SOURCE: Journal Register Company

August 12, 2008 17:55 ET

Journal Register Company Reports Second Quarter 2008 Results

YARDLEY, PA--(Marketwire - August 12, 2008) - Journal Register Company (the "Company") (PINKSHEETS: JRCO) today reported a net loss of $174.5 million, or $(4.43) per diluted share, for the second quarter ended June 29, 2008. The net loss for the period includes a $287.0 million ($175.0 million after-tax), or $(4.44) per diluted share, noncash charge for the impairment of goodwill and indefinite-lived intangibles under the methodology prescribed by Statement of Financial Accounting Standards ("SFAS") No. 142. This charge relates to a further write-down of the carrying value of mastheads and goodwill for the Company's Michigan cluster and a write-down of goodwill for its Philadelphia cluster. Absent this charge, the Company would have reported net income of $0.5 million or $0.01 per diluted share as compared to net income of $5.5 million, or $0.14 per diluted share, for the prior year quarter ended July 1, 2007. The Company's reported results for the quarter ended July 1, 2007 included an adverse net tax adjustment of approximately $1.0 million, or $0.03 per share, resulting from a New York State tax law change that was enacted in April 2007.

Total revenues for the quarter ended June 29, 2008 were $108.1 million, a decrease of 10.4 percent from the same prior year period. Advertising revenues decreased 13.1 percent to $80.5 million, as compared to $92.7 million for the same prior year period. Online revenues, which are included in advertising revenues, increased by 13.1 percent for the quarter ended June 29, 2008 as compared to the same prior year period. Online revenues were 6.6 percent of total advertising revenues for the second quarter 2008 period, compared to 5.1 percent in the same prior year period. The Company reported 4.2 million unique visitors and 30.9 million page views for its Web sites for the second quarter of 2008, increases of 16.7 percent and 1.6 percent to the same prior year period, respectively. Circulation revenues totaled $23.6 million, net of applicable discounts, for the quarter ended June 29, 2008 increasing approximately $0.6 million, or 2.7 percent, as compared to the prior year period largely due to price increases and the benefit of delivery outsourcing in the Connecticut cluster. Commercial printing and other revenues for the quarter ended June 29, 2008 decreased by approximately $1.0 million, or 20.6 percent, as compared to the same prior year period, to $4.0 million.

Advertising Revenue Performance by Category:

The following table sets forth the Company's total advertising revenues, by category:

                                    For the Quarter Ended
                                  June 29, 2008 July 1, 2007   % Decrease
                                  ------------- ------------- ------------
Local                             $      46,137 $      50,959          9.5%
Classified                               31,863        37,896         15.9
National                                  2,537         3,804         33.3
                                  ------------- ------------- ------------
Total advertising revenues        $      80,537 $      92,659         13.1%
                                  ============= ============= ============

Local

Local retail advertising revenues for the second fiscal quarter of 2008 decreased 9.5 percent as compared to the prior year quarter. Weakness in the department/discount store and financial/insurance advertising revenue categories were partially offset by an improvement in the medical/healthcare category.

Classified

Classified advertising revenues decreased 15.9 percent in the second fiscal quarter of 2008, as compared to the prior year fiscal quarter. Classified real estate advertising revenues decreased 24.4 percent in the second fiscal quarter of 2008, as compared to the same prior year period. The overall softness in the housing market continues to exacerbate a downward trend in real estate advertising in the majority of the Company's clusters. Classified employment advertising revenues were down 22.4 percent for the quarter, as compared to the same prior year period. Classified automotive advertising revenues were down 17.9 percent for the second fiscal quarter as compared to the prior year fiscal quarter due, in large part, to the continued weak automotive market. Classified other advertising revenues rose approximately 1.7 percent in the second fiscal quarter of 2008, as compared to the prior year fiscal quarter. This category which encompasses private party, legal advertisements and obituaries has been the strongest performing category for over a year and comprised approximately 30.6 percent of the Company's total classified advertising revenues in the second quarter of 2008.

National

National advertising revenues represented approximately 3.2 percent of the Company's total 2008 second quarter advertising revenues. These revenues decreased 33.3 percent for the fiscal quarter ended June 29, 2008, as compared to the prior year fiscal quarter.

Operating Expenses:

The Company's non-newsprint operating expenses for the second quarter of 2008 were down 2.2 percent, excluding the noncash impairment charge described below, compared to the same prior year period. Excluding costs related to the Company's restructuring efforts; consisting primarily of severance and advisor fees, non-newsprint operating expenses declined 5.4 percent for the 2008 quarter, reflecting the Company's continued commitment to cost containment efforts.

Salaries and employee benefits

Salaries and employee benefit expenses were 41.3 percent of the Company's revenues for the fiscal quarter ended June 29, 2008, as compared to 38.9 percent for the fiscal quarter ended July 1, 2007. Salaries and employee benefits decreased $2.3 million, or 4.9 percent, for the fiscal quarter ended June 29, 2008 to $44.6 million, as compared to $46.9 million in the prior year period, primarily due to a 9.2 percent reduction in head count. The benefit from the reduction in headcount was partially offset by increases in medical benefit costs.

Newsprint, ink and printing charges

For the quarter ended June 29, 2008, newsprint, ink and printing charges were 9.8 percent of the Company's revenues, as compared to 9.5 percent for the quarter ended July 1, 2007. Newsprint, ink and printing charges for the fiscal quarter ended June 29, 2008 decreased 7.0 percent as compared to the fiscal quarter ended July 1, 2007. The Company's newsprint expense decreased for the second quarter as compared to the prior year period, due to decreases in consumption of approximately 13.0 percent, which were partially offset by an increase in newsprint prices of 6.9 percent.

Selling, general and administrative

Selling, general and administrative expenses were 18.7 percent and 15.6 percent of the Company's revenues for the fiscal quarters ended June 29, 2008 and July 1, 2007, respectively. As compared to the prior year period, selling, general and administrative expenses for the fiscal quarter ended June 29, 2008 increased $1.3 million, or 7.1 percent, to $20.2 million, primarily due to higher professional and consulting fees related to the Company's ongoing strategic review of its business and restructuring efforts. Costs in respect of these ongoing efforts totaled $2.4 million for the second quarter of 2008. The Company also continues to increase its investment in online products. All other major selling, general and administrative expenses showed declines for the second quarter of 2008, compared to the second quarter 2007.

Other expenses

Other expenses, primarily related to circulation and delivery costs, were 14.7 percent and 13.8 percent of the Company's revenues for the quarters ended June 29, 2008 and July 1, 2007, respectively. These expenses decreased compared to the same prior period in 2007 by $0.7 million or 4.0 percent, as a result of declines in promotion and circulation costs, which were partially offset by higher outside delivery and gasoline costs.

Impairment charges

During the second fiscal quarter of 2008, continued negative changes in the newspaper industry, compounded by the protracted sluggish general business climate, resulted in a further decline in the Company's projected revenue and in lower expected earnings. As a result of this interim impairment assessment, the Company determined that the carrying values of the goodwill and the mastheads of its Michigan and Philadelphia clusters were impaired and recorded a noncash charge of $287.0 million in the second quarter of 2008. There was no comparable impairment charge in the same prior year period.

