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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from ______ to ______
Commission File Number: 1-12955
JOURNAL REGISTER COMPANY
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 22-3498615
(State or Other Jurisdiction of Incorporation (I.R.S. Employer
or Organization) Identification No.)
50 WEST STATE STREET, TRENTON, NEW JERSEY 08608-1298
(Address of Principal Executive Offices) (Zip Code)
(609) 396-2200
(Registrant's Telephone Number, Including Area Code)
_______________________________________________________
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
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. Yes X No
-- --
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: common stock, $.01 par value
per share 41,584,689 shares outstanding (exclusive of treasury shares) as of
August 13, 2002.
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JOURNAL REGISTER COMPANY
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION
- ------- ---------------------
PAGE NO.
--------
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets............................................................1
Condensed Consolidated Statements of Income......................................................2
Condensed Consolidated Statements of Cash Flows..................................................3
Notes to Condensed Consolidated Financial Statements.............................................4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............9
Item 3. Quantitative and Qualitative Disclosures About Market Risk......................................16
PART II. OTHER INFORMATION
- -------- -----------------
Item 4. Submission of Matters to a Vote of Security Holders.............................................17
Item 6. Exhibits and Reports on Form 8-K................................................................17
Signature ................................................................................................18
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
--------------------
JOURNAL REGISTER COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
JUNE 30, DECEMBER 30,
DOLLARS IN THOUSANDS 2002 2001
- --------------------------------------------------------------------------------------- ----------- -----------
ASSETS:
Current assets:
Cash and cash equivalents $ 38 $ 110
Accounts receivable, less allowance for doubtful
accounts of $8,093 in 2002 and $6,365 in 2001 46,280 49,920
Inventories 6,486 5,535
Deferred income taxes 4,229 3,962
Other current assets 7,816 7,046
----------- -----------
Total current assets 64,849 66,573
Property, plant and equipment:
Land 10,408 10,408
Buildings and improvements 70,433 69,448
Machinery and equipment 164,550 161,784
Construction and equipment installation in progress 4,898 3,373
----------- -----------
250,289 245,013
Less accumulated depreciation (127,241) (120,573)
----------- -----------
123,048 124,440
Goodwill, net of accumulated amortization of $63,210 in 2002 and 2001 497,666 492,349
Other intangible assets, net of accumulated amortization of $7,715 in 2002
and $7,021 in 2001 12,147 12,841
Other assets 15,535 14,968
----------- -----------
Total assets $ 713,245 $ 711,171
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT:
Current liabilities:
Current maturities of long-term debt $ 31,676 $ 30,254
Accounts payable 12,655 15,988
Accrued interest 3,733 3,791
Deferred subscription revenue 10,345 9,750
Accrued salaries and vacation 5,477 5,266
Fair market value of hedges 3,261 5,715
Other accrued expenses and current liabilities 20,626 22,367
----------- -----------
Total current liabilities 87,773 93,131
Senior debt, less current maturities 468,823 492,517
Deferred income taxes 42,508 35,933
Accrued retiree benefits and other liabilities 11,399 12,114
Income taxes payable 113,185 113,674
Commitments and contingencies
Stockholders' deficit:
Common stock, $.01 par value per share, 300,000,000 shares authorized,
48,437,581 issued at June 30, 2002 and December 30, 2001 484 484
Additional paid-in capital 358,242 358,263
Accumulated deficit (265,593) (288,643)
----------- -----------
Less treasury stock, shares at cost, 93,133 70,104
2002- 6,855,033; 2001 - 6,932,050 (100,647) (101,778)
Accumulated other comprehensive loss, net of tax (2,929) (4,524)
----------- -----------
Net stockholders' deficit (10,443) (36,198)
----------- -----------
Total liabilities and stockholders' deficit $ 713,245 $ 711,171
=========== ===========
SEE ACCOMPANYING NOTES.
1
JOURNAL REGISTER COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
JUNE 30, JULY 1, JUNE 30, JULY 1,
IN THOUSANDS, EXCEPT PER SHARE DATA 2002 2001 2002 2001
- -------------------------------------------------------- ----------- ----------- ----------- ------------
Revenues:
Advertising $ 77,691 $ 72,774 $ 146,628 $ 141,076
Circulation 22,793 21,355 45,631 43,171
--------- -------- --------- ---------
Newspaper revenues 100,484 94,129 192,259 184,247
Commercial printing and other 5,359 4,573 10,217 9,392
--------- -------- --------- ---------
Total revenues 105,843 98,702 202,476 193,639
Operating expenses:
Salaries and employee benefits 37,993 33,917 75,128 67,434
Newsprint, ink and printing charges 8,059 9,798 15,625 19,155
Selling, general and administrative 13,374 10,223 26,629 21,912
Depreciation and amortization 3,798 6,431 7,531 12,985
Other 14,185 13,077 28,011 26,036
--------- -------- --------- ---------
Total operating expenses 77,409 73,446 152,924 147,522
Operating income 28,434 25,256 49,552 46,117
Net interest expense and other (6,412) (7,708) (12,825) (15,981)
Gain on sale of newspaper properties - - - 32,212
--------- -------- --------- ---------
Income before provision for income taxes and
equity interest 22,022 17,548 36,727 62,348
Provision for income taxes 8,204 6,824 13,677 1,889
--------- -------- --------- ---------
Income before equity interest 13,818 10,724 23,050 60,459
Equity interest - (330) - (660)
--------- -------- --------- ---------
Net income $ 13,818 $ 10,394 $ 23,050 $ 59,799
========= ======== ========= =========
Net income per share:
Basic $ 0.33 $ 0.25 $ 0.55 $ 1.39
Diluted $ 0.33 $ 0.25 $ 0.54 $ 1.38
Weighted average shares outstanding:
Basic 41,565 42,102 41,545 42,896
Diluted 42,494 42,417 42,412 43,194
SEE ACCOMPANYING NOTES.
