SECURITIES & EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(X) Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the fiscal year ended December 31, 1998.
Commission File Number: 0-7831
JOURNAL COMMUNICATIONS INC.
(Exact name of Registrant as specified in its charter)
Wisconsin 39-0382060
(State of incorporation) (I.R.S. Employer identification number)
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 $0.125 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 amendment 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, 1999:
Class Outstanding at March 19, 1999
----- -----------------------------
Common Stock, par value $0.125 27,432,705
Portions of the annual shareholders report for the year ended December 31, 1998
are incorporated by reference into Parts I and II. Portions of the proxy
statement for the annual shareholders meeting to be held June 2, 1999 are
incorporated by reference into Part III.
<PAGE>
PART I
ITEM 1. BUSINESS
----------------
The Registrant is a diversified communications and media company. Its 1998
revenues, broken down by business segments, were: publishing - 39.8%; commercial
printing - 31.8%; broadcast - 15.6%; telecommunications - 11.1%, and direct
marketing - 1.7%. The following indicates the percent of consolidated revenues
derived from these activities for the past three (3) years:
Source 1998 1997 1996
------ ---- ---- ----
Advertising 31.8% 34.2% 34.2%
Circulation 8.0 8.1 8.4
--- --- ---
Publishing 39.8 42.3 42.6
Broadcast 15.6 15.1 15.3
Commercial Printing 31.8 31.9 32.5
Telecommunications 11.1 9.0 7.2
Direct Marketing 1.7 1.7 2.4
Material developments in the Registrant's business in 1998 included the
acquisition of twelve (12) radio stations, including seven (7) in the Boise,
Idaho market, two additional stations in Omaha, Nebraska, two additional
stations in Knoxville, Tennessee, and one additional station near Tucson,
Arizona; the acquisition of a weekly newspaper in Sarasota, Florida and
specialty publications in New Orleans, Louisiana and Jacksonville, Florida. It
also divested its two shoppers and health and fitness magazine near
Philadelphia, Pennsylvania, an internet service provider in Wisconsin and a
majority interest in a nationwide electronic classified advertising database. In
addition to the information provided below, see Item 6, "Selected Financial
Data," Item 7, "Management Discussion and Analysis," and Item 8, "Consolidated
Financial Statements and Supplementary Data."
Forward-Looking Statements
This Annual Report on Form 10-K contains forward-looking statements that may
state the Registrant's or management's intentions, hopes, beliefs, expectations
or predictions for the future. The Registrant's actual results could differ
materially from those projected results due to factors discussed elsewhere in
this document and other factors that include, but are not limited to,
uncertainties related to general economic factors, industry conditions, cost of
newsprint or other supplies, competition, technology and year 2000 compliance.
Publications
Journal Sentinel Inc., a wholly-owned subsidiary of the Registrant, publishes
the major daily newspaper in the Milwaukee, Wisconsin market. Prior to April 2,
1995, it had published the evening Milwaukee Journal (The Journal) since 1882,
the Sunday edition of The Journal (Sunday Journal) since 1911, and the morning
Milwaukee Sentinel (the Sentinel) since it was acquired in 1962. On April 2,
1995, the daily newspapers were merged and became one morning newspaper, the
Milwaukee Journal Sentinel.
2
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Average paid circulation for the twelve months ended March 31 for the last five
years, as audited by the Audit Bureau of Circulation, was:
1998 1997 1996 1995 1994
------- -------- ------- ------- ------
Journal Sentinel 289,350 292,035 298,206 -0- -0-
Sunday Journal 459,374 458,480 467,852 486,422 492,425
Journal -0- - 0 - -0- 211,801 228,454
Sentinel -0- - 0 - -0- 173,895 173,019
Advertising volume in column inches and preprint units for the Registrant's
Milwaukee newspapers for the last five calendar years was:
(in thousands)
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Column Inches
Full Run 2,188.0 2,319.4 2,151.5 2,289.7 2,666.0
Part Run 803.7 292.7 250.7 257.1 213.4
Units
Preprint 2.9 2.6 2.5 2.8 2.4
There are 179 other newspapers, shoppers and magazines published in the
four-county Milwaukee market. Most of these are weekly publications, while a few
are biweekly, fortnightly or monthly. Of these 179 publications, 109 are paid
subscription and 70 are delivered without charge or are available free at
various public locations. These publications cover a wide variety of interests,
including community, business, real estate, labor, religious, ethnic, foreign
language or other special interest newspapers.
Two (2) other daily newspapers, the Waukesha Freeman and the West Bend Daily
News, are published in the four-county Milwaukee metropolitan area. These
newspapers are circulated in portions of Waukesha and Washington Counties,
respectively. In addition, editions of USA Today, Chicago Tribune, Chicago Sun
Times, Wall Street Journal, Madison Capitol-Times, Wisconsin State Journal and
New York Times are sold in the Milwaukee market. The Journal Sentinel newspaper
also competes for advertising revenues or support with seven (7)
network-affiliated commercial television stations, four (4) independent
television stations - (two (2) of which are low power television stations), two
(2) public television stations and twenty-seven (27) AM and FM radio stations
located in the four-county market, two (2) cable television companies and
several direct mail services. One network-affiliated television station and two
radio stations in the Milwaukee market are owned by a subsidiary of the
Registrant.
The Journal Sentinel maintains news bureau offices in Madison, Wisconsin, and
Washington, D.C. It also has suburban bureaus in Waukesha, Cedarburg and
Sturtevant, and staff writers based in West Bend, Green Bay and Stevens Point,
Wisconsin. The Journal Sentinel is a member of the Associated Press and
subscribes to these wire services: the Washington Post-Los Angeles Times News
Service, the New York Times News Service and the Knight-Ridder News Service. The
Journal Sentinel is also a contributing member of the Scripps Howard News
Service.
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During 1998, the average price per ton for newsprint increased by 5.3 % compared
to the previous year. Total consumption for all products in 1998 was 0.2% below
1997's total. Newsprint is purchased from six Canadian suppliers. The Registrant
considers anticipated supplies for 1999 sufficient.
The Registrant also publishes through its Add, Inc. subsidiary. In January 1998,
Add, Inc. started a free weekly newspaper in Connecticut and a free auto
publication in Wisconsin. In April 1998, Add, Inc. purchased one (1) free car
publication in Florida. In June 1998, Add, Inc. purchased a free weekly
newspaper in Florida. In August 1998, Add, Inc. purchased a free specialty
shopper in Louisiana. In September 1998, Add, Inc. sold two (2) free shoppers
and a free health and fitness magazine in Pennsylvania. In October 1998, Add,
Inc. sold a majority interest in its nationwide electronic classified database.
In November 1998, Add, Inc. sold its internet service provider in Wisconsin. At
December 31, 1998, Add, Inc. published ten (10) weekly newspapers in
southwestern Connecticut; thirty-two (32) weekly newspapers and one (1)
controlled-circulation business publication in Wisconsin; two (2) weekly
newspapers in Florida; fifty (50) shopper publications, with thirty-two (32) in
Wisconsin, eleven (11) in Ohio, three (3) in Florida, two (2) in Vermont, one
(1) in Massachusetts and one (1) in New York; three (3) paid auto publications,
with two (2) in Louisiana and one (1) in Wisconsin; two (2) paid boating
publications in Florida; six (6) free auto publications with two (2) in Ohio,
one (1) in Florida, two (2) in Louisiana and one (1) in Wisconsin, and one (1)
free monthly health and fitness publication in Louisiana.
Printing
IPC Communication Services, Inc., a wholly-owned subsidiary, specializes in the
production, management of inventory and materials procurement and fulfillment
for customers in the technology and publications industries. This includes
printing of documentation manuals for hardware and software manufacturers and
the duplication of CD-ROMs, DVDs, masters, disks and tapes and the printing of
medical, legal and technical journals for various trade associations. IPC is
based in St. Joseph, Michigan, and has additional operations in Foothill Ranch,
California; Austin, Texas and Roncq, France. The Registrant does not anticipate
supply restrictions in 1999 for the raw materials IPC utilizes.
NorthStar Print Group, Inc., a wholly-owned subsidiary of the Registrant, is
headquartered in Brown Deer, Wisconsin, and has manufacturing operations in
Brown Deer, Green Bay and Watertown, Wisconsin, and Norway, Michigan. It employs
a wide array of printing technologies in the various markets it serves. These
include sheet-fed offset, rotogravure and flexographic processes that are used
to print point-of-purchase materials, labels for consumer goods and industry
manufacturers (including in-mold labels), and out-of-home media. NorthStar Print
Group, Inc., is one of the nation's largest producers of beer bottle labels. The
Registrant believes its supply of raw materials is adequate.
Trumbull Printing, Inc., though a wholly-owned subsidiary of the Registrant, is
managed by a subsidiary of Add, Inc. that is co-located in Trumbull,
Connecticut. Trumbull Printing, Inc., is a web offset printer of newspapers,
newspaper inserts and other publications. The Registrant believes its principal
raw materials, paper and ink will be in sufficient supply in 1999.
4
<PAGE>
Broadcasting
Journal Broadcast Group, Inc., a wholly-owned subsidiary of the Registrant, was
re-incorporated in Nevada as Journal Broadcast Corporation in March 1998.
Thereafter, Journal Broadcast Corporation incorporated a wholly-owned
subsidiary, which was named Journal Broadcast Group, Inc.
Journal Broadcast Corporation operates television station KTNV, an affiliate of
the ABC Television Network, in Las Vegas, Nevada, and holds the licenses of all
of the Registrant's broadcast stations. Its subsidiary, Journal Broadcast Group,
Inc., operates two (2) television stations and twenty-three (23) radio stations
in eight (8) states. All operate under licenses from the Federal Communications
Commission.
The Registrant's three (3) Milwaukee broadcast operations, WTMJ-TV, WTMJ-AM and
WKTI-FM, consistently rank high in audience rating surveys. Competition for
advertising revenue in the ten-county area of dominant influence ("ADI")
includes six (6) other network-affiliated commercial televisions stations, four
(4) independent television stations (two (2) of which are low-power television
stations), two (2) public television stations, twenty-five (25) other radio
stations, two (2) cable television companies, ten (10) daily newspapers
(including one owned by Registrant), and numerous weekly newspapers. News
reporting and editorial operations at WTMJ-TV, WTMJ-AM and WKTI-FM, Milwaukee,
are independent of the Registrant's Milwaukee newspaper operations.
