ 1.72 $ 1.16 $ 1.83 $ 3.72 $ 1.02
==============================================================================================================================
OTHER DATA:
EBITDA(3) $ 109,184 $115,275 $ 114,858 $ 156,871 $ 160,730
EBITDA Margin(3) 26.9% 28.3% 29.1% 33.8% 34.2%
Free cash flow, as adjusted(3) $ 58,916 $ 61,631 $ 57,136 $ 86,701 $ 87,371
Free cash flow, as adjusted, per diluted share(3) $ 1.41 $ 1.46 $ 1.34 $ 1.91 $ 1.86
Capital expenditures(4) $ 15,129 $ 13,010 $ 34,929 $ 21,550 $ 18,081
Number of publications, end of period:
Daily 23 23 23 24 25
Non-Daily 236 233 206 158 200
==============================================================================================================================
BALANCE SHEET DATA:
Total current assets $ 58,087 $ 65,383 $ 66,573 $ 79,359 $ 88,397
Property, plant and equipment, net 126,013 125,680 124,440 104,178 107,522
Total assets 693,060 701,703 711,171 657,350 687,180
Total current liabilities, less current
maturities of long-term debt 45,632 52,069 62,877 51,542 53,380
Total debt, including current maturities 418,345 483,369 522,771 494,635 731,467
Stockholders' equity $ 72,344 $(3,879) $ (36,198) $ (55,726) $(207,383)
- ------------------------------------------------------------------------------------------------------------------------------
19
- ------------------------
(1) In 1999, the Company changed its fiscal year from a calendar year to a
52/53 week fiscal year ending generally on the closest Sunday to the end of
the calendar year. As a result of this change, the Company's fiscal year
ended December 26, 1999 consisted of 360 days. The Company's fiscal year
ended December 31, 2000 consisted of 53 weeks.
(2) Certain operating expenses related to certain of the Company's acquisitions
have been reclassified in 2002 and 2003 to conform to the Company's
financial presentation. The reclassification had no impact on total
operating expenses, operating income, EBITDA or net income.
(3) EBITDA is defined by the Company as operating income plus depreciation,
amortization and other non-cash, special or non-recurring charges. Free
cash flow is defined as EBITDA minus capital expenditures, interest and
cash income taxes. The Company's cash income taxes prior to 2001 were
reduced substantially as a result of the utilization of net operating loss
carryforwards. EBITDA and free cash flow are not intended to represent cash
flow from operations and should not be considered as alternatives to
operating or net income computed in accordance with generally accepted
accounting principles in the United States ("GAAP") as indicators of the
Company's operating performance, as alternatives to cash from operating
activities (as determined in accordance with GAAP) or as measures of
liquidity.
The Company believes that EBITDA and free cash flow are standard measures
commonly reported and widely used by analysts, investors and other
interested parties in the media industry. Accordingly, this information has
been disclosed herein to permit a more complete comparative analysis of the
Company's operating performance and capitalization relative to other
companies in the industry and to provide an analysis of operating results
using certain principal measures utilized by Journal Register Company's
chief operating decision makers to measure the operating results and
performance of the Company and its field operations. However, not all
companies calculate EBITDA and free cash flow using the same methods;
therefore, the EBITDA and free cash flow figures set forth above may not be
comparable to EBITDA and free cash flow reported by other companies.
Certain covenants contained in the Company's Credit Agreement are based
upon EBITDA. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." EBITDA Margin is the ratio of EBITDA
to Total Revenues. Free cash flow per share is calculated using the
weighted-average shares outstanding on a fully diluted basis.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Reconciliation of Certain Non-GAAP Financial
Measures" for a reconciliation of non-GAAP financial measures used in this
report to the most directly comparable GAAP financial measures.
(4) Capital expenditures, excluding capitalized interest, related to the
Company's Philadelphia printing facility (Journal Register Offset) were
$22.8 million, $10.8 million and $1.8 million in fiscal years 2001, 2000
and 1999, respectively. Capitalized interest associated with Journal
Register Offset was $1.3 million in fiscal year 2001 and $601,000 in fiscal
year 2000. Journal Register Offset began operating in December 2001.
20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH
THE HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO AND THE OTHER
FINANCIAL INFORMATION APPEARING ELSEWHERE IN THIS REPORT.
GENERAL
The Company's principal business is publishing newspapers in the United
States, and its publications are primarily daily and non-daily newspapers and
similar publications. The Company's revenues are derived primarily from
advertising, paid circulation and commercial printing.
As of December 28, 2003, the Company owned and operated 23 daily newspapers
and 236 non-daily publications strategically clustered in six geographic areas:
Greater Philadelphia; Connecticut; Greater Cleveland; Central New England; and
the Capital-Saratoga and Mid-Hudson regions of New York. As of December 28,
2003, the Company had total paid daily circulation of approximately 534,000,
total paid Sunday circulation of approximately 521,000 and total non-daily
distribution of approximately 3.7 million.
The principal elements of the Company's strategy are to: (i) expand
advertising revenues and readership; (ii) grow by acquisition; (iii) capture
synergies from geographic clustering; and (iv) implement consistent operating
policies and standards.
As part of the Company's strategy, the Company focuses on increasing
advertising and circulation revenues and expanding readership at its existing
and newly acquired properties. The Company has also developed certain operating
policies and standards that it believes have resulted in significant
improvements in the cash flow and profitability of its existing and acquired
newspapers, including: (i) focusing on local content; (ii) maintaining and
improving product quality; (iii) enhancing distribution; and (iv) promoting
community involvement.
The Company is a leader in the newspaper industry in executing a clustering
strategy. The Company believes that its clustering strategy creates significant
synergies and cost savings within each cluster, including cross-selling of
advertising, centralized news gathering and consolidation of printing,
production and back office activities. The Company also believes that its
clustering strategy enables it to improve print quality and distribution,
introduce new products and services in a cost-effective manner and increase
readership. In addition, clustering enables the Company's advertisers to expand
their reach and target their message both geographically and demographically.
The Company's revenues are derived from advertising (73.6 percent of fiscal
year 2003 revenues), paid circulation (22.2 percent of fiscal year 2003
revenues), including single copy sales and subscription sales, and commercial
printing and other activities (4.2 percent of fiscal year 2003 revenues).
Advertising revenues are comprised of three basic categories: retail
(approximately 55 percent of fiscal year 2003 advertising revenues), classified
(approximately 40 percent of fiscal year 2003 advertising revenues) and national
(approximately 5 percent of fiscal year 2003 advertising revenues). The
Company's advertiser base is predominantly local. The Company's newspapers seek
to produce desirable results for local advertisers by targeting readers based on
certain geographic and demographic characteristics. The Company seeks to
increase readership, and thereby generate traffic for its advertisers, by
focusing on high product quality, compelling and often proprietary local content
and creative and interactive promotions.
The Company's advertising revenues for fiscal year 2003 were derived
primarily from a broad group of local advertisers. No single advertiser
accounted for more than one percent of the Company's total fiscal year 2003
revenues. The Company's management believes that its advertising revenues tend
to be relatively stable because its newspapers rely on a broad base of local
retail and local classified advertising, rather than the generally more volatile
national and major account advertising. However, the Company's advertising
revenues are susceptible to economic swings, particularly those that affect the
local economies in the markets in which the Company operates, and can be
difficult to predict.
In addition, the Company is committed to expanding its business through its
Internet initiatives. Online revenues are included in advertising revenues and
constituted approximately 1.6 percent of total advertising revenues in fiscal
year 2003. The Company's online objective is to make its Websites, all of which
are accessible through www.journalregister.com, the indispensable source of
useful and reliable community news, sports and information in their markets by
making the Websites the local information portal for their respective markets.
The
21
Company currently operates 152 Websites, which are affiliated with the
Company's daily newspapers and non-daily publications.
The Company promotes single copy sales of its newspapers because it
believes that such sales have even higher readership than subscription sales,
and that single copy readers tend to be more active consumers of goods and
services, as indicated by an NAA study. Single copy sales also tend to generate
higher profit margins than subscription sales, as single copy sales generally
have higher per unit prices and lower distribution costs. Subscription sales,
which provide readers with the convenience of home delivery, are an important
component of the Company's circulation base. The Company also publishes numerous
special sections and niche and special interest publications. Such publications
tend to increase readership within targeted demographic groups and geographic
areas. The Company's management believes that as a result of these strategies,
its newspapers represent an attractive and cost-effective medium for its readers
and advertisers.
In 1999, the Company elected to change its fiscal year from a calendar year
end to a fiscal year generally ending on the Sunday closest to the end of the
calendar year. Accordingly, the Company's recent fiscal years ended on December
28, 2003, December 29, 2002, and December 30, 2001.
ACQUISITIONS AND DISPOSITIONS
From September 1993 through January 2004, the Company successfully
completed 27 strategic acquisitions, acquiring 14 daily newspapers, 194
non-daily publications and four commercial printing companies.
On January 28, 2004, the Company completed the acquisition of O JORNAL, a
weekly Portuguese-language newspaper based in Fall River, Massachusetts, with
circulation of approximately 14,300 serving more than 30 communities in
Massachusetts and Rhode Island.
On November 17, 2003, the Company completed the acquisition of the assets
of THE NORTH ATTLEBOROUGH FREE PRESS, based in North Attleborough,
Massachusetts. This acquisition included a weekly newspaper serving North
Attleborough, Attleboro Falls and certain neighboring communities, including
Plainville, South Attleboro and Attleboro.
On March 18, 2002, the Company completed the acquisition of the assets of
News Gleaner Publications, Inc. and Big Impressions Web Printing, Inc., based in
Northeast Philadelphia, Pennsylvania. This acquisition included eight weekly
newspapers serving Northeast Philadelphia, seven monthly publications serving
Montgomery County, Pennsylvania, and a commercial printing operation. On March
22, 2002, the Company completed the acquisition of the assets of the Essex,
Connecticut-based Hull Publishing, Inc. This acquisition included a weekly
newspaper and two annual magazines. On October 14, 2002, the Company completed
the acquisition of County Press Publications, which included seven weekly
newspapers serving Delaware County, Pennsylvania.
On January 31, 2001, the Company completed the acquisition of the
Pennsylvania and New Jersey newspaper operations from Chesapeake Publishing
Corporation, which included 13 non-daily publications. On June 7, 2001, the
Company completed the acquisition of Montgomery Newspaper Group's community
newspaper and magazine operations, a group of 24 non-daily publications based in
Fort Washington, Pennsylvania, from Metroweek Corporation. On August 1, 2001,
the Company completed the acquisition of the assets of Roe Jan Independent
Publishing, Inc., which is based in Hillsdale, New York. Roe Jan publishes two
non-daily publications. On September 14, 2001, the Company completed the
acquisition of THE REPORTER, a daily newspaper based in Lansdale, Pennsylvania.
On October 25, 2001, the Company completed the acquisition of THE LITCHFIELD
COUNTY TIMES, a weekly newspaper based in New Milford, Connecticut. This
acquisition also included three lifestyle magazines serving Litchfield and
Fairfield counties in Connecticut, and Westchester County, New York.
The Company sold two daily newspapers and a commercial printing operation
in the southern part of central Ohio on January 31, 2001. The Company also sold
its operations in the Greater St. Louis area in two transactions in August and
October of 2000.
22
RESULTS OF OPERATIONS
FISCAL YEAR ENDED DECEMBER 28, 2003 COMPARED TO FISCAL YEAR ENDED
DECEMBER 29, 2002
FOR COMPARISON PURPOSES, WHERE NOTED, THE COMPANY'S FISCAL YEAR 2003 AND
2002 RESULTS ARE PRESENTED ON A SAME-STORE BASIS, WHICH EXCLUDES THE COMPANY'S
ACQUISITIONS COMPLETED IN 2003 AND 2002.
SUMMARY. Net income for the fiscal year ended December 28, 2003 ("fiscal
year 2003") was $72.0 million, or $1.72 per diluted share, as compared to $49.2
million, or $1.16 per diluted share, for the fiscal year ended December 29, 2002
("fiscal year 2002"). Excluding the reversal of certain tax accruals in fiscal
year 2003 and in fiscal year 2002, which increased net income by $22.8 million
in fiscal year 2003 and $1.2 million in fiscal year 2002, as well as a special
charge of approximately $553,000 (net of related tax effect) recorded in fiscal
year 2003 related to a potential acquisition that was not consummated, earnings
for fiscal year 2003 were $49.8 million, or $1.19 per diluted share, as compared
to $48.1 million, or $1.14 per diluted share, for fiscal year 2002, an increase
in earnings per diluted share of 4.8 percent.
REVENUES. The Company's reported revenues were $406.0 million for fiscal
year 2003 as compared to $407.8 million for fiscal year 2002. Newspaper revenues
for fiscal year 2003 as compared to the prior year period increased
approximately $840,000, or 0.2 percent, primarily as a result of an increase in
advertising revenues of $1.9 million, or 0.6 percent, partially offset by a
decline in circulation revenues of $1.1 million, or 1.2 percent. The decrease in
circulation revenues was impacted by harsh winter weather in the first quarter
and at the end of fiscal year 2003. Online revenues for fiscal year 2003, which
are included in advertising revenues, were approximately $4.7 million, an
increase of approximately 19.4 percent as compared to the prior year period.
Commercial printing and other revenues for fiscal year 2003 decreased $2.6
million, or 13.3 percent, to $17.0 million as compared to the prior year period,
and represented approximately 4.2 percent of the Company's revenues for fiscal
year 2003.
The following table sets forth the Company's total advertising revenues, by
category, for fiscal years 2003 and 2002:
FISCAL YEAR ENDED
-------------------------------------------------------------------
(DOLLARS IN THOUSANDS) DEC. 28, DEC. 29, INCREASE/
2003 2002 (DECREASE)
---------------------------------------------------------------------------------------------------------------
Local $ 164,882 $ 164,012 0.5%
Classified 119,591 117,757 1.6 %
National 14,513 15,287 (5.1)%
---------------------------------------------------------------------------------------------------------------
Total advertising revenues $ 298,986 $297,056 0.6 %
===============================================================================================================
SAME-STORE NEWSPAPER REVENUES. On a same-store basis, total newspaper
revenues for fiscal year 2003 decreased 0.4 percent to $383.2 million from
$384.8 million in fiscal year 2002. Same-store advertising revenues for fiscal
year 2003 were $293.5 million, or basically even with same-store advertising
revenues of $293.7 million in fiscal year 2002, primarily as a result of an
increase in classified advertising revenues of 1.2 percent, offset by a 0.6
percent decrease in retail advertising revenues and a 5.1 percent decrease in
national advertising revenues, in each case as compared to fiscal year 2002. The
increase in classified advertising revenues during fiscal year 2003 resulted
from a 13.9 percent increase in classified real estate advertising revenues,
partially offset by a 2.2 percent decrease in classified automotive advertising
revenues and a decline in classified employment advertising revenues of 8.7
percent. Classified employment advertising revenues improved significantly
during the second half of fiscal year 2003, and were positive during each period
of the fourth quarter. Same-store circulation revenues, impacted by the harsh
winter weather, decreased 1.4 percent in fiscal year 2003 to $89.7 million from
$91.0 million in fiscal year 2002. Recent changes in telemarketing rules and
regulations may impact the ability of the Company to solicit new subscribers as
well as the cost of such solicitation.
