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, 1999
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) (Zip Code)
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 13, 2000:
Class Outstanding at March 13, 2000
----- -----------------------------
Common Stock, par value $0.125 26,874,145
Portions of the annual shareholders report for the year ended December 31, 1999
are incorporated by reference into Parts I and II. Portions of the proxy
statement for the annual shareholders meeting to be held June 6, 2000 are
incorporated by reference into Part III.
1
<PAGE>
PART I
ITEM 1. BUSINESS
----------------
The Registrant is a diversified communications and media company. Its revenues,
broken down by business segments, as a percentage of consolidated revenues for
the past three (3) years were:
Source 1999 1998 1997
------ ---- ---- ----
Publishing-Advertising 31.4% 31.8% 34.2%
Publishing-Circulation 7.7 8.0 8.1
---- --- ----
Publishing Total 39.1 39.8 42.3
Commercial Printing 28.9 31.8 31.9
Broadcasting 17.2 15.6 15.1
Telecommunications 13.3 11.1 9.0
Direct Marketing 1.5 1.7 1.7
Material developments in the Registrant's business in 1999 included the
acquisition of Great Empire Broadcasting, Inc., a group of thirteen (13) radio
stations located in Wichita, Kansas (5), Tulsa, Oklahoma (3), Omaha, Nebraska
(2), and Springfield, Missouri (3), and the acquisition of television station
KMIR, the NBC affiliate in Palm Springs, California. It also featured the
purchase of weekly newspapers in Kaukauna and Merrill, Wisconsin, and Ponta
Vedra, Florida, and the divestiture of a shopper publication in Gainesville,
Florida. The board of directors authorized spending up to $106.6 million to
invest in a new production facility for Journal Sentinel Inc. that is expected
to be fully operational in the fall of 2002. The year also included the
beginning of construction for a $31 million network expansion for Norlight
Telecommunications, Inc. 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 current expectations. These statements
are subject to certain risks, trends, and uncertainties that could cause actual
results to differ materially from those anticipated. Among such risks, trends,
and uncertainties are changes in advertising demand, newsprint prices, interest
rates, regulatory rulings, the availability of quality broadcast programming at
competitive prices, changes in the terms and conditions of network affiliation
agreements, quality and rating of network over-the-air broadcast programs,
legislative or regulatory initiatives affecting the cost of delivery of
over-the-air broadcast programs to the Registrant's customers, and other
economic conditions and the effect of acquisitions, investments, and
dispositions on the Registrant's results of operations or financial condition.
The words "believe," "expect," "anticipate," "intends," "plans," "projects,"
"considers," and similar expressions generally identify forward-looking
statements. Readers are cautioned not to place undue reliance on such
forward-looking statements, which are as of the date of this filing.
2
<PAGE>
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.
Average paid circulation for the twelve months ended March 31 for the last five
years, as audited by the Audit Bureau of Circulation, was:
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
Journal Sentinel 286,608 289,350 292,035 298,206 -0-
- ----------------
Journal -0- -0- -0- -0- 211,801
- -------
Sentinel -0- -0- -0- -0- 173,895
- ---------
Sunday Journal 458,332 459,374 458,480 467,852 486,422
- --------------
Advertising volume in column inches and preprint units for the Registrant's
Milwaukee newspapers for the last five calendar years was:
(in thousands)
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
Column Inches
- -------------
Full Run 2,125.6 2,188.0 2,319.4 2,151.5 2,289.7
Part Run 134.1 182.8 292.7 250.7 257.1
Units
- -----
Preprint 3.6 2.9 2.6 2.5 2.8
Full Run refers to advertisements that are published in all editions of the
newspaper, whereas, Part Run refers to advertisements not published in all
editions of the newspaper. Advertising volume declined in 1999 compared to 1998
due to a decrease in employment and real estate classified advertising and a
shift to Preprints from ROP. ROP (run-of-press) refers to a format of
advertisements the publisher prints in its newspaper for its customers and
preprints are advertisements printed by the customer which are then inserted
into the newspaper.
There are 168 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 168 publications, 121 are paid
subscription and 47 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.
3
<PAGE>
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 , New
York Times and Investor's Business Daily are sold in the Milwaukee market. The
Journal Sentinel newspaper also competes for advertising revenues or support
with nine (9) 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, several direct mail services, homebuyers and renters magazines, and
internet sites. 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.
During 1999, the average price per ton for newsprint decreased by 15.9 %
compared to the previous year. Total consumption, which is based on volume, for
all products in 1999 was 2.2% below 1998's total. Newsprint is purchased from
seven Canadian suppliers. The Registrant considers anticipated supplies for 2000
sufficient.