Operating (loss) income

The Company incurred an operating loss of $275.0 million during the second fiscal quarter of 2008. Excluding the impairment charge previously discussed, in the section "Impairment charges," operating income would have been $12.0 million, or 11.1 percent of the Company's revenues, for the fiscal quarter ended June 29, 2008 as compared to $22.1 million, or 18.3 percent of the Company's revenues, for the fiscal quarter ended July 1, 2007. The decline in operating income for the second quarter of 2008, as adjusted and compared to the same prior year period, is primarily attributable to declines in revenue and additional professional and consulting fees incurred in the second quarter of 2008.

Interest and Other Income:

Interest expense increased approximately $1.8 million, or 17.1 percent, for the fiscal quarter ended June 29, 2008 as compared to the fiscal quarter ended July 1, 2007. The Company's weighted average interest rate on its bank debt was approximately 6.9 percent in the second fiscal quarter of 2008 compared to 6.2 percent in the second fiscal quarter of 2007.

Interest expense includes charges related to cash flow hedges totaling $1.4 million. The Company recognized an additional $0.8 million in costs related to the amortization of hedges terminated in the second quarter of 2008. The second quarter of 2007 by comparison, was favorably impacted by $1.0 million from cash flow hedges and $0.2 million of capitalized interest.

Other income, net for the second quarter of 2008 reflects a noncash $3.3 million benefit for a change in the fair market value of the Company's derivatives (interest rate protection agreements) which were de-designated as hedges under SFAS No. 133. In prior periods, changes in the fair market value of the Company's hedges were reflected in Accumulated Other Comprehensive Income on its Balance Sheet. The change in treatment is largely a result of amendments to the Company's underlying debt agreement. Other income, for the second quarter of 2007 included, by comparison, a $0.4 million settlement related to an investment in PowerOne Media LLC.

Income Taxes

The Company reported a benefit from income taxes of $109.3 million in the second fiscal quarter of 2008, primarily resulting from the deferred taxes associated with the previously described impairment charge, as compared to a provision for income taxes of $6.6 million in the second fiscal quarter of 2007. Absent the impairment charge, the Company would have reported a tax provision of $2.7 million which includes interest charges on uncertain tax positions, net of recoveries. The charge for uncertain tax positions had the effect of decreasing net income by $0.01 per diluted share for the second quarter of 2008.

Liquidity and Capital Resources

Current assets were $76.8 million and current liabilities were $719.8 million as of June 29, 2008 as compared to current assets of $71.2 million and current liabilities of $80.3 as of December 30, 2007. The working capital position of the Company has been impacted by the continued classification of all of the Company's bank debt as current debt in the second quarter of 2008. Additionally, the Company's current liabilities at June 29, 2008 include $12.7 million for the fair value of its interest rate derivatives, which were classified as noncurrent liabilities with a fair value of $8.6 million as of December 30, 2007.

Excluding the bank debt and derivative liabilities as current liabilities, the Company's working capital increased in the first twenty-six weeks of 2008 due to an increase in cash borrowed under the Company's revolving credit facility in the first quarter of 2008. Other significant components of working capital changes include lower accounts receivable due to lower revenues, and lower accounts payable and accrued expenses due to cost control measures.

Cash flows from investing activities. Net cash used in investing activities of continuing operations was $1.0 million for the twenty-six weeks ended June 29, 2008 reflecting amounts used for capital expenditures of $1.9 million partially offset by the proceeds from the sale of a real estate asset of $0.9 million. Net cash used in investing activities of continuing operations on capital expenditures was $16.2 million for the twenty-six weeks ended July 1, 2007. Of these capital expenditures, $7.8 million were for costs in connection with the build-out of the Clinton Township, Michigan press and mailroom facility and $2.9 million were related to the Company's investment in its online operations. The net proceeds from the sale of the Company's New England newspaper operations of $78.8 million are included in net cash provided by investing activities of discontinued operations for the twenty-six week period ended July 1, 2007.

The Company reviews its capital expenditure program periodically and modifies it as required to meet current operational needs. In addition to its capital expenditure program, the Company is exploring the sale of certain non-core assets and underutilized real estate.

Cash flows from financing activities. Net cash provided by financing activities was $17.3 million for the twenty-six weeks ended June 29, 2008, and was primarily the result of borrowings under the Company's revolving credit facility. The Company repaid $12.5 million of its outstanding term loan in the first quarter of 2008. By comparison, net cash used in financing activities was $81.2 million for the twenty-six weeks ended July 1, 2007, which included $42.5 million for optional prepayments on the Company's term loan and $37.1 million net repayment on its revolving credit facility. The Company made $1.6 million in dividend payments in the same period in 2007. No dividend payments were made in the first twenty-six weeks in 2008.

Debt and Credit Agreements

Net debt on June 29, 2008 totaled $628.2 million, and was up slightly from net debt on March 30, 2008, and 1.2 percent above net debt on December 30, 2007. The Company's next amortization payment is due in the second quarter of 2009. During the second quarter of 2008, the Company amended its Amended and Restated Credit Agreement dated as of January 25, 2006 ("Credit Agreement"). This amendment to the Credit Agreement relaxed certain financial covenants and modified certain additional covenants, including the acquisitions, dispositions and indebtedness covenants. The second quarter amendment also instituted certain cash management provisions; including a provision limiting the maximum cash balances that the Company may maintain in its bank accounts.

After the end of the second fiscal quarter, the Company announced that it entered into a Forbearance Agreement and Amendment No. 3 (the "Forbearance Agreement") to its Credit Agreement. Under the Forbearance Agreement, the lenders' commitments to make further extensions of credit, including issuing new letters of credit or making swingline loans, are suspended, although certain existing letters of credit can be renewed or replaced. During the forbearance period, certain cash management procedures also apply. In addition, certain restrictive covenants, including covenants with respect to asset sale proceeds, indebtedness, acquisitions and dispositions, were amended and made permanent. During the forbearance period, interest will continue to accrue but will not be paid by the Company. Instead, the Company will make certain payments of at least $2.0 million per month, into a cash collateral disbursement account maintained by the administrative agent. The Company will have the right to request transfers of funds from the disbursement account under certain conditions. The Lenders will forbear from exercising certain remedies with respect to the interest payments not made during the forbearance period. The terms of the Forbearance Agreement are in effect for the period from July 24, 2008 through October 31, 2008, but the period may be extended with the agreement of all parties.

As a condition to the Forbearance Agreement, the Company has appointed Robert Conway, a member of Conway, Del Genio, Gries & Co., LLC, ("CDG") to the newly created position of Chief Restructuring Officer and engaged CDG to provide certain financial services.

About Journal Register Company

Journal Register Company is a U.S. media company. Journal Register Company owns 22 daily newspapers and approximately 300 non-daily publications. Journal Register Company currently operates 229 individual Web sites that are affiliated with the Company's daily newspapers, non-daily publications and its network of employment Web sites. These Web sites can be accessed at www.JournalRegister.com. All of the Company's operations are strategically clustered in six geographic areas: Greater Philadelphia; Michigan; Connecticut; Greater Cleveland; and the Capital-Saratoga and Mid-Hudson regions of New York. The Company also owns JobsInTheUS, a network of 20 employment Web sites.