SALARIES AND EMPLOYEE BENEFITS. Salaries and employee benefit expenses were
38.3 percent of the Company's total revenues for fiscal year 2003, compared to
36.9 percent for fiscal year 2002. Salaries and employee benefits increased $4.7
million, or 3.1 percent, in fiscal year 2003 to $155.4 million, principally as a
result of an increase in pension costs, as well as additional salaries and
benefits associated with the Company's 2002 and 2003 acquisitions. Same-store
salaries and employee benefits increased $4.0 million, or 2.7 percent, primarily
due to an increase in pension costs.
23
NEWSPRINT, INK AND PRINTING CHARGES. For fiscal year 2003, newsprint, ink
and printing charges were 7.7 percent of the Company's revenues, as compared to
7.9 percent for fiscal year 2002. Newsprint, ink and printing charges decreased
$0.8 million, or 2.6 percent, for fiscal year 2003 to $31.2 million as compared
to the prior year, due principally to a decrease in newsprint consumption,
partially offset by an increase in newsprint prices of approximately eight
percent. On a same-store basis, newsprint, ink and printing charges decreased
approximately $1.4 million, or 4.4 percent, primarily due to a decrease in
newsprint consumption, partially offset by an increase in newsprint prices.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses were 12.8 percent and 13.0 percent of the Company's revenues for fiscal
years 2003 and 2002, respectively. Selling, general, and administrative expenses
decreased $1.0 million, or 2.0 percent, for fiscal year 2003 to $51.9 million as
compared to the prior year, primarily due to a reduction in bad debt expense,
resulting from increased monitoring and improved collections of accounts
receivable, as well as lower professional fees, partially offset by increased
general insurance costs and additional selling, general and administrative costs
associated with the Company's 2002 and 2003 acquisitions. On a same-store basis,
selling, general and administrative expenses for fiscal year 2003 decreased $1.2
million, or 2.4 percent, principally as a result of a reduction in bad debt
expense and professional fees, partially offset by increased general insurance
costs.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses were
3.8 percent and 3.7 percent of the Company's revenues for fiscal years 2003 and
2002, respectively. Depreciation and amortization expenses increased $0.5
million, or 3.5 percent, to $15.4 million for fiscal year 2003 as compared to
fiscal year 2002. This increase was primarily due to an increase in depreciation
related to recent capital expenditures.
OTHER EXPENSES. Other expenses were 14.4 percent and 13.9 percent of the
Company's revenues for fiscal year 2003 and 2002, respectively. Other expenses
increased 2.6 percent to $58.3 million in fiscal year 2003 from $56.9 million in
fiscal year 2002, primarily as a result of increased circulation expenses. On a
same-store basis, other expenses increased approximately $1.2 million, or 2.1
percent.
OPERATING INCOME. Operating income decreased $6.6 million, or 6.6 percent,
for fiscal year 2003 to $93.7 million as compared to $100.3 million in fiscal
year 2002 primarily due to the items described above.
NET INTEREST EXPENSE AND OTHER. Net interest expense and other decreased
$8.1 million, or 34.0 percent, from $23.7 million in fiscal year 2002 to $15.6
million in fiscal year 2003. This decrease was due to lower interest expense,
which resulted from lower interest rates and a reduction in the Company's
weighted average debt outstanding during fiscal year 2003 as compared to fiscal
year 2002, partially offset by an $850,000 special charge (excluding related tax
benefit) incurred in connection with a potential acquisition that was not
consummated.
PROVISION FOR INCOME TAXES. The Company's effective tax rate was 37.0
percent for fiscal year 2003 as compared to 37.3 percent for fiscal year 2002,
excluding the reversal in each year of certain tax accruals which were
determined to no longer be required. Primarily as a result of certain tax law
changes, the Company currently expects that its effective tax rate for fiscal
year 2004 will be approximately 39 percent.
OTHER INFORMATION. EBITDA for fiscal year 2003 was $109.2 million as
compared to $115.3 million for fiscal year 2002. Free cash flow was $58.9
million, or $1.41 per diluted share, for fiscal year 2003 as compared to $61.6
million, or $1.46 per diluted share, for fiscal year 2002. See "Reconciliation
of Certain Non-GAAP Financial Measures" below for more information regarding
non-GAAP financial measures and a reconciliation of EBITDA and free cash flow to
net income.
FISCAL YEAR ENDED DECEMBER 29, 2002 COMPARED TO FISCAL YEAR ENDED
DECEMBER 30, 2001
FOR COMPARISON PURPOSES, WHERE NOTED, THE COMPANY'S FISCAL YEAR 2002
AND 2001 RESULTS ARE PRESENTED ON A SAME-STORE BASIS, WHICH EXCLUDES THE RESULTS
OF THE OHIO NEWSPAPERS SOLD IN 2001 AND THE COMPANY'S ACQUISITIONS COMPLETED IN
2002 AND 2001.
SUMMARY. Net income for fiscal year 2002 was $49.2 million, or $1.16
per diluted share, as compared to $78.1 million, or $1.83 per diluted share, for
the year ended December 30, 2001 ("fiscal year 2001"). Excluding the gain on the
sale of the Company's two Ohio properties in fiscal year 2001, the reversal of
certain tax accruals in fiscal years 2002 and 2001, and the elimination of
goodwill amortization as if SFAS No. 142 had been adopted on
24
January 1, 2001, earnings for fiscal year 2002 were $1.14 per diluted share as
compared to $1.03 per diluted share for fiscal year 2001.
REVENUES. The Company's reported revenues were $407.8 million for fiscal
year 2002 as compared to $394.4 million for fiscal year 2001. The increase was
mainly due to acquisitions. Newspaper revenues for fiscal year 2002 as compared
to the prior year period increased $12.6 million, or 3.4 percent, primarily as a
result of an increase in advertising revenues of $9.2 million, or 3.2 percent,
an increase in circulation revenues of $3.4 million, or 3.9 percent, and an
increase in commercial printing revenues of approximately $766,000, or 4.1
percent. Online revenues, which are included in advertising revenues, increased
approximately 12.8 percent to $4.0 million in fiscal year 2002 as compared to
fiscal year 2001.
The following table sets forth the Company's total advertising revenues, by
category, for the fiscal years ended December 29, 2002, and December 30, 2001:
FISCAL YEAR ENDED
-------------------------------------------------------------------
(DOLLARS IN THOUSANDS) DEC. 29, DEC. 30, INCREASE/
2002 2001 (DECREASE)
---------------------------------------------------------------------------------------------------------------
Local $164,012 $ 154,638 6.1%
Classified 117,757 117,585 0.1%
National 15,287 15,636 (2.2)%
---------------------------------------------------------------------------------------------------------------
Total advertising revenues $297,056 $ 287,859 3.2%
===============================================================================================================
SAME-STORE NEWSPAPER REVENUES. On a same-store basis, total newspaper
revenues for fiscal year 2002 decreased 1.0 percent to $354.2 million from
$357.6 million in fiscal year 2001. Same-store advertising revenues for fiscal
year 2002 were $268.2 million, a decrease of 1.6 percent from same-store
advertising revenues of $272.7 million in fiscal year 2001, primarily as a
result of an increase in retail advertising revenues of 0.1 percent, offset by a
3.7 percent decrease in classified advertising revenues and a 2.4 percent
decrease in national advertising revenues, in each case as compared to fiscal
year 2001. The decrease in classified advertising revenues during fiscal year
2002 resulted from a 9.7 percent increase in classified real estate advertising
revenues and a 7.8 percent increase in classified automotive advertising
revenues, offset by a 20.3 percent decrease in classified employment advertising
revenues. Same-store circulation revenues increased 1.2 percent in fiscal year
2002 to $86.0 million from $84.9 million in fiscal year 2001.
SALARIES AND EMPLOYEE BENEFITS. Salaries and employee benefit expenses were
36.9 percent of the Company's revenues for fiscal year 2002, compared to 35.6
percent for fiscal year 2001. Salaries and employee benefits increased $10.1
million, or 7.2 percent, in fiscal year 2002 to $150.6 million. Same-store
salaries and employee benefits increased $1.8 million, or 1.4 percent, primarily
due to increased pension and medical benefit costs.
NEWSPRINT, INK AND PRINTING CHARGES. For fiscal year 2002, newsprint, ink
and printing charges were 7.9 percent of the Company's revenues, as compared to
9.6 percent for fiscal year 2001. Newsprint, ink and printing charges decreased
$5.7 million, or 15.2 percent, for fiscal year 2002 to $32.0 million principally
due to a decrease in newsprint prices of approximately 22 percent, partially
offset by an increase in newsprint consumption related primarily to the
Company's acquisitions. On a same-store basis, newsprint, ink and printing
charges decreased approximately $9.3 million, or 26.0 percent, primarily due to
a decrease in newsprint expense which resulted from the decrease in newsprint
prices and a decrease in newsprint consumption on a same-store basis of
approximately one percent.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses were 13.0 percent and 12.1 percent of the Company's revenues for fiscal
years 2002 and 2001, respectively. Selling, general, and administrative expenses
increased $5.2 million, or 10.8 percent, for fiscal year 2002 to $53.0 million
as compared to the prior year, primarily due to acquisitions. On a same-store
basis, selling, general and administrative expenses for fiscal year 2002
increased $1.7 million, or 3.7 percent, principally as a result of increased
general insurance costs.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses were
3.7 percent and 6.7 percent of the Company's revenues for fiscal years 2002 and
2001, respectively. Depreciation and amortization expenses decreased $11.4
million, or 43.3 percent, to $14.9 million for fiscal year 2002 as compared to
fiscal year 2001. This decrease was primarily due to the implementation of SFAS
No. 142, which was implemented in the beginning of
25
fiscal year 2002 and eliminated the amortization of goodwill and
indefinite-lived intangible assets, resulting in a reduction in amortization
expense of approximately $12 million for fiscal year 2002, partially offset by
increased depreciation related to capital expenditures, particularly the
Company's Journal Register Offset production facility in its Greater
Philadelphia Cluster.
OTHER EXPENSES. Other expenses increased to $56.9 million in fiscal year
2002 from $53.5 million for fiscal year 2001, primarily as a result of
acquisitions. On a same-store basis, other expenses increased approximately
$428,000, or 0.8 percent, to $51.1 million.
OPERATING INCOME. Operating income increased $11.8 million, or 13.3
percent, for fiscal year 2002 to $100.3 million as compared to $88.5 million in
fiscal year 2001 primarily due to the reduction in amortization expense
resulting from the implementation of SFAS No. 142 and the items described above.
NET INTEREST EXPENSE AND OTHER. Net interest expense and other decreased
$6.8 million, or 22.3 percent, from $30.5 million in fiscal year 2001 to $23.7
million in fiscal year 2002. This decrease was due to lower interest expense,
which resulted from lower interest rates and a reduction in the Company's
weighted average debt outstanding during fiscal year 2002 as compared to fiscal
year 2001.
PROVISION FOR INCOME TAXES. The Company's effective tax rate was 37.3
percent for fiscal year 2002 as compared to 38.9 percent for fiscal year 2001,
excluding the reversals of certain tax accruals in each year which were
determined to no longer be required and excluding the effect of the gain on sale
of newspaper properties in fiscal year 2001. The decrease in the effective tax
rate for fiscal year 2002 as compared to fiscal year 2001 is principally a
result of the adoption of SFAS No. 142 at the beginning of fiscal year 2002.
OTHER INFORMATION. EBITDA for fiscal year 2002 was $115.3 million as
compared to $114.9 million for fiscal year 2001. Free cash flow was $61.6
million, or $1.46 per diluted share, for fiscal year 2002 as compared to $57.1
million, or $1.34 per diluted share, for fiscal year 2001. See "Reconciliation
of Certain Non-GAAP Financial Measures" below for more information regarding
non-GAAP financial measures and a reconciliation of EBITDA and free cash flow to
net income. During fiscal year 2002, the Company made a $10.9 million cash
contribution ($6.9 million after tax) to its defined benefit pension plans.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations have historically generated strong positive cash
flow. The Company believes that cash flows from operations, future borrowings
and its ability to issue securities will be sufficient to fund its operating
needs, capital expenditure requirements and long-term debt obligations and will
provide it with the flexibility to finance its acquisition strategy and share
repurchase program.
The following table sets forth information with respect to the
Company's cash flows for fiscal years 2003, 2002 and 2001:
FISCAL YEAR ENDED
-------------------------------------------------------
(DOLLARS IN THOUSANDS) DEC. 28, 2003 DEC. 29, 2002 DEC. 30, 2001
------------------------------------------------------------------------------
Operating activities $ 81,411 $ 58,964 $ 77,666
Investing activities $(15,551) $(21,322) $ (58,107)
Financing activities $(65,862) $(37,719) $ (25,944)
------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES. Net cash provided from operating
activities was $81.4 million for fiscal year 2003 as compared to $59.0 million
in the prior year. Current assets were $58.1 million and current liabilities,
excluding $37.9 million of current maturities of long-term debt, were $45.6
million as of December 28, 2003. The outstanding balance on the Revolving Credit
Facility, in accordance with its terms, is classified as a long-term liability.
CASH FLOWS FROM INVESTING ACTIVITIES. For fiscal year 2003, net cash used
in investing activities was $15.6 million. Cash used in investing activities in
2003 was for funding the Company's acquisitions and for investments in property,
plant and equipment.
26
The Company has a capital expenditure program of approximately $16 million
in place for 2004, which includes spending on buildings; technology, including
prepress and business systems, computer hardware and software; machinery;
equipment; and vehicles. The Company believes its capital expenditure program is
sufficient to maintain or improve 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 $65.9 million in fiscal year 2003 as compared to $37.7 million in fiscal
year 2002. The increase in net cash used in financing activities in fiscal year
2003 is due primarily to a net decrease in long-term debt of $65.0 million in
fiscal year 2003 as compared to a net decrease of $39.4 million in fiscal year
2002. In addition, cash used for share repurchases increased $7.8 million in
fiscal year 2003 as compared to fiscal year 2002, which was largely offset by an
increase of $5.3 million in cash proceeds received from the exercise of stock
options in fiscal year 2003 as compared to fiscal year 2002.
During fiscal year 2003, the Company repurchased 520,100 shares of its
Common Stock in the open market at a cost of approximately $7.9 million. The
Company's Board of Directors has authorized the use of up to $100 million per
year for the repurchase of the Company's Common Stock.
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 The Chase Manhattan Bank (the predecessor to J.P.