2
JOURNAL REGISTER COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
TWENTY-SIX WEEKS ENDED
JUNE 30, JULY 1,
DOLLARS IN THOUSANDS 2002 2001
- ---------------------------------------------------------------------------------------- ------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 23,050 $ 59,799
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for losses on accounts receivable 2,128 1,805
Depreciation and amortization 7,531 12,985
Change in deferred income taxes 5,449 3,239
Loss on equity investment - 660
Gain on sale of newspaper properties - (32,212)
Other, net (5,667) (21,645)
----------- ----------
Net cash provided by operating activities 32,491 24,631
CASH FLOWS FROM INVESTING ACTIVITIES:
Net additions to property, plant and equipment (5,137) (11,754)
Net proceeds (payments) for sales and purchases of newspaper properties (6,264) 24,020
----------- ----------
Net cash (used in) provided by investing activities (11,401) 12,266
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings of senior debt (22,272) 5,387
Issuance of common stock for stock option exercises 1,110 132
Purchase of common stock for treasury - (48,775)
----------- ----------
Net cash used in financing activities (21,162) (43,256)
----------- ----------
Decrease in cash and cash equivalents (72) (6,359)
Cash and cash equivalents, beginning of period 110 6,495
----------- ----------
Cash and cash equivalents, end of period $ 38 $ 136
=========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 12,467 $ 17,541
Income taxes $ 9,009 $ 8,921
SEE ACCOMPANYING NOTES
3
JOURNAL REGISTER COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002
(UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
The accompanying consolidated financial statements include Journal
Register Company (the "Company") and all of its wholly owned subsidiaries. The
Company primarily publishes 23 daily and 224 non-daily newspapers serving
markets in Greater Philadelphia, Connecticut, Greater Cleveland, Central New
England and the Capital-Saratoga and Mid-Hudson regions of New York. The Company
also owns and manages commercial printing operations in Connecticut and
Pennsylvania. In addition, the Company currently operates 139 individual Web
sites featuring the Company's daily newspapers and non-daily publications.
The Company has authorized 1,000,000 shares of Preferred Stock, none of
which were issued or outstanding during the periods for which the financial
statements are presented.
The condensed consolidated interim financial statements included herein
have been prepared by the Company, without audit, in accordance with accounting
principles generally accepted in the United States ("GAAP") and pursuant to the
rules and regulations of the Securities and Exchange Commission. The condensed
consolidated interim financial statements do not include all the information and
footnote disclosure required by GAAP for complete financial statements. In the
opinion of the Company's management, the accompanying unaudited condensed
consolidated financial statements contain all material adjustments (consisting
only of normal recurring accruals) necessary to present fairly its financial
position as of June 30, 2002 and December 30, 2001 and the results of its
operations and cash flows for the thirteen and twenty six week periods ended
June 30, 2002 and July 1, 2001. These financial statements should be read in
conjunction with the December 30, 2001 audited Consolidated Financial Statements
and Notes thereto. The interim operating results are not necessarily indicative
of the results to be expected for an entire year.
2. EARNINGS PER COMMON SHARE
The following table sets forth the computation of weighted-average
shares outstanding for calculating both basic and diluted earnings per share:
THIRTEEN WEEKS ENDED TWENTY SIX WEEKS ENDED
JUNE 30, JULY 1, JUNE 30, JULY 1,
IN THOUSANDS 2002 2001 2002 2001
- ------------------------------------------------------------ ------------- ------------ ------------- -------------
Weighted-average shares for basic earnings per share 41,565 42,102 41,545 42,896
Effect of dilutive securities: employee stock options 929 315 867 298
------------- ------------ ------------- -------------
Adjusted weighted-average shares for diluted earnings per
share 42,494 42,417 42,412 43,194
============= ============ ============= =============
Options to purchase approximately 1.5 million shares of common stock at
a range of $21.67 to $22.50 per share were outstanding during the thirteen week
period ended June 30, 2002. During the twenty-six week period ended June 30,
2002, options to purchase approximately 2.2 million shares of common stock at a
range of $21.00 to $22.50 per share were outstanding. These outstanding options
were not included in the computation of diluted EPS in either period because the
exercise prices were greater than the average market price of the common shares.
Similarly, options to purchase 1.5 million shares of common stock at a range of
$16.81 to $22.50 were outstanding during the thirteen and twenty-six week
periods ended July 1, 2001 but were not included in the computation of the
diluted EPS because the exercise prices of those options were greater than the
average market price of the common shares.
4
JOURNAL REGISTER COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002
(UNAUDITED)
3. COMMON STOCK
The Company's Board of Directors has authorized the use of up to $100
million per year for the repurchase of the Company's Common Stock. Shares under
the stock repurchase program are to be purchased at management's discretion,
either in the open market or in privately negotiated transactions. Since
December 26, 1999, and as of June 30, 2002, the Company had repurchased
approximately 7 million shares at a total cost of approximately $102.2 million.
4. ACQUISITIONS AND DISPOSITIONS
The Company applies the purchase method of accounting for acquisitions.
Acquisitions and dispositions of newspaper properties are subject to the
finalization of customary purchase price adjustments and closing costs within
one year from the date of acquisition or disposition. Proceeds from the sale of
the newspaper properties in 2001 were used to reduce the Company's outstanding
debt, purchase treasury shares, consummate strategic acquisitions, and for
general corporate purposes.
On March 18, 2002, the Company completed the acquisition of the assets
of News Gleaner Publications, Inc. and Big Impressions Web Printing, Inc., which
are based in Northeast Philadelphia, Pennsylvania. The News Gleaner Publications
include eight weekly newspapers, with total circulation of more than 121,000,
serving northeast Philadelphia and seven monthly publications, with total
circulation of nearly 59,000, serving Montgomery County, Pennsylvania. On March
22, 2002, the Company completed the acquisition of the assets of the Essex,
Connecticut-based Hull Publishing, Inc. This acquisition includes one weekly
newspaper with total circulation of 5,000, and two annually produced magazines
with total distribution of approximately 20,000.
