FORM 10-K/A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
(X) Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 1997.
Commission File Number: 0-7831
JOURNAL COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Wisconsin
39-0382060
(State or other jurisdiction of (I.R.S. Employer Identification No.)
or organization)
333 West State Street, Milwaukee, Wisconsin 53203
(Address of principal executive offices)
Registrant's telephone number, including area code:
(414) 224-2374
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $0.25 Per Share
(title of class)
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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendments to this Form 10-K. [X]
State the aggregate market value of the voting stock held by non-
affiliates of the Registrant: Not applicable.
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of March 19, 1998:
Class Outstanding at March 19, 1998
Common Stock, par value 14,213,607
Portions of the annual shareholders report for the year ended December 31,
1997 are incorporated by reference into Parts I and II. Portions of the
proxy statement for the annual shareholders meeting to be held June 2,
1998 are incorporated by reference into Part III.
<PAGE>
PART IV
ITEM 14. EXHIBITS. FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
Item 14 of the Report is amended for the purpose of adding an electronic
copy of Exhibit 13, which was previously filed in paper pursuant to a
temporary hardship exemption:
(a) 1 and 2.
Financial Statements and Financial Statement Schedules
The following consolidated financial statements of the Registrant are
included in Item 8:
Registrant's Annual Report
Page Number
Consolidated Balance Sheets at
December 31, 1997 and 1996 23
Consolidated Statements of Earnings
for each of the three years in
the period ended
December 31, 1997 24
Consolidated Statements of Cash Flows
for each of the three years in the
period ended December 31, 1997 25
Consolidated Statements of Retained
Earnings for each of the three years
in the period ended December 31, 1997 26
Notes to Consolidated Financial Statements 26-31
Registrant's 10-K
Page Number
Financial Statement Schedules:
Consolidated schedules for each of the
three years in the period ended
December 31, 1997:
II - Valuation and qualifying accounts 15
All other schedules are omitted since the required information is not
present, or is not present in amounts sufficient to require
submission of the schedule, or because the information required is
included in the consolidated financial statements and notes thereto.
3. Exhibits
The exhibits listed on page 4 are filed as part of this annual
report.
(b) Reports on Form 8-K.
No report on Form 8-K was required to be filed by the Registrant
during the quarter ended December 31, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Amendment to
Annual Report to be signed on its behalf by the undersigned, hereunto duly
authorized as of April 8, 1998.
JOURNAL COMMUNICATIONS, INC.
By: /s/ Paul E. Kritzer
Paul E. Kritzer
Vice President - Legal and Corporate
Secretary
<PAGE>
JOURNAL COMMUNICATIONS, INC.
INDEX TO EXHIBITS
(Item 14(a))
Exhibit Description
No.
(3.1) Articles of Association of Journal
Communications, Inc., as amended (incorporated
by reference to Exhibit 3.1 to Journal
Communications, Inc.'s Annual Report on Form
10-K for the year ended December 31, 1995
(Commission File No. 0-7831).
(3.2) Bylaws of Journal Communications, Inc.
(incorporated by reference to Exhibit 3.1 to
Journal Communications, Inc.'s Current Report
For Form 8-K dated March 5, 1996 (Commission
File No. 0-7831).
(9.1) The Journal Employees' Stock Trust Agreement,
dated May 15, 1937, as amended (incorporated
by reference to Exhibit 9 of the Annual Report
on Form 10-K of Journal Communications, Inc.
for the fiscal year ended December 31, 1995
(Commission File No. 0-7831).
(9.2) Further amendment to Stock Trust Agreement as
approved by unitholders on October 30, 1996
(incorporated by reference to Exhibit A to the
Definitive Proxy Statement of the Journal
Employees' Stock Trust included in the Trust's
Schedule 14A filed October 1, 1996 (Commission
File No. 0-7832))
(13) Portions of Registrant's Annual Report, filed
herewith
(21)* Subsidiaries of the Registrant
(23)* Consent of Independent Auditors
(27)* Financial Data Schedule
_______________
* Previously filed.
THIS DOCUMENT IS A COPY OF THE ANNUAL REPORT
FILED ON MARCH 31, 1998 PURSUANT TO A RULE 201
TEMPORARY HARDSHIP EXEMPTION
Exhibit 13
[Pages 18-19]
<TABLE>
<CAPTION>
Ten Years in Review
(Dollars in thousands except
for per share amounts) 1997 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
Earnings and Dividends
Earnings from continuing
operations before
income taxes 5 $ 95,939 $ 70,691 $ 46,231 4 $ 67,831 $ 67,498 $ 62,670
Net earnings 56,211 41,043 44,213 43,867 44,204 41,631
Earnings for option price 51,464 41,043 43,149 43,867 44,204 41,631
Dividends 30,243 28,563 29,156 26,699 25,156 25,244
Earnings retained 25,968 12,480 15,057 17,168 19,048 16,387
Per Share
Net earnings $ 4.10 $ 3.13 $ 3.18 $ 3.13 $ 3.16 $ 2.97
Earnings for option price 3.76 3.13 3.10 3.13 3.16 2.97
Dividends 2.20 2.20 2.10 1.90 1.80 1.80
Book value 29.76 27.41 26.85 26.04 24.76 23.40
Unit option price 43.38 37.15 36.24 35.40 34.64 33.60
Net revenue 5
