FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarter Ending October 10, 1999 Commission file number 0-7831
---------------- ------
(10 Accounting Periods)
JOURNAL COMMUNICATIONS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
WISCONSIN 39-0382060
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 661, 333 W. State St., Milwaukee, Wisconsin 53203
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
414-224-2728
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15 (d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES _X_ NO ___
Number of shares of Common Stock Outstanding - October 10, 1999
27,156,322
- ----------
<PAGE>
FORM 10-Q
JOURNAL COMMUNICATIONS, INC.
Quarter Ended October 10, 1999 Commission file number 0-7831
---------------- ------
INDEX
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Condensed Balance Sheets
October 10,1999 and December 31, 1998 2
Consolidated Condensed Statements of Income
Ten Periods Ended October 10, 1999 and
October 4, 1998 3
Consolidated Condensed Statements of Cash Flows
Ten Periods Ended October 10, 1999 and
October 4, 1998 4
Notes to Consolidated Condensed 5
Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosure of
Market Risk 10
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 11
1
<PAGE>
FORM 10-Q
JOURNAL COMMUNICATIONS, INC.
For Quarter Ended October 10, 1999 Commission file number 0-7831
---------------- ------
(10 Accounting Periods)
Part 1, Item 1. Financial Statements (Unaudited)
Consolidated Condensed Balance Sheets
October 10, 1999 and December 31, 1998
(Dollars in thousands)
ASSETS 10/10/99 12/31/98
- ------ -------- --------
(Unaudited)
Current assets:
Cash and cash equivalents $ 5,380 $131,051
Receivables, less allowance for doubtful
accounts of $5,318 and $4,345 110,354 94,823
Inventories:
Paper and supplies 10,324 10,910
Work in process 2,998 2,339
Finished goods 5,107 6,633
-------- --------
18,429 19,882
Prepaid expenses 8,558 16,211
Deferred income taxes 6,701 6,701
-------- --------
Total current assets 149,422 268,668
Property and equipment, at cost, less accumulated
depreciation of $282,697 and $249,279 204,911 178,338
Goodwill 93,508 60,339
FCC licenses 125,774 45,700
Other intangibles assets 21,431 13,603
Deferred charges and other assets 13,025 17,500
-------- --------
Total assets $608,071 $584,148
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Notes payable to bank $ 10,570 $ 0
Accounts payable 45,969 47,850
Taxes on income 1,785 5,761
Accrued compensation 25,746 24,137
Deferred revenue 21,257 16,092
Accrued employee benefits 29,152 25,557
Other current liabilities 10,843 11,456
Current portion of long-term obligations 1,775 1,798
-------- --------
Total current liabilities 147,097 132,651
Long-term obligations 5,494 1,643
Deferred income taxes 1,070 1,970
Stockholders' equity:
Common stock - authorized and issued
28,800,000 ($0.125 par value) 3,600 3,600
Retained earnings 495,308 463,110
Treasury stock, at cost (44,498) (18,826)
-------- --------
Total stockholders' equity 454,410 447,884
-------- --------
Total liabilities and stockholders' equity $608,071 $584,148
======== ========
Note: The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date but does not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes to consolidated condensed financial statements.
2
<PAGE>
FORM 10-Q
JOURNAL COMMUNICATIONS, INC.
For Quarter Ended October 10, 1999 Commission file number 0-7831
----------------- ------
(10 Accounting Periods)
<TABLE>
Consolidated Condensed Statements of Income
(Dollars in thousands except share and per share amounts)
<CAPTION>
Four Periods Ended Ten Periods Ended
------------------ -----------------
10/10/99 10/04/98 10/10/99 10/04/98
-------- -------- -------- --------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales $ 233,269 $ 226,968 $ 573,766 $ 552,127
---------- ---------- ---------- ----------
Operating costs and expenses:
Cost of sales 121,117 123,784 300,601 303,072
Selling/administrative expenses 79,064 74,413 187,429 178,848
---------- ---------- ---------- ----------
200,181 198,197 488,030 481,920
---------- ---------- ---------- ----------
Operating earnings 33,088 28,771 85,736 70,207
Dividend and interest income, net 418 1,961 3,924 4,888
Loss on sale of assets (375) (610) (289) (532)
---------- ---------- ---------- ----------
Earnings before income taxes 33,131 30,122 89,371 74,563
Provision for income taxes 13,571 12,563 36,617 30,863
---------- ---------- ---------- ----------
Net income $ 19,560 $ 17,559 $ 52,754 $ 43,700
========== ========== ========== ==========
Weighted average number of common
shares outstanding 27,272,082 28,114,861 27,405,946 28,081,602
========== ========== ========== ==========
Earnings per share $ 0.72 $ 0.62 $ 1.92 $ 1.56
========== ========== ========== ==========
Cash dividend per share $ 0.28 $ 0.275 $ 0.84 $ 0.825
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
<PAGE>
FORM 10-Q
JOURNAL COMMUNICATIONS, INC.
