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 June 20, 1999 Commission file number 0-7831
------------- ------
(6 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 - June 20, 1999
27,320,852
<PAGE>
FORM 10-Q
JOURNAL COMMUNICATIONS, INC.
Quarter Ended June 20, 1999 Commission file number 0-7831
INDEX
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Condensed Balance Sheets
June 20,1999 and December 31, 1998 2
Consolidated Condensed Statements of Income
Six Periods Ended June 20, 1999 and
June 14, 1998 3
Consolidated Condensed Statements of Cash Flows
Six Periods Ended June 20, 1999 and
June 14, 1998 4
Notes to Consolidated Condensed
Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosure of
Market Risk 11
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 12
1
<PAGE>
FORM 10-Q
JOURNAL COMMUNICATIONS, INC.
For Quarter Ended June 20, 1999 Commission file number 0-7831
(6 Accounting Periods)
Part 1, Item 1. Financial Statements (Unaudited)
Consolidated Condensed Balance Sheets
June 20, 1999 and December 31, 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
ASSETS 06/20/99 12/31/98
--------- ---------
(Unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 23,691 $ 131,051
Receivables, less allowance for doubtful
accounts of $5,229 and $4,345 104,249 94,823
Inventories:
Paper and supplies 11,634 10,910
Work in process 2,802 2,339
Finished goods 4,051 6,633
--------- ---------
18,487 19,882
Prepaid expenses 7,012 16,211
Deferred income taxes 6,701 6,701
--------- ---------
Total current assets 160,140 268,668
Property and equipment, at cost, less accumulated
depreciation of $272,388 and $249,279 189,010 178,338
Goodwill 84,239 60,339
FCC licenses 109,092 45,700
Other intangibles assets 22,402 13,603
Deferred charges and other assets 12,875 17,500
--------- ---------
Total assets $577,758 $ 584,148
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 41,013 $ 47,850
Taxes on income 490 5,761
Accrued compensation 23,971 24,137
Deferred revenue 17,959 16,092
Accrued employee benefits 28,011 25,557
Other current liabilities 10,967 11,456
Current portion of long-term obligations 1,517 1,798
--------- ---------
Total current liabilities 123,928 132,651
Long-term obligations 5,588 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 482,380 463,110
Treasury stock, at cost (38,808) (18,826)
--------- ---------
Total stockholders' equity 447,172 447,884
--------- ---------
Total liabilities and stockholders' equity $ 577,758 $ 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.
</TABLE>
See accompanying notes to consolidated condensed financial statements.
2
<PAGE>
FORM 10-Q
JOURNAL COMMUNICATIONS, INC.
For Quarter Ended June 20, 1999 Commission file number 0-7831
(6 Accounting Periods)
Consolidated Condensed Statements of Income
(Dollars in thousands except share and per share amounts)
<TABLE>
<CAPTION>
Three Periods Ended Six Periods Ended
------------------- -----------------
06/20/99 06/14/98 06/20/99 06/14/98
-------- -------- -------- --------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales $ 174,940 $ 170,339 $ 340,497 $ 325,159
---------- ---------- ---------- ----------
Operating costs and expenses:
Cost of sales 90,539 90,623 179,484 179,288
Selling/administrative expenses 55,307 53,792 108,365 104,540
---------- ---------- ---------- ----------
145,846 144,415 287,849 283,828
---------- ---------- ---------- ----------
Operating earnings 29,094 25,924 52,648 41,331
Dividend and interest income, net 1,650 1,516 3,506 2,927
Gain on sale of assets 41 170 86 183
---------- ---------- ---------- ----------
Earnings before income taxes 30,785 27,610 56,240 44,441
Provision for income taxes 12,595 11,448 23,046 18,300
---------- ---------- ---------- ----------
Net income $ 18,190 $ 16,162 $ 33,194 $ 26,141
========== ========== ========== ==========
Weighted average number of common
shares outstanding 27,405,699 28,295,198 27,493,623 28,059,026
========== ========== ========== ==========
Earnings per share $ 0.66 $ 0.57 $ 1.21 $ 0.93
========== ========== ========== ==========
Cash dividend per share $ 0.28 $ 0.275 $ 0.56 $ 0.55
========== ========== ========== ==========
See accompanying notes to consolidated condensed financial statements.
