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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 1-12955
JOURNAL REGISTER COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 22-3498615
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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:
Common Stock, par value $0.01 per share
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ].
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 27, 2001 was approximately $ 271,160,310.
As of March 27, 2001, 42,764,050 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
2001 Annual Meeting of Stockholders, which will be filed on or before April 12,
2001.
==============================================================================
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: THE PLANS AND OBJECTIVES OF THE COMPANY FOR FUTURE OPERATIONS AND
TRENDS AFFECTING THE COMPANY'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
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. FACTORS THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED BY SUCH
FORWARD-LOOKING STATEMENTS INCLUDE, BUT ARE NOT LIMITED TO, (I) A DECLINE IN
GENERAL ECONOMIC CONDITIONS, (II) THE UNAVAILABILITY OR MATERIAL INCREASE IN THE
PRICE OF NEWSPRINT, (III) AN ADVERSE JUDGMENT IN PENDING OR FUTURE LITIGATION
AND (IV) INCREASED COMPETITIVE PRESSURE FROM CURRENT COMPETITORS AND FUTURE
MARKET ENTRANTS. SEE "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- CERTAIN FACTORS WHICH MAY AFFECT THE
COMPANY'S FUTURE PERFORMANCE." THE COMPANY UNDERTAKES NO OBLIGATION TO RELEASE
PUBLICLY THE RESULTS OF ANY FUTURE REVISIONS IT MAY MAKE TO FORWARD-LOOKING
STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO
REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS.
PART I
ITEM 1. BUSINESS.
GENERAL
Journal Register Company (the "Company") is a leading U.S. newspaper
publisher with total paid daily circulation of approximately 582,500 and total
non-daily distribution of approximately 2.2 million, as of December 31, 2000. As
of December 31, 2000, the Company owned and operated 24 daily newspapers and 158
non-daily publications strategically clustered in six geographic areas:
Connecticut; Greater Philadelphia; Ohio; Central New England; and the
Capital-Saratoga and Mid-Hudson, New York regions. The Company's newspapers are
characterized by an intense focus on coverage of local news and local sports and
offer compelling graphic design in colorful, reader-friendly packages.
The Company sold certain of its operations in the Greater St. Louis area
in two transactions in August and October of 2000. The Company also sold two
daily newspapers and a commercial printing operation in the south central part
of Ohio on January 31, 2001. This sales process, which was announced in February
2000 and completed on January 31, 2001, resulted in a strategic repositioning in
six geographic clusters and a substantial reduction in the Company's leverage.
The proceeds from these sales were used to reduce the Company's outstanding
debt, repurchase shares and for a strategic acquisition in the Company's Greater
Philadelphia cluster.
From September 1993 through December 31, 2000, the Company successfully
completed 17 strategic acquisitions, acquiring 13 daily newspapers, 126
non-daily publications and three commercial printing companies; and two
dispositions. The Company has generally increased the revenues and significantly
increased the cash flow and profitability of its acquired operations. For the
fiscal year ended December 31, 2000, the Company generated revenues of $464.0
million, EBITDA (as hereinafter defined) of $156.9 million and net income of
$169.4 million. From 1993 through 2000, the Company recorded compound annual
growth in revenues and EBITDA (excluding special charges in 1997 and 1998 and
the extraordinary item in 1998) of approximately 7.9% and 9.0%, respectively.
The Company has achieved this growth through a combination of expanding revenues
in existing geographic areas, strategic acquisitions and implementing cost
controls and ongoing expense reduction efforts at existing and acquired
operations. See "Item 8. Financial Statements and Supplementary Data"
The majority of the Company's daily newspapers have been published for
more than 100 years and are established franchises with strong identities in the
communities they serve. For example, the NEW HAVEN REGISTER, the Company's
largest newspaper based on daily circulation, has roots in the New Haven,
Connecticut area dating back to 1755. In many cases, the Company's daily
newspapers are the only general circulation daily newspapers published in their
respective communities. The Company's non-daily publications serve well-defined
suburban circulation areas.
1
The Company manages its newspapers to best serve the needs of its local
readers and advertisers. The editorial content of its newspapers is tailored to
the specific interests of each community served and includes coverage of local
youth, high school, college and professional sports, as well as local business,
politics, entertainment and culture. The Company maintains high quality product
standards, using extensive process color and compelling graphic design to more
fully engage existing readers and to attract new readers. The Company's
newspapers typically are produced using advanced prepress pagination technology,
and are printed on efficient, high-speed presses.
The Company's revenues are derived from advertising (74.0% of 2000
revenues), paid circulation, including single copy sales and subscription sales
(20.9% of 2000 revenues), and commercial printing and other (5.1% of 2000
revenues). The Company's advertiser base is predominantly local. The Company's
newspapers seek to produce desirable results for local advertisers by targeting
readers based on certain geographic and demographic characteristics. The Company
seeks to increase readership, and thereby generate traffic for its advertisers,
by focusing on high product quality, local content and creative and interactive
promotions. The Company promotes single copy sales of its newspapers because it
believes that such sales have higher readership than subscription sales, and
that single copy readers tend to be more active consumers of goods and services,
as indicated by a Newspaper Association of America ("NAA") study. Single copy
sales also tend to generate higher profits than subscription sales, as single
copy sales generally have higher per unit prices and lower associated
distribution costs. Subscription sales, which provide readers with the
convenience of home delivery, are an important component of the Company's
circulation base. The Company also publishes numerous special sections and niche
and special interest publications. Such publications tend to increase readership
within targeted demographic groups and geographic areas. The Company's
management believes that as a result of these strategies, its newspapers
represent an attractive and cost-effective medium for its readers and
advertisers.
The Company's advertising revenues in 2000 were derived primarily from a
broad group of local retailers (approximately 53.7%) and classified advertisers
(approximately 42.4%). No single advertiser accounted for more than 1% of the
Company's 2000 advertising revenues. The Company's management believes that
because its newspapers rely on a broad base of local retail and local classified
advertising, rather than more volatile national and major account advertising,
its advertising revenues tend to be relatively stable.
Substantially all of the Company's operations relate to newspaper
publishing. In addition to its daily newspapers and non-daily publications, the
Company owns other businesses that complement and enhance its publishing
operations, which, as of December 31, 2000, consisted of four commercial
printing operations as well as a company that develops application software for
the newspaper industry.
OVERVIEW OF OPERATIONS
The Company's operations are clustered in six geographic areas:
CONNECTICUT. In Connecticut, the Company owns the NEW HAVEN REGISTER, a
small metropolitan daily newspaper with daily circulation of more than 100,000
and Sunday circulation of approximately 105,000, four suburban daily newspapers,
64 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 151,000 and 150,000, respectively. The 64 suburban and community
non-daily publications have aggregate distribution of approximately 865,000.
Included in the non-daily publications is CONNECTICUT MAGAZINE, the state's
premier magazine that was acquired in September 1999. Combined, the Company's
Connecticut daily newspapers and non-daily publications serve a statewide
audience with concentrations in western Connecticut (Litchfield and Fairfield
counties) through Hartford and its suburban areas to the greater New Haven area;
and the Connecticut shoreline from New Haven northeast to New London.
2
The following table sets forth information regarding the Company's
publications in Connecticut:
YEAR YEAR DAILY SUNDAY NON-DAILY
PUBLICATION ORIGINATED(1) ACQUIRED LOCATION CIRCULATION(2) CIRCULATION(2) DISTRIBUTION(3)
----------- ------------- -------- -------- -------------- -------------- ---------------
NEW HAVEN REGISTER.... 1755 1989 New Haven 100,049 104,541
THE HERALD............ 1881 1995 New
Britain 17,169 35,322
THE BRISTOL PRESS..... 1871 1994 Bristol 13,320
THE REGISTER CITIZEN.. 1889 1993 Torrington 10,581 9,820
THE MIDDLETOWN PRESS.. 1884 1995 Middletown 9,508
Imprint Newspapers
12 publications.... 1880 1995 Bristol 95,137
Shore Line Newspapers
13 publications.... 1877 1995 Guilford 126,069
Elm City Newspapers
9 publications.... 1931 1995 Milford 91,929
Minuteman Newspapers
2 publications.... 1993 1998 Westport 36,981
Housatonic Publications
9 publications.... 1825 1998 New
Milford 57,314
CONNECTICUT'S COUNTY
KIDS
2 publications.... 1989 1996 Westport 44,000
FOOTHILLS TRADER
3 publications.... 1965 1995 Torrington 50,000
CONNECTICUT MAGAZINE.. 1938 1999 Trumbull 86,820
Gamer Publications
3 publications.... 1981 1995 Bristol 58,652
EAST HARTFORD GAZETTE. 1885 1995 East
Hartford 19,284
HOMEFINDER 1976 1995 New 17,500
Britain
THOMASTON EXPRESS..... 1874 1994 Thomaston 1,220
TMC (7 publications).. 180,586
------- ------- -------
TOTALS................ 150,627 149,683 865,492
======= ======= =======
- -----------------
(1) For merged newspapers and newspaper groups, the year given reflects the date
of origination for the earliest publication.
(2) Circulation averages for the six months ended September 30, 2000, according
to Audit Bureau of Circulations ("ABC") Fas-Fax Report.
(3) Non-daily distribution includes both paid and free distribution. Paid
distribution for Housatonic Publications and Minuteman Newspapers reflects
Certified Audit of Circulations ("CAC") audit results for the 12-month
period ended June 30, 2000. Paid distribution for CONNECTICUT MAGAZINE
reflects Publisher's Statement as filed with the ABC for the six months
ended December 31, 2000. All other non-daily distribution reflects average
distribution for December 2000.
The NEW HAVEN REGISTER is the Company's largest newspaper based on daily
circulation and is the second largest daily circulation newspaper in
Connecticut. The NEW HAVEN REGISTER serves a primary circulation area comprised
of the majority of New Haven County and portions of Fairfield, Middlesex and New
London counties. This area (including the portions of Fairfield County, which
are served by related non-daily publications) has a population of 767,800 and
had population growth of approximately 11% from 1980 to 2000. This area has
average household income of $82,500, which is 32% above the national average of
$62,600, and a retail environment comprised of approximately 7,400 stores. This
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 station (which serve a statewide, rather than a
local audience) and a fragmented radio market. Consequently, the Company's
management believes that the NEW HAVEN REGISTER is a powerful local news and
advertising franchise for the greater New Haven area.
3
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 320,600 and had population growth of approximately 3% from 1980
to 2000. This area has average household income of $91,200, which is 46% above
the national average. THE MIDDLETOWN PRESS serves an area that has a population
of 96,100 and had population growth of approximately 13% from 1980 to 2000. This
area has average household income of $75,900, which is 21% above the national
average. THE HERALD serves an area that has a population of 100,200, which has
remained substantially unchanged since 1980. This area has average household
income of $60,600. THE REGISTER CITIZEN serves an area that has a population of
246,000 and had population growth of approximately 12% from 1980 to 2000. This
area has average household income of $86,400, which is 38% above the national
average.
The Connecticut publications benefit from considerable cross-selling of
advertising as well as from newsgathering, production and back office synergies.
For example, the NEW HAVEN REGISTER gathers statewide news for all of the
Company's Connecticut newspapers; the newspapers cross-sell advertising through
a one-order, one-bill system and THE HERALD and THE MIDDLETOWN PRESS are printed
at one facility, as are THE REGISTER CITIZEN and THE BRISTOL PRESS. Moreover, in
August 1996, in order to take advantage of the contiguous nature of the
geographic areas served by THE HERALD, THE BRISTOL PRESS and THE MIDDLETOWN
PRESS, the Company launched a combined Sunday newspaper, THE HERALD PRESS, which
serves the readers of these three dailies with three zoned editions and has a
Sunday circulation of approximately 35,300 as of September 30, 2000, according
to the ABC Fas-Fax Report.
GREATER PHILADELPHIA. The Company owns six daily newspapers and 50
non-daily publications serving areas surrounding Philadelphia, Pennsylvania.
These publications include, in Pennsylvania, the DAILY LOCAL NEWS (West
Chester), THE TIMES HERALD (Norristown), THE PHOENIX (Phoenixville), a group of
non-daily newspapers serving Philadelphia's affluent Main Line and a group of 18
weekly newspapers, the InterCounty Newspaper Group, serving suburban
Philadelphia and central and southern New Jersey; and also, in New Jersey, THE
TRENTONIAN (Trenton, NJ). The Company also owns two commercial printing
companies, acquired with InterCounty Newspapers in December 1997, one of which
prints the 18 weekly newspapers and one of which is a premium quality sheet-fed
printing operation. The daily newspapers acquired in the July 1998 Goodson
Acquisition (as hereinafter defined) include the DELAWARE COUNTY DAILY AND
SUNDAY TIMES (Primos) and THE MERCURY (Pottstown), both in Pennsylvania. The
Goodson Acquisition non-daily publications include, also in Pennsylvania, Acme
Newspapers (Ardmore), including the MAIN LINE TIMES, serving the affluent Main
Line, and the NEWS OF DELAWARE COUNTY, one of the largest audited community
newspapers in the United States; Town Talk Newspapers (Media); and the Penny
Pincher Shoppers (Pottstown). The six daily newspapers have aggregate daily and
Sunday circulation of approximately 177,000 and 157,000, respectively. The
aggregate non-daily distribution totals approximately 600,000.
4
The following table sets forth information regarding the Company's
publications in Greater Philadelphia:
YEAR YEAR DAILY SUNDAY NON-DAILY
PUBLICATION ORIGINATED(1) ACQUIRED LOCATION CIRCULATION(2) CIRCULATION(2) DISTRIBUTION(3)
----------- ------------- -------- --------------- -------------- -------------- ----------------
DELAWARE COUNTY
DAILY AND SUNDAY
TIMES (4)........ 1876 1998 Primos, PA 48,258 44,914
DAILY LOCAL NEWS.. 1872 1986 West Chester,
PA 30,451 30,022
THE MERCURY (4)... 1930 1998 Pottstown, PA 25,350 26,173
THE TIMES HERALD.. 1799 1993 Norristown, PA 18,176 15,445
THE PHOENIX....... 1888 1986 Phoenixville,
PA 3,561
THE TRENTONIAN.... 1945 1985 Trenton, NJ 50,980 40,527
Suburban
Publications
3 publications. 1885 1986 Wayne, PA 32,802
InterCounty Newspaper
Group
18 publications 1869 1997 Bristol, PA 105,000
Acme Newspapers
4 publications (4) 1930 1998 Ardmore, PA 78,780
Penny Pincher
Shoppers
6 publications (4) 1988 1998 Pottstown, PA 58,400
Town Talk Newspapers
7 publications (4) 1964 1998 Media &
Ridley, PA 85,700
REAL ESTATE TODAY. 1978 1998 Pottstown, PA 38,400
TRI-COUNTY RECORD. 1975 1986 Morgantown, PA 21,353
THE HOMES MAGAZINE 1988 1988(5) West Chester,
PA 18,000
THE VILLAGE NEWS.. 1980 1986 Downingtown, PA 19,000
THE TIMES RECORD.. 1980 1986 Kennett
Square, PA 9,000
BLUE BELL JOURNAL. 1999 1999(5) Blue Bell, PA 6,100
TMC (6 publications) 127,000
------- ------- -------
TOTALS............ 176,776 157,081 599,535
======= ======= =======
- -----------------
(1) For merged newspapers and newspaper groups, the year given reflects the date
of origination for the earliest publication.
(2) Circulation averages for the six months ended September 30, 2000, according
to ABC Fas-Fax Report.
(3) Non-daily distribution includes both paid and free distribution. Non-daily
distribution reflects average distribution for December 2000, with the
following exceptions: Suburban Publications, which includes two
publications (SUBURBAN ADVERTISER and KING OF PRUSSIA COURIER) which
reflect the CAC audit for the six months ended June 30, 2000, and THE
SUBURBAN & WAYNE TIMES which reflects the ABC audit results for the
24-month period ended September 30, 2000; Acme Newspapers, which includes
three publications (NEWS OF DELAWARE COUNTY, GERMANTOWN COURIER and MT.
AIRY TIMES EXPRESS) which reflect the CAC Newspaper Publisher's Statement
for the six months ended September 30, 2000, and MAIN LINE TIMES which
reflects the ABC Newspaper Publisher's Statement for the six months ended
September 30, 2000.
(4) Part of the Goodson Acquisition, completed July 15, 1998.
(5) Year presented represents the year the Company started the publication.