Safe-Harbor

This release contains forward-looking information about Journal Register Company that is intended to be covered by the safe harbor for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that are not historical facts. These statements can be identified by the use of forward-looking terminology such as "believe," "expect," "may," "will," "should," "project," "plan," "seek," "intend," or "anticipate" or the negative thereof or comparable terminology, and include discussions of strategy, financial projections and estimates and their underlying assumptions, the extent or timing of cost savings, charges, the extent of employees impacted, and statements about the future performance, operations, products and services of the Company. These forward-looking statements involve a number of risks and uncertainties, which could cause actual results to differ materially. These risks and uncertainties include, but are not limited to, the success of the Company's asset sales and divestiture activities, the ability of the Company to achieve cost reductions and integrate acquisitions, competitive pressures including competition from non-newspaper forms of media, general or regional economic conditions and advertising trends, the unavailability or a material increase in the price of newsprint and increases in interest rates, changes in performance that affect financial covenant compliance or funds available for borrowing, the Company's ability to meet its obligations under the Forbearance Agreement, the lenders' decision to extend or not extend the Forbearance Agreement (or the terms of any such extension or alternative arrangement), technological changes, the adoption of new accounting standards or changes in accounting standards and the possibility that, in connection with the conclusion of our year end review process and the completion of the year end audit ,the Company may determine that adjustments to previously announced preliminary and unaudited results are necessary. These and additional risk factors are outlined in the Company's most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission. The Company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events, or otherwise.

Reconciliation of Certain Non-GAAP Financial Measures.

The Company believes that the use of certain non-GAAP financial measures enables the Company and its analysts, investors and other interested parties to evaluate and compare the Company's results from operations and cash resources generated from its business in a more meaningful and consistent manner. Accordingly, this information has been disclosed in this report to permit a more complete comparative analysis of the Company's operating performance and capitalization relative to other companies in the industry and to provide an analysis of operating results used by the Company's chief operating decision makers to measure the operating results and performance of the Company and its operations. The Company believes the use of EBITDA is appropriate given what has been to date predictable cash flow generated by the Company's operations and the short period of time it takes to convert new orders to cash. In addition, the Company believes that free cash flow is useful as a supplemental measure of evaluating financial performance because it provides an alternative measure of the cash generated by the Company after payment of expenses, including capital expenditures, and therefore available for further investment in the business, or for other uses such as repayment of indebtedness.

All EBITDA, EBITDAR and free cash flow figures in this report are non-GAAP financial measures. The Company defines EBITDA as income from continuing operations plus provision for income taxes, net interest expense, depreciation, amortization and other non-cash, special or non-recurring charges. EBITDAR is defined as EBITDA less expenses related to the Company's current restructuring activities, including severance costs, advisor fees, and certain other legal and consulting fees. EBITDA and EBITDAR margin is defined as either EBITDA or EBITDAR divided by total revenues. Free cash flow is defined as EBITDAR minus capital expenditures, and cash payments for interest and income taxes.

Since EBITDA, EBITDAR and free cash flow are not measures of performance calculated in accordance with GAAP, it should not be considered in isolation of, or as a substitute for, net income as an indicator of operating performance (or in the case of free cash flow, net cash flow provided by operating activities as a measure of liquidity). In addition, these measures do not necessarily represent funds available for discretionary use, and are not necessarily a measure of the Company's ability to fund its cash needs. As these measures exclude certain financial information as compared to net income, the most directly comparable GAAP financial measure, users of this financial information should consider the types of events and transaction which are excluded. In addition, the Company's calculations of these measures may not be consistent with the calculations of these measures by other companies. The table below provides reconciliations of the difference between the Company's loss or income from continuing operations and EBITDA, EBITDAR and free cash flow, for the thirteen and twenty-six week periods ended June 29, 2008 and July 1, 2007.

Non-GAAP Financial Measures

                                  Thirteen Weeks      Twenty-six Weeks
                                       Ended                Ended
                               --------------------  ---------------------
                                 June 29,   July 1,    June 29,    July 1,
(In thousands)                     2008      2007        2008       2007
                               -----------  -------  -----------  --------
(Loss) income from continuing
 operations                    $  (174,513) $ 5,520  $  (246,750) $  7,032
Add: Income tax (benefit)
 provision                        (109,251)   6,637     (134,374)    8,477
Add: Net interest expense and
 other                               8,778    9,937       19,715    20,993
                               -----------  -------  -----------  --------
Operating (loss) income           (274,986)  22,094     (361,409)   36,502
Add: Depreciation and
 amortization                        4,752    4,784        9,498     9,371
Add: Impairment charges            287,003        -      382,403         -
                               -----------  -------  -----------  --------
EBITDA                              16,769   26,878       30,492    45,873
EBITDA margin                         15.5%    22.3%        14.5%     19.5%
Add: Restructuring charges           2,774        -        3,123         -
                               -----------  -------  -----------  --------
EBITDAR                             19,543   26,878       33,615    45,873
EBITDAR margin                        18.1%    22.3%        16.0%     19.5%
Less: Capital expenditures          (1,053)  (6,630)      (1,902)  (16,301)
Less: Cash interest expense
 and other                         (11,008)  (9,700)     (22,046)  (20,518)
Less: Cash income taxes (1)           (628)    (591)      (1,069)     (775)
                               -----------  -------  -----------  --------
Free cash flow                 $     6,854  $ 9,957  $     8,598  $  8,279
                               ===========  =======  ===========  ========

Notes:
 (1) Cash income taxes represent the application of the Company's expected
 current year income tax liability rate to the income before provision for
 income taxes for each period presented, without regard to the actual
 timing of such payment, reduced by the benefit of the anticipated
 utilization of available net operating loss carry forwards.

AN IMPORTANT NOTE ABOUT THIS REPORT

Journal Register Company (the "Company") does not have a class of securities registered pursuant to Section 12 of the Securities Act of 1934 (the "Act"), and the Company is not subject to the reporting requirements of Section 13(a) or 15(d) of the Act. Accordingly, this report is not filed with the Securities and Exchange Commission (the "SEC"), is not available on the SEC's EDGAR system and it does not purport to meet the requirements for the companies that are subject to the Act's reporting requirements. The Company does intend in this report to provide accurate, timely financial information that is generally consistent with GAAP reporting; however, shareholders and other readers are cautioned that this information is not and cannot be deemed to be the substantial equivalent of the information required of reporting companies under the Act.