On October 25, 2001, the Company completed the acquisition of THE
LITCHFIELD COUNTY TIMES, a weekly newspaper based in New Milford, Connecticut,
with circulation of approximately 15,000. The acquisition also includes three
lifestyle magazines serving Connecticut and New York, with total monthly
distribution of approximately 90,000. On September 14, 2001, the Company
completed the acquisition of the assets of THE REPORTER, a 19,000-circulation
daily newspaper based in Lansdale, Pennsylvania. On August 1, 2001, the Company
completed the acquisition of the assets of Roe Jan Independent Publishing, Inc.,
which is based in Hillsdale, New York. Total distribution of the two non-daily
publications included in the Roe Jan purchase is approximately 26,000. On June
7, 2001, the Company completed the acquisition of the Montgomery Newspaper Group
operations, which is based in Fort Washington, Pennsylvania, from Metroweek
Corporation. Total distribution of these 24 non-daily publications is
approximately 283,000. On January 31, 2001, the Company completed the
acquisition of the Pennsylvania and New Jersey newspaper operations from
Chesapeake Publishing Corporation's Mid-Atlantic Division ("Chesapeake"). Total
non-daily distribution of the 13 publications acquired from Chesapeake is
approximately 90,000.
On January 31, 2001, the Company completed the sale of the assets of
THE TIMES REPORTER, Dover/New Philadelphia, Ohio (including Midwest Offset, one
of the Company's commercial printing companies), and THE INDEPENDENT, Massillon,
Ohio and reported a pre-tax gain of $32.2 million ($42.1 million gain after-tax)
on the sale.
5. HEDGING ACTIVITY
As of January 1, 2001, the Company adopted Statement of Financial
Accounting Standard ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities," as amended.
In accordance with the terms of its Credit Agreement, 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 due to fluctuations in the variable interest rates on which the
interest on the outstanding debt is calculated. The minimum requirement varies
depending on the Company's Total Leverage Ratio, as defined in the Credit
Agreement. From time to time the Company may enter into additional IRPAs for
nominal amounts on the outstanding debt that will,
5
JOURNAL REGISTER COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002
(UNAUDITED)
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's IRPAs effective as of June 30, 2002 included swap
agreements with a notional principal amount of $175 million, which expire on
October 29, 2002.
In addition to IRPAs noted above, the Company entered into a no cost
interest rate collar hedge ("the collar") on November 9, 2001. The collar
establishes an interest rate ceiling ("CAP") and an interest rate floor at no
cost to the Company. The CAP on the Company's collar is 6.0 percent and the
floor averages approximately 2.66 percent and is based upon the 90-day LIBOR. In
the event 90-day LIBOR exceeds 6.0 percent, the Company will receive cash from
the issuer to compensate for the rate in excess of the 6 percent CAP. If the
90-day LIBOR is lower than 2.66 percent, the Company will pay cash to the issuer
to compensate for the rate below the floor. The collar is effective on October
29, 2002 beginning at a notional amount of $170 million. The collar amortizes
over two years to a notional amount of $135 million and terminates on October
29, 2004.
The debt obligations hedged by the IRPAs bear interest at a variable
LIBOR interest rate. In accordance with the terms of the IRPAs the Company pays
or receives the differential between the variable LIBOR rate and a fixed rate of
interest. The IRPA is structured to coincide with interest payments made on the
debt obligations and is placed with large multinational banks. The fixed
interest rates of the IRPAs at June 30, 2002 are approximately 5.85%. The
Company has designated its current IRPAs to be cash flow hedges.
Upon adoption of SFAS 133 the fair market value of the derivative is
reported as a transition adjustment to Other Comprehensive Income/Loss (See Note
6). On January 1, 2001, the Company recorded a deferred transition gain of
$120,000 after tax. The interest rate swaps were fully effective in hedging the
changes in cash flows related to the debt obligation during the thirteen and
twenty six week periods ending June 30, 2002 and July 1, 2001.
6. COMPREHENSIVE INCOME
The components of comprehensive income for the thirteen and twenty six
weeks ended June 30, 2002 and July 1, 2001 are as follows:
THIRTEEN WEEKS ENDED TWENTY SIX WEEKS ENDED
JUNE 30, JULY 1, JUNE 30, JULY 1,
DOLLARS IN THOUSANDS 2002 2001 2002 2001
- ------------------------------------------------------------------ ----------- ------------ ------------ -----------
Net income $ 13,818 $ 10,394 $ 23,050 $ 59,799
Transition adjustment for cumulative effect of adopting SFAS 133 - - - 120
Reclassification of unrealized gains (losses) on fully effective
hedges to net income 1,131 309 3,304 231
Net change in fair value of fully effective hedges (749) (773) (1,709) (3,318)
----------- ------------ ------------ -----------
Comprehensive income $ 14,200 $ 9,930 $ 24,645 $ 56,832
=========== ============ ============ ===========
Accumulated other comprehensive loss, net of tax, as of June 30, 2002
and December 30, 2001 was approximately $2.9 million and $4.5 million,
respectively. These balances primarily consist of net losses from changes in the
fair value of the Company's IRPAs and minimum pension liabilities.