The broadcast stations of Journal Broadcast Group, Inc. are:
Station Location Network Affiliation
- - -----------------------------------------------------------------------
WTMJ-TV Milwaukee, WI NBC Television
WTMJ-AM Milwaukee, WI ABC Information
WKTI-FM Milwaukee, WI ABC Contemporary
WSYM-TV Lansing, Michigan Fox Television
KOSR-AM Omaha, Nebraska USA Radio, One-on-One Sports
KEZO-FM Omaha, Nebraska
KSRZ-FM Omaha, Nebraska ABC Contemporary
KESY-FM Omaha, Nebraska
KBBX-AM Omaha, Nebraska
KKCD-FM Omaha, Nebraska
KMXZ-FM Tucson, Arizona
KFFN-AM Tucson, Arizona CBS Spectrum
KZPT-FM Tucson, Arizona CBS Spectrum
KIXD-FM Tucson, Arizona
WMYU-FM Knoxville, Tennessee ABC News Wire
WWST-FM Knoxville, Tennessee
WQIX-FM Knoxville, Tennessee
WQBB-AM Knoxville, Tennessee
KJOT-FM Boise, Idaho
KQXR-FM Boise, Idaho
KGEM-AM Boise, Idaho ABC Information, Westwood One
Adult Standards
KCID-FM Boise, Idaho
5
<PAGE>
KCID-AM Ontario, Oregon ABC
KSRV-AM Ontario, Oregon ABC
KSRV-FM Ontario, Oregon ABC
In August 1998, Journal Broadcast Corporation reached an agreement to purchase
the stock of Great Empire Broadcasting, Inc., which owns and operates thirteen
(13) radio stations in the Wichita, Kansas, Springfield, Missouri, Omaha,
Nebraska and Tulsa, Oklahoma markets. The stations are: KFDI-AM, KFDI-FM and
KICT-FM, Wichita, Kansas; KYQQ-FM, Arkansas City, Kansas; KLLS-FM, August,
Kansas; KTTS-AM and KTTS-FM, Springfield, Missouri; KLTQ-FM, Sparta, Missouri;
WOW-AM and WOW-FM, Omaha, Nebraska; KVOO-AM and KVOO-FM, Tulsa, Oklahoma; and
KCKI-FM, Henryetta, Oklahoma. This acquisition will take effect upon approval by
the Federal Communications Commission.
Telecommunications
Norlight Telecommunications, Inc., a wholly-owned subsidiary, provides
state-of-the-art telecommunications services. Norlight's carrier services
(wholesale) provide network transmission solutions to other telecommunications
carriers by offering bulk transmission capacity, including custom designed
networks. Norlight has entered into a fiber-optic network construction
agreement, which will significantly expand its available capacity in Michigan
and Indiana in 1999. Norlight's business-to-business service provides advanced
data communications products, specifically dedicated circuits, frame relay,
Internet access and switched voice services (including domestic, international
and calling card services) to medium and large businesses in the Upper Midwest.
Norlight's satellite and video services provide terrestrial and satellite
transmission of broadcast quality video signals.
Direct Marketing
PrimeNet Marketing Services, Inc., a wholly-owned subsidiary, is located in St.
Paul, Minnesota and Clearwater, Florida. The St. Paul division is engaged in the
business of providing marketing database services, consulting and computer
mailing services, customized laser printing, lettershop work and fulfillment
services. The Clearwater division (formerly known as Mega Direct, Inc.) is a
direct mail operation offering customers design services, printing, direct mail
production and processing and fulfillment.
Compliance with Environmental Laws
The Registrant does not currently anticipate the need for significant capital
expenditures and expects no material adverse effects to its earnings or
competitive position to maintain compliance with environmental laws in 1999 and
2000.
Impact of Year 2000 Issue
The Registrant's statement on the Year 2000 Issue is presented in Exhibit 13, as
written in "Management's Discussion and Analysis" on pages 4 and 5 of the
Registrant's Annual Report, and is incorporated herein by reference.
6
<PAGE>
Methods of Distribution
The Registrant's newspapers are distributed through networks of carriers, most
of whom are independent contractors. Advertising for Registrant's newspapers and
broadcast stations is generally sold by employees, with some national
advertising obtained by agents. Sales for the Registrant's commercial printing,
telecommunications and direct marketing operations are generally obtained by
employees and a limited number of agents.
Employees
The Registrant and its subsidiaries, as of December 31, 1998, had approximately
4,848 full-time and 2,120 part-time employees.
Financial Information About Industry Segments
Financial information about Registrant's industry segments is presented in Note
8 to the Registrant's Consolidated Financial Statements appearing on pages 15
and 16 of Registrant's Annual Report and is incorporated herein by reference.
ITEM 2. PROPERTIES
------------------
Principal properties operated by the Registrant and its subsidiaries as of
December 31, 1998, are summarized as follows:
<TABLE>
<CAPTION>
Subsidiary Location How Held Square Footage
- - ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Journal Sentinel Inc.
(Publishing)
Offices/Plant Milwaukee, WI Owned 464,000
Garage Milwaukee, WI Owned 67,500
Distribution Centers Milwaukee, WI Leased or Owned 348,029
Inserting Plant Milwaukee, WI Leased 89,000
Add, Inc.
(Publishing)
Offices/Plants WI, OH, MA, FL Owned or Leased 284,269
VT, NY, LA
Hometown Publications, Inc.
(Publishing)
Office Shelton, CT Leased 8,500
7
<PAGE>
<CAPTION>
Subsidiary Location How Held Square Footage
- - --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Auto Mart Publishing, Inc.
(Publishing)
Office Dayton and Leased 3,620
Columbus, OH
Community Newspapers, Inc.
(Publishing)
Offices/Plant Oak Creek, New Owned/Leased 29,450
Berlin, and
Waukesha, WI
Trumbull Printing, Inc.
(Commercial Printing)
Office/Plant Trumbull, CT Owned 86,000
Journal Broadcast Corporation
(Broadcasting)
KTNV-TV Studios Las Vegas, NV Owned 20,300
Journal Broadcast Group, Inc.
(Broadcasting)
Office and Studios Milwaukee, WI Owned 101,500
WSYM-TV Studios Lansing, MI Leased 13,173
Office & Studios Knoxville, TN Owned 6,400
Office & Studios Knoxville, TN Leased 2,000
Office and Studios Omaha, NE Leased 12,200
Office and Studios Tucson, AZ Leased 8,883
Office and Studios Boise, ID
and Ontario, OR Owned 5,700
NorthStar Print Group, Inc.
(Commercial Printing)
Office/Plant Brown Deer, WI Owned 128,360
Office/Plant Norway, MI Owned 108,000
Office/Plant Watertown, WI Owned 60,000
Label Products & Design Inc.
(Commercial Printing)
Office and Plant Green Bay, WI Owned 39,620
IPC Communication Services, Inc.
(Commercial Printing)
Office/Plant/Warehouse St. Joseph, MI Leased 326,000
8
<PAGE>
<CAPTION>
Subsidiary Location How Held Square Footage
- - --------------------------------------------------------------------------------------
<S> <C> <C> <C>
IPC Communication Services, Inc. (continued)
Office/Plant Foothill Ranch, CA Leased 200,992
Office/Warehouse Austin, TX Leased 8,000
IPC Communication Services, S.A.
(Commercial Printing)
Office/Plant Roncq, France Leased 73,400
Norlight Telecommunications, Inc.
(Telecommunications)
Office/Satellite Antennae Skokie, IL Leased 6,094
Office St. Paul, MN Leased 2,400
Office Brookfield, WI Leased 33,575
Office Green Bay, WI Leased 1,450
Office Buffalo Grove, IL Leased 2,716
PrimeNet Marketing Services, Inc.
(Direct Marketing)
Office/Plant St. Paul, MN Leased 87,218
Office/Plant Clearwater, FL Leased 32,000
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
-------------------------
The Registrant is involved in various claims and lawsuits incidental to its
business, which, in the opinion of management, will not have a material effect
in the aggregate on the its financial position or operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
-----------------------------------------------------------
None.
ITEM 4A. EXECUTIVE OFFICERS OF REGISTRANT
-----------------------------------------
The executive officers of Registrant, as of March 19, 1999, all of whom hold
office until the next annual meeting of the board of directors, which will be
held immediately following the annual meeting of shareholders on June 2, 1999,
are:
Name Age Office Held Since
- - ---- --- ------ ----------
Steven J. Smith 48 Chairman & CEO December 1, 1998
Douglas G. Kiel 50 President December 1, 1998
Paul M. Bonaiuto 48 Executive Vice President/CFO June 3, 1997
Keith K. Spore 56 Senior Vice President September 6, 1995
Robert M. Dye 51 Vice President March 6, 1990
Stephen O. Huhta 43 Vice President June 8, 1993
9
<PAGE>
Ronald G. Kurtis 51 Vice President June 8, 1993
James J. Ditter 37 Vice President September 6, 1995
William T. Lutzen 37 Vice President June 7, 1994
Daniel L. Harmsen 43 Vice President March 5, 1996
Mark J. Keefe 39 Vice President June 4, 1996
Douglas G. Hosking 42 Vice President September 4, 1996
Richard J. Gasper 55 Vice President June 4, 1996
Todd K. Adams 40 Vice President June 4, 1996
Karen O. Trickle 42 Vice President March 2, 1999
& Treasurer December 3, 1996
Paul E. Kritzer 56 Vice President June 5, 1990
& Secretary September 1, 1992
Richard A. Williams 61 Assistant Secretary June 3, 1997
James P. Prather 41 Vice President March 2, 1999
Carl D. Gardner 42 Vice President March 2, 1999
All of the executive officers of the Registrant except Messrs. Hosking and Keefe
and Ms. Trickle have been employed by the Company in key management positions
for more than five (5) years. Mr. Hosking joined the Registrant in April 1996 as
President of IPC Communication Services, Inc. Previously he had been Vice
President for commercial development and general manager of the food fiber
division of Opta Food Ingredients, Inc., for two years and Executive Vice
President of Courier Corp., San Francisco, a national book printer. Mr. Keefe
joined the Registrant in October 1995 as President of PrimeNet Marketing
Services, Inc. Prior to that he had been a Vice President for Donnelly
Marketing, Inc., St. Louis Park, Minnesota, from January 1994 to September 1995,
and a Vice President of FDC, Inc. (a subsidiary of Fingerhut Corporation) in
Minnetonka, Minnesota. Ms. Trickle started with the Registrant in September
1996, was elected Treasurer in December 1996 and Vice President in March 1999.
