LETTER FROM THE PRESIDENT
Table of Contents
Stories of Success Across Freedom
Freedom Orange County Information Division Report
Freedom Community Newspaper Division Report
Freedom Broadcasting Division Report
Freedom Magazines Division Report
Board of Directors
Operating & Corporate Executives
Freedom's Family of Information & Entertainment Providers
2001 was a year of tough going and difficult decisions that tested the mettle of everyone at Freedom Communications. It was also a year of opportunity for our company.
Looking for a recovery in the help-wanted advertising slowdown that had begun the year before, we planned for a year that would start slowly but gain strength as it went along. Events intervened. January's performance was disappointing, and the first quarter was surprisingly weak. In spite of a softening economy, newsprint prices stayed stubbornly high, further stressing profits.
Business performance in the second quarter was a repeat of the first, only worse, dashing hopes of a widely predicted early recovery. By then, a full-blown advertising recession was under way and Freedom's businesses responded by aggressively cutting costs.
Newsprint prices began dropping in the third quarter, but by then, serious damage had already been inflicted. National advertising joined help-wanted as another major category in a freefall. Our two divisions most reliant on national advertising, magazines and television, were the most negatively impacted.
The attacks of Sept. 11 dealt the final blow to a national economy teetering on the edge of recession. For media, 9/11 was an unprecedented opportunity to serve, but a business disaster. Television advertising stopped completely for nearly a week in the aftermath as the urgency of news coverage made commercial messages inappropriate. Newspapers were similarly affected as major advertisers immediately canceled millions of dollars of advertising.
We know that advertising grows in an atmosphere of optimism about the future. Advertisers cut back when they are uncertain. The weeks following the attacks were full of uncertainty, and Freedom's businesses, with their reliance on advertising, took a heavy hit.
Some of the hits were temporary, and as the year wound down, advertising at our medium-size and smaller papers started coming back. Some of the hits, however, were systemic and did not rebound. Freedom's magazine division, after posting its best year ever in 2000, went into freefall as business in its markets dried up.
As the magazine outlook deteriorated, rapid cost-cutting could not stem the flow of red ink, and by year-end, every one of our money-losing magazines was shut down or sold.
In a year of bleak results, there were still some stand-out performers. A handful of our businesses achieved their cash flow plans for the year: the daily newspapers in McAllen and Yuma, weeklies in Destin and Walton, and KFDM-TV in Beaumont.
There was further good news in the growth in revenue achieved by our interactive businesses. Freedom's total interactive revenue grew by 63 percent from the previous year. At the same time, losses incurred in these start-up businesses declined by 31 percent.
As demonstrated by these high-performing businesses, this tough year created exceptional opportunities to excel. Rising to the challenge, our associates went way beyond the norm to serve their communities. On the afternoon of Sept. 11, most of Freedom's daily newspapers rushed extra editions to their readers. Associates from all departments pitched in, helping in any way they could, even hawking the extras on the street.
In the aftermath of the attacks, our newspapers and TV stations became uniting forces in their communities, bringing people together and creating shared experiences that helped to begin the healing process. We saw once again the critical role our businesses play in forming and nurturing communities. This is what we do, and we did it well.
In this difficult year, Freedom people also found opportunities to create something new and better than business as usual. They heard a call to work more closely with each other. Together they found ways to create new products that better serve the needs of our communities. Together they created efficiencies that would make every business more successful. Together they refocused our energies on our customers.
Together, our senior execs instituted a plan to make Freedom a high performance company. We laid out seven critical initiatives and we got to work on them:
1. Sell or close operations that don't fit our future.
2. Reduce our workforce where we can.
3. Eliminate waste through company-wide shared services.
4. Ensure sales urgency by every Key Executive.
5. Set high growth targets for every business.
6. Create more successful new products.
7. Pay for performance at every position.
In all of this, our overriding goal is to instill a powerful performance culture in the company. In other words, revenue growth in itself is not a measure of success. Success will be measured by growth in cash flow, which is the result of operating excellence in every part of our business. Fundamental to the plan was improved communication to all of Freedom's stakeholders: associates, shareholders, suppliers and customers. By year-end, every one of these initiatives was under way yielding efficiencies, creating discipline and improving performance.
Financial benefits of the high-performance plan became apparent before the year ended. While total revenue, deeply affected by the advertising recession, missed budget by $139 million, the budgeted operating cash-flow miss was reduced to less than 40 percent of that—the result of eliminating $87 million in budgeted expenses. Month by month, careful cash management was a priority and for the year we reduced our debt by $53 million.
As this important work proceeded, we were mindful of the truth that we cannot succeed at any of this over the long term if we don't make Freedom a great place to work. Important progress toward this critical goal was made during the year.
In October, Gallup conducted the Q12 morale survey of all of Freedom's associates. This was the second year the survey was done. And the results were very encouraging. Many more associates participated, 84 percent vs. 65 percent in 2000.
Last year, when we did Q12 for the first time, our overall score was 3.54 (on a 5-point scale) compared to the Gallup 50th percentile of 3.60. In 2001, Gallup's 50th percentile dropped a little, but Freedom's score improved significantly, to 3.73. This was very good news.
Starting with "How satisfied are you with Freedom as a place to work," which went from 3.58 to 3.79, the scores on every single question showed improvement. Our biggest increase was on, "In the last seven days, I have received recognition or praise for doing good work." Other big gains were on these items:
• "I have a best friend at work,"
• "The mission/purpose of my company makes me feel my job is important,"
• "In the last six months, someone at work has talked to me about my progress,"
• "There is someone at work who encourages my development."
Interestingly, four out of five of these are about relationships. This underscored a reality 2001 brought home: that we do need each other—that none of us can succeed alone. As testimony to this truth, the names of every one of Freedom's 7,200-plus associates are featured in this annual report.
Last year was a good recruiting year for Freedom, as a number of exceptionally talented people joined us. Elected as a director was Scott Flanders, CEO of Columbia House and former CEO of Macmillan Publishing. Bob Preston, a 15-year veteran with Thomson's Medical Economics, joined us as the new CEO of MultiMedia HealthCare. And David Stark, formerly VP sales with AOL/Time Warner, became senior VP of Strategic Market Development for Freedom Metro Information.
Our newspapers were strategically realigned with the creation of the Freedom Metro Information division, reporting to Chris Anderson. Metro combines the strengths of Freedom's largest newspapers and Internet portals in Orange County, Phoenix and Colorado Springs.
To more closely link our Internet and traditional activities, important steps were taken. Freedom's interactive businesses in their newspaper markets were realigned, reporting to the two newspaper division heads, Jon Segal at Community Newspapers and Chris Anderson at Metro. Freedom Interactive Television remained part of Alan Bell's responsibility.
The lessons we learned and the actions we took in 2001 were essential preparation for challenging days ahead. We believe that we are emerging a wiser, stronger, more resilient group determined to make the most of our opportunities as we recommit ourselves to serve each other, our customers and our communities even more effectively.
Sincerely,
Sam Wolgemuth
President and CEO, Freedom Communications, Inc.