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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
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 September 29, 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 41,627,084 shares outstanding (exclusive of treasury shares) as of
November 8, 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...........10
Item 3. Quantitative and Qualitative Disclosures About Market Risk......................................17
Item 4. Controls and Procedures.........................................................................17
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................................................18
Signature .................................................................................................19
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JOURNAL REGISTER COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
SEPTEMBER 29, DECEMBER 30,
DOLLARS IN THOUSANDS 2002 2001
- --------------------------------------------------------------------------------------- ---------------- -------------
ASSETS:
Current assets:
Cash and cash equivalents $ 32 $ 110
Accounts receivable, less allowance for doubtful
accounts of $9,188 in 2002 and $6,365 in 2001 46,980 49,920
Inventories 6,536 5,535
Deferred income taxes 4,643 3,962
Other current assets 9,132 7,046
---------------- -------------
Total current assets 67,323 66,573
Property, plant and equipment:
Land 10,408 10,408
Buildings and improvements 70,748 69,448
Machinery and equipment 166,143 161,784
Construction and equipment installation in progress 5,608 3,373
---------------- -------------
252,907 245,013
Less accumulated depreciation (130,621) (120,573)
---------------- -------------
122,286 124,440
Goodwill, net of accumulated amortization of $63,210 in 2002 and 2001 497,666 492,349
Other intangible assets, net of accumulated amortization of
$8,062 in 2002 and $7,021 in 2001 11,800 12,841
Other assets 15,299 14,968
---------------- -------------
Total assets $ 714,374 $ 711,171
================ =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
Current liabilities:
Current maturities of long-term debt $ 31,676 $ 30,254
Accounts payable 11,262 15,988
Accrued interest 3,688 3,791
Deferred subscription revenue 10,157 9,750
Accrued salaries and vacation 5,547 5,266
Fair market value of hedges 4,445 5,715
Other accrued expenses and current liabilities 19,836 22,367
---------------- -------------
Total current liabilities 86,611 93,131
Senior debt, less current maturities 455,724 492,517
Deferred income taxes 48,105 35,933
Accrued retiree benefits and other liabilities 11,158 12,114
Income taxes payable 111,456 113,674
Commitments and contingencies
Stockholders' equity (deficit):
Common stock, $.01 par value per share, 300,000,000 shares authorized,
48,437,581 issued at September 29, 2002 and December 30, 2001 484 484
Additional paid-in capital 358,243 358,263
Accumulated deficit (253,663) (288,643)
---------------- -------------
Less treasury stock, shares at cost, 105,064 70,104
2002- 6,813,997; 2001 - 6,932,050 (100,045) (101,778)
Accumulated other comprehensive loss, net of tax (3,699) (4,524)
---------------- -------------
Net stockholders' equity (deficit) 1,320 (36,198)
---------------- -------------
Total liabilities and stockholders' equity (deficit) $ 714,374 $ 711,171
================ =============
SEE ACCOMPANYING NOTES.
1
JOURNAL REGISTER COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
SEPTEMBER 29, SEPTEMBER 30, SEPTEMBER 29, SEPTEMBER 30,
IN THOUSANDS, EXCEPT PER SHARE DATA 2002 2001 2002 2001
- ------------------------------------------------- ---------------- --------------- --------------- ---------------
Revenues:
Advertising $ 72,865 $ 70,946 $219,493 $ 212,022
Circulation 22,894 22,170 68,525 65,341
---------------- --------------- --------------- ---------------
Newspaper revenues 95,759 93,116 288,018 277,363
Commercial printing and other 4,698 4,502 14,915 13,894
---------------- --------------- --------------- ---------------
Total revenues 100,457 97,618 302,933 291,257
Operating expenses:
Salaries and employee benefits 38,054 36,250 113,182 103,684
Newsprint, ink and printing charges 7,607 9,663 23,232 28,818
Selling, general and administrative 13,188 11,900 39,817 33,812
Depreciation and amortization 3,767 6,633 11,298 19,618
Other 14,642 13,576 42,653 39,612
---------------- --------------- --------------- ---------------
Total operating expenses 77,258 78,022 230,182 225,544
Operating income 23,199 19,596 72,751 65,713
Net interest expense and other (6,008) (7,375) (18,833) (23,356)
Gain on sale of newspaper properties - - - 32,212
---------------- --------------- --------------- ---------------
Income before provision for income taxes and
equity interest 17,191 12,221 53,918 74,569
Provision for income taxes 5,261 3,025 18,938 4,914
---------------- --------------- --------------- ---------------
Income before equity interest 11,930 9,196 34,980 69,655
Equity interest - (329) - (989)
---------------- --------------- --------------- ---------------
Net income $ 11,930 $ 8,867 $ 34,980 $ 68,666
================ =============== =============== ===============
Net income per share:
Basic $ 0.29 $ 0.21 $ 0.84 $ 1.61
Diluted $ 0.28 $ 0.21 $ 0.83 $ 1.60
Weighted average shares outstanding:
Basic 41,592 41,797 41,561 42,530
Diluted 42,146 42,228 42,329 42,867
SEE ACCOMPANYING NOTES.