For Quarter Ended October 10, 1999 Commission file number 0-7831
----------------- ------
(10 Accounting Periods)
Consolidated Condensed Statements of Cash Flows
(Dollars in thousands)
Ten Periods Ended
-----------------
10/10/99 10/04/98
-------- --------
(Unaudited) (Unaudited)
Cash flow from operating activities:
Net earnings $ 52,754 $ 43,700
Adjustments to net earnings for
non-cash items:
Depreciation and amortization 34,355 32,992
Net loss from sales of assets 289 532
Change in:
Accounts receivable (13,094) (5,474)
Inventories 1,304 1,478
Accounts payable 1,293 (5,111)
Other current assets and liabilities 9,063 (5,250)
-------- --------
Net cash provided by operating activities 85,964 62,867
-------- --------
Cash flow from investing activities:
Proceeds from sale of assets 220 224
Property and equipment expenditures (46,146) (32,119)
Assets of businesses acquired (127,784) (40,415)
Other-net (1,872) (3,572)
-------- --------
Net cash used by investing activities (175,582) (75,882)
-------- --------
Cash flow from financing activities:
Net increase in short-term borrowing 10,570 0
Net (decrease)/increase in long-term obligations (723) 800
Net (purchases)/sales of treasury stock (22,813) 4,932
Cash dividends (23,087) (23,339)
-------- --------
Net cash used by financing activities (36,053) (17,607)
-------- --------
Net decrease in cash and cash equivalents (125,671) (30,622)
Cash and cash equivalents
Beginning of year 131,051 111,002
-------- --------
October 10, 1999, and October 4, 1998 $ 5,380 $ 80,380
======== ========
See accompanying notes to consolidated condensed financial statements.
4
<PAGE>
FORM 10-Q
JOURNAL COMMUNICATIONS, INC.
For Quarter Ended October 10, 1999 Commission file number 0-7831
---------------- ------
(10 Accounting Periods)
Notes to Consolidated Condensed Financial Statements
----------------------------------------------------
(Unaudited, Dollars in thousands)
1. Basis of Presentation
---------------------
The accompanying unaudited consolidated condensed financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q
and Article 10 of Regulations S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Certain prior year
amounts have been reclassified to conform to the 1999 presentation.
Operating results for the ten periods ended October 10, 1999 are not
necessarily indicative of the results that may be expected for the year
ended December 31, 1999. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Journal
Communications, Inc. annual report on Form 10-K for the year ended December
31, 1998.
2. Accounting Periods
------------------
The Registrant divides its calendar year into thirteen four-week accounting
periods, except that the first and thirteenth periods may be longer or
shorter to the extent necessary to make each accounting year end on
December 31. Registrant follows a practice of publishing its financial
statement at the end of the third accounting period (its first quarter), at
the end of the sixth accounting period (its second quarter), and at the end
of the tenth accounting period (its third quarter).
3. Segment Information
-------------------
Four Periods Ended Ten Periods Ended
------------------ -----------------
10/10/99 10/04/98 10/10/99 10/04/98
-------- -------- -------- --------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenues by segment
-------------------
Publications $ 90,941 $ 90,291 $231,605 $223,953
Broadcast 44,110 35,036 95,569 83,127
Printing 64,740 72,341 162,496 176,020
Telecommunications 31,047 25,610 77,048 60,037
Direct Marketing 3,443 4,305 9,255 10,420
Corporate and eliminations (1,012) (615) (2,207) (1,430)
-------- -------- -------- --------
$233,269 $226,968 $573,766 $552,127
======== ======== ======== ========
5
<PAGE>
FORM 10-Q
JOURNAL COMMUNICATIONS, INC.