6
JOURNAL REGISTER COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002
(UNAUDITED)
7. NEW ACCOUNTING PRONOUNCEMENTS
On July 25, 2001, the Financial Accounting Standards Board
("FASB") issued SFAS 141, BUSINESS COMBINATIONS, and SFAS 142, GOODWILL AND
OTHER INTANGIBLE ASSETS. SFAS 141, which became effective commencing July 1,
2001, eliminated the pooling-of-interest method of accounting for business
combinations and clarified the criteria to recognize intangible assets
separately from goodwill. Under SFAS 142, goodwill and indefinite lived
intangible assets are no longer amortized but are reviewed annually or more
frequently, if required, for impairment. Separable intangible assets that are
not deemed to have an indefinite life will continue to be amortized over their
useful lives. During fiscal 2001, the Company adopted the amortization
provisions of SFAS 142 which currently apply to goodwill and intangible assets
acquired after June 30, 2001. With respect to goodwill and intangible assets
acquired prior to July 1, 2001, the Company adopted SFAS 142 in fiscal year
2002, which began December 31, 2001. The required analysis of the Company's
Goodwill and indefinite lived intangible assets was completed as of June 30,
2002, and a determination was made that such assets were not impaired. Changes
in the carrying amounts of intangible assets are as follows:
AS OF JUNE 30, 2002 AS OF DECEMBER 30, 2001
------------------------------------------- -------------------------------------------
ACCUMULATED ACCUMULATED
DOLLARS IN THOUSANDS GROSS AMORTIZATION NET GROSS AMORTIZATION NET
--------------------------------- ------------ ---------------- ------------ ------------ ----------------- ----------
INTANGIBLE ASSETS SUBJECT TO
AMORTIZATION:
Customer and subscriber lists $ 6,595 $ (3,875) $ 2,720 $ 6,595 $ (3,467) $ 3,128
Non-compete covenants 2,294 (1,562) 732 2,294 (1,553) 741
Debt issuance costs 4,573 (2,186) 2,387 4,573 (1,909) 2,664
------------ ---------------- ------------ ------------ ----------------- ----------
Total 13,462 (7,623) 5,839 13,462 (6,929) 6,533
------------ ---------------- ------------ ------------ ----------------- ----------
INTANGIBLE ASSETS NOT SUBJECT TO
AMORTIZATION:
Goodwill 560,876 (63,210) 497,666 555,559 (63,210) 492,349
Mastheads 6,400 (92) 6,308 6,400 (92) 6,308
------------ ---------------- ------------ ------------ ----------------- ----------
Total 567,276 (63,302) 503,974 561,959 (63,302) 498,657
------------ ---------------- ------------ ------------ ----------------- ----------
Total Goodwill and
intangible assets $ 580,738 $(70,925) $ 509,813 $575,421 $ (70,231) $ 505,190
============ ================ ============ ============ ================= ==========
7
JOURNAL REGISTER COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002
(UNAUDITED)
Identifiable intangible assets include customer and subscriber lists,
non-compete covenants, and debt issuance costs, which have an estimable useful
life and are amortizable on a straight-line basis over their useful lives.
Indefinite lived intangible assets include Goodwill and Mastheads, which are not
amortizable. For the twenty six week period ended June 30, 2002, the change in
Goodwill relates to the acquisitions of newspaper properties (see Note 4) during
the period. For the thirteen weeks ended June 30, 2002 and July 1, 2001,
amortization expense for intangible assets was $347,250 and approximately $3.5
million respectively. For the twenty-six weeks ended June 30, 2002 and July 1,
2001, amortization expense for intangible assets was $694,500 and approximately
$7.0 million, respectively. Estimated amortization expense for each of the five
succeeding fiscal years for identifiable intangible assets and other assets is
as follows:
DOLLARS IN THOUSANDS
-----------------------
2002 $1,389
2003 1,389
2004 1,389
2005 1,389
2006 1,112
The pro forma results of operations for the thirteen and twenty six
week periods ended July 1, 2001 assuming the amortization provisions of SFAS
No. 142 were applied retroactively at January 1, 2001, are as follows:
THIRTEEN WEEKS TWENTY-SIX WEEKS
------------------------------------- -----------------------------------
NET INCOME PER SHARE NET INCOME PER SHARE
------------------------------------- -----------------------------------
NET NET
DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA INCOME BASIC DILUTED INCOME BASIC DILUTED
- ----------------------------------------------- --------- ------------ ------------ --------- ---------- ------------
Net income $ 10.4 $ 0.25 $ 0.25 $ 59.8 $ 1.39 $ 1.38
Add-back: amortization for
Goodwill and Mastheads, net of taxes 2.3 0.05 0.05 4.8 0.11 0.11
--------- ------------ ------------ --------- ---------- -----------
Adjusted net income $ 12.7 $ 0.30 $ 0.30 $ 64.6 $ 1.50 $ 1.49
========= ============ ============ ========= ========== ===========
In October 2001, the FASB issued SFAS No. 144, ACCOUNTING FOR
IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS. SFAS No. 144 supersedes SFAS No.
121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED
ASSETS TO BE DISPOSED OF, and addresses financial accounting and reporting for
the impairment or disposal of long-lived assets. This statement is effective for
fiscal years beginning after December 15, 2001. The Company adopted SFAS No. 144
for fiscal year 2002, which began on December 31, 2001 and such statement has
had no impact on the Company's financial position or results of operations since
its implementation.
8
JOURNAL REGISTER COMPANY
JUNE 30, 2002
(UNAUDITED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
-----------------------------------------------------------------------
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 June 30, 2002, the Company owned and operated 23 daily newspapers
and 224 non-daily publications strategically clustered in six geographic areas:
Greater Philadelphia; Connecticut; Greater Cleveland; Central New England; and
the Capital-Saratoga and Mid-Hudson regions of New York. As of June 30, 2002,
the Company had total paid daily circulation of approximately 560,000, total
paid Sunday circulation of approximately 525,000 and total non-daily
distribution of approximately 3.6 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 present, the Company
successfully completed 24 strategic acquisitions, acquiring 14 daily newspapers,
192 non-daily publications and four commercial printing companies, three of
which print a number of the non-daily publications and a third which is a
premium quality sheet-fed printing company.