                       JOURNAL REGISTER COMPANY (1)
              CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                (Unaudited)

                                   Thirteen Weeks      Twenty-six Weeks
                                       Ended                Ended
(In thousands, except per       June 29,    July 1,   June 29,    July 1,
  share data)                     2008       2007       2008       2007
                               ==========  ========  ==========  =========

Revenues:
    Advertising                $   80,537  $ 92,659  $  156,454  $ 179,012
    Circulation                    23,617    22,999      46,286     45,911
    Commercial printing and
     other                          3,990     5,028       7,793      9,888
                               ----------  --------  ----------  ---------
Total revenues                    108,144   120,686     210,533    234,811
                               ----------  --------  ----------  ---------

Operating expenses:
  Salaries and employee
   benefits                        44,610    46,910      89,956     94,783
  Newsprint, ink and printing
   charges                         10,641    11,441      20,135     23,019
  Selling, general and
   administrative                  20,187    18,848      38,198     38,228
  Depreciation and
   amortization                     4,752     4,784       9,498      9,371
  Other                            15,937    16,609      31,752     32,908
                               ----------  --------  ----------  ---------
Total operating expenses
 before impairment charges         96,127    98,592     189,539    198,309
  Impairment charges              287,003         -     382,403          -
                               ----------  --------  ----------  ---------
Operating (loss) income          (274,986)   22,094    (361,409)    36,502

Interest expense                  (12,127)  (10,352)    (23,433)   (21,388)
Other income, net                   3,349       415       3,718        395
                               ----------  --------  ----------  ---------

(Loss) income  from continuing
 operations before income
 taxes                           (283,764)   12,157    (381,124)    15,509
Income tax (benefit) provision   (109,251)    6,637    (134,374)     8,477
                               ----------  --------  ----------  ---------
(Loss) income from continuing
 operations                      (174,513)    5,520    (246,750)     7,032
Loss from discontinued
 operations of New England
 cluster, net of income taxes           -         -           -        (86)
Gain on sales of New England
 cluster operations, net of
 income taxes                           -        -            -     27,660
                               ----------  --------  ----------  ---------
Net (loss) income              $ (174,513) $  5,520  $ (246,750) $  34,606
                               ==========  ========  ==========  =========

(Loss) income  per common
 share (basic and diluted)
(Loss) income from continuing
 operations                    $    (4.43) $   0.14  $    (6.27) $    0.18
Loss from discontinued
 operations of New England
 cluster, net of income taxes           -         -           -          -
Gain on sales of New England
 cluster operations, net of
 income taxes                           -         -           -       0.70
                               ----------  --------  ----------  ---------
Net (loss) income per common
 share (basic and diluted)     $    (4.43) $   0.14  $    (6.27) $    0.88
                               ==========  ========  ==========  =========

Dividends declared per common
 share                                  -  $   0.02           -  $    0.04

Weighted-average shares
 outstanding:
  Basic                            39,373    39,140      39,368     39,134
  Diluted                          39,373    39,291      39,368     39,231

See accompanying notes to condensed consolidated financial statements.

(1)Journal Register Company is not a SEC reporting Company, please see "An
Important Note About This Report."






                       JOURNAL REGISTER COMPANY (1)
                  CONDENSED CONSOLIDATED BALANCE SHEETS

                                                (Unaudited)
                                                  June 29,    December 30,
(In thousands, except share data)                   2008          2007
                                                ------------  ------------
ASSETS:
Current assets:
  Cash and cash equivalents                     $     13,851  $      4,214
  Accounts receivable, net                            47,214        52,056
  Inventories, consisting of newsprint and
   other raw materials                                 6,240         6,301
  Deferred income taxes                                2,285         2,285
  Other current assets                                 7,208         6,342
                                                ------------  ------------
Total current assets                                  76,798        71,198
                                                ------------  ------------

Property, plant and equipment, net of
 accumulated depreciation of $162,266 and
 $156,357, respectively                              158,047       166,744

Intangible and other assets:
  Goodwill                                           262,693       613,096
  Other intangible assets, net of accumulated
   amortization                                       43,627        76,412
  Deferred income taxes                               43,856             -
  Other assets                                         6,181         5,017
                                                ------------  ------------
Total assets                                    $    591,202  $    932,467
                                                ============  ============
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY:
Current liabilities:
  Current bank debt                             $    642,097  $          -
  Derivative liabilities                              12,651             -
  Accounts payable                                    10,833        18,176
  Accrued expenses                                    35,654        37,688
  Other current liabilities                           18,588        24,403
                                                ------------  ------------
Total current liabilities                            719,823        80,267
                                                ------------  ------------
Noncurrent bank debt                                       -       624,800
Deferred income taxes                                      -        95,192
Fair market value of hedges                                -         8,558
Other noncurrent liabilities                          30,595        32,540

Stockholders' equity:
  Preferred stock, $.01 par value per share,
   1,000,000 shares authorized, none issued and
   outstanding                                             -             -
  Common stock, $.01 par value per share,
   300,000,000 shares authorized, 48,437,581
   issued                                                484           484
  Additional paid-in capital                         360,024       359,929
  Accumulated deficit                               (370,933)     (124,183)
  Accumulated other comprehensive loss, net of
   income taxes                                      (15,129)      (11,152)
  Treasury stock, 9,064,428 shares and
   9,085,143 shares, respectively,
   at cost                                          (133,662)     (133,968)
                                                ------------  ------------
Stockholders' (deficit) equity                      (159,216)       91,110
                                                ------------  ------------
Total liabilities and stockholders'
 (deficit) equity                               $    591,202  $    932,467
                                                ============  ============

See accompanying notes to condensed consolidated financial statements.

(1)Journal Register Company is not a SEC reporting Company, please see "An
Important Note About This Report."





                       JOURNAL REGISTER COMPANY (1)
              CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (Unaudited)

                                                    Twenty-six Weeks Ended
                                                     June 29,     July 1,
(In thousands)                                         2008        2007
                                                    ==========  ==========

Cash flows from operating activities:
Net (loss) income                                   $ (246,750) $   34,606
Less: (Loss) from discontinued operations                    -         (86)
Less: Gain from sales of discontinued operations             -      27,660
                                                    ----------  ----------
(Loss) income from continuing operations              (246,750)      7,032
Adjustments to reconcile net (loss) income to net
 cash provided by operating activities:
   Impairment charges                                  382,403           -
   Provision for losses on accounts receivable           2,102       1,503
   Depreciation and amortization expense                 9,498       9,375
   Noncash interest and changes in derivative
    values, net                                         (2,331)        476
   Deferred income tax benefit                        (135,470)      6,825
   Other                                                     8         300
Changes in operating assets and liabilities:
   Decrease in accounts receivable                       2,740       1,209
   Decrease in accounts payable                         (7,343)     (1,042)
   Decrease in income taxes payable                     (2,673)     (5,072)
   Decrease in executive separation liability           (4,994)          -
   Decrease in other operating assets and
    liabilities, net                                    (3,807)     (1,778)
                                                    ----------  ----------
Net cash (used in) provided by operating activities
 of continuing operations                               (6,617)     18,828
Net cash (used in) operating activities of
 discontinued operations                                     -         (23)
                                                    ----------  ----------
Net cash (used in) provided by operating activities     (6,617)     18,805
                                                    ----------  ----------

Cash flows from investing activities:
Purchase of property, plant and equipment               (1,902)    (16,301)
Net proceeds from sale of property, plant and
 equipment                                                 859         133
                                                    ----------  ----------
Net cash used in investing activities of continuing
 operations                                             (1,043)    (16,168)
Net cash provided by investing activities of
 discontinued operations                                     -      78,838
                                                    ----------  ----------
Net cash (used in) provided by investing activities     (1,043)     62,670
                                                    ----------  ----------

Cash flows from financing activities:
Repayments of term loan debt                           (12,500)    (42,500)
Borrowings from revolving credit facility               65,559      76,950
Repayment of revolving credit facility                 (35,762)   (114,050)
Dividends paid                                               -      (1,567)
                                                    ----------  ----------
Net cash provided by (used in) financing activities     17,297     (81,167)
                                                    ----------  ----------

Increase in cash and cash equivalents                    9,637         308
Cash and cash equivalents, beginning of period           4,214       3,930
                                                    ----------  ----------
Cash and cash equivalents, end of period            $   13,851  $    4,238
                                                    ==========  ==========

See accompanying notes to condensed consolidated financial statements.