Publications $ 286,080 $ 264,883 $ 267,148 $ 261,303 $ 244,529 $ 238,386
Broadcast 101,889 95,690 74,623 63,445 54,851 52,891
Printing 215,581 203,477 202,556 151,853 126,401 68,372
Telecommunications 60,751 45,351 39,977 35,974 32,411 31,256
Direct marketing 12,103 14,890 11,578 7,799 - -
Eliminations (1,867) (2,057) (4,050) (2,793) (3,501) (1,814)
--------- ---------- ---------- ---------- --------- ---------
Total net revenue $ 674,537 $ 622,234 $ 591,832 $ 517,581 $ 454,691 $ 389,091
Operating Expenses 5
Payroll $ 192,060 $ 181,123 $ 169,198 $ 158,450 $ 137,580 $ 117,815
Materials and
component services 178,527 171,958 172,381 117,320 99,170 75,685
Depreciation and
amortization 40,350 37,635 34,413 29,779 28,335 25,585
Other services 183,964 164,501 174,461 145,756 123,675 109,721
--------- ---------- ---------- ---------- --------- ---------
Total operating
expenses $ 594,901 8 $ 555,217 7 $ 550,453 6 $ 451,305 3 $ 388,760 2 $ 328,806 1
Invested Capital
Property and equipment 5 $ 173,312 $ 163,693 $ 160,433 $ 149,687 $ 135,716 $ 124,107
Net working capital 113,708 89,980 111,116 107,675 100,780 95,774
Long-term obligations 1,112 1,524 2,762 2,947 3,609 2,251
Stockholders' equity 412,739 361,030 366,330 367,429 347,447 328,230
Total assets 548,774 473,564 474,738 461,416 437,429 409,863
Return on stockholders'
equity 15.6% 11.2% 12.0% 12.6% 13.5% 13.4%
Return on total assets 11.9% 8.6% 9.6% 10.0% 10.8% 10.7%
(continued)
<CAPTION>
(Dollars in thousands except average annual
for per share amounts) 1991 1990 1989 1988 compound % increase
<S> <C> <C> <C> <C> <C>
Earnings and Dividends
Earnings from continuing
operations before
income taxes 5 $ 55,458 $ 48,992 $ 69,668 $ 61,901 4.99%
Net earnings 40,035 41,113 54,988 49,633 1.39
Earnings for option
price 40,626 49,443 54,988 51,745 0.92
Dividends 25,358 24,192 24,374 21,496 3.87
Earnings retained 14,677 16,921 30,614 28,137 -0.89
Per Share
Net earnings $ 2.84 $ 2.89 $ 3.83 $ 3.46 1.90%
Earnings for option price 2.88 3.47 3.83 3.61 1.42
Dividends 1.80 1.70 1.70 1.50 4.35
Book value 22.11 21.54 20.08 18.14 5.65
Unit option price 32.60 31.48 29.66 26.65 5.56
Net revenue 5
Publications $ 232,756 $ 235,853 $ 232,371 $ 222,209 2.85%
Broadcast 52,088 56,456 54,087 52,744 7.59
Printing 60,161 57,852 55,301 51,427 17.26
Telecommunications 15,398 12,414 11,429 11,342 20.50
Direct marketing - - - - N.A.
Eliminations (1,631) (1,462) (1,608) (904) N.A.
--------- ---------- ---------- --------- -----
Total net revenue $ 358,772 $ 361,113 $ 351,580 $ 336,782 8.02%
Operating Expenses 5
Payroll $ 105,151 $ 102,463 $ 98,161 $ 94,787 8.16%
Materials and component
services 77,576 80,318 81,008 79,835 9.35
Depreciation and
amortization 24,301 20,442 19,536 19,884 8.18
Other services 101,884 103,084 90,756 84,477 9.03
--------- ---------- --------- --------- -----
Total operating
expenses $ 308,912 $ 306,307 $ 289,461 $ 278,983 8.78%
Invested Capital
Property and equipment 5 $ 121,665 $ 83,154 $ 76,746 $ 74,789 9.79%
Net working capital 93,847 128,859 125,841 106,805 0.70
Long-term obligations 1,369 608 1,808 2,583 N.A.
Stockholders' equity 311,772 306,793 288,036 206,002 5.26
Total assets 389,958 401,371 364,860 335,395 5.62
Return on stockholders'
equity 13.1% 14.3% 21.1% 21.4%
Return on total assets 10.0% 11.3% 16.4% 16.1%
1) Includes full year of NorLight and IPC since Oct. 6.
2) Includes full year of IPC, and Nordoc Software Services since Feb. 28.
3) Includes full year of PrimeNet DataSystems.
4) Does not include gain on sale of Perry Printing Corp. of $14,941 or $1.07
per share in 1995.
5) Figures prior to 1996 have been restated to exclude the discontinued operations of Perry Printing Corp.
6) Includes Omaha radio stations since Jan. 24 and Mega Direct since June 22.
7) Includes Tucson radio stations since Jan. 29.
8) Includes Knoxville radio stations since June 30, CNI since Oct. 1, and Kansas City radio station until June 30.
</TABLE>
<PAGE>
[Pages 20-22]
Management Discussion and Analysis
Consolidated
Revenue from continuing operations was $674.5 million in 1997 compared
with $622.2 million in 1996, an 8.4% increase. In 1995, revenue from
continuing operations was $591.8 million. Earnings from continuing
operations before income taxes increased 35.7% to $95.9 million in 1997.
1996 earnings before income taxes were $70.7 million, an increase from
$46.2 million in 1995. Pretax earnings in 1995 were affected by the
one-time newspaper merger charges of $17.5 million and the Webcraft
lawsuit settlement of $5.7 million.
During 1997, continued improvement in advertising market share and the
benefit of the Green Bay Packers winning Super Bowl XXXI were factors in
helping the broadcast and publication segments increase advertising
revenue and operating profits. In addition, the publications segment
experienced improved earnings from a reduction in newsprint costs. The
printing segment returned to profitability in 1997 after a $6.9 million
loss in 1996. Revenue and earnings growth was achieved in the
telecommunications segment by effectively selling additional redundant
SONET ring capacity built in 1997 and 1996. The direct marketing segment
experienced decreased sales and earnings in 1997.
Publications
The publications segment includes daily and weekly newspapers, shoppers
and specialty publications.