Morgan Chase & Co.) as administrative agent for the lenders thereunder. The
Credit Agreement originally provided for $500 million in Term Loans and a $400
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 businesses 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 million, as permitted by the
administrative agent, to be repaid under conditions set forth in the Credit
Agreement. To date, the Company has not made any borrowings under the
Incremental Facility.
The Term Loans mature on March 31, 2006 and September 30, 2006, and the
Revolving Credit Facility matures on March 31, 2006. The Term Loans are
repayable in quarterly installments and the availability of the Revolving Credit
Facility is subject to certain quarterly reductions that commenced in 2002. In
addition, 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.
The amounts outstanding under the Credit Agreement bear interest at (i) 1
3/4 percent to 1/2 percent above LIBOR (as defined in the Credit Agreement) or
(ii) up to 1/2 percent above the higher of (a) the Prime Rate (as defined in the
Credit Agreement) or (b) 1/2 percent above the Federal Funds Rate (as defined in
the Credit Agreement). The interest rate spreads ("the applicable margins") are
dependent upon the ratio of debt to the trailing four quarters Cash Flow (as
defined in the Credit Agreement) and are reduced as such ratio declines. The
estimated fair value of the Term Loans and Revolving Credit Facility
approximates their carrying value.
An annual commitment fee is incurred on the average daily unused portion of
the Revolving Credit Facility, payable quarterly in arrears, at a percentage
that varies from 0.375 percent to 0.25 percent based on the quarterly
calculation of the Total Leverage Ratio (as defined in the Credit Agreement). At
December 28, 2003, the Company's commitment fee was 0.25 percent.
The terms of the Credit Agreement require the Company to maintain certain
Interest Rate Protection Agreements ("IRPAs") on a portion of its debt, to
reduce the potential exposure of the Company's future cash flows due to
fluctuations in variable interest rates. The minimum requirement varies
depending on the Company's Total Leverage Ratio (as defined in the Credit
Agreement).
Pursuant to the terms of the Credit Agreement, the Company entered into
certain interest rate collar hedges ("the Collars") on November 9, 2001 which
became effective on October 29, 2002. The Collars establish an interest rate
ceiling ("CAP") and an interest rate floor. The CAP on the Company's collars,
which became effective on October 29, 2002, is 6.0 percent and the floor
averages approximately 2.66 percent. These rates are based upon the 90-day
LIBOR. In the event 90-day LIBOR exceeds 6.0 percent, the Company will receive
cash from the issuers to compensate for the rate in excess of the 6.0 percent
CAP. If the 90-day LIBOR is lower than 2.66 percent, the Company will pay cash
to the issuers to compensate for the rate below the floor. The Collars, which
began at a
27
notional amount of $170 million, amortize over two years to a notional aggregate
amount of $135 million and terminate on October 29, 2004. On October 10, 2002,
the Company entered into additional interest rate collars ("Additional
Collars"). The effective date of the Additional Collars was January 29, 2003.
The Additional Collars are for a notional aggregate amount of $150 million,
which does not amortize over its two-year term. Similar to the existing Collars,
the Additional Collars establish an interest rate ceiling ("CAP") and an
interest rate floor. The CAP on the Additional Collars is 4.0 percent and the
floor averages approximately 1.54 percent. These rates are also based upon the
90-day LIBOR. In the event that 90-day LIBOR exceeds 4.0 percent, the Company
will receive cash from the issuers to compensate for the rate in excess of the
4.0 percent CAP. If the 90-day LIBOR is lower than 1.54 percent, the Company
will pay cash to the issuers to compensate for the rate below the floor. From
time to time the Company may enter into additional IRPAs. Each IRPA has been
designated for all or a portion of the principal balance and term of a specific
debt obligation.
The IRPAs were fully effective in hedging the changes in cash flows related
to specific debt obligations during fiscal years 2003 and 2002. The total
deferred loss reported in other comprehensive income as of December 28, 2003 and
December 29, 2002 was approximately $1.5 million and $3.4 million, respectively
(net of $1.0 and $1.8 million of deferred taxes, respectively).
The Company's weighted-average effective interest rate for fiscal year 2003
was approximately 3.2 percent. This interest rate includes the effect of a $2.6
million pre-tax expense realized and reported as a component of interest expense
for the IRPAs in place during fiscal year 2003.
CONTRACTUAL OBLIGATIONS AND COMMITMENTS. As of December 28, 2003, the
Company had outstanding indebtedness under the Credit Agreement, due and payable
in installments through 2006, of $418.3 million, of which $117.2 million was
outstanding under the Revolving Credit Facility and $301.1 million was
outstanding under the Term Loans. In addition, the Company had approximately
$195.3 million of unused Revolving Credit Facility funds, with approximately
$131.5 million available at December 28, 2003 pursuant to the terms of the
Credit Agreement. The remaining aggregate maturities payable under the Term
Loans are as follows (dollars in thousands):
2004.........................................$37,853
2005......................................... 86,875
2006.........................................176,417
The Revolving Credit Facility is available until March 31, 2006. Initial
availability was $400 million and has been and will continue to be reduced by
equal consecutive quarterly reductions, commencing on June 30, 2002 and ending
on March 31, 2006, in an aggregate amount for each remaining twelve-month period
commencing on the dates set forth below, equal to the amount set forth opposite
such date (dollars in thousands):
June 30, 2002.................................$55,000
June 30, 2003................................. 65,000
June 30, 2004.................................100,000
June 30, 2005.................................180,000
The Term Loans and Revolving Credit Facility are secured by
substantially all of the assets of the Company and the common stock and assets
of the Company's subsidiaries. The Term Loans and Revolving Credit Facility
require compliance with certain covenants, which require, among other things,
maintenance of certain financial ratios, which may restrict among other things,
the Company's ability to declare dividends, repurchase Company stock, incur
additional indebtedness, create liens, sell assets, consummate mergers and make
capital expenditures, investments and acquisitions. The Company is in compliance
with the financial covenants contained in the Credit Agreement, which is listed
as Exhibit 10.5 hereto.
28
The Company's significant contractual obligations at December 28, 2003 were
as follows:
PAYMENTS DUE BY PERIOD
-----------------------------------------------------------------------
(DOLLARS IN THOUSANDS) TOTAL LESS THAN 1 1 - 3 3 - 5 MORE THAN
YEAR YEARS YEARS 5 YEARS
---------------------------------------------------------------------------------------------------------
CONTRACTUAL OBLIGATIONS:
Long-term debt $418,345 $ 37,853 $380,492 $ - $ -
Operating lease obligations 7,471 2,027 2,738 1,537 1,169
Capital lease obligations 1,129 453 594 82 -
Purchase Obligations 859 634 225
---------------------------------------------------------------------------------------------------------
Total $427,804 $ 40,967 $384,049 $ 1,619 $ 1,169
---------------------------------------------------------------------------------------------------------
At December 28, 2003, except as set forth below, the Company maintained
no off-balance sheet financing arrangements.
PAYMENTS DUE BY PERIOD
-----------------------------------------------------------------------
LESS THAN 1 1 - 3 3 - 5 MORE THAN
(DOLLARS IN THOUSANDS) TOTAL YEAR YEARS YEARS 5 YEARS
---------------------------------------------------------------------------------------------------------
OTHER COMMERCIAL COMMITMENTS:
Standby letters of credit (1) $ 4,650 $ 4,650 $ - $ - $ -
---------------------------------------------------------------------------------------------------------
(1) Required in connection with the Company's insurance program.
Inflation
The Company's results of operations and financial condition have not been
significantly affected by inflation. Subject to normal competitive conditions,
the Company generally has been able to pass along rising costs through increased
advertising and circulation rates.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
GENERAL
The Company's discussion and analysis of its financial condition and
results of operations are based upon the Company's consolidated financial
statements, which have been prepared in accordance with generally accepted
accounting principles in the United States. The preparation of these financial
statements requires the Company to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. On an on-going basis, the
Company evaluates its estimates, including those related to bad debts,
inventories, investments, remaining useful lives of long-lived assets, income
taxes, pensions and other post-retirement benefits, as well as contingencies and
litigation. The Company bases its estimates on historical experience and
actuarial studies and on other assumptions that are believed to be reasonable
and applicable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. The Company re-evaluates its estimates
on an on-going basis. Actual results may differ from these estimates under
different assumptions or conditions.
The Company believes the following critical accounting policies affect its
more significant judgments and estimates used in the preparation of its
consolidated financial statements.
ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts receivable consist primarily of amounts due to the Company from
normal business activities. Allowances for doubtful accounts are reserves for
the estimated loss from the inability of customers to make required payments.
The Company uses historical experience as well as current market information in
determining the estimate. If the financial condition of the Company's customers
were to deteriorate, resulting in an impairment of their ability to make
payments, additional allowances may be required.
29
LONG-LIVED ASSETS
Identifiable intangible assets, such as customer lists and covenants not to
compete, are amortized on the straight-line method over their estimated useful
lives for the years presented in the Company's consolidated financial
statements. In addition, goodwill associated with the excess purchase price over
the fair value of assets acquired is currently reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Under SFAS 142, goodwill and indefinite-lived intangible
assets are no longer amortized but are reviewed annually, or more frequently if
required, for impairment. This asset impairment review assesses the fair value
of the assets based on the future cash flows the assets are expected to
generate. An impairment loss is recognized when estimated undiscounted future
cash flows expected to result from the use of the asset plus net proceeds
expected from the disposition of the asset (if any) are less than the carrying
value of the asset. This approach uses estimates for future market growth,
forecasted revenue and costs, expected periods the assets will be utilized and
appropriate discount rates. Separable intangible assets that are not deemed to
have an indefinite life will continue to be amortized over their useful lives.
The Company adopted SFAS No. 142 at the beginning of fiscal year 2002. If
the provisions of SFAS No. 142 were applied to the Company's fiscal year 2001
results, the Company's amortization expense would have been reduced by
approximately $12 million and, correspondingly, the Company's earnings per
diluted share would have increased by $0.23 per diluted share for 2001.
PENSION AND POST-RETIREMENT BENEFITS
Pension and post-retirement benefit costs and credits are developed from
actuarial valuations. Inherent in these valuations are key assumptions including
discount rates and expected return on plan assets. The Company is required to
consider current market conditions, including changes in interest rates, in
determining these assumptions. Changes in the related pension and
post-retirement benefit costs or credits may occur in the future as a result of
fluctuations in the Company's headcount and changes in actuarial assumptions.
SELF-INSURANCE
The Company is self-insured for a portion of its insurance costs. The
Company analyzes its claims experience and consults with actuaries and
administrators in determining an adequate liability for self-insured claims.
LITIGATION
The Company is involved in a number of litigation matters that have arisen
in the ordinary course of business. The Company believes that the outcome of
these legal proceedings will not have a material adverse effect on the Company's
financial condition or results of operations.
REVENUE RECOGNITION
Revenue is earned from the sale of advertising, circulation and commercial
printing. Advertising revenues are recognized, net of agency commissions, in the
period when advertising is printed or placed on the Company's Websites.
Circulation revenues are recognized when purchased newspapers or other paid
publications are distributed. Amounts received from customers in advance of
revenue recognition are deferred as liabilities.
NEW ACCOUNTING PRONOUNCEMENTS
In January 2003, the FASB issued Interpretation 46, CONSOLIDATION OF
VARIABLE INTEREST ENTITIES - AN INTERPRETATION OF APB NO. 51. This
interpretation provides new consolidation accounting guidance for entities
involved with variable interest entities (VIE). This guidance requires a primary
beneficiary, defined as an entity which participates in either a majority of the
risks or rewards of such VIE, to consolidate the VIE. A VIE would not be subject
to this interpretation if such entity has sufficient voting equity capital such
that the entity is able to finance its activities without additional
subordinated financial support from other parties. Interpretation 46 had no
effect on the Company's consolidated financial statements.
30
CERTAIN FACTORS WHICH MAY AFFECT THE COMPANY'S FUTURE PERFORMANCE
NEWSPAPER INDUSTRY COMPETITION
The Company's business is concentrated in newspapers and other publications
located primarily in small metropolitan and suburban areas in the United States.
Revenues in the newspaper industry primarily consist of advertising and paid
circulation. Competition for advertising and paid circulation comes from local,
regional and national newspapers, shopping guides, television, radio, direct
mail, online services and other forms of communication and advertising media.
Competition for advertising revenues is based largely 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. Many of the
Company's competitors are larger and have greater financial resources than the
Company.
DEPENDENCE ON LOCAL ECONOMIES
The Company's advertising revenues and, to a lesser extent, circulation
revenues are dependent on a variety of factors specific to the communities which
the Company's newspapers serve. These factors include, among others, the size
and demographic characteristics of the local population, local economic
conditions in general, and the related retail segments in particular, as well as
local weather conditions.
CAPITALIZATION
As of December 28, 2003, the consolidated indebtedness of the Company was $418.3
million, which represents a multiple of 3.8 times the Company's twelve months
trailing EBITDA of approximately $109.2 million (see "Reconciliation of Certain
Non-GAAP Financial Measures"). As of December 28, 2003, the Company had a net
stockholders' equity of $72.3 million and total capitalization of $490.7 million
and, thus, the percentage of the Company's indebtedness to total capitalization
was 85 percent. The Company may incur additional indebtedness to, among other
things, fund operations, capital expenditures, future acquisitions or share
repurchases.
The Company's management believes that cash provided by operating
activities, future borrowings and its ability to issue securities will be
sufficient to fund its operations and to meet payment requirements under its
Term Loans and the Revolving Credit Facility of the Credit Agreement. However, a
decline in cash provided by operating activities, which could result from
factors beyond the Company's control, such as unfavorable economic conditions,
an overall decline in advertising revenues or increased competition, could
impair the Company's ability to service its debt. The Credit Agreement requires
the maintenance of certain financial ratios and imposes certain operating and
financial restrictions on the Company, which may restrict, among other things,
the Company's ability to declare dividends, repurchase Company stock, incur
indebtedness, create liens, sell assets, consummate mergers and make capital
expenditures, investments and acquisitions.
ACQUISITION STRATEGY
The Company has grown through, and anticipates that it will continue to
grow through, acquisitions of daily and non-daily newspapers and similar
publications. Acquisitions may expose the Company to risks, including, without
limitation, diversion of management's attention, assumption of unidentified
liabilities and assimilation of the operations and personnel of acquired
businesses, some or all of which could have a material adverse effect on the
financial condition or results of operations of the Company. Depending on the
value and nature of the consideration paid by the Company for acquisitions, such
acquisitions may have a dilutive impact on the Company's earnings per share. In
making acquisitions, the Company competes for acquisition targets with other
companies, many of which are larger and have greater financial resources than
the Company. There can be no assurance that the Company will continue to be
successful in identifying acquisition opportunities, assessing the value,
strengths and weaknesses of such opportunities, executing acquisitions
successfully, achieving anticipated synergies, evaluating the costs of new
growth opportunities at existing operations or managing the publications it owns
and improving their operating efficiency. Historically, the Company has financed
acquisitions through available cash, free cash flow, borrowings and sales of
non-strategic properties. The Company anticipates that it will finance future
acquisitions through these same resources. The Credit Agreement limits
acquisitions to certain permitted investments and newspapers in the United
States, and requires that acquisitions be financed through certain permitted
sources. In addition, the financial covenants contained in the Credit Agreement
may limit the Company's ability to make acquisitions.