The Registrant also publishes through its Add, Inc. subsidiary. In April 1999,
Add, Inc. purchased a paid weekly newspaper and a free shopper in Wisconsin. In
May 1999, Add, Inc. purchased a paid weekly newspaper in Florida. In July 1999
Add, Inc. started seven (7) free weekly newspapers in Wisconsin. In September
1999 Add, Inc. purchased a free weekly newspaper in Wisconsin. In October 1999,
Add, Inc. started a free military base shopper in Georgia. In March 1999, Add,
Inc. closed a free auto specialty product in Wisconsin. In October 1999, Add,
Inc. closed a multiple-zone free shopper in Florida. In December 1999, Add, Inc.
sold a free shopper in Florida. At December 31, 1999, Add, Inc. published ten
(10) weekly newspapers in southwestern Connecticut; thirty-nine (39) weekly
newspapers and one (1) controlled-circulation business publication in Wisconsin;
three (3) weekly newspapers in Florida; forty seven (47) shopper publications,
with thirty (30) in Wisconsin, eleven (11) in Ohio, two (2) 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.
4
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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 (video and audio discs similar to compact
discs), masters (molds from which CD-ROMs and DVDs are replicated), 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, Lebanon, Tennessee and
Roncq, France. The Registrant does not anticipate supply restrictions in 2000
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, which uses cut sheets of paper rather than rolls of
paper, rotogravure and flexographic processes that are used to print
point-of-purchase materials, out-of-home media (a form of advertising which
includes billboards), and labels for consumer goods and industrial manufacturers
(including in-mold labels). 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.
Add, Inc. has four printing plants in Wisconsin. The plants located in the
cities of Rhinelander, Hartland, and Oak Creek have web offset printing
capabilities, while, the facility in Waupaca has two sheet-fed offset presses in
addition to its web offset press. Add, Inc. just recently announced the closing
of the printing plant in Oak Creek. Add, Inc.'s other printing plants, all with
web offset presses, are located in Orange Park, Florida, Bennington, Vermont,
Lancaster, Ohio and New Orleans, Louisiana Trumbull Printing, Inc., a former
wholly-owned subsidiary of the Registrant merged into Add, Inc., another
wholly-owned subsidiary of the Registrant, on January 1, 2000. Trumbull
Printing, Inc., located in Trumbull, Connecticut, is a web offset printer of
newspapers, newspaper inserts and other publications. Web presses use rolls of
paper rather than cut sheets of paper and offset printing is a technique in
which ink is applied to paper through the use of print plates and then rollers.
The Registrant believes its principal raw materials, paper and ink will be in
sufficient supply in 2000.
Broadcasting
- ------------
Journal Broadcast Corporation and its subsidiaries operate four (4) television
stations and thirty-six (36) radio stations in twelve (12) states plus sells
airtime pursuant to a joint sales agreement (the FCC license is owned by another
party) in Wichita, Kansas. Journal Broadcast Corporation holds the licenses of
all of the Registrant's broadcast stations, which were granted by the Federal
Communications Commission.
The broadcast stations of Journal Broadcast Corporation are:
Station Location Network Affiliation
- -----------------------------------------------------------
KTNV-TV Las Vegas, NV ABC Television
WTMJ-TV Milwaukee, WI NBC Television
WSYM-TV Lansing, MI FOX Television
5
<PAGE>
Broadcasting (continued)
- ------------------------
Station Location Network Affiliation
- -----------------------------------------------------------
KMIR-TV Palm Springs, CA NBC Television
WTMJ-AM Milwaukee, WI ABC Radio Network
WKTI-FM Milwaukee, WI ABC Radio Network
KEZO-FM Omaha, NE None
KKCD-FM Omaha, NE None
KOSR-AM Omaha, NE One-on-One Sports Network and USA
KSRZ-FM Omaha, NE None
KQCH-FM Omaha, NE None
KBBX-AM Omaha, NE Jones
KOMJ-AM Omaha, NE Westwood One and ABC
WOW-FM Omaha, NE ABC
KMXZ-FM Tucson, AZ None
KZPT-FM Tucson, AZ None
KFFN-AM Tucson, AZ ABC Direction Network, One-on-One Sports
Network, Premiere Radio Network
KGMG-FM Tucson, AZ ABC Direction Network
WMYU-FM Knoxville, TN None
WWST-FM Knoxville, TN None
WQIX-FM Knoxville, TN None
WQBB-AM Knoxville, TN Westwood One
KGEM-AM Boise, ID ABC and Westwood One
KJOT-FM Boise, ID ABC
KQXR-FM Boise, ID None
KCID-AM Boise, ID None
KCID-FM Boise, ID None
KSRV-AM Ontario, OR ABC and AP
KSRV-FM Ontario, OR ABC and AP
KFDI-AM Wichita, KS ABC
KFDI-FM Wichita, KS ABC
KICT-FM Wichita, KS ABC
KLLS-FM Wichita, KS ABC
KYQQ-FM Wichita, KS ABC
KVOO-AM Tulsa, OK ABC
KVOO-FM Tulsa, OK ABC
KCKI-FM Tulsa, OK Learfield Communications
6
<PAGE>
Broadcasting (continued)
- -----------------------
Station Location Network Affiliation
- -----------------------------------------------------------
KTTS-AM Springfield, MO ABC Radio Network, Missouri Net
and Learfield Communications
KTTS-FM Springfield, MO ABC Radio Network
KMXH-FM Springfield, MO None
Milwaukee, Wisconsin
- --------------------
Journal Broadcast Corporation's flagship stations, WTMJ-TV, WTMJ-AM, and
WKTI-FM, are located in Milwaukee, Wisconsin. Competition for advertising
revenue in the Milwaukee 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-seven (27) other radio
stations, two (2) cable television companies, ten (10) daily newspapers
(including one owned by Registrant), and numerous weekly newspapers. There are
four (4) other broadcasting companies owning multiple radio stations in the
Milwaukee market that compete for audience as well as advertising revenue. Clear
Channel will soon own six (6) radio stations, Saga Communications owns five (5)
radio stations, Entercom owns three (3) radio stations, and the Milwaukee Radio
Alliance owns three (3) radio stations. The Registrant's two (2) Milwaukee radio
operations, WTMJ-AM and WKTI-FM rank amongst the top five radio stations in the
primary selling demographic of Adults age 25-54. WTMJ-TV is the market leader in
local news ratings and in 1999 captured almost twenty-eight percent (28%) of the
television advertising revenue in the market. News reporting and editorial
operations at WTMJ-TV, WTMJ-AM and WKTI-FM, Milwaukee, are independent of the
Registrant's Milwaukee newspaper operations.