On March 18, 2002, the Company completed the acquisition of the assets
of News Gleaner Publications, Inc. and Big Impressions Web Printing, Inc., which
are based in Northeast Philadelphia, Pennsylvania. The News Gleaner Publications
include eight weekly newspapers with total circulation of more than 121,000,
seven monthly publications with total circulation of nearly 59,000, and a
commercial printing operation. On March 22, 2002, the Company completed the
acquisition of the assets of the Essex, Connecticut-based Hull Publishing, Inc.
This acquisition includes one weekly newspaper with total circulation of 5,000
and two annually produced magazines with total distribution of approximately
20,000.
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 sale process, which was completed on
January 31, 2001, resulted in a strategic repositioning of the Company's
operation in six geographic clusters. The proceeds were used to reduce the
Company's outstanding debt, to repurchase shares and for strategic acquisitions.
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 portals for their markets. As of June 30, 2002, the
Company operated 139 individual Web sites featuring the Company's daily
newspapers and non-daily publications.
9
JOURNAL REGISTER COMPANY
JUNE 30, 2002
(UNAUDITED)
RESULTS OF OPERATIONS
THIRTEEN WEEK PERIOD ENDED JUNE 30, 2002 COMPARED TO THIRTEEN WEEK PERIOD ENDED
JULY 1, 2001
FOR COMPARISON PURPOSES, WHERE NOTED, THE COMPANY'S FINANCIAL RESULTS ARE
PRESENTED ON A SAME-STORE BASIS WHICH EXCLUDES THE RESULTS OF THE COMPANY'S
ACQUISITIONS COMPLETED IN 2001 AND 2002.
SUMMARY. Net income for the period ended June 30, 2002 was $13.8
million, or $0.33 per diluted share, versus $10.4 million, or $0.25 per diluted
share for the period ended July 1, 2001. Excluding goodwill amortization, as if
Statement of Financial Accounting Standards ("SFAS") No. 142 was adopted on
January 1, 2001, earnings for the second quarter of 2001 were $0.30 per diluted
share as compared to the $0.33 per diluted share reported for the 2002 second
quarter.
REVENUES. For the period ended June 30, 2002, revenues increased $7.1
million, or 7.2%, to $105.8 million. Newspaper revenues increased $6.4 million,
or 6.8%, to $100.5 million, principally due to advertising revenue, which
increased $4.9 million, or 6.8%, to $77.7 million. Commercial printing and other
revenues increased 786,000, or 17.2%, to $5.4 million and represented 5.1% of
the Company's revenues in the second quarter of 2002, as compared to 4.6% in the
second quarter of 2001. On-line revenues, included in advertising revenue, were
approximately $1.0 million and increased approximately 14.4% from the prior year
period.
SAME-STORE NEWSPAPER REVENUES. For the period ended June 30, 2002,
same-store revenues were even with the period ended July 1, 2001. Same-store
advertising revenues decreased $667,000 or 1.0%. Same-store circulation revenues
increased $384,000 or 1.8%.
SALARIES AND EMPLOYEE BENEFITS. Salaries and employee benefit expenses
were 35.9% of the Company's revenues in the period ended June 30, 2002, as
compared to 34.4% in the period ended July 1, 2001. Salaries and employee
benefits increased $4.1 million, or 12.0% in the period ended June 30, 2002 to
$38.0 million principally due to the impact of the Company's acquisitions and an
increase in employee benefit costs.
NEWSPRINT, INK AND PRINTING CHARGES. In the period ended June 30, 2002,
newsprint, ink and printing charges were 7.6% of the Company's revenues, as
compared to 9.9% in the period ended July 1, 2001. Newsprint, ink and printing
charges in the period ended June 30, 2002 decreased approximately $1.7 million,
or 17.7%, as compared to the period ended July 1, 2001. This reduction is
principally due to a reduction in unit costs of 26.1%, partially offset by
increased production as a result of acquisitions.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses were 12.6% and 10.4% of the Company's revenues in the
periods ended June 30, 2002 and July 1, 2001, respectively. Selling, general and
administrative expenses in the period ended June 30, 2002 increased $3.2
million, or 30.8%, to $13.4 million, principally as a result of the Company's
acquisitions.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
were 3.6% of the Company's revenues in the period ended June 30, 2002 as
compared to 6.5% in the period ended July 1, 2001. Depreciation and amortization
expenses in the period ended June 30, 2002 decreased $2.6 million or 40.9%, to
$3.8 million which is due primarily to the implementation of SFAS 142, which
eliminated the amortization of goodwill and indefinite lived intangible assets
at the beginning of fiscal year 2002.
OTHER EXPENSES. Other expenses were 13.4% and 13.2% of the Company's
revenues in the periods ended June 30, 2002 and July 1, 2001, respectively.
Other expenses increased $1.1 million, or 8.5%, to $14.2 million in the period
ended June 30, 2002 principally as a result of the Company's acquisitions.
OPERATING INCOME. Operating income was $28.4 million for the period
ended June 30, 2002 as compared to $25.3 million in the period ended July 1,
2001.
10
JOURNAL REGISTER COMPANY
JUNE 30, 2002
(UNAUDITED)
NET INTEREST AND OTHER EXPENSE. Net interest and other expense
decreased $1.3 million, or 16.8%, in the period ended June 30, 2002 as compared
to the period ended July 1, 2001, principally due to lower interest rates on the
Company's outstanding debt in the 2002 second quarter, offset partially by an
increase of approximately 4.9% in the Company's weighted average debt
outstanding.
PROVISION FOR INCOME TAXES. The Company's effective tax rate was 37.25%
for the period ended June 30, 2002 as compared to 38.89% for the period ended
July 1, 2001.