The majority of the Company's Pennsylvania publications are located within
a 30-mile radius of Philadelphia. The Company's newspapers serve geographic
areas with highly desirable demographics. The DELAWARE COUNTY DAILY AND SUNDAY
TIMES serves an area that has a population of 587,700, which has remained
unchanged since 1980. This area has average household income of $83,500, which
is 34% above the national average. The DAILY LOCAL NEWS serves an area which has
a population of 421,900 and had population growth of approximately 43% from 1980
to 2000. This area has average household income of $95,700, which is 53% above
the national average. THE MERCURY, located approximately 40 miles west of
Philadelphia, serves an area that has a population of 441,200 and had population
growth of approximately 19% from 1980 to 2000. This area has average household
income of $75,900, which is 21% above the national average. THE TIMES HERALD
serves an area that has a population of 175,400 and had population growth of
approximately 9% from 1980 to 2000. This area has average household income of
5
$85,100, which is 36% above the national average. THE PHOENIX serves an area
that has a population of 120,400 and had population growth of approximately 31%
from 1980 to 2000. This area has average household income of $93,000, which is
49% above the national average. The Company's weekly newspaper group, Suburban
Publications, in suburban Philadelphia, serves an area that has a population of
336,600 and had population growth of approximately 24% from 1980 to 2000. This
area has average household income of $123,500, which is 98% 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 391,300 and had population growth
of approximately 1% from 1980 to 2000. This area has average household income of
$124,500, which is 99% above the national average. The majority of the Company's
Pennsylvania properties are located within 20 miles of the area's largest retail
complex, the King of Prussia Plaza and Court, which is the largest mall on the
East Coast of the United States and the second largest mall in the United
States, in terms of total square footage.
THE TRENTONIAN is published in Trenton, the capital of New Jersey, which
is located 40 miles north of Philadelphia and 75 miles south of New York City.
THE TRENTONIAN serves an area that has a population of 278,900 and had
population growth of approximately 4% from 1980 to 2000. This area has average
household income of $81,100, which is 30% above the national average.
The Company's Greater Philadelphia cluster cross-sells advertising. The
nature of the cluster has also allowed for the implementation of significant
cost saving programs. For example, THE TIMES HERALD and several non-daily
suburban publications share a printing facility, as do the DAILY LOCAL NEWS and
THE PHOENIX. Acme Newspapers, part of the Goodson Acquisition, are also printed
at the DAILY LOCAL NEWS' plant and at the Company's commercial printing company
in Bristol, Pennsylvania. THE TRENTONIAN's television guide is also printed at
the Bristol plant. All of these publications share certain newsgathering
resources. The Company's management believes that the integration of the Goodson
Acquisition newspapers into this cluster allows the Company to compete more
effectively in the areas it serves. The construction of a new centralized
production facility in the Philadelphia area, which began in 2000, will result
in additional cash operating expense savings as well as improved products.
OHIO. On December 18, 2000, the Company announced the sale of the
Dover-New Philadelphia and Massillon, Ohio operations, which had combined daily
circulation of approximately 38,100 and Sunday circulation of approximately
37,600. The sale closed on January 31, 2001. The Company retained its
award-winning Cleveland, Ohio area newspaper operations, THE News-HERALD
(Willoughby) and THE MORNING JOURNAL (Lorain). The aggregate daily and Sunday
circulation of the Cleveland area newspapers are approximately 82,300 and
97,600, respectively, excluding the newspapers sold on January 31, 2001.
The following table sets forth information regarding the Company's
publications in Ohio:
YEAR YEAR DAILY SUNDAY NON-DAILY
PUBLICATION ORIGINATED(1) ACQUIRED LOCATION CIRCULATION(2) CIRCULATION(2) DISTRIBUTION(3)
----------- ------------- -------- -------- -------------- -------------- ---------------
THE NEWS-HERALD.............. 1878 1987 Willoughby 48,033 59,506
THE MORNING JOURNAL ......... 1921 1987 Lorain 34,311 38,106
THE TIMES REPORTER (4)....... 1903 1987 Dover-New
Philadelphia 23,608 24,889
THE INDEPENDENT (4) (5)...... 1871 1998 Massillon 14,510 12,736
COUNTY KIDS
2 publications............ 1997 1997(6) Willoughby
& Lorain 38,500
TMC (4 publications)......... 111,859
------- ------- -------
TOTALS....................... 120,462 135,237 150,359
======= ======= =======
- -----------------
(1) For merged newspapers and newspaper groups, the year given reflects the date
of origination for the earliest publication.
(2) Circulation averages for the six months ended September 30, 2000, according
to ABC Fas-Fax Report.
(3) Non-daily distribution is solely free distribution and reflects average
distribution for December 2000.
(4) Sold on January 31, 2001.
(5) Part of the Goodson Acquisition, completed July 15, 1998.
(6) Year presented represents the year the Company started the publication.
6
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 226,800 and 90,600, respectively, and had population growth
of approximately 8% and 31%, respectively, from 1980 to 2000. Lake and Geauga
counties have average household incomes of $67,900 and $96,300, respectively.
THE MORNING JOURNAL serves an area that has a population of 150,300 and had
population growth of approximately 2% from 1980 to 2000. This area has average
household income of $61,000. The Company's management believes that THE
NEWS-HERALD and THE MORNING JOURNAL compete effectively with Cleveland's major
metropolitan newspaper due to the focus on coverage of local news and local
sports. The Ohio cluster benefits from a variety of synergistic opportunities,
including the cross-selling of advertising and editorial coverage.
CENTRAL NEW ENGLAND. The Company owns five daily and 21 non-daily
publications in the central New England area. The Company's publications in this
cluster include THE HERALD NEWS (Fall River, MA), the TAUNTON DAILY GAZETTE
(Taunton, MA), THE CALL (Woonsocket, RI), THE TIMES (Pawtucket, RI), the KENT
COUNTY DAILY TIMES (West Warwick, RI), acquired August 13, 1999, and two groups
of weekly newspapers serving southern Rhode Island, including South County. The
five daily newspapers have aggregate daily circulation of approximately 72,000
and aggregate Sunday circulation of approximately 56,000. The non-daily
publications in this cluster have total distribution of approximately 256,000.
The following table sets forth information regarding the Company's
publications in central New England.
YEAR YEAR DAILY SUNDAY NON-DAILY
PUBLICATION ORIGINATED(1) ACQUIRED LOCATION CIRCULATION(2) CIRCULATION(2) DISTRIBUTION(3)
----------- ------------- -------- ------------------------- -------------- -------------- ---------------
THE HERALD NEWS.............. 1872 1985 Fall River, MA 24,406 26,891
TAUNTON DAILY GAZETTE........ 1848 1996 Taunton, MA 13,369 12,917
THE CALL..................... 1892 1984 Woonsocket, RI 15,959 16,082
THE TIMES.................... 1885 1984 Pawtucket, RI 13,947
KENT COUNTY DAILY TIMES...... 1892 1999 West Warwick, RI 4,726
Southern Rhode Island
Newspapers
8 publications............ 1854 1995 Wakefield, RI 49,098
Hometown Newspapers
4 publications............ 1969 1999 West Warwick, RI 34,500
COUNTY KIDS
3 publications............. 1997 1997(4) Fall River & Taunton,
MA & Pawtucket, RI 53,000
NEIGHBORS.................... 1999 1999(4) Pawtucket & Woonsocket, RI 20,000
CLASSIFIED PLUS.............. 1996 1996(4) Fall River, MA 6,000
TMC (4 publications)......... 93,900
------ ------ -------
TOTALS....................... 72,407 55,890 256,498
====== ====== =======
- -----------------
(1) For merged newspapers and newspaper groups, the year given reflects the date
of origination for the earliest publication.
(2) Circulation averages for the six months ended September 30, 2000, according
to ABC Fas-Fax Report.
(3) Non-daily distribution includes both paid and free distribution. Paid and
free non-daily distribution for Southern Rhode Island Newspapers (except THE
WESTERLY SHOPPER, THIS WEEK IN SOUTH COUNTY and RHODE ISLAND FAMILY)
reflects the CAC Audit Report for the six months ended June 30, 2000. The
other non-daily distribution figures reflect average distribution for
December 2000.
(4) Year presented represents the year the Company started the publication.
THE HERALD NEWS and the TAUNTON DAILY GAZETTE are situated 14 miles apart.
Each is approximately 50 miles south of Boston, Massachusetts and 20 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 164,800,
7
which has remained substantially unchanged from 1980. This area has average
household income of $50,400. The TAUNTON DAILY GAZETTE serves an area that has a
population of 136,400 and had population growth of approximately 31% from 1980
to 2000. This area has average household income of $64,300. THE CALL serves an
area that has a population of 179,600 and had population growth of approximately
10% from 1980 to 2000. This area has average household income of $67,400. THE
TIMES serves an area that has a population of 181,100 and had population growth
of approximately 3% from 1980 to 2000. This area has average household income of
$57,900. Southern Rhode Island Newspapers serve an area that has a population of
158,100 and had population growth of approximately 30% from 1980 to 2000. This
area has average household income of $72,300, which is 16% above the national
average. No local television stations exist in the communities served by the
Company's central New England newspapers. Further, the Company believes that its
central New England properties benefit from fragmented local radio markets. As a
result, the Company believes that each of its newspapers is a significant media
outlet in its respective community, thereby making these newspapers attractive
vehicles for area advertisers. The central New England newspapers benefit from
advertising cross-selling; moreover, the Company's Massachusetts and Rhode
Island newspapers benefit from significant production and editorial synergies.
For example, THE TIMES, THE CALL, and the KENT COUNTY DAILY TIMES are printed at
the same facility, as are the TAUNTON DAILY GAZETTE and THE HERALD NEWS.
Additionally, THE TIMES, THE CALL and the group of paid suburban and community
non-daily newspapers serving southern Rhode Island all share certain news
gathering resources.
CAPITAL-SARATOGA REGION OF NEW YORK. The Company owns three daily and five
non-daily publications in the Capital-Saratoga Region of New York. The Company's
publications in this cluster include THE RECORD (Troy), THE SARATOGIAN (Saratoga
Springs), the weekly COMMUNITY NEWS, serving Clifton Park, and THE ONEIDA DAILY
DISPATCH, acquired as part of the Goodson Acquisition. The daily newspapers have
aggregate daily circulation of approximately 41,000 and aggregate Sunday
circulation of approximately 37,000. The non-daily publications in this cluster
have total distribution of approximately 86,000.
The following table sets forth information regarding the Company's
publications in the Capital-Saratoga Region of New York:
YEAR YEAR DAILY SUNDAY NON-DAILY
PUBLICATION ORIGINATED(1) ACQUIRED LOCATION CIRCULATION(2) CIRCULATION(2) DISTRIBUTION(3)
----------- ------------- -------- ------------------------- -------------- -------------- ---------------
THE RECORD................... 1896 1987 Troy 22,291 23,908
THE ONEIDA DAILY
DISPATCH (4)............... 1850 1998 Oneida 7,265
THE SARATOGIAN............... 1855 1998 Saratoga Springs 11,205 13,123
Oneida-Chittenango
Pennysavers (4)
2 publications........... 1957 1998 Oneida 23,796
COMMUNITY NEWS............... 1969 1998 Clifton Park 27,100
TMC (2 publications)......... 35,500
------ ------ ------
TOTALS.................... 40,761 37,031 86,396
====== ====== ======
- -----------------
(1) For merged newspapers and newspaper groups, the year given reflects the date
of origination for the earliest publication.
(2) Circulation averages for the six months ended September 30, 2000, according
to ABC Fas-Fax Report.
(3) Non-daily distribution is free and reflects average distribution for
December 2000.
(5) Part of the Goodson Acquisition, completed July 15, 1998.
THE RECORD and THE SARATOGIAN are situated approximately 26 miles apart.
THE RECORD serves an area that has a population of 169,500, which has remained
substantially unchanged since 1980. This area has average household income of
$50,700. THE SARATOGIAN serves an area that has a population of 206,400 and had
population growth of approximately 22% from 1980 to 2000. This area has average
household income of $62,100. THE ONEIDA DAILY DISPATCH serves an area that has a
population of 73,000 and had population growth of approximately 1% from 1980 to
2000. This area has average household income of $55,500. No local television
8
stations exist in the communities which the Capital-Saratoga Region newspapers
serve. Further, the Company believes that its Capital-Saratoga Region properties
benefit from fragmented local radio markets. As a result, the Company believes
that each of its newspapers is a significant media outlet in its respective
community, thereby making these newspapers attractive vehicles for area
advertisers. THE RECORD, THE SARATOGIAN and the COMMUNITY NEWS benefit from
significant cross-selling of advertising. These newspapers also benefit from
significant production synergies. Immediately following the March 9, 1998
acquisition of THE SARATOGIAN and the COMMUNITY NEWS, the Company began printing
these newspapers at THE RECORD plant in Troy, taking advantage of that plant's
excess capacity and achieving significant cost efficiencies. The three
newspapers also share certain newsgathering functions, and the Company believes
that additional synergies may be available between them.
MID-HUDSON REGION OF NEW YORK. The Company owns one daily newspaper and 12
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 in Dutchess County, New York, and THE PUTNAM COUNTY
COURIER, serving Putnam County, New York. The Mid-Hudson Region cluster has
daily circulation of approximately 22,000, Sunday circulation of approximately
29,000 and total non-daily distribution of approximately 254,000.
The following table sets forth information regarding the Company's
publications in the Mid-Hudson Region of New York:
YEAR YEAR DAILY SUNDAY NON-DAILY
PUBLICATION ORIGINATED(1) ACQUIRED LOCATION CIRCULATION(2) CIRCULATION(2) DISTRIBUTION(3)
----------- ------------- -------- -------------- -------------- -------------- ---------------
DAILY FREEMAN (4)........... 1871 1998 Kingston 21,515 28,564
Taconic Press
11 publications.......... 1846 1998 Millbrook 227,618
DOORWAYS (4) ............... 1983 1998 Kingston 26,400
------ ------ -------
TOTALS...................... 21,515 28,564 254,018
====== ====== =======
- -----------------
(1) For merged newspapers and newspaper groups, the year given reflects the date
of origination for the earliest publication.
(2) Circulation averages for the six months ended September 30, 2000, according
to ABC Fas-Fax Report.
(3) Non-daily distribution includes both paid and free distribution. Paid
distribution for THE PUTNAM COUNTY COURIER, part of the Taconic Press
publications, reflects the CAC Audit Report for the twelve months ended June
30, 2000. All other distribution reflects average distribution for December
2000.
(4) Part of the Goodson Acquisition, completed July 15, 1998.
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 261,700
and had population growth of approximately 4% from 1980 to 2000. This area has
average household income of $54,600. Taconic Press newspapers serve an area that
has a population of 99,800 and had population growth of approximately 13% from
1980 to 2000. This area has average household income of $71,200. THE PUTNAM
COUNTY COURIER serves an area that has a population of 95,500 and had population
growth of approximately 30% from 1980 to 2000. This area has average household
income of $92,300. One independent television station (which serves a regional,
rather than a local audience) exists in the communities that the Mid-Hudson
Region newspapers serve. The Company's management believes that its Mid-Hudson
Region properties also benefit from fragmented local radio Consequently, each of
these newspapers is a significant media outlet in its respective community,
thereby making these newspapers attractive vehicles for area advertisers. The
Mid-Hudson Region newspapers benefits from significant cross-selling of
advertising, production synergies and certain shared newsgathering synergies.
Certain publications in this cluster also benefit from advertising cross-selling
with THE REGISTER CITIZEN (Torrington, CT) and certain of the Housatonic
Publications (New Milford, CT), which serve Litchfield County, Connecticut.
ONLINE OPERATIONS
Since 1995, for each of its publications the Company has been developing
Web sites, which attract readers and advertisers. The Company has published an
online version of the NEW HAVEN REGISTER since 1995 and as of December 31, 2000
9
had 104 Web sites, which represent its various newspapers and magazines. The
Company has online editorial content and classified advertising for each of its
daily newspapers and weekly newspaper groups. The Web sites include local news
and sports, advertising and information; and supplement the Company's newspaper
and magazine publications.