(1)Journal Register Company is not a SEC reporting Company, please see "An
Important Note About This Report."


Notes To Condensed Consolidated Financial Statements (1)

1. Organization and Basis of Presentation

The accompanying condensed consolidated financial statements include Journal Register Company and all of its wholly-owned subsidiaries (the "Company"). The Company publishes daily and non-daily newspapers, in print and online, serving markets in the Greater Philadelphia area, Michigan, Connecticut, the Greater Cleveland area, and the Capital-Saratoga and Mid-Hudson regions of New York. The Company owns and manages commercial printing operations in Connecticut and Pennsylvania and owns JobsInTheUS, a network of employment Web sites.

The Company operates on a 52/53 week fiscal year generally ending on the Sunday closest to the end of the calendar year. Each quarter is 13/14 weeks, also generally ending on the Sunday closest to the end of the calendar quarter. The periods presented for both 2008 and 2007 encompass 13 and 26 week periods. The periods presented are hereinafter referred to as either "the thirteen weeks" or "quarter ended" and either "the twenty-six weeks" or "six months ended."

The condensed consolidated balance sheet as of December 30, 2007, which has been derived from audited financial statements, and the unaudited condensed consolidated interim financial statements included herein have been prepared by the Company similar to interim financial statements following the rules and regulations of the SEC. The condensed consolidated interim financial statements do not include all of the information and footnote disclosures required by accounting principles generally accepted in the United States of America ("GAAP"). In the opinion of the Company's management, the accompanying unaudited condensed consolidated financial statements contain all material adjustments (consisting only of normal and recurring accruals) necessary to present fairly its financial position as of June 29, 2008 and the results of its operations and cash flows for the thirteen and twenty-six weeks ended June 29, 2008 and July 1, 2007. These financial statements should be read in conjunction with the audited Consolidated Financial Statements and Notes thereto filed with the SEC on Form 10-K for the year ended December 30, 2007. The interim operating results are not necessarily indicative of the results to be expected for an entire year. On July 22, 2008, the Company filed Form 15 Certification and Notice of Termination of Registration under Section 12(g) of the Securities Exchange Act of 1934 or Suspension of Duty to File Reports under Sections 13 and 15(d) of the Securities Exchange Act. As such, the Company is no longer filing financial statements as required under the Act.

For the period ended June 29, 2008, the Company has used the same significant accounting policies and estimates which are disclosed in the Annual Report on Form 10-K for the year ended December 30, 2007. The Company has reclassified certain 2007 balances to conform to the current year presentation.

Discontinued operations presented in the condensed consolidated financial statements reflect the results of operations, the associated cash flows, and assets and liabilities of the New England newspaper properties sold in February 2007. Results of discontinued operations include an allocation of interest expense based on a ratio of net assets of the discontinued operations to the total consolidated net assets of the Company.

2. Liquidity

The Company entered into a Forbearance Agreement with the lenders under its Credit Agreement on July 24, 2008. As more thoroughly described in Note 3 under the subheading of Subsequent Event - Forbearance Agreement and Amendment No. 3 to Amended Credit Agreement, the lenders have agreed to forbear from exercising their rights to make the principal and accrued interest immediately payable as a result of the Company's failure to make interest payments during the forbearance period from July 24, 2008 through October 31, 2008. Under the Forbearance Agreement, the Company is required to deliver the terms of a plan for a comprehensive restructuring of the Company's capital structure by October 31, 2008. As a result, all amounts outstanding under the Credit Agreement have been classified as current liabilities as of June 29, 2008. There can be no assurance that the Company's capital restructuring plan will be satisfactory to the lenders and that the lenders will continue to forbear on exercising their rights under the Credit Agreement beyond October 31, 2008.

During the Forbearance Period the Company is restricted from requesting any borrowing (including the issuance of new letters of credit and swingline loans), and must make payments of at least $2.0 million a month into a cash collateral account established in the name of the administrative agent. These conditions of the Forbearance Agreement could materially and negatively impact the Company's liquidity, results of operations and financial condition during the forbearance period.

3. Bank Debt and Interest Rate Derivatives

The Company's bank debt was comprised of the following:

                                                   June 29,    December 30,
(In thousands)                                       2008          2007
                                                ------------- -------------
Term Loan A                                     $     542,500 $     555,000
Revolving Credit Facility                              99,597        69,800
                                                ------------- -------------
Total bank debt                                       642,097       624,800
Less: current bank debt                               642,097             -
                                                ------------- -------------
Noncurrent bank debt                            $           - $     624,800
                                                ============= =============

The Company's Credit Agreement was amended pursuant to Amendment No. 1 dated December 6, 2007 (the "First Amendment") and Amendment No. 2 (the "Second Amendment") dated April 29, 2008 (the "Second Amendment Effective Date"). The Credit Agreement and these two amendments are collectively referred to as the Amended Credit Agreement.

General Provisions After the First Amendment

The Amended Credit Agreement provides for (i) a secured term-loan facility ("Term Loan A") and (ii) a secured revolving credit facility (the "Revolving Credit Facility"). The Amended Credit Agreement also provides for an uncommitted, multiple-draw term-loan facility (the "Incremental Facility"), as permitted by the administrative agent, to be repaid under conditions provided for in the Amended Credit Agreement.

The First Amendment reduced the total amounts available under the Revolving Credit Facility from $375 million to $200 million and the Incremental Facility from $500 million to $250 million. The total leverage ratio and the interest coverage ratio were changed to less restrictive terms. Additionally, the base interest rate on the LIBOR denominated debt was increased by 150 basis points, from a base rate of 125 basis points to 275 basis points. The commitment fee on the unused portion of the Revolving Credit Facility was increased to 50 basis points from 37.5 basis points.