OTHER INFORMATION. EBITDA (which the Company defines as operating
income plus depreciation, amortization and other non-cash, special or
non-recurring charges) was $32.2 million for the period ended June 30, 2002, as
compared to $31.7 for the period ended July 1, 2001.
TWENTY-SIX WEEK PERIOD ENDED JUNE 30, 2002 COMPARED TO TWENTY-SIX WEEK PERIOD
ENDED JULY 1, 2001
FOR COMPARISON PURPOSES, WHERE NOTED, THE COMPANY'S FINANCIAL RESULTS ARE
PRESENTED ON A SAME-STORE BASIS WHICH EXCLUDES THE RESULTS OF THE OHIO
NEWSPAPERS SOLD IN JANUARY 2001 AND THE COMPANY'S ACQUISITIONS COMPLETED IN 2001
AND 2002.
SUMMARY. Net income for the period ended June 30, 2002 was $23.1
million, or $0.54 per diluted share, versus $59.8 million, or $1.38 per diluted
share for the period ended July 1, 2001. Excluding the gain on the sale of the
Company's two Ohio properties and eliminating goodwill amortization as if SFAS
No. 142 had been adopted on January 1, 2001, earnings for the twenty-six weeks
ended July 1, 2001 were $0.52 per diluted share as compared to the $0.54 per
diluted share reported for the twenty-six weeks ended June 30, 2002.
REVENUES. For the period ended June 30, 2002, revenues increased $8.8
million, or 4.6%, to $202.5 million. Newspaper revenues increased $8.0 million,
or 4.3%, to $192.3 million, principally due to advertising revenue, which
increased $5.6 million, or 3.9%, to $146.6 million. Commercial printing and
other revenues increased $825,000, or 8.8%, to $10.2 million and represented
5.0% of the Company's revenues in the period ended June 30, 2002, as compared to
4.9% in the period ended July 1, 2001. On-line revenues, included in advertising
revenue, were approximately $1.9 million and increased approximately 11.8% from
the prior year period.
SAME-STORE NEWSPAPER REVENUES. For the period ended June 30, 2002,
same-store newspaper revenues decreased $4.2 million, or 2.4%, to $175.4
million. Same-store advertising revenues decreased $4.9 million or 3.6%.
Same-store circulation revenues increased $667,000 or 1.5%.
SALARIES AND EMPLOYEE BENEFITS. Salaries and employee benefit expenses
were 37.1% of the Company's revenues in the period ended June 30, 2002, as
compared to 34.8% in the period ended July 1, 2001. Salaries and employee
benefits increased $7.7 million, or 11.4% in the period ended June 30, 2002 to
$75.1 million principally due to the impact of the Company's acquisitions and an
increase in employee benefit costs.
NEWSPRINT, INK AND PRINTING CHARGES. In the period ended June 30, 2002,
newsprint, ink and printing charges were 7.7% of the Company's revenues, as
compared to 9.9% in the period ended July 1, 2001. Newsprint, ink and printing
charges in the period ended June 30, 2002 decreased approximately $3.5 million,
or 18.4%, as compared to the period ended July 1, 2001. This reduction is
principally due to a reduction in unit costs of 23.7%, partially offset by
increased production as a result of acquisitions.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses were 13.2% and 11.3% of the Company's revenues in the
periods ended June 30, 2002 and July 1, 2001, respectively. Selling, general and
administrative expenses in the period ended June 30, 2002 increased $4.7
million, or 21.5%, to $26.6 million, principally as a result of the Company's
acquisitions.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
were 3.7% of the Company's revenues in the period ended June 30, 2002 as
compared to 6.7% in the period ended July 1, 2001. Depreciation and amortization
expenses in the period ended June 30, 2002 decreased $5.5 million or 42.0%, to
$7.5 million which is due primarily to the implementation of SFAS 142, which
eliminated the amortization of goodwill and indefinite lived intangible assets
at the beginning of fiscal year 2002.
11
JOURNAL REGISTER COMPANY
JUNE 30, 2002
(UNAUDITED)
OTHER EXPENSES. Other expenses were 13.8% and 13.4% of the Company's
revenues in the periods ended June 30, 2002 and July 1, 2001, respectively.
Other expenses increased $2.0 million, or 7.6%, to $28.0 million in the period
ended June 30, 2002 principally as a result of the Company's acquisitions.
OPERATING INCOME. Operating income was $49.6 million for the period
ended June 30, 2002 as compared to $46.1 million in the period ended July 1,
2001.
NET INTEREST AND OTHER EXPENSE. Net interest and other expense
decreased $3.2 million, or 19.7%, in the period ended June 30, 2002 as compared
to the period ended July 1, 2001, principally due to lower interest rates on the
Company's outstanding debt in the 2002 second quarter, offset partially by an
increase of approximately 5.6% in the Company's weighted average debt
outstanding.
GAIN ON SALE OF NEWSPAPER PROPERTIES. 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 companies), and THE INDEPENDENT, Massillon, Ohio and
reported a pretax gain of $32.2 million ($42.1 million after tax).
PROVISION FOR INCOME TAXES. The Company's effective tax rate was 37.24%
for the period ended June 30, 2002 as compared to 39.0% for the period ended
July 1, 2001, which excludes the effect of the gain on sale of newspaper
properties in the first quarter of 2001. A $9.9 million tax benefit on the gain
on sale of the Company's Dover/New Philadelphia and Massillon properties was
recorded in the first quarter of 2001 due to the realization of previously
unrecognized book/tax differences.
OTHER INFORMATION. EBITDA (which the Company defines as operating
income plus depreciation, amortization and other non-cash, special or
non-recurring charges) was $57.1 million in the period ended June 30, 2002, as
compared to $59.1 million for the period ended July 1, 2001.