</TABLE>
3
<PAGE>
FORM 10-Q
JOURNAL COMMUNICATIONS, INC.
For Quarter Ended June 20, 1999 Commission file number 0-7831
(6 Accounting Periods)
Consolidated Condensed Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Periods Ended
-----------------
06/20/99 06/14/98
-------- --------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flow from operating activities:
Net earnings $ 33,194 $ 26,141
Adjustments to net earnings for
non-cash items:
Depreciation and amortization 20,678 19,927
Net gain from sales of assets (86) (183)
Change in:
Accounts receivable (6,430) (7,194)
Inventories 1,205 1,614
Accounts payable (4,570) (9,469)
Other current assets and liabilities 4,839 (11,120)
---------- ----------
Net cash provided by operating activities 48,830 $ 19,716
---------- ----------
Cash flow from investing activities:
Proceeds from sale of assets 167 389
Property and equipment expenditures (22,152) (18,995)
Assets of business acquired (99,362) (18,636)
Other-net (604) (878)
---------- ----------
Net cash used by investing activities (121,951) (38,120)
---------- ----------
Cash flow from financing activities:
Net decrease in long-term obligations (740) (323)
Net (purchases)/sales of treasury stock (18,052) 11,083
Cash dividends (15,447) (15,624)
---------- ----------
Net cash used by financing activities (34,239) (4,864)
---------- ----------
Net decrease in cash and cash equivalents (107,360) (23,268)
Cash and cash equivalents
Beginning of year 131,051 111,002
---------- ----------
June 20, 1999, and June 14, 1998 $ 23,691 $ 87,734
========== ==========
See accompanying notes to consolidated condensed financial statements.
</TABLE>
4
<PAGE>
FORM 10-Q
JOURNAL COMMUNICATIONS, INC.
For Quarter Ended June 20, 1999 Commission file number 0-7831
(6 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 six periods
ended June 20, 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
<TABLE>
<CAPTION>
Three Periods Ended Six Periods Ended
------------------- -----------------
06/20/99 06/14/98 06/20/99 06/14/98
-------- -------- -------- --------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues by segment
Publications $ 66,506 $ 66,407 $ 140,664 $ 133,662
Broadcast 28,113 27,357 51,459 48,091
Printing 55,307 55,604 97,756 103,679
Telecommunications 22,827 18,173 46,001 34,427
Direct Marketing 2,639 3,232 5,812 6,115
Corporate and eliminations (452) (434) (1,195) (815)
---------- ---------- ---------- ----------
$ 174,940 $ 170,339 $ 340,497 $ 325,159
========== ========== ========== ==========
</TABLE>
5
<PAGE>
FORM 10-Q
JOURNAL COMMUNICATIONS, INC.
For Quarter Ended June 20, 1999 Commission file number 0-7831
(6 Accounting Periods)
Notes to Consolidated Condensed Financial Statements
(Unaudited, Dollars in thousands)
<TABLE>
<CAPTION>
Three Periods Ended Six Periods Ended
------------------- -----------------
06/20/99 06/14/98 06/20/99 06/14/98
-------- -------- -------- --------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Earnings (losses) before income taxes by segment
Publications $ 11,411 $ 12,292 $ 21,009 $ 20,538
Broadcast 8,104 8,767 13,089 12,416
Printing 3,285 503 4,427 (514)
Telecommunications 6,698 4,941 14,458 9,098
Direct Marketing (348) 238 (238) 303
Corporate and eliminations (15) (647) (11) (327)
Net interest and dividends 1,650 1,516 3,506 2,927
--------- --------- --------- ---------
$ 30,785 $ 27,610 $ 56,240 $ 44,441
========= ========= ========= =========
<CAPTION>
06/20/99 12/31/98
-------- --------
(Unaudited)
<S> <C> <C>
Total assets by segment
Publications $ 120,368 $ 120,949
Broadcast 231,415 127,598
Printing 101,292 108,900
Telecommunications 69,050 61,849
Direct Marketing 14,504 15,292
Corporate and eliminations 41,129 149,560
--------- ---------
$ 577,758 $ 584,148
========= =========
</TABLE>
4. Comprehensive Income
Total comprehensive income was $18,165 and $32,786 for the three and
six periods ended June 20, 1999, and $16,365 and $26,214 for the three
and six periods ended June 14, 1998.