Amounts outstanding under the Amended Credit Agreement bear interest at either (i) 250 basis points to 275 basis points above LIBOR (as defined in the Credit Agreement) or (ii) 150 basis points to 175 basis points above the higher of (a) the Prime Rate (as defined in the Credit Agreement) or (b) 50 basis points above the Federal Funds Rate (as defined in the Credit Agreement). The interest rate spreads are dependent upon the ratio of the Company's debt to the Company's trailing four quarters cash flow (as defined in the First Amendment) and are reduced or increased as such ratio declines or increases, respectively. Prior to the First Amendment, amounts outstanding with a LIBOR based rate bore interest at a 125 basis points to 50 basis points margin above the reference rate. The borrowings outstanding at June 29, 2008 under the Amended Credit Agreement bore interest at various LIBOR rates plus 275 basis points or the Prime Rate plus 175 basis points (also see the interest rate derivative section of this footnote).

A commitment fee is incurred on the average daily unused portion of the Revolving Credit Facility, payable quarterly in arrears, at a fixed rate of 50 basis points beginning on the effective date of the First Amendment. Prior to the First Amendment, the commitment fee varied from 37.5 basis points to 25 basis points based on the quarterly calculation of the specified leverage ratio.

The First Amendment prohibits the payment of dividends and repurchase of the Company's common stock and requires the Company to maintain specified financial ratios, and subjects it to specified operational limitations, including, among others, limitations on its ability to incur additional indebtedness, to make certain fundamental Company changes (such as mergers and dispositions of assets), and to undertake certain capital expenditures. In addition to financial covenants, the full amount of the borrowings may become immediately due following other events of default by the Company or its subsidiaries as specified in the Amended Credit Agreement.

The borrowings are fully and unconditionally guaranteed by each of the Company's subsidiaries. The Company and its guarantor subsidiaries have pledged substantially all of their assets as collateral for the borrowings. Additionally, the lenders have perfected their interest in certain real estate assets by requiring the Company to issue mortgages on those real estate assets.

The Revolving Credit Facility under the Amended Credit Agreement is available until August 12, 2012. The Company is required to pay down the principal amount of Term Loan A in quarterly installments, which have been paid through the first fiscal quarter of 2009, and ends with a payment of $340 million on August 12, 2012.

The Amended Credit Agreement provides for mandatory prepayments with the proceeds of certain dispositions and casualty events and with specified percentages of excess cash flow (all as defined in the Amended Credit Agreement). At anytime, the Company may prepay borrowings without premium or penalty in accordance with the provisions of the Amended Credit Agreement, which limit any optional, non pro-rata prepayment to the next twelve months of future Term Loan A amortization payments.

Second Amendment

The terms of the Second Amendment apply for a limited period of time from the Second Amendment Effective Date to the date that the financial statements for the Company's second fiscal quarter of 2008 are delivered to the lenders. The Second Amendment reduced the total amount available under the Revolving Credit Facility from $200 million to $150 million, suspended borrowings under the Incremental Facility, and eliminated the requirement to maintain Interest Rate Protection Agreements ("IRPAs"). Additionally, the total leverage ratio required by the covenant applicable to the measurement dates of March 30, 2008 and July 23, 2008 was modified to less restrictive measurements of the total leverage ratio as defined in the Amended Credit Agreement. The Second Amendment limited the maximum cash balances held in the Company's bank accounts to $10 million, and adopted additional more restrictive covenants, limiting the Company's ability to make acquisitions, dispositions or investments and incur additional debt. Also, the Second Amendment requires interest to be paid monthly on the last day of the month and the interest rate is reset for a thirty day period and is based on the one-month LIBOR. In connection with the Second Amendment, the Company incurred approximately $0.4 million of costs, which were expensed in the second fiscal quarter of 2008.

Subsequent event:

Forbearance Agreement and Amendment No. 3 to Amended Credit Agreement

On July 24, 2008, the Company and the lenders under the Credit Agreement entered into a Forbearance Agreement. The Forbearance Agreement became effective on July 24, 2008 and terminates on October 31, 2008. During the forbearance period, interest will continue to accrue but will not be paid by the Company. The lenders will forbear from exercising certain remedies with respect to the interest payments not paid during the forbearance period, including, declaring the principal and interest on the outstanding debt immediately due and payable. Instead of making interest payments during the forbearance period, the Company will make certain payments of at least $2.0 million per month, into a cash collateral disbursement account maintained by the administrative agent. The Company will have the right to request transfers of funds from the disbursement account under certain conditions. The Forbearance Agreement prohibits any additional borrowings under the Credit Agreement, including the issuance of new letters of credit or the making of swingline loans, and reduces the aggregate Revolving Credit Facility from $150.0 million to $130.0 million. During the forbearance period, the total leverage and interest coverage ratio covenants will not apply. The post-default interest rate will apply during the forbearance period, and all outstanding LIBOR reference rate loans will be converted to base rate loans at the end of the applicable LIBOR period. The cost of the Forbearance Agreement was approximately $2.4 million. The Forbearance Agreement also requires the appointment of a Chief Restructuring Officer ("CRO") and outlines specific milestones to be met by the CRO and the Company during the forbearance period which include delivery of a 13-week cash flow projection, a revised five year business plan and terms of a plan for the comprehensive restructuring of the Company's capital structure. As noted above, the Company has appointed Robert Conway of Conway, Del Genio, Gries & Co., LLC to the position of CRO.

Interest Rate Derivatives

Prior to the Second Amendment Effective Date, the Company was required to maintain IRPAs on a portion of its debt to reduce the potential exposure of the Company's future cash flows to fluctuations in variable interest rates on which the interest on the outstanding debt is calculated. The minimum requirement varied depending on the Company's total leverage ratio, as defined in the Amended Credit Agreement. Each IRPA was designated for all or a portion of the principal balance and term of a specific debt obligation. After the Second Amendment Effective Date, the Company is no longer required to maintain IRPAs.

As of June 29, 2008, the Company had either terminated or dedesignated the remaining IRPAs as cash flow hedges. The derivative liabilities at June 29, 2008 consist of the following:

        (In thousands)                                             2008
                                                                 --------
        Value of terminated derivatives                          $  5,160
        Fair value of derivatives                                   7,491
                                                                 --------
        Derivative liabilities                                   $ 12,651
                                                                 ========

Termination of Certain Derivatives. During the second fiscal quarter of 2008, the Company entered into termination agreements with the counterparties of some of its interest rate derivatives. The Company agreed to pay $5.3 million, in the aggregate, to terminate these derivative agreements. Additionally, because these derivatives no longer qualify for hedge accounting, the accumulated mark-to-market losses in accumulated other comprehensive income will be amortized over the terms of the original hedge and will result in additional interest expense over the next three fiscal years. As of June 29, 2008, these terminated derivative liabilities have been classified as current liabilities in the accompanying condensed consolidated balance sheet and these termination liabilities will no longer be adjusted to fair value.

Change in Hedge Accounting. All of the interest rate derivatives, which were not settled, were dedesignated as cash flow hedges shortly after the Second Amendment Effective Date; accordingly, hedge accounting no longer applied to the change in fair value of the derivative instruments. Therefore, the change in fair value has been reflected in the earnings of the Company beginning after the Second Amendment Effective Date. Additionally, the accumulated mark-to-market losses in accumulated other comprehensive income will be amortized over the terms of the original derivatives and will result in additional interest expense over the next three years. This dedesignation resulted in the Company recognizing a gain of $3.3 million for the change in fair value during the period after the Second Amendment Effective Date which is included in the other income caption of the accompanying condensed consolidated statements of operations. The Company also recognized $1.2 million of additional interest expense from the amortization of the accumulated losses in accumulated other comprehensive income. As a result of the subsequent termination of all of these remaining interest rate derivatives (see Subsequent Event below), these associated liabilities have been classified as current liabilities in the accompanying condensed consolidated balance sheet at June 29, 2008.