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 and capital expenditures. The Company also believes that
cash flows from operations and future borrowings and its ability to issue common
stock as consideration for future acquisitions, will provide it with the
flexibility to fund its acquisition strategy and repurchase treasury shares
while continuing to meet its operating needs, capital expenditures and long-term
debt obligations.
CASH FLOWS FROM OPERATIONS. Net cash provided by operating activities
in the period ended June 30, 2002 was $32.5 million as compared to $24.6 million
in the period ended July 1, 2001.
CASH FLOWS FROM INVESTING ACTIVITIES. Net cash used in investing
activities was $11.4 million for the period ended June 30, 2002. Cash used in
investing activities was for funding the Company's acquisitions of two newspaper
properties further described in Note 4 to the Condensed Consolidated Financial
Statements and investments in property, plant and equipment. Net cash provided
by investing activities was $12.3 million for the period ended July 1, 2001,
primarily as a result of proceeds from the sale of the Company's Dover/New
Philadelphia and Massillon properties offset partially by funding for the
Company's acquisitions of two newspaper properties further described in Note 4
to the Condensed Consolidated Financial Statements and investments in property,
plant and equipment.
The Company has a capital expenditure program (excluding future
acquisitions) of approximately $13 million in place for 2002, which includes
spending on technology, including prepress and business systems, computer
hardware and software, buildings, physical plant, other machinery and equipment
and vehicles. The Company believes its capital expenditure program is sufficient
to maintain its current level and quality of operations. The Company reviews its
capital expenditure program periodically and modifies it as required to meet
current needs.
12
JOURNAL REGISTER COMPANY
JUNE 30, 2002
(UNAUDITED)
CASH FLOWS FROM FINANCING ACTIVITIES. Net cash used in financing
activities was $21.2 million in the period ended June 30, 2002, reflecting
repayments of senior debt offset partially by the issuance of common stock in
connection with options exercised. Net cash used in financing activities was
$43.3 million in the period ended July 1, 2001. This reflects the purchase of
treasury shares slightly offset by the borrowings of senior debt in the 2001
period.
DEBT AND DERIVATIVE ACTIVITY. On July 15, 1998, the Company entered
into a credit agreement (the "Credit Agreement") with a group of banks and other
financial institutions, led by J.P. Morgan Chase & Co. as administrative agent
for the lenders thereunder. The Credit Agreement provides for $500 million in
Term Loans and a $400 million Revolving Credit Facility. The proceeds from the
Credit Agreement were used to repay amounts outstanding under the prior senior
facilities and to purchase the Pennsylvania, New York and Ohio newspaper
business of The Goodson Newspaper Group for approximately $300 million. The
Credit Agreement also provides for an uncommitted, multiple draw term loan
facility (the "Incremental Facility") in the amount of up to $500 million, as
permitted by the administrative agent, to be repaid under conditions as defined
in the Credit Agreement.
The Term Loans mature on June 30, 2006 and September 30, 2006, and the
Revolving Credit Facility matures on June 30, 2006. Under the terms of the
Company's Credit Agreement net proceeds, as defined in the Credit Agreement,
from the sale of newspaper properties which are not reinvested within 365 days
must be used to prepay debt.
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 or increased as such ratio declines or increases,
respectively. The estimated fair value of the Term Loans and Revolving Credit
Facility approximates their carrying value.
An annual commitment fee is incurred on the average daily-unused
portion of the Revolving Credit Facility, payable quarterly in arrears, at a
percentage that varies from 0.375% to 0.250% based on the quarterly calculation
of the Total Leverage Ratio (as defined in the Credit Agreement).
The terms of the Credit Agreement require the Company to maintain
certain Interest Rate Protection Agreements ("IRPAs") on a portion of its debt,
to reduce the potential exposure of the Company's future cash flows due to
fluctuations in the variable interest rates. The minimum requirement varies
depending on the Company's Total Leverage Ratio (as defined in the Credit
Agreement). To fulfill 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. IRPAs currently in
effect as of June 30, 2002 included SWAP agreements with notional principal
amounts of $175 million which expire on October 29, 2002. The fixed interest
rates of these IRPAs at June 30, 2002 were approximately 5.85%.
The Company's weighted-average effective interest rate was
approximately 4.85% for the twenty-six weeks ended June 30, 2002. This interest
rate includes a $5.1 million pre-tax charge realized and reported as a component
of interest expense for the period ended June 30, 2002 related to the Company's
IRPAs in place during 2002.
In addition to IRPAs noted above, the Company entered into a no cost
interest rate collar hedge ("the collar") on November 9, 2001. The collar
establishes an interest rate ceiling ("CAP") and an interest rate floor at no
cost to the Company. The CAP on the Company's collar is 6.0 percent and the
floor averages approximately 2.66 percent and is based upon the 90-day LIBOR. In
the event 90-day LIBOR exceeds 6.0 percent, the Company will receive cash from
the issuer to compensate for the rate in excess of the 6 percent CAP. If the
90-day LIBOR is lower than 2.66 percent, the Company will pay cash to the issuer
to compensate for the rate below the floor. The collar is effective on October
29, 2002 beginning at a notional amount of $170 million. The collar amortizes
over two years to a notional amount of $135 million and terminates on October
29, 2004. From time to time the Company may enter into additional IRPAs. The
13
JOURNAL REGISTER COMPANY
JUNE 30, 2002
(UNAUDITED)
Company expects that each IRPA will be designated for all or a portion of the
principal balance and term of a specific debt obligation.
Upon adoption of SFAS 133, the fair market value of the derivative is
reported as a transition adjustment to Other Comprehensive Income/Loss ("OCI").
On January 1, 2001, the Company recorded a deferred pre-tax transition gain of
$198,600 (approximately $120,000 after-tax) as an adjustment to OCI. The
interest rate SWAPs were fully effective in hedging the changes in cash flows
related to the debt obligation during the twenty six-week period ending June 30,
2002. For the twenty six week periods ended June 30, 2002 and July 1, 2001, the
IRPAs resulted in realized pretax charges of $5.1 million, and $379,000,
respectively, that have been reported as a component of interest expense, in the
respective period. The total deferred loss relating to the IRPAs reported in OCI
is approximately $2.1 million (net of $1.1 million of deferred taxes).
