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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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FORM 10-Q

(Mark One)

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| | [X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended September 30, 2007

OR

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| | [ ] | 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 or Organization)


(I.R.S. Employer
Identification No.)790 Township Line Road, Suite 300, Yardley, PA


19067(Address of Principal Executive Offices)


(Zip Code)


(215) 504-4200

(Registrant’s Telephone Number, Including Area Code)

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50 West State Street, Trenton, New Jersey 08608-1298

(Former Address of Principal Executive Offices)

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 by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of ‘‘accelerated filer’’ and ‘‘large accelerated filer’’ in Rule 12b-2 of the Exchange Act.

Large accelerated filer[ ]Accelerated filer[X]Non-accelerated filer[ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes[ ]No[X]

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, 39,153,932 shares outstanding (exclusive of treasury shares) as of October 31, 2007.

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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




1Condensed Consolidated Statements of Income




2Condensed Consolidated Statements of Cash Flows




3Notes to Condensed Consolidated Financial Statements




4Item 2.


Management’s Discussion and Analysis of Financial Condition and Results of Operations




16Item 3.


Quantitative and Qualitative Disclosures about Market Risk




27Item 4.


Controls and Procedures




27PART II.


OTHER INFORMATIONItem 1.


Legal Proceedings




28Item 1A.


Risk Factors




28Item 2.


Unregistered Sales of Equity Securities and Use of Proceeds




28Item 6.


Exhibits




28Signature




29Exhibit 31.1


Certification of Chief Executive Officer




30Exhibit 31.2


Certification of Chief Financial Officer




31Exhibit 32


Certifications required under Section 906 of the Sarbanes-Oxley Act of 2002




32


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PART I.    FINANCIAL INFORMATION

Item 1.    Financial Statements

JOURNAL REGISTER COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)


September 30,
2007


December 31,
2006(Unaudited)ASSETS:Current assets:Cash and cash equivalents



$
3,829




$
3,930Accounts receivable, net




50,621





54,914Federal income tax refund receivable




6,087





—Inventories, consisting of newsprint and other raw materials




5,708





8,663Deferred income taxes




2,617





9,441Other current assets




7,000





7,456Current assets of discontinued operations




—





5,058Total current assets




75,862





89,462Property, plant and equipment:Property, plant and equipment, at cost




326,135





309,040Less: accumulated depreciation




(157,533
)




(147,166
)Property, plant and equipment, net




168,602





161,874Intangible and other assets:Goodwill




726,897





726,897Other intangible assets, net of accumulated amortization of $13,441 and $11,921, respectively




143,330





144,850Fair market value of hedges




—





5,974Assets held-for-sale




2,150





230Other assets




815





1,047Non-current assets of discontinued operations




—





30,448Total assets



$
1,117,656




$
1,160,782LIABILITIES AND STOCKHOLDERS’ EQUITY:Current liabilities:Current portion of long-term debt



$
—




$
22,500Accounts payable




13,545





19,028Income taxes payable




6,132





—Other accrued expenses and current liabilities




53,278





51,677Current liabilities of discontinued operations




—





2,157Total current liabilities




72,955





95,362Long-term debt, less current portion




642,200





707,700Deferred income taxes




108,675





115,207Accrued retiree benefits




3,894





12,071Non-current income taxes payable




37,932





17,776Fair market value of hedges




3,060





—Other non-current liabilities




8,137





9,097Non-current liabilities of discontinued operations




—





3,726Stockholders’ 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





484Additional paid-in capital




362,258





362,236Retained earnings (accumulated deficit)




24,207





(15,104
)Treasury stock, at cost, 9,289,095 shares and 9,315,545 shares, respectively
Shares




(136,976
)




(137,366
)Accumulated other comprehensive loss, net of income taxes




(9,170
)




(10,407
)Stockholders’ equity




240,803





199,843Total liabilities and stockholders’ equity



$
1,117,656




$
1,160,782


See accompanying notes to condensed consolidated financial statements.

1

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JOURNAL REGISTER COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

Thirteen Weeks Ended


Thirty-nine Weeks Ended(Dollars and shares in thousands, except per share data)


Sept 30,
2007


Sept 24,
2006(1)


Sept 30,
2007


Sept 24,
2006(1)Revenues:Advertising



$
85,755




$
94,673




$
264,767




$
291,005Circulation




22,852





22,860





68,763





69,045Newspaper revenues




108,607





117,533





333,530





360,050Commercial printing and other




4,387





4,501





14,275





14,112Total revenues




112,994





122,034





347,805





374,162Operating expenses:Salaries and employee benefits




45,831





48,836





140,614





153,783Newsprint, ink and printing charges




10,276





12,055





33,295





35,868Selling, general and administrative




18,196





17,871





56,424





55,712Depreciation and amortization




4,934





4,460





14,305





13,285Other




16,147





17,316





49,055





50,795Total operating expenses




95,384





100,538





293,693





309,443Operating income




17,610





21,496





54,112





64,719Net interest expense and other




(10,664
)




(10,999
)




(31,657
)




(32,320
)Write-off of debt issuance costs




—





—





—





(5,662
)Income from continuing operations before income taxes




6,946





10,497





22,455





26,737(Benefit from) provision for income taxes




(4,293
)




4,013





4,184





10,404Income from continuing operations




11,239





6,484





18,271





16,333Income (loss) from discontinued operations of New England
cluster, net of income taxes




—





786





(86
)




2,480Gain on sales of New England cluster operations, net of income taxes




—





—





27,660





—Net income



$
11,239




$
7,270




$
45,845




$
18,813Income per common share (basic)Income from continuing operations



$
0.29




$
0.17




$
0.47




$
0.41Income from discontinued operations of New England cluster, net of income taxes




—





0.02





—





0.06Gain on sales of New England cluster operations, net of income
taxes




—





—





0.70





—Net income per common share (basic)



$
0.29




$
0.19




$
1.17




$
0.47Income per common share (diluted)Income from continuing operations



$
0.28




$
0.17




$
0.47




$
0.41Income from discontinued operations of New England cluster, net of income taxes




—





0.02





—





0.06Gain on sales of New England cluster operations, net of income
taxes




—





—





0.70





—Net income per common share (diluted)



$
0.28




$
0.19




$
1.17




$
0.47Dividends declared per common share



$
0.02




$
0.02




$
0.06




$
0.06Weighted-average shares outstanding:Basic




39,146





39,150





39,138





39,608Diluted




39,519





39,188





39,327





39,636


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|(1) | The thirteen and thirty-nine weeks ended September 24, 2006 have been revised to show discontinued operations. Revenues and operating income are from continuing operations.
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See accompanying notes to condensed consolidated financial statements.

2

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

Thirty-nine Weeks Ended(Dollars in thousands)


Sept 30,
2007


Sept 24,
2006(1)Cash flows from operating activities:Net income



$
45,845




$
18,813Less: (Loss) income from discontinued operations, net of income taxes




(86
)




2,480Less: Gain from sales of discontinued operations, net of income taxes




27,660





—Income from continuing operations




18,271





16,333Adjustments to reconcile net income to net cash provided by operating activities




21,739





22,968Changes in operating assets and liabilities, net




(6,243
)




18,852Net cash provided by operating activities of continuing operations




33,767





58,153Net cash (used in) operating activities of discontinued operations




(23
)




(2,163
)Net cash provided by operating activities




33,744





55,990Cash flows from investing activities:Purchase of property, plant and equipment




(22,508
)




(19,251
)Proceeds from sales of property, plant and equipment




175





—Purchase of business, net of cash acquired




—





(2,942
)Net cash used in investing activities of continuing operations




(22,333
)




(22,193
)Net cash provided by (used in) investing activities of discontinued operations




78,838





(776
)Net cash provided by (used in) investing activities




56,505





(22,969
)Cash flows from financing activities:Proceeds from issuance of long-term debt




—





755,500Extinguishment of prior long-term debt




—





(755,500
)Debt issuance fees




—





(2,381
)Repayments of long-term debt




(52,500
)




—Borrowings from revolving credit facility




100,300





69,600Repayment of revolving credit facility




(135,800
)




(80,600
)Dividends paid




(2,350
)




(2,404
)Purchase of Company stock




—





(15,433
)Other financing activities




—





(234
)Net cash used in financing activities




(90,350
)




(31,452
)(Decrease) increase in cash and cash equivalents




(101
)




1,569Cash and cash equivalents, beginning of period




3,930





2,410Cash and cash equivalents, end of period



$
3,829




$
3,979


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|(1) | 2006 has been revised to show discontinued operations separate from the Company’s continuing operations.
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See accompanying notes to condensed consolidated financial statements.

3

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JOURNAL REGISTER COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2007
(Unaudited)

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. The Company also owns JobsInTheUS, a network of employment Web sites. The Company was incorporated on March 11, 1997 and became a publicly traded company in May 1997.

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 2007 and 2006 encompass 13 and 39 week periods. The periods presented are hereinafter referred to as either ‘‘the thirteen weeks’’ or ‘‘quarter ended’’ and either ‘‘the thirty-nine weeks’’ or ‘‘three quarters ended’’ or ‘‘nine months ended’’.

The condensed consolidated balance sheet as of December 31, 2006, which has been derived from audited financial statements, and the unaudited condensed consolidated interim financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. 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. 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 September 30, 2007 and the results of its operations and cash flows for the thirteen and thirty-nine weeks ended September 30, 2007 and September 24, 2006. These financial statements should be read in conjunction with the audited Consolidated Financial Statements and Notes thereto filed with the Securities and Exchange Commission on Form 10-K for the year ended December 31, 2006. The interim operating results are not necessarily indicative of the results to be expected for an entire year.