31
PRICE AND AVAILABILITY OF NEWSPRINT
The basic raw material for newspapers is newsprint. In fiscal year 2003,
the Company consumed approximately 47,000 metric tons of newsprint, excluding
paper consumed in its commercial printing operations. The average price per
metric ton of newsprint based on East Coast transactions prices in 2003, 2002
and 2001 was $503, $465 and $585, respectively, as reported by the trade
publication, PULP AND PAPER WEEKLY. The Company purchases the majority of its
newsprint through its central purchasing group, Journal Register Supply. The
Company has no long-term contracts to purchase newsprint. Generally, Journal
Register Supply purchases most of its newsprint from one or two suppliers,
although in the future the Company may purchase newsprint from other suppliers.
Historically, the percentage of newsprint purchased 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 generally 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 increased approximately eight
percent for fiscal year 2003, decreased approximately 22 percent for fiscal year
2002 and increased approximately nine percent for fiscal year 2001, each as
compared to the preceding year. The Company believes that if any price decrease
or increase is sustained in the industry, the Company will also be impacted by
such change. The Company seeks to manage the effects of increases in prices of
newsprint through a combination of, among other things, technology improvements,
including web-width reductions, inventory management and advertising and
circulation price increases. In fiscal year 2003, the Company's newsprint cost
(excluding paper consumed in the Company's commercial printing operations) was
approximately six percent of the Company's newspaper revenues.
ENVIRONMENTAL MATTERS
The Company's operations are subject to federal, state and local
environmental laws and regulations pertaining to air and water quality, storage
tanks and the management and disposal of waste at its facilities. To the best of
the Company's knowledge, its operations are in material compliance with
applicable environmental laws and regulations as currently interpreted. The
Company cannot predict with any certainty whether future events, such as changes
in existing laws and regulations or the discovery of conditions not currently
known to the Company, may give rise to additional costs that could be material.
Furthermore, actions by federal, state and local governments concerning
environmental matters could result in laws or regulations that could have a
material adverse effect on the financial condition or results of operations of
the Company.
RECONCILIATION OF CERTAIN NON-GAAP FINANCIAL MEASURES
Journal Register Company believes that the use of certain non-GAAP
financial measures enables the Company and its analysts, investors and other
interested parties to evaluate the Company's results from operations in a more
meaningful manner. Accordingly, this information has been disclosed in this
report to permit a more complete comparative analysis of the Company's operating
performance and capitalization relative to other companies in the industry and
to provide an analysis of operating results using certain principal measures
used by Journal Register Company's chief operating decision makers to measure
the operating results and performance of the Company and its field operations.
Journal Register Company calculates EBITDA as operating income plus
depreciation, amortization and other non-cash, special or non-recurring charges.
Free cash flow is defined as EBITDA minus capital expenditures, interest and
cash income taxes. The Company's cash income taxes prior to 2001 were reduced
substantially as a result of the utilization of net operating loss
carryforwards. Adjusted net income excludes gains on sales of properties and the
reversal of certain tax accruals and other one-time charges, while net income as
adjusted, and after impact of SFAS 142 further excludes amortization of goodwill
and other indefinite-lived intangible assets to reflect the impact of Statement
of Financial Accounting Standards ("SFAS") No. 142, which eliminates the
amortization of goodwill and other indefinite-lived intangibles, as if it had
been adopted at the beginning of fiscal year 2001. Journal Register Company
adopted SFAS No. 142 at the beginning of fiscal year 2002.
These non-GAAP financial measures should not be considered as alternatives
to GAAP measures of performance, such as operating income or net income. In
addition, Journal Register Company's calculations of these measures may or may
not be consistent with the calculations of these measures by other companies.
32
The tables below provide reconciliations of the differences between (i) net
income and EBITDA, (ii) net income and free cash flow and (iii) net income and
adjusted net income, in each case for fiscal years 1999 through 2003, and the
difference between net income and net income, as adjusted, after impact of SFAS
142 for fiscal years 2001 through 2003.
(DOLLARS IN THOUSANDS, EXCEPT DEC. 28, DEC. 29, DEC. 30, DEC. 31, DEC. 26,
PER SHARE AMOUNTS) 2003 2002 2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------
RECONCILIATION OF NET INCOME
TO EBITDA AND FREE CASH FLOW:
Net Income $ 71,990 $ 49,227 $ 78,132 $ 169,381 $ 47,665
Deduct:
Gains on sales of operations -- -- 32,212 180,720 --
Add-back:
Equity interest -- -- 1,313 1,624 226
Provision for income taxes 6,120 27,444 10,818 90,951 31,694
Net interest expense and other 15,627 23,677 30,490 48,020 52,347
------------ ----------- --------- ----------- -----------
Operating Income 93,737 100,348 88,541 129,256 131,932
------------ ----------- --------- ----------- -----------
Depreciation and amortization 15,447 14,927 26,317 27,616 28,798
------------ ----------- --------- ----------- -----------
EBITDA 109,184 115,275 114,858 156,871 160,730
------------ ----------- --------- ----------- -----------
EBITDA MARGIN 26.9% 28.3% 29.1% 33.8% 34.2%
------------ ----------- --------- ----------- -----------
Deduct:
Capital expenditures (1) 15,129 13,010 10,857 9,955 17,438
Interest expense 14,663 23,568 30,490 48,020 52,347
Cash income taxes (2) 20,476 17,066 16,375 12,195 3,574
------------ ----------- --------- ----------- -----------
Free Cash Flow, as adjusted $ 58,916 $ 61,631 $ 57,136 $ 86,701 $ 87,371
Free Cash Flow, as adjusted, per
diluted share $ 1.41 $ 1.46 $ 1.34 $ 1.91 $ 1.86
- -------------------------------------------------------------------------------------------------------------------
RECONCILIATION OF NET INCOME TO ADJUSTED NET INCOME:
Net Income $ 71,990 $ 49,227 $ 78,132 $ 169,381 $ 47,665
Adjustments:
Reversal of tax accruals (22,756) (1,172) (1,825) (7,993) --
Special charge, net of tax 553 -- -- -- --
Gains on sale of operations, net of tax -- -- (42,128) (112,934) --
------------ ----------- --------- ----------- -----------
Net Income, as adjusted $ 49,787 $ 48,055 $ 34,179 $ 48,454 $ 47,665
------------ ----------- --------- ----------- -----------
Net Income, as adjusted, per diluted share $ 1.19 $ 1.14 $ 0.80 $ 1.07 $ 1.02
------------ ----------- --------- ----------- -----------
Add-back:
Impact of SFAS 142, Amortization of
Goodwill, after-tax -- -- 9,965
------------ ----------- ---------
Net Income, as adjusted, and after impact
of SFAS 142 $ 49,787 $ 48,055 $ 44,143
Net Income, as adjusted, and after impact
of SFAS 142, per diluted share $ 1.19 $ 1.14 $ 1.03
- -------------------------------------------------------------------------------------------------------------------
(1) Excludes capital expenditures associated with the Company's printing
facility in Exton, Pennsylvania (Journal Register Offset), which were $22.8
million, $10.8 million and $1.8 million in fiscal years 2001, 2000 and
1999, respectively, and the related capitalized interest of $1.3 million in
fiscal year 2001 and $601,000 in fiscal year 2000. Such amounts have been
excluded due to the large and non-recurring nature of the Exton project.
(2) Cash income taxes reflect the cash income taxes presented on the Company's
Consolidated Statements of Cash Flows, with the following exceptions: (i)
in fiscal year 2000, cash income taxes exclude $20.3 million of cash income
taxes paid on the gain on sale of properties; (ii) in fiscal year 2001,
cash taxes were increased to include $4.4 million of cash income taxes paid
in fiscal year 2000, which were applied to cash income taxes payable in
fiscal year 2001 (such amount was also included in fiscal year 2000 cash
income taxes); (iii) in fiscal year 2002, cash income taxes exclude the
effect of the $4.0 million tax benefit related to the Company's pension
contribution and excludes approximately $174,000 paid in fiscal year 2002
that related to prior years; and (iv) in fiscal year 2003, cash income
taxes excludes the effect of the $298,000 tax benefit arising from the
special charge related to a potential acquisition, excludes approximately
$559,000 paid in fiscal year 2003 that related to prior years and includes
approximately $278,000 related to fiscal year 2003 to be paid in fiscal
year 2004.
33
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to market risk arising from changes in interest
rates associated with its long-term debt obligations. The Company's long-term
debt is at variable interest rates based on the LIBOR, the Prime Rate or the
Federal Funds Rate, plus a certain interest rate spread as defined in the Credit
Agreement. To manage its exposure to fluctuations in interest rates as required
by its Credit Agreement, the Company enters into certain IRPAs on a portion of
its debt, which minimizes the effect of changes in variable interest rates. The
Company's objective with respect to these agreements is for hedging activities
and not for trading or speculative activity.
As of December 28, 2003, the Company had in place no-cost collars with an
aggregate notional amount of $153 million, which became effective in October
2002 for a two-year term. On October 10, 2002, the Company entered into
additional interest rate collars ("Additional Collars") which became effective
on January 29, 2003 for a two-year term. The Additional Collars are for a
notional amount of $150 million.
Assuming a 10 percent increase or reduction in interest rates for the year
ended December 28, 2003, the effect on the Company's pre-tax earnings would have
been approximately $0.6 million. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital Resources
- - Debt and Derivative Activity."
Newsprint, which is the principal raw material for the Company's
newspapers, is exposed to commodity price changes. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Certain Factors
Which May Affect the Company's Future Performance - Price and Availability of
Newsprint."
34
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS: PAGE
Report of Independent Auditors............................................. 36
Consolidated Balance Sheets................................................ 37
Consolidated Statements of Income.......................................... 38
Consolidated Statements of Stockholders' Equity............................ 39
Consolidated Statements of Cash Flows...................................... 40
Notes to Consolidated Financial Statements................................. 41
FINANCIAL STATEMENT SCHEDULE:
Schedule II - Valuation and Qualifying Accounts........................... 57
All other schedules are omitted because they are not applicable or the
requested information is shown in the consolidated financial statements or
related notes.
35
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Journal Register Company
We have audited the accompanying consolidated balance sheets of Journal Register
Company as of December 28, 2003 and December 29, 2002, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 28, 2003. Our audits also
included the financial statement schedule listed in the Index at Item 15(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Journal
Register Company, as of December 28, 2003 and December 29, 2002 and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 28, 2003, in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
As discussed in Note 2 to the financial statements, in 2002 the Company changed
its method of accounting for goodwill and other indefinite-lived intangible
assets.
/s/ ERNST & YOUNG LLP
MetroPark, New Jersey
January 27, 2004
36
JOURNAL REGISTER COMPANY
CONSOLIDATED BALANCE SHEETS
DOLLARS IN THOUSANDS
FISCAL YEAR ENDED DEC. 28, 2003 DEC. 29, 2002
===========================================================================================
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 31 $ 33
Accounts receivable, less allowance for doubtful
accounts of $5,785 and $6,388, respectively 43,591 48,101
Inventories 6,597 6,869
Deferred income taxes 3,719 4,208
Other current assets 4,149 6,172
- -------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 58,087 65,383
- -------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT:
Land 10,720 10,408
Buildings and improvements 76,759 71,356
Machinery and equipment 174,519 170,297
Construction in progress 7,413 5,568
- -------------------------------------------------------------------------------------------
TOTAL 269,411 257,629
Less accumulated depreciation (143,398) (131,949)
- -------------------------------------------------------------------------------------------
NET PROPERTY, PLANT AND EQUIPMENT 126,013 125,680
- -------------------------------------------------------------------------------------------
INTANGIBLE AND OTHER ASSETS:
Goodwill 491,833 491,385
Other intangible assets, net of accumulated
amortization of $9,654 and $8,269, respectively 14,500 15,885
Other assets 2,627 3,370
- -------------------------------------------------------------------------------------------
TOTAL ASSETS $ 693,060 $ 701,703
===========================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 37,853 $ 32,912
Accounts payable 9,454 11,942
Accrued interest 2,062 2,446
Deferred subscription revenue 10,614 10,514
Accrued salaries and vacation 6,455 6,472
Fair market value of hedges 2,483 5,162
Other accrued expenses and current liabilities 14,564 15,533
- -------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 83,485 84,981
- -------------------------------------------------------------------------------------------
Senior debt, less current maturities 380,492 450,457
Deferred income taxes 47,379 39,350
Accrued retiree benefits and other liabilities 19,462 18,373
Income taxes payable 89,898 112,421
Commitments and contingencies
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value per share, 300,000,000
shares authorized, 48,437,581 issued at December
28, 2003 and December 29, 2002 484 484
Additional paid-in capital 359,359 358,242
Accumulated deficit (167,426) (239,416)
- -------------------------------------------------------------------------------------------
192,417 119,310
- -------------------------------------------------------------------------------------------
Less treasury stock
6,837,948 shares and 6,815,197 shares,
respectively, at cost (100,817) (100,074)
Accumulated other comprehensive loss, net of tax (19,256) (23,115)
- -------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY 72,344 (3,879)
- -------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 693,060 $ 701,703
===========================================================================================
SEE ACCOMPANYING NOTES.
37
JOURNAL REGISTER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
IN THOUSANDS, EXCEPT PER SHARE DATA
FISCAL YEAR ENDED Dec. 28, 2003 Dec. 29, 2002 Dec. 30, 2001
===========================================================================================
REVENUES:
Advertising $ 298,986 $ 297,056 $ 287,859
Circulation 90,034 91,123 87,737
- -------------------------------------------------------------------------------------------
Newspaper revenues 389,020 388,179 375,596
Commercial printing and other 16,966 19,575 18,809
- -------------------------------------------------------------------------------------------
TOTAL 405,986 407,754 394,405
- -------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Salaries and employee benefits 155,355 150,614 140,522
Newsprint, ink and printing charges 31,181 32,023 37,741
Selling, general and administrative 51,932 52,976 47,810
Depreciation and amortization 15,447 14,927 26,317
Other 58,334 56,866 53,474
- -------------------------------------------------------------------------------------------
312,249 307,406 305,864
- -------------------------------------------------------------------------------------------
OPERATING INCOME 93,737 100,348 88,541
- -------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Net interest expense and other (15,627) (23,677) (30,490)
Gains on sales of newspaper properties -- -- 32,212
- -------------------------------------------------------------------------------------------
Income before income taxes and equity
interest 78,110 76,671 90,263
Provision for income taxes 6,120 27,444 10,818
- -------------------------------------------------------------------------------------------
Income before equity interest 71,990 49,227 79,445
Equity interest -- -- (1,313)
- -------------------------------------------------------------------------------------------
NET INCOME $ 71,990 $ 49,227 $ 78,132
===========================================================================================
NET INCOME PER COMMON SHARE:
Basic $ 1.75 $ 1.18 $ 1.85
Diluted $ 1.72 $ 1.16 $ 1.83
- -------------------------------------------------------------------------------------------
WEIGHTED-AVERAGE SHARES OUTSTANDING:
Basic 41,245 41,576 42,273
Diluted 41,834 42,323 42,654
- -------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES.