Revenue was $286.1 million in 1997, up 8% compared with 1996 and 7.1%
better than 1995. 1996 and 1995 revenues for this segment were $264.9
million and $267.1 million, respectively. In 1997, pretax earnings were
$40.7 million, a 28.4% increase over 1996. Earnings in 1996 and
1995 were $31.7 million and $15.1 million, respectively. Pretax earnings
in 1995 included $17.5 million of newspaper merger charges.
Journal Sentinel Inc. is the largest company in the publications
segment. Total revenue in 1997 increased 7.4% to $225.1 million from
$209.5 million in 1996. Compared to 1995, 1997 revenue increased 6.1%. In
1997, earnings before taxes increased 29.8% over 1996. The 1997 pretax
earnings increased 41.5% over 1995 pretax earnings, excluding $17.5
million of merger charges.
The dramatic growth in 1997 pretax earnings is the result of lower
newsprint price (per ton) compared to 1996 and 1995 and substantial growth
in advertising revenue. Newsprint costs in 1998 are expected to be higher
than they were in 1997.
Advertising revenue was $171.4 million in 1997 compared to $155.9
million in 1996 and 1995. This is an increase of 9.9% over the past two
years. Classified, retail ROP (run of press) and preprints and general ROP
all reported revenue increases in 1997 over 1996. General preprints
showed a slight decrease over last year. Classified revenue accounted for
$10.4 million of the revenue increase in 1997 over 1996. The majority of
the classified increase was from employment advertising.
Circulation revenue totaled $51.1 million, a decrease of $0.1million,
from 1996 and a $2 million decrease from 1995. The reasons for the decline
in 1997 were a slight decrease in daily revenue and the elimination of
Badger Plus. Sunday Journal Sentinel revenue showed a slight increase
over 1996. Packer Plus circulation revenue topped the one million dollar
mark in 1997.
Add Inc. is the other operation in the publications segment. Its 1997
revenue was $61 million, a 10.1% increase compared with 1996 revenue of
$55.4 million. In 1995, revenue was $54.9 million. Pretax earnings in 1997
showed an 11.3% increase from the prior year as a result of the
contribution from the acquisition of Community Newspapers Inc. (CNI) and
significant improvements in the Southern Ohio group. In 1997, revenue from
the Florida, Southeastern Wisconsin, Ohio and Vermont operations increased
by $2 million while revenue for the Central Wisconsin and Pennsylvania
operations decreased by $0.5 million. During 1997, the Ohio and
Southeastern Wisconsin operations showed improvement in earnings over the
previous year while those in Florida and Connecticut showed declines.
Broadcast
In 1997, revenue was $101.9 million, a 6.5% increase over 1996 revenue
of $95.7 million and 36.5% greater than 1995 revenue of $74.6 million. The
1997 revenue increase was due to excellent audience ratings at our
broadcast stations, radio station acquisitions in Omaha and Knoxville
and the popularity and success of the Green Bay Packers. The broadcast
division acquired one additional radio station in Omaha and exchanged the
radio station in Kansas City (KQRC-FM) for two stations in Knoxville
(WWST-FM and WMYU-FM) in 1997. The Company reported a pretax gain on the
trade of KQRC of $7.8 million. Pretax earnings in 1997 increased 30.2%
over 1996. Excluding the gain on the exchange of KQRC, pretax earnings
increased 3.5% over 1996 and 71.9% over 1995.
In 1997, the Company's television stations accounted for 64.9% of the
division's revenue and 67.9% of its pretax earnings. Revenue and pretax
earnings were up for the Las Vegas television station over last year. The
Milwaukee and Lansing television stations reported flat to lower revenue
and pretax earnings over last year.
The Company's radio stations' pretax earnings increased 20.3% to $7.1
million in 1997 compared with $5.9 million in 1996.
Printing
The 1997 revenue for NorthStar Print Group Inc. was $57.6 million, a 4%
increase from the prior year's revenue of $55.4 million and a 6.8%
increase from 1995. NorthStar increased pretax earnings to $2.4 million
from pretax earnings of $1.4 million in 1996. In 1995, NorthStar incurred
a loss before taxes of $0.5 million. Revenue increased at the Green Bay
and Norway / Watertown operations while revenue was flat at the Milwaukee
operation. All locations showed improved operating productivity.
IPC Communication Services' (IPC) revenue increased 6.7% to $127.1
million in 1997. In 1996 and 1995, revenue was $119.2 million and $122
million, respectively. In 1997, IPC had a pretax loss of $7.4 million
which is $5.7 million less than the loss in 1996. IPC had pretax earnings
of $3.2 million in 1995.
The printing plants of Add Inc. had revenue of $30.9 million in 1997, a
6.8% increase over 1996 revenue of $28.9 million and 16.1% over 1995
revenue of $26.6 million. In 1997, pretax earnings increased by 14.3% to
$5.5 million from 1996. Pretax earnings increased 52.6% in 1996 compared
with 1995.
Telecommunications
In 1997, revenue for Norlight Telecommunications Inc. was $60.8 million,
a 34% increase over the prior year's revenue of $45.4 million. Revenue was
$40 million in 1995. Pretax earnings at Norlight increased 37.5% in 1997
compared with 1996 and 37% compared with 1995. Both revenue and pretax
earnings growth were the result of effectively selling additional
capacity available as a consequence of the major network expansion
(redundant SONET ring capacity) embarked upon in 1996 and completed in
1997. In 1997, Norlight entered into a definitive agreement to sell a small
segment of the business targeting small business and residential long
distance service customers. In 1997, Norlight recorded a $1.7 million
reserve for the pretax loss on the sale of its residential and small-
business long distance operation in Duluth.
Direct Marketing
PrimeNet Marketing Services' St. Paul division had a decrease in revenue
of 23.4% in 1997 to $4.9 million, down from $6.4 million in 1996. Revenue
was $6.9 million in 1995. The Company's 1997 pretax loss of $1.3 million
compares with losses of $0.2 million and $3.4 million in 1996 and 1995,
respectively. The decreased revenue and increased losses in 1997 primarily
reflect the loss of PrimeNet's largest customer.