For the periods ended September 30, 2007, the Company has used the same significant accounting policies and estimates which are discussed in the Annual Report on Form 10-K for the year ended December 31, 2006, except for accounting pronouncements adopted in 2007 for a change in the measurement date for pension accounting and income tax uncertainties as discussed in notes 9 and 11, respectively.

2.    Reclassifications and Discontinued Operations

The Company sold its New England cluster newspaper properties, consisting of the Massachusetts and Rhode Island groups of newspapers, in February 2007. As a result of these sales, more fully discussed in note 4, the Company’s previously reported financial statements for 2006 have been revised to present those newspaper operations as discontinued operations separate from the continuing operations of the Company in the accompanying condensed consolidated statements of income. The Company reclassified $5.7 million of non-current liabilities of discontinued operations to accrued retiree benefits on its condensed consolidated balance sheet at December 31, 2006 to reflect the finalized sales agreements of its New England cluster operations. Results of discontinued operations include an allocation of interest based on a ratio of net assets of the discontinued operations to the total consolidated net assets. Additionally, the condensed consolidated balance sheets and statements of cash flows have been revised to present assets, liabilities and cash flows from discontinued operations separate from those of continuing operations.

4

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JOURNAL REGISTER COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2007
(Unaudited)

3.    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(Shares in thousands)


Sept 30,
2007


Sept 24,
2006


Sept 30,
2007


Sept 24,
2006Weighted-average shares – basic




39,146





39,150





39,138





39,608Effect of dilutive securities:Restricted stock units




373





38





189





28Weighted-average shares – diluted




39,519





39,188





39,327





39,636


Options to purchase approximately 4.2 million shares of common stock at a range of exercise prices from $14.00 to $22.50 per share were outstanding for the thirteen and thirty-nine week periods ended September 30, 2007, but were not included in the computation of diluted earnings per share for such periods because the exercise prices were greater than the average market price of the common shares during such periods. Similarly, options to purchase 5.2 million shares of common stock at a range of exercise prices from $14.00 to $22.50 were outstanding for the thirteen and thirty-nine week periods ended September 24, 2006, but were not included in the computation of the diluted earnings per share for such periods because the exercise prices of those options were greater than the average market price of the common shares during such periods. Additionally, performance based restricted stock units of 0.3 million shares for the thirteen and thirty-nine week periods ended September 30, 2007 and 0.4 million shares for the thirteen and thirty-nine week periods ended September 24, 2006, have been excluded from the computation of diluted earnings per share for each period because management determined that the performance criteria necessary for vesting would not be met.

4.    Acquisitions and Dispositions

The Company applies the purchase method of accounting for acquisitions. Acquisitions and dispositions of properties are subject to closing costs and may be subject to the finalization of customary adjustments. Results of operations of the Company’s acquisitions are included in the Company’s results of operations from the dates of their respective acquisition. The results of operations, cash flows and assets and liabilities of the Company’s dispositions are reflected as discontinued operations.

On March 29, 2006, the Company completed the acquisition of the assets of the Suburban Lifestyles Community Newspaper Group (‘‘Suburban Lifestyles’’). Based in Rochester Hills, Michigan, Suburban Lifestyles’ publications are distributed in Oakland and Macomb Counties and focus on local news and information in each of the communities served. Suburban Lifestyles has been integrated into the Company’s Michigan cluster.

During December 2006, the Company signed a definitive agreement to sell its Massachusetts group of community newspapers to Gatehouse Media for approximately $72 million in cash and estimated working capital, subject to certain post-closing adjustments. The newspapers included in the sale wereThe Herald Newslocated in Fall River, Massachusetts and theTaunton Daily Gazettelocated in Taunton, Massachusetts and five non-daily publications. The sale transaction was completed on February 9, 2007. On February 5, 2007, the Company completed the sale of its three daily community newspapers and its weekly newspaper group in Rhode Island to R.I.S.N. Operations Inc. The daily newspapers included in the sale areThe Call,The TimesandKent County Daily Timesin Woonsocket, Pawtucket and West Warwick, Rhode Island, respectively, and its weekly group, the

5

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JOURNAL REGISTER COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2007
(Unaudited)

4.    Acquisitions and Dispositions(continued)

Southern Rhode Island Newspaper Group, in Wakefield, Rhode Island. The final sales price was approximately $8.3 million in cash, including working capital. Net after-tax proceeds of the sales were used to pay down debt and for general working capital purposes. The Company recorded an aggregate gain on the disposition of these newspaper operations, after direct costs of the transactions, of $27.7 million ($17.9 million net of income taxes). The proceeds, net of direct costs, which totaled $78.8 million, are reported as cash provided by investing activities of discontinued operations in the accompanying condensed consolidated statements of cash flows.

The following chart summarizes the aggregate results of the Rhode Island and Massachusetts newspaper operations for the periods presented in the accompanying condensed consolidated statements of income:

Thirteen Weeks Ended


Thirty-nine Weeks Ended(Dollars in thousands)


Sept 30,
2007


Sept 24,
2006


Sept 30,
2007 (a)


Sept 24,
2006Net revenue




—




$
9,694




$
3,309




$
29,321Cost and expenses




—





8,042





3,337





24,347Operating income (loss) from discontinued operations




—





1,652





(28
)




4,974Allocated interest expense




—





285





113





822Other expense




—





7





—





30Income (loss) from discontinued operations before
income taxes




—





1,360





(141
)




4,122Provision (benefit) for income taxes




—





574





(55
)




1,642Income (loss) from discontinued operations




—




$
786




$
(86
)



$
2,480


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|(a) | The amounts reflect the partial period of the Company’s ownership. The periods are from January 1, 2007 to February 5, 2007 and January 1, 2007 to February 9, 2007 for the Rhode Island newspapers operations and the Massachusetts newspaper operations, respectively.
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5.    Long-Term Debt and Interest Rate Derivatives

The Company’s long-term debt was comprised of the following:

(Dollars in thousands)


September 30,
2007


December 31,
2006Term Loan A



$
565,000




$
617,500Revolving Credit Facility




77,200





112,700Total long-term debt




642,200





730,200Less: current portion




—





22,500Total long-term debt, less current portion



$
642,200




$
707,700


On January 25, 2006, the Company borrowed $625 million under Term Loan A and $130.5 million in revolving credit loans. These borrowings were used to repay term loans and revolving credit loans outstanding, to pay fees and expenses of the new financing, and for general corporate purposes. The Amended and Restated Credit Agreement (the ‘‘Credit Agreement’’) provides for (i) a secured term-loan facility (‘‘Term Loan A’’) with a face amount of $625 million and (ii) a secured revolving credit facility (the ‘‘Revolving Credit Facility’’) of $375 million. As of September 30, 2007, the maximum availability under the Revolving Credit Facility was $288.7 million

6

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JOURNAL REGISTER COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2007
(Unaudited)

5.    Long-Term Debt and Interest Rate Derivatives(continued)

(including the effect of $9.1 million in outstanding letters of credit), with approximately $30.0 million available based on the terms and covenants of the Credit Agreement. The estimated fair value of the Term Loan A and the Revolving Credit Facility approximate their carrying value.

The Credit Agreement also provides for an uncommitted, multiple-draw term-loan facility (the ‘‘Incremental Facility’’) of up to $500 million, as permitted by the administrative agent, to be repaid under conditions provided for in the Credit Agreement. To date, the Company has not drawn down on the Incremental Facility. Additionally, the lenders have no obligation to make additional loans to the Company under the Incremental Facility, but may enter into these commitments at their sole discretion.

The Credit Agreement provides for mandatory prepayments with the proceeds of certain dispositions and casualty events and specified percentages of defined excess cash flow. In addition, the full amount of the borrowings may become immediately due following events of default by the Company or its subsidiaries, as specified in the Credit Agreement. The Company must also meet certain covenants at each quarter. As of September 30, 2007, the Company was in compliance with these covenants.

The Company, at its option, may prepay borrowings without premium or penalty in accordance with the provisions of the Credit Agreement. These provisions limit any optional prepayment to the next twelve months of future maturities. On February 27, 2007, April 10, 2007, and July 10, 2007 the Company prepaid $32.5 million, $10.0 million, and $10.0 million, respectively, for the quarterly installments of Term Loan A through September 2008. The Company made these optional prepayments under the terms of the Credit Agreement from the proceeds of the sales of its New England properties. Interest and commitment fees are payable quarterly or at the end of selected interest periods.

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 under the Credit Agreement.

The aggregate fiscal year maturities of Term Loan A at September 30, 2007 are as follows (dollars in thousands):

2008



$
10,0002009




50,0002010




60,0002011




60,0002012




385,000Total Term Loan A



$
565,000


The initial availability of $375 million of the Revolving Credit Facility under the Credit Agreement is available until August 12, 2012. Upon expiration of the Revolving Credit Facility, the Company is required to repay or refinance the amounts due to the lenders at that time.

Subsequent event

On October 2, 2007, the Company made an optional prepayment of $10.0 million for the next 2008 quarterly installment on the outstanding Term Loan A. The next payment of $12.5 million is due in the first fiscal quarter of 2009.

7

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JOURNAL REGISTER COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2007
(Unaudited)

5.    Long-Term Debt and Interest Rate Derivatives(continued)

Interest Rate Derivatives

In accordance with the requirements of the 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 to fluctuations in variable interest rates on which the interest on the outstanding debt is calculated. The minimum required amount of IRPAs 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.