Omaha, Nebraska
- ---------------
Journal Broadcast Corporation acquired its first duopoly in Omaha, Nebraska in
1995 and has since grown to eight (8) radio stations in all. In 1999, the Omaha
operations accounted for nineteen percent (19%) of Journal Broadcast
Corporation's radio revenue, second only to the Milwaukee radio operation's
thirty-seven percent (37%). Competition for advertising revenue in the Omaha,
Nebraska four-county metro area includes ten (10) other reporting radio
stations, one cable television company, five (5) network television stations,
two (2) public television stations, two (2) daily newspapers, three (3)
billboard companies and numerous weekly newspapers. There are two (2) other
broadcasting companies owning multiple radio stations in the Omaha market that
compete for audience as well as advertising revenue. Waitt, who owned only one
station in 1999, has just completed negotiations to operate five (5) radio
stations pursuant to a local marketing agreement for a period of seven years,
after which time they will purchase the stations from Mitchell Broadcasting.
Clear Channel will soon own four (4) radio stations after the completion of the
purchase from AM/FM and Webster Communications owns one (1) station. There are
three (3) public radio stations and two (2) Christian stand-alone stations. In
1999, our Omaha radio operations ranked first in total market revenue.
In October 1999, Journal Broadcast Corporation reached an agreement to purchase
KFXJ-FM, licensed to Boise, Idaho, from Doubledee Broadcast Group of California.
In November 1999, Journal Broadcast Corporation reached an agreement to purchase
KOEZ-FM, licensed to Newton, Kansas, from Kansas Radio Assets LLC. In December
1999, Journal Broadcast Group, a wholly-owned subsidiary of Journal Broadcast
Corporation reached an agreement to divest to Horizon Broadcasting Group LLC,
KSRV-AM and KSRV-FM, licensed to Ontario, Oregon. These acquisitions and
divestitures will take effect upon approval by the Federal Communications
Commission.
7
<PAGE>
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 is expanding its fiber optic network, which will
significantly increase its available capacity in Michigan, Indiana and
Minnesota. This network expansion should be entirely operational by September
2000, with the Michigan component complete in May and the Indiana and Minnesota
components complete in September. Norlight's business-to-business service
provides advanced data communications products, specifically dedicated circuits,
frame relay (high-speed switching technology that provides throughput and delay
performance), Internet access and switched voice services (pay-by-the-minute
long distance 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 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 2000 and
2001.
Impact of Year 2000 Issue
- -------------------------
The Registrant's statement on the Year 2000 Issue is presented in "Management's
Discussion and Analysis" as reported in Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations.
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.
8
<PAGE>
Employees
- ---------
The Registrant and its subsidiaries, as of December 31, 1999, had approximately
5,000 full-time and 2,300 part-time employees compared to approximately 4,900
full-time and 2,100 part-time employees at December 31, 1998.
The increases are mainly due to acquisitions.
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 (included in Exhibit 13), and is
incorporated herein by reference.
ITEM 2. PROPERTIES
------------------
The Registrant, whose headquarters are located in Milwaukee, Wisconsin, believes
all of its properties are well maintained, are in good condition, and suitable
for its present operations. Principal properties operated by the Registrant and
its subsidiaries as of December 31, 1999, are summarized as follows:
Subsidiary Location How Held Square Footage
- --------------------------------------------------------------------------------
Publishing
- ----------
Journal Sentinel Inc.
Office/Plant Milwaukee, WI Owned 484,500
Garage Milwaukee, WI Owned 67,500
Distribution Centers Milwaukee, WI Owned/Leased 239,597
Inserting Plant Milwaukee, WI Leased 85,200
Add, Inc.
Offices/Plants WI, OH, MA, FL Owned/Leased 183,331
VT, NY, LA
Hometown Publications, Inc.
Office Shelton, CT Leased 8,500
Auto Mart Publishing, Inc.
Offices Dayton, Cincinnati Leased 3,620
and Columbus, OH
Community Newspapers, Inc.