2
JOURNAL REGISTER COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
THIRTY-NINE WEEKS ENDED
SEPTEMBER 29, SEPTEMBER 30,
DOLLARS IN THOUSANDS 2002 2001
- --------------------------------------------------------------------------------- ----------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 34,980 $ 68,666
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for losses on accounts receivable 2,926 2,786
Depreciation and amortization 11,298 19,618
Change in deferred income taxes 11,046 5,465
Loss on equity investment - 989
Gain on sale of newspaper properties - (32,212)
Other, net (12,563) (20,729)
----------------- ----------------
Net cash provided by operating activities 47,687 44,583
CASH FLOWS FROM INVESTING ACTIVITIES:
Net additions to property, plant and equipment (7,843) (21,846)
Net payments for sales and purchases of newspaper properties (6,264) (15,641)
----------------- ----------------
Net cash used in investing activities (14,107) (37,487)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings of senior debt (35,371) 40,365
Issuance of common stock for stock option exercises 1,713 144
Purchase of common stock for treasury - (53,988)
----------------- ----------------
Net cash used in financing activities (33,658) (13,479)
----------------- ----------------
Decrease in cash and cash equivalents (78) (6,383)
Cash and cash equivalents, beginning of period 110 6,495
----------------- ----------------
Cash and cash equivalents, end of period $ 32 $ 112
================= ================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 18,471 $ 25,494
Income taxes $ 11,367 $ 10,457
SEE ACCOMPANYING NOTES.
3
JOURNAL REGISTER COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 29, 2002
(UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include
Journal Register Company (the "Company") and all of its wholly owned
subsidiaries. The Company primarily publishes 23 daily and 225 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 September 29, 2002 and December 30, 2001 and the results of its
operations and cash flows for the thirteen and thirty-nine week periods ended
September 29, 2002 and September 30, 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 THIRTY-NINE WEEKS ENDED
SEPTEMBER 29, SEPTEMBER 30, SEPTEMBER 29, SEPTEMBER 30,
IN THOUSANDS 2002 2001 2002 2001
- ------------------------------------------------------- --------------- -------------- --------------- --------------
Weighted-average shares for basic earnings per share 41,592 41,797 41,561 42,530
Effect of dilutive securities: employee stock options 554 431 768 337
--------------- -------------- --------------- --------------
Adjusted weighted-average shares for diluted earnings
per share 42,146 42,228 42,329 42,867
=============== ============== =============== ==============
Options to purchase approximately 2.2 million shares of common stock at
a range of $21.00 to $22.50 per share were outstanding during the thirteen and
thirty-nine week periods ended September 29, 2002, but 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 $17.63 to $22.50
and $16.81 to $22.50 were outstanding during the thirteen and thirty-nine week
periods ended September 30, 2001, respectively, but were not included in the
computation of the diluted earnings per share 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
SEPTEMBER 29, 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 September 29, 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.,
based in Hillsdale, New York with total distribution of the two non-daily
publications included in the Roe Jan purchase of approximately 26,000. On June
7, 2001, the Company completed the acquisition of the Montgomery Newspaper Group
operations, based in Fort Washington, Pennsylvania, from Metroweek Corporation
with total distribution of these 24 non-daily publications of 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"), with total non-daily
distribution of the 13 publications acquired from Chesapeake of 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, 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.