Subsequent event:

Termination of Interest Rate Derivatives

After the end of the second fiscal quarter 2008, the Company terminated all the remaining interest rate derivatives contracts. However, the Forbearance Agreement provides that these liabilities will not be paid during the Forbearance Period. The total termination amount on July 23, 2008 was $11.7 million. The Forbearance Agreement and a separate standstill agreement entered into with the swap counterparties provide that these liabilities will not be paid during the forbearance period.

Interest Expense

The Company's weighted average effective interest rate was approximately 6.9 percent and 6.2 percent for the thirteen weeks ended June 29, 2008 and July 1, 2007, respectively. The following table shows components of interest expense included in the accompanying condensed consolidated statements of operations for the thirteen and twenty-six weeks ended June 29, 2008 and July 1, 2007:

                                      Thirteen Weeks     Twenty-six Weeks
                                          Ended               Ended
                                    ------------------  ------------------
                                    June 29,  July 1,   June 29,  July 1,
(In thousands)                        2008      2007      2008      2007
                                    --------  --------  --------  --------

Interest incurred                   $  9,417  $ 11,084  $ 20,285  $ 22,894
IRPA expense (benefit)                 1,371      (983)    1,681    (2,075)
Amortization of debt issuance costs      292       238       585       476
Amortization of gain on sale of
 derivatives                            (395)        -      (789)        -
Amortization of accumulated losses
 in AOCI                               1,213         -     1,213         -
Capitalized interest                      (2)     (238)       (7)     (445)
Other interest and fees                  231       251       465       538
                                    --------  --------  --------  --------
Interest expense                    $ 12,127  $ 10,352  $ 23,433  $ 21,388
                                    ========  ========  ========  ========

4. Comprehensive (Loss) Income and Accumulated Other Comprehensive (Loss) Income

The components of comprehensive (loss) income for the thirteen and twenty-six weeks ended June 29, 2008 and July 1, 2008 are as follows:

                                    Thirteen Weeks      Twenty-six Weeks
                                        Ended                 Ended
                                --------------------  --------------------
                                  June 29,   July 1,    June 29,    July 1,
(In thousands)                      2008       2007       2008       2007
                                -----------  -------  -----------  -------
Net (loss) income               $  (174,513) $ 5,520  $  (246,750) $34,606
Net change in fair value of
 highly effective hedges, net
 of income taxes                      1,844    2,255       (4,305)     921
Amortization of deferred gain
 on sale of derivatives, net of
 income taxes                          (231)       -         (462)       -
Amortization of accumulated
 losses associated with
 terminated and dedesignated
 hedges, net of income taxes            709        -          709        -
Retirement and post-retirement
 benefit plans changes, net of
 income taxes                            40       50           81      100
Mark-to-market adjustment of
 investments, net of income taxes         -      (40)           -       (4)
                                 ----------  -------  -----------  -------
Comprehensive (loss) income      $ (172,151) $ 7,785  $  (250,727) $35,623
                                 ==========  =======  ===========  =======

The components of accumulated other comprehensive (loss) income and changes therein are shown, net of income taxes, in the following table for the twenty-six weeks ended June 29, 2008:


                                                              Accumulated
                          Unrealized Recognition                 Other
                 Unrealized Gain on     of               Post  Comprehen-
(In thousands,      Loss    Sale of Accumulated         Retire-   sive
 net of income       on     Deriva-  Losses in Pension   ment    (Loss)
 taxes)            Hedges    tives   Earnings   Plans    Plans    Income
                  --------  -------  -------- --------  -------  ---------

Balance at
 December 30,
 2007             $ (4,730) $ 1,752  $      - $ (9,645) $ 1,471  $ (11,152)
                  --------  -------  -------- --------  -------  ---------

Change in fair
 value              (4,305)       -         -        -        -     (4,305)
Amortization of
 gain to income          -     (462)                 -        -       (462)
Amortization of
 accumulated
 losses of
 terminated and
 dedesignated
 hedges                                   709                          709
Reclassification
 adjustment of
 amounts
 recognized in
 net periodic
 pension costs           -        -         -      138      (57)        81
                  --------  -------  -------- --------  -------  ---------
Other
 comprehensive
 (loss) income      (4,305)    (462)      709      138      (57)    (3,977)
                  --------  -------  -------- --------  -------  ---------

Balance at June
 29, 2008         $ (9,035) $ 1,290  $    709 $ (9,507) $ 1,414  $ (15,129)
                  ========  =======  ======== ========  =======  =========

5. Fair Value Measurements

The company has partially adopted Statement of Financial Accounting Standards ("SFAS") No. 157 Fair Value Measurements ("SFAS 157"), which defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements for those assets and liabilities measured at fair value on a recurring and nonrecurring basis. SFAS 157 does not require any new fair value measurements but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements. The provisions of SFAS 157 were deferred for those nonfinancial assets and nonfinancial liabilities that are typically valued by the Company on a nonrecurring basis which include long-lived assets, goodwill and other intangible assets.

The following table shows the liabilities included in the accompanying condensed consolidated balance sheet as of June 29, 2008 which are measured at fair value in accordance with SFAS 157 on a recurring basis and the source of the fair value measurement:

(In thousands)

                                         Fair Value Measurement Using
                                    ---------------------------------------
                      Fair Value at Quoted Market  Observable  Unobservable
Description           June 29, 2008    Prices(1)    Inputs(2)    Inputs(3)
                      ------------- ------------- ----------- -------------
Cash Flow Derivatives $      12,651 $           - $    12,651 $           -
                      ============= ============= =========== =============

(1) The highest level of fair value input and represents inputs to fair
value from quoted prices in active markets for identical assets and
liabilities to those being valued.
(2) Directly or indirectly observable inputs, other than quoted prices in
active markets, for the assets or liabilities being valued including but
not limited to, interest rates, yield curves, principal-to-principal
markets, etc.
(3) Lowest level of fair value input because it is unobservable and
reflects the Company's own assumptions about what market participants would
use in pricing assets and liabilities at fair value.

The Company obtains quarterly pricing reports from the banks associated with each of the Company's derivative financial instruments. These pricing reports are based on the terms of the derivative financial instrument and the current and expected future market conditions as estimated by the banks. These valuations although not what the instruments would settle for in an actual transaction, are estimates based on models that each of the banks use to project future values and are thus indicative of the fair value of the instrument on the date of valuation.

An associated pronouncement, SFAS No. 159 The Fair Value Option for Financial Assets and Financial Liabilities, was also effective at the beginning of the Company's 2008 fiscal year. The Company has elected not to apply this fair value option to measure any of the financial assets and liabilities on its balance sheet not already valued at fair value under other accounting pronouncements.