Offices/Plant New Berlin, Owned/Leased 16,450
Milwaukee and
Waukesha, WI
9
<PAGE>
Subsidiary Location How Held Square Footage
- --------------------------------------------------------------------------------
Broadcasting
- ------------
Journal Broadcast Corporation
KTNV-TV Studios Las Vegas, NV Owned 20,300
Journal Broadcast Group, Inc.
Office and Studios Milwaukee, WI Owned 101,500
WSYM-TV Studios Lansing, MI Leased 13,173
Office and Studios Omaha, NE Leased 22,900
Office and Studios Tucson, AZ Owned/Leased 8,883
Office and Studios Boise, ID Owned 5,700
and Ontario, OR
Office and Studios Palm Springs, CA Owned 19,090
Journal Broadcast Group of Tennessee, Inc.
Offices & Studios Knoxville, TN Owned/Leased 8,400
Journal Broadcast Group of Kansas, Inc.
Offices & Studios Wichita, KS Owned/Leased 32,096
and Springfield, MO
Journal Broadcast Group of Oklahoma, Inc.
Offices & Studios Tulsa, OK Leased 11,627
Commercial Printing
- -------------------
NorthStar Print Group, Inc.
Office/Plant Brown Deer, WI Owned 128,360
Office/Plant Norway, MI Owned 108,000
Office/Plant Watertown, WI Owned 61,230
Label Products & Design Inc.
Office/Plant Green Bay, WI Owned 39,620
Add, Inc.
Offices/Plants WI, OH, FL Owned/Leased 111,700
VT, LA
Trumbull Printing, Inc.
Office/Plant Trumbull, CT Owned 86,000
10
<PAGE>
Subsidiary Location How Held Square Footage
- --------------------------------------------------------------------------------
IPC Communication Services, Inc.
Office/Plant/Warehouse St. Joseph, MI Leased 328,500
Office/Plant Foothill Ranch, CA Leased 200,992
Office/Warehouse Austin, TX Leased 10,579
Office/Warehouse Lebanon, TN Leased 11,200
IPC Communication Services, S.A.
Offices/Plant Roncq and Leased 71,591
Grenoble, France
Telecommunications
- ------------------
Norlight Telecommunications, Inc.
Offices/Satellite Antennae Skokie, Buffalo Leased 11,460
Grove, and Oak
Brook, IL
Offices St. Paul and Owned/Leased 5,100
Arden Hills, MN
Offices Brookfield, Green Owned/Leased 47,880
Bay, Madison, Afton,
and Rubicon, WI
Direct Marketing
- ----------------
PrimeNet Marketing Services, Inc.
Office/Plant St. Paul, MN Leased 87,218
Office/Plant Clearwater, FL Leased 32,000
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 its financial position or operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
-----------------------------------------------------------
None.
ITEM 4A. EXECUTIVE OFFICERS OF REGISTRANT
-----------------------------------------
Information with respect of the executive officers of the Registrant, as of
March 13, 2000, is set forth below. The descriptions of the business experience
of these individuals include the principal positions held by them since March
1995. Each officer listed below will 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 6, 2000.
11
<PAGE>
Steven J. Smith (49) (1)
Chairman of the Board of Directors of Journal Communications, Inc. since
December 1998 and Chief Executive Officer since March 1998; President of Journal
Communications, Inc. from September 1992 December 1998; Director of Journal
Communications, Inc. since 1987.
Douglas G. Kiel (51) (1)
President of Journal Communications, Inc. since December 1998; Executive Vice
President of Journal Communications, Inc. between June 1997 and December 1998;
President of Journal Broadcast Group, Inc.* from June 1992 to December 1998;
Director of Journal Communications, Inc. since 1991.
Paul M. Bonaiuto (49) (1)
Executive Vice President of Journal Communications, Inc. since June 1997 and
Chief Financial Officer since January 1996; Senior Vice President between March
1996 and June 1997; Vice President of Journal Communications, Inc. and President
of NorthStar Print Group, Inc.* from June 1994 to January 1996; Director of
Journal Communications, Inc. since June 1993.
Keith K. Spore (57) (1)
Director and Senior Vice President of Journal Communications, Inc. and President
of Journal Sentinel Inc.* since September 1995; Publisher of the Milwaukee
Journal Sentinel since June 1996 and President of Journal Sentinel Inc.* since
July 1995. Previously, he was Editorial Page Editor of the Milwaukee Journal
Sentinel.
Robert M. Dye (52) (1)
Director and Vice President of Journal Communications, Inc. since March 6, 1990.
Stephen O. Huhta (44) (1)
Director and Vice President of Journal Communications, Inc. since June 1993;
President of Add, Inc.* since August 1996; Senior Vice President of Operations
of Add, Inc.* from June 1992 to August 1996.
Ronald G. Kurtis (52) (1)
Director and Vice President of Journal Communications, Inc. since June 1993;
Senior Vice President and Chief Financial Officer of Journal Broadcast Group,
Inc.* since June 1994.