5
JOURNAL REGISTER COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 29, 2002
(UNAUDITED)
The Company's IRPAs effective as of September 29, 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 6.0 percent CAP. If the
90-day LIBOR is lower than 2.66 percent, the Company will pay cash to the issuer
to compensate for the rate below the floor. The collar 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. Each 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 September 29, 2002 are approximately 5.85%. The
Company has designated its current IRPAs to be cash flow hedges.
Upon adoption of SFAS No. 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
thirty-nine week periods ending September 29, 2002 and September 30, 2001.
6. COMPREHENSIVE INCOME
The components of comprehensive income for the thirteen and thirty-nine
weeks ended September 29, 2002 and September 30, 2001 are as follows:
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
SEPTEMBER 29, SEPTEMBER 30, SEPTEMBER 29, SEPTEMBER 30,
DOLLARS IN THOUSANDS 2002 2001 2002 2001
- ----------------------------------------------------------- -------------- --------------- -------------- --------------
Net income $11,930 $8,867 $34,980 $68,666
Transition adjustment for cumulative effect of adopting
SFAS No. 133 - - - 120
Reclassification of unrealized gains on fully effective
hedges to net income, net of tax 205 744 3,509 975
Net change in fair value of fully effective hedges, net
of tax (975) (2,297) (2,684) (5,615)
-------------- --------------- -------------- --------------
Comprehensive income $11,160 $7,314 $35,805 $64,146
============== =============== ============== ==============
Accumulated other comprehensive loss, net of tax, as of September 29,
2002 and December 30, 2001 was approximately $3.7 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
SEPTEMBER 29, 2002
(UNAUDITED)
7. NEW ACCOUNTING PRONOUNCEMENTS
On July 25, 2001, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other
Intangible Assets. SFAS No. 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 No. 142, goodwill and indefinite lived
intangible assets are no longer amortized, however they are reviewed annually or
more frequently, if required, for impairment. Separable intangible assets that
are not deemed to have an indefinite life will continue to be amortized over
their useful lives. During fiscal 2001, the Company adopted the amortization
provisions of SFAS No. 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 No. 142 in
fiscal year 2002, which began December 31, 2001. The required transitional
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. The Company will perform the first of the required annual
impairment tests during the fourth quarter of fiscal 2002. Changes in the
carrying amounts of intangible assets are as follows:
AS OF SEPTEMBER 29, 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 $ (4,078) $ 2,517 $ 6,595 $ (3,467) $ 3,128
Non-compete covenants 2,294 (1,568) 726 2,294 (1,553) 741
Debt issuance costs 4,573 (2,324) 2,249 4,573 (1,909) 2,664
------------ ---------------- ------------ ------------ ---------------- ------------
Total 13,462 (7,970) 5,492 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 $ (71,272) $509,466 $575,421 $ (70,231) $ 505,190
============ ================ ============ ============ ================ ============
7
JOURNAL REGISTER COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 29, 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 thirty-nine week period ended September 29, 2002, the
change in Goodwill relates to the acquisitions of newspaper properties (see Note
4) during the period. For the thirteen weeks ended September 29, 2002 and
September 30, 2001, amortization expense for intangible assets was $347,250 and
approximately $3.6 million, respectively. For the thirty-nine weeks ended
September 29, 2002 and September 30, 2001, amortization expense for intangible
assets was approximately $1.0 million and $10.6 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 thirty-nine
week periods ended September 30, 2001, respectively, assuming the amortization
provisions of SFAS No. 142 were applied retroactively at January 1, 2001, are
as follows:
THIRTEEN WEEKS THIRTY-NINE WEEKS
---------------------------------------- -----------------------------------
NET INCOME PER SHARE NET INCOME PER SHARE
-------------------- --------------------
DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA NET INCOME BASIC DILUTED NET INCOME BASIC DILUTED
- ----------------------------------------------- ----------- ------------ ------------ ---------- ---------- ------------
Net income $ 8.9 $ 0.21 $ 0.21 $ 68.7 $ 1.61 $1.60
Add-back:
Amortization for Goodwill
and Mastheads, net of taxes 2.6 0.06 0.06 7.4 0.18 0.17
----------- ------------ ------------ --------- ---------- ------------
Adjusted net income $11.5 $ 0.27 $ 0.27 $ 76.1 $ 1.79 $1.77
=========== ============ ============ ========= ========== ============
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. SUBSEQUENT EVENTS
On September 30, 2002, although not required under pension laws, the
Company made a $10.9 million tax- deductible cash contribution to its qualified
pension plans.