38
JOURNAL REGISTER COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
ADDITIONAL OTHER TOTAL
COMMON PAID-IN COMPREHENSIVE ACCUMULATED TREASURY STOCKHOLDERS'
DOLLARS IN THOUSANDS (EXCEPT SHARES) STOCK CAPITAL INCOME (LOSS) DEFICIT STOCK EQUITY
==========================================================================================================================
BALANCE AS OF DECEMBER 31, 2000 $ 484 $ 358,268 - $ (366,775) $ (47,703) $(55,726)
- --------------------------------------------------------------------------------------------------------------------------
Net income 78,132 78,132
Minimum pension liability adjustment,
net of tax benefit of $572 (809) (809)
Mark to market adjustment of fully effective
hedges, net of tax benefit of $2,000 (3,715) (3,715)
- --------------------------------------------------------------------------------------------------------------------------
TOTAL COMPREHENSIVE INCOME $ 73,608
- --------------------------------------------------------------------------------------------------------------------------
Purchase of 3,362,200 shares of
treasury stock (54,274) (54,274)
Exercise of stock options for common stock (5) 199 194
- --------------------------------------------------------------------------------------------------------------------------
BALANCE AS OF DECEMBER 30, 2001 484 358,263 (4,524) (288,643) (101,778) (36,198)
- --------------------------------------------------------------------------------------------------------------------------
49,227 49,227
Net income
Minimum pension liability adjustment,
net of tax benefit of $11,486 (18,956) (18,956)
Mark to market adjustment of fully effective
hedges, net of tax expense of $189 365 365
- --------------------------------------------------------------------------------------------------------------------------
TOTAL COMPREHENSIVE INCOME $30,636
- --------------------------------------------------------------------------------------------------------------------------
Purchase of 5,000 shares of treasury stock (85) (85)
Exercise of stock options for common stock (21) 1,789 1,768
- --------------------------------------------------------------------------------------------------------------------------
BALANCE AS OF DECEMBER 29, 2002 484 358,242 (23,115) (239,416) (100,074) (3,879)
- --------------------------------------------------------------------------------------------------------------------------
71,990 71,990
Net income
Minimum pension liability adjustment,
net of tax benefit of $271 1,976 1,976
Mark to market adjustment of fully effective
hedges, net of tax expense of $796 1,883 1,883
- --------------------------------------------------------------------------------------------------------------------------
TOTAL COMPREHENSIVE INCOME $ 75,849
- --------------------------------------------------------------------------------------------------------------------------
Purchase of 520,100 shares of treasury stock (7,905) (7,905)
Exercise of stock options for common stock (95) 7,162 7,067
Tax benefit from stock option exercises 1,212 1,212
- --------------------------------------------------------------------------------------------------------------------------
BALANCE AS OF DECEMBER 28, 2003 $484 $359,359 $(19,256) $ (167,426) $(100,817) $ 72,344
==========================================================================================================================
SEE ACCOMPANYING NOTES.
39
JOURNAL REGISTER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
DOLLARS IN THOUSANDS
FISCAL YEAR ENDED DEC. 28, 2003 DEC. 29, 2002 DEC. 30, 2001
===========================================================================================
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 71,990 $ 49,227 $ 78,132
Adjustments to reconcile net income
to net cash provided by
operating activities:
Provision for losses on accounts
receivable 3,830 5,025 4,585
Depreciation expense 14,062 13,679 12,069
Amortization expense 1,385 1,248 14,248
Net gain (loss) on disposal of
property, plant and equipment -- (728) (16)
Loss on equity investment -- -- 1,313
Gains on sales of newspaper properties -- -- (32,212)
Accrued retiree benefits and other
non-current liabilities 1,089 (12,692) (2,052)
Provision for deferred income taxes 7,989 14,474 6,587
Changes in operating assets and liabilities:
Increase (decrease) in accounts
receivable 680 (2,405) 1,542
Decrease in income taxes payable (21,310) (1,253) (7,784)
Increase (decrease) in other assets
and liabilities 1,696 (7,611) 1,254
- -------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 81,411 58,964 77,666
- -------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (15,129) (13,010) (34,929)
Net proceeds from sale of property,
plant and equipment 28 297 49
Proceeds from sale of newspaper properties -- -- 54,601
Purchases of businesses (450) (8,609) (77,828)
- -------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (15,551) (21,322) (58,107)
- -------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (payments of) long-term debt (65,024) (39,402) 28,136
Exercise of stock options for common stock 7,067 1,768 194
Purchase of Company stock (7,905) (85) (54,274)
- -------------------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (65,862) (37,719) (25,944)
- -------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents (2) (77) (6,385)
Cash and cash equivalents, beginning
of year 33 110 6,495
- -------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 31 $ 33 $ 110
===========================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the year for:
Interest $ 15,047 $ 24,431 $ 32,870
Income taxes $ 20,459 $ 13,219 $ 12,015
SUPPLEMENTAL DISCLOSURES OF NON-CASH
ACTIVITIES:
Comprehensive income (loss) - minimum
pension liability and mark to market
hedge adjustments, net of tax $ 3,859 $(18,591) $ (4,524)
===========================================================================================
SEE ACCOMPANYING NOTES.
40
JOURNAL REGISTER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
The accompanying consolidated financial statements include Journal Register
Company and all of its wholly-owned subsidiaries (the "Company"). Journal
Register Company primarily publishes daily and non-daily newspapers serving
markets in Philadelphia and its surrounding areas, Connecticut, the Greater
Cleveland area of Ohio, Central New England, and the Capital-Saratoga and
Mid-Hudson regions of New York. The Company also owns and manages commercial
printing operations in Connecticut and Pennsylvania. The Company was
incorporated on March 11, 1997 and became a publicly traded company in May of
1997.
The Company has authorized 1,000,000 shares of Preferred Stock, none of
which were issued or outstanding during the periods presented. The Company has a
52/53 week fiscal year generally ending on the Sunday closest to the end of the
calendar year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and all of its wholly-owned subsidiaries. Investments over which the Company
does not have voting control but exerts significant influence are accounted for
by the equity method. All significant intercompany activity has been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires the Company to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, the Company evaluates its estimates,
including those related to bad debts, inventories, investments, remaining useful
lives of long-lived assets, income taxes, pensions and other post-retirement
benefits, as well as contingencies and litigation. The Company bases its
estimates on historical experience and actuarial studies and on other
assumptions that are believed to be reasonable and applicable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. The Company re-evaluates its estimates on an on-going basis.
Actual results may differ from these estimates under different assumptions or
conditions.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents. The carrying value of
cash equivalents approximates fair value due to the short-term maturity of these
instruments.
ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts receivable consist primarily of amounts due to the Company from
normal business activities. Allowances for doubtful accounts are reserves for
the estimated loss from the inability of customers to make required payments.
The Company uses historical experience as well as current market information in
determining this estimate. If the financial condition of the Company's customers
were to deteriorate, resulting in an impairment of their ability to make
payments, additional allowances may be required. Credit losses have generally
been within management's expectations.
INVENTORIES
Inventories, consisting of newsprint, ink and supplies, are stated at the
lower of cost (primarily first-in, first-out method) or market.
ACCOUNTING FOR STOCK OPTION PLAN
In December 2002, the Financial Accounting Standards Boards ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 148, "Accounting for
Stock-Based Compensation - Transition and
41
JOURNAL REGISTER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Disclosure," to provide alternative methods of transition for a voluntary change
to the fair value method of accounting for stock-based employee compensation. In
addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), to require more
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. The Company has elected to continue to follow
the intrinsic value method of accounting as prescribed by Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), and
related interpretations in accounting for its employee stock options. SFAS No.
148 did not require the Company to change to the fair value based method of
accounting for stock-based compensation.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting period for such options. The
Company's fiscal year pro forma information, had compensation costs for the
Company's stock option plans been determined in accordance with SFAS 123 is as
follows:
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FISCAL YEAR ENDED DEC. 28, 2003 DEC. 29, 2002 DEC. 30, 2001
- ----------------------------------------------------------------------------------------------------------------------
Net income as reported $ 71,990 $ 49,227 $ 78,132
Add: Stock-based employee compensation expense
included in reported net income, net of related tax effects -- -- --
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards,
net of related tax effects (2,685) (3,307) (4,227)
- ----------------------------------------------------------------------------------------------------------------------
Pro forma net income $ 69,305 $ 45,920 $ 73,905
======================================================================================================================
Net income per share:
As reported:
Basic $ 1.75 $ 1.18 $ 1.85
Diluted $ 1.72 $ 1.16 $ 1.85
Pro forma:
Basic $ 1.68 $ 1.10 $ 1.75
Diluted $ 1.66 $ 1.09 $ 1.73
======================================================================================================================
LONG-LIVED ASSETS
On December 31, 2001, which was the first day of fiscal year 2002, the
Company adopted SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," which superceded SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of." In
accordance with SFAS No. 144, the Company reviews the recoverability of
intangibles and other long-lived assets whenever events and circumstances
indicate that the carrying amount may not be recoverable. This asset impairment
review assesses the fair value of the assets based on the future cash flows the
assets are expected to generate. An impairment loss is recognized when estimated
undiscounted future cash flows expected to result from the use of the asset plus
net proceeds expected from the disposition of the asset (if any) are less than
the carrying value of the asset. This approach uses estimates for future market
growth, forecasted revenue and costs, expected periods the assets will be
utilized and appropriate discount rates. The carrying amount of the long-lived
asset is reduced by the difference between the carrying amounts and estimated
fair value with a corresponding charge to expense. The Company adopted SFAS No.
142 at the beginning of fiscal year 2002.
42
JOURNAL REGISTER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property, plant and equipment are stated at cost less any required
impairment reserve. Maintenance and repairs are charged to expense as incurred,
while costs of major additions and betterments are capitalized. Depreciation is
provided for financial reporting purposes primarily on the straight-line method
over the following estimated useful lives:
Buildings and improvements 5 to 30 years
Machinery and equipment 3 to 30 years
Intangible assets recorded in connection with the acquisition of newspapers
generally consist of the values assigned to subscriber lists, mastheads,
non-competition covenants and the excess of cost over the fair value of
identifiable net assets of the companies acquired. These assets are carried at
the lower of unamortized cost or the amount expected to be recovered by
projected future operations after considering attributable general and
administration expense and interest on debt allocated to the various newspapers.
If, in the opinion of management, impairment in value occurs, any necessary
write-downs will be charged to expense in accordance with SFAS No. 142. The
balance of intangible assets at December 28, 2003 and December 29, 2002 was
comprised principally of debt issuance costs, subscriber lists, non-compete
covenants, mastheads and the excess cost over the fair value of identifiable net
assets of companies acquired. Intangible assets excluding goodwill and mastheads
are being amortized using the straight-line method over a period of their useful
life, up to 40 years. Deferred financing cost associated with the Term Loans and
the Revolving Credit Facility (as defined in Note 4, Long-Term Debt) is
amortized over the terms of such loans.
INCOME TAXES
The Company uses the liability method of accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax basis of assets and liabilities,
and are measured using the currently enacted tax rates and laws that will be in
effect when the differences are expected to reverse.
REVENUE RECOGNITION
Revenue is earned from the sale of advertising, circulation and commercial
printing. Advertising revenues are recognized, net of agency commissions, in the
period when advertising is printed in the Company's publications or placed on
the Company's Websites. Circulation revenues are recognized when purchased
newspapers are distributed. Amounts received from customers in advance of
revenue recognition are deferred as liabilities.
SEGMENT REPORTING
As of December 28, 2003, the Company published 23 daily newspapers and 236
non-daily publications in the United States. The Company maintains operations
and local management in the markets that it serves. Newspapers are distributed
through local distribution channels consisting of contract carriers and single
copy outlets. The Company conducts business in one operating segment. The
operating segment consists of various operations aggregated into one segment
because the Company engages in the same essential business activities at each
operation and because management believes it helps the reader understand the
Company's performance and is consistent with the manner in which the Company's
operations are managed. The combined operations have similar economic
characteristics and each operation has similar products, services, customers,
production processes and distribution systems.
CONCENTRATION OF CREDIT RISK
In 2003, no single customer accounted for more than one percent of total
revenues or two percent of accounts receivable. Approximately 20 percent of the
Company's employees are employed under collective bargaining agreements. The
Company anticipates that collective bargaining agreements at six newspapers,
constituting approximately 20 percent of the employees covered by collective
bargaining agreements, will be renegotiated in 2004.
43
JOURNAL REGISTER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DERIVATIVE RISK MANAGEMENT POLICY AND STRATEGY
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"), as amended by SFAS No. 137 and No. 138, specifies the
accounting and disclosure requirements for such instruments. In accordance with
these pronouncements, as of January 1, 2001, all effective hedges, as defined,
are recorded as an asset or liability with a corresponding offset to Other
Comprehensive Income ("OCI") in the equity section of the balance sheet. Any
ineffective portion of a hedging instrument or trading derivatives would be
recorded as an asset or liability with a corresponding charge or credit to the
income statement. The information below describes the Company's derivative risk
management policy and strategy as required by SFAS 133, as amended.
In accordance with the requirements of its Credit Agreement (as defined in
Note 4, Long-Term Debt) dated July 15, 1998, the Company is required to maintain
certain Interest Rate Protection Agreements ("IRPAs") on a portion of its debt,
to reduce the potential exposure of the Company's future cash flows to
fluctuations in variable interest rates on which the interest on the outstanding
debt is calculated. The minimum requirement varies depending on the Company's
Total Leverage Ratio, as defined in the Credit Agreement. From time to time, the
Company may enter into additional IRPAs for nominal amounts on the outstanding
debt that will, at a minimum, meet the requirements of the Credit Agreement.
Each IRPA is designated for all or a portion of the principal balance and term
of a specific debt obligation.
Under the Company's current IRPAs, the Company pays to or receives from the
issuer to compensate for the rate below the interest rate floor or in excess of
the interest rate ceiling, respectively. These rates are based on the 90-day
LIBOR.