For Quarter Ended October 10, 1999 Commission file number 0-7831
---------------- ------
(10 Accounting Periods)
Notes to Consolidated Condensed Financial Statements
----------------------------------------------------
(Unaudited, Dollars in thousands)
Four Periods Ended Ten Periods Ended
------------------ -----------------
10/10/99 10/04/98 10/10/99 10/04/98
-------- -------- -------- --------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Earnings (losses) before
- ------------------------
income taxes by segment
- -----------------------
Publications $ 12,626 $ 12,537 $ 33,635 $ 33,075
Broadcast 8,146 9,454 21,235 21,870
Printing 2,736 504 7,163 (10)
Telecommunications 9,825 7,572 24,283 16,670
Direct Marketing (901) 83 (1,139) 386
Corporate and eliminations 281 (1,989) 270 (2,316)
Net interest and dividends 418 1,961 3,924 4,888
-------- -------- -------- --------
$ 33,131 $ 30,122 $ 89,371 $ 74,563
======== ======== ======== ========
10/10/99 12/31/98
-------- --------
(Unaudited)
Total assets by segment
Publications $125,602 $120,949
Broadcast 261,758 127,598
Printing 99,651 108,900
Telecommunications 81,085 61,849
Direct Marketing 14,687 15,292
Corporate and eliminations 25,288 149,560
-------- --------
$608,071 $584,148
======== ========
4. Comprehensive Income
--------------------
Total comprehensive income was $19,637 and $52,423 for the four and ten
periods ended October 10, 1999, and $17,686 and $43,900 for the four and
ten periods ended October 4, 1998.
6
<PAGE>
FORM 10-Q
JOURNAL COMMUNICATIONS, INC.
For Quarter Ended October 10, 1999 Commission file number 0-7831
---------------- ------
(10 Accounting Periods)
Item 2. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations
---------------------------------------------
Results of Operations
- ---------------------
After three quarters of the year (10 of the 13 four-week business periods),
consolidated net earnings were $52.8 million, up 20.7% over a year ago.
Consolidated revenue was $573.8 million, up a modest 3.9%.
Norlight Telecommunications, Inc. had year-to-date pre-tax earnings of $24.3
million, up 45.7%, on a 28.3% revenue increase to $77.0 million. Part of the
network build into Michigan was brought into service early in the fourth
quarter. The rest of the Michigan network should be up by the end of the year,
producing an increase in that revenue stream.
IPC Communication Services had pre-tax earnings of $1.6 million, after a $5.7
million loss last year at this time. Revenue was lower, down 16.3% to $79.5
million, due to the closure of the northern California operation.
At Journal Sentinel Inc., pre-tax earnings were up 6.9% to $35.4 million, while
sales reached $184.8 million, up just 2.8%. Even through classified advertising
revenue continued to decline, particularly in the employment and real estate
categories, retail run-of-press advertising has been substantially ahead of last
year.
Pre-tax earnings at Journal Broadcast Group slipped 2.9% to $21.2 million,
although revenue was up nearly 15% to $95.6 million with the first full quarter
of the addition of 13 radio stations in Wichita, Omaha, Tulsa and Springfield,
Mo. In Lansing, Mich., year-to-date earnings at WSYM-TV were up almost $500,000
over a year ago on a 13.3% revenue increase. We have experienced difficult
market conditions in Las Vegas, where pre-tax earnings trailed last year by $2.3
million at KTNV-TV. New leadership is now in place at the station.
Add Inc. had pre-tax earnings of $3.2 million, down from $4.3 million last year,
while revenue was up 3.6% to $85.4 million. Add Inc. has focused on improving
its lagging Florida operation, and during the quarter has closed the
Jacksonville (Fla.) Shopping Guide and won the rights to publish the official
publication for the Kings Bay Naval Submarine Base.
NorthStar Print Group Inc. had pre-tax earnings of $643,000, just half of what
it was a year ago, as sales increased 3.9% to $44.5 million. While the Milwaukee
plant is having a solid year, the Norway-Watertown operation has slipped due to
slower than expected new account activity and new product sales. The Label
Products & Design plant in Green Bay also has suffered from soft demand for its
products.