A number of the Web sites, in addition to having an individual publication
Web site, are aggregated "cluster" portal sites, combining publications within a
specific geographic area. The remaining Company newspapers, along with
CONNECTICUT MAGAZINE, have individual Web sites. All Web sites can be accessed
through the corporate Web site (www.journalregister.com). The following is a
list of the Company's cluster portal Web sites and the publications that they
cover:
GEOGRAPHIC CLUSTER PORTAL SITE PUBLICATION COVERAGE
- ------------------ ----------- --------------------
Connecticut................. www.CTCentral.com NEW HAVEN REGISTER (New Haven, CT)
THE BRISTOL PRESS (Bristol, CT)
THE HERALD (New Britain, CT)
THE REGISTER CITIZEN (Torrington, CT)
THE MIDDLETOWN PRESS (Middletown, CT)
CONNECTICUT MAGAZINE (TRUMBULL, CT)
Shore Line Newspapers (Guilford, CT)
Elm City Newspapers (Milford, CT)
Imprint Newspapers (Bristol, CT)
Housatonic Publications (New Milford, CT)
Minuteman Newspapers (Westport, CT)
Foothills Trader (Torrington, CT)
Greater Philadelphia....... www.allaroundphilly.com DELAWARE COUNTY DAILY AND SUNDAY TIMES
(Primos, PA)
DAILY LOCAL NEWS (West Chester, PA)
THE MERCURY (Pottstown, PA)
THE TIMES HERALD (Norristown, PA)
THE PHOENIX (Phoenixville, PA)
THE TRENTONIAN (Trenton, NJ)
InterCounty Newspaper Group (Bristol, PA)
Acme Newspapers (Ardmore, PA)
Suburban Publications (Wayne, PA)
Capital-Saratoga Region of
New York.................... www.CapitalCentral.com THE RECORD (TROY, NY)
THE SARATOGIAN (Saratoga, Springs NY)
Central New England.......... www.RICentral.com Southern Rhode Island Newspapers (Wakefield, RI)
KENT COUNTY DAILY TIMES (West Warwick, RI)
Mid-Hudson Region of
New York.................... www.midhudsoncentral.com Taconic Press (Millbrook, NY)
DAILY FREEMAN (Kingston, NY)
The primary source of online revenue is from classified advertising. For
the year ended December 31, 2000, the 104 Web sites generated approximately $3.7
million of revenue as compared to approximately $3.2 million for the year ended
December 26, 1999. Excluding revenue generated by the Company's operations sold
in 2000, online revenue for the years ended December 31, 2000 and December 26,
1999 were $3.3 million and $2.6 million, respectively.
10
ADVERTISING
Substantially all of the Company's advertising revenues are derived from a
diverse group of local retailers and classified advertisers. The Company's
management believes that because its newspapers rely on a broad base of local
retail and local classified advertising, rather than more volatile national and
major account advertising, its advertising revenues tend to be relatively
stable. Local advertising is more stable than national advertising because a
community's need for local services provides a stable base of local businesses
and because local advertisers generally have fewer effective advertising
vehicles from which to choose. Advertising revenues accounted for approximately
74.0% of the Company's total revenues for 2000. 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 2000, local and regional advertising accounted for
the largest share of the Company's advertising revenues (53.7%), followed by
classified advertising (42.4%) and national advertising (3.9%). The Company's
advertising revenues are not reliant upon any one company or industry, but
rather are supported by a variety of companies and industries, including
realtors, car dealerships, grocery stores and other local businesses. No single
advertiser accounted for more than 1% of the Company's total 2000 advertising
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 staff to develop marketing kits, presentations
and third-party research studies. A portion of the compensation for the
Company's publishers is based upon increasing advertising revenues. The Company
stresses the timely collection of receivables. Compensation of the Company's
sales personnel depends in part upon performance relative to goals and timely
collection of advertising receivables. Additionally, corporate management
facilitates the sharing of advertising resources and information across the
Company's publications. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Certain Factors Which May Affect the
Company's Future Performance -- Dependence on Local Economies."
CIRCULATION
The Company's 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 20.9% of the Company's
total revenues in 2000. Approximately 66.1% of 2000 circulation revenues were
derived from subscription sales and approximately 33.9% from single copy sales.
Single copy sales rates currently range from $.35 to $.50 per daily copy and
$.75 to $1.75 per Sunday copy. The Company promotes single copy sales of its
newspapers because it believes that such sales have higher readership than
subscription sales and that single copy readers tend to be more active consumers
of goods and services, as indicated by an NAA study. Single copy sales also tend
to generate a higher profit than subscription sales, as single copy sales
generally have higher per unit prices and lower associated distribution costs.
As of December 31, 2000, the Company had total paid daily circulation of
582,500, paid Sunday circulation of 565,000 and non-daily distribution of
approximately 2.2 million, most of which is distributed free of charge. The
Company's corporate management works with its local newspaper management to
establish subscription and single copy rates. In addition, the Company tracks
rates of newspaper returns and customer service calls through formal reports
which are reviewed weekly in an effort to optimize the number of newspapers
available for sale and to improve delivery and customer service. The Company
also implements creative and interactive programs and promotions to increase
readership through both subscription and single copy sales. Circulation has
generally declined throughout the newspaper industry in recent years, and the
Company's newspapers have generally experienced this trend, even as overall
operating performance of its newspapers has improved. The Company seeks to
maximize the overall operating performance rather than maximizing circulation of
its individual newspapers.
OTHER OPERATIONS
As of December 31, 2000 the Company owned and operated four commercial
printing facilities: Imprint Printing in North Haven, Connecticut; Nittany
Valley Offset in State College, Pennsylvania; InterPrint in Bristol,
Pennsylvania; and Midwest Offset in New Philadelphia, Ohio. These operations
also print certain of the Company's publications. Commercial printing operations
and other revenues accounted for approximately 5.1% of the Company's 2000
revenues. The Company also owns Integrated Newspaper Systems, Inc., a company
that develops application software.
11
EMPLOYEES
The Company employed as of December 31, 2000 approximately 4,300
employees. Certain employees of the Company's newspapers are employed under
collective bargaining agreements.
RAW MATERIALS
The basic raw material for newspapers is newsprint. The Company's
newsprint consumption (excluding paper consumed in the Company's commercial
printing operations) totaled approximately $34.2 million in 2000, which was
approximately 7.8% of the Company's newspaper revenues. In 2000, the Company
consumed approximately 64,400 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 2000, 1999 and 1998 was
$565, $510 and $596, respectively, as reported by the trade publication PULP AND
PAPER WEEKLY. The Company has no long-term contracts to purchase newsprint.
Generally, the Company has in the past and currently purchases all of its
newsprint from two suppliers, although in the future the Company may purchase
newsprint from other suppliers. Historically, the percentage of newsprint from
each supplier has varied. The Company's management believes that concentrating
its newsprint purchases in this way provides a more secure newsprint supply and
lower per unit prices. The Company's management also believes that it purchases
newsprint at price levels lower than those that are available to individually
owned small metropolitan and suburban newspapers, and consistent with price
levels generally available to the largest newsprint purchasers. The available
sources of newsprint have been, and the Company believes will continue to be,
adequate to supply the Company's needs. The inability of the Company to obtain
an adequate supply of newsprint in the future could have a material adverse
effect on the financial condition and results of operations of the Company.
Historically, the price of newsprint has been cyclical and volatile. The
Company's average price per ton of newsprint increased approximately 6% in 2000,
decreased approximately 13% in 1999 and increased approximately 8% in 1998. The
Company believes that if any price decrease or increase is sustained in the
industry, the Company will also be impacted by such change. The Company seeks to
manage the effects of increases in prices of newsprint through a combination of,
among other things, technology improvements, including web-width reductions,
inventory management and advertising and circulation price increases. The
Company also has reduced fringe circulation in response to increased newsprint
prices, as it is the Company's experience that such circulation does not provide
adequate response for advertisers.
COMPETITION
While many of the Company's metropolitan and suburban daily newspapers are
the only daily newspapers of general circulation published in their respective
communities, they compete within their own geographic areas with other daily and
weekly newspapers of general circulation published in adjacent or nearby cities
and towns. Competition for advertising expenditures and paid circulation comes
from local, regional and national newspapers, shoppers, television, radio,
direct mail, online services and other forms of communication and advertising
media. Competition for newspaper advertising expenditures is largely based upon
advertiser results, readership, advertising rates, demographics and circulation
levels, while competition for circulation and readership is based largely upon
the content of the newspaper, its price and the effectiveness of its
distribution. The Company's non-daily publications, including shoppers and real
estate guides, primarily compete with direct mail advertising, shared mail
packages and other private advertising delivery services. The Company's
management believes that, because of the relative competitive position of its
suburban and community non-daily publications in the communities which they
serve, such publications generally have been able to compete effectively with
other forms of media advertising. Commercial printing, a highly competitive
business, is largely driven by price and quality. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Certain Factors
Which May Affect the Company's Future Performance -- Newspaper Industry
Competition."
SEASONALITY
Newspaper companies tend to follow a distinct and recurring seasonal
pattern. The first quarter of the year (January-March) tends to be the weakest
quarter because advertising volume is then at its lowest level. Correspondingly,
the fourth quarter (October-December) tends to be the strongest quarter as it
includes heavy holiday season advertising.
12
ENVIRONMENTAL MATTERS
As is the case with other newspaper and similar publishing companies, the
Company is subject to a wide range of federal, state and local environmental
laws and regulations pertaining to air and water quality, storage tanks and the
management and disposal of wastes at its facilities. To the best of the
Company's knowledge, its operations are in material compliance with applicable
environmental laws and regulations, as currently interpreted. Management
believes that continued compliance with these laws and regulations would not
have a material adverse effect on the Company's financial condition or results
of operations. The Company is in the process of monitoring groundwater
contamination that has been detected at one of its facilities, which the Company
acquired as part of the Goodson Acquisition. The Company's management believes
that the remediation of any such groundwater contamination, if required, will
not have a material adverse effect on its financial condition or results of
operations. The Company is fully indemnified for all costs and liabilities
arising out of this issue by the seller as part of the Goodson Acquisition
purchase agreement. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Certain Factors Which May Affect the
Company's Future Performance -- Environmental Matters."
REGULATION
Paid or requestor circulation newspapers with "periodical" mailing
privileges are required to obtain a "periodical" permit from, and file an annual
Statement of Ownership, Mailing and Circulation with, the United States Postal
Service. There is no significant regulation with respect to acquisition of
newspapers, other than filings under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
13
ITEM 2. PROPERTIES.
The Company operates 100 facilities used in the course of producing and
publishing its daily and non-daily publications. Approximately 65 of the
Company's facilities are leased for terms ranging from one to five years. These
leased facilities range in size from approximately 160 to 70,000 square feet.
The location and approximate size of the principal physical properties (greater
than 1,500 square feet) used by the Company at December 31, 2000, as well as the
expiration date of the leases relating to such properties which the Company
leases are set forth below:
APPROXIMATE AREA IN SQUARE FEET
------------------------------------- LEASE
LOCATION OWNED SQUARE FEET LEASED SQUARE FEET EXPIRATION DATE
-------- ----------------- ------------------ ---------------
Trenton, NJ............... 54,642(1)(3) 18,889(2) 11/30/05
New Haven, CT............. 205,000(1)(3)
New Britain, CT........... 33,977(1)(3)
Bristol, CT............... 40,000(1)
Torrington, CT............ 36,120(1)(3)
Middletown, CT............ 30,000(1)
North Haven, CT........... 24,000(1)(3) 10,000(3)(4) 12/31/05
Guilford, CT.............. 18,400(1) 2,500(1) 5/31/01
Colchester, CT............ 1,900(1) 12/31/02
Trumbull, CT.............. 6,187(1) 1/9/04
Westport, CT.............. 1,620(1) 12/31/02
Milford, CT............... 11,745(1)
New Milford, CT........... 6,840(1) 8/15/03
Old Saybrook, CT.......... 1,950(1) 3/31/01
Willoughby, OH............ 80,400(1)(3)
Lorain, OH................ 68,770(1)(3) 2,000(4) 9/30/01
New Philadelphia, OH...... 85,567(1)(3)(5)
Turnersville, NJ.......... 11,032(1)
West Chester, PA.......... 34,000(1)(3)
Norristown, PA............ 40,000(1)(3)
Newtown, PA............... 2,700(1) 3/31/03
Philadelphia, PA.......... 1,500(1) 9/30/02
Ridley, PA................ 8,000(1)
Phoenixville, PA.......... 10,696(1)
Wayne, PA................. 11,980(1)
State College, PA......... 23,365(1) (3) 2,800(4) 8/31/01
Bristol, PA............... 70,000(1)(3) 12/31/04
Fall River, MA............ 57,571(1)(3)
Taunton, MA............... 21,100(1)
Troy, NY.................. 50,000(1)(3)
Saratoga, NY.............. 11,000(1)
Woonsocket, RI............ 49,338(1)(3)
Pawtucket, RI............. 41,096(1)
Wakefield, RI............. 11,750(1)
Oneida, NY................ 24,000(1)(3)
Kingston, NY.............. 25,800(1)(3)
Ardmore, PA............... 25,250(1)
Media, PA................. 4,500(1) 4/30/04
Primos, PA................ 85,000(1)(3)
Pottstown, PA............. 48,000(1)(3) 7,031(3) 3/31/02
Massillon, OH............. 25,000(1)(5)
Millbrook, NY............ 5,000(1)
Rhinebeck, NY............. 2,000(1)
West Warwick, RI.......... 13,650(1)
(1) Offices (4) Warehouse
(2) Corporate headquarters (5) Sold January 31, 2001
(3) Production facility
14
Management believes that all of its properties are in good condition, are
generally well maintained and are adequate for their current operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in a number of litigation matters, which have
arisen in the ordinary course of business. The Company believes that the outcome
of these legal proceedings will not have a material adverse effect on the
Company's financial condition or results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Certain Factors Which May Affect the Company's Future Performance -
Environmental Matters."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth-certain information as of December 31, 2000
with respect to each person who is an executive officer of the Company as of
such date:
OFFICER POSITION
- ------- --------
Robert M. Jelenic...................... Chairman, President and Chief
Executive Officer
Jean B. Clifton........................ Executive Vice President, Chief
Financial Officer
and Secretary
Thomas E. Rice......................... Senior Vice President, Operations
Allen J. Mailman....................... Senior Vice President, Technology
W. Wilson Dorward...................... Senior Vice President, Finance and
Treasurer
William J. Higginson................... Vice President, Production
Edward J. Melando...................... Corporate Controller
ROBERT M. JELENIC is the Chairman, President and Chief Executive
Officer of the Company. He has been President and Chief Executive Officer
since the inception of the Company, and has been a director of the Company
and its predecessors for more than the past ten years. A Chartered
Accountant, Mr. Jelenic began his business career with Arthur Andersen in
Toronto, Canada. Mr. Jelenic has 25 years of senior management experience in
the newspaper industry, including 12 years with the Toronto Sun Publishing
Corp. Mr. Jelenic graduated Honors Bachelor of Commerce from Laurentian
University, Sudbury, Ontario. Mr. Jelenic is a director of the NAA. Mr.
Jelenic is 50 years old.
JEAN B. CLIFTON has been a director of the Company and its predecessors
for more than the past seven years. Ms. Clifton is the Executive Vice
President, Chief Financial Officer and Secretary of the Company, positions
she has held since the Company's inception. Prior to joining the Company, Ms.
Clifton, a Certified Public Accountant, was employed by Arthur Young & Co. (a
predecessor to Ernst & Young LLP). Ms. Clifton has 15 years of senior
management experience in the newspaper industry. Ms. Clifton is a member of
the Board of Managers and Executive Committee of AdOne, LLC, the Board of
Trustees of Junior Achievement of Central New Jersey, the Honorary Advisory
Board of KidsBridge Children's Cultural Center in Trenton, the Board of
Directors of the Fresh Air Fund and the Postal Affairs and Employee Benefits
Committees of the Newspaper Association of America.
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, MO, where he was
President and CEO of the Suburban Journals and THE TELEGRAPH in Alton, IL,
which the Company sold in 2000. Mr. Rice began his career with Lee
Enterprises in 1963 and has held senior management positions with Tribune
Co., Times Mirror, Media News and the Chicago Sun Times. Mr. Rice has 38
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 56 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. He has 26 years of management
experience in the newspaper industry, including 14 years with Newhouse
15
Publications. Mr. Mailman received a Bachelor of Arts degree in Economics
and Mathematics from the University of Oklahoma. Mr. Mailman is 53 years old.
W. WILSON DORWARD is Senior Vice President, Finance and Treasurer of
the Company, a position he has held since joining the Company in March 1999.
Prior to joining the Company, Mr. Dorward held positions as Chief Financial
Officer of GOCOM Communications, LLC, a television and radio operator, and as
Vice President and Treasurer of Susquehanna Pfaltzgrapp Co., a media and
manufacturing company. Mr. Dorward has 20 years of media industry experience.
Mr. Dorward received a Master of Business Administration from the Wharton
Graduate Division, University of Pennsylvania and a Juris Doctor from the
Dickinson School of Law. Mr. Dorward is 52 years old.