On October 10, 2002, the Company entered into additional no-cost
interest rate collars ("Additional Collars"). The effective date of these
Additional Collars is January 29, 2003, at a notional aggregate amount of $150
million, which is fixed for a two-year term. Similar to the existing Collar, the
Additional Collars establish an interest rate ceiling ("Cap") and an interest
rate floor at no cost to the Company. The Cap on the Additional Collars
8
JOURNAL REGISTER COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 29, 2002
(UNAUDITED)
is 4.0 percent and the floor averages approximately 1.54 percent, and the Cap
and the floor are based upon the 90-day LIBOR. In the event that 90-day LIBOR
exceeds 4.0 percent, the Company will receive cash from the issuer to compensate
for the rate in excess of the 4.0 percent Cap. If the 90-day LIBOR is lower than
1.54 percent, the Company will pay cash to the issuer to compensate for the rate
below the floor.
On October 14, 2002, the Company completed the acquisition of seven
weekly newspapers serving Delaware County, Pennsylvania, with total circulation
of 24,000.
9
JOURNAL REGISTER COMPANY
SEPTEMBER 29, 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 September 29, 2002, the Company owned and operated 23 daily
newspapers and 225 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
September 29, 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 September 29, 2002, 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 fourth 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 September 29, 2002, the
Company operated 139 individual Web sites featuring the Company's daily
newspapers and non-daily publications.
10
JOURNAL REGISTER COMPANY
SEPTEMBER 29, 2002
(UNAUDITED)
RESULTS OF OPERATIONS
THIRTEEN WEEK PERIOD ENDED SEPTEMBER 29, 2002 COMPARED TO THIRTEEN WEEK PERIOD
ENDED SEPTEMBER 30, 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 thirteen week period ended September 29,
2002 was $11.9 million, or $0.28 per diluted share, versus $8.9 million, or
$0.21 per diluted share for the thirteen week period ended September 30, 2001.
Excluding goodwill amortization, as if Statement of Financial Accounting
Standards ("SFAS") No. 142 was adopted on January 1, 2001 and excluding the
reversal of certain tax accruals in both the 2002 and 2001 third quarters,
earnings for the third quarter of 2002 were $0.26 per diluted share as compared
to $0.23 per diluted share for the prior year quarter.
Revenues. For the thirteen week period ended September 29, 2002,
revenues increased $2.8 million, or 2.9%, to $100.5 million. Newspaper revenues
increased $2.6 million, or 2.8%, to $95.8 million, principally due to
advertising revenue, which increased $1.9 million, or 2.7%, to $72.9 million.
Circulation revenues increased approximately $724,000, or 3.3%, to $22.9
million. Commercial printing and other revenues increased approximately
$196,000, or 4.4%, to $4.7 million and represented 4.7% of the Company's
revenues for the third quarter of 2002, as compared to 4.6% for the third
quarter of 2001. Online revenues, included in advertising revenue, were
approximately $1.0 million, an increase of approximately 5.9% for the quarter
ended September 29, 2002 as compared to the prior year quarter.
Same-store newspaper revenues. For the thirteen week period ended
September 29, 2002, same-store revenues were basically even with the thirteen
week period ended September 30, 2001. Same-store advertising revenues decreased
approximately $180,000 or 0.3%. Same-store circulation revenues increased
approximately $120,000 or 0.6%.