Previously, she had been Assistant Treasurer (International) for Harnischfeger
Industries, Inc., Brookfield, Wisconsin, from September 1994 to September 1996,
and Assistant Treasurer for Applied Power, Inc., Butler, Wisconsin, up to
September 1994.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK
--------------------------------------------
AND RELATED STOCKHOLDER MATTERS
-------------------------------
There is no established public trading market for the Registrant's common stock.
Units representing beneficial interests in the Registrant's common stock
("Units") can be purchased only by full-time employees with ninety (90) days of
service and part-time employees with two consecutive years of service of one
thousand (l,000) hours each year. On December 1, 1998, the Board of Directors
approved an increase effective January 5, 1999, in authorized common stock from
14,400,000 to 28,800,000 shares, reduced the par value from $0.25 to $0.125 per
share and approved a two-for-one common stock split. All references to shares
and per-share amounts have been restated to reflect this stock split. As of
March 19, 1999, the Journal Employees' Stock Trust, dated May 15, 1937, as
amended (the "Trust"), owned of record 25,920,000 shares, or 90%, of the issued
and outstanding common stock of the Registrant.
10
<PAGE>
The Trust issues Units, each representing a beneficial interest in one share of
the Registrant's stock, to eligible employees ("Unitholders"). On March 19,
1999, 3,623 Unitholders owned 23,033,941 Units (representing 84.0% of
Registrant's outstanding common stock) and thus were the beneficial owners of a
like number of shares of the Registrant's stock held by the Trust. The balance
of 2,886,059 Units issued by the Trust were, on the above date, held by personal
trusts and employee benefit trusts and by the Registrant, treated as treasury
stock and not voted.
Prior to all meetings of shareholders of the Registrant, the trustees of the
Trust ("Trustees") are required to deliver to each active employee-Unitholder a
proxy, with the right of substitution, for the number of the Registrant's shares
represented by his or her Units.
Unitholders may sell their Units only through procedures, and at a formula
price, dictated pursuant to the Stock Trust Agreement, under which the Trust was
formed, and the policy determinations of the Trustees. Whenever a Unitholder
ceases to be an employee, for any reason except retirement, corporate downsizing
or divestiture, he or she must offer his or her Units for resale through the
corporate treasury to active employees designated by the President of the
Registrant or the Registrant. Employees who retire may retain a decreasing
percentage of their Units for up to ten (10) years after the first anniversary
of their retirement. Employees who are separated from the Registrant due to
divestiture or downsizing may retain a decreasing percentage of their Units for
up to five (5) years after the first anniversary of their separation. All Units
held by retirees are voted by the Trustees. Units may also be held by employee
benefit trusts, and Unitholders may transfer Units to personal trusts and to
charitable, educational or religious trusts. All Units held by such trusts are
likewise voted by the Trustees. As of March 19, 1999, retirees, personal trusts,
an employee benefit trust, and other trusts held 7,358,836 Units, representing a
beneficial interest in 26.8% of the Registrant's outstanding common stock.
All of the Trustees are directors of the Registrant. They have no financial
interest in the Registrant's stock owned by the Trust other than through the
Units they own individually.
The Registrant's unit price and dividend history for the past decade are
presented in the following table:
Employee Stock Ownership Plan
-----------------------------
Unit Unit Unit Price Total
Price Price Increase Cash Annual
Year Begin End (Decrease) Dividend Return
- - ---- ----- --- ---------- -------- ------
1998 - 4th Qtr 24.46 25.48 1.02 0.27 22.5%
1998 - 3rd Qtr 23.24 24.46 1.22 0.28
1998 - 2nd Qtr 22.29 23.24 0.95 0.27
1998 - 1st Qtr 21.69 22.29 0.60 0.28
1997 - 4th Qtr 20.90 21.69 0.79 0.27 22.7
1997 - 3rd Qtr 19.90 20.90 1.00 0.28
1997 - 2nd Qtr 19.23 19.90 0.67 0.27
1997 - 1st Qtr 18.58 19.23 0.65 0.28
1996 18.12 18.58 0.46 1.10 8.6
1995 17.70 18.12 0.42 1.05 8.3
11
<PAGE>
1994 17.32 17.70 0.38 0.95 7.7
1993 16.80 17.32 0.52 0.90 8.5
1992 16.30 16.80 0.50 0.90 8.6
1991 15.74 16.30 0.56 0.90 9.3
1990 14.83 15.74 0.91 0.85 11.9
1989 13.33 14.83 1.51 0.85 17.7
In October 1996, the Trustees, stockholders and Unitholders of the Registrant
adopted an amendment to the Journal Employees' Stock Trust Agreement to change
the Option Price Formula used to calculate the price of Units. The multiplier,
which progressively increases in each of the 13 periods of the Registrant's
fiscal year, will continue to increase by 8.5% each year for the next three
years, 1999-2001. The five-year phase-in of the multiplier will be completed by
the end of 2001, when a multiplier of 1.5 will become a permanent component of
the Option Price Formula. The Trustees believed that the Option Price Formula
amendment would cause the Unit price to be approximately 75% of the price at
which the Units would trade if they were publicly-traded securities at the end
of the five-year phase-in period, based upon market conditions existing in
October 1996.
In addition to the Journal Employees' Stock Trust, there are two (2) other
record holders of stock of the Registrant. The Registrant is not aware of any
recent sales of stock.
ITEM 6. SELECTED FINANCIAL DATA
-------------------------------
Selected financial data of the Registrant is presented in the Registrant's
Annual Report on pages 6 and 7 (included in Exhibit 13), and is incorporated
herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
---------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Management's Discussion and Analysis is presented below and is not incorporated
by reference from the Registrant's Annual Report included as Exhibit 13.
CONSOLIDATED
Revenue was $732.4 million in 1998 compared with $674.5 million in 1997, an 8.6%
increase. In 1996, revenue was $622.2 million. Earnings before income taxes
increased 7% to $102.7 million in 1998. 1997 earnings before income taxes were
$95.9 million, an increase from $70.7 million in 1996.
During 1998, the telecommunications segment continued to grow at a rapid pace.
Revenue for the segment grew 34.8% while pretax earnings increased 95.6%. In
1997 and 1996, significant investments in Norlight's fiber optic network were
made and have resulted in increased revenue and pretax earnings in 1998. In the
broadcast segment, revenue from political advertising and the acquisition of 12
radio stations contributed to the 13% revenue increase. The printing segment
reported a pretax loss due primarily to the closing of IPC's Northern California
plant. The pretax cost to close the plant was $7.3 million. Revenue in the
publications segment increased modestly while pretax earnings grew 6.9%. Pretax
earnings grew despite an increase in the cost of newsprint. The direct marketing
segment experienced revenue growth and reduced its pretax loss by approximately
$1 million.
12
<PAGE>
1998 COMPARED WITH 1997
Publications
- - ------------
The publications segment includes daily and weekly newspapers, shoppers and
specialty publications.
Revenue was $291.8 million in 1998, up 2% compared with 1997 revenue of $286.1
million. In 1998, earnings before taxes were $43.5 million, a 6.9% increase over
1997 earnings of $40.7 million.
Journal Sentinel Inc. is the largest company in the publications segment. Total
revenue in 1998 increased 4.7% to $235.7 million from $225.1 million in 1997. In
1998, earnings before taxes increased 15.7% over 1997 despite a $2.1 million
increase in the cost of newsprint. The Registrant expects newsprint costs in
1999 to be lower than they were in 1998.
Advertising revenue was $181.3 million in 1998 compared with $171.4 million in
1997. This is an increase of 5.8% over 1997. The major contributor to the
increase was classified employment advertising. Classified revenue compared with
1997 increased $5.5 million or 6.4%. Retail preprints increased $2.4 million or
13% compared with 1997. General ROP (run of press) revenue grew $400,000 in 1998
compared with 1997. Revenue from Journal Sentinel's shared and solo mail program
reached $6.1 million in 1998 compared with only $1 million in 1997. This program
was started in 1997. Revenue from retail ROP decreased $4.5 million or 8%
compared with 1997.
Circulation revenue totaled $50.6 million, a decrease of $500,000 or 0.9%
compared with 1997. Revenue decreased principally due to a decline in Sunday
single copy sales and the discontinuation of the Badger Plus publication.
Add Inc. is the other company in the publications segment. Its 1998 revenue was
$56 million, an 8.2% decrease compared with 1997 revenue of $61 million. The
additional revenue from a full year of Community Newspapers Inc. (acquired in
October 1997) of $11.1 million was offset by revenue declines from the
Wisconsin, Ohio and Louisiana operations. The declines are attributed to
sluggish display advertising, soft regional markets and lower-than-expected
insert sales. The publications in Pennsylvania were sold during 1998, which also
resulted in an unfavorable revenue comparison with 1997.
Add Inc. pretax earnings in 1998 were $490,000 compared with $3.4 million in
1997. While CNI reported pretax earnings of $1.2 million, pretax earnings
declined in the Wisconsin, Florida, Ohio and Louisiana groups.
Broadcast
- - ---------
The broadcast segment includes 3 television stations and 23 radio stations owned
by Journal Broadcast Group Inc. In 1998, revenue was $115.1 million, a 13%
increase over 1997 revenue of $101.9 million. Earnings before taxes were $34
million and $38.2 million in 1998 and 1997, respectively. In 1997, the company
reported a pretax gain on the trade of the radio station in Kansas City
(KQRC-FM) for two stations in Knoxville (WWST-FM and WMYU-FM) of $7.8 million.