6. Goodwill and Other Intangible Assets

Goodwill and indefinite-lived intangible assets are not amortized but are evaluated, at least annually, for impairment. The Company performs its annual impairment test as of the first day of the fourth quarter of each fiscal year, or more frequently if circumstances warrant. Other identifiable intangible assets that are not deemed to have an indefinite life are amortized over their estimated useful lives and are subject to tests of impairment when indicators of impairment are present.

Changes in the carrying amount of goodwill during the twenty-six weeks ended June 29, 2008 and for the 2007 fiscal year are as follows:

(In thousands)                                          2008       2007
                                                      ---------  ---------
Balance, beginning of period                          $ 613,096  $ 726,896
Impairment charges                                     (350,403)  (113,800)
                                                      ---------  ---------
Balance, end of period                                $ 262,693  $ 613,096
                                                      =========  =========

Aggregate goodwill impairment charges to date         $ 497,863  $ 147,460
                                                      =========  =========

Aggregate masthead impairment charges to date         $  99,500  $  67,500
                                                      =========  =========

As part of its strategic review of its business and restructuring efforts, the Company's management and its financial advisor developed a new five-year business plan, which includes projections of the Company's financial results for that time period. The Company's management considered this new outlook as well as continued declines in newspaper industry advertising revenues to constitute a change in circumstances that required a reassessment of the carrying values of the Company's goodwill between annual impairment testing dates. The required testing in accordance with GAAP, which, among other factors, requires consideration of the differences between current book value and the fair value of all of the Company's assets at it's various reporting units and a reconciliation with its current market capitalization. The Company used techniques and valuation assumptions similar to those used in its 2007 annual impairment test, which consisted of a combination of market and income approaches, but adjusted the assumptions about future cash flows at each reporting unit. The testing resulted in a $287.0 million impairment charge for the thirteen weeks ended June 29, 2008 against the indefinite-lived intangible assets of the Michigan and Philadelphia reporting units, writing down the goodwill for its Michigan and Philadelphia reporting units by $105.0 million and $157.0 million, respectively. The aggregate impairment charge also includes a $25.0 million impairment of the Company's mastheads in Michigan. In the first quarter of 2008, impairment charges of $95.4 million were recorded against the indefinite-lived intangible assets of the Company's Michigan and New York reporting units. The Company also recorded impairment charges primarily against the goodwill and mastheads of the Michigan reporting unit for the year-ended December 30, 2007, amounting to $181.3 million.

The approaches used in the above impairment analyses use estimates for future market growth, forecasted revenues and costs and selected discount rates. Changes to these estimates, including the inability to attain forecasted revenue and cost expectations, could result in the recognition of a future impairment loss.

The following table displays intangible assets subject to amortization and intangible assets not subject to amortization at June 29, 2008 and December 30, 2007:

                         June 29, 2008              December 30, 2007
                  ---------------------------- ----------------------------
                          Accumulated                  Accumulated
(In thousands)     Gross  Amortization   Net    Gross  Amortization   Net
                  -------- ---------  -------- -------- ---------  --------
Intangible assets
 subject to
 amortization:
Customer and
 subscriber lists $  9,477 $  (9,331) $    146 $  9,477 $  (9,280) $    197
Non-compete
 covenants           3,653    (2,824)      829    3,653    (2,675)      978
Debt issuance
 costs               5,459      (682)    4,777    5,459       (97)    5,362
                  -------- ---------  -------- -------- ---------  --------
Total               18,589   (12,837)    5,752   18,589   (12,052)    6,537
                  -------- ---------  -------- -------- ---------  --------
Intangible assets
 not subject to
 amortization:
Mastheads           37,875        --    37,875   69,875        --    69,875
                  -------- ---------  -------- -------- ---------  --------
Total other
 intangible
 assets           $ 56,464 $ (12,837) $ 43,627 $ 88,464 $ (12,052) $ 76,412
                  ======== =========  ======== ======== =========  ========

7. Contingencies

There are various legal actions that have arisen in the ordinary course of business and are now pending against the Company. It is the opinion of management, after reviewing these actions with legal counsel to the Company, that the ultimate liability that might result from these actions is not expected to have a material adverse effect on the Company's condensed consolidated balance sheets, statements of operations, or statements of cash flows.

8. Income Taxes

The Company uses the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities, and are measured using the currently enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. A valuation allowance is recorded against deferred tax assets when realization is not considered to be more-likely-than-not. As of June 29, 2008, the Company had net deferred tax assets of $46.1 million. Based primarily upon the Company's history of generating taxable income and projections of future taxable income, the Company believes, as of June 29, 2008 that it is more likely than not that the net deferred tax asset will be realizable. However, it is reasonably possible, pending the outcome of the uncertainties described more fully in Note 2, that this conclusion may change in future reporting periods.

As of June 29, 2008, the Company had approximately $28.7 million (before federal benefit) of unrecognized tax benefits. If recognized, $18.7 million of the unrecognized tax benefits would reduce income tax expense and the Company's effective tax rate. During the twenty-six weeks ended June 29, 2008, the amount of unrecognized tax benefits decreased $1.1 million (before federal benefit), as the Company settled a state tax issue previously provided for.

The Company recognizes interest and penalties related to unrecognized tax benefits as a component of tax expense. As of June 29, 2008, the Company has accrued $11.2 million (before federal benefit) of interest related to the unrecognized tax benefits. For the thirteen and twenty-six weeks ended June 29, 2008, the Company accrued additional interest of $0.6 million (before federal benefit) and $1.2 million (before federal benefit), respectively.

The Company and its subsidiaries are subject to U.S federal income tax as well as income taxes of multiple state jurisdictions. The Company's effective tax rate fluctuates over time based on income tax rates in the various tax jurisdictions in which the Company operates and based on the level of earnings in those jurisdictions. During the second quarter, the Internal Revenue Service completed its audit of the Company for the 2004, 2005, and 2006 tax years. The resulting assessment of $0.3 million (including interest) will be paid early in the third quarter. The Company has adequately accrued for this liability as of June 29, 2008.

The statute of limitations for certain states is open from 1998 to 2007. Management believes that its accrual for tax liabilities is adequate for all open years. However, this assessment relies on estimates and assumptions and may involve a series of complex judgments about future events. It is possible that state and local tax examinations will be settled during the next twelve months. If any of these tax audit settlements occur within the next twelve months, the Company would make any necessary adjustments to the accrual for uncertain tax benefits. Until formal resolutions are reached between the Company and the tax authorities, the determination of a possible audit settlement range with respect to the impact on uncertain tax benefits is not practicable. On the basis of the information available at June 29, 2008, it is the opinion of the Company's management that any assessments resulting from these current tax audits will not have a material adverse effect on the Company's condensed consolidated financial statements.

(1)Journal Register Company is not a SEC reporting Company, please see "An Important Note About This Report."

Contact Information

  • For more information:
    Gary R. Struening
    Vice President, Finance
    Tel: (215) 504-4200

    Journal Register Company
    790 Township Line Road
    Yardley, PA 19067
    Fax: (215) 504-4201