6
<PAGE>
FORM 10-Q
JOURNAL COMMUNICATIONS, INC.
For Quarter Ended June 20, 1999 Commission file number 0-7831
(6 Accounting Periods)
Item 2. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations
Results of Operations
After two quarters of 1999, consolidated net earnings were $33.2 million, up 27%
over a year ago. Revenue was up 4.7%, to $340.5 million.
At Journal Sentinel Inc., revenue was up 4.7% to $113.1 million with pre-tax
earnings up 9.2% to $21.9 million. The growth came in retail run-of-press and
preprinted advertising, as well as shared and solo mail. There continued to be a
decline in classified advertising, which was below last year. However, newsprint
prices have decreased from last year, resulting in a cost savings.
Journal Broadcast Group reported sales of $51.5 million, up 7%, and pre-tax
earnings of $13.1 million, up 5.4%. Radio station formats launched last year are
now producing results in Omaha and Tucson. In Omaha, year-to-date pre-tax
earnings were $887,000, up $775,000 over last year. In Tucson, which had a
pre-tax loss of $202,000 in 1998, the pre-tax earnings this year were $789,000.
WTMJ-TV in Milwaukee increased both revenue and pretax earnings while
controlling costs, and WSYM-TV in Lansing, Mich., showed an 18.2% revenue gain,
accompanied by a strong earnings increase. KTNV-TV in Las Vegas, Nev., was
behind last year's performance as the market grew more slowly than expected and
our share of the market declined, particularly in automotive and casino
advertising. The Boise, Idaho, radio operation had a year-to-date pre-tax loss
of $529,000. The Knoxville, Tenn., stations had a 26.3% revenue gain over last
year, but still had a pre-tax loss of $181,000 year-to-date.
The acquisition of Great Empire Broadcasting Inc., with 13 radio stations, was
completed in the last week of the quarter.
Norlight Telecommunications Inc. had year-to-date pre-tax earnings of $14.5
million, as revenue climbed 33.6% to $46 million. The expansion of the fiber
network into Michigan and Indiana should be completed by the end of 1999.
Add Inc. had a revenue increase of 5.5% to $50.8 million, but pre-tax earnings
slipped from $2.8 million a year ago to $2 million. The Louisiana and Vermont
operations improved, as did the Ohio printing plant, but the Florida
publications continued to struggle and the Wisconsin operations were flat. In
the Appleton, Wis., area, our investment in the startup of the Fox Cities
Newspapers in mid-July should begin to produce results in the third quarter.
7
<PAGE>
FORM 10-Q
JOURNAL COMMUNICATIONS, INC.
For Quarter Ended June 20, 1999 Commission file number 0-7831
(6 Accounting Periods)
Item 2. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations
NorthStar Print Group Inc. also had a revenue increase, 4.5% to $27.1 million,
but a decline in pre-tax earnings from $634,000 last year to $371,000. The
Milwaukee plant is having a strong year, but the Norway-Watertown operation had
earnings slip from $405,000 in 1998 to $36,000 in 1999.
Label Products & Design in Green Bay, Wis., operated year-to-date at a small
pre-tax loss, $31,000, a significant decline compared to the same period in
1998. LP&D is focused on improving its sales.
As expected with the closure of the northern California operation, IPC
Communication Services had lower sales, down 14.2% to $47.4 million. However,
there were solid revenue gains in both the Eastern Region and southern
California. Worldwide pre-tax earnings improved to $1.1 million, following a
$3.5 million loss last year.
Sales were off 4.9% at PrimeNet Marketing Services, primarily in the automotive
category at Clearwater, Fla. Anticipated new business has not materialized. The
year-to-date pre-tax loss for PrimeNet was $238,000.