Excluding the gain on the exchange of KQRC, pretax earnings increased 11.8 %
over 1997.
13
<PAGE>
Revenue from the television stations was $72.3 million, a 9.4% increase over
1997 revenue of $66.1 million. Increased market share in Milwaukee, double-digit
market growth in Las Vegas and 1998 election year advertising of $5.1 million
contributed to the revenue growth. Pretax earnings of $28.8 million in 1998
represented a 19.1% increase over 1997 pretax earnings of $24.2 million.
Revenue from the radio stations was $42.8 million, a 19.6% increase over 1997
revenue of $35.8 million. Revenue growth in 1998 is attributed to increased
market share in Milwaukee and 1998 acquisitions in Omaha, Tucson, Knoxville and
Boise. Pretax earnings were $5.2 million and $14 million in 1998 and 1997,
respectively. Without the pretax gain on the trade of the radio station in
Kansas City, 1998 pretax earnings declined 15% compared with 1997 pretax
earnings. The decline in pretax earnings at the radio group was due to a
combination of amortization costs related to new acquisitions and lower than
anticipated results at KIXD-FM in Tucson, the Boise group and the Knoxville
group.
In August 1998, Journal Broadcast Corporation announced an agreement to acquire
the stock of Great Empire Broadcasting Inc., a radio group of 13 stations
headquartered in Wichita, Kansas. Pending approval of the FCC, the Company
expects to complete the acquisition in early 1999. The cash purchase price will
be approximately $100 million.
Printing
- - --------
1998 revenue for NorthStar Print Group Inc. was $56.4 million, a $1.2 million
decrease from the prior year's revenue of $57.6 million. NorthStar reported
pretax earnings of $1.3 million in 1998 compared with $2.4 million in 1997.
Revenue increased at the Norway / Watertown operation by $800,000 while revenue
decreased $2 million at the Milwaukee and Green Bay operations. In Milwaukee,
decreased revenue and earnings before taxes in 1998 primarily reflect the loss
of two major customers. Green Bay reported a slight revenue and pretax earnings
decline in 1998.
IPC Communication Services' revenue decreased 1.3% to $125.5 million in 1998.
The revenue decrease is attributed to the closure of the Northern California
plant during the second half of 1998. In 1997, revenue was $127.1 million. In
1998, IPC had a pretax loss of $11.3 million, which includes plant closure costs
of $7.3 million. IPC reported a pretax loss of $7.4 million in 1997.
Add Inc.'s printing plants had revenue of $51.8 million in 1998, a 67.6%
increase over 1997 revenue of $30.9 million. The increase was due to the
acquisition of Dixie Web, a printing plant in Louisiana, in mid-1997. In 1998,
pretax earnings decreased to $4.7 million from $5.5 million in 1997. The
decrease in pretax earnings reflects the loss of major printing customers at the
Connecticut printing plant.
Telecommunications
- - ------------------
In 1998, revenue at Norlight Telecommunications Inc. was $81.9 million, a 34.8%
increase over the prior year's revenue of $60.8 million. Pretax earnings of
$24.1 million in 1998 grew 95.6% over 1997 pretax earnings of $12.3 million.
Both revenue and pretax earnings growth were results of burgeoning demand for
telecommunication services and the company's ability to effectively sell
capacity available as a consequence of continued investment in network
expansion. In 1998, Norlight sold 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.
14
<PAGE>
Direct Marketing
- - ----------------
Revenue for PrimeNet Marketing Services was $12.9 million in 1998, a 6.6%
increase from $12.1 million in 1997. The reported pretax loss in 1998 of
$365,000 is approximately $1 million less than the pretax loss of $1.3 million
reported in 1997.
PrimeNet's St. Paul operation had revenue of $5.6 million which was an increase
of $750,000 over 1997. The operation's pretax loss was $735,000, representing a
$564,000 improvement from 1997.
PrimeNet's Clearwater operation had revenue of $7.3 million in 1998 compared
with $7.2 million in 1997. Pretax earnings were $370,000 in 1998. Earnings broke
even in 1997.
1997 COMPARED WITH 1996
- - -----------------------
Publications
- - ------------
Revenue was $286.1 million in 1997, up 8% compared with 1996 revenue of $264.9
million. In 1997, pretax earnings were $40.7 million, a 28.4% increase over 1996
earnings of $31.7 million.
Journal Sentinel's total revenue in 1997 increased 7.4% to $225.1 million from
$209.5 million in 1996. The 1997 pretax earnings increased 29.8% over 1996. The
dramatic growth in 1997 pretax earnings was the result of lower newsprint price
(per ton) compared to 1996 and substantial growth in advertising revenue.
Advertising revenue was $171.4 million in 1997 compared with $155.9 million in
1996. This was an increase of 9.9% over 1996. 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 1996. 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 $0.1 million from 1996.
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. 1997 revenue was $61 million, a 10.1% increase compared with 1996
revenue of $55.4 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 improvements in earnings over the
previous year while those in Florida and Connecticut showed declines.
15
<PAGE>
Broadcast
- - ---------
In 1997, revenue was $101.9 million, a 6.5% increase over 1996 revenue of $95.7
million. The 1997 revenue increase was due to excellent audience ratings at the
Registrant's 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.
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 1996. The Milwaukee and Lansing
television stations reported flat to lower revenue and pretax earnings over
1996.
The Company's radio stations' pretax earnings excluding the gain on the exchange
of KQRC increased 8.7% to $6.1 million in 1997 compared with $5.7 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. NorthStar increased pretax
earnings to $2.4 million from pretax earnings of $1.4 million in 1996. 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 Communications Services' (IPC) revenue increased 6.7% to $127.1 million in
1997. In 1996, revenue was $119.2 million. In 1997, IPC had a pretax loss of
$7.4 million which is $5.7 million less than the loss in 1996.
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. In 1997, pretax earnings increased
by 14.3% to $5.5 million from 1996.
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. Pretax earnings at
Norlight increased 37.5% in 1997 compared with 1996. 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.
16
<PAGE>
Direct Marketing
- - ----------------
Revenue from PrimeNet Marketing Services was $12.1 million in 1997, down 18.7%
from 1996 revenue of $14.9 million. In 1997, the segment reported a pretax loss
of $1.3 million compared to pretax earnings of $1.3 million in 1996.
PrimeNet's St. Paul division had a decrease in revenue of 23.4% in 1997 to $4.9
million, down from $6.4 million in 1996. The 1997 pretax loss of $1.3 million
compares with a loss of $0.2 million in 1996. The decreased revenue and
increased losses in 1997 primarily reflect the loss of PrimeNet's largest
customer.
The Clearwater division 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 in 1996. The Clearwater division was strategically realigned
under the management of PrimeNet Marketing Services in early 1997.
Other Income and Expense
- - ------------------------
Dividend and interest income was $6.3 million, a slight increase from $6.2
million in 1997. The increase in 1998 was the result of an increase in
short-term investments, which was offset by a decline in short-term interest
rates. Dividend and interest income was $3.4 million in 1996.
Income Taxes
- - ------------
Income taxes were 40.9% of pretax earnings in 1998, 41.4% in 1997 and 41.9% in
1996. Changes in the effective tax rate are a result of state income taxes,
foreign net operating losses and permanent tax differences. Permanent tax
differences exist for goodwill amortization on acquisitions before 1993.
Net Earnings
- - ------------
Net earnings for 1998 were $60.7 million or $2.16 per share, compared with net
earnings of $56.2 million or $2.05 per share in 1997. In 1996, net earnings for
the year were $41 million or $1.57 per share. Per share amounts have been
restated to reflect the two-for-one stock split that occurred on January 5,
1999.
Liquidity and Capital Resources
- - -------------------------------
Cash provided by operations, which is a significant source of the Company's
liquidity, totaled $109.4 million, $109.2 million and $94.8 million in 1998,
1997 and 1996, 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 $45.2 million in 1998, $39.4 million in 1997 and
$33.8 million in 1996. The Company also has continued to be active in acquiring
other businesses. Cash used for acquisitions was $42.5 million, $21.1 million
and $17 million in 1998, 1997 and 1996, respectively. Cash provided by the
liquidation of the corporate life insurance investment pool was $21 million in
1998.
17
<PAGE>
Cash used in financing activities totaled $25.4 million, $4.5 million and $52.8
million in 1998, 1997 and 1996, respectively. Dividends paid during 1998 were
$31.1 million or $1.10 per share, compared with $30.2 million ($1.10 per share)
in 1997 and $28.6 million ($1.10 per share) in 1996. Additionally, the net sales
of treasury stock totaled $5.3 million and $26.3 million in 1998 and 1997,
respectively. In 1996, the Company had net purchases of treasury stock of $17.2
million.
Net working capital at the end of 1998 increased to $136 million from $113
million at the end of 1997. Commitments for television programs not yet produced
as of December 31, 1998, were $7 million. On January 22, 1999, the Company
executed an unsecured short-term line of credit in an aggregate amount not to
exceed $35 million. The Company expects to use the line of credit for general
corporate purposes.
Year 2000
- - ---------
Project Phases - The Company 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:
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 - By the end of 1998, the awareness
phase had been under way for more than a year and was expected to continue
throughout the project. The inventory was substantially completed, including an
assessment of the risk associated with each item and vendor. Vendor surveys had
been sent to approximately 80% of the critical suppliers of the Company, and a
majority of the responses had been received. Through these efforts and those of
a consultant contracted in 1998 to assist with the planning phase, the
compliance status of over 80% of the technology identified during the inventory
was known. As a result, corrective action for approximately two-thirds of the
Company's technology impacted by the Year 2000 had 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 July 1, 1999.
Non-critical systems are generally in the planning phase. In both cases, the
Company plans to use both internal and external resources to make the needed
corrections to software and embedded technologies.
18
<PAGE>
Communications with vendors and suppliers is 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.
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 - Based on the assessment to date, 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 $2.7 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 - 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 operation 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 Plan - 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. While
some of the subsidiaries have begun this effort, a majority of the companies are
expected to begin this effort in earnest in the latter half of 1999.