Salaries and employee benefits. Salaries and employee benefit expenses
were 37.9% of the Company's revenues for the thirteen week period ended
September 29, 2002, as compared to 37.1% for the thirteen week period ended
September 30, 2001. Salaries and employee benefits increased $1.8 million, or
5.0% for the thirteen week period ended September 29, 2002 to $38.1 million
principally due to the impact of the Company's acquisitions and an increase in
employee benefit costs.
Newsprint, ink and printing charges. For the thirteen week period ended
September 29, 2002, newsprint, ink and printing charges were 7.6% of the
Company's revenues, as compared to 9.9% for the thirteen week period ended
September 30, 2001. Newsprint, ink and printing charges for the thirteen week
period ended September 29, 2002 decreased approximately $2.1 million, or 21.3%,
as compared to the thirteen week period ended September 30, 2001. This reduction
is principally due to a reduction in the unit cost of newsprint of approximately
25 percent, partially offset by increased production as a result of
acquisitions.
Selling, general and administrative. Selling, general and
administrative expenses were 13.1% and 12.2% of the Company's revenues for the
thirteen week periods ended September 29, 2002 and September 30, 2001,
respectively. Selling, general and administrative expenses for the thirteen week
period ended September 29, 2002 increased $1.3 million, or 10.8%, to $13.2
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 for the thirteen week period ended September
29, 2002 as compared to 6.8% for the thirteen week period ended September 30,
2001. Depreciation and amortization expenses for the period ended September 29,
2002 decreased $2.9 million, or 43.2%, to $3.8 million which is due, primarily,
to the implementation of SFAS No. 142,
11
JOURNAL REGISTER COMPANY
SEPTEMBER 29, 2002
(UNAUDITED)
which eliminated the amortization of goodwill and indefinite lived intangible
assets at the beginning of fiscal year 2002.
Other expenses. Other expenses were 14.6% and 13.9% of the Company's
revenues for the thirteen week periods ended September 29, 2002 and September
30, 2001, respectively. Other expenses increased $1.1 million, or 7.9%, to $14.6
million for the thirteen week period ended September 29, 2002 principally as a
result of the Company's acquisitions.
Operating income. Operating income was $23.2 million for the thirteen
week period ended September 29, 2002 as compared to $19.6 million for the
thirteen week period ended September 30, 2001.
Net interest and other expense. Net interest and other expense
decreased approximately $1.4 million, or 18.5%, for the thirteen week period
ended September 29, 2002 as compared to the thirteen week period ended September
30, 2001, principally due to lower interest rates on the Company's outstanding
debt in the 2002 third quarter and a decrease of approximately 2.4% in the
Company's weighted average debt outstanding.
Provision for income taxes. The provision for income taxes increased by
approximately $2.2 million for the thirteen week period ended September 29, 2002
as compared to the thirteen week period ended September 30, 2001, primarily due
to an increase in pretax income. The provision was also affected by a $0.7
million reduction of reversals of certain income tax accruals which were
determined to no longer be required, partially offset by a decrease in the
Company's effective tax rate.
Other information. EBITDA (which the Company defines as operating
income plus depreciation, amortization and other non-cash, special or
non-recurring charges) was $27.0 million for the thirteen week period ended
September 29, 2002 as compared to $26.2 million for the thirteen week period
ended September 30, 2001.
THIRTY-NINE WEEK PERIOD ENDED SEPTEMBER 29, 2002 COMPARED TO THIRTY-NINE WEEK
PERIOD ENDED SEPTEMBER 30, 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 thirty-nine week period ended September 29,
2002 was $35.0 million, or $0.83 per diluted share, versus $68.7 million, or
$1.60 per diluted share for the thirty-nine week period ended September 30,
2001. Excluding the gain on the sale of the Company's two Ohio properties in
2001, the reversal of certain tax accruals in both the 2002 and 2001 third
quarters, and eliminating goodwill amortization as if SFAS No. 142 had been
adopted on January 1, 2001, earnings for the thirty-nine weeks ended September
29, 2002 were $0.80 per diluted share as compared to $0.75 per diluted share
reported for the thirty-nine weeks ended September 30, 2001.
Revenues. For the thirty-nine week period ended September 29, 2002,
revenues increased $11.7 million, or 4.0%, to $302.9 million. Newspaper revenues
increased $10.7 million, or 3.8%, to $288.0 million, principally due to
advertising revenue, which increased $7.5 million, or 3.5%, to $219.5 million.