WILLIAM J. HIGGINSON is Vice President of Production of the Company, a
position he has held since July 1995. From January 1994 to July 1995, he was
Corporate Production Director of the Company. From January 1991 to January
1994, he was Production Director of the NEW HAVEN REGISTER and from 1989 to
January 1991 he was Production Director of THE TRENTONIAN. Mr. Higginson has
28 years of experience in the newspaper industry. Mr. Higginson is 45 years
old.
EDWARD J. MELANDO is Corporate Controller of the Company, a position he
has held since joining the Company in August 2000. Prior to joining the
Company, Mr. Melando was Controller for Asarco Incorporated, a public
multinational Fortune 500 mining company, where he had worked for sixteen
years in various financial positions. Prior to that he was a senior auditor
at Deloitte and Touche. Mr. Melando is a Certified Public Accountant and has
a Bachelor of Science degree in Management Science from Kean College of New
Jersey. Mr. Melando is 45 years old.
16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock, par value $0.01 per share (the "Common
Stock"), commenced trading on the New York Stock Exchange on May 8, 1997 under
the symbol "JRC." The following table reflects the high and low sale prices for
the Common Stock, based on the daily composite listing of stock transactions for
the New York Stock Exchange, for the periods indicated:
(Per Share)
HIGH LOW
---- ---
YEAR ENDED DECEMBER 31, 2000
----------------------------
Fourth Quarter $18 1/2 $15 1/8
Third Quarter 19 3/8 15 3/4
Second Quarter 18 7/8 12 7/8
First Quarter 15 7/8 11 7/16
YEAR ENDED DECEMBER 26, 1999
----------------------------
Fourth Quarter $15 3/4 $11 13/16
Third Quarter 21 7/8 13 7/16
Second Quarter 23 11 3/8
First Quarter 15 7/8 11 11/16
On March 27, 2001, there were approximately 74 stockholders of record of
the Common Stock. The Company believes that it has approximately 1,789
beneficial owners.
The Company has not paid dividends on the Common Stock and does not
currently anticipate paying dividends on the Common Stock. The Company currently
intends to retain future cash flow to increase shareholder value by acquiring
additional newspapers, reducing debt, purchasing the Company's stock and
reinvesting in the Company's operations. In addition, the Credit Agreement (as
hereinafter defined) places limitations on the Company's ability to pay
dividends or make any other distributions on the Common Stock. See Note 4 of
"Notes to Consolidated Financial Statements." Any future determination as to the
payment of dividends will be subject to such prohibitions and limitations, will
be at the discretion of the Company's Board of Directors and will depend on the
Company's results of operations, financial condition, capital requirements and
other factors deemed relevant by the Board of Directors.
Journal Register Company conducts its operations through direct and
indirect subsidiaries. The Company's available cash will depend upon the cash
flow of its subsidiaries and the ability of such subsidiaries to make funds
available to the Company in the form of loans, dividends or otherwise. The
subsidiaries are separate and distinct legal entities and have no obligation,
contingent or otherwise, to make funds available to the Company, whether in the
form of loans, dividends or otherwise. The Credit Agreement is secured by
substantially all of the assets of the Company and the common stock and assets
of the Company's subsidiaries. In addition, the Company's subsidiaries may,
subject to limitations contained in the Credit Agreement, become parties to
financing arrangements which may contain limitations on the ability of such
subsidiaries to pay dividends or to make loans or advances to the Company. In
the event of any insolvency, bankruptcy or similar proceedings of a subsidiary,
creditors of such subsidiary would generally be entitled to priority over the
Company with respect to assets of the affected subsidiary.
17
ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial data (except number of newspapers) has
been derived from the audited financial statements of the Company and should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
and notes thereto included elsewhere in this report:
Year Ended Year Ended Year Ended December 31,
December 31, December 26 ------------------------------------
2000 1999(1) 1998 1997 1996
------------ ----------- ---------- ---------- ----------
(Dollars in thousands, except per share amounts)
STATEMENT OF INCOME DATA:
Revenues:
Advertising.......................................... $ 343,130 $ 348,995 $ 312,908 $ 266,914 $ 256,971
Circulation.......................................... 96,852 96,783 89,388 80,211 79,776
--------- --------- --------- --------- ---------
Newspaper revenues...................................... 439,982 445,778 402,296 347,125 336,747
Commercial printing and other........................... 23,987 23,787 24,484 12,282 14,373
--------- --------- --------- --------- ---------
463,969 469,565 426,780 359,407 351,120
Operating expenses:
Salaries and employee benefits....................... 155,161 157,110 139,216 114,302 111,626
Newsprint, ink and printing charges.................. 46,533 48,432 53,594 40,452 50,110
Selling, general and administrative.................. 47,008 45,318 39,047 30,450 30,993
Depreciation and amortization........................ 27,616 28,798 23,844 20,480 20,525
Other................................................ 58,395 57,975 52,012 40,783 38,976
Special charge(2).................................... -- -- -- 31,899 --
--------- --------- --------- --------- ---------
334,713 337,633 307,713 278,366 252,230
--------- --------- --------- --------- ---------
Operating income........................................ 129,256 131,932 119,067 81,041 98,890
Net interest and other expense.......................... (48,020) (52,347) (45,321) (42,288) (56,472)
Gain on sale of newspaper properties.................... 180,720 -- -- -- --
Income before provision for income taxes,
equity interest and extraordinary item .............. 261,956 79,585 73,746 38,753 42,418
Provision for income taxes.............................. 90,951 31,694 28,112 15,784 14,309
--------- --------- --------- --------- ---------
Income before extraordinary item and equity interest ... 171,005 47,891 45,634 22,969 28,109
Equity interest......................................... (1,624) (226) -- -- --
--------- --------- --------- --------- ---------
Income before extraordinary item........................ 169,381 47,665 45,634 22,969 28,109
Extraordinary item (3).................................. -- -- (4,495) -- --
--------- --------- --------- --------- ---------
Net income ............................................. $ 169,381 $ 47,665 $ 41,139 $ 22,969 $ 28,109
========= ========= ========= ========= =========
Income before extraordinary item per common
share (basic)......................................... $ 3.74 $ 1.02 $ .94 $ .51 $ --
Income before extraordinary item
per common share (diluted)............................ $ 3.72 $ 1.02 $ .94 $ .51 $ --
Net income per common share (basic)..................... $ 3.74 $ 1.02 $ .85 $ .51 $ --
Net income per common share (diluted)................... $ 3.72 $ 1.02 $ .85 $ .51 $ --
Pro forma net income per common share(4)................ $ -- $ -- $ -- $ -- $ .74
OTHER DATA:
EBITDA(5) (6)........................................... $ 156,871 $ 160,730 $ 146,706 $ 133,420 $ 119,415
EBITDA Margin(6)........................................ 33.8% 34.2% 34.4% 37.1% 34.0%
Tangible net income, as adjusted(5)(6).................. 60,960 58,887 55,537 46,042 31,905
Tangible net income, as adjusted, per common share(5)(6) $ 1.34 $ 1.26 $ 1.14 $ 1.02 $ --
Capital expenditures.................................... $ 21,550 $ 18,081 $ 14,353 $ 9,727 $ 7,675
Net cash provided by operating activities............... $ 62,915 $ 90,595 $ 80,344 $ 66,030 $ 60,065
Net cash provided by (used in) investing activities..... $ 195,206 $ (32,727) $(354,213) $ (19,447) $ (25,700)
Net cash provided by (used in)financing activities...... $(254,716) $ (63,320) $ 274,228 $ (46,946) $ (34,441)
Number of daily newspapers, end of period............... 24 25 24 18 18
Number of non-daily publications, end of period......... 158 200 185 141 118
18
ITEM 6. SELECTED FINANCIAL DATA (CONTINUED)
Year Ended Year Ended Year Ended December 31,
December 31, December 26 ------------------------------------
2000 1999(1) 1998 1997 1996
------------ ----------- ---------- ---------- ----------
(Dollars in thousands)
BALANCE SHEET DATA:
Total current assets................................ $ 79,359 $ 88,397 $ 81,878 $ 77,833 $ 66,035
Property, plant and equipment, net.................. 104,178 107,522 99,978 92,620 91,713
Total assets........................................ 657,350 687,180 671,869 327,931 305,985
Total current liabilities, less current
maturities of long-term debt..................... 51,542 53,380 50,124 39,034 37,720
Total debt, including current maturities............ 494,635 731,467 765,000 490,774 654,825
Stockholders' deficit............................... $ (55,726) $(207,383) $(225,313) $(266,242) $(423,658)
(1) In 1999, the Company changed its fiscal year from a calendar year to a
fiscal year ending on the last Sunday of the calendar year.
(2) The 1997 special charge of $31.9 million (before benefit for income taxes
of $13.0 million) was incurred in connection with the Company's initial
public offering and was comprised of $28.4 million for a management bonus
and $3.5 million for the discontinuance of a management incentive plan.
The management bonus was comprised of 1.1 million shares of Common Stock
and a cash portion to satisfy the recipients' tax obligations arising from
the management bonus.
(3) The 1998 extraordinary item represents a charge of $4.5 million (net of
tax) related to the early extinguishment of debt in connection with the
prior credit agreement.
(4) Pro forma net income per common share for 1996 was calculated reflecting
the 37,962,500 shares which were issued and outstanding prior to the
Company's initial public offering, but subsequent to December 31, 1996.
(5) The 1998 data excludes the effects of special charges ($3.8 million,
before tax benefit, $3.2 million of which was recorded in selling, general
and administrative, and approximately $630,000 in other expenses) related
to the cancellation of the Company's convertible debt offering,
integration of the Goodson Acquisition, and an increase to certain
receivable reserves and an extraordinary item ($4.5 million, net of tax)
as discussed in Note (3) above. The 1997 data excludes the effect of the
special charge of $31.9 million (before benefit for income taxes of $13.0
million) as discussed above in Note (2).
(6) EBITDA is defined by the Company as operating income (loss) plus
depreciation, amortization and other non-cash, special or non-recurring
charges. Tangible net income is defined as net income, excluding equity
interest, plus after-tax amortization. EBITDA and tangible net income are
not intended to represent cash flow from operations and should not be
considered as alternatives to operating or net income computed in
accordance with generally accepted accounting principles ("GAAP") as
indicators of the Company's operating performance, as alternatives to cash
from operating activities (as determined in accordance with GAAP) or as
measures of liquidity.
The Company believes that EBITDA is a standard measure commonly reported
and widely used by analysts, investors and other interested parties in the
media industry. Accordingly, this information has been disclosed herein to
permit a more complete comparative analysis of the Company's operating
performance relative to other companies in the industry. However, not all
companies calculate EBITDA and tangible net income using the same methods;
therefore, the EBITDA and tangible net income figures set forth above may
not be comparable to EBITDA and tangible net income reported by other
companies. Certain covenants contained in the Company's Credit Agreement
are based upon EBITDA. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations." Tangible net income per
share is calculated using the weighted-average shares outstanding on a
diluted basis.
19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH
THE HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO AND THE OTHER
FINANCIAL INFORMATION APPEARING ELSEWHERE IN THIS REPORT.
GENERAL
The Company's business is publishing newspapers in the United States,
where its publications are primarily daily and non-daily newspapers. The
Company's revenues are derived primarily from advertising, paid circulation and
commercial printing.
As of December 31, 2000, the Company owned and operated 24 daily
newspapers and 158 non-daily publications strategically clustered in six
geographic areas: Connecticut; Greater Philadelphia; Ohio; Central New England;
and the Capital-Saratoga and Mid-Hudson, New York regions. As of December 31,
2000, the Company had total paid daily circulation of approximately 582,500,
total paid Sunday circulation of approximately 565,000 and total non-daily
distribution of approximately 2.2 million.
The Company's objective is to continue its growth in revenues, EBITDA and
net income. The principal elements of the Company's strategy are to: (i) expand
advertising revenues and readership, (ii) grow by acquisition, (iii) capture
synergies from geographic clustering and (iv) implement consistent operating
policies and standards. From 1993 through December 31, 2000, the Company
successfully completed 17 strategic acquisitions, acquiring 13 daily newspapers,
126 non-daily publications and three commercial printing companies, two of which
print a number of the non-daily publications; the third is a premium quality
sheet-fed printing company.
The Company sold certain of its operations in the Greater St. Louis area
in two transactions in August and October of 2000. The Company also sold two
daily newspapers and a commercial printing operation in the south central part
of Ohio on January 31, 2001. This sales process, which was announced in February
2000 and completed on January 31, 2001, resulted in a strategic repositioning in
six geographic clusters and a substantial reduction in the Company's leverage.
The proceeds were used to reduce the Company's outstanding debt, repurchase
stock and for a strategic acquisition in the Company's Greater Philadelphia
cluster.
The Company's management believes that its newspapers are effective in
addressing the needs of local readers and advertisers. The Company's management
believes that because its newspapers rely on a broad base of local retail and
local classified advertising, rather than more volatile national and major
account advertising, its advertising revenues tend to be relatively stable.
As part of the Company's strategy, the Company focuses on increasing
advertising and circulation revenues and expanding readership at its existing
and newly acquired properties. The Company has also developed certain operating
policies and standards which it believes have resulted in significant
improvements in the cash flow and profitability of its existing and acquired
newspapers, including: (i) focusing on local content, (ii) maintaining and
improving product quality, (iii) enhancing distribution and (iv) promoting
community involvement.
In addition, the Company is committed to expanding its business through
its Internet initiatives. The Company's online mission is to make
journalregister.com Web sites the indispensable source of useful and reliable
community news, sports and information in their markets by making its Web sites
the local information portal for their markets. As of December 31, 2000, the
Company operated 104 Web sites featuring the Company's daily newspapers and
non-daily publications.
On November 9, 1999, the Company elected to change its fiscal year from a
calendar year end to a fiscal year ending on the last Sunday in December.
Accordingly, the Company's 2000 and 1999 fiscal years ended on December 31, 2000
and December 26, 1999, respectively.
20
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 26, 1999
FOR COMPARISON PURPOSES, WHERE NOTED, THE COMPANY'S FISCAL YEARS 2000 AND 1999
RESULTS ARE PRESENTED ON A PRO FORMA BASIS, WHICH EXCLUDES THE RESULTS OF THE
GREATER ST. LOUIS CLUSTER NEWSPAPERS SOLD IN 2000. ALSO, WHERE NOTED, THE
COMPANY'S RESULTS ARE PRESENTED ON A COMPARABLE DAY BASIS, WHICH ADJUSTS FOR THE
ESTIMATED IMPACT OF THE ADDITIONAL DAYS RESULTING FROM THE COMPANY'S CHANGE TO A
52/53-WEEK BASIS.
SUMMARY. Net income for the year ended December 31, 2000 was $169.4
million, or $3.72 per diluted share, versus $47.7 million, or $1.02 per diluted
share for the year ended December 26, 1999. Excluding special items, earnings
per diluted share were $1.07 for the year ended December 31, 2000. EBITDA for
the year ended December 31, 2000, on a pro forma basis, increased $3.8 million
to $145.9 million as compared to the prior year.
The special items reported in the current year results include a $180.7
million pre-tax gain on the sale of the Company's St. Louis cluster operations
and the reversal of certain tax accruals.
REVENUES. Reported revenues were $464.0 million for the year ended
December 31, 2000 as compared to $469.6 million for the year ended December 26,
1999. The decline was mainly due to the sale of St. Louis cluster, partially
offset by increased revenues resulting from the Company's change to a fiscal
52/53-week year and higher advertising revenues.
PRO FORMA REVENUES. Pro forma revenues increased by 4.1% to $420.4 million
or approximately 1.8% on a comparable day basis. On a comparable day basis,
increases in advertising revenues of approximately 3.1% and commercial print
revenues of 1.5% were partially offset by lower circulation revenues. Online
revenues, included in advertising revenues, were approximately $3.3 million, an
increase of approximately 30.0%.
SALARIES AND EMPLOYEE BENEFITS. Salaries and employee benefit expenses
were 33.4% of the Company's revenues for the year ended December 31, 2000
compared to 33.5% for the year ended December 26, 1999. Salaries and employee
benefits decreased $1.9 million, or 1.2% in 2000 to $155.2 million. Pro forma
salaries and employee benefits increased $3.4 million, or 2.5%, mainly due to
the additional days in 2000 resulting from the Company's change to a fiscal
52/53-week year.
NEWSPRINT, INK AND PRINTING CHARGES. For the year ended December 31, 2000,
newsprint, ink and printing charges were 10.0% of the Company's revenues, as
compared to 10.3% for the year ended December 26, 1999. Newsprint, ink and
printing charges decreased $1.9 million, or 3.9%, for the year ended December
31, 2000 as compared to the prior year due to the sale of the St. Louis cluster.