Mega Direct had revenue of $7.2 million in 1997 compared with $8.5
million in 1996. Pretax earnings were breakeven in 1997 compared with
earnings of $1.5 million and $0.6 million in 1996 and 1995, respectively.
Mega Direct was strategically realigned under the management of PrimeNet
Marketing Services in early 1997.
Newspaper Merger Charges
On April 1, 1995, Journal Sentinel Inc. merged The Milwaukee Journal and
the Milwaukee Sentinel into a morning newspaper called the Milwaukee
Journal Sentinel. The merger of the newspapers resulted in a pretax charge
of $17.5 million recorded in full in 1995. The charge consisted of
$11.3 million in termination benefits for approximately 250 full-time
employees and $6.2 million for non-recurring start-up costs of the new
newspaper.
Other Income and Expense
Dividends and interest income were $6.2 million, an increase from $3.4
million in 1996. The increase in 1997 was the result of an increase in
short-term investments. This amount was $4.8 million in 1995.
Income Taxes
Income taxes were 41.4% of pre-tax earnings in 1997, 41.9% in 1996 and
39.6% in 1995. Changes in the effective tax rate are a result of state
income taxes, valuation allowances on foreign net operating losses and
permanent tax differences. Permanent tax differences exist for goodwill
amortization for acquisitions before 1993.
Earnings from Continuing Operations
In 1997, earnings from continuing operations of $56.2 million or $4.10
per share were $15.2 million or $0.97 per share more than in 1996. The
merger charges and Webcraft settlement reduced 1995 earnings by $1.00 per
share. Excluding the merger charges and the Webcraft settlement, earnings
per share from continuing operations were $3.01 in 1995.
Discontinued Operations
On April 27, 1995, the Company sold substantially all the assets used in
the business of its wholly owned subsidiary, Perry Printing Corporation
("Perry"). Perry was a heatset web offset printer of long-run catalogs and
publications. The sale of Perry allowed the Company to redirect its assets
to other segments of the Company and earn a better return on investment.
As a result, the Perry operations have been accounted for as a
discontinued operation.
Net revenues were $45.9 million in 1995. Earnings from discontinued
operations were $1.4 million during the same year.
The aggregate sale price was approximately $95 million plus the
assumption of trade and other liabilities. Payment was made by the
issuance of 115,000 shares of the buyer's preferred stock with a value of
$11.5 million and the balance of the payment in cash.
Proceeds were used in 1995 to fund the Add Inc. and the Journal
Broadcast Group acquisitions, the Journal Sentinel merger charges and
increase the Company's cash reserves.
Net Earnings
Net earnings for 1997 were $56.2 million or $4.10 per share, compared
with net earnings of $41 million or $3.13 per share in 1996. In 1995, net
earnings for the year were $44.2 million or $3.18 per share.
Liquidity and Capital Resources
Cash provided by operations, which is a significant source of the
Company's liquidity, totaled $109.2 million, $94.8 million and $43.2
million in 1997, 1996 and 1995, respectively.
Principal uses of cash for investing purposes during this period were
for property and equipment expenditures and acquisitions. Capital
expenditures for property and equipment totaled $39.4 million in 1997,
$33.8 million in 1996 and $33.4 million in 1995. The Company also has
continued to be active in acquiring other businesses. Cash used for
acquisitions was $21.1 million, $17 million and $22.8 million in 1997,
1996 and 1995, respectively. In January 1998, the Company acquired two
additional radio stations in Omaha, Neb. The cash purchase price
was approximately $5.5 million.
Cash provided by discontinued operations was $82.8 million in 1995.
Cash used in financing activities totaled $4.5 million, $52.8 million and
$46.5 million in 1997, 1996 and 1995, respectively. Dividends paid during
1997 were $30.2 million or $2.20 per share, compared with $28.6 million
($2.20 per share) in 1996 and $29.2 million ($2.10 per share) in 1995.
Additionally, the net sales of treasury stock totaled $26.3 million in
1997. In 1996 and 1995, the Company had net purchases of treasury stock of
$17.2 million and $17.1 million.
Net working capital at the end of 1997 increased to $113.7 million
compared with $90 million at the end of 1996. Commitments for television
programs not yet produced as of December 31, 1997, were $10.8 million. The
Company has traditionally not used debt as a source of funds.
Impact of Year 2000 Issue
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of
the Company's computer programs that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000.
This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices or engage in normal
business activities.
The Company has determined that it will be required to modify or replace
some of its manufacturing, process control, information and technology
systems in order to function properly with respect to dates in the year
2000 and thereafter. All project costs, outside of costs for new systems,
will be expensed as incurred. The Company presently believes that with
modifications and conversions to new systems, the Year 2000 Issue will not
have a material effect on the results of operations.
Effect of Inflation
The Company's results of operations and financial condition have not
been significantly affected by general inflation. The Company has reduced
the effect of rising costs through improvements in productivity, cost
containment programs and, where the competitive environment exists,
increased selling prices. See the publications section for discussion of
the impact of newsprint costs.