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 effects
of rising costs through improvements in
20
<PAGE>
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
-------------------------------------------------------------------
The Company had a cash-equivalent portfolio of $121.2 million on December 31,
1998, consisting of commercial paper, bank certificates of deposit and a money
market fund. Early in 1999, the Company plans to reduce its portfolio by
approximately $100 million for the acquisition of Great Empire Broadcasting,
Inc. Therefore, a 10% change in the interest rate is not expected to have a
material impact on the Company's results of operations. The Company has minimal
operations outside the United States and has not entered into any foreign
currency derivative instruments.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------------
AND SUPPLEMENTARY DATA
----------------------
The Registrant's Financial Statements with Report of Independent Public Auditors
are presented in Exhibit 13, as provided on pages 6 through 16 of the
Registrant's Annual Report, and are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
--------------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
-----------------------------------------------------------
Information in response to this item is incorporated herein by reference to the
Company's proxy statement, which shall be filed with the Securities and Exchange
Commission no later than April 30, 1999. Information about executive officers of
the Company is included in Part I of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
-------------------------------
Information in response to this item is incorporated herein by reference to the
Company's proxy statement, which shall be filed with the Securities and Exchange
Commission no later than April 30, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
-------------------------------------------------
OWNERS AND MANAGEMENT
---------------------
The following chart states the equity ownership of each Director of the
Registrant:
<TABLE>
<CAPTION>
Percent of
Held Office Units Held Ownership
Name Age Since as of March 19. 1999(1) *denotes 1%
- - ---- --- ----- -------------------- -------------
<S> <C> <C> <C> <C>
Todd K. Adams 40 June 4, 1996 38,990 *
Reginald A. Beene 37 June 2, 1998 1,540 *
21
<PAGE>
Paul M. Bonaiuto 48 June 8, 1993 51,120 *
Glenn A. Bowman 42 June 2, 1998 1,250 *
James J. Ditter 37 September 6, 1995 29,198 *
Robert M. Dye 51 March 6, 1990 102,240 *
James L. Forbes 66 September 4, 1996 --(3)
Richard J. Gasper 55 June 4, 1996 36,064 *
Douglas G. Hosking 42 September 4, 1996 20,668 *
Stephen O. Huhta 43 June 8, 1993 81,710 *
Robert A. Kahlor 65 September 4, 1992 193,701 *
Mark J. Keefe 39 June 4, 1996 23,630 *
Douglas G. Kiel 50 June 4, 1991 81,998 *
Paul E. Kritzer 56 June 5, 1990 91,590 *
Ronald G. Kurtis 51 June 8, 1993 128,500 *
David G. Meissner 61 June 7, 1988 -- (2) -- (2)
John E. Mollwitz 56 June 2, 1998 37,070 *
Shawn P. O'Neill 34 June 2, 1998 1,652 *
Roger D. Peirce 61 September 4, 1996 --(3)
Steven J. Smith 48 June 2, 1987 172,060 *
Keith K. Spore 56 September 6, 1995 62,000 *
Anthony D. Stevens 36 December 1, 1998 5,234 *
Mark W. Sukovich 30 June 2, 1998 5,690 *
Richard A. Williams 61 June 3, 1997 123,790 *
Paris J. Wright 35 June 2, 1998 2,276 *
Robert T. Zynda 27 June 2, 1998 3,132 *
(1) A "Unit" is equivalent to beneficial interest in one (1) share of the
common stock of the Registrant.
(2) Mr. Meissner owns no Units but is an officer and director of Matex Inc.,
which owns 2,640,000 shares of stock of the Registrant, or 9.2% of the
outstanding stock. Mr. Meissner's wife is also an officer and director of
Matex Inc. and together with her children owns or has a beneficial
interest in 33% of the outstanding common stock of Matex Inc. Mrs.
Meissner also has a 33% beneficial interest in 240,000 shares of common
stock of the Registrant. Other members of Mrs. Meissner's family own or
have a beneficial interest in the remaining 67% of the Matex Inc. shares
and the 240,000 shares of stock of the Registrant.
(3) Under the terms of the Trust, non-employees are not permitted to own
Units.
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
-------------------------------------------------------
Information in response to this item is incorporated herein by reference to the
Company's proxy statement, which shall be filed with the Securities and Exchange
Commission no later than April 30, 1999.
22
<PAGE>
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
------------------------------------------------
AND REPORTS ON FORM 8-K
-----------------------
(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, 1998 and 1997 8
Consolidated Statements of Earnings
for each of the three years in
the period ended
December 31, 1998 9
Consolidated Statements of Cash Flows
for each of the three years in the
period ended December 31, 1998 10
Consolidated Statements of Retained
Earnings for each of the three years
in the period ended December 31, 1998 11
Notes to Consolidated Financial Statements 11-16
Financial Statement Schedules: Registrant's 10-K
Consolidated schedules for each of the Page Number
three years in the period ended
December 31, 1998:
II - Valuation and qualifying accounts 23
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 27 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, 1998.
22
<PAGE>
JOURNAL COMMUNICATIONS INC.
SCHEDULE II - CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Balance at Additions Deductions Balance
beginning charged to from at end
of year earnings allowances (a) of year
-------- -------- -------------- -------
Allowance
for doubtful
receivables:
<S> <C> <C> <C> <C>
1998 $3,443,746 $3,790,236 $2,889,161 $4,344,821
1997 $3,241,512 $3,817,193 $3,614,959 $3,443,746
1996 $2,475,670 $4,184,527 $3,418,685 $3,241,512
Note:
(a) Accounts receivable written off, less recoveries, against the allowance.
</TABLE>
23
<PAGE>
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Annual Report to be signed on
its behalf by the undersigned, hereunto duly authorized.
JOURNAL COMMUNICATIONS INC.
By: /s/Steven J. Smith
Steven J. Smith
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
/s/Todd K. Adams March 31, 1999
Todd K. Adams, Director
/s/Reginald A. Beene March 31, 1999
Reginald A. Beene, Director
/s/Paul M. Bonaiuto March 31, 1999
Paul M. Bonaiuto, Director & Chief Financial Officer
(Principal Financial Officer)
March , 1999
Glenn A. Bowman, Director
March , 1999
James J. Ditter, Director
/s/Robert M Dye March 31, 1999
Robert M. Dye, Director
March , 1999
James L. Forbes, Director
24
<PAGE>
March , 1999
Richard J. Gasper, Director
March , 1999
Douglas G. Hosking, Director
March , 1999
Steven O. Huhta, Director
March , 1999
Robert A. Kahlor, Director
March , 1999
Mark J. Keefe, Director
/s/Douglas G. Kiel March 31, 1999
Douglas G. Kiel, Director
/s/Paul E. Kritzer March 31, 1999
Paul E. Kritzer, Director
March , 1999
Ronald G. Kurtis, Director
March , 1999
David G. Meissner, Director
/s/John E. Mollwitz March 31, 1999
John E. Mollwitz, Director
/s/Shawn P. O'Neill March 31, 1999
Shawn P. O'Neill, Director
25
<PAGE>
March , 1999
Roger D. Peirce, Director
/s/Steven J. Smith March 31, 1999
Steven J. Smith, Director & Chief Executive Officer
(Principal Executive Officer)
/s/Keith K. Spore March 31, 1999
Keith K. Spore, Director
/s/Anthony D. Stevens March 31, 1999
Anthony D. Stevens, Director
March , 1999
Mark W. Sukovich, Director
/s/Richard A. Williams March 31, 1999
Richard A. Williams, Director
/s/Paris J. Wright March 31, 1999
Paris J. Wright, Director
/s/Robert T. Zynda March 31, 1999
Robert T. Zynda, Director
26
<PAGE>
JOURNAL COMMUNICATIONS INC.