Pro forma newsprint, ink and printing charges increased $2.0 million, or 5.6%,
primarily due to an increase of approximately 6% in newsprint prices and the
estimated impact of the additional days in 2000 as compared to 1999 resulting
from the Company's change to a fiscal year, partially offset by a reduction in
consumption.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses were 10.1% and 9.7% of the Company's revenues for the years ended
December 31, 2000 and December 26, 1999, respectively. On a pro forma basis,
selling, general and administrative expenses for the year ended December 31,
2000 increased $4.1 million from $37.8 million to $41.9 million, due primarily
to increased promotional activity associated with the Company's revenue growth
and the estimated impact of the additional days in 2000 as compared to 1999
resulting from the Company's change to a fiscal year.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses were
6.0% and 6.1% of the Company's revenues for the years ended December 31, 2000
and December 26, 1999, respectively. Depreciation and amortization expenses
decreased $1.2 million, or 4.1%, to $27.6 million for the year ended December
31, 2000 primarily due to the sale of the St. Louis cluster. Goodwill
amortization for the year ended December 31, 2000 was $12.5 million, including
approximately $500,000 related to the operations sold in 2000 and 2001. On a pro
forma basis, depreciation and amortization decreased $430,000, or 1.6%, to $26.6
million.
OTHER EXPENSES. Other expenses were $58.4 million for the year ended
December 31, 2000 as compared to $58.0 million for the year ended December 26,
1999. On a pro forma basis, other expenses increased to $3.3 million, or 6.7%,
to $52.2 million due in part to increases in expenses associated with the
Company's Internet operations and the estimated impact of the additional days in
2000 resulting from the Company's change to a fiscal year.
21
OPERATING INCOME. Operating income decreased $2.7 million, or 2.0%, for
the year ended December 31, 2000 to $129.3 million as compared to $131.9 million
in 1999. Pro forma operating income increased $4.2 million, or 3.7%, to $119.4
million.
NET INTEREST AND OTHER EXPENSES. Net interest and other expense decreased
$4.3 million from the year ended December 31, 2000 as compared to the year ended
December 26, 1999, principally due to a reduction in average net debt
outstanding during 2000 as compared to 1999. The reduction in average net debt
is due primarily to the sale of the St. Louis cluster and cash flows from
operations.
GAIN ON THE SALE OF NEWSPAPER PROPERTIES. On August 10, 2000, the Company
completed its sale of substantially all of the assets of the Suburban Newspapers
of Greater St. Louis and all of the issued and outstanding capital stock of The
Ladue News, Inc. (collectively, "St. Louis") and reported a pre-tax gain of
$141.1 million ($88.4 million after-tax) on the sale. On October 24, 2000, the
Company sold substantially all the assets of its Alton, Illinois newspaper, THE
TELEGRAPH ("Alton") and reported a pre-tax gain of $39.6 million on the sale
($24.6 million after-tax).
PROVISION FOR INCOME TAXES. The provision for income taxes increased by
$59.3 million from December 26, 1999 to December 31, 2000, primarily due to
$67.7 million of income taxes provided for the sale of the St. Louis cluster
partially offset by an approximately $8.0 million reduction of income taxes due
to the reversal of certain accruals which were determined to no longer be
required.
EQUITY INTEREST. The loss on equity interest of $1.6 million recorded for
the year ended December 31, 2000 represents the Company's pro rata share (7.14%)
of the net loss for the period of AdOne, LLC, a provider of classified
advertising on the internet, and compares to a loss on equity interest of
$226,000 in the prior year. Journal Register Company's investment interest in
AdOne, LLC commenced in August 1999.
OTHER INFORMATION. Tangible net income for the year ended December 31,
2000 was $61.0 million, or $1.34 per share, as compared to $58.9 million, or
$1.26 per share, for the year ended December 26, 1999.
YEAR ENDED DECEMBER 26, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
REPORTING PERIOD. As stated above, in 1999 the Company changed its fiscal
year and consequently ended the year on December 26, 1999. Therefore, unless
specified otherwise, all comparisons to the 1998 reporting period are affected
by the loss of days in the 1999 year-end period.
REVENUES. In 1999, revenues increased $42.8 million, or 10.0%, to $469.6
million, primarily due to acquisitions. Newspaper revenues increased $43.5
million, or 10.8%, to $445.8 million in 1999, principally due to increased
advertising revenue as a result of acquisitions. Circulation revenues increased
approximately $7.4 million, or 8.3%, to $96.8 million in 1999. Commercial
printing and other represented 5.1% of the Company's revenues in 1999, as
compared to 5.7% in 1998. Online revenues, included in advertising revenues,
increased 75% from the prior year period to $3.2 million. Revenues, including
the five-day period ended December 31, 1999, increased approximately $47.4
million, or 11.1%, from the prior year.
SALARIES AND EMPLOYEE BENEFITS. Salaries and employee benefit expenses
were 33.5% of the Company's revenues in 1999 and 32.6% in 1998. Salaries and
employee benefits increased $17.9 million, or 12.9%, in 1999 to $157.1 million,
primarily due to acquisitions and increased pension expense.
NEWSPRINT, INK AND PRINTING CHARGES. In 1999, newsprint, ink and printing
charges were 10.3% of the Company's revenues, as compared to 12.6% in 1998.
Newsprint, ink and printing charges decreased $5.2 million, or 9.6%, in 1999 as
compared to 1998. During 1999, the average newsprint price per ton declined
approximately 13% from the prior year. The decrease in newsprint expense
attributable to reductions in unit price has been offset in part by volume
increases related to the Company's acquisitions.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses were 9.7% and 9.1% of the Company's revenues for 1999 and 1998,
respectively. Selling, general and administrative expenses for 1999 increased
$6.3 million, or 16.1%, to $45.3 million. During the third quarter of 1998, the
Company recorded special charges of $3.2 million (see Note 5 to Selected
Financial Data). Excluding the special charges, selling, general and
administrative expenses for 1999 increased $9.5 million, or 26.3%, from the
prior year, primarily due to acquisitions and promotion costs associated with
the Company's revenue generating activities.
22
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses were
6.1% of the Company's revenues in 1999 as compared to 5.6% in 1998. Depreciation
and amortization expenses increased $5.0 million, or 20.8%, to $28.8 million in
1999, primarily due to increased amortization resulting from the Company's
acquisitions.
OTHER EXPENSES. Other expenses accounted for 12.3% of the Company's
revenues in 1999 as compared to 12.2% in 1998. Other expenses increased $6.0
million, or 11.5%, to $58.0 million in 1999, primarily due to acquisitions and
increased promotion expenses. During the third quarter of 1998, the Company
reported $630,000 in special charges (see Note 5 to Selected Financial Data).
Excluding the $630,000 in special charges, other expenses for 1999 increased
$6.6 million, or 12.8%, from the prior year primarily due to the Company's
acquisitions and increased promotional expenses.
OPERATING INCOME. Operating income increased $12.9 million in 1999 to
$131.9 million from $119.1 million in 1998, which included special charges of
$3.8 million as noted above. Excluding the effect of the special charges in
1998, operating income increased $9.1 million, or 7.4%, due to growth in the
Company's advertising revenue, continued newsprint cost savings and the effect
of acquisitions.
NET INTEREST EXPENSE AND OTHER. Interest expense increased $6.8 million,
or 15.0%, from 1998 to 1999 as a result of increased borrowing in connection
with the Company's acquisitions, including the Goodson Acquisition completed in
the third quarter of 1998, offset in part by 1999 debt repayments and a decrease
in average borrowing rates.
PROVISION FOR INCOME TAXES. The Company reported effective tax rates of
39.8% and 38.1% for the years ended December 26, 1999 and December 31, 1998,
respectively. The increase in the effective tax rate is primarily a result of
the Company's acquisitions, particularly the Goodson Acquisition completed in
the third quarter of 1998.
EXTRAORDINARY ITEM. The Company recorded an extraordinary item related to
the write-off of deferred financing charges in connection with the Company's
prior credit agreement in the amount of $4.5 million (net of $2.8 million income
tax benefit) in the third quarter of 1998.
EQUITY INTEREST. During 1999, the Company purchased a 7.14% interest in
AdOne, LLC ("AdOne"), a provider of classified advertising on the Internet. The
loss recorded in 1999 represents the Company's pro rata share of AdOne's net
loss since the date of the Company's investment.
NET INCOME. Net income was $47.7 million in 1999, or $1.02 per share,
basic and diluted, for 1999, as compared to $41.1 million, or $.85 per share,
basic and diluted, for 1998, which reflects $6.8 million (net of $4.3 million of
income tax benefit) of special charges and an extraordinary item.
OTHER INFORMATION. EBITDA increased $14.0 million, or 9.6%, to $160.7
million from $146.7 million in 1998. Tangible net income in 1999 was $58.9
million, or $1.26 per share, as compared to $55.5 million or $1.14 per share in
1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations have historically generated strong positive cash
flow. The Company believes cash flows from operations will be sufficient to fund
its operations, capital expenditures and long-term debt obligations. The Company
also believes that cash flows from operations and future borrowings and its
ability to issue common stock as consideration for future acquisitions, will
provide it with the flexibility to fund its acquisition strategy while
continuing to meet its operating needs, capital expenditures and long-term debt
obligations.
CASH FLOWS FROM OPERATING ACTIVITIES. Net cash provided from operating
activities was $62.9 million for the year ended December 31, 2000 as compared to
$90.6 million in the prior year. The decline in cash flow was primarily due to
income taxes paid of $32.5 million, of which $20.3 million related to the sale
of the Company's St. Louis cluster.
CASH FLOWS FROM INVESTING ACTIVITIES. For the year ended December 31,
2000, net cash provided from investing activities was a source of $195.2
million. Proceeds from the sale of the Company's St. Louis cluster were offset
by capital investments in property, plant and equipment. For the fiscal year
ended December 26, 1999, net cash from investing activities was a use of $32.7
million due to capital investments of $18.1 million and cash used for
acquisitions of newspapers as further described in Note 11 to the financial
statements.
23
The Company began the construction of its new Philadelphia printing
facility in 2000. As of December 31, 2000, approximately $12.6 million of
expenditures were made in connection with the facility, excluding capitalized
interest. The total cost of the project, which is expected to be completed in
the fourth quarter of 2001, is currently estimated to be $35.4 million,
excluding capitalized interest. The Company expects to fund this construction
project with cash flows from operations and borrowings under its Revolving
Credit Facility. The Company has a capital expenditure program (excluding future
acquisitions) of approximately $15.0 million in place for 2001, which includes
spending on technology, including prepress and business systems, computer
hardware and software, other machinery and equipment and vehicles. The 2001
budget also includes approximately $22.8 million of capital expenditures
associated with the Philadelphia plant. The Company believes its capital
expenditure program is sufficient to maintain its current level and quality of
operations. The Company reviews its capital expenditure program periodically and
modifies it as required to meet current needs.
CASH FLOWS FROM FINANCING ACTIVITIES. Net cash used in financing
activities was $254.7 million in 2000 as compared to $63.3 million in 1999. The
fiscal year 2000 and 1999 activity reflects $18.1 million and $29.9 million,
respectively, in connection with the Company's stock repurchase program and
$236.8 million and $33.5 million, respectively, for the repayment of senior
debt.
On July 15, 1998, the Company entered into a new credit agreement (the
"Credit Agreement") with a group of banks and other financial institutions, led
by The Chase Manhattan Bank as administrative agent for the lenders there under.
The Credit Agreement provides for $500.0 million in term loans and a $400.0
million revolving credit facility. The proceeds from the Credit Agreement were
used to repay amounts outstanding under the prior senior facilities and to fund
the Goodson Acquisition. The term loans mature on March 31, 2006 and September
30, 2006, and the revolving credit facility matures on March 31, 2006.
The Credit Agreement also provides for an uncommitted, multiple draw term
loan facility (the "Incremental Facility") in the amount of up to $500.0
million, as permitted by the administrative agent, to be repaid under conditions
as defined in the Credit Agreement.
The amounts outstanding under the Credit Agreement bear interest at (i) 1
3/4% to 1/2% above LIBOR (as defined in the Credit Agreement) or (ii) 1/2% to 0%
above the higher of (a) the Prime Rate (as defined in the Credit Agreement) or
(b) 1/2% 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 trailing four quarters Cash Flow (as defined in the Credit Agreement)
and are reduced as such ratio declines.
The Company is required under the Credit Agreement to maintain interest
rate protection agreements for a certain percentage of its outstanding debt,
based upon the Total Leverage Ratio (as defined in the Credit Agreement). The
agreements exchange a floating LIBOR interest rate for a fixed LIBOR interest
rate. On January 29, 1999, the Company's new SWAP agreements became effective
for an aggregate notional principal amount of $400.0 million, which reduce by
$75.0 million per year beginning on January 31, 2000 and expire on October 29,
2002. In 1999, the Company entered into additional three-month SWAP agreements
in an aggregate notional amount of $219.0 million, which matured on March 15,
2000.
Interest rate protection agreements ("IRPAs") relating to the Company's
borrowings at December 31, 2000 included SWAP agreements with a notional
principal amount of $325.0 million. As of December 31, 2000, if the SWAPs were
marked to market, they would result in a net gain of approximately $198,600. The
fixed LIBOR interest rates of the SWAP agreements are approximately 5.85%.
For the year ended December 31, 2000, the Company's weighted-average
effective interest rate on its outstanding debt balance was approximately 7.2%,
net of a $2.0 million pretax benefit realized on the IRPAs. This takes into
account the interest rate protection agreements in effect during that period.
As of December 31, 2000, the Company had outstanding indebtedness under
the Credit Agreement, due and payable in installments through 2006, of $494.6
million, of which $14.1 million was outstanding under the Revolving Credit
Facility. There were $385.9 million of unused and available funds under the
Revolving Credit Facility at December 31, 2000.
24
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.
RECENT EVENTS
On February 21, 2001, the Company's Board of Directors authorized the
granting of an additional 1,500,000 shares of Common Stock to be used under the
Company's 1997 Stock Incentive Plan.
On each of December 20, 2000 and on February 8, 2001, an affiliate of
Warburg Pincus distributed approximately 5.0 million shares, for a total of
approximately 10 million shares of the Company's common stock to its partners.
After giving effect to these distributions, affiliates of Warburg Pincus own
approximately 25.2 million shares, or approximately 58.9%, of the Company's
outstanding common stock.
On January 31, 2001, the Company completed the acquisition of the
Pennsylvania and New Jersey region newspaper operations from Chesapeake
Publishing Corporation's Mid-Atlantic Division. Total non-daily distribution of
the 13 publications is approximately 90,000.
On January 31, 2001, the Company completed the sale of substantially all
the assets of THE TIMES REPORTER, Dover-New Philadelphia (including Midwest
Offset, one of the Company's commercial printing operations), and THE
INDEPENDENT, Massillon, Ohio. Total daily circulation of the two newspapers is
approximately 38,100.
On December 18, 2000, the Company's Board of Directors authorized an
increase in the Journal Register Company Share Repurchase Program to $100.0
million per year for the repurchase of Common Stock. As of December 31, 2000,
the Company had repurchased 3,608,735 shares.
As of March 27, 2001, the Company has repurchased 2,098,400 shares of the
Company's stock in 2001. Shares under the program are to be repurchased at
management's discretion, either in the open market or in privately negotiated
transactions.
INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS
Management's Discussion and Analysis of Financial Condition and Results of
Operations and other sections of this Form 10-K include forward-looking
statements, which may be identified by use of terms such as "believes,"
"anticipates," "plans," "will," "likely," "continues," "intends" or "expects."
These forward-looking statements relate to the plans and objectives of the
Company for future operations. In light of the risks and uncertainties inherent
in all future projections, the inclusion of forward-looking statements herein
should not be regarded as a representation by the Company or any other person
that the objectives or plans of the Company will be achieved. Many factors could
cause the Company's actual results to differ materially from those in the
forward-looking statements, including, among other things, the factors discussed
below under "Certain Factors Which May Affect the Company's Future Performance."
The following 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.
NEW ACCOUNTING PRONOUNCEMENT
In June of 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities"
("SFAS 133"). Subsequently, in June 1999, the FASB issued SFAS No. 137, an
amendment to defer the effective date of SFAS 133 to years beginning after June
15, 2000. In June 2000, the FASB issued SFAS No. 138, amending certain
requirements under SFAS 133. The impact of adopting these statements on the
Company's consolidated financial statements is expected to be immaterial. (See
Note 2 of the "Notes to the Consolidated Financial Statements).
25
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 revenues 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 newspaper 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, and local
weather conditions.