At September 30, 2007, IRPAs consisted of interest rate collars and interest rate swaps with an aggregate notional amount of $175.0 million and $125.0 million, respectively.

The IRPAs were fully effective in hedging a portion of the changes in cash flows related to the debt obligation during the quarter and nine-month periods ended September 30, 2007 and the fiscal year ended December 31, 2006. The Company reported a deferred loss in accumulated other comprehensive income as of September 30, 2007 of approximately $1.7 million compared to a deferred gain of $3.5 million at December 31, 2006 (which are net of $1.4 million and $2.5 million of deferred tax assets and liabilities, respectively).

The fair market value of the derivatives is reflective of the price that a third party would be willing to pay or receive in arm’s length transactions and includes adjustments for mark-to-market changes in the related interest rates. During the three quarters endedSeptember 30, 2007, the fair market value of the IRPAs decreased from December 31, 2006 by $9.0 million to a net liability position of $3.1 million. In comparison, the fair market value of the Company’s hedges during the three quarters ended September 24, 2006, decreased by $1.2 million to a net asset position of $6.0 million from December 25, 2005.

During the quarter, the Company sold two of its designated hedge financial instruments for a gain of $2.1 million (net of $1.6 million of income taxes). This gain has been deferred as a component of accumulated other comprehensive income and will be amortized over 28 months, the original term of the expected hedged cash flows. The results of the third quarter reflect amortization of $0.2 million of the gain as an offset against interest expense. The proceeds of $3.7 million from the sale of these designated hedges are included in cash flows from operations.

The Company’s weighted average effective interest rate was approximately 6.6 percent for the quarter ended September 30, 2007 and approximately 5.8 percent for the quarter ended September 24, 2006.

8

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JOURNAL REGISTER COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2007
(Unaudited)

5.    Long-Term Debt and Interest Rate Derivatives(continued)

The following table shows the components of interest expense and other included in the accompanying condensed consolidated statements of income:

Thirteen Weeks Ended


Thirty-nine Weeks Ended(Dollars in thousands)


Sept 30,
2007


Sept 24,
2006


Sept 30,
2007


Sept 24,
2006Interest incurred



$
11,043




$
11,880




$
33,938




$
33,840Settlement of hedges




(645
)




(1,460
)




(2,720
)




(2,775
)Amortization of debt issuance costs




238





235





714





754Amortization of deferred gain on sale of derivatives




(197
)




—





(197
)




—Capitalized interest




(17
)




(62
)




(461
)




(110
)Interest expense




10,422





10,593





31,274





31,709Other expense, net




242





406





383





611Net interest expense and other



$
10,664




$
10,999




$
31,657




$
32,320


6.    Stock Incentive Plans

During 1997, the Company’s Board of Directors (the ‘‘Board’’) adopted, and the Company’s stockholders approved, the Company’s 1997 Stock Incentive Plan (the ‘‘1997 Plan’’). On May 2, 2007, the Company’s stockholders approved amendments to the 1997 Plan. As a result, the 1997 Plan was extended for a ten year period which expires on May 2, 2017. Additionally, other provisions were changed to conform to the Company’s current practices and current tax law. The amendments did not change the number of shares authorized to be issued under the 1997 Plan. The 1997 Plan, as amended, authorizes grants of up to 7,383,750 shares of common stock through: (i) incentive stock options and non-qualified stock options (in each case, with or without stock appreciation rights) to acquire common stock; (ii) awards of restricted shares of common stock; and (iii) stock units to such directors, officers and other employees of, and consultants to, the Company and its subsidiaries and affiliates as may be designated by the Compensation Committee of the Board or such other committee of the Board as the Board may designate. Options and other awards granted under the plan will remain in effect after the plan has terminated in accordance with their respective terms.

Incentive Stock Options

Incentive stock options are granted at no less than fair market value of the common stock on the date of grant. The exercise price per share of common stock underlying all other non-statutory stock options is established by the Compensation Committee of the Board. Stock options generally vest evenly over a five year period at a rate of 20 percent per year commencing on the first anniversary after issuance, continuing through the fifth anniversary. Upon vesting, options may be exercised at the discretion of the holder at anytime until the option expires, which is generally ten years after issuance. Outstanding options do not accrue dividends. No stock options were granted during the thirteen and thirty-nine weeks ended September 30, 2007. All outstanding stock options at September 30, 2007 are fully vested.

9

---



JOURNAL REGISTER COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2007
(Unaudited)

6.    Stock Incentive Plans(continued)

The following table summarizes the Company’s stock option activity for the thirty-nine weeks ended September 30, 2007:

Number Of
Options


Weighted-Average
Exercise PriceOutstanding – beginning of period




5,111,829




$
18.31Granted




—





—Exercised




—





—Forfeited and expired




(882,726
)




20.08Outstanding and exercisable-end of period




4,229,103




$
17.94


Further information about stock options outstanding at September 30, 2007 is as follows:

Range of Exercise Prices


Number
Outstanding and
Exercisable


Weighted-Average
Remaining
Contractual
Life (years)


Weighted-Average
Exercise Price$14.00 – $16.00




1,732,935





2.5




$
15.02$16.01 – $18.00




914,505





6.2





17.32$18.01 – $20.00




344,813





6.5





19.38$20.01 – $22.50




1,236,850





2.5





22.094,229,103





3.6




$
17.94


Restricted Stock Units (‘‘RSUs’’)

The Company has issued RSUs which vest over a period of time, generally one or three years. These time-vested units result in compensation expense recognized over the vesting period. RSUs are entitled to dividends and the Company accrues dividends for all periods in which a restricted stock unit is outstanding, but still subject to vesting. In addition to the time vested RSUs, the Company has issued units which vest based on the achievement of performance milestones over a period of time, typically achievement of certain levels of earnings before interest, taxes and depreciation and amortization (‘‘EBITDA’’) within five years. The Company has assumed a 10 percent rate of forfeiture. The Company assesses the probability of the performance targets being achieved over the vesting period of the grants at each reporting period. If it is likely that the performance targets will be achieved over the vesting period, expense is recorded during the period for those shares which are likely to vest as a result of the achievement of those targets. To date, the Company has not recorded any expense for the units that may vest based on achievement of performance targets. The following table summarizes the Company’s RSU activity during the thirty-nine weeks ended September 30, 2007 and shows the RSU date-of-grant weighted average market price:

Number of
RSUs


Weighted-Average
Grant Share
PriceOutstanding – beginning of period




397,750




$
11.44Granted




357,775





5.80Vested




(26,450
)




11.52Forfeited and expired




(60,025
)




9.43Outstanding-end of period




669,050




$
8.60


10

---



JOURNAL REGISTER COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2007
(Unaudited)

7.    Comprehensive Income

The components of comprehensive income are as follows:

Thirteen Weeks Ended


Thirty-nine Weeks Ended(Dollars in thousands)


Sept 30,
2007


Sept 24,
2006


Sept 30,
2007


Sept 24,
2006Net income



$
11,239




$
7,270




$
45,845




$
18,813Net change in fair value of fully effective hedges, net of income taxes




(4,140
)




(5,999
)




(3,219
)




(688
)Retirement and post-retirement benefit plans changes, net of income taxes




77





—





4,459





—Mark-to-market adjustment of investments, net of income taxes




—





1





(3
)




3Comprehensive income



$
7,176




$
1,272




$
47,082




$
18,128


8.    Goodwill and Other Intangible Assets

The Company’s goodwill and indefinite-lived intangible assets are not amortized but are subject to annual or, if required, more frequent review for impairment. The Company performs its annual impairment test as of the first day of the fourth quarter of each fiscal year. 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.

For the first nine months of 2007, the operating results of the Michigan cluster have been trending lower than expected due to, among other factors, a sluggish local economy and industry wide declines in advertising revenue. Considering this trend, it is possible that upon the completion of the Company’s annual impairment test the goodwill at Michigan and other clusters could be determined impaired, in which case the goodwill would be written down to its implied fair value.

The following table displays intangible assets subject to amortization and intangible assets not subject to amortization:

September 30, 2007


December 31, 2006(Dollars in thousands)


Gross


Accumulated
Amortization


Net


Gross


Accumulated
Amortization


NetIntangible assets subject to amortization:Customer and subscriber lists



$
9,477




$
(9,255
)



$
222




$
9,477




$
(8,678
)



$
799Non-compete covenants




3,653





(2,600
)




1,053





3,653





(2,370
)




1,283Debt issuance costs




6,266





(1,586
)




4,680





6,266





(873
)




5,393Total




19,396





(13,441
)




5,955





19,396





(11,921
)




7,475Intangible assets not subject to amortization:Mastheads




137,375





—





137,375





137,375





—





137,375Total other intangible assets



$
156,771




$
(13,441
)



$
143,330




$
156,771




$
(11,921
)



$
144,850


There were no changes in the carrying amount of goodwill during the quarter ended September 30, 2007. Changes during the fiscal year ended December 2006 reflect the addition of goodwill for the acquisition of Suburban Lifestyles, the write-down of a portion of the Company’s Michigan cluster goodwill, as well as adjustments to the purchase prices of JobsInTheUS and Suburban Lifestyles.