Circulation revenues increased $3.2 million, or 4.9%, to $68.5 million.
Commercial printing and other revenues increased $1.0 million, or 7.3%, to $14.9
million and represented 4.9% of the Company's revenues for the thirty-nine
week period ended September 29, 2002, as compared to 4.8% for the thirty-nine
week period ended September 30, 2001. Online revenues, included in
advertising revenue, were approximately $2.9 million, an increase of
approximately 8.7% for the thirty-nine week period ended September 29, 2002,
as compared to the prior year period.
Same-store newspaper revenues. For the thirty-nine week period ended
September 29, 2002, same-store newspaper revenues decreased $4.3 million, or
1.6%, to $262.9 million. Same-store advertising revenues decreased $5.1 million
or 2.5%. Same-store circulation revenues increased $767,000 or 1.2%.
12
JOURNAL REGISTER COMPANY
SEPTEMBER 29, 2002
(UNAUDITED)
Salaries and employee benefits. Salaries and employee benefit expenses
were 37.4% of the Company's revenues for the thirty-nine week period ended
September 29, 2002, as compared to 35.6% for the thirty-nine week period ended
September 30, 2001. Salaries and employee benefits increased $9.5 million, or
9.2% for the thirty-nine week period ended September 29, 2002 to $113.2 million
principally due to the impact of the Company's acquisitions and an increase in
employee benefit costs.
Newsprint, ink and printing charges. For the thirty-nine week period
ended September 29, 2002, newsprint, ink and printing charges were 7.7% of the
Company's revenues, as compared to 9.9% for the thirty-nine week period ended
September 30, 2001. Newsprint, ink and printing charges for the thirty-nine week
period ended September 29, 2002 decreased approximately $5.6 million, or 19.4%,
as compared to the thirty-nine week period ended September 30, 2001. This
reduction is principally due to a reduction in the unit costs of newsprint of
approximately 24 percent, partially offset by increased production as a result
of acquisitions.
Selling, general and administrative. Selling, general and
administrative expenses were 13.1% and 11.6% of the Company's revenues for the
thirty-nine week periods ended September 29, 2002 and September 30, 2001,
respectively. Selling, general and administrative expenses for the thirty-nine
week period ended September 29, 2002 increased $6.0 million, or 17.8%, to $39.8
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 for the thirty-nine week period ended
September 29, 2002 as compared to 6.7% for the thirty-nine week period ended
September 30, 2001. Depreciation and amortization expenses for the thirty-nine
week period ended September 29, 2002 decreased $8.3 million or 42.4%, to $11.3
million which is due, primarily, to the implementation of SFAS No. 142, which
eliminated the amortization of goodwill and indefinite lived intangible assets
at the beginning of fiscal year 2002, offset partially by increased depreciation
related to capital purchases, particularly the Company's new production facility
in its Greater Philadelphia cluster.
Other expenses. Other expenses were 14.1% and 13.6% of the Company's
revenues for the thirty-nine week periods ended September 29, 2002 and September
30, 2001, respectively. Other expenses increased $3.0 million, or 7.7%, to $42.7
million for the thirty-nine week period ended September 29, 2002 principally as
a result of the Company's acquisitions.
Operating income. Operating income was $72.8 million for the
thirty-nine week period ended September 29, 2002 as compared to $65.7 million
for the thirty-nine week period ended September 30, 2001.
Net interest and other expense. Net interest and other expense
decreased $4.5 million, or 19.4%, for the thirty-nine week period ended
September 29, 2002 as compared to the thirty-nine week period ended September
30, 2001, principally due to lower interest rates on the Company's outstanding
debt in the 2002 third quarter, offset partially by an increase of approximately
2.8% 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 37.3%
for the thirty-nine weeks ended September 29, 2002 as compared to 39.3% for the
thirty-nine weeks ended September 30, 2001, excluding the reversals of certain
tax accruals in each year which were determined to no longer be required and 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.