<PAGE>
[Pages 23-31]
Consolidated Balance Sheets
December 31 (Dollars in thousands,
except share and per share amounts) 1997 1996
ASSETS
Current assets:
Cash $ 6,753 $ 12,383
Short-term investments (Note 1) 104,249 52,900
Receivables, net (Note 1) 98,366 93,915
Inventories (Note 1) 23,665 27,678
Prepaid expenses 10,355 10,301
Deferred income taxes (Note 3) 5,111 3,813
--------- ---------
Total current assets 248,499 200,990
Property and equipment, at cost:
Land and land improvements 12,406 11,488
Buildings 57,025 54,232
Equipment 349,674 327,033
--------- ---------
419,105 392,753
Less accumulated depreciation 245,793 229,060
--------- ---------
Net property and equipment 173,312 163,693
Goodwill (Note 1) 51,680 36,147
Other intangible assets, net (Note 1) 43,008 38,456
Corporate life insurance investment pool 19,630 18,193
Deferred income taxes (Note 3) - 1,756
Other assets (Note 9) 12,645 14,329
--------- ---------
Total assets $ 548,774 $ 473,564
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 54,765 $ 38,685
Accrued compensation 23,850 24,169
Deferred revenue 17,418 13,877
Accrued employee benefits (Note 2) 25,249 23,798
Other current liabilities 11,953 8,144
Current portion of long-term obligations 1,556 2,337
Total current liabilities 134,791 111,010
Long-term obligations (Note 5) 1,112 1,524
Deferred income taxes (Note 3) 132 -
Stockholders' equity (Note 6):
Common stock, $0.25 par value;
authorized and issued 14,400,000
shares 3,600 3,600
Retained earnings 430,553 402,301
Treasury stock, at cost (Note 6) (21,414) (44,871)
--------- ---------
Total stockholders' equity 412,739 361,030
--------- ---------
Total liabilities and stockholders'
equity $ 548,774 $ 473,564
========= =========
See accompanying notes.
<PAGE>
Consolidated Statements of Earnings
Years ended December 31
(Dollars in thousands, except
per share amounts) 1997 1996 1995
Continuing operations
Operating revenue:
Publications
Advertising $ 230,862 $ 210,244 $ 208,857
Circulation 52,681 52,290 54,500
Other 2,537 2,349 3,791
Broadcast 101,889 95,690 74,623
Printing 215,581 203,477 202,556
Telecommunications 60,751 45,351 39,977
Direct marketing 12,103 14,890 11,578
Eliminations (1,867) (2,057) (4,050)
------- ------- -------
Total operating revenue 674,537 622,234 591,832
Operating costs and expenses:
Cost of sales 376,341 358,588 346,144
Selling and administrative
expenses 218,560 196,629 181,091
Merger and litigation charges
(Notes 4 & 8) - - 23,218
------- ------- -------
Total operating costs
and expenses 594,901 555,217 550,453
Operating earnings 79,636 67,017 41,379
Other income:
Dividends and interest, net 6,246 3,366 4,806
Gain on sale of assets,
net (Note 7) 10,057 308 46
------- ------- -------
Total other income 16,303 3,674 4,852
------- ------- -------
Earnings from continuing
operations before income
taxes 95,939 70,691 46,231
Provision for income taxes
(Note 3) 39,728 29,648 18,330
------- ------- -------
Earnings from continuing
operations 56,211 41,043 27,901
------- ------- -------
Discontinued operations
(Note 9):
Earnings, net of
applicable income taxes
of $915 - - 1,371
Gain on sale, net of
applicable income taxes
of $9,960 - - 14,941
------- ------- -------
Net earnings $ 56,211 $ 41,043 $ 44,213
======= ======= =======
Earnings per share
(Note 1):
Continuing operations $ 4.10 $ 3.13 $ 2.01
Discontinued operations - - 1.17
------- ------- -------
Net earnings per share $ 4.10 $ 3.13 $ 3.18
======= ======= =======
See accompanying notes.
<PAGE>
Consolidated Statements of Cash Flows
Years ended December 31
(Dollars in thousands) 1997 1996 1995
Cash flow from operating
activities:
Earnings from continuing
operations $ 56,211 $ 41,043 $ 27,901
Adjustments for non-cash
items:
Depreciation and
amortization 40,350 37,635 34,413
Deferred income taxes 590 (2,052) (5,610)
Net gain from sales
of assets (10,057) (308) (46)
Change in:
Receivables (5,307) 1,250 (15,892)
Inventories 4,268 3,610 (5,414)
Accounts payable 16,887 5,018 7,814
Other current assets
and liabilities of
continuing operations 6,259 8,638 22
------- ------- -------
Net cash provided by
operating activities 109,201 94,834 43,188
Cash flow from investing
activities:
Proceeds from sales of assets 3,676 5,937 1,031
Property and equipment
expenditures (39,401) (33,772) (33,406)
Net (increase) decrease
in short-term investments (51,349) 8,462 (22,398)
Assets of businesses
acquired (21,063) (17,000) (22,773)
Other - net (2,215) (3,421) (4,748)
------- ------- -------
Net cash used for
investing activities (110,352) (39,794) (82,294)
Net cash provided by
discontinued operations
(Note 9) - - 82,831
Cash flow from financing
activities:
Net decrease in long-term
obligations (506) (7,015) (185)
Net (purchases) sales of
treasury stock 26,270 (17,212) (17,136)
Cash dividends (30,243) (28,563) (29,156)
------- ------- -------
Net cash used for
financing activities (4,479) (52,790) (46,477)
Net increase (decrease)
in cash (5,630) 2,250 (2,752)
Cash at beginning of year 12,383 10,133 12,885
------- ------- -------
Cash at end of year $ 6,753 $ 12,383 $ 10,133
======= ======= =======
Cash paid for income taxes $ 38,930 $ 23,753 $ 47,557
======= ======= =======
See accompanying notes.
<PAGE>
Consolidated Statements of
Retained Earnings
Years ended December 31
(Dollars in thousands,
except per share amounts) 1997 1996 1995
Balance at beginning of year $ 402,301 $ 390,279 $ 373,626
Net earnings 56,211 41,043 44,213
Cash dividends
(per share, 1997 - $2.20,
1996 - $2.20, 1995 - $2.10) (30,243) (28,563) (29,156)
Treasury stock transactions
(Note 6) 2,813 110 616
Currency translation adjustment (529) (568) 980
---------- ---------- ----------
Balance at end of year $ 430,553 $ 402,301 $ 390,279
========== ========== ==========
See accompanying notes.