7
<PAGE>
FORM 10-Q
JOURNAL COMMUNICATIONS, INC.
For Quarter Ended October 10, 1999 Commission file number 0-7831
---------------- ------
(10 Accounting Periods)
Item 2. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations
---------------------------------------------
The revenue dropoff grew to 11.2% at PrimeNet Marketing Services, which had a
year-to-date pre-tax loss of $1.1 million. Recent additions to the sales force
in Clearwater, Fla., should help grow that business, particularly in the
automotive category.
Our commitment to growth is reflected on the cash flow statement with,
year-to-date, $127.8 million invested in acquisitions and an additional $46.1
million in capital expenditures. Our cash flow from continuing operations
reached $86.0 million. Total assets of $608.1 million increased $23.9 million or
4.1% from December 31, 1998. At the end of the quarter, our total borrowing
against our new debt facility was $10.6 million. Stockholders' equity has grown
to $454.4 million.
YEAR 2000 ISSUES
Project Overview
- ----------------
Journal Communications initiated an enterprise-wide effort in 1997 to address
the issues related to the ability of computer programs and embedded technology
to properly distinguish between years beginning with "20" and "19". The project
plan includes 6 phases:
1. An awareness phase, to educate and prepare staff at all levels, for the
effort required to complete the project;
2. A planning phase, during which a comprehensive inventory of all technology
is completed, assessed for risk, investigated for known compliance, vendors
and suppliers surveyed, and strategies for upgrade or replacement of
non-compliant systems planned;
3. A remediation phase, during which corrective actions planned in the prior
phase are completed;
4. A testing phase, during which both corrected systems and those believed to
be compliant are verified for correct handling of the year calculations;
5. An implementation phase, which includes placing into production those
systems that passed tests successfully, and
6. A contingency planning phase, which includes planning for individual system
issues as well as each company's planning for Year 2000 related issues
outside of their control.
Current Status of the Year 2000 Project
- ---------------------------------------
The awareness phase is a continuing effort that has been underway since 1997.
The inventory is substantially complete, including an assessment of the risk
associated with each item and vendor. Vendor surveys have been sent to the
critical suppliers of the Company, and a majority of the responses have been
received. Through these efforts and
8
<PAGE>
FORM 10-Q
JOURNAL COMMUNICATIONS, INC.
For Quarter Ended October 10, 1999 Commission file number 0-7831
---------------- ------
(10 Accounting Periods)
Item 2. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations
---------------------------------------------
those of a consultant contracted in 1998 to assist with the planning phase, the
compliance status of technology considered critical to our operations has been
documented and corrective action for systems impacted by the Year 2000 has been
planned.
Corrective actions were complete for a majority of the critical systems of the
Company by December 31, 1998. These included systems impacting the delivery of
goods or services, safety, or revenues of the Company. The Company continues to
replace or upgrade all critical, date-impacted technology and should be complete
by December 1, 1999. Non-critical systems are generally in the assessment phase,
and replacements or upgrades are expected to be complete by December 1, 1999. In
both cases, the Company plans to use internal and external resources to make the
needed corrections to software and embedded technologies.
Communications with vendors and suppliers have been reviewed to determine the
extent to which the Company may be vulnerable to the failure of these suppliers
to resolve their own Year 2000 issues. As of this time, all vendors and
suppliers that would have a material impact on operations have been contacted.
Where a response has not been received, or is inadequate, replacements for
critical vendors and suppliers have been identified, or plans to increase
inventory of critical supplies have been prepared. In the area of utilities or
other suppliers of on-demand services, we have prepared contingency plans that
permit continued operations in the event of interruptions in those services.
The Company plans to complete all phases of its Year 2000 project on time based
upon the results to date and certain assumptions of future events including the
continued availability of resources, suppliers meeting their commitments to
deliver needed upgrades or replacements, and other factors. However, actual
results could differ materially from those planned. Specific factors that might
cause such material differences include, but are not limited to, the
availability and cost of personnel needed to complete the project, the ability
to locate and correct all impacted technology, and similar uncertainties.
Costs Associated with the Year 2000 Project
- -------------------------------------------
Based upon presently available information, the Company has estimated that the
operating costs associated with the Year 2000 project to date will total $2.8
million. This includes the cost of third-party resources used to assist in the
assessment of technology at each of the subsidiaries and an estimate of the
internal labor costs associated with the project.