Cash generated from operations during the first two quarters was $48.8 million.
Cash paid for acquisitions totaled $99.4 million over the first two quarters,
while capital expenditures were $22.2 million. $15.4 million was paid out in
quarterly dividends to unitholders, and $18.1 million was used to repurchase
treasury stock for resale to employees.
In April 1999, Journal Broadcast Group announced an agreement to acquire KMIR-TV
in Palm Desert, California. Pending approval of the FCC, the Company expects to
complete the acquisition in early August 1999. The cash purchase price will be
approximately $30 million. Upon completion of this transaction, it will be
necessary for the Company to utilize its unsecured short-term line of credit for
a limited period of time.
Total assets have decreased $6.4 million from December 31, 1998, to $577.8
million, while stockholders' equity is $447.2 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 six phases:
8
<PAGE>
FORM 10-Q
JOURNAL COMMUNICATIONS, INC.
For Quarter Ended June 20, 1999 Commission file number 0-7831
(6 Accounting Periods)
Item 2. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations
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. The noted exception is new acquisitions,
for which an inventory and assessment effort is in the planning phase. Vendor
surveys have been sent to approximately 90% of the critical suppliers of the
Company, and a majority of the responses have been received. Through these
efforts and those of a consultant contracted in 1998 to assist with the planning
phase, the compliance status of over 90% of the inventoried technology is known.
As a result, corrective action for over 80% of the Company's technology 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 plans to
replace or upgrade all critical, date-impacted technology by September 1, 1999.
Non-critical systems are generally in the assessment phase. In both cases, the
Company plans to use both internal and external resources to make the needed
corrections to software and embedded technologies.
Communications with vendors and suppliers are being 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. The Company will assess and attempt to
mitigate its risks with respect to the failure of these entities to be Year 2000
ready through a variety of options, including contingency planning and vendor
selection, where practical.
9
<PAGE>
FORM 10-Q
JOURNAL COMMUNICATIONS, INC.
For Quarter Ended June 20, 1999 Commission file number 0-7831
(6 Accounting Periods)
Item 2. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations
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 attempt
to minimize identified third-party exposures. With the assistance of consultants
contracted to facilitate, all subsidiaries have begun this effort. A progress
report on each subsidiary's contingency planning efforts is expected in the
third quarter of 1999.
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 have been $2.3
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. 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
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.
10
<PAGE>
FORM 10-Q
JOURNAL COMMUNICATIONS, INC.
For Quarter Ended June 20, 1999 Commission file number 0-7831
(6 Accounting Periods)
Item 2. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations
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.
Item 3. Quantitative and Qualitative Disclosure of Market Risk
There have been no material changes in the reported market risks since 12/31/98.
11
<PAGE>
FORM 10-Q
JOURNAL COMMUNICATIONS, INC.
For Quarter Ended June 20, 1999 Commission file number 0-7831
(6 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 August 2, 1999 /s/Steven J. Smith
Steven J. Smith, Chairman and Chief
Executive Officer
Date August 2, 1999 /s/Paul M. Bonaiuto
Paul M. Bonaiuto, Executive Vice
President And Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF JOURNAL COMMUNICATIONS, INC. AS OF AND FOR THE SIX MONTHS ENDED
JUNE 20, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-20-1999
<CASH> 23,691
<SECURITIES> 0
<RECEIVABLES> 104,249
<ALLOWANCES> 5,229
<INVENTORY> 18,487
<CURRENT-ASSETS> 160,140
<PP&E> 189,010
<DEPRECIATION> 272,388
<TOTAL-ASSETS> 577,758
<CURRENT-LIABILITIES> 123,928
<BONDS> 5,588
0
0
<COMMON> 3,600
<OTHER-SE> 443,572
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 340,497
<TOTAL-REVENUES> 340,497
<CGS> 179,484
<TOTAL-COSTS> 287,849
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 56,240
<INCOME-TAX> 23,046
<INCOME-CONTINUING> 33,194
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 33,194
<EPS-BASIC> 1.21
<EPS-DILUTED> 1.21
</TABLE>