11

---



JOURNAL REGISTER COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2007
(Unaudited)

8.    Goodwill and Other Intangible Assets(continued)

The changes in the carrying amount of goodwill are as follows:

(Dollars in thousands)


September 30,
2007


December 31,
2006Beginning balance



$
726,897




$
757,780Goodwill acquired during period




—





3,388Asset write-down




—





(33,660
)Adjustments




—





(611
)Ending balance



$
726,897




$
726,897


9.    Pension and Other Post-retirement Benefits

In September 2006, the Financial Accounting Standards Board (the ‘‘FASB’’) issued Statement of financial Accounting Standard (‘‘SFAS’’) No. 158Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans(‘‘SFAS 158’’). SFAS 158 amends SFAS No. 87Employers’ Accounting for Pensions, SFAS No. 88Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits, SFAS No. 106Employers’ Accounting for Postretirement Benefits Other than Pensionsand SFAS No. 132Employers’ Disclosures about Pensions and Other Postretirement Benefits. The amendments retain most of the existing measurement and disclosure guidance of the original standards except that SFAS 158 required companies to recognize a net asset or liability with an offset to equity, by which the defined-benefit-postretirement obligation is over or under-funded. The Company adopted these provisions at the end of its fiscal year ended December 31, 2006.

Additionally, SFAS 158 changes the measurement date to be the end of the Company’s fiscal year. The effective date for this part of the statement is for fiscal years ending after December 15, 2008 with early adoption encouraged. The Company adopted this part of the standard at the beginning of the first quarter of 2007. The effect of adopting the change in measurement date provisions of SFAS 158 as of January 1, 2007 is shown in the following table (also see note 7):

(Dollars in thousands)


Before Application
of SFAS 158
Measurement Date
Provisions


Effect of
Adoption


After Application
of SFAS 158
Measurement Date
ProvisionsCurrent liabilities



$
419





—




$
419Non-current liability for post-retirement benefits



$
12,020




$
(7,235
)



$
4,785Deferred taxes



$
9,879




$
(3,042
)



$
6,837Accumulated other comprehensive loss



$
(10,407
)



$
4,283




$
(6,124
)Accumulated deficit



$
(15,104
)



$
(302
)



$
(15,406
)Total stockholders’ equity



$
199,843




$
3,981




$
203,824


12

---



JOURNAL REGISTER COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2007
(Unaudited)

9.    Pension and Other Post-retirement Benefits(continued)

Net periodic (benefit) cost and other information

Net periodic (benefit) cost for the thirteen and thirty-nine week periods ended September 30, 2007 and September 24, 2006 included the following components:

Pension Benefits


Other
Post-Retirement
Benefits(Dollars in thousands)
Thirteen Weeks Ended:


Sept 30,
2007


Sept 24,
2006


Sept 30,
2007


Sept 24,
2006Components of net periodic( benefit) cost:Service cost



$
217




$
763




$
6




$
6Interest cost




1,605





1,550





66





66Expected return on plan assets




(2,287
)




(2,141
)




—





—Amortization of net:Prior service cost




(12
)




(88
)




—





—Loss/(gain)




184





388





(36
)




(98
)Net periodic (benefit) cost



$
(293
)



$
472




$
36




$
(26
)


Pension Benefits


Other
Post-Retirement
Benefits(Dollars in thousands)
Thirty-nine weeks Ended:


Sept 30,
2007


Sept 24,
2006


Sept 30,
2007


Sept 24,
2006Components of net periodic( benefit) cost:Service cost



$
684




$
2,289




$
18




$
18Interest cost




4,815





4,650





198





198Expected return on plan assets




(6,861
)




(6,423
)




—





—Amortization of net:Prior service cost




(36
)




(264
)




—





—Loss/(gain)




552





1,164





(210
)




(294
)Net periodic (benefit) cost



$
(846
)



$
1,416




$
6




$
(78
)


The Company does not expect to contribute to its defined benefit pension plans and expects to contribute approximately $291,000 to its post-retirement health and life insurance plans in fiscal year 2007. During the thirteen and thirty-nine weeks ended September 30, 2007, approximately $73,000 and $218,000, respectively, was contributed to Company sponsored post-retirement health and life insurance plans. No contributions were made during 2007 to the Company’s defined benefit plans.

Effective January 1, 2007, the Company introduced a new retirement plan and changed its defined benefit pension plan for non-union employees. The Company had several 401(k) plans and a defined benefit pension plan that covered non-union employees in 14 locations. Approximately 1,500 non-union employees who were covered by a defined benefit pension plan were eligible to participate in an IRS designated Safe Harbor 401(k) plan. In addition, certain other non-union employees who did not participate in the Company’s defined benefit pension plan became eligible to participate in the IRS designated Safe Harbor 401(k) plan. Under the new 401(k) plan, eligible employees can receive up to a 4 percent Company match with immediate vesting. Retirement benefits earned by non-union employees through December 31, 2006 under the defined benefit pension plan were preserved.

13

---



JOURNAL REGISTER COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2007
(Unaudited)

10.    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 the Company’s legal counsel, that the ultimate liability which may result from these actions is not expected to have a material adverse effect on the Company’s condensed consolidated balance sheets, statements of income, or statements of cash flows.

11.    Income Taxes

On January 1, 2007, the Company adopted Financial Accounting Standards Board Interpretation No. 48Accounting for Uncertainty in Income Taxes(‘‘FIN 48’’). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS 109,Accounting for Income Taxes, and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

As a result of the adoption of FIN 48, the Company recognized a net increase related to certain state income tax obligations of $3.9 million (after federal income tax benefit) in the liability for unrecognized tax benefits through a reduction to the January 1, 2007 balance of retained earnings. As of January 1, 2007, the Company had approximately $29 million (before federal income tax benefit) of unrecognized tax benefits. If recognized, $20.7 million of the unrecognized tax benefits would reduce income tax expense and the Company’s effective tax rate. During the thirty-nine weeks ended September 30, 2007, the amount of unrecognized tax benefits increased $1.7 million, reflecting an increase of $0.4 million for the third quarter of 2007.

The Company continues to recognize accrued interest and penalties related to unrecognized tax benefits as a component of tax expense. As of January 1, 2007, the Company has accrued $10 million (before federal income tax benefit) of noncash interest related to the unrecognized tax benefits. For the thirteen week and thirty-nine week periods ended September 30, 2007, the Company recognized additional noncash interest of $0.6 million and $1.9 million, respectively (before federal income tax benefit).

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. The Company is currently being audited by the Internal Revenue Service (‘‘IRS’’) for the 2004 tax year and the IRS has commenced a pre-audit of the 2005 and 2006 tax years. The statute of limitations for certain states is open from 1998 to 2006. Management believes that its accrual for tax liabilities is adequate for all open years. This assessment relies on estimates and assumptions and may involve a series of complex judgments about future events.

It is reasonably possible that federal, 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 present information, it is the opinion of the Company’s management that any assessments resulting from current audits will not have a material adverse effect on the Company’s condensed consolidated financial statements.

The Company recognized a tax benefit of $4.3 million for the third quarter of 2007 compared to a tax provision of $4.0 million in the third quarter of 2006. The 2007 benefit is primarily a result of the

14

---



JOURNAL REGISTER COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2007
(Unaudited)

11.    Income Taxes(continued)

recognition of $6.1 million of federal income tax refunds, including $1.0 million of interest, due from filings amended to carry back/forward a net operating loss generated in 2001. The refunds were received in October 2007, subsequent to the end of the third quarter.

The third quarter of 2007 was also impacted by a change in Michigan State tax law. Effective January 1, 2008, this new legislation replaces its Single Business Tax with a hybrid income and gross receipts tax. Under SFAS 109, as interpreted by FIN 48, the Company was required to remeasure its deferred tax liabilities as they relate to Michigan. The new Michigan deferred liability totaled $3.1 million (net of federal benefit), which was entirely offset by an additional piece of legislation that provided for a deduction equal to any additional deferred liability resulting from the new tax. Due to the enactment of the new Michigan Business Tax, the Company reversed a $1.8 million deferred tax liability (net of federal benefit) which had been established under the prior Michigan tax law.

Absent these tax adjustment items and the FIN 48 charges detailed above, the Company’s effective tax rate on continuing operations was 41.8 percent for the third quarter of 2007 compared with 38.2 percent in the third quarter of 2006.

12.    Recently Issued Accounting Pronouncements

In September 2006, the FASB issued 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. SFAS 157 does not require any new fair value measurements but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements. SFAS 157 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of SFAS 157, but does not expect the adoption of SFAS 157 to have a material impact on its consolidated financial position, results of operations or cash flows.

In February 2007, the FASB issued SFAS No. 159,The Fair Value Option for Financial Assets and Financial Liabilities (‘‘SFAS 159’’), which permits all entities to choose, at specified election dates, to measure eligible items at fair value that currently are not measured at fair value. Any business entity electing to measure eligible items at fair value would report unrealized gains and losses in earnings in subsequent periods and all up front costs and fees related to the fair value item are to be recognized in earnings as incurred and not deferred. The option is applied instrument by instrument with certain exceptions, is irrevocable, and applied to the entire financial instrument. SFAS 159 is effective for fiscal years beginning after November 15, 2007 and is applied prospectively with the exception that a business entity may elect to value existing eligible items and shall report the effect of this re-measurement to fair value as a cumulative-effect adjustment to the opening balance of retained earnings. The Company is currently evaluating the impact, if any, of adopting this statement.

13.    Subsequent Event

Effective November 1, 2007, the Company accepted the resignation of a key officer of the Company. In connection with this resignation, the Company entered into a separation agreement with the officer which requires a lump sum cash payment of approximately $4.8 million payable on May 1, 2008, accelerated vesting of RSUs resulting in the issuance of 192,500 shares of common stock, and various other future benefits for which the Company has not finalized the amount of the charge to be taken in the fourth quarter of 2007.