The Company considers its current IRPAs to be highly effective cash flow
hedges. The Company measures the effectiveness of each IRPA quarterly. As
specified in SFAS 133, any gain or loss on the effective portion of the IRPA is
recorded in OCI and the ineffective portion would be recorded directly to
current earnings. Amounts in accumulated OCI are reclassified into earnings in
the same period in which the hedged transactions affect earnings. In the event
of the early extinguishment of a designated debt obligation, any unrealized gain
or loss included in OCI is recognized in the income statement coincident with
the extinguishment.
RECLASSIFICATION OF CERTAIN OPERATING EXPENSES
Certain operating expenses related to certain of the Company's acquisitions
have been reclassified in prior periods to conform to the Company's current
period financial presentation. The reclassification had no impact on total
operating expenses, operating income, or net income.
SELF-INSURANCE
The Company is self-insured for a portion of its insurance costs. The
Company analyzes its claims experience and consults with actuaries and
administrators in determining an adequate liability for self-insured claims.
3. INTANGIBLE AND OTHER ASSETS
Under SFAS No. 142, goodwill and indefinite-lived intangible assets are no
longer amortized, however, they are reviewed annually or more frequently, if
required, for impairment. Separable intangible assets that are not deemed to
have an indefinite life will continue to be amortized over their useful lives.
During fiscal year 2001, the Company adopted the amortization provisions of SFAS
No. 142 which apply to goodwill and intangible assets acquired after June 30,
2001. With respect to goodwill and intangible assets acquired prior to July 1,
2001, the Company adopted SFAS No. 142 at the beginning of fiscal year 2002. The
required transitional analysis of the Company's goodwill and indefinite-lived
intangible assets was completed as of June 30, 2002. The Company has also
performed the annual impairment tests as of the first day of the fourth quarter
of fiscal year 2003, and a determination was made that such assets were not
impaired. Additionally, during fiscal year 2002, the Company finalized certain
purchase accounting adjustments and closing costs related to certain of its
acquisitions, resulting in a direct reduction of goodwill.
44
JOURNAL REGISTER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. INTANGIBLE AND OTHER ASSETS (CONTINUED)
Changes in the carrying amounts of intangible assets are as follows:
AS OF DEC. 28, 2003 AS OF DEC. 29, 2002
--------------------------------------- ---------------------------------------
ACCUMULATED ACCUMULATED
DOLLARS IN THOUSANDS GROSS AMORTIZATION NET GROSS AMORTIZATION NET
- ------------------------------------------------------------------------- ---------------------------------------
INTANGIBLE ASSETS SUBJECT TO
AMORTIZATION:
Customer and subscriber lists $ 6,743 $ (4,853) $ 1,890 $ 6,743 $ (4,124) $ 2,619
Non-compete covenants 2,870 (1,686) 1,184 2,870 (1,584) 1,286
Debt issuance costs 4,573 (3,023) 1,550 4,573 (2,469) 2,104
- ------------------------------------------------------------------------- -----------------------------------------
Total $ 14,186 $ (9,562) $ 4,624 $ 14,186 $ (8,177) $ 6,009
- ------------------------------------------------------------------------- -----------------------------------------
INTANGIBLE ASSETS NOT SUBJECT
TO AMORTIZATION:
Goodwill $ 555,043 $(63,210) $491,833 $ 554,595 $ (63,210) $ 491,385
Mastheads 9,968 (92) 9,876 9,968 (92) 9,876
- ------------------------------------------------------------------------- -----------------------------------------
Total $ 565,011 $(63,302) $501,709 $ 564,563 $ (63,302) $ 501,261
- ------------------------------------------------------------------------- -----------------------------------------
Total Goodwill and
other intangible assets $ 579,197 $(72,864) $506,333 $ 578,749 $ (71,479) $ 507,270
========================================================================= =========================================
Identifiable intangible assets include customer and subscriber lists,
non-compete covenants and debt issuance costs, which have an estimable useful
life and are amortizable on a straight-line basis over their useful lives.
Indefinite-lived intangible assets include goodwill and mastheads. Mastheads are
included in other intangible assets on the balance sheet. For fiscal years 2003
and 2002, amortization expense for intangible assets was approximately $1.4
million and $1.3 million, respectively.
Estimated amortization expense for each of the five succeeding fiscal years
for Identifiable intangible assets and other assets is as follows (dollars in
thousands):
2004.......................... $1,384
2005.......................... 1,361
2006.......................... 902
2007.......................... 131
2008.......................... 131
Thereafter.................... 715
45
JOURNAL REGISTER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. INTANGIBLE AND OTHER ASSETS (CONTINUED)
The changes in the carrying amount of goodwill during fiscal years 2003 and
2002 are as follows:
DOLLARS IN THOUSANDS
- --------------------------------------------------------------------------------
Balance as of December 30, 2001 $492,349
Goodwill acquired during year 3,299
Adjustments/reclassifications related to the purchase of businesses (4,263)
- --------------------------------------------------------------------------------
Balance as of December 29, 2002 491,385
- --------------------------------------------------------------------------------
Goodwill acquired during year 448
- --------------------------------------------------------------------------------
Balance as of December 28, 2003 $491,833
- --------------------------------------------------------------------------------
The pro forma results of operations for fiscal year 2001, assuming the
amortization provisions of SFAS No. 142 were applied retroactively at January 1,
2001, are as follows:
FISCAL YEAR ENDED DEC. 30, 2001
DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA NET NET INCOME PER SHARE
INCOME BASIC DILUTED
- --------------------------------------------------------------------------------
Net income $78.1 $ 1.85 $ 1.83
Add-back:
Amortization of goodwill and mastheads,
net of taxes 10.0 0.24 0.23
- --------------------------------------------------------------------------------
Adjusted net income $88.1 $ 2.09 $2.06
- --------------------------------------------------------------------------------
Included in other assets is the Company's investment in PowerOne Media, Inc.
("PowerOne"), a provider of classified advertising on the internet. PowerOne was
created as a result of the merger in November 2001 between PowerAdz, LLC
("PowerAdz") and AdOne, LLC ("AdOne"). The Company was an investor in AdOne
prior to the merger. In the ordinary course of business, the Company has related
party sales with PowerOne which amounted to approximately $4.0 million, $4.5
million, and $4.2 million for fiscal years 2003, 2002 and 2001, respectively.
4. LONG-TERM DEBT
The Company entered into a credit agreement in July 1998 with a group of
lenders, led by Chase Manhattan Bank (the predecessor to J.P. Morgan Chase &
Co.) as administrative agent (the "Credit Agreement"). The Credit Agreement
provided for two secured term loan facilities ("Term Loan A" and "Term Loan B"
or collectively the "Term Loans") each at a face amount of $250 million, and a
secured revolving credit facility (the "Revolving Credit Facility") for $400
million. Proceeds under these loan facilities were used to repay existing debt
and to fund the acquisition of the Pennsylvania, New York, and Ohio newspaper
businesses of The Goodson Newspaper Group (the "Goodson Acquisition") in July
1998. The Credit Agreement also provides for an uncommitted, multiple draw term
loan facility (the "Incremental Facility") in the amount of up to $500 million,
as permitted by the administrative agent, to be repaid under conditions as
defined in the Credit Agreement. To date, the Company has not drawn down on the
Incremental Facility.
Under the terms of the 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 sale
of two of its Ohio newspaper properties.
46
JOURNAL REGISTER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. LONG-TERM DEBT (CONTINUED)
The Company's long-term debt as of December 28, 2003 and December 29, 2002
was comprised of the following:
(DOLLARS IN THOUSANDS) 2003 2002
--------------------------------------------------------
Term Loan A $106,246 $ 138,367
Term Loan B 194,899 195,690
Revolving Credit Facility 117,200 149,312
--------------------------------------------------------
Total Long-term debt 418,345 483,369
Less: current portion (37,853) (32,912)
--------------------------------------------------------
Total Long-term debt,
less current portion $380,492 $ 450,457
========================================================
The Term Loan A Facility matures on March 31, 2006 and is repayable in
quarterly installments that commenced on June 30, 2000. The Term Loan B Facility
matures on September 30, 2006 and is repayable in quarterly installments that
commenced on June 30, 2000. The remaining aggregate annual maturities payable
under the Term Loans by fiscal year are as follows (dollars in thousands):
2004...........................................$ 37,853
2005........................................... 86,875
2006........................................... 176,417
The Revolving Credit Facility is available until March 31, 2006. Initial
availability was $400 million and is reduced by equal consecutive quarterly
reductions, commencing on June 30, 2002 and ending on March 31, 2006, in an
aggregate amount for each remaining twelve-month period commencing on the dates
set forth below, equal to the amount set forth opposite such date (dollars in
thousands):
June 30, 2002..................................$ 55,000
June 30, 2003.................................. 65,000
June 30, 2004.................................. 100,000
June 30, 2005.................................. 180,000
The Term Loans and Revolving Credit Facility are secured by substantially
all of the assets of the Company and the common stock and assets of the
Company's subsidiaries. The Term Loans and Revolving Credit Facility require
compliance with certain covenants, including the maintenance of certain
financial ratios, which may restrict, among other things, the Company's ability
to declare dividends, repurchase Company stock, incur additional indebtedness,
create liens, sell assets, consummate mergers and make capital expenditures,
investments and acquisitions. The Company is in compliance with the financial
covenants contained in the Credit Agreement.
The amounts outstanding under the Credit Agreement bear interest at (i) 1
3/4 percent to 1/2 percent above LIBOR (as defined in the Credit Agreement) or
(ii) 1/2 percent to 0 percent above the higher of (a) the Prime Rate (as defined
in the Credit Agreement) or (b) 1/2 percent above the Federal Funds Rate (as
defined in the Credit Agreement). The interest rate spreads ("the applicable
margins") are dependent upon the Total Leverage Ratio (as defined in the Credit
Agreement) and are reduced as such ratio declines. Capitalized interest during
fiscal year 2001 was $1.3 million. There was no capitalized interest during
fiscal year 2002 and 2003. The estimated fair value of the Term Loans and
Revolving Credit Facility approximates their carrying value.
An annual commitment fee is incurred on the average daily-unused portion of
the Revolving Credit Facility, payable quarterly in arrears, at a percentage
that varies from 0.375 percent to 0.250 percent based on the quarterly
calculation of the Total Leverage Ratio (as defined in the Credit Agreement). At
December 28, 2003, the Company's commitment fee was 0.25 percent.
47
JOURNAL REGISTER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. LONG-TERM DEBT (CONTINUED)
The terms of the Credit Agreement require the Company to maintain certain
Interest Rate Protection Agreements ("IRPAs") on a portion of its debt, to
reduce the potential exposure of the Company's future cash flows due to
fluctuations in the variable interest rates on which the interest on the
outstanding debt is calculated. The minimum requirement varies depending on the
Company's Total Leverage Ratio, as defined in the Credit Agreement. To fulfill
this requirement, the Company participated in certain IRPAs. The Company had
IRPAs in effect during 2003 pursuant to which the Company had entered into an
interest rate collar hedge ("the collar") on November 9, 2001. The collar
establishes an interest rate ceiling ("CAP") and an interest rate floor at no
initial cost to the Company.
The CAP on the Company's collar, which became effective October 29, 2002,
is 6.0 percent and the floor averages 2.66 percent. These rates are based on the
90-day LIBOR. In the event 90-day LIBOR exceeds 6.0 percent, the Company will
receive cash from the issuer to compensate for the rate in excess of the 6.0
percent CAP. If the 90-day LIBOR is lower than 2.66 percent, the Company will
pay cash to the issuer to compensate for the rate below the floor. The collar
became effective on October 29, 2002 beginning at a notional amount of $170
million. The collar amortizes over two years to a notional aggregate amount of
$135 million and terminates on October 29, 2004. On October 10, 2002, the
Company entered into additional interest rate Collars ("Additional Collars").
The effective date of the Additional Collars is January 29, 2003. The Additional
Collars are for a notional aggregate amount of $150 million, which is fixed for
its two-year term. Similar to the existing Collar, the Additional Collars
establish an interest rate ceiling ("Cap") and an interest rate floor at no
initial cost to the Company. The Cap on the Additional Collars is 4.0 percent
and the floor averages approximately 1.54 percent. These rates are based upon
the 90-day LIBOR. In the event that 90-day LIBOR exceeds 4.0 percent, the
Company will receive cash from the issuer to compensate for the rate in excess
of the 4.0 percent Cap. If the 90-day LIBOR is lower than 1.54 percent, the
Company will pay cash to the issuer to compensate for the rate below the floor.
From time to time, the Company may enter into additional IRPAs. The Company
expects that each IRPA will be designated for all or a portion of the principal
balance and term of a specific debt obligation.
The IRPAs were fully effective in hedging the changes in cash flows related
to the related debt obligation during the years ending December 28, 2003 and
December 29, 2002. The total deferred loss reported in other comprehensive
income as of December 28, 2003 and December 29, 2002 was approximately $1.5
million and $3.4 million, respectively (net of $1.0 and $1.8 million of deferred
taxes, respectively).
The Company's weighted-average effective interest rate for fiscal year 2003
was approximately 3.2 percent. This interest rate includes the effect of a $2.6
million pre-tax expense realized and reported as a component of interest expense
for the Interest Rate Protection Agreements in place during fiscal year 2003.
Net interest expense and other includes interest expense of approximately $14.7
million, $23.1 million and $30.7 million for fiscal years 2003, 2002 and 2001,
respectively.
As of December 28, 2003, the Company had outstanding indebtedness under the
Credit Agreement, due and payable in installments through 2006, of $418.3
million, of which $117.2 million was outstanding under the Revolving Credit
Facility and $301.1 million was outstanding under the Term Loans. In addition,
the Company had approximately $195.3 million of unused Revolving Credit Facility
funds, with approximately $131.5 million available at December 28, 2003 pursuant
to the terms of the Credit Agreement.
5. STOCK PLANS
STOCK INCENTIVE PLAN
During 1997, the Company's Board of Directors (the "Board") adopted and the
stockholders approved the Company's 1997 Stock Incentive Plan (the "1997 Plan").
The 1997 Plan, as amended on March 27, 2001, authorizes grants of up to
6,383,750 shares of Common Stock through: (i) incentive stock options and
non-qualified stock options (in each case, with or without stock appreciation
rights) to acquire common stock; (ii) awards of restricted shares of Common
Stock; and (iii) performance units to such directors, officers and other
employees of, and consultants to, the Company and its subsidiaries and
affiliates as may be designated by the Compensation Committee of the Board or
such other committee of the Board, as the Board may designate.
48
JOURNAL REGISTER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. STOCK PLANS (CONTINUED)
Incentive stock options are granted at no less than fair market value of
the common stock on the date of grant. The option price per share of common
stock for all other stock options is established by the Compensation Committee
of the Board. Stock options generally vest evenly over a five year period at a
rate of 20 percent per year commencing on the first anniversary after issuance,
continuing through the fifth anniversary, at which time 100 percent may be
exercised. These options generally expire ten years after issuance.