James J. Ditter (38) (1)
Director and Vice President of Journal Communications, Inc. since September
1995; President of Norlight Telecommunications, Inc.* since September 1995; Vice
President-General Manager of Norlight Telecommunications, Inc.* from April 1995
to September 1995; Vice President of Finance of Norlight Telecommunications,
Inc.* from June 1994 to April 1995.
William T. Lutzen (38)
Vice President of Journal Communications, Inc. since June 1994; Vice President,
Financial Management since January 1999; Previously, he had been Corporate
Controller.
12
<PAGE>
Daniel L. Harmsen (44)
Vice President of Human Resources for Journal Communications, Inc. since March
1996; Director of Human Resource Services for Journal Communications, Inc. from
1994 to March 1996.
Mark J. Keefe (40) (1)
Director and Vice President of Journal Communications, Inc. since March 1996;
President of PrimeNet Marketing Services, Inc.* since October 1995; Vice
President for Donnelly Marketing, Inc., St. Louis Park, Minnesota, from January
1994 to September 1995.
Richard J. Gasper (56) (1)
Director and Vice President of Journal Communications, Inc. since June 1996;
President of NorthStar Print Group, Inc.* since January 1996; Vice President and
General Manager of Label Products and Design, a subsidiary of NorthStar Print
Group, Inc.*, from April 1993 to January 1996.
Todd K. Adams (41) (1)
Director and Vice President of Journal Communications, Inc. since June 1996;
Senior Vice President and Chief Financial Officer of Journal Sentinel Inc.*
since June 1993.
Karen O. Trickle (43) (1)
Vice President of Journal Communications, Inc. since March 1999; Treasurer of
Journal Communications, Inc. since December 1996 after joining the Company in
September 1996; Assistant Treasurer (International) for Harnischfeger
Industries, Inc., Brookfield, Wisconsin, from September 1994 to September 1996;
Director of Journal Communications, Inc. since June 1999.
Paul E. Kritzer (57) (1)
Director and Vice President of Journal Communications, Inc. since June 1990;
Secretary of the Company since September 1992.
James P. Prather (42) (1)
Vice President of Journal Communications, Inc. since March 1999; President,
Television of Journal Broadcast Group, Inc.* since December 1998; Executive Vice
President - Television, Journal Broadcast Group, Inc. * from December 1997 to
December 1998; General Manager of WTMJ-TV from 1995 to the present; Director of
Journal Communications, Inc. since June 1999.
Carl D. Gardner (43) (1)
Vice President of Journal Communications, Inc. since March 1999; President,
Radio of Journal Broadcast Group, Inc.* since December 1998; Executive Vice
President - Radio, Journal Broadcast Group, Inc. * from December 1997 to
December 1998; Vice President of Radio Operations/WTMJ-AM, Journal Broadcast
Group, Inc.* from June 1996 to December 1997; Director of Journal Broadcast
Group, Inc.* from September 1991 to June 1996; Director of Journal
Communications, Inc. since June 1999.
13
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Kenneth J. Kozminski (34) (1)
Director and Vice President of Journal Communications, Inc. since December 1999;
President of IPC Communication Services, Inc.* since July 1999; Vice President
and General Manager of Eastern Region-IPC Communication Services, Inc.* from
July 1998 to July 1999; Vice President of Operations of IPC Communication
Services, Inc.* from May 1998 to July 1998; General Manager of IPC Communication
Services Europe, a subsidiary of IPC Communication Services, Inc.* from February
1997 to May 1998; Director of Print Operations of IPC Communication Services,
Inc.* from February 1995 to February 1997.
- -----------------------------------------
* A subsidiary of Journal Communications, Inc.
(1) See Item 12. Security Ownership of Certain Beneficial Owners and Management.
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. As of March 13, 2000, 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. Matex, Inc. owns 2,640,000 shares, or 9.2% of the outstanding stock
and the remaining 240,000 shares, or 0.8% are owned by the heirs of Harry J.
Grant, the second publisher of The Milwaukee Journal and the founder of the
Trust.
The Trust issues Units, each representing a beneficial interest in one share of
the Registrant's stock, to eligible employees ("Unitholders"). On March 13,
2000, 3,832 Unitholders owned 22,399,906 Units (representing 83.4% 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 3,520,094 Units issued by the Trust were, on the above date, held by personal
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. Unitholders may transfer Units to
personal trusts and
14
<PAGE>
to charitable, educational or religious trusts. All Units held by such trusts
are likewise voted by the Trustees. As of March 13, 2000, retirees, personal
trusts and other trusts held 7,351,375 Units, representing a beneficial interest
in 27.4% 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 anticipates it will continue to pay comparable cash dividends in
the future.