INDEX TO EXHIBITS
(Item 14(a))
Exhibits Form 10-K
- - -------- Page Number
-----------
(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) By-Laws 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 28-40
(21) Subsidiaries of the Registrant, filed herewith 41
(23) Consent of Independent Auditors, filed herewith 42
(27) Financial Data Schedule, filed herewith 43-44
27
Exhibit 13
(Pages 6 - 16 of the Registrant's Annual Report)
<TABLE>
<CAPTION>
TEN YEARS IN REVIEW
(Dollars in thousands, except per share amounts)
1998 1997 1996 1995 1994 1993
--------------------------------------------------------------------------------------
Earnings and Dividends
<S> <C> <C> <C> <C> <C> <C>
Earnings before income taxes (5) $102,662 $95,939 $70,691 $46,231 (4) $67,831 $67,498
Net earnings 60,708 56,211 41,043 44,213 43,867 44,204
Earnings for option price 65,432 51,464 41,043 43,149 43,867 44,204
Dividends 31,057 30,243 28,563 29,156 26,699 25,156
Earnings retained 29,651 25,968 12,480 15,057 17,168 19,048
Per Share (After Two-For-One Stock Split)
Net earnings $2.16 $2.05 $1.57 $1.59 $1.57 $1.58
Earnings for option price 2.33 1.88 1.57 1.55 1.57 1.58
Dividends 1.10 1.10 1.10 1.05 0.95 0.90
Book value 15.98 14.88 13.70 13.43 13.02 12.38
Unit option price 25.48 21.69 18.58 18.12 17.70 17.32
Per Share (Before Two-For-One Stock Split)
Net earnings $4.32 $4.10 $3.13 $3.18 $3.13 $3.16
Earnings for option price 4.66 3.76 3.13 3.10 3.13 3.16
Dividends 2.20 2.20 2.20 2.10 1.90 1.80
Book value 31.97 29.76 27.41 26.85 26.04 24.76
Unit option price 50.95 43.38 37.15 36.24 35.40 34.64
Net Sales (5)
Publications $291,756 $286,080 $264,883 $267,148 $261,303 $244,529
Broadcast 115,113 101,889 95,690 74,623 63,445 54,851
Printing 233,650 215,581 203,477 202,556 151,853 126,401
Telecommunications 81,875 60,751 45,351 39,977 35,974 32,411
Direct Marketing 12,901 12,103 14,890 11,578 7,799 -
Eliminations (2,875) (1,867) (2,057) (4,050) (2,793) (3,501)
------------------------------------------------------------------------------------
Total net sales $732,420 $674,537 $622,234 $591,832 $517,581 $454,691
Operating Expenses (5)
Payroll $215,578 $192,060 $181,123 $169,198 $158,450 $137,580
Materials and component services 189,066 178,527 171,958 172,381 117,320 99,170
Depreciation and amortization 41,614 40,350 37,635 34,413 29,779 28,335
Other services 187,419 183,964 164,501 174,461 145,756 123,675
------------------------------------------------------------------------------------
Total operating expenses $633,677 (9) $594,901 (8) $555,217 (7) $550,453 (6) $451,305 (3) $388,760 (2)
Invested Capital
Property and equipment (5) $178,338 $173,312 $163,693 $160,433 $149,687 $135,716
Net working capital 136,017 113,045 89,980 111,116 107,675 100,780
Long-term obligations 1,643 1,808 1,524 2,762 2,947 3,609
Stockholders' equity 447,884 412,739 361,030 366,330 367,429 347,447
Total assets 584,148 550,133 473,564 474,738 461,416 437,429
Percent return on stockholders' equity 14.7% 15.6% 11.2% 12.0% 12.6% 13.5%
Percent return on beginning total assets 11.0% 11.9% 8.6% 9.6% 10.0% 10.8%
<CAPTION>
average annual
1992 1991 1990 1989 compound % increase
-----------------------------------------------------------------------------------
Earnings and Dividends
<S> <C> <C> <C> <C> <C>
Earnings before income taxes (5) $62,670 $55,458 $48,992 $69,668 4.40%
Net earnings 41,631 40,035 41,113 54,988 1.11%
Earnings for option price 41,631 40,626 49,443 54,988 1.95%
Dividends 25,244 25,358 24,192 24,374 2.73%
Earnings retained 16,387 14,677 16,921 30,614 -0.35%
Per Share (After Two-For-One Stock Split)
Net earnings $1.49 $1.42 $1.45 $1.92 1.35%
Earnings for option price 1.49 1.44 1.74 1.92 2.20%
Dividends 0.90 0.90 0.85 0.85 2.91%
Book value 11.70 11.06 10.77 10.04 5.30%
Unit option price 16.80 16.30 15.74 14.83 6.20%
Per Share (Before Two-For-One Stock Split)
Net earnings $2.97 $2.84 $2.89 $3.83 1.35%
Earnings for option price 2.97 2.88 3.47 3.83 2.20%
Dividends 1.80 1.80 1.70 1.70 2.91%
Book value 23.40 22.11 21.54 20.08 5.30%
Unit option price 33.60 32.60 31.48 29.66 6.20%
Net Sales (5)
Publications $238,386 $232,756 $235,853 $232,371 2.56%
Broadcast 52,891 52,088 56,456 54,087 8.75%
Printing 68,372 60,161 57,852 55,301 17.36%
Telecommunications 31,256 15,398 12,414 11,429 24.46%
Direct Marketing - - - - 13.41%
Eliminations (1,814) (1,631) (1,462) (1,608) N.A.
-----------------------------------------------------------------------------------
Total net sales $389,091 $358,772 $361,113 $351,580 8.50%
Operating Expenses (5)
Payroll $117,815 $105,151 $102,463 $98,161 9.13%
Materials and component services 75,685 77,576 80,318 81,008 9.87%
Depreciation and amortization 25,585 24,301 20,442 19,536 8.77%
Other services 109,721 101,884 103,084 90,756 8.39%
-----------------------------------------------------------------------------------
Total operating expenses $328,806 (1) $308,912 $306,307 $289,461 9.10%
Invested Capital
Property and equipment (5) $124,107 $121,665 $83,154 $76,746 9.82%
Net working capital 95,774 93,847 128,859 125,841 0.87%
Long-term obligations 2,251 1,369 608 1,808 N/A
Stockholders' equity 328,230 311,772 306,793 288,036 5.03%
Total assets 409,863 389,958 401,371 364,860 5.37%
Percent return on stockholders' equity 13.4% 13.1% 14.3% 21.1%
Percent return on beginning total assets 10.7% 10.0% 11.3% 16.4%
1) Includes full year of Norlight and IPC since Oct. 6.
2) Includes full year of IPC and IPC-Europe since Feb 28.
3) Includes full year of PrimeNet Marketing Services.
4) Does not include gain on sale of Perry Printing Corp. of $14,941 or $1.07
per share (before split) in 1995.
5) Figures prior to 1996 have been restated to exclude the discontinued
operations of Perry Printing Corp.
6) Includes Omaha, Neb., radio stations KEZO-AM (renamed KOSR-AM), KEZO-FM and
KKCD-FM since Jan. 24 and PrimeNet-Clearwater since June 22.
7) Includes Tucson, Ariz., radio stations KMXZ-FM, KKHG-FM (renamed KZPT-FM)
and KKND-AM (renamed KFFN-AM) since Jan. 29.
8) Includes Knoxville, Tenn., radio stations WWST-FM and WMYU-FM since June
30, CNI since Oct. 1 and Kansas City, Mo., radio station KQRC-FM until June
30.
9) Includes Omaha, Neb., radio stations KESY-FM (renamed KSRZ-FM) and KBBX-AM
from January 1; Knoxville, Tenn., radio stations WQBB-FM (renamed WQIX-FM)
and WQBB-AM from April 20; Oracle, Ariz., radio station KLQB-FM (renamed
KIXD-FM) from June 9; and Caldwell, Idaho (KCID-AM and KCID-FM), Payette,
Idaho (KQXR-FM), Boise, Idaho (KGEM-AM and KJOT-FM) and Ontario, Ore.
(KSRV-AM and KSRV-FM) radio stations from July 1.
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
JOURNAL COMMUNICATIONS INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share and per share amounts)
December 31
-----------
1998 1997
---- -----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $131,051 $111,002
Receivables, net 94,823 98,366
Inventories, net 19,882 23,665
Prepaid expenses 16,211 10,355
Deferred income taxes 6,701 5,111
-------- -------
Total current assets 268,668 248,499
Property and equipment, at cost:
Land and land improvements 13,792 12,406
Buildings 61,312 57,025
Equipment 352,513 349,674
-------- -------
427,617 419,105
Less accumulated depreciation 249,279 245,793
-------- -------
Net property and equipment 178,338 173,312
Goodwill 60,339 51,680
Other intangible assets, net 59,303 44,367
Corporate life insurance investment pool --- 19,630
Other assets 17,500 12,645
-------- --------
Total assets $584,148 $550,133
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 47,850 $ 54,765
Accrued compensation 24,137 23,850
Deferred revenue 16,092 17,418
Accrued employee benefits 25,557 25,249
Other current liabilities 17,217 11,953
Current portion of long-term obligations 1,798 2,219
-------- --------
Total current liabilities 132,651 135,454
Long-term obligations 1,643 1,808
Deferred income taxes 1,970 132
Stockholders' equity:
Common stock, $0.125 par value; authorized
and issued 28,800,000 shares 3,600 3,600
Retained earnings 463,110 430,553
Treasury stock, at cost (18,826) (21,414)
-------- --------
Total stockholders' equity 447,884 412,739
-------- --------
Total liabilities and stockholders' equity $584,148 $550,133
======== ========
See accompanying notes.
</TABLE>
29
<PAGE>
JOURNAL COMMUNICATIONS INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in thousands, except per share amounts)
Years ended December 31
----------------------
1998 1997 1996
---- ---- ----
Revenue $732,420 $674,537 $622,234
Costs and expenses:
Cost of sales 399,105 376,341 358,588
Selling and administrative expenses 234,572 218,560 196,629
-------- ------- --------
Total costs and expenses 633,677 594,901 555,217
-------- ------- --------
Operating earnings 98,743 79,636 67,017
Other income:
Net interest and dividends 6,305 6,246 3,366
Gain (loss) on sale of assets, net (2,386) 10,057 308
-------- ------- --------
Total other income 3,919 16,303 3,674
-------- ------- --------
Earnings before income taxes 102,662 95,939 70,691
Provision for income taxes 41,954 39,728 29,648
-------- ------- --------
Net earnings $ 60,708 $ 56,211 $ 41,043
======== ======= ========
Basic and diluted earnings per share $ 2.16 $ 2.05 $ 1.57
======== ======= ===========
See accompanying notes.
30
<PAGE>
JOURNAL COMMUNICATIONS INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Years ended December 31
-----------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $430,553 $402,301 $390,279
Net earnings 60,708 56,211 41,043
Currency translation adjustment 233 (529) (568)
-------- -------- --------
Comprehensive income 60,941 55,682 40,475
-------- -------- --------
Cash dividends ($1.10 per share in 1998,
1997 and 1996) (31,057) (30,243) (28,563)
Treasury stock transactions 2,673 2,813 110
-------- -------- --------
Balance at end of year $463,110 $430,553 $402,301
======== ======== ========
See accompanying notes.
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
JOURNAL COMMUNICATIONS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Years ended December 31
-----------------------
1998 1997 1996
---- ---- ----
Cash flow from operating activities:
<S> <C> <C> <C>
Net earnings $60,708 $56,211 $41,043
Adjustments to reconcile net earnings to
net cash provided by operating activities
Depreciation and amortization 41,614 40,350 37,635
Deferred income taxes 248 590 (2,052)
Net (gain) loss from sales of assets 2,386 (10,057) (308)
Net changes in current assets and current liabilities
Receivables 3,719 (5,307) 1,250
Inventories 3,930 4,268 3,610
Accounts payable (5,621) 16,887 5,018
Other current assets and liabilities 2,389 6,259 8,638
-------- -------- --------
Net cash provided by operating activities 109,373 109,201 94,834
-------- -------- --------
Cash flow from investing activities:
Proceeds from sales of assets 5,784 3,676 5,937
Property and equipment expenditures (45,222) (39,401) (33,772)
Net decrease in short-term investments --- --- 47,885
Proceeds from liquidation of corporate life insurance
investment pool 21,005 --- ---
Assets of businesses acquired (42,453) (21,063) (17,000)
Other - net (3,005) (2,215) (3,421)
-------- -------- --------
Net cash used for investing activities (63,891) (59,003) (371)
-------- -------- --------
Cash flow from financing activities:
Net increase (decrease) in long-term obligations 362 (506) (7,015)
Net (purchases) sales of treasury stock 5,262 26,270 (17,212)
Cash dividends (31,057) (30,243) (28,563)
-------- -------- --------
Net cash used for financing activities (25,433) (4,479) (52,790)
-------- -------- --------
Net increase in cash and cash equivalents 20,049 45,719 41,673
Cash and cash equivalents
Beginning of year 111,002 65,283 23,610
-------- -------- --------
End of year $131,051 $111,002 $65,283
======== ======== ========
Cash paid for income taxes $ 39,782 $ 38,930 $23,753
======== ======== ========
See accompanying notes.