CAPITALIZATION
As of December 31, 2000, the consolidated indebtedness of the Company was
approximately $494.6 million, which represents a multiple of 3.2 times the
Company's twelve months trailing EBITDA of approximately $156.9 million. As of
December 31, 2000, the Company had net stockholders' deficit of approximately
$55.7 million and a total capitalization of $438.9 million, and, thus, the
percentage of the Company's indebtedness to total capitalization was 112.7%. The
Company may incur additional indebtedness to fund operations, capital
expenditures or future acquisitions.
The Company's management believes that cash provided by operating
activities 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
restrict among other things the Company's ability to declare dividends, redeem
stock, incur indebtedness, create liens, sell assets, consummate mergers and
make capital expenditures, investments and acquisitions.
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. The Company is not aware of any pending legislation by federal,
state or local governments relating to environmental matters which, if enacted,
would reasonably be expected to have a material adverse effect on the financial
condition or results of operations of the Company. The Company is in the process
of monitoring groundwater contamination that has been detected at one of the
facilities which the Company acquired with the Goodson Acquisition in 1998. The
Company's management believes the remediation of any such groundwater
contamination, if required, will not have a material adverse effect on its
financial condition or results of operations. The Company is fully indemnified
for all costs and liabilities arising out of this issue by the seller as part of
the Goodson Acquisition purchase agreement.
26
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 particular risks,
including, without limitation, diversion of management's attention, assumption
of unidentified liabilities, 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, 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 cash on hand and borrowings. The
Company anticipates that it will finance future acquisitions through cash on
hand, operating cash flow and borrowings and/or the issuance of Company stock.
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.
PRICE AND AVAILABILITY OF NEWSPRINT
The basic raw material for newspapers is newsprint. The Company's
newsprint consumption (excluding paper consumed in the Company's commercial
printing operations) totaled approximately $34.2 million in 2000, which was
approximately 7.8% of the Company's newspaper revenues. In 2000, the Company
consumed approximately 64,400 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 2000, 1999 and 1998 was
$565, $510 and $596, respectively, as reported by the trade publication PULP AND
PAPER WEEKLY. The Company has no long-term contracts to purchase newsprint.
Generally, the Company has in the past and currently purchases all of its
newsprint from two suppliers, although in the future the Company may purchase
newsprint from other suppliers. Historically, the percentage of newsprint from
each supplier has varied. The Company's management believes that concentrating
its newsprint purchases in this way provides a more secure newsprint supply and
lower per 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, 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 6% in 2000,
decreased approximately 13% in 1999 and increased approximately 8% in 1998. The
Company believes that if any price decrease or increase is sustained in the
industry, the Company will also be impacted by such change. The Company seeks to
manage the effects of increases in prices of newsprint through a combination of,
among other things, technology improvements, including web-width reductions,
inventory management and advertising and circulation price increases. The
Company also has reduced fringe circulation in response to increased newsprint
prices, as it is the Company's experience that such circulation does not provide
adequate response for advertisers.
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 certain interest rate spreads
applied to LIBOR, the Prime Rate or Federal Funds Rate, as defined in the Credit
Agreement. To manage its exposure to fluctuations in interest rates, the
Company, as required by its Credit Agreement, enters into certain IRPAs on a
portion of its debt, which allows the Company to exchange variable rate interest
for fixed rate interest, maturing at specific intervals. The Company's use of
these agreements is limited to hedging activities and not for trading or
speculative activity.
At December 31, 2000, the Company had in effect SWAP agreements for a
notional amount of $325 million. The fair market value of the SWAP at December
31, 2000, had the SWAP been marked to market, would have resulted in a gain of
approximately $198,600. SWAP agreements in an aggregate notional amount of $400
million, which became effective January 29, 1999, reduce by $75 million per year
27
beginning on January 31, 2000 and expire on October 29, 2002. In 1999, the
Company entered into additional three-month SWAP agreements in an aggregate
notional amount of $219 million that matured on March 15, 2000. Assuming a 10%
increase or reduction in interest rates for the year ended December 31, 2000,
the effect on the Company's pre-tax earnings and cash flows would be
approximately $2.5 million.
28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS
PAGE
----
FINANCIAL STATEMENTS:
Report of Independent Auditors....................................... 30
Consolidated Balance Sheets.......................................... 31
Consolidated Statements of Income.................................... 32
Consolidated Statements of Stockholders' Deficit..................... 33
Consolidated Statements of Cash Flows................................ 34
Notes to Consolidated Financial Statements........................... 35
FINANCIAL STATEMENT SCHEDULE:
Schedule II, Valuation and Qualifying Accounts.......................S-1
All other schedules are omitted because they are not applicable or the
requested information is shown in the consolidated financial statements or
related notes.
29
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 31, 2000 and December 26, 1999, and the related
consolidated statements of income, stockholders' deficit, and cash flows for
each of the three years in the period ended December 31, 2000. Our audits also
included the financial statement schedule listed in the Index at Item 14(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 financial statement 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 31, 2000 and December 26, 1999 and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 2000, 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.
ERNST & YOUNG LLP
February 2, 2001
Metro Park, New Jersey
30
JOURNAL REGISTER COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
DECEMBER 31, DECEMBER 26,
2000 1999
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 6,495 $ 3,090
Accounts receivable, less allowance for doubtful
accounts of $3,443 in 2000 and $6,293 in 1999 54,078 65,597
Inventories 9,104 9,899
Deferred income taxes 1,801 2,721
Other current assets 7,881 7,090
--------- ---------
Total current assets 79,359 88,397
Property, plant and equipment:
Land 8,380 9,018
Buildings and improvements 58,167 66,187
Machinery and equipment 142,849 171,631
Construction and equipment installation in progress 14,445 2,546
--------- ---------
223,841 249,382
Less accumulated depreciation (119,663) (141,860)
--------- ---------
Property, plant and equipment, net 104,178 107,522
Intangible and other assets, net of accumulated
amortization of $56,792 in 2000 and $42,751 in 1999 473,813 491,261
--------- ---------
Total assets $ 657,350 $ 687,180
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current maturities of long-term debt $ 22,625 $ 19,500
Accounts payable 10,758 14,617
Accrued interest 6,155 6,886
Deferred subscription revenue 8,529 8,896
Accrued salaries and vacation 4,984 5,647
Other accrued expenses and current liabilities 21,116 17,334
--------- ---------
Total current liabilities 74,167 72,880
Senior debt, less current maturities 472,010 711,967
Deferred income taxes 29,756 20,291
Accrued retiree benefits and other liabilities 14,095 15,920
Income taxes payable 123,048 73,505
Commitments and contingencies
Stockholders' deficit:
Common stock, $.01 par value per share, 300,000,000
shares authorized, 48,437,581 issued at December
31, 2000 and December 26, 1999 484 484
Additional paid-in capital 358,268 358,244
Accumulated deficit (366,775) (536,156)
--------- ---------
(8,023) (177,428)
Less treasury stock, shares at cost
2000 - 3,583,385; 1999 - 2,362,953 (47,703) (29,795)
Accumulated other comprehensive loss, net of tax -- (160)
--------- ---------
Net stockholders' deficit (55,726) (207,383)
--------- ---------
Total liabilities and stockholders' deficit $ 657,350 $ 687,180
========= =========
SEE ACCOMPANYING NOTES.
31
JOURNAL REGISTER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
DECEMBER DECEMBER DECEMBER
31, 26, 31,
FISCAL YEAR ENDED 2000 1999 1998
- --------------------------------------------------------------------------------
Revenues:
Advertising $ 343,130 $ 348,995 $ 312,908
Circulation 96,852 96,783 89,388
--------- --------- ---------
Newspaper revenues 439,982 445,778 402,296
Commercial printing and other 23,987 23,787 24,484
--------- --------- ---------
463,969 469,565 426,780
Operating expenses:
Salaries and employee benefits 155,161 157,110 139,216
Newsprint, ink and printing charges 46,533 48,432 53,594
Selling, general and administrative 47,008 45,318 39,047
Depreciation and amortization 27,616 28,798 23,844
Other 58,395 57,975 52,012
--------- --------- ---------
334,713 337,633 307,713
--------- --------- ---------
Operating income 129,256 131,932 119,067
Other income (expense):
Net interest expense and other (48,020) (52,347) (45,321)
Gain on sale of newspaper properties 180,720 -- --
--------- --------- ---------
Income before provision for income taxes,
equity interest and extraordinary item 261,956 79,585 73,746
Provision for income taxes 90,951 31,694 28,112
--------- --------- ---------
Income before equity interest and
extraordinary item 171,005 47,891 45,634
Equity interest (1,624) (226) --
--------- --------- ---------
Income before extraordinary item 169,381 47,665 45,634
Extraordinary item, net of tax of $2,755 -- -- 4,495
--------- --------- ---------
Net income $ 169,381 $ 47,665 $ 41,139
========= ========= =========
Income before extraordinary item per common share:
Basic $ 3.74 $ 1.02 $ .94
Diluted $ 3.72 $ 1.02 $ .94
Net income per common share:
Basic $ 3.74 $ 1.02 $ .85
Diluted $ 3.72 $ 1.02 $ .85
Weighted-average shares outstanding:
Basic 45,302 46,821 48,437
Diluted 45,474 46,874 48,626
SEE ACCOMPANYING NOTES.
32
JOURNAL REGISTER COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(Dollars in thousands)
------------------------------------------------------------------
Additional Other Total
Common Paid-in Comprehensive Accumulated Treasury Stockholders'
Stock Capital Income Deficit Stock Deficit
==================================================================
Balance as of
December 31, 1997 $ 484 $358,234 $ -- $(624,960) $ -- $(266,242)
------------------------------------------------------------------
Net income 41,139 41,139
Minimum pension
liability
adjustment, net
of tax benefit
of $153 (212) (212)
-----------
Comprehensive income $40,927
-----------
Exercise of stock
options for
common stock 2 2
------------------------------------------------------------------
Balance as of
December 31, 1998 $ 484 $358,236 $ (212) $(583,821) $ -- $(225,313)
------------------------------------------------------------------
Net income 47,665 47,665
Minimum pension
liability
adjustment, net
of tax of $37 52 52
-----------
Comprehensive income $ 47,717
-----------
Purchase of
2,369,200 shares
of treasury stock (29,874) (29,874)
Exercise of stock
options for
common stock 8 79 87
------------------------------------------------------------------
Balance as of
December 26, 1999 $ 484 $358,244 $ (160) $(536,156) $(29,795) $(207,383)
------------------------------------------------------------------
Net income 169,381 169,381
Minimum pension
liability
adjustment, net
of tax of $116 160 160
-----------
Comprehensive income $ 169,541
-----------
Purchase of
1,239,535 shares
of treasury stock (18,072) (18,072)
Exercise of stock
options for
common stock 24 164 188
------------------------------------------------------------------
Balance as of
December 31, 2000 $ 484 $358,268 $ -- $(366,775) $(47,703) $ (55,726)
------------------------------------------------------------------
SEE ACCOMPANYING NOTES.
33
JOURNAL REGISTER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
DECEMBER DECEMBER DECEMBER
31, 26, 31,
FISCAL YEAR ENDED 2000 1999 1998
- --------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 169,381 $ 47,665 $ 41,139
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Provision for losses on accounts receivable 4,195 4,257 4,464
Depreciation and amortization 27,616 28,798 23,844
Net (gain) loss on disposal of property,
plant and equipment (345) 135 (1,074)
Loss on equity investment 1,624 266 --
Extraordinary loss on extinguishment of
deferred debt costs -- -- 7,250
Gain on sale of newspaper properties (180,720) -- --
Accrued retiree benefits and other
non-current liabilities (1,285) (1,193) (6,877)
Increase in deferred taxes 10,385 5,993 7,928
Changes in operating assets and liabilities:
Accounts receivable (1,483) (10,726) (5,885)
Income taxes payable 48,147 22,163 15,570
Other assets and liabilities (14,600) (6,763) (6,015)
--------- -------- ---------
Net cash provided by operating activities 62,915 90,595 80,344
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (9,651) (17,438) (12,914)
Additions to construction in progress (11,899) (643) (1,439)
Net proceeds from sale of property, plant and
equipment 1,905 22 1,487
Proceeds from sale of newspaper properties 216,972 -- --
Purchase of businesses and equity investment (2,121) (14,668) (341,347)
--------- -------- ---------
Net cash provided by (used in) investing
activities 195,206 (32,727) (354,213)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debt issuance -- -- 808,000
Payments of long-term debt (236,832) (33,533) (533,774)
Exercise of stock options for common stock 188 87 2
Purchase of treasury shares (18,072) (29,874) --
--------- -------- ---------
Net cash provided by (used in) financing
activities (254,716) (63,320) 274,228
--------- -------- ---------
Increase (decrease) in cash and cash equivalents 3,405 (5,452) 359
Cash and cash equivalents, beginning of year 3,090 8,542 8,183
--------- -------- ---------
Cash and cash equivalents, end of year $ 6,495 $ 3,090 $ 8,542
========= ======== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 50,081 $ 51,753 $ 44,158
Income taxes $ 32,535 $ 3,574 $ 1,719
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING
AND FINANCING ACTIVITIES
Comprehensive profit (loss) - minimum pension
liability, net of tax $ 160 $ 52 $ (212)
SEE ACCOMPANYING NOTES.
34
JOURNAL REGISTER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
The accompanying consolidated financial statements include Journal
Register Company and all of its wholly owned subsidiaries (the "Company"). The
Company was incorporated on March 11, 1997 and became a publicly traded company
in May of 1997.
In March of 1997, certain entities (namely, JRC, LLC; JRNI and INSI) were
combined and JRC, LLC was converted into a C corporation, Journal Register
Company. Substantially all of the membership interests and equity securities of
these entities were owned by affiliates of E.M. Warburg, Pincus & Co., LLC
(collectively, "Warburg, Pincus"). Since the companies were under common
control, this transaction was accounted for on a basis similar to a pooling of
interests. The accompanying financial statements include the accounts and
operations of JRC (or its predecessor, JRC, LLC), JRNI and INSI for all periods
presented.
Journal Register Company (through its consolidated subsidiaries) primarily
publishes daily and non-daily newspapers serving markets in Connecticut, greater
Philadelphia, Ohio, central New England and the Capital-Saratoga and Mid-Hudson,
New York regions; and as of December 31, 2000 had commercial printing operations
in Connecticut, Ohio and Pennsylvania.
In 1999, the Company elected to change from a calendar year end to a
fiscal year ending on the last Sunday of the calendar year. Accordingly, the
Company's 2000 fiscal year ended on December 31, 2000 and the 1999 fiscal year
ended on December 26, 1999.
The Company has authorized 1,000,000 shares of Preferred Stock, none of
which were issued or outstanding during the periods presented.
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 are accounted for by the equity method. All
intercompany activity has been eliminated. Certain prior year amounts have been
reclassified to conform to the current year presentation.
USE OF ESTIMATE
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For purposes of the accompanying consolidated statements of cash flows,
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.
INVENTORIES
Inventories, consisting of newsprint, ink and supplies, are stated at the
lower of cost (primarily first-in, first-out method) or market.
STOCK OPTION PLAN
As permitted under Statement of Financial Accounting Standards ("SFAS")
No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), the Company has
elected to follow Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB 25") and related interpretations in accounting
for its employee stock options. Under APB 25, when the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized.
35
JOURNAL REGISTER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LONG-LIVED ASSETS
In accordance with SFAS No. 121 "Accounting for the Impairment of Long
Lived Assets and for Long-Lived Assets to be Disposed Of," the Company reviews
the recoverability of intangibles and other long-lived assets whenever events
and circumstances indicate that the carrying amount may not be recoverable. The
carrying amount of the long-lived asset is reduced by the difference between the
carrying amounts and estimated fair value with a corresponding charge to
expense.
Property, plant and equipment are stated at cost less any required
impairment reserve. Maintenance and repairs are charged to expense as incurred;
costs of major additions and betterments are capitalized. Depreciation is
provided for financial reporting purposes primarily 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 and the
excess of cost over the value of identifiable net assets of the companies
acquired. These assets are carried at the lower of amortized cost or the amount
expected to be recovered by projected future operations after considering
attributable general and 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. The balance of
intangible assets at December 31, 2000 and December 26, 1999 was comprised
principally of subscriber lists and excess cost over the value of identifiable
net assets of companies acquired. These assets are being amortized over a period
of their useful life, up to 40 years, and are amortized by the straight-line
method. 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 related
activities. Deferred subscription revenue arises from subscription payments made
in advance of newspaper delivery and is recognized in the period in which it was
earned.