The following table summarizes the Company's stock option activity for the
fiscal years presented:
DEC. 28, 2003 DEC. 29, 2002 DEC. 30, 2001
- ----------------------------------- -------------------------- --------------------------- -------------------------
NUMBER OF WEIGHTED-AVERAGE NUMBER OF WEIGHTED-AVERAGE NUMBER OF WEIGHTED-AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
- ----------------------------------- ------------- ------------ ------------- ------------- -- ------------ ------------
Outstanding-beginning of year 5,068,454 $17.82 4,555,673 $17.06 3,968,367 $17.28
Granted 743,275 17.63 773,875 21.67 726,075 15.86
Exercised 497,349 14.21 121,853 14.47 13,535 14.29
Forfeited 114,968 18.10 139,241 17.47 125,234 17.23
- ----------------------------------- ------------- ------------ ------------- ------------- ------------ ------------
Outstanding-end of year 5,199,412 $18.13 5,068,454 $17.82 4,555,673 $17.06
=================================== ============= ============ ============= ============= ============ ============
Exercisable at end of year 3,111,879 $18.34 2,873,411 $17.77 2,102,311 $17.93
Weighted-average fair value of
options granted during the
year $5.62 $7.86 $5.76
Further information about stock options outstanding at December 28, 2003,
as follows:
WEIGHTED- AVERAGE
REMAINING WEIGHTED- WEIGHTED-
RANGE OF EXERCISE NUMBER CONTRACTUAL LIFE AVERAGE EXERCISE AVERAGE EXERCISE
PRICES OUTSTANDING (YEARS) PRICE NUMBER EXERCISABLE PRICE
- --------------------- ------------------ ------------------- ------------------ ------------------- ------------------
$14.00 - 16.00 2,278,575 5.9 $14.90 1,496,823 $14.74
$16.01 - 18.00 745,175 9.2 17.53 30,300 17.34
$18.01 - 20.00 9,000 9.6 18.51 - -
$20.01 - 22.50 2,166,662 5.4 21.74 1,584,756 21.76
- --------------------- ------------------ ------------------- ------------------ ------------------- ------------------
5,199,412 6.2 $18.13 3,111,879 $18.34
===================== ================== =================== ================== =================== ==================
The Company adopted the disclosure requirements of SFAS No. 123 as amended
by SFAS No. 148. Accordingly, the Company discloses pro forma net income and
earnings per share determined as if the Company had accounted for its employee
stock options under the fair value method of that statement. The fair value of
these options was estimated at the date of grant using a Black-Scholes option
pricing model assuming a weighted average risk-free interest rate of 3.02
percent, 4.86 percent and 5.32 percent, and expected common stock market price
volatility factors of 0.22, 0.21 and 0.19 for the years 2003, 2002 and 2001,
respectively. A seven-year weighted average expected life of each option granted
and no dividend yield was assumed.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because
49
JOURNAL REGISTER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. STOCK PLANS (CONTINUED)
changes in the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.
STOCK RIGHTS PLAN
Effective July 17, 2001, the Company adopted a Stockholder Rights Plan (the
"Plan") and declared a dividend of one preferred share purchase right (the
"Rights") on each outstanding share of the Company's common stock held by
stockholders of record on July 27, 2001. The rights are exercisable if a person
or group acquires 15 percent or more of the Company's common stock, or commences
a tender offer with that goal. The rights will expire July 27, 2011.
6. EARNINGS PER COMMON SHARE
The following table sets forth the computation of weighted-average shares
outstanding for calculating basic and diluted earnings per share for the fiscal
years ended:
(IN THOUSANDS) DEC. 28, DEC. 29, DEC. 30,
FISCAL YEAR ENDED 2003 2002 2001
- --------------------------------------------------------------------------------
Weighted-average shares - basic 41,245 41,576 42,273
Effect of dilutive securities:
Employee stock options 589 747 381
- --------------------------------------------------------------------------------
Weighted-average shares - diluted 41,834 42,323 42,654
================================================================================
Options to purchase the Company's common stock that were not included in
the computation of the diluted earnings per share because the options' exercise
price was greater than the average market price of the common shares during each
of the periods presented below (in thousands, except per share amounts):
FISCAL YEAR OPTIONS EXERCISE PRICE RANGE
----------- ------- --------------------
2003 2,176 $18.00 to $22.50
2002 2,199 $21.00 to $22.50
2001 1,497 $17.00 to $22.50
7. PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS
The Company and its subsidiaries maintain a defined benefit pension plan.
The benefits are based on years of service and employee compensation, primarily
on career average pay. The Company's funding policy is to contribute annually an
amount that can be deducted for federal income tax purposes using assumptions
that differ from those used for financial reporting. Assets of the plans consist
principally of short-term investments, annuity contracts, equity securities and
corporate and U.S. Government obligations. The Company uses information as of
September 30 to measure the value of pension plan assets and obligations.
Certain of the Company's subsidiaries also provide retiree health and life
insurance benefits.
The fair value of the pension plan assets at the end of year was
approximately $87.5 million. Approximately 73 percent of the pension plan assets
were invested in equity securities, 24 percent were invested in fixed income
securities and 3 percent were invested in cash. The equity investments are
diversified across U.S. and non-U.S. stocks. The Company employs a total return
investment approach in its investment strategy whereby a mix of equities and
fixed income investments are used to maximize the long-term return of plan
assets for a prudent level of risk. Risk tolerance is established through
careful consideration of plan liabilities, plan funded status and the Company's
financial condition. The long-term rate of return for plan assets is determined
by careful
50
JOURNAL REGISTER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS (CONTINUED)
consideration of the current asset mix, historical returns and peer data
analysis. At this time the Company does not expect to contribute to the pension
plan in the next fiscal year. For the post-retirement health and life insurance
plans, the Company contributed $406,000 in 2003 and expects to contribute
approximately $400,000 in 2004.
The following table sets forth the plans' funded status and the amount
recognized in the Company's consolidated balance sheet:
(DOLLARS IN THOUSANDS) PENSION BENEFITS OTHER POST-RETIREMENT BENEFITS
- ------------------------------------------------------------------------------- ------------------------------------
2003 2002 2003 2002
- ------------------------------------------------------------------------------- ------------------------------------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $ 87,275 $ 78,562 $ 4,210 $ 4,988
Service cost 1,947 1,674 7 6
Interest cost 5,726 5,632 268 356
Actuarial (gain) loss 7,312 6,415 38 (651)
Benefits paid (5,079) (5,008) (406) (489)
- ------------------------------------------------------------------------------- ------------------------------------
Benefit obligation at end of year $ 97,181 $ 87,275 $ 4,177 $ 4,210
- ------------------------------------------------------------------------------- ------------------------------------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning
of year $ 78,646 $ 83,973 $ - $ -
Actual return (loss) on plan assets 13,819 (11,329) - -
Employer contributions 104 11,010 406 489
Benefits paid (5,079) (5,008) (406) (489)
- ------------------------------------------------------------------------------- ------------------------------------
Fair value of plan assets at end of year $ 87,490 $ 78,646 $ - $ -
- ------------------------------------------------------------------------------- ------------------------------------
Reconciliation of funded status
Funded status $ (9,691) $ (8,629) $ (4,117) $ (4,210)
Unrecognized net:
Transition (asset) (2) (41) - -
Prior service cost (1,103) (1,460) (159) (252)
(Gain) loss 33,252 35,088 (2,526) (2,880)
- ------------------------------------------------------------------------------- ------------------------------------
Net amount recognized $ 22,456 $ 24,958 $ (6,802) $ (7,342)
=============================================================================== ====================================
51
JOURNAL REGISTER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS (CONTINUED)
(DOLLARS IN THOUSANDS) PENSION BENEFITS POST-RETIREMENT BENEFITS
- ---------------------------------------------------------------------------------------- -----------------------------------
2003 2002 2003 2002
- ---------------------------------------------------------------------------------------- -----------------------------------
AMOUNTS RECOGNIZED IN STATEMENT OF FINANCIAL
POSITION
Accrued benefit liability $ (7,662) $ (6,865) $ (6,802) $ (7,342)
Accumulated other comprehensive loss 30,118 31,823 N/A N/A
- ---------------------------------------------------------------------------------------- ----------------------------------
Net amount recognized $ 22,456 $ 24,958 $ (6,802) $ (7,342)
- ---------------------------------------------------------------------------------------- ----------------------------------
SEPARATE DISCLOSURES FOR PENSION PLANS WITH
ACCUMULATED BENEFIT OBLIGATION IN EXCESS OF PLAN
ASSETS
Projected benefit obligation at end of year $ 97,181 $ 87,275 N/A N/A
Accumulated benefit obligation at end of year $ 95,152 $ 85,511 N/A N/A
Fair value of assets at end of year $ 87,490 $ 78,646 N/A N/A
- ---------------------------------------------------------------------------------------- -----------------------------------
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost $ 1,947 $ 1,674 $ 7 $ 6
Interest cost 5,726 5,632 268 356
Expected return on plan assets (6,853) (7,764) - -
Amortization of net:
Transition obligation (39) (39) - -
Prior service cost (356) (356) (93) (93)
(Gain)/loss 2,180 87 (326) (309)
- ---------------------------------------------------------------------------------------- -----------------------------------
Net periodic benefit expense $ 2,605 $ (766) $ (144) $ (40)
- ---------------------------------------------------------------------------------------- -----------------------------------
There were no business combinations, curtailments, or settlements reflected in 2003 or 2002.
COMPONENTS OF OTHER COMPREHENSIVE (INCOME)/LOSS
Decrease in intangible asset $ - $ - N/A N/A
(Decrease) Increase in additional minimum liability (1,705) 30,442 N/A N/A
- ---------------------------------------------------------------------------------------- -----------------------------------
OTHER COMPREHENSIVE (INCOME)/LOSS $ (1,705) $ 30,442 N/A N/A
- ---------------------------------------------------------------------------------------- -----------------------------------
ACTUARIAL ASSUMPTIONS
WEIGHTED-AVERAGE ASSUMPTIONS USED TO DETERMINE
BENEFIT OBLIGATIONS AT SEPTEMBER 30
Discount rate 6.25% 6.75% 6.25% 6.75%
Rate of compensation increase 3.00% 3.00% 3.00% 3.00%
WEIGHTED-AVERAGE ASSUMPTIONS USED TO DETERMINE
PERIODIC BENEFIT COSTS FOR FISCAL YEARS ENDED
DECEMBER 28, 2003 AND DECEMBER 29, 2002
Discount rate
Used for current fiscal year expense 6.75% 7.50% 6.75% 7.50%
Used for next fiscal year expense 6.25% 6.75% 6.25% 6.75%
Expected Return on Plan Assets
Used for current fiscal year expense 9.00% 9.50% N/A N/A
Used for next fiscal year expense 8.50% 9.00% N/A N/A
Rate of Compensation Increase 3.00% 3.00% 3.00% 3.00%
ASSUMED HEALTHCARE COST TREND RATES AT DECEMBER 28,
2003 AND DECEMBER 29, 2002
Healthcare Cost Trend Rate Assumed for Next Year
(Initial Rate) N/A N/A 10.00% 6.50%
Rate to Which the Cost Trend Rate is Assumed to
Decline (Ultimate Rate) N/A N/A 5.25% 6.50%
Year that the Rate Reaches the Ultimate Rate N/A N/A 2009 2002
52
JOURNAL REGISTER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS (CONTINUED)
(DOLLARS IN THOUSANDS) PENSION BENEFITS POST-RETIREMENT BENEFITS
- ------------------------------------------------------------------------------------- ----------------------------
2003 2002 2003 2002
- ------------------------------------------------------------------------------------- ----------------------------
EFFECTS OF A CHANGE IN THE ASSUMED RATE OF
INCREASE IN HEALTH BENEFIT COSTS
Effect of a one percent increase on:
Total of service cost and interest cost N/A N/A $ 26 $ 35
Post-retirement benefit obligation N/A N/A $ 317 $ 381
Effect of a one percent decrease on:
Total of service cost and interest cost N/A N/A $ (22) $ (30)
Post-retirement benefit obligation N/A N/A $ (279) $ (326)
The Company also has defined contribution plans covering certain employees.
Company contributions to these plans are based on a percentage of participants'
salaries and amounted to approximately $636,300, $632,700 and $570,800 in fiscal
years 2003, 2002 and 2001, respectively. The Company contributes to various
multi-employer union administered pension plans. Contributions to these plans
amounted to approximately $116,000, $148,000 and $180,300 in fiscal years 2003,
2002 and 2001, respectively.
Recent legislation enacted on December 8, 2003, provides for an expansion
of Medicare, primarily adding a prescription drug benefit for Medicare-eligible
retirees starting in 2006. The Company's retiree medical obligations and costs
reported do not reflect the impact of this legislation. Deferring the
recognition of the impact of the new Medicare provisions is permitted by
Financial Accounting Standards Board Staff Position 106-1 due to open questions
about certain of the new Medicare provisions and a lack of authoritative
accounting guidance about certain matters.
8. INCOME TAXES
The annual provision for taxes on income, in thousands, is as follows:
FISCAL YEAR ENDED DEC. 28, 2003 DEC. 29, 2002 DEC. 30, 2001
- ------------------------------------------------------------------------------------------
Current tax expense (benefit):
Federal $ (3,775) $ 11,757 $ 4,484
State
1,906 1,213 (253)
- ------------------------------------------------------------------------------------------
Total current tax expense (benefit) (1,869) 12,970 4,231
- ------------------------------------------------------------------------------------------
Deferred tax expense:
Federal 5,946 13,472 5,450
State 2,043 1,002 1,137
- ------------------------------------------------------------------------------------------
Total deferred tax expense 7,989 14,474 6,587
- ------------------------------------------------------------------------------------------
Total provision for taxes $ 6,120 $ 27,444 $ 10,818
==========================================================================================
53
JOURNAL REGISTER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. INCOME TAXES (CONTINUED)
The reconciliation of income taxes computed at the U.S. federal statutory
tax rate to income tax expense, in thousands for the years presented, is as
follows:
FISCAL YEAR ENDED Dec. 28, 2003 Dec. 29, 2002 Dec. 30, 2001
- -----------------------------------------------------------------------------------------------------------------------
Tax at U.S. statutory rates $ 27,339 $ 26,835 $ 31,592
State taxes, net of federal tax benefit 2,566 1,439 575
Tax basis in excess of book basis on sales of properties - - (21,182)
Reversal of excess tax accruals (22,756) (1,172) (1,825)
Non-deductible goodwill amortization - - 1,982
Other (1,029) 342 (324)
- -----------------------------------------------------------------------------------------------------------------------
Total $ 6,120 $ 27,444 $ 10,818
=======================================================================================================================
The Company realized state tax benefits in connection with the utilization
of state net operating loss carryforwards as follows: $1.9 million in 2003, none
in 2002 and $0.2 million in 2001. Based upon current state statutory rates, the
Company may have $6.7 million of future tax benefits. However, based upon an
assessment of the likelihood of the future utilization of such losses, the
Company has reduced such tax benefits by a valuation allowance of approximately
$3.7 million at December 28, 2003. The state net operating loss carryforwards
expire in various years through 2022.