</TABLE>
32
<PAGE>
JOURNAL COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
(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 numerator for the calculation of earnings per share
is net earnings, and the denominator for earnings per share is based on each
period's weighted average shares outstanding, which were 28,076,274 in 1998,
27,403,718 in 1997 and 26,205,368 in 1996. Because there are no dilutive
securities, basic and diluted earnings per share are the same.
Cash equivalents - Cash equivalents are highly liquid investments with
original maturities of three months or less. Cash equivalents are stated at
cost, which approximates market value, and at December 31 consisted of the
following:
1998 1997
------------ -----------
Commercial Paper $108,160 $ 99,074
Bank Certificates of Deposit 12,600 5,175
Money Market Fund 470 ---
-------- --------
$121,230 $104,249
======== ========
Receivables - Allowance for doubtful accounts at December 31, 1998 and 1997
was $4,345 and $3,444, 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:
1998 1997
----------- -----------
Paper and Supplies $ 10,910 $ 13,453
Work in Process 2,339 4,242
Finished Goods 6,633 5,970
-------- --------
$ 19,882 $ 23,665
======== ========
Property and equipment - Property and equipment are recorded at cost.
Depreciation of property and equipment is provided over the estimated useful
lives (3-35 years) of the respective assets 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, 1998, $2,280 of goodwill
was not being amortized. Accumulated amortization at December 31, 1998 and
1997, was $8,926 and $10,527, 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, 1998 and 1997, was $29,596 and $29,917, respectively. Other
intangible assets include FCC licenses, which were $45,700 and $25,844, net
of amortization, at December 31, 1998 and 1997, 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.
33
<PAGE>
1. Principal accounting policies (continued)
Reclassifications - Certain prior year amounts have been reclassified to
conform to the 1998 presentation.
New accounting standards - During 1998, the Financial Accounting Standards
Board issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" (the Statement), which is required to be adopted for
years beginning after June 15, 1998. The Statement will require the Company
to recognize all derivatives in the balance sheet at fair value. The Company
will adopt the Statement effective January 1, 2000, and estimates that the
effect will not be material to its results of operations, financial position
or cash flows.
During 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued two Statements of Position
(SOP) that are applicable to the Company SOP 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use," and SOP 98-5,
"Reporting on the Costs of Start-up Activities." SOP 98-1 requires that
certain computer software costs be capitalized, and SOP 98-5 requires costs
of start-up activities to be expensed as incurred. Since the Company
currently complies with the requirements of SOP 98-1 and SOP 98-5, these
pronouncements will have no impact on its results of operations, financial
position or cash flows.
2. Employee benefit plans
In February 1998, the Financial Accounting Standards Board issued SFAS No.
132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits." Statement 132 addresses disclosure issues only and does not
change the measurement or recognition provisions specified in earlier
Statements. The Company has adopted SFAS No. 132, which is effective for
fiscal years beginning after December 15, 1997.
The Company has a defined benefit pension plan covering the majority of its
employees. Plan assets consist primarily of listed stocks and government and
other bonds. In addition, the Company provides health benefits to certain
retirees and their eligible spouses. The Company has elected to amortize the
related unfunded obligation of $25,324 at January 1, 1993, over a period of
20 years.
<TABLE>
<CAPTION>
Other
Pension Benefits Postretirement Benefits
---------------- -----------------------
1998 1997 1998 1997
---- ---- ---- ----
Change in benefit obligations
<S> <C> <C> <C> <C>
Benefit obligation at beginning of year $91,390 $83,389 $29,277 $27,657
Service cost 3,066 2,647 562 476
Interest cost 6,560 6,391 2,035 2,055
Actuarial (gain)/loss 8,290 4,277 (1,358) 454
Benefits paid (6,235) (6,918) (2,877) (1,365)
Special termination benefits 157 1,604 - -
----- ------- -------- ----------
Benefit obligation at end of year $103,228 $91,390 $27,639 $29,277
-------- -------- -------- ----------
Change in plan assets
Fair value of plan assets at beginning
of year $75,560 $68,589
Actual return on plan assets 9,813 11,268
Company contributions 3,824 2,621
Benefits paid (6,235) (6,918)
-------- --------
Fair value of plan assets at end of 82,962 75,560
-------- --------
year
Funded status of the plan (underfunded) (20,266) (15,830) $(27,639) $(29,277)
Unrecognized net actuarial (gain)/loss 8,103 3,170 (564) 794
Unrecognized prior service cost 2,035 2,290 - -
Unrecognized transition obligation (469) (706) 15,541 16,651
------- ------- -------- ------
(asset)
Accrued net benefit cost $(10,597) $(11,076) $(12,662) $(11,832)
========= ========= ======== =========
</TABLE>
34
<PAGE>
2. Employee benefit plans (continued)
<TABLE>
<CAPTION>
Other
Pension Benefits Postretirement Benefits
---------------- -----------------------
Components of net periodic benefit cost 1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Service cost $3,066 $2,647 $2,412 $562 $ 476 $ 496
Interest cost 6,560 6,391 6,023 2,035 2,055 2,051
Expected return on plan assets (6,538) (6,183) (5,912)
- - -
Amortization of prior service cost 254 254 254 - - -
Amortization of transition obligation (237) (237) (237) 1,110 1,110 1,110
Recognized net actuarial loss 82 - - - - -
------- ------ ------- ------ ------ ------
Benefit cost 3,187 2,872 2,540 3,707 3,641 3,657
------- ------ ------- ------ ------ ------
Recognized special termination benefits 157 1,604 188 - - -
------- ------ ------- ------ ------ ------
Total cost $3,344 $4,476 $2,728 $3,707 $3,641 $3,657
======= ====== ======= ====== ====== ======
<CAPTION>
Other
Pension Benefits Postretirement Benefits
---------------- -----------------------
Weighted-average assumptions as of 1998 1997 1998 1997
----------------------------------- ---- ---- ---- ----
December 31
-----------
<S> <C> <C> <C> <C>
Discount rate 6.75% 7.25% 6.75% 7.25%
Expected return on plan assets 9.50 9.50
Rate of compensation increase 4.50 4.50
</TABLE>
The assumed health care cost trend rates used in measuring the postretirement
benefit obligation for retirees for 1998 are 6% in 1998, 5.5% in 2000 and 5% in
2001 and thereafter, and for 1998 were 6.5% grading down to 5% in 2001 and
thereafter. The assumed health care cost trend rate has a significant effect on
the amounts reported for other postretirement benefits. A one percentage point
change in the assumed health care cost trend rate would have the following
effects:
One Percentage One Percentage
Point Point
Increase Decrease
----------------- ---------------
Effect on total of service and interest
cost
components in 1998 $168 $ (149)
Effect on postretirement benefit
obligation
As of 12/31/98 $1,302 $(1,221)
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
pre-tax 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 $2,333, $2,271 and $2,071 in 1998, 1997 and 1996,
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 $602, $673 and $731 in 1998, 1997 and 1996,
respectively.
35
<PAGE>
3. Income taxes
Income tax expense (benefit) consists of the following:
1998 1997 1996
---- ---- ----
Current:
Federal $34,814 $31,127 $25,157
State 6,892 8,011 6,543
-------- ------- -------
41,706 39,138 31,700
Deferred 248 590 (2,052)
-------- ------- --------
$41,954 $39,728 $29,648
======== ======= =======
The significant differences between the statutory federal tax rates and the
effective tax rates are as follows:
1998 1997 1996
---- ---- ----
Statutory federal income tax rate 35.0% 35.0% 35.0%
State income taxes,
net of federal tax benefit 5.4 5.0 5.1
Foreign net operating losses ---- 0.9 1.7
Other 0.5 0.5 0.1
---- ---- -----
Actual provision 40.9% 41.4% 41.9%
==== ==== =====
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities include:
1998 1997
---- ----
Deferred tax assets:
Accrued compensation and employee benefits $11,844 $10,450
Inventories 895 865
Receivables 1,261 997
Domestic loss carryforwards 3,324 4,590
Foreign loss carryforwards 3,948 4,088
Other 2,257 2,105
------- -------
Total deferred tax assets 23,529 23,095
Deferred tax liabilities:
Property and equipment 12,060 12,180
Intangible assets 2,304 1,374
Other 1,180 1,468
------- ------
Total deferred tax liabilities 15,544 15,022
Valuation allowances:
Domestic loss carryforwards 917 551
Foreign loss carryforwards 2,337 2,543
------- ------
Total valuation allowances 3,254 3,094
------- ------
Net deferred tax asset
included in balance sheet $ 4,731 $ 4,979
======= =======
36
<PAGE>
4. Long-term obligations and lease commitments
December 31
1998 1997
Capital lease & other obligations,
average interest 8% in 1998 $2,341 $2,859
Television program contracts, due thru 1998 1,100 1,168
------ ------
3,441 4,027
Less current portion 1,798 2,219
------ ------
$1,643 $1,808
====== ======
On January 22, 1998, the Company executed an unsecured short-term line of
credit in an aggregate amount not to exceed $35 million.
In addition, the Company has the rights to broadcast certain television
programs during the years 1998-2002 under contracts aggregating $6,966.