The Registrant's unit price and dividend history (adjusted for stock splits) 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
- ---- ----- --- ---------- -------- ------
1999 - 4th Qtr $28.84 $29.94 $1.10 $0.30 22.0%
1999 - 3rd Qtr 27.47 28.84 1.37 0.28
1999 - 2nd Qtr 26.31 27.47 1.16 0.28
1999 - 1st Qtr 25.48 26.31 0.83 0.28
1998 - 4th Qtr 24.46 25.48 1.02 0.275 22.5
1998 - 3rd Qtr 23.24 24.46 1.22 0.275
1998 - 2nd Qtr 22.29 23.24 0.95 0.275
1998 - 1st Qtr 21.69 22.29 0.60 0.275
1997 18.58 21.69 3.11 1.10 22.7
1996 18.12 18.58 0.46 1.10 8.6
1995 17.70 18.12 0.42 1.05 8.3
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
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 is
applied to the Registrant's original Option Price Formula. The multiplier, which
progressively increases in each of the 13 periods of the Registrant's fiscal
year, finished 1999 at 1.3, will finish calendar year 2000 at 1.4 and calendar
year 2001 at 1.5. 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.
15
<PAGE>
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
- -------------
COMPARE 1999 WITH 1998
Consolidated
- ------------
Revenue was $755.9 million in 1999 compared with $732.4 million in 1998, a 3.2%
increase. Earnings before income taxes increased 12% to $115 million in 1999.
1998 earnings before income taxes were $102.7 million.
During 1999, the telecommunications segment continued to grow at a rapid pace.
Revenue for the segment grew 23.9% while pretax earnings increased 34.8%.
Continued focus on outstanding customer service and significant investments in
Norlight's fiber optic network, including expansion into southern Michigan, have
resulted in increased revenue and pretax earnings in 1999.
The printing segment reported pretax earnings of $8.3 million in 1999 compared
to a loss of $8.2 million in 1998. In 1998, the pretax loss to close IPC's
northern California plant was $7.3 million.
In the broadcast segment, revenue from the acquisition of 13 radio stations
contributed to the 13.7% revenue increase. Pretax earnings were down 18.2% with
the loss of the television political advertising revenue from 1998 and the
pretax loss due to higher than expected operating costs at the 1999 radio
acquisitions.
Revenue in the publications segment increased modestly while pretax earnings
decreased 5.5% despite a decrease in the cost of newsprint. The earnings
shortfall was primarily in Florida and in suburban Milwaukee weeklies and
shoppers.
The direct marketing segment experienced a decline in revenue of $1.1 million
and saw a pretax loss of $2.6 million.
Publications
- ------------
The publications segment includes daily and weekly newspapers, shoppers and
specialty publications.
Revenue was $296.1 million in 1999, up 1.5% compared with 1998 revenue of $291.8
million. In 1999, earnings before taxes were $43.8 million, a 5.5% decrease from
1998 earnings of $46.4 million.
Journal Sentinel Inc. is the largest company in the publications segment. Total
revenue and earnings before taxes were virtually flat in 1999 compared with
1998. Revenue increased only 0.2% to $236.2 million from
16
<PAGE>
$235.7 million in 1998. Earnings before taxes were $43 million in both 1999 and
1998. While newsprint costs decreased $7.5 million in 1999 compared with 1998,
other costs increased, including production of the Sunday television section and
payroll and benefits expenses. These increases offset the newsprint savings.
Advertising revenue increased $1.4 million to $182.7 million in 1999 compared
with $181.3 million in 1998. Increases in retail ROP (run-of-press), retail
preprints and shared and solo mail were offset by decreases in classified
advertising, mostly in employment and real estate. Retail ROP grew to $54.3
million compared with $51.9 million in 1998. Revenue in retail preprints grew
$0.9 million to $21.5 million in 1999. Shared and solo mail revenue grew $3.5
million to $9.6 million in 1999. Shared mail is direct mail advertising
delivered to non-Sunday subscribers living in the five-county Milwaukee area.
When combined with newspaper ads, this strategy provides advertisers with a
cost-effective approach to total market coverage. Solo mail is direct mail
advertising delivered according to the customer's distribution list.
Circulation revenue was $48.8 million, a decrease of $1.8 million compared with
1998.
Add Inc. is the other company in the publications segment. Revenue was $59.9
million in 1999, a 7% increase compared with 1998 revenue of $56 million. The
Wisconsin operations recorded revenue increases primarily from the start-up of
the Fox Cities Newspapers. The Fox Cities Newspapers is a cluster of seven
community newspapers and three shoppers in the fast growing Fox River Valley
area in Wisconsin. In addition, the 1999 acquisition of the Ponte Vedra Recorder
in Florida and a full year's impact of the 1998 acquisition of Steals 'n' Deals
in Louisiana contributed to revenue increases in the Florida and Louisiana
regions. These revenue increases were partially offset by revenue declines from
the Ohio operations.
Add Inc.'s publishing group reported pretax earnings of $800,000 in 1999
compared with pretax earnings of $3.4 million in 1998. The pretax loss reported
from the start-up of the Fox Cities Newspapers was the largest contributor to
the overall decrease in pretax earnings. In the fourth quarter of 1999, Add Inc.
closed the Jacksonville Shopping Guide and sold the Gainesville Buyers' Guide,
both in Florida. The publications had pretax losses of $600,000 and $100,000 in
1999, respectively.