Deferred income taxes reflect the net effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets, in thousands, are as follows:
FISCAL YEAR ENDED DEC. 28, 2003 DEC. 29, 2002
- ------------------------------------------------------------------------------
Deferred tax liabilities:
Property, plant and equipment $ 16,628 $ 15,291
Intangibles 43,166 33,557
Retiree benefits 5,721 6,941
- ------------------------------------------------------------------------------
Total deferred tax liabilities 65,515 55,789
- ------------------------------------------------------------------------------
Deferred tax assets:
State net operating loss carryforwards 6,678 7,082
Other comprehensive income 13,344 13,869
Other 5,580 4,935
- ------------------------------------------------------------------------------
Total deferred tax assets 25,602 25,886
Valuation allowance (3,747) (5,239)
- ------------------------------------------------------------------------------
Net deferred tax assets 21,855 20,647
- ------------------------------------------------------------------------------
Net deferred tax liabilities $ 43,660 $ 35,142
==============================================================================
The Company's valuation allowances for deferred tax assets decreased by
$1.5 million in fiscal year 2003. The Company's federal income tax returns have
not been examined by the Internal Revenue Service.
9. COMMITMENTS AND CONTINGENCIES
The Company leases office space, production facilities, warehouse space,
and equipment under noncancellable operating leases. These leases contain
several renewal options for periods of up to five years. The Company's future
minimum lease payments under noncancellable operating leases at December 28,
2003 are as follows (dollars in thousands):
54
JOURNAL REGISTER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
2004.................................................$2,027
2005..................................................1,509
2006..................................................1,229
2007....................................................833
2008....................................................704
Thereafter............................................1,169
Total rent expense was $2.9 million, $3.0 million, and $3.1 million for the
years ended December 28, 2003, December 29, 2002 and December 30, 2001,
respectively.
The Company is involved in certain litigation matters that have arisen in
the ordinary course of business. In the opinion of management, the outcome of
these legal proceedings should not have a material adverse impact on the
Company's financial position or results of operations.
10. ACQUISITIONS AND DISPOSITIONS
The Company applies the purchase method of accounting for acquisitions.
Acquisitions and dispositions of newspaper properties are subject to the
finalization of customary purchase price adjustments and closing costs.
On November 17, 2003, the Company completed the acquisition of the assets
of THE NORTH ATTLEBOROUGH FREE PRESS, based in North Attleborough,
Massachusetts. This acquisition included a weekly newspaper serving North
Attleborough, Attleboro Falls and certain neighboring communities, including
Plainville, South Attleboro and Attleboro. The total purchase price was not
material relative to the Company's total revenues or assets.
In fiscal year 2002, the Company completed three strategic acquisitions. On
March 18, 2002, the Company completed the acquisition of the assets of News
Gleaner Publications, Inc. and Big Impressions Web Printing, Inc., which are
based in Northeast Philadelphia, Pennsylvania. This acquisition includes eight
weekly newspapers serving Northeast Philadelphia, seven monthly publications
serving Montgomery County, Pennsylvania, and a commercial printing operation. On
March 22, 2002, the Company completed the acquisition of the assets of the
Essex, Connecticut-based Hull Publishing, Inc. This acquisition includes one
weekly newspaper and two annually produced magazines. On October 14, 2002, the
Company completed the acquisition of seven weekly newspapers serving Delaware
County, Pennsylvania.
In fiscal year 2001, the Company completed five strategic 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 non-daily publications. On
June 7, 2001, the Company completed the acquisition of the Montgomery Newspaper
Group`s community newspaper and magazine operations, a group of 24 non-daily
publications, which is based in Fort Washington, Pennsylvania, from Metroweek
Corporation. On August 1, 2001, the Company completed the acquisition of the
assets of Roe Jan Independent Publishing, Inc., which is based in Hillsdale, New
York. Roe Jan publishes two non-daily publications. On September 14, 2001, the
Company completed the acquisition of the assets of THE REPORTER, a daily
newspaper based in Lansdale, Pennsylvania. On October 25, 2001, the Company
completed the acquisition of THE LITCHFIELD COUNTY TIMES, a weekly newspaper
based in New Milford, Connecticut. The acquisition also included three lifestyle
magazines serving Litchfield and Fairfield counties in Connecticut and
Westchester County, New York.
The Company also sold two daily newspapers and a commercial printing
operation in the southern part of central Ohio in early 2001. The proceeds from
these sales were used to reduce the Company's outstanding debt, repurchase
Company stock and for strategic acquisitions.
55
JOURNAL REGISTER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of operations for years
ended December 28, 2003 and December 29, 2002:
FIRST SECOND THIRD FOURTH
(IN THOUSANDS, EXCEPT PER SHARE DATA) QUARTER QUARTER QUARTER QUARTER
- -------------------------------------------------------------------------------------------------------------------
2003(1)
- -------
Revenues $ 96,632 $ 104,160 $ 100,806 $ 104,388
Operating income 19,348 25,913 21,851 26,625
Net income 9,803 13,931 31,864 16,392
Net income per common share:
Basic $ 0.24 $ 0.34 $ 0.77 $ 0.40
Diluted $ 0.24 $ 0.34 $ 0.76 $ 0.39
2002(1)
- -------
Revenues $ 96,633 $ 105,843 $ 100,457 $ 104,821
Operating income 21,118 28,434 23,199 27,597
Net income 9,232 13,818 11,930 14,247
Net income per common share:
Basic $ 0.22 $ 0.33 $ 0.29 $ 0.34
Diluted $ 0.22 $ 0.33 $ 0.28 $ 0.34
- -------------------------------------------------------------------------------------------------------------------
(1) The amounts reported above include operating results of acquisitions
and dispositions for the period the operations were owned by the
Company (see Note 10, Acquisitions and Dispositions).
56
JOURNAL REGISTER COMPANY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
BALANCE AT CHARGED/ BALANCE AT
BEGINNING (CREDITED) TO END OF
DESCRIPTION OF PERIOD ADJUSTMENTS(1) INCOME DEDUCTIONS(2) PERIOD
- ------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 28, 2003
Allowance for doubtful accounts $ 6,388 $ 13 $ 3,830 $ 4,446 $ 5,785
Valuation allowance for deferred
tax assets 5,239 - (1,492) (3) - 3,747
YEAR ENDED DECEMBER 29, 2002
Allowance for doubtful accounts $ 6,365 $ 315 $ 5,025 $ 5,317 $ 6,388
Valuation allowance for deferred
tax assets 4,995 - 244 - 5,239
YEAR ENDED DECEMBER 30, 2001
Allowance for doubtful accounts $ 3,443 $ 656 $ 4,585 $ 2,319 $ 6,365
Valuation allowance for deferred
tax assets 1,954 - 3,041 - 4,995
- -------------------------------------------------------------------------------------------------------------------
(1) Allowance for doubtful account adjustments related to acquisitions and
dispositions in the respective periods presented. See Note 10 to the
consolidated financial statements for discussion of acquisitions and
dispositions.
(2) Includes the write-off of uncollectible accounts in the respective periods
presented.
(3) Reflects a reversal of a valuation allowance for state net operating loss
carryforwards.
57
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES
The Company carried out an evaluation, under the supervision and with the
participation of the Company's management, including the Company's Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures as of
the end of the period covered by this report. Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures are effective in alerting them in a timely
manner to material information relating to the Company (including its
consolidated subsidiaries) required to be included in the Company's periodic
filings with the SEC.
The Company's disclosure controls and procedures are designed to ensure
that information required to be disclosed by the Company in the reports that the
Company files or submits under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") is recorded, processed, summarized and reported within the
time periods specified in the SEC's rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by the Company in the reports
that it files under the Exchange Act is accumulated and communicated to the
Company's management, including its Chief Executive Officer and Chief Financial
Officer, as appropriate to allow timely decisions regarding required disclosure.
Subsequent to the end of fiscal year 2003, the Company commenced the
deployment of a new suite of software applications in a shared services
environment. The new suite of applications will include (i) financial
applications, including accounts payable, general ledger, fixed assets, and
consolidation and reporting, (ii) circulation management applications and (iii)
advertising management applications. Once fully deployed, the new software,
together with the change to a shared services business model, is intended to
further enhance the Company's internal and disclosure controls and its operating
efficiencies. Deployment of the financial applications is expected to be
completed by the end of fiscal year 2004, and deployment of the advertising and
circulation management applications is expected to occur thereafter. The Company
does not anticipate any adverse effect on its internal and disclosure controls
during the deployment phase.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information with respect to executive officers of the Company is presented
in Part I of this Report under the caption "Executive Officers of the
Registrant."
The information appearing under the captions "Proposal 1 - Election of
Directors", "Certain Transactions" and "Section 16(a) Beneficial Ownership
Reporting Compliance" in the Company's Proxy Statement for its 2004 Annual
Meeting of Stockholders (the "2004 Proxy Statement") is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION.
Information appearing under the caption "Executive Compensation" in the
2004 Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information appearing under the caption "Security Ownership of Beneficial
Owners and Management and Related Stockholder Matters" in the 2004 Proxy
Statement is incorporated herein by reference.
58
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information appearing under the caption "Certain Transactions" in the 2004
Proxy Statement is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Information appearing under the caption "Ratification of the Selection of
Independent Auditors" in the 2004 Proxy Statement is incorporated herein by
reference.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) FINANCIAL STATEMENTS.
The financial statements are included in Part II, Item 8 of this Report.
FINANCIAL STATEMENT SCHEDULES AND SUPPLEMENTARY INFORMATION REQUIRED TO BE
SUBMITTED.
Schedule of Valuation and Qualifying Accounts on Schedule II is included in
Part II, Item 8 of this report.
All other schedules have been omitted because they are inapplicable or the
required information is shown in the consolidated financial statements or
related notes.
(b) REPORTS ON FORM 8-K.
The Company filed a Current Report on Form 8-K on October 16, 2003,
furnishing pursuant to Item 12 thereof certain information regarding the
text of a press release issued by the Company, dated October 16, 2003,
titled "Journal Register Company Reports Third Quarter Results."
59
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(CONTINUED)
(c) INDEX TO EXHIBITS.
The following is a list of all Exhibits filed as part of this Report:
EXHIBIT NO. DESCRIPTION OF EXHIBIT
*2.1 Master Agreement, dated as of May 17, 1998, by and among each of
the persons listed on Annex A and Annex B thereto, Richard G.
Schneidman, as Designated Stockholder, and the Company (filed as
Exhibit 99.2 to the Company's Current Report on Form 8-K/A, dated
June 30, 1998, File No. 1-12955).
*3.1 Amended and Restated Certificate of Incorporation (filed as
Exhibit 3(i) to the Company's Form 10-Q/A Amendment No. 1 for the
fiscal quarter ended June 30, 1997, File No. 1-12955 (the "June
1997 Form 10-Q")).
*3.2 Amended and Restated By-laws (filed as Exhibit 3(ii) to the
Company's Form 10-Q for the fiscal quarter ended September 30,
1999, File No. 1-12955 (the "September 1999 Form 10-Q)).
*4.1 Company Common Stock Certificate (filed as Exhibit 4.1 the
Company's Registration Statement on Form S-1, Registration No.
333-23425 (the "Form S-1")).
*4.2 Rights Agreement dated as of July 17, 2001 between the Company
and the Bank of New York, as Rights Agent (filed as Exhibit 4.1
to the Company's Report on Form 8-K dated July 18, 2001, File No.
1-12955).
*10.1(a) 1997 Stock Incentive Plan (filed as Exhibit 10.2 to the June
1997 Form 10-Q).+
*10.1(b) Amendment to the 1997 Stock Incentive Plan. (filed as Exhibit
10.1(b) to the Company's Form 10-K for fiscal year 2001, File No.
1-12955 (the "2001 Form 10-K). +
*10.2 Management Bonus Plan (filed as Exhibit 10.3 to the June 1997
Form 10-Q). +
*10.3 Supplemental 401(k) Plan (filed as Exhibit 10.4 to the Form
S-1). +
*10.4 Registration Rights Agreement by and among Journal Register
Company, Warburg, Pincus Capital Company, L.P., Warburg, Pincus
Capital Partners, L.P. and Warburg, Pincus Investors, L.P. (filed
as Exhibit 10.6 to the June 1997 Form 10-Q).
*10.5 Credit Agreement among Journal Register Company, each of the
banks and other financial institutions that is a signatory
thereto or which, pursuant to Section 2.01 (c) or Section (b)
thereto, becomes a "Lender" thereunder and the Chase Manhattan
Bank, as administrative agent for the lenders (filed as Exhibit
10.7 to the September 1999 Form 10-Q).
*10.6 Executive Incentive Compensation Plan (filed as Exhibit 10.7 to
the 2001 Form 10-K). +
*10.7 Employment Agreement by and between Journal Register Company and
Robert M. Jelenic dated March 5, 2003. +
*10.8 Employment Agreement by and between Journal Register Company and
Jean B. Clifton dated March 5, 2003. +
**21.1 Subsidiaries of Journal Register Company.
**23.1 Consent of Ernst & Young LLP.
**24 Power of Attorney (appears on signature page).
**31.1 Certification of Principal Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
**31.2 Certification of Principal Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
**32 Certification of Principal Executive Officer and Principal
Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
------------------
+ Management contract or compensatory plan or arrangement.
* Incorporated by reference.
** Filed herewith.
60
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Trenton, State of New Jersey, on the 12th day of March 2004.
JOURNAL REGISTER COMPANY
By: /S/ ROBERT M. JELENIC
--------------------------
Robert M. Jelenic
Chairman, President and Chief Executive Officer
KNOWN BY ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints both Robert M. Jelenic and Jean B.
Clifton his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this Annual Report on
Form 10-K, and to file the same, with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or their or his or her
substitutes or substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on the 12th day of March 2004.
SIGNATURE TITLE(S)
/S/ ROBERT M. JELENIC Chairman, President, Chief Executive Officer and
- ----------------------- Director (Principal Executive Officer)
Robert M. Jelenic
/S/ JEAN B. CLIFTON Executive Vice President, Chief Financial Officer
- ----------------------- (Principal Financial and Accounting Officer) and
Jean B. Clifton Director
/S/ JOHN L. VOGELSTEIN
- -----------------------
John L. Vogelstein Director
/S/ ERROL M. COOK
- -----------------------
Errol M. Cook Director
/S/ JAMES W. HALL
- -----------------------
James W. Hall Director
/S/ JOSEPH A. LAWRENCE
- -----------------------
Joseph A. Lawrence Director
/S/ GARY D. NUSBAUM
- -----------------------
Gary D. Nusbaum Director
/S/ BURTON B. STANIAR
- -----------------------
Burton B. Staniar Director
61