15

---



Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Note Regarding Forward-Looking Statements

Statements in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding the Company’s (as hereinafter defined) expectations, forecasts, projections, hopes, intentions or strategies regarding the future. Forward-looking statements include statements regarding the Company’s plans and objectives 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, 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 asset sales and divestiture activities, developments in discussions with the Company’s lenders concerning modifications to our financial covenants, 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, the ability of the Company to access credit markets under satisfactory terms, changes in performance that affect financial covenant compliance or funds available for borrowing, technological changes, the adoption of new accounting standards or changes in accounting standards. These and other factors are discussed in more detail in the Company’s other filings with the Securities and Exchange Commission, including the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006. 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.

General

The Company’s principal business is publishing newspapers in print and online in the United States of America, and the Company’s publications are primarily daily and non-daily newspapers. The Company derives its revenues primarily from advertising, paid circulation and commercial printing.

The Company currently owns 22 daily newspapers and 346 non-daily publications and operates 227 individual Web sites that are affiliated with the Company’s daily newspapers, non-daily publications and the Company’s network of employment Web sites. All of the Company’s Web sites can be accessed at www.JournalRegister.com. 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 premier employment Web sites. The Company has total paid daily circulation of approximately 559,000, total paid Sunday circulation of approximately 586,000, and total non-daily distribution of approximately 6 million.

The Company’s newspapers are characterized by their intense focus on the coverage of local news and local sports, their compelling graphic design and their colorful, reader-friendly packages. The Company manages its newspapers to best serve the needs of its local readers and advertisers. The editorial content of the Company’s newspapers is tailored to the specific interests of each community served and includes coverage of local youth, high school, college and professional sports, as well as local business, politics, entertainment and culture. The Company maintains high product quality standards and uses extensive process color and graphic design to more fully engage existing readers and to attract new readers. The Company’s newspapers typically are produced using advanced prepress pagination technology, and are printed on efficient, high-speed presses.

16

---



Online Operations

The Company is committed to expanding its business through Internet initiatives, some of which are further described in this section. The Company’s 227 Web sites generated approximately 97.7 million page views for the third quarter of 2007, which reflects a 12.7 percent increase as compared to the prior year period.

On November 20, 2006, Yahoo! Inc. announced a strategic partnership with more than 150 daily U.S. newspapers (the ‘‘consortium’’), including 22 of the Company’s daily newspapers, to deliver search, graphical and classified advertising to consumers in the communities where they live and work. Beginning with recruitment advertising, the newspapers and Yahoo! HotJobs are bringing one of the largest online audiences, targeting capabilities, local expertise and advertising power to recruiters and job-seekers. In addition, the consortium plans to work together to provide search, content, and local applications across the newspapers’ Web sites. Yahoo! HotJobs is operational at all of the Company’s 22 daily newspapers and 21 weekly newspapers in the Michigan cluster.

In April 2007, the Company entered into a second phase of its relationship with Yahoo! that will integrate Yahoo!’s search and other cutting edge online advertising technologies into the Company’s web platforms. This alliance allows for: 1) the extended distribution of local recruitment ads through the Company’s co-branded employment Web sites with Yahoo! HotJobs; 2) access to Yahoo!’s advanced technology, including search and ad serving functionality; 3) expansion of local audiences by the partnership creating a powerful national advertising network; and 4) linkage between the Company’s newspapers with the current Yahoo! audiences which include desirable younger demographics.

In another 2006 initiative, the Company began the development of a new Web platform that will replace its existing Web sites and the Company expects that this new platform will be used by all of its newspapers. This new Web site design will enhance the users experience through video streaming and pod casting and will attract advertisers to use the Web sites for their local advertising needs. This platform became operational in West Chester, PA through the www.DailyLocal.com Web site during the first quarter of 2007, and is currently in use throughout the Philadelphia cluster. It is expected that this web platform will be expanded to all of the Company’s daily publications by the end of 2007.

The Company’s online objective is to make its Web sites, all of which are accessible through www.JournalRegister.com, the preferred local portal for their respective markets by establishing such Web sites as the leading source of useful and reliable community news, sports, information and advertising in their markets.

Acquisitions and Dispositions

On March 29, 2006, the Company acquired the assets of the Suburban Lifestyles Community Newspaper Group, (‘‘Suburban Lifestyles’’). Based in Rochester Hills, Michigan, Suburban Lifestyles publications are distributed in many of the affluent neighborhoods of Oakland and Macomb Counties and focus on local news and information in each of the communities served. Suburban Lifestyles has been integrated into the Company’s Michigan cluster.

During December 2006, the Company signed a definitive agreement to sell its Massachusetts group of community newspapers to Gatehouse Media for approximately $72 million in cash and estimated working capital, subject to certain post-closing adjustments. The newspapers included in the sale areThe Herald Newslocated in Fall River, Massachusetts and theTaunton Daily Gazettelocated in Taunton, Massachusetts and five non-daily publications. The sale transaction was completed on February 9, 2007. On February 5, 2007, the Company completed the sale of its three daily community newspapers and its weekly newspaper group in Rhode Island to R.I.S.N. Operations Inc. The daily newspapers included in the sale wereThe Call,The TimesandKent County Daily Timesin Woonsocket, Pawtucket and West Warwick, Rhode Island, respectively, and its weekly group, the Southern Rhode Island Newspaper Group, in Wakefield, Rhode Island. The final sales price was approximately $8.3 million in cash, including working capital. Net after-tax proceeds of these two sales were used to pay down debt and for general working capital purposes. Additionally, the Company

17

---



recognized an aggregate gain of $27.7 million ($17.9 million net of income taxes) in the first quarter of 2007. The proceeds, net of direct costs, which totaled $78.8 million, are reported as cash provided by investing activities of discontinued operations in the accompanying condensed consolidated statements of cash flows.

Critical Accounting Policies and Estimates

The Company’s critical accounting policies and significant estimates are detailed in its Annual Report on Form 10-K for the year ended December 31, 2006. As of September 30, 2007, the Company’s critical accounting policies have not changed from December 31, 2006, except for accounting pronouncements adopted at the beginning of the year for the measurement date of pension accounting and income tax uncertainties as discussed in notes 9 and 11, respectively, to the condensed consolidated financial statements.

RESULTS OF OPERATIONS

For the Quarter Ended September 30, 2007 as Compared to the Quarter Ended September 24, 2006

Unless specifically stated otherwise, all discussion of revenues and operating and other expenses reflect the Company’s continuing operations.

Net income for the quarter ended September 30, 2007 was $11.2 million, or $0.28 per diluted share, compared to $7.3 million, or $0.19 per diluted share, for the quarter ended September 24, 2006. The Company’s 2007 third quarter net income was favorably impacted by a federal income tax benefit from a prior year capital loss carry back of $6.1 million, or $0.15 per diluted share, and a beneficial tax adjustment from a Michigan State tax law change of approximately $1.8 million, or $0.05 per diluted share.

Revenues

For the Quarter Ended(Dollars in thousands)


Sept 30,
2007


% of
Total


Sept 24,
2006


% of
Total


%(Decrease)Advertising revenue



$
85,755





75.9




$
94,673





77.6





(9.4
)Circulation revenue




22,852





20.2





22,860





18.7





—Newspaper revenue




108,607





96.1





117,533





96.3





(7.6
)Commercial print and other revenue




4,387





3.9





4,501





3.7





(2.5
)Total revenues



$
112,994





100.0




$
122,034





100.0





(7.4
)


Total revenues from continuing operations decreased $9.0 million, or 7.4 percent, to $113.0 million for the quarter ended September 30, 2007. Newspaper revenues for the quarter ended September 30, 2007 as compared to the prior year period decreased $8.9 million, or 7.6 percent, to $108.6 million. Advertising revenues decreased 9.4 percent to $85.8 million, as compared to $94.7 million for the third quarter of 2006. Circulation revenues, net of applicable discounts, for the quarter ended September 30, 2007, were on par with those of the prior year period, as rate increases essentially offset volume declines in the quarter. Commercial printing and other revenues for the quarter ended September 30, 2007 decreased by approximately $0.1 million, or 2.5 percent, to $4.4 million as compared to the prior year period. Online revenues, which are included in advertising revenue, for the quarter endedSeptember 30, 2007, were $4.8 million, an increase of 23.1 percent compared to the prior year period. Online revenues were 5.6 percent of total advertising revenues for the third quarter of 2007, compared to 4.1 percent in the third quarter of 2006.

18

---



Advertising Revenue Performance by Category:

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

For the Quarter Ended(Dollars in thousands)


Sept 30,
2007


% of
Total


Sept 24,
2006


% of
Total


%(Decrease)Local



$
46,490





54.2




$
50,466





53.3





(7.9
)Classified




36,141





42.1





40,285





42.6





(10.3
)National




3,124





3.7





3,922





4.1





(20.3
)Total advertising revenues



$
85,755





100.0




$
94,673





100.0





(9.4
)


Local.Local retail advertising revenues for the third quarter of 2007 decreased 7.9 percent as compared to the prior year quarter. Absent the Michigan cluster, local retail advertising revenues declined 6.4 percent, comparing the third quarter of 2007 to the same prior year period. The building/hardware and grocery/food/drugstore categories remained weak for the third quarter of 2007.