<PAGE>
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995 (Dollars in thousands, except share and
per share amounts)
1. Principal accounting policies
Basis of consolidation - The consolidated financial statements include the
accounts of Journal Communications Inc. and its wholly owned subsidiaries
(collectively, the Company). All significant intercompany balances and
transactions have been eliminated.
Foreign currency translation - The Company's foreign subsidiary uses the
local currency as its functional currency. Accordingly, assets and
liabilities of the foreign subsidiary are translated into U.S. dollars at
year-end exchange rates while income and expense items are translated at
the average exchange rates for the year. Resulting translation adjustments
are reflected in retained earnings.
Earnings per share - The Company has adopted Statement of Financial
Accounting Standard (SFAS) No. 128, "Earnings Per Share." SFAS No. 128
had no impact on the earnings per share calculation in any period
presented. Earnings per share are based on each period's weighted average
shares outstanding, which were 13,701,866, 13,102,684 and 13,918,226 in
1997, 1996 and 1995, respectively.
Short-term investments - Short-term investments are stated at cost, which
approximates market value. Short-term investments at December 31 consisted
of the following:
1997 1996
Commercial Paper $ 99,074 $ 48,900
Bank Certificates of Deposit
with Maturities of one year or
less 5,175 4,000
--------- ---------
$ 104,249 $ 52,900
========= =========
Receivables - Allowance for doubtful accounts at December 31, 1997 and
1996 was $3,444 and $3,242, respectively.
Inventories - Inventories are stated at the lower of cost (first in, first
out method) or market. Inventories at December 31 consisted of the
following:
1997 1996
Paper and Supplies $ 13,453 $ 16,596
Work in Process 4,242 4,754
Finished Goods 5,970 6,328
--------- ---------
$ 23,665 $ 27,678
========= =========
Property and equipment - Property and equipment are recorded at cost.
Depreciation of property and equipment is computed principally using the
straight-line method.
Goodwill - Goodwill resulting from acquisitions subsequent to November 1,
1970, is amortized on a straight-line basis over 40 years. Goodwill prior
to November 1, 1970, is amortized when it is determined that such
intangible assets have a limited useful life. At December 31, 1997, $3,095
of goodwill was not being amortized. Accumulated amortization at December
31, 1997 and 1996 was $10,527 and $9,942, respectively.
Other intangible assets - Identifiable intangible assets resulting from
acquisitions are amortized on a straight-line basis for periods up to 30
years. Accumulated amortization relating to other intangible assets at
December 31, 1997 and 1996 was $29,917 and $26,089, respectively. Other
intangible assets also include the costs of television program contracts,
recorded under the gross method, which are deferred and amortized over
the estimated number of runs of the related programs.
Use of estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ
from those estimates.
New accounting standards - In June, 1997, the Financial Accounting
Standards Board issued SFAS No. 130, "Reporting Comprehensive Income,"
which establishes the standards for reporting and displaying
comprehensive income and its components. Also issued was SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information,"
which establishes the standards for the manner in which public enterprises
are required to report financial and descriptive information about their
operating segments. Both statements are effective for fiscal years
beginning after December 15, 1997. The adoption of the new accounting
standards will not affect the Company's results of operations or
financial position, but may affect the disclosure of financial
information.
2. Employee benefit plans
The Company has a defined benefit pension plan covering the majority of
its employees. The plan provides benefits based on compensation, years of
service and date of birth. The Company's policy is to fund the plan in
amounts that comply with contribution limits imposed by law.
Net pension cost for the defined benefit plan includes the following
components:
1997 1996 1995
Service cost $ 2,647 $ 2,600 $ 2,068
Interest on projected
benefit obligation 6,391 6,023 6,015
Return on plan assets -
gain (10,183) (8,434) (10,644)
Costs related to enhanced
pension benefits 1,603 - 4,000
Net amortization and deferral 4,018 2,539 4,860
----- -------- --------
Net pension cost $4,476 $ 2,728 $ 6,299
===== ======== ========
Actuarial assumptions used to project the benefit obligations and the net
pension cost were:
1997 1996 1995
Discount rate 7.25% 7.75% 7.50%
Rate of increase in compensation
levels 4.50% 5.00% 5.00%
Expected long-term rate of
return on plan assets 9.50% 9.50% 9.50%
The assets of the plan consist primarily of listed stocks and government
and other bonds. The funded status of the plan at December 31 was as
follows:
1997 1996
Actuarial present value of benefit
obligations:
Vested benefits $71,066 $ 67,259
Nonvested benefits 4,444 2,938
------- ---------
Accumulated benefit obligation 75,510 70,197
Effect of projected
compensation levels 13,067 13,192
------- ---------
Projected benefit obligation 88,577 83,389
Less: plan assets at fair value 75,560 68,590
------- ---------
Projected benefit obligation
in excess of plan assets 13,017 14,799
Unrecognized:
Transition asset 706 943
Prior service cost (2,290) (2,544)
Loss (357) (2,892)
------- ---------
Accrued pension liability $11,076 $ 10,306
======= =========
The Journal Communications Inc. Investment Savings Plan is a defined
contribution benefit plan covering substantially all employees. The plan
allows employees to defer up to 19% of their eligible wages, up to the
IRS limit, on a pretax basis. In addition, employees can contribute up to
10% of their eligible wages after taxes. The maximum combined total
contributed may not exceed 19%. Each employee who elects to participate
is eligible to receive company matching contributions. The Company will
contribute $0.50 for each dollar contributed by the participant, up to 5%
of eligible wages as defined by the plan. Company matching contributions
were $2,271, $2,071 and $1,952 in 1997, 1996 and 1995, respectively. The
Company made additional contributions into the Investment Savings Plan on
behalf of certain employees not covered by the Company's defined benefit
pension plan of $673, $731, and $214 in 1997, 1996 and 1995, respectively.