Broadcast
- ---------
The broadcast segment has grown substantially through acquisitions in 1999. The
segment includes four television stations and 36 radio stations. In 1999, 13
radio stations were purchased June 14 and one television station was purchased
Aug. 1. Revenue grew $15.7 million to $130.9 million in 1999 compared with
$115.1 million in 1998. However, earnings before taxes decreased $6.2 million to
$27.8 million in 1999 compared with $34 million in 1998.
Revenue from the television stations was $69.4 million, a 4% decrease from 1998.
If the two years are compared without 1998 election year advertising of $5.1
million, revenue from broadcasting the 1998 Olympics on our NBC affiliate and
1999 revenue from the newly acquired television station in Palm Springs, Calif.,
1999 revenue was flat compared with 1998. Pretax earnings of $23.4 million
decreased $5.4 million compared with $28.8 million 1998. The decline in pretax
earnings was primarily due to the absence of political advertising and, in Las
Vegas, a decline in market growth and market share.
Revenue from the radio stations was $61.5 million, a 43.5% increase over 1998
revenue of $42.8 million. In June 1999, Journal Broadcast Group completed the
acquisition of the stock of Great Empire Broadcasting Inc., a group of 13 radio
stations in the Wichita, Kan., Springfield, Mo., Tulsa, Okla., and Omaha, Neb.,
markets.
17
<PAGE>
Excluding revenue from the 13 radio stations acquired in 1999, revenue increased
$3.2 million. Increased market share in Milwaukee, Tucson and Knoxville
contributed to the revenue growth. Pretax earnings decreased $800,000 to $4.4
million in 1999 compared with $5.2 million in 1998. Excluding the results from
the stations acquired in 1999, pretax earnings increased $700,000 from 1998. The
stations in Milwaukee, Omaha, Tucson and Knoxville all reported increases in
pretax earnings. The stations acquired in 1999 reported a pretax loss due to
higher than expected operating costs and the combined amortization of
acquisition costs and intangible assets.
Printing
- --------
IPC Communication Services, NorthStar Print Group Inc. and the print plants of
Add Inc. make up the printing segment. Revenue was $219.9 million in 1999, a
5.9% decrease compared with $233.7 million in 1998. Earnings before taxes were
$8.3 million in 1999 compared with a pretax loss of $8.2 million in 1998.
IPC Communication Services' revenue decreased 11.7% to $110.7 million in 1999
from $125.5 million in 1998. The revenue decrease is attributed to the full year
impact of the closure of the northern California plant during the second half of
1998 and the decision to eliminate a number of low margin customers. In 1999,
IPC reported earnings before taxes of $4.3 million, a $15.6 million turnaround
from 1998's loss of $11.3 million. Included in the 1998 loss was $7.3 million in
plant closure costs.
1999 revenue for NorthStar Print Group Inc. was $57.3 million, a $900,000
increase from 1998 revenue of $56.4 million. Earnings before taxes decreased
$650,000 to $650,000 in 1999 compared to $1.3 million in 1998. The Milwaukee
operation showed an increase in pretax earnings of $600,000 in 1999 compared
with 1998. In 1999, Norway / Watertown reported a pretax loss of almost
$200,000, while Green Bay reported pretax earnings of $273,000, compared with
pretax earnings of $700,000 at each location in 1998.
Revenue increased at the Milwaukee plant due to increased sales of
point-of-purchase materials. At the Norway / Watertown operations, concentrated
sales efforts on new product offerings (StarGuard, AquaStar and StarSaver)
resulted in additional revenue.
Add Inc.'s print plants had revenue of $51.8 million in both 1999 and 1998.
Revenue increases at Hartland, Wis., and Dixie Web in Louisiana were offset by a
decrease in revenue at Trumbull Printing in Connecticut. Although Trumbull was
not able to fully overcome the loss of a large customer, the operation was
successful in implementing the necessary cost containment programs to report an
increase in pretax earnings of $400,000. In total, earnings before taxes
increased to $3.3 million compared with $1.8 million in 1998.
Telecommunications
- ------------------
The telecommunications segment continues its strong revenue and earnings
performance trend that began with the initial SONET ring construction in 1996.
In 1999, Norlight's revenue grew 23.9% to $101.4 million from $81.9 million
1998. Pretax earnings were $32.5 million in 1999 compared with $24.1 million in
1998. Both revenue and pretax earnings growth were results of outstanding
customer service, development of carrier and commercial sales and a heavy
emphasis on quality people and systems support.
Direct Marketing
- ----------------
Revenue for PrimeNet Marketing Services was $11.8 million in 1999, an 8.2%
decrease from $12.9 million in 1998. The pretax loss in 1999 was $2.6 million, a
$2.2 million deterioration from the $400,000 loss reported in 1998.
18
<PAGE>
COMPARE 1998 WITH 1997
Consolidated
- ------------
Revenue was $732.4 million in 1998 compared with $674.5 million in 1997, an 8.6%
increase. Earnings before income taxes increased 7% to $102.7 million in 1998.
1997 earnings before income taxes were $95.9 million.
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 resulted in increased revenue and pretax earnings in 1997 and 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 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 despite an increase in the cost of newsprint.