Classified.Classified advertising revenues decreased 10.3 percent in the third quarter of 2007, as compared to the prior year quarter. Classified real estate advertising revenues decreased 19.1 percent for the current quarter. The overall softness in the housing market continues to pressure this downward trend in real estate advertising in the majority of the Company’s clusters with its Michigan cluster declining by 24.5 percent on a quarter-to-quarter basis. While classified employment advertising revenues were down 4.6 percent for the quarter, several of our newspapers showed improvement in the classified employment sections. Classified automotive advertising revenues were down 16.6 percent for the quarter as compared to the prior year quarter. These declines continue due to a weak automotive market which has negatively affected local auto dealer advertising budgets. Classified other advertising revenues decreased approximately 2.6 percent in the third quarter of 2007, as compared to the prior year quarter. Excluding the Michigan cluster, classified other advertising revenues increased 1.5 percent during the quarter. This category which encompasses private party, legal advertisements and obituaries has been the best performing category for over a year and comprised approximately 25 percent of our total classified advertising revenues in the third quarter.

National.National advertising revenues represent approximately four percent of the Company’s advertising revenues. These revenues decreased 20.3 percent for the quarter ended September 30, 2007, as compared to the prior year quarter.

Operating Expenses:

For the Quarter Ended(Dollars in thousands)


Sept 30,
2007


% of
Total Revenue


Sept 24,
2006


% of
Total
Revenue


%
Increase
(Decrease)Salaries and employee benefits



$
45,831





40.5




$
48,836





40.0





(6.2
)Newsprint, ink and printing charges




10,276





9.1





12,055





9.9





(14.8
)Selling, general and administrative




18,196





16.1





17,871





14.6





1.8Depreciation and amortization




4,934





4.4





4,460





3.7





10.6Other




16,147





14.3





17,316





14.2





(6.8
)Total operating expenses



$
95,384





84.4




$
100,538





82.4





(5.1
)


Salaries and employee benefits.Salaries and employee benefit expenses were 40.5 percent of the Company’s revenues for the quarter ended September 30, 2007, as compared to 40.0 percent for the quarter ended September 24, 2006. Salaries and employee benefits decreased $3.0 million, or 6.2 percent, for the quarter ended September 30, 2007 to $45.8 million, as compared to $48.8 million in the prior year period. The decrease in salaries and employee benefits in the current period as compared to the prior year period is primarily due to lower head count in the third quarter of 2007 as compared to the same period in 2006 and a favorable change in pension benefits (see note 9 to the

19

---



condensed consolidated financial statements). The lower head count in the Company’s print operations was offset by increases in online spending.

Newsprint, ink and printing charges.For the quarter ended September 30, 2007, newsprint, ink and printing charges were 9.1 percent of the Company’s revenues, as compared to 9.9 percent for the quarter ended September 24, 2006. Newsprint, ink and printing charges for the quarter ended September 30, 2007 decreased 14.8 percent as compared to the quarter ended September 24, 2006. The Company’s newsprint expense decreased approximately 16.6 percent for the quarter ended September 30, 2007 as compared to the prior year period, reflecting decreases in consumption of approximately 9.8 percent and in unit cost of 7.6 percent. The improvement in newsprint was partially offset by increases in ink and printing charges in the third quarter of 2007 compared to the same 2006 period.

Selling, general and administrative.Selling, general and administrative expenses were 16.1 percent and 14.6 percent of the Company’s revenues for the quarters ended September 30, 2007 and September 24, 2006, respectively. As compared to the prior year period, selling, general and administrative expenses for the quarter ended September 30, 2007 increased $0.3 million, or 1.8 percent, to $18.2 million. Cost savings achieved during the quarter were offset by additional promotional costs related to HotJobs and increases in online spending.

Depreciation and amortization.Depreciation and amortization expenses were 4.4 percent and 3.7 percent of the Company’s revenues for the quarters ending September 30, 2007 and September 24, 2006, respectively. The increase of 10.6 percent in depreciation and amortization expense in 2007 compared to 2006 is due to: new assets put in service during 2007 related to various information technology development projects; major upgrades to production capabilities in Lake County, Ohio, which allowed the Company to combine its printing operations for its Ohio cluster newspapers; and the new Macomb press facility which became fully operational in the third quarter of 2007.

Other expenses.Other expenses, primarily related to circulation and delivery costs, were 14.3 percent and 14.2 percent of the Company’s revenues for the quarters ended September 30, 2007 and September 24, 2006. This expense caption decreased as compared to 2006 by $1.2 million primarily due to reductions in circulation promotion expenses.

Operating income.Operating income was $17.6 million, or 15.6 percent of the Company’s revenues, for the quarter ended September 30, 2007 as compared to $21.5 million, or 17.6 percent of the Company’s revenues, for the quarter ended September 24, 2006. The decrease in operating income was attributable to the decline in revenues of $9.0 million partially offset by cost control measures put in place in 2007 compared to the same period in 2006. Operating expenses for the third quarter 2007 included $2.2 million of costs related to the Company’s online initiatives. The Company continues to invest in its online initiatives.

Other Income (Expense):

Net. interest and other expense.Net interest and other expense decreased approximately $0.3 million, or 3.0 percent, for the quarter ended September 30, 2007 as compared to the quarter ended September 24, 2006. The Company’s weighted average borrowing rate increased to 6.6 percent in the third quarter of 2007 from 5.8 percent in the third quarter of 2006. This rate increase was largely offset by a decrease in the Company’s average outstanding debt over the prior year third quarter.

Provision for income taxes.The benefit for income taxes increased by approximately $8.3 million for the quarter ended September 30, 2007 as compared to the quarter ended September 24, 2006. The Company’s effective tax rate for the third quarter of 2007 was a benefit of 61.8 percent, which reflects a $6.1 million federal income tax refund receivable and a $1.8 million beneficial adjustment due to a Michigan State tax law change partially offset by a $0.4 million noncash tax interest charges on uncertain tax positions that are required to be recognized as a result of a new accounting standard in 2007 (see note 11 of the condensed consolidated financial statements). These items had the effect of increasing net income by $0.19 per diluted share. The Company’s effective tax rate before the effect of

20

---



these items, was approximately 41.8 percent, which was higher than the prior year period of 38.2 percent because of increased taxes in New York State.

For the Thirty-nine Week Period Ended September 30, 2007 as Compared to the Thirty-nine Week Period Ended September 24, 2006

Net income for the thirty-nine week period ended September 30, 2007 was $45.8 million, or $1.17 per diluted share, versus $18.8 million, or $0.47 per diluted share, for the thirty-nine week period ended September 24, 2006. The Company’s 2007 nine month net income was favorably impacted by the gain on the sale of its New England newspaper operations which accounted for $27.7 million, net of tax, or $0.70 per diluted share and third quarter income tax refunds of $6.1 million, or $0.15 per diluted share and a beneficial tax adjustment from a Michigan State tax law change of $1.8 million or $0.05 per diluted share. In the Company’s first nine months of 2006, net income was impacted by a $2.5 million charge, net of applicable taxes, for costs related to a non-recurring non-compete/separation agreement (‘‘special charge’’) with a former senior executive and the write-off of deferred financing costs of $3.4 million, net of tax, or $0.15 per diluted share.

Revenues

For the Thirty-nine Weeks Ended(Dollars in thousands)


Sept 30,
2007


% of
Total


Sept 24,
2006


% of
Total


% Increase
(Decrease)Advertising revenue



$
264,767





76.1




$
291,005





77.8





(9.0
)Circulation revenue




68,763





19.8





69,045





18.4





(0.4
)Newspaper revenue




333,530





95.9





360,050





96.2





(7.4
)Commercial print and other revenue




14,275





4.1





14,112





3.8





1.2Total revenues



$
347,805





100.0




$
374,162





100.0





(7.0
)


Total revenues from continuing operations decreased $26.4 million, or 7.0 percent, to $347.8 million for the thirty-nine weeks ended September 30, 2007. Newspaper revenues for the thirty-nine weeks ended September 30, 2007 as compared to the prior year period decreased $26.5 million, or 7.4 percent, to $333.5 million. Advertising revenues decreased 9.0 percent to $264.8 million, as compared to $291.0 million for the thirty-nine weeks ended September 24, 2006. Circulation revenues, net of applicable discounts, for the thirty-nine weeks ended September 30, 2007 decreased approximately $0.3 million, or 0.4 percent, as compared to the prior year period. Commercial printing and other revenues for the thirty-nine weeks ended September 30, 2007 increased by approximately $0.2 million, or 1.2 percent, to $14.3 million as compared to the prior year period. Online revenues, which are included in advertising revenue, for the thirty-nine weeks ended September 30, 2007, were $13.5 million, an increase of 22.7 percent compared to the prior year period.

Advertising Revenue Performance by Category:

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

For the Thirty-nine Weeks Ended(Dollars in thousands)


Sept 30,
2007


% of
Total


Sept 24,
2006


% of
Total


%
(Decrease)Local



$
144,168





54.5




$
156,302





53.7





(7.8
)Classified




110,115





41.6





121,007





41.6





(9.0
)National




10,484





3.9





13,696





4.7





(23.5
)Total advertising revenues



$
264,767





100.0




$
291,005





100.0





(9.0
)


Local.Local retail advertising revenues for the thirty-nine week period of 2007 decreased 7.8 percent as compared to the prior year period. Absent the Michigan cluster, local retail advertising revenues declined 6.3 percent, comparing the thirty-nine week period of 2007 to the same prior year period. Additionally, the Michigan cluster’s 2006 local revenues include revenue from the Super Bowl held in Detroit in the first quarter of that year.