Rental expense for office facilities and equipment including noncancellable
operating leases was $17,806, $18,926 and $15,382 in 1998, 1997 and 1996,
respectively. Future minimum annual rental payments due under operating
leases total $48,371 and are due as follows: 1998 - $9,282; 2000 - $7,778;
2001 - $7,103; 2002 - $5,886; 2003 - $5,447; thereafter $12,875.
5. Stockholders' equity
On December 1, 1998, the Board of Directors approved an increase effective
January 5, 1998, in authorized common stock from 14,400,000 to 28,800,000
shares, reduced the par value from $.25 to $.125 per share and approved a
two-for-one common stock split. Except where noted, all references to shares
and per-share amounts elsewhere in the financial statements have been
restated to reflect this stock split.
The Company purchases units of beneficial interest in the Journal Employees'
Stock Trust for resale to its employees. Treasury stock activity is as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
Units Amount Units Amount Units Amount
<S> <C> <C> <C> <C> <C> <C>
Beginning balance 1,061,994 $ 21,414 2,453,634 $ 44,871 1,517,164 $ 27,549
Purchases 3,019,620 68,627 2,440,002 47,496 2,760,880 50,504
Sales (3,301,286) (71,215) (3,831,642) (70,953) (1,824,410) (33,182)
----------- --------- --------- -------- ------------ --------
Ending balance 780,328 $ 18,826 1,061,994 $ 21,414 2,453,634 $ 44,871
=========== ========= ========= ======== =========== ========
Gain on sales of treasury stock $ 2,673 $ 2,813 $ 110
========= ======== ========
</TABLE>
6. Sales and acquisitions
In August 1998, Journal Broadcast Corporation announced an agreement to
acquire the stock of Great Empire Broadcasting, Inc., a radio group of
thirteen stations headquartered in Wichita, Kan. The markets served by Great
Empire are Tulsa, Okla., Wichita, Kan., Springfield, Mo., and Omaha, Neb.
Pending approval of the FCC, the Company expects to complete the acquisition
in early 1998. The cash purchase price will be approximately $100 million.
On July 1, 1998, the Company acquired the business and substantially all of
the assets of KCID-AM and KCID-FM in Caldwell, Idaho; KQXR-FM in Payette,
Idaho; KGEM-AM and KJOT-FM in Boise, Idaho, and KSRV-AM and KSRV-FM in
Ontario, Ore. The combined cash purchase price was approximately $15.1
million.
On June 9, 1998, the Company acquired the business and substantially all of
the assets of KLQB-FM (renamed KIXD-FM) in Oracle, Ariz. The cash purchase
price was approximately $5.8 million.
On April 20, 1998, the Company acquired the stock of WQBB-FM (renamed
WQIX-FM) and WQBB-AM in Knoxville, Tenn. The combined cash purchase price
was approximately $7.1 million.
37
<PAGE>
On January 1, 1998, the Company acquired the business and substantially all
of the assets of KESY-FM (renamed KSRZ-FM) and KBBX-AM in Omaha, Neb. The
combined cash purchase price was approximately $5.5 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 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 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.
The above-mentioned completed 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 respective dates of acquisition. Had the transactions
occurred on January 1 of the year acquired, the effect of the acquisitions
on the Company's consolidated results of operations, for each respective
year, would not have been material.
7. 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.
8. Segment analysis
In 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which supercedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise." Journal
Communications Inc. is an employee-owned, diversified communications company
with operations in eighteen states and France. Revenues from external
customers are generated, and long-lived assets are located, primarily in the
United States. The Company's principal lines of business are publishing,
broadcasting, printing, telecommunications and direct marketing. The
Milwaukee Journal Sentinel and 108 paid and free periodicals are published.
The broadcasting business consists of 23 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.
<TABLE>
<CAPTION>
Revenue Earnings (losses)
--------------------------------- -------------------------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Publications $291,756 $286,080 $264,883 $43,532 $40,711 $31,718
Broadcast 115,113 101,889 95,690 34,015 38,174 29,323
Printing 233,650 215,581 203,477 (5,297) 386 (6,895)
Telecommunications 81,875 60,751 45,351 24,092 12,320 8,955
Direct marketing 12,901 12,103 14,890 (365) (1,315) 1,327
Corporate & eliminations (2,875) (1,867) (2,057) 381 (583) 2,897
-------- -------- --------
$732,420 $674,537 $622,234
======== ======== ========
Net interest and dividends 6,304 6,246 3,366
-------- ------- -------
Earnings before income taxes $102,662 $95,939 $70,691
======== ======= =======
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
December 31
Identifiable total assets Depreciation & amortization Capital Expenditures
----------------------------- ---------------------------- ---------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Publications $120,949 $103,475 $ 92,297 $ 10,479 $ 9,027 $ 8,049 $14,698 $ 12,590 $ 8,264
Broadcast 127,598 90,727 77,763 6,825 6,974 6,738 3,988 4,739 2,837
Printing 108,900 116,441 125,264 13,954 12,946 12,600 14,749 8,103 9,341
Telecom-
munications 61,849 66,420 58,943 9,022 8,829 8,390 10,159 12,928 12,341
Direct
marketing 15,292 14,616 16,127 1,389 1,788 2,115 1,299 764 594
Corporate and
eliminations 149,560 158,454 103,170 (55) 786 (257) 329 277 395
------- -------- -------- --------- ------- -------- ------- -------- ------
$584,148 $550,133 $473,564 $ 41,614 $40,350 $ 37,635 $45,222 $ 39,401 $33,772
======== ======== ======== ======== ======= ======== ======= ======== =======
</TABLE>
39
<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, 1998 and 1997, and the related
consolidated statements of earnings, retained earnings, and cash flows for each
of the three years in the period ended December 31, 1998. 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, 1998 and 1997, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Milwaukee, Wisconsin
January 29, 1999
40
Exhibit No. 21
JOURNAL COMMUNICATIONS INC.
Subsidiaries of the Registrant
The following list shows the subsidiaries of the Registrant as of March 19,
1999, their respective states of incorporation and the percentage of voting
securities of each subsidiary owned by its immediate parent. All companies
listed have been included in the consolidated financial statements filed
herewith.
<TABLE>
<CAPTION>
Percent of Voting
Securities Owned
State/Country by Registrant or
Subsidiary of Incorporation Immediate Parent
- - ---------- ---------------- ----------------
<S> <C> <C>
Journal Sentinel Inc. Wisconsin 100% by Registrant
Journal Broadcast Corporation Nevada 100% by Registrant
NorthStar Print Group, Inc. Wisconsin 100% by Registrant
Add, Inc. Wisconsin 100% by Registrant
Norlight Telecommunications, Inc. Wisconsin 100% by Registrant
PrimeNet Marketing Services, Inc. Minnesota 100% by Registrant
Trumbull Printing, Inc. Connecticut 100% by Registrant
IPC Communication Services, Inc. Michigan 100% by Registrant
PPC Liquidations, Inc. Wisconsin 100% by Registrant
Journal Broadcast Group, Inc. Wisconsin 100% by Journal Broadcast Corp.
Journal Broadcast Group of Tennessee, Inc. Tennessee 100% by Journal Broadcast Group, Inc.
Hometown Publications, Inc. Connecticut 100% by Add, Inc.
Community Newspapers, Inc. Wisconsin 100% by Add, Inc.
Mega Direct Holdings, Inc. Nevada 100% by Add, Inc.
Auto Mart Publications, Inc. Ohio 100% by Add, Inc.
Nordoc Software Services, S. A. France 99% by IPC Communication Services*
Nordoc Europe B.V. Netherlands 99% by IPC Communication Services*
Label Products & Design, Inc. Wisconsin 100% by NorthStar Print Group
- - --------------
* 1 % by other subsidiaries of the Registrant
</TABLE>
The Registrant has no controlling parent. Twenty-five million nine
hundred and twenty thousand (25,920,000) shares, or ninety percent (90%), of the
Registrant's issued common stock at March 19, 1999, are owned of record by the
Trust. The right to vote these shares in most instances resides in the employees
who hold Units of beneficial interest in that trust. Accordingly, the Registrant
is not controlled by the Trust and does not consider it to be a "parent" of the
Registrant within the meaning of Regulation 12b-2. See Item 12 "Security
Ownership of Certain Beneficial Owners and Management."
Exhibit No. 23
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report on
Form 10-K of Journal Communications Inc. of our report dated January 29, 1999,
included in the 1998 Annual Report to Shareholders of Journal Communications
Inc.
Our audits also included the financial statement schedule of Journal
Communications Inc. listed in item 14(a). This schedule is the responsibility of
the company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration
Statements of Forms S-8 (File Nos. 2-79770, 33-13771 and 333-15669) pertaining
to Journal Communications Inc. Employees' Individual Retirement Agreement; the
Journal Employees' Stock Trust, and the Journal Communications Inc. Employees'
Stock Trust filing of November 5, 1996, with respect to 1,500,000 units of
beneficial interest in said trust, of our report dated January 29, 1999 with
respect to the consolidated financial statements and schedule of Journal
Communications Inc. included and incorporated by reference in the Annual Report
(Form 10-K) for the year ended December 31, 1998.
Milwaukee, Wisconsin ERNST & YOUNG LLP
March 26, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF JOURNAL COMMUNICATIONS, INC. AS OF AND FOR
THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 131,051
<SECURITIES> 0
<RECEIVABLES> 94,823
<ALLOWANCES> 0
<INVENTORY> 19,882
<CURRENT-ASSETS> 268,668
<PP&E> 427,617
<DEPRECIATION> 249,279
<TOTAL-ASSETS> 584,149
<CURRENT-LIABILITIES> 132,650
<BONDS> 1,643
0
0
<COMMON> 3,600
<OTHER-SE> 444,285
<TOTAL-LIABILITY-AND-EQUITY> 584,149
<SALES> 732,420
<TOTAL-REVENUES> 732,420
<CGS> 398,050
<TOTAL-COSTS> 628,768
<OTHER-EXPENSES> 230,718
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 445
<INCOME-PRETAX> 102,662
<INCOME-TAX> 41,954
<INCOME-CONTINUING> 60,708
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 60,708
<EPS-PRIMARY> 2.16
<EPS-DILUTED> 2.16
</TABLE>