Other information. EBITDA (which the Company defines as operating
income plus depreciation, amortization and other non-cash, special or
non-recurring charges) was $84.0 million for the thirty-nine week period ended
September 29, 2002 as compared to $85.3 million for the thirty-nine week period
ended September 30, 2001.
13
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
for the thirty-nine week period ended September 29, 2002 was $47.7 million as
compared to $44.6 million for the thirty-nine week period ended September 30,
2001.
Cash flows from investing activities. Net cash used in investing
activities was $14.1 million for the thirty-nine week period ended September 29,
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 used in investing activities was $37.5 million for the
thirty-nine week period ended September 30, 2001, primarily as a result of
investments in property, plant and equipment, including the Company's
Philadelphia-area printing facility, and the acquisition of additional newspaper
properties further described in Note 4 to the Condensed Consolidated Financial
Statements and were partially offset by proceeds from the sale of the Company's
Dover/New Philadelphia and Massillon properties.
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.
Cash flows from financing activities. Net cash used in financing
activities was $33.7 million for the thirty-nine week period ended September 29,
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 $13.5 million for the thirty-nine week period ended September 30,
2001. This reflects the purchase of treasury shares partially 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 provided for $500 million in
Term Loans and a $400 million Revolving Credit Facility. The proceeds from the
Credit Agreement were used to repay amounts outstanding under the prior senior
facilities and to purchase the Pennsylvania, New York and Ohio newspaper
businesses of The Goodson Newspaper Group for approximately $300 million. The
Credit Agreement also provides for an uncommitted, multiple draw term loan
facility (the "Incremental Facility") in the amount of up to $500 million, as
permitted by the administrative agent, to be repaid under conditions as defined
in the Credit Agreement.
The Term Loans mature on March 31, 2006 and September 30, 2006, and the
Revolving Credit Facility matures on March 31, 2006. Under the terms of the
Company's Credit Agreement net proceeds, as defined in the Credit Agreement,
from the sale of newspaper properties which are not reinvested within 365 days
must be used to prepay debt.
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.
14
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 September 29, 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 September 29, 2002 were approximately 5.85%.
The Company's weighted-average effective interest rate was
approximately 4.8% for the thirty-nine weeks ended September 29, 2002. This
interest rate includes a $5.4 million pre-tax charge realized and reported as a
component of interest expense for the period ended September 29, 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 90-day LIBOR. In the
event 90-day LIBOR exceeds 6.0 percent, the Company will receive cash from the
issuer to compensate for the rate in excess of the 6.0 percent Cap. If the
90-day LIBOR is lower than 2.66 percent, the Company will pay cash to the issuer
to compensate for the rate below the floor. The collar is effective on October
29, 2002 beginning at a notional amount of $170 million. The collar amortizes
over two years to a notional aggregate amount of $135 million and terminates on
October 29, 2004. On October 10, 2002, the Company entered into additional
no-cost interest rate Collars ("Additional Collars"). The effective date of the
Additional Collars is January 29, 2003. The Additional Collars are for a
notional aggregate amount of $150 million, which is fixed for a two-year term.
Similar to the existing Collar, the Additional Collars establish an interest
rate ceiling ("Cap") and an interest rate floor at no cost to the Company. The
Cap on the Additional Collars is 4.0 percent and the floor averages
approximately 1.54 percent and is based upon the 90-day LIBOR. In the event that
90-day LIBOR exceeds 4.0 percent, the Company will receive cash from the issuer
to compensate for the rate in excess of the 4.0 percent Cap. If the 90-day LIBOR
is lower than 1.54 percent, the Company will pay cash to the issuer to
compensate for the rate below the floor. From time to time the Company may enter
into additional IRPAs. The Company expects that future IRPAs will be designated
for all or a portion of the principal balance and term of a specific debt
obligation.
Upon adoption of SFAS No. 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 thirty-nine week period ending
September 29, 2002. For the thirty-nine week periods ended September 29, 2002
and September 30, 2001, the IRPAs resulted in realized pretax charges of $5.4
million, and $1.6 million, respectively, which 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 $2.9 million (net of $1.5 million
of deferred taxes).