SIGNIFICANT CONTRACTUAL OBLIGATIONS. As of June 30, 2002, the Company
had outstanding indebtedness under the Credit Agreement, due and payable in
installments through 2006, of $500.4 million, of which $347.4 million was
outstanding under the Revolving Credit Facility and $153.0 million was
outstanding under the Term Loans. In addition, the Company had approximately
$101.4 million of unused and available Revolving Credit Facility funds subject
to the terms of the Credit Agreement at June 30, 2002. The total unused balance
on the Revolving Credit Facility was $192.0 million as of June 30, 2002. The
remaining aggregate annual fiscal maturities payable under the Term Loans are as
follows:
FISCAL YEAR DOLLARS IN THOUSANDS
----------- --------------------
2002 $ 15,220
2003 34,147
2004 39,089
2005 76,794
2006 176,418
The Revolving Credit Facility is available until March 31, 2006.
Availability reduces each quarter through 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):
DOLLARS IN THOUSANDS PRINCIPAL AMOUNT
-------------------- ----------------
June 30, 2002 $ 55,000
June 30, 2003 65,000
June 30, 2004 100,000
June 30, 2005 180,000
The Term Loans and Revolving Credit Facility are secured by
substantially all of the assets of the Company and the common stock and assets
of the Company's subsidiaries. The Term Loans and Revolving Credit Facility
require compliance with certain covenants, which require, among other things,
maintenance of certain financial ratios, which may restrict among other things,
the Company's ability to declare dividends, purchase treasury stock, incur
additional indebtedness, create liens, sell assets, consummate mergers and make
capital expenditures, investments and acquisitions.
14
JOURNAL REGISTER COMPANY
JUNE 30, 2002
(UNAUDITED)
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 noncancellable
operating leases in effect as of December 31, 2001, are as follows:
FISCAL YEAR DOLLARS IN THOUSANDS
-------------------- ------------------------
2002 $2,117
2003 1,721
2004 1,348
2005 824
2006 256
Total rent expense was $825,000 and $697,000 for the thirteen weeks
ended June 30, 2002 and July 1, 2001, respectively. For the twenty-six weeks
ended June 30, 2002 and July 1, 2001, total rent expense was $1,622,000 and
$1,450,000, respectively.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Statements in this Report 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. In addition, the words
"anticipates," "projects," "plans," "intends," "estimates," "expects," "may,"
"believes" and similar words are intended to identify these forward-looking
statements. All forward-looking statements in this Report are based on
information available to the Company as of the date this Report is filed with
the Securities and Exchange Commission ("SEC"), and the Company assumes no
obligation to update any such forward-looking statements, except as required by
law. All forward-looking statements involve risks and uncertainties. Actual
results may differ materially from those expressed or implied by such
forward-looking statements as a result of certain factors including, but not
limited to, the success of the Company's acquisition strategy, dispositions, the
ability of the Company to achieve cost reductions and integrate acquisitions,
competitive pressures and general or regional economic conditions and
advertising trends, the unavailability or a material increase in the price of
newsprint, and those risks and uncertainties discussed in the Company's other
filings with the SEC, including its Annual Report on Form 10-K and 10-K/A for
the year ended December 30, 2001. 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.
15
JOURNAL REGISTER COMPANY
JUNE 30, 2002
(UNAUDITED)
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
The Company is exposed to market risk arising from changes in interest
rates associated with its long-term debt obligations. The Company's long-term
debt is at variable interest rates based on the LIBOR, the Prime Rate or Federal
Funds Rate, plus a certain interest rate spread as defined in the Credit
Agreement. To manage its exposure to fluctuations in interest rates as required
by its Credit Agreement, the Company enters into certain IRPAs on a portion of
its debt, which minimizes the effect of changes in variable interest rates. The
Company's objective with respect to these agreements is for hedging activities
and not for trading or speculative activity.
At June 30, 2002, the Company had, in effect, SWAP agreements for an
aggregate notional amount of $175 million. In addition, the Company entered into
a no-cost collar on November 9, 2001 for a notional amount of $170 million,
which will become effective when the SWAP agreements expire in October 2002.
Assuming a 10% increase or reduction in interest rates the annual impact on the
Company's pre-tax earnings would be approximately $1.1 million.
16
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
The Company held its Annual Meeting on May 14, 2002. At the annual
meeting, the stockholders elected Jean B. Clifton, Joseph A. Lawrence and Gary
B. Nusbaum as Class B directors of the Company to hold office until the 2005
Annual Meeting of Stockholders. The stockholders also ratified the appointment
of Ernst & Young LLP as independent auditors for the Company for fiscal year
2002.
Each of the Class B directors nominated by the Company were elected with the
following voting results:
VOTES VOTES
FOR WITHHELD
--------- ---------
Jean B. Clifton 33,106,520 3,831,601
Joseph A. Lawrence 36,725,114 213,207
Gary B. Nusbaum 36,722,498 215,623
The other proposal submitted to the stockholders was approved with the following
voting results:
VOTES VOTES
CAST FOR CAST AGAINST ABSTENTIONS
-------- ------------ -----------
The appointment of Ernst & Young LLP as independent 35,730,178 1,147,343 60,800
auditors for the Company for the fiscal year 2002
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
None
17
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: August 14, 2002 JOURNAL REGISTER COMPANY
By: /S/ JEAN B. CLIFTON
-------------------------------
Jean B. Clifton
Executive Vice President, Chief
Financial Officer and Secretary
(signing on behalf of the
registrant and as principal
financial officer)
18