21

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Classified.Classified advertising revenues decreased 9.0 percent in the thirty-nine week period of 2007, as compared to the same prior year period. Classified real estate advertising revenues decreased 15.4 percent for the thirty-nine week period.     The overall softness in the housing market led to a real estate advertising decrease in the majority of the Company’s clusters with its Michigan cluster declining by 24.1 percent in 2007 compared to the same prior year period. Classified employment advertising revenues were down 4.1 percent for the thirty-nine week period. Classified automotive advertising revenues declined in most of the Company’s clusters for the 2007 thirty-nine week period, and were down 16.4 percent for the thirty-nine week period as compared to the prior year thirty-nine week period. These declines were due to a weak automotive market which has negatively affected local auto dealer advertising budgets. Classified other advertising revenues decreased approximately 1.7 percent in the thirty-nine week period of 2007, as compared to the prior year period.

National.National advertising revenues represents approximately four percent of the Company’s advertising revenues. These revenues decreased 23.5 percent for the thirty-nine week period ended September 30, 2007, as compared to the prior year period. The 2006 period benefited from higher levels of national advertising from telecommunications providers.

Operating Expenses:

For the Thirty-nine Weeks Ended(Dollars in thousands)


Sept 30,
2007


% of
Total
Revenue


Sept 24,
2006


% of
Total
Revenue


% (Decrease)
IncreaseSalaries and employee benefits



$
140,614





40.4




$
153,783





41.1





(8.6
)Newsprint, ink and printing charges




33,295





9.6





35,868





9.6





(7.2
)Selling, general and administrative




56,424





16.2





55,712





14.9





1.3Depreciation and amortization




14,305





4.1





13,285





3.5





7.7Other




49,055





14.1





50,795





13.6





(3.4
)Total operating expenses



$
293,693





84.4




$
309,443





82.7





(5.1
)


Salaries and employee benefits.Salaries and employee benefit expenses were 40.4 percent of the Company’s revenues for the thirty-nine weeks ended September 30, 2007, as compared to 41.1 percent for the thirty-nine weeks ended September 24, 2006. Salaries and employee benefits decreased $13.2 million, or 8.6 percent, for the thirty-nine weeks ended September 30, 2007 to $140.6 million, as compared to $153.8 million in the prior year period. The decrease in salaries and employee benefits in the current period as compared to the prior year period is primarily due to lower head count in the thirty-nine week period of 2007 as compared to the same period in 2006 and a favorable change in pension benefits (see note 9 of the condensed consolidated financial statements). The lower head count in the Company’s print operations was offset by increases in online spending. Additionally, the prior year period included $4.1 million related to the non-recurring special charge. Excluding this charge, salaries and employee benefits declined by 6.1 percent in 2007.

Newsprint, ink and printing charges.For the thirty-nine weeks ended September 30, 2007, newsprint, ink and printing charges were 9.6 percent of the Company’s revenues, as compared to 9.6 percent for the thirty-nine weeks ended September 24, 2006. Newsprint, ink and printing charges for the thirty-nine weeks ended September 30, 2007 decreased 7.2 percent as compared to the thirty-nine weeks ended September 24, 2006. The Company’s newsprint expense decreased approximately 10.7 percent for the thirty-nine weeks ended September 30, 2007 as compared to the prior year period, reflecting a decrease in consumption of approximately 7.9 percent and a 3.1 percent decrease in unit cost. Additionally, ink and printing charges increased 2.5 percent in the thirty-nine week period of 2007 compared to the same 2006 period.

Selling, general and administrative.Selling, general and administrative expenses were 16.2 percent and 14.9 percent of the Company’s revenues for the thirty-nine weeks ended September 30, 2007 and September 24, 2006, respectively. As compared to the prior year period, selling, general and administrative expenses for the thirty-nine weeks ended September 30, 2007 increased $0.7 million, or 1.3 percent, to $56.4 million. The majority of the increase was related to

22

---



promotional costs for JobsInTheUS as it expands into new states, promotional costs of Yahoo! HotJobs as this program became operational in March 2007, and the acquisition of Suburban Lifestyles acquired in March 2006. JobsInTheUS expanded operations into Alabama, Mississippi, and Louisiana in the first quarter of 2007. Additionally, there was a decrease in professional fees in 2007 which was partially offset by increases in software maintenance and utilities costs. Additionally, the Company increased online spending in 2007.

Depreciation and amortization.Depreciation and amortization expenses were 4.1 percent and 3.5 percent of the Company’s revenues for the thirty-nine week periods ended September 30, 2007 and September 24, 2006, respectively. The increase of 7.7 percent in depreciation and amortization expense in 2007 compared to 2006 is due to: new assets being put in service during the thirty-nine weeks related to various information technology development projects; major upgrades to production capabilities in Lake County, Ohio, which allowed the Company to combine its printing operations for its Ohio cluster newspapers; and to the completion of the Macomb press facility which went into production in July 2007.

Other expenses.Other expenses, primarily related to circulation and delivery costs, were 14.1 percent and 13.6 percent of the Company’s revenues for the thirty-nine week period ended September 30, 2007 and September 24, 2006, respectively, decreasing by 3.4 percent in 2007 as compared to the same period in 2006. This expense caption is closely related to circulation revenue and has followed the trend of circulation revenue for the thirty-nine week period of 2007.

Operating income.Operating income was $54.1 million, or 15.6 percent of the Company’s revenues, for the thirty-nine weeks ended September 30, 2007 as compared to $64.7 million, or 17.3 percent of the Company’s revenues, for the thirty-nine weeks ended September 24, 2006. The decrease in operating income was attributable to the decline in revenues of $26.4 million partially offset by cost control measures put in place in 2007 compared to the same period in 2006. The Company’s cost control measures have resulted in non-newsprint cash expense savings of $ 10.5 million in 2007 as compared to the same period in 2006 adjusted for a special charge in the second quarter of 2006. Included in non-newsprint operating expenses for the thirty-nine week period of 2007 was $7.8 million of costs related to the Company’s online initiatives which increased by $2.7 million compared to the same period in 2006. The increase in online expenses reduced the benefit of the aforementioned cost control measures in 2007. The Company continues to invest in online initiatives.

Other Income (Expense):

Net. interest expense and other.Net interest and other expense decreased approximately $0.7 million, or 2.1 percent, for the thirty-nine weeks ended September 30, 2007 as compared to the thirty-nine weeks ended September 24, 2006. The Company’s weighted average borrowing rate increased in the thirty-nine week period of 2007 and was offset by a decrease in the average outstanding debt over the prior year thirty-nine week period thus keeping the interest expense relatively flat period to period. The Company had a favorable impact from other income with the receipt of approximately $0.4 million related to an investment in PowerOne Media LLC and the amortization of $0.2 million of deferred gain on the sale of derivative financial instruments designated as cash flow hedges.

Provision for income taxes.The provision for income taxes decreased by approximately $6.2 million for the thirty-nine weeks ended September 30, 2007 as compared to the thirty-nine weeks ended September 24, 2006. The Company’s effective tax rate for the thirty-nine week period of 2007 was approximately 18.6 percent which reflects a favorable impact of a $6.1 million federal income tax refund receivable and a Michigan State tax law change of $1.8 million partially offset by a New York State tax law change enacted in the second quarter which increased the provision by $1.0 million and by $1.2 million of noncash tax interest charges on uncertain tax positions that were required to be recognized as a result of a new accounting standard in 2007 (See note 11 of the condensed consolidated financial statements). These items had the effect of increasing net income by $0.13 per diluted share. Absent these items, the Company’s effective tax rate would be 41.5 percent in 2007 as compared to 38.9 percent in 2006.

23

---



Liquidity and Capital Resources

Cash flows from operating activities.Net cash provided by aggregate operating activities for the thirty-nine weeks ended September 30, 2007 was $33.7 million as compared to $56.0 million for the thirty-nine weeks ended September 24, 2006. Included in the 2007 cash flows from operating activities were the proceeds of $3.7 million from the sale of derivative financial instruments designated as cash flow hedges. Current assets were $75.9 million and current liabilities were $73.0 million as of September 30, 2007 as compared to current assets of $89.5 million and current liabilities of $95.4 million as of December 31, 2006. The decrease in current liabilities primarily reflects the repayment of $22.5 million of the current portion of long-term debt under the Company’s term loans offset by an increase in income taxes payable which was primarily due to the tax liability associated with the sales of the New England operations. Current assets decreased $8.5 million after excluding current assets of discontinued operations. This decrease in current assets is primarily due to a reduction in current deferred income taxes of $6.8 million resulting from the utilization of the current portion of a net operating loss carry-forward, lower customer receivables as a result of lower sales, and a reduction in inventory because of lower newsprint cost and lower supply on-hand, partially offset by the federal income tax refund receivable recorded in 2007.

The Company’s operations have historically generated strong positive annual cash flows from operating activities. Although this historical cash flow trend has not held for 2007 as the Company experiences a continued weakness in its print advertising revenue streams, the Company believes that cash flows from operations and the availability of funds from external sources will be sufficient to fund its ongoing operating needs, capital expenditure requirements and long-term debt obligations.

Cash flows from investing activities.Net cash used in investing activities of continuing operations was $22.3 million for the thirty-nine weeks ended September 30, 2007 reflecting amounts used for capital expenditures. Of these capital expenditures, $11.3 million was for costs in connection with the build-out of the Clinton Township, Michigan press and mailroom facility and $4.2 million was 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. Net cash used in aggregate investing activities was $23.0 million for the thirty-nine weeks ended September 24, 2006, of which $19.2 million was for property, plant and equipment and $2.9 million was for the purchase of Suburban Lifestyles.

The Company reviews its capital expenditure program periodically and modifies it as required to meet current needs and believes that it is sufficient to maintain the Company’s current level and quality of operations. This program included planned expenditures of approximately $12.0 million related to the new press and mailroom facility for theMacomb Dailyas well as spending on technology, including: prepress and business systems; web development; computer hardware and software; building and leasehold improvements; other machinery; and equipment and vehicles. In addition to its capital expenditure program, the Company is exploring the sale of certain non-core assets and underutilized real estate it owns.