Significant Contractual Obligations. As of September 29, 2002, the
Company had outstanding indebtedness under the Credit Agreement, due and payable
in installments through 2006, of $487.4 million, of which $145.7 million was
outstanding under the Revolving Credit Facility and $341.7 million was
outstanding under the Term Loans. In addition, the Company had approximately
$113.5 million of unused and available Revolving Credit Facility funds subject
to the terms of the Credit Agreement at September 29, 2002. The total unused
balance on the Revolving Credit Facility was $240.5 million as of September 29,
2002. The remaining aggregate maturities payable under the Term Loans are as
follows:
15
FISCAL YEAR DOLLARS IN THOUSANDS
2002 $ 7,610
2003 32,912
2004 37,853
2005 86,875
2006 176,417
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
16
JOURNAL REGISTER COMPANY
SEPTEMBER 29, 2002
(UNAUDITED)
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.
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 $846,000 and $804,000 for the thirteen weeks
ended September 29, 2002 and September 30, 2001, respectively. For the
thirty-nine weeks ended September 29, 2002 and September 30, 2001, total rent
expense was $2.5 million and $2.3 million, 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.
17
JOURNAL REGISTER COMPANY
SEPTEMBER 29, 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 September 29, 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. On
October 10, 2002, the Company entered into additional no-cost interest rate
collars ("Additional Collars") which become effective on January 29, 2003. The
Additional Collars are for a notional amount of $150 million, which is fixed for
a two-year term. Assuming a 10% increase or reduction in interest rates the
annual impact on the Company's pre-tax earnings would be approximately $0.9
million.
ITEM 4. CONTROLS AND PROCEDURES
Within 90 days prior to the date of this report (the "Evaluation
Date"), the Company, under the supervision of its President and Chief Executive
Officer and Executive Vice President and Chief Financial Officer, carried out an
evaluation of the effectiveness of the Company's "disclosure controls and
procedures" (as defined in the Securities Exchange Act of 1934 Rules 13(a)-14(c)
and 15(d)-14(c)). Based on that evaluation, the President and Chief Executive
Officer and Executive Vice President and Chief Financial Officer have concluded
that as of the Evaluation Date, the Company's disclosure controls and procedures
were effective in alerting them in a timely manner to material information
relating to the Company and its consolidated subsidiaries required to be
included in the Company's periodic SEC filings.
There were no significant changes in the Company's internal controls
or other factors that could significantly affect the Company's internal controls
and procedures subsequent to the Evaluation Date.
18
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K on August 14, 2002
furnishing under Item 9 thereof certain information regarding the
certifications of the Company's Chairman, President and Chief
Executive Officer and its Executive Vice President, Chief
Financial Officer and Secretary accompanying the Company's Form
10-Q for the quarter ended June 30, 2002.
19
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: November 13, 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)
CERTIFICATIONS
I, Robert M. Jelenic, Chairman, President and Chief Executive Officer of Journal
Register Company (the "Registrant"), certify that:
1. I have reviewed this quarterly report on Form 10-Q of the Registrant;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Registrant as of, and for, the periods presented in this
quarterly report;
4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:
a. designed such disclosure controls and procedures to ensure that material
information relating to the Registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b. evaluated the effectiveness of the Registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The Registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit
committee of Registrant's board of directors:
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to record,
process, summarize and report financial data and have identified for the
Registrant's auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
controls' and
6. The Registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 13, 2002 /s/ Robert M. Jelenic
----------------------------
Robert M. Jelenic
Chairman, President and Chief
Executive Officer
20
I, Jean B. Clifton, Executive Vice President, Chief Financial Officer and
Secretary of Journal Register Company (the "Registrant"), certify that:
1. I have reviewed this quarterly report on Form 10-Q of the Registrant;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Registrant as of, and for, the periods presented in this
quarterly report;
4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:
a. designed such disclosure controls and procedures to ensure that material
information relating to the Registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b. evaluated the effectiveness of the Registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit
committee of Registrant's board of directors:
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to record,
process, summarize and report financial data and have identified for the
Registrant's auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
controls' and
6. The Registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 13, 2002 /s/ Jean B. Clifton
----------------------------
Jean B. Clifton
Executive Vice President, Chief
Financial Officer and Secretary
21