SEGMENT REPORTING
As of December 31, 2000, the Company published 24 daily newspapers and 158
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 individual operations that the executive
management team reviews for purposes of assessing performance and making
operational decisions. These individual operations have been aggregated into one
segment because management believes it helps the users understand the Company's
performance and is consistent with the manner in which the individual 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
Certain employees of the Company's newspapers are employed under
collective bargaining agreements.
36
JOURNAL REGISTER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DERIVATIVE RISK MANAGEMENT POLICY AND STRATEGY
In June of 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities"
("SFAS 133"). Subsequently, in June 1999, the FASB issued SFAS No. 137, an
amendment to defer the effective date of SFAS 133 to years beginning after June
15, 2000. In June 2000, the FASB issued SFAS No. 138, amending certain
requirements under SFAS 133. The impact of adopting these statements on the
Company's consolidated financial statements is expected to be immaterial. 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.
The Company pays or receives the differential between the variable
interest rate and a fixed interest rate as determined by the IRPA. The IRPA is
structured to coincide with interest payments made on the debt and is placed
with large multinational banks.
The Company currently designates its current IRPAs to be highly effective
cash flow hedges based upon the following criteria:
o The notional amount of the IRPA and the proportional amount of the term
loans are equal.
o The interest rate base for measuring interest variability is the same
for both the term loans and the IRPA.
o The participating banks under the IRPA are also lenders under the term
loans and are financially secure international banks.
o The fair value of the individual IRPA at the inception of the hedge is
zero.
o Computation for net settlements under each IRPA is the same for each
net settlement.
The Company will measure effectiveness of each IRPA quarterly. As
specified in SFAS 133, any gain/loss on the effective portion of the IRPA will
be recorded in Other Comprehensive Income (OCI) and the ineffective portion
recorded directly to current earnings. Amounts in accumulated OCI will be
reclassified into earnings in the same period in which the hedged forecasted
transactions affect earnings. In the event of the early extinguishment of a
designated debt obligation, any unrealized gain or loss included in OCI would be
recognized in income coincident with the extinguishment.
3. INTANGIBLE AND OTHER ASSETS
Intangible and other assets as of December 31, 2000 and December 26, 1999,
net of accumulated amortization, are summarized as follows:
(Dollars in thousands)
2000 1999
--------- ----------
Excess of cost over the value of identifiable net
assets purchased and subscriber lists $455,280 $473,904
Prepaid pension cost 10,461 9,230
Other 8,072 8,127
---------- ---------
$473,813 $491,261
========== =========
37
JOURNAL REGISTER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. INTANGIBLE AND OTHER ASSETS (CONTINUED)
Included in other assets is the Company's investment in AdOne, LLC
("AdOne"). On August 20, 1999, the Company acquired a 7.14% interest in AdOne, a
provider of classified advertising on the Internet. The Company applies the
equity method of accounting for this investment. In addition, the Company holds
a $1.2 million promissory note from AdOne. The note bears interest at 9.4% per
annum and is payable in five equal installments commencing December 31, 2005.
4. LONG-TERM DEBT
The Company entered into a credit agreement in July 1998 with a group of
lenders, led by The Chase Manhattan Bank 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 $250.0 million, and a secured revolving credit facility (the
"Revolving Credit Facility") of $400.0 million. Proceeds under these loan
facilities were used to repay existing debt and to fund the Goodson Acquisition
(See Note 11, Acquisitions and Dispositions). The Credit Agreement also provides
for an uncommitted, multiple draw term loan facility (the "Incremental
Facility") in the amount of up to $500.0 million, as permitted by the
administrative agent, to be repaid under conditions as defined in the agreement.
To date, the Company has not drawn down on the Incremental Facility. The Company
had $385.9 million and $168.5 million unused and available under the Revolving
Credit Facility at December 31, 2000 and December 26, 1999, respectively. The
Company's long-term debt as of December 31, 2000 and December 26, 1999 was
comprised of the following:
(Dollars in thousands)
2000 1999
--------- ----------
Term Loan A $231,250 $250,000
Term Loan B 249,250 250,000
Revolving Credit Facility 14,135 231,467
---------- ---------
494,635 731,467
Less Current Portion (22,625) (19,500)
---------- ---------
$472,010 $711,967
========== =========
The Term Loan A Facility matures on March 31, 2006 and is repayable in
quarterly installments, which commenced on June 30, 2000. The Term Loan B
Facility matures on September 30, 2006 and is repayable in quarterly
installments, which commenced on June 30, 2000. The remaining aggregate annual
maturities payable under the Term Loans are as follows:
(Dollars in thousands)
2001.......................................................... $ 22,625
2002.......................................................... $ 35,375
2003.......................................................... $ 41,625
2004.......................................................... $ 47,875
2005.......................................................... $ 81,750
Thereafter.................................................... $ 251,250
38
JOURNAL REGISTER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. LONG-TERM DEBT (CONTINUED)
The Revolving Credit Facility is available until March 31, 2006.
Availability will be reduced by consecutive quarterly reductions, commencing on
June 30, 2002 and ending on March 31, 2006, in an aggregate amount for each
twelve-month period commencing on the dates set forth below, equal to the amount
set forth opposite such date (with reductions during each such period being
equal in amount):
PRINCIPAL AMOUNT
(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, and restricts the Company's ability to
declare dividends, redeem stock, incur additional indebtedness, create liens,
sell assets, consummate mergers and make capital expenditures, investments and
acquisitions.
The amounts outstanding under the Credit Agreement bear interest at (i) 1
3/4% to 1/2% above LIBOR or (ii) 1/2% to 0% above the higher of (a) the Prime
Rate or (b) 1/2% above the Federal Funds Rate. The interest rate spreads are
dependent upon the ratio of debt to trailing four quarters Cash Flow (as defined
in the Credit Agreement) and reduce as the ratio declines.
An annual commitment fee is incurred on the average daily-unused portion
of the Revolving Credit Facility, payable quarterly in arrears, at a percentage
which varies from 0.375% to 0.250% based on the quarterly calculation of the
Total Leverage Ratio (as defined in the Credit Agreement). At December 31, 2000,
the Company's commitment fee was 0.250%.
The Credit Agreement also requires the Company, in order to manage
interest rate risk, to maintain IRPAs for a certain percentage of the
outstanding debt, based upon the Total Leverage Ratio. In accordance with this
requirement, the Company participates in certain IRPAs whereby the Company has
assumed a fixed rate of interest and a counter party has assumed the variable
rate (the "SWAP"). Pursuant to the SWAP agreement, the Company agrees to
exchange with certain banks at specific dates the difference between the fixed
rate in the SWAP agreement and the LIBOR floating rate applied to the notional
principal amount.
On January 29, 1999, the Company's new SWAP agreements became effective
for an aggregate notional principal amount of $400.0 million which reduce by
$75.0 million per year, beginning on January 31, 2000 and expire on October 29,
2002. In 1999, the Company entered into additional three-month SWAP agreements
in an aggregate notional amount of $219 million, which matured on March 15,
2000. IRPAs relating to the Company's borrowings at December 31, 2000 included
SWAP agreements with a notional principal amount of $325.0 million.
As of December 31, 2000 and December 26, 1999, if the SWAPs were marked to
market, they would have resulted in a net gain of approximately $198,600 and
$6.1 million, respectively. The fixed LIBOR rates of the SWAP agreements are
approximately 5.85%.
The Company's weighted-average effective interest rate net of the effect
of the Company's IRPAs benefit for the year ended December 31, 2000 was
approximately 7.2%. A $2.0 million pretax benefit was realized on the IRPAs in
the year ended December 31, 2000. Capitalized interest for the year ended
December 31, 2000 was $601,000. There was no capitalized interest in the prior
year. The estimated fair value of the Term Loans and Revolving Credit Facility
approximates their carrying value.
39
JOURNAL REGISTER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. 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"). Subject to adjustment, as provided in the 1997 Plan, the 1997 Plan
authorizes the granting of up to 4,843,750 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.
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 are exercisable at cumulative intervals of 20%
commencing on the first anniversary after issuance, continuing through the fifth
anniversary, at which time 100% may be exercised. These options expire ten years
after issuance.
As permitted under SFAS 123, 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 for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for the
years 2000, 1999 and 1998: risk-free interest rate of 5.16%, 6.51% and 5.49%,
respectively; dividend yield of 0% for all years; volatility factor of the
expected market price of the common stock of 0.48, 0.41 and 0.38, respectively;
and a weighted-average expected life of each option granted of seven years.
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 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.
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, are as
follows:
(In thousands, except per share amounts)
----------------------------------------
December December December
31, 26, 31,
2000 1999 1998
------------- ----------- -----------
Net income attributable to common
stockholder:
As reported $169,381 $ 47,665 $ 41,139
Pro forma 165,776 44,619 39,135
Net income per share:
As reported:
Basic $ 3.74 $ 1.02 $ .85
Diluted 3.72 1.02 .85
Pro forma:
Basic $ 3.66 $ .95 $ .81
Diluted 3.65 .95 .80
-------------------------------------------------------------------------------
40
JOURNAL REGISTER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. STOCK INCENTIVE PLAN (CONTINUED)
The following table summarizes the Company's stock option activity for the
fiscal years presented:
December 31, 2000 December 26, 1999 December 31, 1998
-------------------- -------------------- --------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------- ----- ------- ----- ------- -----
Outstanding-beginning of year 3,317,281 $18.00 2,587,167 $19.27 1,825,189 $17.50
Granted 874,950 $14.66 967,200 $14.72 925,700 $22.45
Exercised 18,933 $14.23 6,247 $14.00 5,174 $14.00
Forfeited 204,931 $17.47 230,839 $19.14 158,548 $17.59
--------- --------- ---------
Outstanding-end of year 3,968,367 $17.28 3,317,281 $18.00 2,587,167 $19.27
========= ========= =========
Exercisable at end of year 1,371,601 $18.30 786,616 $18.55 332,973 $17.51
Weighted-average fair
value of options granted
during the year $8.33 $7.95 $11.13
- -----------------------------------------------------------------------------------------------
Exercise prices for options outstanding as of December 31, 2000 ranged
from $14.00 to $22.50 per share. The weighted-average remaining contractual life
of those options is 7.7 years.
6. EXTRAORDINARY ITEM
In July 1998, in connection with the Credit Agreement, the Company
expensed approximately $7.3 million of deferred financing costs associated with
the extinguishment of the Company's prior credit facility, resulting in an
extraordinary charge of $4.5 million, net of tax.
7. EARNINGS PER COMMON SHARE
The following table sets forth the computation of weighted-average shares
outstanding for calculating basic and diluted earnings per share:
(In thousands)
December 31, December 26, December 31,
Fiscal Year Ended 2000 1999 1998
- --------------------------------------------------------------------------------
Weighted-average shares for basic
earnings per share 45,302 46,821 48,437
Effect of dilutive securities:
Employee stock options 172 53 189
------ ------ ------
Adjusted weighted-average shares
for diluted earnings per share 45,474 46,874 48,626
====== ====== ======
Options to purchase 1.5 million, 1.6 million and 1.7 million shares of
Common Stock at a range of $15.94 to $22.50, $17.63 to $22.50 and $18.00 to
$22.50 were outstanding during 2000, 1999 and 1998, respectively, but 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.
8. PENSION AND POSTRETIREMENT PLANS
The Company and its subsidiaries maintain defined benefit pension plans,
certain of which are successors to prior plans. The benefits are based on years
of service and primarily on the employees' career average pay. The Company's
funding policy is to contribute annually an amount that can be deducted for
federal income tax purposes
41
JOURNAL REGISTER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. PENSION AND POST RETIREMENT PLANS (CONTINUED)
under a different actuarial cost method and different assumptions 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 September 30 to measure pension
plan assets and liabilities.
The following table sets forth the plans' funded status and the amount
recognized in the Company's consolidated balance sheet:
(Dollars in thousands)
POST-RETIREMENT
PENSION BENEFITS BENEFITS
---------------- ---------------
2000 1999 2000 1999
---- ---- ---- ----
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $ 71,877 $ 74,278 $ 7,160 $ 7,291
Service cost 1,755 1,847 16 15
Interest cost 5,304 5,203 538 493
Actuarial gain (554) (5,100) (2,518) (210)
Benefits paid (4,615) (4,351) (477) (429)
Curtailments/Divestitures/Other (31) -- 251 --
-------- -------- ------- -------
Benefit obligation at end of year $ 73,736 $ 71,877 $ 4,970 $ 7,160
CHANGE IN PLAN ASSETS
Fair value of plan assets at
beginning of year $ 88,574 $ 83,956 $ N/A $ N/A
Actual return on plan assets 16,582 8,853 N/A N/A
Employer contributions 102 116 477 429
Benefits paid (4,615) (4,351) (477) (429)
-------- -------- ------- -------
Fair value of plan assets at end of year $100,643 $ 88,574 $ -- $ --
RECONCILIATION OF FUNDED STATUS
Funded status $ 26,907 $ 16,697 $(4,970) $ 7,160)
Unrecognized net:
Transition obligation 28 135 N/A N/A
Prior service cost (2,172) (2,712) (437) (530)
Gain (14,008) (4,438) (2,784) (580)
Contributions after measurement 12 55 N/A N/A
-------- -------- ------- -------
Net amount recognized $ 10,767 $ 9,737 $(8,191) $(8,270)
AMOUNTS RECOGNIZED IN STATEMENT OF
FINANCIAL POSITION
Prepaid benefit cost $ 10,815 $ 10,104 $ N/A $ N/A
(Accrued) benefit liability (48) (874) (8,191) (8,270)
Adjustment required to
recognize minimum liability N/A 231 N/A N/A
Accumulated other comprehensive loss N/A 276 N/A N/A
-------- -------- ------- -------
Net amount recognized $ 10,767 $ 9,737 $(8,191) $(8,270)
SEPARATE DISCLOSURES FOR PENSION
PLANS WITH ACCUMULATED BENEFIT
OBLIGATION IN EXCESS OF PLAN ASSETS
Projected benefit obligation at end of year N/A $ 2,085 N/A N/A
Accumulated benefit obligation
at end of year N/A $ 2,022 N/A N/A
Fair value of assets at end of year N/A $ 1,728 N/A N/A
42
JOURNAL REGISTER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. PENSION AND POSTRETIREMENT PLANS (CONTINUED)
(Dollars in thousands)
POST-RETIREMENT
PENSION BENEFITS BENEFITS
---------------- ---------------
2000 1999 2000 1999
---- ---- ---- ----
COMPONENTS OF NET PERIODIC BENEFIT COST
-------- -------- ------- -------
Service cost $ 1,755 $ 1,847 $ 16 $ 15
Interest cost 5,304 5,203 538 493
Expected return on plan assets (7,785) (7,376) -- --
Amortization of net:
Transition obligation 108 105 -- --
Prior service cost (355) (361) (92) (92)
(Gain)/loss 35 60 (39) (18)
Other -- (48) -- --
-------- -------- ------- -------
Net periodic benefit (income) cost $ (938) $ (570) $ 423 $ 398
ACTUARIAL ASSUMPTIONS
Discount rate 7.75% 7.75% 7.75% 7.75%
Expected long-term return on
plan assets 9.00% 9.00% N/A N/A
Rate of compensation increase 3.00% 3.00% 3.00% 3.00%
Rate of increase in health benefit costs:
Immediate rate 6.50% 7.00%
Ultimate rate 6.50% 6.50%
Year ultimate rate reached 2000 2000
FFECTS OF A CHANGE IN THE ASSUMED
RATE OF HEALTH BENEFIT COSTS
Effect of a 1% increase on:
Total of service cost and N/A N/A $36 $33
interest cost
Post-retirement benefit obligation N/A N/A $450 $394
Effect of a 1% decrease on:
Total of service cost and
interest cost N/A N/A $(29) $(27)
Post-retirement benefit obligation N/A N/A $(385) $(347)
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 $668,331, $706,000 and
$377,000 in 2000, 1999 and 1998, respectively. The Company contributes to
various multi-employer union administered pension plans. Contributions to these
plans amounted to approximately $178,113, $160,000 and $110,000 in 2000, 1999
and 1998, respectively.