Cash flows from financing activities.Net cash used in financing activities was $90.4 million for the thirty-nine weeks ended September 30, 2007, which includes $52.5 million for repayments on the Company’s term loan and $35.5 million net repayment on its revolving credit facility. Subsequent to September 30, 2007, the Company made an optional term loan repayment of $10.0 million. Net cash used in financing activities was $31.5 million for the thirty-nine weeks ended September 24, 2006, of which $15.4 million was used for the share repurchase program, $2.4 million for the payment of debt issuance fees associated with the January 2006 refinancing, and $11.0 million was used to repay debt.

In the first quarter of 2006, the Company borrowed $625 million under Term Loan A and $130.5 million in a revolving credit loan (‘‘Credit Agreement’’). These borrowings were used primarily to repay term loans and revolving credit loans outstanding under a prior credit facility. The borrowings currently outstanding bear interest at various LIBOR-based Rates plus 1.25 percent or the Prime Rate.

24

---



Additionally, the Company made $2.4 million in dividend payments in the thirty-nine week periods ended September 30, 2007 and September 24, 2006. Effective October 18, 2007, the Company eliminated its quarterly dividend. This action was consistent with the Company’s objectives of conservative cash management and prudent investment in revenue initiatives.

Credit Facilities.The Credit Agreement contains certain restrictive covenants where the Company is required to maintain specified financial ratios, and is also subject 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), to authorize dividends and distributions on its capital stock, and to undertake certain capital expenditures. The borrowings are fully and unconditionally guaranteed by each of its subsidiaries. The Company and its guarantor subsidiaries have pledged substantially all of its assets as collateral for the borrowings.

The Company’s ability to meet these covenants will depend on future operating cash flows, working capital needs and other sources and uses of funds, which in turn will be subject to economic conditions and to financial, market and competitive factors, many of which are beyond the Company’s control. Failure to meet these covenants could result in additional costs and fees to amend the Credit Agreement or result in the principal balance of the borrowings under the Credit Agreement becoming immediately due and payable. Furthermore, the Company may need a waiver of its Credit Agreement covenants and there can be no assurance that the Company could receive such waiver. As of September 30, 2007, the Company was in compliance with these covenants.

The Company has initiated discussions with its bank group to explore the possibility of modifying certain terms of its financial covenants contained in the Credit Agreement to provide greater flexibility to help manage the Company efficiently during the current challenging times. The Company anticipates that the modifications will reduce borrowing capacity under the Revolving Credit Facility and the Incremental Facility. There can be no assurance that the members of the bank group will agree to any changes to the Credit Agreement.

The Company is required under the terms of the Credit Agreement to maintain certain Interest Rate Protection Agreements (‘‘IRPAs’’) on a portion of its debt to reduce the potential exposure of its future cash flows to fluctuations in variable interest rates. The minimum requirement varies depending on the Company’s Total Leverage Ratio, as defined in the Amended Credit Agreement. Pursuant to these requirements, the Company maintains and from time to time enters into new IRPAs consisting of (i) interest rate collars that establish a base interest rate ceiling and a base interest rate floor and (ii) interest rate swaps in which the Company exchanges a portion of the Company’s floating rate debt for fixed rate debt, in each case at no initial cost to the Company.

The Company is also required to pay down the principal amount of the term loan in quarterly installments with a final payment of $340 million on August 12, 2012. Interest and commitment fees are payable quarterly or at the end of a borrowing period, whichever is shorter. The initial availability of $375 million of the Revolving Credit Facility under the Amended Credit Agreement is available until August 12, 2012. Upon expiration of the Revolving Credit Facility, the Company is required to repay or refinance the amounts due to the lenders at that time. As of September 30, 2007, the maximum availability under the Revolving Credit Facility was $288.7 million, with approximately $30.0 million available based on the terms and covenants of the Credit Agreement.

Other liquidity items.As a result of adopting new accounting pronouncements for income tax uncertainties and pension accounting, the Company’s long-term tax liabilities increased by a net $3.9 million while the Company’s long-term pension obligations decreased by $7.2 million primarily from favorable performance of the pension plans assets (see notes 11 and 9 in the condensed consolidated financial statements, respectively).

Other Information

Effective November 1, 2007, Robert M. Jelenic resigned as Chairman and Chief Executive Officer of the Company. This resignation was mutually agreed upon between the Board of Directors and Mr. Jelenic. At the request of the Board of Directors, James W. Hall, Acting Chief Executive Officer

25

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since June 18, 2007, agreed to assume the role of Chairman and Chief Executive Officer of the Company. In conjunction with Mr. Jelenic’s resignation, the Company entered into a separation agreement with Mr. Jelenic which requires a lump sum cash payment of approximately $4.8 million payable on May 1, 2008, accelerated vesting of RSUs resulting in the issuance of 192,500 shares of common stock, and various other future benefits for which the Company has not finalized the amount of the charge to be taken in the fourth quarter of 2007.

On October 1, 2007, Scott A. Wright was promoted to President and Chief Operating Officer of the Company and Julie A. Beck was promoted to Executive Vice President and Chief Financial Officer.

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 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 using certain principal measures 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 the generally predictable cash flow generated by its operations and the short period of time it takes to convert new orders to cash. EBITDA is also the basis of certain covenants contained in its Credit Agreement.

All EBITDA figures in this report are non-GAAP financial measures. The Company defines EBITDA as net income plus provision for income taxes, net interest expense, depreciation, amortization and other non-cash, special or non-recurring charges. For the quarter ended September 30, 2007, EBITDA was $22.5 million as compared to $26.0 million for the quarter ended September 24, 2006. For the thirty-nine weeks ended September 30, 2007, EBITDA was $68.4 million as compared to $82.1 million for the thirty-nine weeks ended September 24, 2006. Additionally, the Company defines EBITDA margin as EBITDA divided by total revenues.

These non-GAAP financial measures should not be considered as alternatives to GAAP measures of performance, such as operating income or net income. It should also be noted that the Company’s calculations of these measures may or may not be consistent with the calculations of these measures by other companies. The table below provides reconciliations of the differences between income from continuing operations and EBITDA for the thirteen and thirty-nine weeks ended September 30, 2007 and September 24, 2006.

Thirteen Weeks Ended


Thirty-nine Weeks Ended(Dollars in thousands)


Sept 30,
2007


Sept 24,
2006


Sept 30,
2007


Sept 24,
2006Income from continuing operations



$
11,239




$
6,484




$
18,271




$
16,333Add: (Benefit from) provision for income taxes




(4,293
)




4,013





4,184





10,404Add: Write-off of debt issuance costs




—





—





—





5,662Add: Net interest expense and other




10,664





10,999





31,657





32,320Operating income




17,610





21,496





54,112





64,719Add: Depreciation and amortization




4,934





4,460





14,305





13,285Add: Special items(1)




—





—





—





4,078EBITDA



$
22,544




$
25,956




$
68,417




$
82,082EBITDA margin




20.0
%




21.3
%




19.7
%




21.9
%


|
|
|
|

|Note:
|-----

|(1) | Special items relate to a non-recurring charge for a non-compete/separation agreement with a former senior executive.
|--- | ---------------------------------------------------------------------------------------------------------------------

26

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Item 3.    Quantitative and Qualitative Disclosures About Market Risk

The Company’s Annual Report on Form 10-K for the year ended December 31, 2006 details the Company’s disclosures about market risk. As of September 30, 2007, there have been no material changes in the market risk for the Company from that discussed in the aforementioned Form 10-K.

Item 4.    Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in alerting them in a timely manner to material information relating to its business (including consolidated subsidiaries) required to be included in the Company’s periodic filings with the SEC.

The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Securities Exchange Act of 1934 are recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that the Company files under the Exchange Act is accumulated and communicated to its management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II.    OTHER INFORMATION

Item 1.    Legal Proceedings

The current status of the Company’s legal proceedings is discussed in note 10 of the condensed consolidated financial statements presented in Part I.

Item 1A.    Risk Factors

The Company cautions readers that its business activities involve risks and uncertainties that could cause actual results to differ materially from those currently expected by management. The following is an update to the risk factors described in ‘‘Item 1A-Risk Factors’’ in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006.

Dependence on Local Economies.The Company believes it appropriate to emphasize that its advertising revenues and, to a lesser extent, circulation revenues are dependent on a variety of factors specific to the communities that the Company’s newspapers serve. These factors include, among others, the size and demographic characteristics of the local populations, local economic conditions in general, and the related retail segments in particular, as well as local weather conditions. For example, the Company’s Michigan and Ohio clusters are particularly impacted by the automotive industry sector.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

(c)Issuer Purchases of Equity Securities

There are no material changes to the share repurchase program as described in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006. Approximately $11.9 million of stock may yet be purchased under the Board authorized repurchase plan. The Company did not repurchase any of its shares of common stock during the first thirty-nine weeks of fiscal year 2007.

Item 6.    Exhibits

3
.1



Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 25, 2007).10
.1



Separation Agreement dated October 12, 2007 between Journal Register Company and Robert M. Jelenic (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 15, 2007).31
.1



Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31
.2



Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32




Certification of Principal Executive Officer and Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


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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 9, 2007


JOURNAL REGISTER COMPANYBy:


/s/ Julie A. BeckJulie A. Beck
Executive Vice President and
Chief Financial Officer
(signing on behalf of the registrant
and as principal financial officer)


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