In addition, the Company provides health benefits to certain retirees and
their eligible spouses. The majority of the plan costs are covered by the
Company. It is the Company's policy to fund the plan as claims are
incurred. The Company has elected to amortize the unfunded obligation of
$25,324 at January 1, 1993 over a period of 20 years.
Postretirement benefit expense includes the following components:
1997 1996 1995
Service cost $ 476 $ 496 $ 433
Interest cost on accumulated
postretirement benefit
obligation 2,055 2,051 2,067
Amortization of transition
obligation 1,110 1,110 1,139
One time recognition of costs
related to newspaper merger - - 2,092
-------- -------- --------
Postretirement benefit expense $ 3,641 $ 3,657 $ 5,731
======== ======== ========
The funded status of the plans on an aggregate basis at December 31 was as
follows:
1997 1996
Accumulated postretirement benefit
obligation:
Retirees $ 20,337 $ 19,465
Fully eligible participants 1,541 1,463
Other active participants 7,399 6,729
--------- ---------
Total accumulated postretirement
benefit obligation 29,277 27,657
Unrecognized actuarial loss (794) (340)
Less: Unrecognized transition
obligation 16,651 17,761
--------- ---------
Accrued postretirement benefit
cost liability $ 11,832 $ 9,556
========= =========
The assumed health care cost trend rates used in measuring the accumulated
postretirement benefit obligation (APBO) for retirees for 1998 are 6.5%
grading down to 5% in 2001 and thereafter, and for 1997 were 7% grading
down to 5% in 2001 and thereafter. The benefit cost trend rates have a
significant effect on the amounts reported. The impact of a 1% increase in
the health care cost trend rates would have increased the APBO 6.8% at
December 31, 1997, and would have increased the aggregate service cost and
interest cost components of the postretirement benefit expense by 8.5%.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.25% and 7.75% for 1997 and 1996,
respectively.
3. Income taxes
Income tax expense (benefit) attributable to income from continuing
operations consists of the following:
1997 1996 1995
Current:
Federal $ 31,127 $ 25,157 $ 18,670
State 8,011 6,543 5,270
--------- --------- ---------
39,138 31,700 23,940
Deferred 590 (2,052) (5,610)
--------- --------- ---------
$ 39,728 $ 29,648 $ 18,330
========= ========= =========
The significant differences between the statutory federal tax rates and
the effective tax rates are as follows:
1997 1996 1995
Statutory federal income tax
rate 35.0% 35.0% 35.0%
State income taxes, net of
federal tax benefit 5.0 5.1 5.2
Foreign net operating losses 0.9 1.7 0.4
Other 0.5 0.1 (1.0)
---- ---- ----
Actual provision 41.4% 41.9% 39.6%
==== ==== ====
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities
include:
1997 1996
Deferred tax assets:
Accrued compensation and
employee benefits $ 10,450 $9,613
Intangible assets - 1,176
Inventories 865 459
Receivables 997 852
Domestic loss carryforwards 4,590 4,009
Foreign loss carryforwards 4,088 3,781
Other 2,105 1,068
------ -------
Total deferred tax assets 23,095 20,958
Deferred tax liabilities:
Property and equipment 12,180 11,855
Intangible assets 1,374 -
Other 1,468 1,222
------ -------
Total deferred tax liabilities 15,022 13,077
Valuation allowances:
Domestic loss carryforwards 551 618
Foreign loss carryforwards 2,543 1,694
------ -------
Total valuation allowances 3,094 2,312
Net deferred tax asset included
in balance sheet $4,979 $ 5,569
====== =======
4. Litigation and contingent liabilities
The Company is subject to various legal actions, administrative
proceedings and claims arising out of the ordinary course of business.
Management believes that such unresolved legal actions and claims will not
materially affect the consolidated financial position of the Company. The
Company periodically re-evaluates its exposure on such claims and makes
adjustments to its reserves as appropriate.
In November 1995, a judgment was issued against the Company for $8.4
million in connection with a patent infringement lawsuit. In February
1996, the judgment was settled for $5.7 million, which has been recorded
in fiscal 1995. The settlement fully relieves the Company of all past and
future obligations under this matter.
5. Long-term obligations
December 31 1997 1996
Capital lease & other obligations,
average interest 8% in 1997 $ 1,500 1,420
Television program contracts,
due thru 1998 1,168 2,441
------ ------
2,668 3,861
Less current portion 1,556 2,337
------ ------
$ 1,112 $ 1,524
====== ======
In addition, the Company has the rights to broadcast certain television
programs during the years 1998-2002 under contracts aggregating $10,818.
Rental expense for office facilities and equipment including
noncancellable operating leases was $18,926, $15,382 and $10,548 in 1997,
1996 and 1995, respectively. Future minimum annual rental payments due
under operating leases total $50,109 and are due as follows: 1998 -
$8,190; 1999 - $7,559; 2000 - $7,378; 2001 - $6,630; 2002 - $5,871;
thereafter $14,481.
6. Stockholders' equity
The Company purchases units of beneficial interest in the Journal
Employees' Stock Trust (JESTA) for resale to its employees and for use in
its Incentive Compensation Plans. Treasury stock activity is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
Units Amount Units Amount Units Amount
<S> <C> <C> <C> <C> <C> <C>
Beginning balance 1,226,817 $44,871 758,582 $ 27,549 291,249 $ 9,797
Purchases 1,220,001 47,496 1,380,440 50,504 699,608 25,488
Sales (1,915,821) (70,953) (912,205) (33,182) (232,275) (7,736)
--------- ------- --------- ------- -------- -------
Ending balance 530,997 $21,414 1,226,817 $ 44,871 758,582 $27,549
========= ======= ========= ======= ======== =======
Gain on sales $ 2,813 $ 110 $ 616
======= ======= =======
</TABLE>
7. Sales and acquisitions
On June 30, 1997, the Company acquired the business and substantially all
of the assets of WWST-FM and WMYU-FM in Knoxville, Tenn., in exchange for
the business and substantially all of the assets of KQRC-FM in Kansas
City, Mo. The Company reported a pretax gain on the sale of KQRC of
approximately $7.8 million.