43
JOURNAL REGISTER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. INCOME TAXES
The annual provision for taxes on income before extraordinary item, in
thousands, is as follows:
December 31, December 26, December 31,
2000 1999 1998
------------ ------------ ------------
Current tax expense:
Federal $ 73,851 $ 23,592 $ 16,492
State 6,831 2,145 3,389
------------ ------------ ------------
Total current 80,682 25,737 19,881
Deferred tax expense (benefit):
Federal 6,577 5,244 10,157
State 3,692 713 (1,926)
------------ ------------ ------------
Total deferred 10,269 5,957 8,231
------------ ------------ ------------
Total provision for taxes $ 90,951 $ 31,694 $ 28,112
============ ============ ============
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:
December 31, December 26, December 31,
2000 1999 1998
------------ ------------ ------------
Tax at U.S. statutory rates $ 91,685 $ 27,855 $ 25,811
State taxes, net of federal tax benefit 6,840 1,858 951
Reversal of excess tax accruals (7,993) -- --
Non-deductible goodwill amortization 2,003 1,976 --
Other (1,584) 5 1,350
------------ ------------ ------------
$ 90,951 $ 31,694 $ 28,112
============ ============ ============
State net operating loss carryforwards were utilized as follows: $235.0
million in 2000, $12.4 million in 1999 and $13.5 million in 1998. At December
31, 2000, certain subsidiaries had net operating loss carryforwards available
ranging from approximately $890,000 to $29.4 million in various state and local
jurisdictions. Substantial portions of the related deferred tax assets are
offset by valuation allowances. The carryforwards at December 31, 2000 expire in
various years through 2014.
Deferred income taxes reflect the net effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets, in thousands, are as follows:
December 31, December 26,
2000 1999
---- ----
Deferred tax liabilities:
Property, plant and equipment $ 12,212 $ 12,518
Intangibles 18,592 11,321
Retiree medical 892 259
-------- --------
Total deferred tax liabilities 31,696 24,098
Deferred tax assets:
Net operating loss carryforwards 2,190 3,878
Other 3,505 5,020
-------- --------
Total deferred tax assets 5,695 8,898
Valuation allowance (1,954) (2,370)
-------- --------
Net deferred tax assets 3,741 6,528
-------- --------
Net deferred tax liabilities $ 27,955 $ 17,570
======== ========
44
JOURNAL REGISTER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. INCOME TAXES (CONTINUED)
As part of the acquisitions in 1999, the Company recorded net deferred tax
liabilities of approximately $69,000. The Company's valuation allowances for
deferred tax assets decreased by $416,000 in 2000, and increased by $1.3 million
in 1999. The Company's federal income tax returns have not been examined by the
Internal Revenue Service.
10. COMMITMENTS AND CONTINGENCIES
The Company leases office space and equipment under noncancellable
operating leases. These leases contain several renewal options for periods up to
five years. The Company's future minimum lease payments under operating leases
at December 31, 2000 are as follows:
(In thousands)
2001...................................... $1,816
2002...................................... $1,347
2003...................................... $1,153
2004...................................... $ 969
2005...................................... $ 505
Thereafter................................ $ --
Total rent expense was $3.0 million, $3.3 million and $3.1 million for the
years ended December 31, 2000, December 26, 1999 and December 31, 1998,
respectively.
In 1999, the Company began the planning phases for the construction of a
new Philadelphia printing facility. In conjunction with the Philadelphia plant,
the Company entered into agreements for the construction of a new building and
printing press. The aggregate capital expenditures related to the production
facility is approximately $35.4 million with an estimated in-service date in the
fourth quarter of 2001.
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.
11. ACQUISITIONS AND DISPOSITIONS
On October 24, 2000, the Company sold substantially all the assets of its
Alton, Illinois newspaper, THE TELEGRAPH ("Alton") and reported a pretax gain of
$39.6 million on the sale ($24.6 million after-tax). Proceeds of the sale were
used to reduce debt, repurchase shares, make a strategic acquisition in the
Company's Greater Philadelphia cluster and for general corporate purposes.
On August 10, 2000, the Company completed its sale of substantially all of
the assets of the Suburban Newspapers of Greater St. Louis and all of the issued
and outstanding capital stock of The Ladue News, Inc. (collectively, "St.
Louis"). The Suburban Newspapers of Greater St. Louis consisted of 38 free and 2
paid weekly newspapers with a non-daily distribution of approximately 1.6
million in the greater St. Louis area. The Ladue News published a weekly
newspaper serving approximately 40,000 households in St. Louis. The Company
reported a pre-tax gain of $141.1 million ($88.4 million after-tax), which is
subject to the finalization of customary purchase price adjustments and closing
costs related to the sale. All of the proceeds were used to reduce the Company's
outstanding debt.
On June 7, 1999, the Company acquired certain assets and liabilities of
THE FARMINGTON VALLEY POST in Avon, Connecticut, a suburban monthly newspaper.
On July 13, 1999, the Company acquired certain assets and liabilities of TOWN
TALK SOUTHERN, TOWN TALK EASTERN and the DELAWARE COUNTY JOURNAL in Ridley,
Pennsylvania. On August 13, 1999, the Company acquired the stock of Hometown
News, Inc. in West Warwick, Rhode Island, comprised of a daily, weekly and three
non-daily publications. On September 1, 1999, the Company acquired certain
assets and liabilities of CONNECTICUT MAGAZINE in Trumbull, Connecticut, a
monthly publication. The Company applied the purchase method of accounting for
these transactions.
45
JOURNAL REGISTER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. ACQUISITIONS AND DISPOSITIONS (CONTINUED)
Accordingly, the total acquisition cost was allocated to the tangible assets and
liabilities based on their relative estimated fair value on the effective dates
of the acquisitions of approximately $2.1 million and $800,000, respectively. In
connection with these acquisitions, intangible assets of approximately $14.1
million were recorded for the excess of the purchase price over the value of
identifiable net assets and are being amortized according to the Company's
policy. The results of the acquired companies have been included in the
consolidated financial statements since the acquisition dates.
On January 2, 1998, the Company acquired for approximately $3.8 million
certain assets and liabilities of HVM, L.L.C. in New Milford, Connecticut, which
publishes a group of newspapers, shoppers and monthly magazines. The Company
applied the purchase method of accounting for this transaction.
On March 9, 1998, the Company acquired THE SARATOGIAN, a daily newspaper
in Saratoga Springs, New York, and the COMMUNITY NEWS, a weekly newspaper
serving Clifton Park, New York. The Company applied the purchase method of
accounting for this transaction.
On July 15, 1998, the Company completed its acquisition of the
Pennsylvania, New York and Ohio newspaper businesses of The Goodson Newspaper
Group (including Mark Goodson Enterprises, Ltd.) for approximately $300 million
in cash (the "Goodson Acquisition"). The Company applied the purchase method of
accounting for this transaction. Accordingly, the total acquisition cost was
allocated to the tangible assets and liabilities acquired based upon their
estimated fair market value on the effective date of the acquisition,
approximately $17.1 million and $7.9 million, respectively. Intangible assets of
approximately $300 million were recorded for the subscriber lists and excess of
the purchase price over the value of identifiable net assets and are being
amortized in accordance with the Company's policy.
The following table presents the unaudited pro forma results of operations
of the Company as though the Goodson Acquisition occurred as the beginning of
the period presented:
(In thousands, except per share amounts)
DECEMBER 31, 1998
Net revenues $ 464,330
Income before extraordinary item $ 40,413
Net income $ 35,918
Net income per share (basic and diluted):
Income before extraordinary item $ .83
Net income $ .74
The pro forma results are not necessarily indicative of what actually
would have occurred if the acquisition had been in effect for the entire period
presented and are not intended to be an indication of future results.
On September 21, 1998, the Company completed its acquisition of Taconic
Media, Dutchess County, New York. The Company applied the purchase method of
accounting for this transaction. Accordingly, the total acquisition cost was
allocated to the assets and liabilities based on the relative estimated fair
values on the effective date of the acquisition.
Intangible assets of $344.0 million related to the aforementioned 1998
acquisitions were recorded and are being amortized according to the Company's
policy. The results of the acquired companies have been included in the
consolidated financial statements since the acquisition dates.
46
JOURNAL REGISTER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. SUBSEQUENT EVENTS (UNAUDITED)
Since December 31, 2000 and as of March 27, 2001, the Company, in
accordance with its stock repurchase program, has repurchased an additional
2,098,400 million shares of its Common Stock on the open market at a total cost
of approximately $33.9 million. Shares under the program are to be repurchased
at management's discretion, either in the open market or in privately negotiated
transactions.
The decision to repurchase stock depends on price, market conditions and
other factors. There is no minimum number of shares to be purchased under the
program. Purchases under the program will be financed with the Company's free
cash flow or borrowings under the Company's Revolving Credit Facility.
On January 31, 2001, the Company completed the sale of substantially all
the assets of THE TIMES REPORTER, Dover/NewPhiladelphia (including Midwest
Offset, one of the Company's commercial printing companies), and THE
INDEPENDENT, Massillon, Ohio. Total daily circulation of the two newspapers is
approximately 38,100.
On January 31, 2001, the Company completed the acquisition of the
Pennsylvania and New Jersey region newspaper operations from Chesapeake
Publishing Corporation's Mid-Atlantic Division. Total non-daily distribution of
the 13 publications is approximately 90,000.
On February 21, 2001, the Company's Board of Directors authorized the
granting of an additional 1,500,000 shares of Common Stock to be used under the
Company's 1997 Stock Incentive Plan.
47
JOURNAL REGISTER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of operations for
years ended December 31, 2000 and December 26, 1999:
March June September(1) December(1)(2)
--------- --------- ------------ --------------
(In thousands, except per share data)
2000
- ----
Revenues $ 113,207 $ 124,093 $ 112,943 $ 113,726
Operating income $ 27,821 $ 37,470 $ 31,147 $ 32,818
Net income $ 8,472 $ 14,285 $ 108,073 $ 38,551
Net income per common share:
Basic $ 0.19 $ 0.32 $ 2.39 $ 0.85
Diluted $ 0.19 $ 0.32 $ 2.37 $ 0.85
1999
- ----
Revenues $ 109,902 $ 121,166 $ 119,545 $ 118,952
Operating income $ 26,749 $ 35,982 $ 32,509 $ 36,692
Net income $ 7,940 $ 13,852 $ 11,515 $ 14,358
Net income per common
share:
(basic and diluted) $ 0.17 $ 0.30 $ 0.25 $ 0.31
- ----------------------------
(1) The amounts reported above include the operating results of St. Louis
from January 1, 1999 through August 10, 2000, and Alton from January 1,
1999 through October 24, 2000. Net income and net income per common
share also include after-tax gains of $88.4 million and $24.6 million on
the sale of St. Louis and Alton in the third and fourth quarters of
2000, respectively (See Note 11, Acquisitions and Dispositions).
(2) The December 1999 quarterly results above reflect operations for the
period October 1, 1999 through December 26, 1999.
48
JOURNAL REGISTER COMPANY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Balance at
Beginning Charges to Balance at
of Costs and of
Description Period Adjustments(1) Expenses Deductions(2) Period
----------- ---------- -------------- ---------- ------------- ----------
YEAR ENDED DECEMBER 31, 2000
Allowance for doubtful accounts $6,293 $(604) $4,195 $6,441 $3,443
Valuation allowance for deferred
tax assets $2,370 -- -- $416 $1,954
YEAR ENDED DECEMBER 26, 1999
Allowance for doubtful accounts $4,632 $141 $4,257 $2,737 $6,293
Valuation allowance for deferred
tax assets $1,082 -- $1,288 -- $2,370
YEAR ENDED DECEMBER 31, 1998
Allowance for doubtful accounts $4,055 $1,092 $4,464 $4,979 $4,632
Valuation allowance for deferred
tax assets $1,792 -- -- $710 $1,082
- ----------------------------
(1) Allowance for doubtful account adjustments related to 2000 dispositions and
1999 and 1998 acquisitions.
(2) Includes the write-off of uncollectable accounts and a reduction in the
valuation allowance for deferred tax assets.
S-1
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information with respect to executive officers of the Company is presented
in Item 4 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 2001 Annual
Meeting of Stockholders (the "2001 Proxy Statement") is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION.
Information appearing under the caption "Executive Compensation" in the
2001 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" in the 2001 Proxy Statement is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information appearing under the caption "Certain Transactions" in the 2001
Proxy Statement is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. FINANCIAL STATEMENTS.
--------------------
The financial statements are included in Part II, Item 8 of this Report.
2. FINANCIAL STATEMENT SCHEDULES AND SUPPLEMENTARY INFORMATION REQUIRED
TO BE SUBMITTED.
--------------------------------------------------------------------
Schedule of Valuation and Qualifying Accounts on Schedule II are included
in Part II, Item 8 of the 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.
-------------------
A report on Form 8-K was filed by the Company on December 5, 2000 giving
advance notification of the Company's live Web cast presentation at the
Credit Suisse First Boston Media Week Conference.
49
(c) INDEX TO EXHIBITS.
------------------
The following is a list of all Exhibits filed as part of this Report:
EXHIBIT NO. DESCRIPTION
----------- -----------
*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).
*3(i) Amended and Restated Certificate of Incorporation (filed as
Exhibit 3(i) to Journal Register Company's Form 10-Q/A
Amendment No. 1 for the fiscal quarter ended June 30, 1997
(the "June 1997 Form 10-Q")).
*3(ii) Amended and Restated By-laws (filed as Exhibit 3(ii) to the
September 1999 Form 10-Q).
*4.1 Company Common Stock Certificate (filed as Exhibit 4.1 to
Journal Register Company's Registration Statement on Form S-1,
Registration No. 333-23425 (the "Form S-1")).
*10.1 1997 Stock Incentive Plan (filed as Exhibit 10.2 to the June
1997 Form 10-Q).+
*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 Voting 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 10.5 to the June 1997 Form 10-Q).
*10.5 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).
*10.6 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
*10.7 Bank, as administrative agent for the lenders (filed as
Exhibit 10.7 to the September 30, 1998 Form 10-Q).
Asset Sale and Purchase Agreement, dated June 24, 2000, among
Journal Register Company, Journal Register East, Inc.,
Suburban Newspapers of Greater St. Louis, LLC, Journal
Company, Inc., Pulitzer Inc. and SLSJ LLC (filed as Exhibit 2
to the Company's Form 8-K, dated August 25, 2000).
**21.1 Subsidiaries of Journal Register Company.
**23.1 Consent of Ernst & Young LLP.
**24 Power of Attorney (appears on signature page).
**27.1 Financial Data Schedule.
- ------------------
+ Management contract or compensatory plan or arrangement.
* Incorporated by reference.
** Filed herewith.
50
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 27th day of March 2001.
JOURNAL REGISTER COMPANY
By: /S/ 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 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 27th day of March 2001.
SIGNATURE TITLE(S)
--------- --------
/S/ ROBERT M. JELENIC Chairman, President, Chief Executive
- --------------------------------------- Officer and Director (Principal
Robert M. Jelenic Executive Officer)
/S/ JEAN B. CLIFTON Executive Vice President, Chief
- --------------------------------------- Financial Officer (Principal Financial
Jean B. Clifton and Accounting Officer), Secretary and
Director
/S/ JOHN L. VOGELSTEIN Director
- ---------------------------------------
John L. Vogelstein
/S/ DOUGLAS M. KARP Director
- ---------------------------------------
Douglas M. Karp
/S/ GARY D. NUSBAUM Director
- ---------------------------------------
Gary D. Nusbaum
/S/ JOHN R. PURCELL Director
- ---------------------------------------
John R. Purcell
/S/ JOSEPH A. LAWRENCE Director
- ---------------------------------------
Joseph A. Lawrence
51
EXHIBIT INDEX
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).
*3(i) Amended and Restated Certificate of Incorporation (filed as
Exhibit 3(i) to Journal Register Company's Form 10-Q/A
Amendment No. 1 for the fiscal quarter ended June 30, 1997
(the "June 1997 Form 10-Q")).
*3(ii) Amended and Restated By-laws (filed as Exhibit 3(ii) to the
September 1999 Form 10-Q).
*4.1 Company Common Stock Certificate (filed as Exhibit 4.1 to
Journal Register Company's Registration Statement on Form S-1,
Registration No. 333-23425 (the "Form S-1")).
*10.1 1997 Stock Incentive Plan (filed as Exhibit 10.2 to the June
1997 Form 10-Q).+
*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 Voting 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 10.5 to the June 1997 Form 10-Q).
*10.5 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).
*10.6 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
*10.7 Bank, as administrative agent for the lenders (filed as
Exhibit 10.7 to the September 30, 1998 Form 10-Q).
Asset Sale and Purchase Agreement, dated June 24, 2000, among
Journal Register Company, Journal Register East, Inc.,
Suburban Newspapers of Greater St. Louis, LLC, Journal
Company, Inc., Pulitzer Inc. and SLSJ LLC (filed as Exhibit 2
to the Company's Form 8-K, dated August 25, 2000).
**21.1 Subsidiaries of Journal Register Company.
**23.1 Consent of Ernst & Young LLP.
**24 Power of Attorney (appears on signature page).
**27.1 Financial Data Schedule.
- ---------------
+ Management contract or compensatory plan or arrangement.
* Incorporated by reference.
** Filed herewith.