The total estimated capital costs, much of which would have been incurred
regardless of Year 2000 issues, were $5.9 million through the end of 1998. The
Company estimates capital costs for 1999 and through the completion of the
project to be $1.2 million.
9
<PAGE>
FORM 10-Q
JOURNAL COMMUNICATIONS, INC.
For Quarter Ended October 10, 1999 Commission file number 0-7831
---------------- ------
(10 Accounting Periods)
Item 2. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations
---------------------------------------------
Labor and other operating costs associated with the project are estimated at
$2.8 million for the same period. At this time, the Company does not anticipate
delaying any major information systems projects due to the Year 2000 project.
Risks Associated with Year 2000
- -------------------------------
The Year 2000 is a complex and significant project, and, accordingly, contains
the risk of underestimating the tasks, resources, and costs associated with its
successful completion. The risk of not finding a material Year 2000 problem that
may impact normal business activities or operations also exists. Due to the
general uncertainty inherent in the Year 2000 problem, resulting in part from
the uncertainty of the Year 2000 readiness of suppliers and customers, the
Company is unable to determine at this time whether the consequences of the Year
2000 failures will have a material impact on the Company's results of
operations, cash flows or financial condition. Through the efforts of the Year
2000 project, the Company is making every effort to reduce the level of
uncertainty about the Year 2000 problem and, through its contingency planning
efforts, mitigate the associated risks.
Contingency Plans
- -----------------
Each of the operating companies is expected to complete contingency planning at
the system and company level. In part, the contingency plan's goal is to
minimize identified third-party exposures. With the assistance of consultants
contracted to facilitate, this effort is nearly complete at all of the
companies. The finalized plans are expected by December 1, 1999, with testing to
continue during December 1999.
Item 3. Quantitative and Qualitative Disclosure of Market Risk
--------------------------------------------------------------
There have been no material changes in the reported market risks since 12/31/98.
10
<PAGE>
FORM 10-Q
JOURNAL COMMUNICATIONS, INC.
For Quarter Ended October 10, 1999 Commission file number 0-7831
---------------- ------
(10 Accounting Periods)
Part II. Other Information
Item 6 - Exhibits and Reports on Form 8-K
-----------------------------------------
(b) Reports on Form 8-K. On June 30, 1999, a report on Form 8-K
was filed for the acquisition of the issued and outstanding
capital stock of Great Empire Broadcasting, Inc. ("GEB"), a
Kansas corporation, pursuant to a Stock Purchase Agreement
dated August 24, 1998.
Signatures
----------
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 thereunto duly authorized.
JOURNAL COMMUNICATIONS, INC.
----------------------------
Registrant
Date November 19, 1999 /s/ Steven J. Smith
----------------- -----------------------------------------
Steven J. Smith, Chairman and Chief
Executive Officer
Date November 19, 1999 /s/ Paul M. Bonaiuto
----------------- -----------------------------------------
Paul M. Bonaiuto, Executive Vice President
And Chief Financial Officer
11
<PAGE>
FORM 10-Q
JOURNAL COMMUNICATIONS, INC.
For Quarter Ended October 10, 1999 Commission file number 0-7831
---------------- ------
(10 Accounting Periods)
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
27 FINANCIAL DATA SCHEDULE
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER<F1>
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> OCT-10-1999
<CASH> 5,380
<SECURITIES> 0
<RECEIVABLES> 110,354
<ALLOWANCES> 5,318
<INVENTORY> 18,429
<CURRENT-ASSETS> 149,422
<PP&E> 204,911
<DEPRECIATION> 282,697
<TOTAL-ASSETS> 608,071
<CURRENT-LIABILITIES> 147,097
<BONDS> 5,494
0
0
<COMMON> 3,600
<OTHER-SE> 450,810
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 573,766
<TOTAL-REVENUES> 573,766
<CGS> 300,601
<TOTAL-COSTS> 488,030
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 89,371
<INCOME-TAX> 36,617
<INCOME-CONTINUING> 52,754
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 52,754
<EPS-BASIC> 1.92
<EPS-DILUTED> 1.92
<FN>
<F1> 10 ACCOUNTING PERIODS
</FN>
</TABLE>