On October 1, 1997, the Company acquired the stock of Community Newspapers
Inc. (CNI), a group of weekly newspapers and free-distribution
publications in metropolitan Milwaukee, Wis. The cash purchase price was
approximately $13.3 million.
On January 29, 1996, the Company acquired the business and substantially
all of the assets of KMXZ-FM, KKHG-FM (renamed KZPT-FM) and KKND-AM
(renamed KFFN-AM) in Tucson, Ariz. The combined cash purchase price was
approximately $16.2 million.
On January 24, 1995 and February 1, 1995, the Company acquired the
business and substantially all of the assets of KEZO-AM (renamed
KOSR-AM), KEZO-FM and KKCD-FM in Omaha, Neb. The combined cash purchase
price was approximately $12.7 million. On June 22, 1995, the Company
acquired the business and substantially all of the assets of Mega Direct,
a direct marketing company based in Clearwater, Fla., at a purchase price
of approximately $8 million.
The acquisitions were accounted for using the purchase method.
Accordingly, the operating results and cash flows of the acquired
businesses are included in the Company's consolidated financial statements
from the dates of acquisition. Had the transactions occurred on January 1
of the year acquired, the effect of the acquisitions of the Company's
consolidated results of operations, for each respective year, would not
have been material.
8. Merger charges
On April 2, 1995, Journal Sentinel Inc. merged The Milwaukee Journal and
the Milwaukee Sentinel into a morning newspaper called the Milwaukee
Journal Sentinel. This resulted in a pretax charge of $17.5 million,
which consisted of $11.3 million in termination benefits for approximately
250 employees and $6.2 million for other nonrecurring costs associated
with the launch of the new newspaper. All charges were recorded in fiscal
1995.
9. Discontinued operations
Effective April 27, 1995, the Company sold substantially all the assets
used in the business of its wholly owned subsidiary, Perry Printing
Corporation ("Perry"). Perry was a heatset web offset printer of long-run
catalogs and publications. The assets sold consisted of accounts
receivable, inventories, fixtures, equipment and certain real estate. The
Perry operations have been reflected as discontinued operations. Net
revenues of discontinued operations were $45,946 in 1995.
The sale price was approximately $95 million, which included 115,000
shares of the buyer's preferred stock with a value of $11.5 million, plus
the assumption of trade and other liabilities by the buyer. In 1995, the
Company recorded an after tax gain on the sale of $14.9 million.
10. Segment analysis
Journal Communications Inc. is an employee-owned, diversified
communications company with operations in 17 states and France. The
Company's principal lines of business are publishing, broadcasting,
printing, telecommunications and direct marketing. The Milwaukee Journal
Sentinel and 110 paid and free periodicals are published. The broadcasting
business consists of eleven radio and three television stations. The
printing of short-run publications, periodicals, computer software
documentation manuals, quality labels, and packaging and promotional
materials are provided by the printing business. The telecommunications
business provides a full range of services with one of the largest
digital networks in the Midwest. Personalized direct marketing services
are provided to merchandisers and manufacturers.
Revenue 1997 1996 1995
Publications $ 286,080 $264,883 $267,148
Broadcast 101,889 95,690 74,623
Printing 215,581 203,477 202,556
Telecommunications 60,751 45,351 39,977
Direct marketing 12,103 14,890 11,578
Corporate & eliminations (1,867) (2,057) (4,050)
-------- -------- --------
$ 674,537 $622,234 $591,832
======== ======== ========
Earnings (loss) 1997 1996 1995
Publications $ 40,711 $ 31,718 $ 15,091
Broadcast 38,174 29,323 17,653
Printing 386 (6,895) 6,021
Telecommunications 12,320 8,955 8,993
Direct marketing (1,315) 1,327 (2,842)
Corporate & eliminations (583) 2,897 (3,491)
Dividends and interest, net 6,246 3,366 4,806
------- ------- -------
Earnings from continuing
operations before income
taxes $ 95,939 $ 70,691 $ 46,231
======= ======= =======
December 31
Identifiable total assets 1997 1996 1995
Publications $ 102,533 $ 92,297 $ 94,106
Broadcast 90,727 77,763 66,843
Printing 116,024 125,264 139,211
Telecommunications 66,420 58,943 55,216
Direct marketing 14,616 16,127 19,471
Corporate & eliminations 158,454 103,170 99,891
------- ------- --------
$ 548,774 $ 473,564 $ 474,738
======= ======= ========
Depreciation & Amortization 1997 1996 1995
Publications $ 9,027 $ 8,049 $ 7,680
Broadcast 6,974 6,738 6,884
Printing 12,946 12,600 9,556
Telecommunications 8,829 8,390 8,491
Direct marketing 1,788 2,115 1,380
Corporate & eliminations 786 (257) 422
-------- -------- --------
$ 40,350 $ 37,635 $ 34,413
======== ======== ========
Capital expenditures 1997 1996 1995
Publications $ 12,590 $ 8,264 $ 8,303
Broadcast 4,739 $ 2,837 3,641
Printing 8,103 9,341 16,785
Telecommunications 12,928 12,341 2,612
Direct marketing 764 594 1,594
Corporate & eliminations 277 395 471
-------- -------- --------
$ 39,401 $ 33,772 $ 33,406
======== ======== ========
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors and Stockholders
Journal Communications Inc.
We have audited the accompanying consolidated balance sheets of Journal
Communications Inc. as of December 31, 1997 and 1996, and the related
consolidated statements of earnings, retained earnings, and cash flows for
each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Journal
Communications Inc. at December 31, 1997 and 1996, and the consolidated
results of its operations and its cash flows for each of the three years
in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
ENRST & YOUNG LLP
Milwaukee, Wisconsin
January 30, 1998