The direct marketing segment experienced revenue growth and reduced its pretax
loss by approximately $1 million.
Publications
- ------------
Revenue was $291.8 million in 1998, up 2% compared with 1997 revenue of $286.1
million. In 1998, earnings before taxes were $46.4 million, a 10.3% increase
over 1997 earnings of $42.1 million.
Total revenue in 1998 at Journal Sentinel Inc. increased 4.7% to $235.7 million
from $225.1 million in 1997.
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 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.
In 1998, earnings before taxes increased 15.7% over 1997 despite a $2.1 million
increase in the cost of newsprint. This was principally accomplished by the
growth in revenue previously discussed.
19
<PAGE>
Add Inc.'s 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 a $1 million unfavorable revenue comparison
with 1997.
Add Inc. pretax earnings in 1998 were $3.4 million compared with $4.8 million in
1997. While CNI reported pretax earnings of $1.2 million, pretax earnings
declined in the Wisconsin, Florida, Ohio and Louisiana groups.
Broadcast
- ---------
In 1998, the broadcast segment included three television stations and 23 radio
stations. 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 its radio station in Kansas City (KQRC-FM) for two stations in Knoxville
(WWST-FM and WMYU-FM) of $7.8 million. Excluding the one time gain on the
exchange of KQRC, pretax earnings increased 11.8 % over 1997.
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. Without the 1998 acquisitions, revenue would have increased by $4.1
million, or 11.5%, over 1997. 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.
Printing
- --------
Revenue was $233.7 million in 1998, an 8.4% increase compared with $215.6
million in 1997. The pretax loss of $8.2 million in 1998 represented a
significant decline from the pretax loss of $1 million in 1997.
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.
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
20
<PAGE>
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.
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
acquisitions of CNI in late 1998 and Dixie Web, a printing plant in Louisiana,
in mid-1997 and a growing customer base in Hartland, Wisconsin. In 1998, pretax
earnings decreased to $1.8 million from $4.1 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 segment of the business targeting small
business and residential long distance service customers. Norlight recorded a
reserve for this loss of $1.7 million in 1997. The actual loss experienced at
the time of sale was $1.6 million.
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, and
essentially break-even in 1997.
OTHER INCOME AND EXPENSE
Dividend and interest income was $4.3 million in 1999, a decrease from $6.3
million in 1998. The decrease in 1999 was the result of a decrease in short-term
investments due to the significant acquisitions and capital expenditures
completed during the year. Dividend and interest income of $6.2 million in 1997
was essentially unchanged from the amount posted in 1998 because an increase in
short-term investments was offset by a decline in short-term interest rates.
INCOME TAXES
Income taxes were 39.6% of pretax earnings in 1999, 40.9% in 1998 and 41.4% in
1997. Changes in the effective tax rate are a result of implementing strategies
that reduced state income taxes, the impact of foreign net operating losses and
permanent tax differences. Permanent tax differences exist for goodwill
amortization relating to acquisitions before 1993.
21
<PAGE>
NET EARNINGS
Net earnings for 1999 were $69.4 million or $2.54 per share, compared with net
earnings of $60.7 million or $2.16 per share in 1998. In 1997, net earnings for
the year were $56.2 million or $2.05 per share.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations, which is a significant source of the Company's
liquidity, totaled $119.2 million, $109.4 million and $109.2 million in 1999,
1998 and 1997, 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 $69.3 million in 1999, $45.2 million in 1998 and
$39.4 million in 1997. The Company also has continued to be active in acquiring
other businesses. Cash used for acquisitions was $132.6 million, $42.5 million
and $21.1 million in 1999, 1998 and 1997, respectively. Cash provided by the
liquidation of the corporate life insurance investment pool was $21 million in
1998.
Cash used in financing activities totaled $39 million, $25.4 million and $4.5
million in 1999, 1998 and 1997, respectively. Net short-term borrowings provided
$12.1 million of cash in 1999. Dividends paid during 1999 were $31.3 million or
$1.14 per share, compared with $31.1 million ($1.10 per share) in 1998 and $30.2
million ($1.10 per share) in 1997. In 1999, net purchases of treasury stock
totaled $19.6 million. In 1998 and 1997, the net sales of treasury stock totaled
$5.3 million and $26.3 million, respectively.
Net working capital at the end of 1999 decreased to $1 million from $136 million
at the end of 1998. During 1999, cash and cash equivalents represented the
primary source of funds to finance the Company's $132.6 million in acquisitions.
Total indebtedness was provided by a line of credit. The line of credit, current
portion of long-term obligations and long-term obligations combined increased by
$16.5 million in 1999. Commitments for television programs not yet available for
broadcast as of Dec. 31, 1999, were $12.3 million. In addition, the board of
directors approved a plan to spend up to $106.6 million to build a new
production facility for the Milwaukee Journal Sentinel. The project is expected
to be completed in 2002.
On Jan. 21, 2000, the Company renewed its unsecured short-term line of credit in
an aggregate amount not to exceed $45 million. The Company expects to use the
line of credit for initial payments for the new Journal Sentinel press equipment
and facility and other general corporate purposes.
IMPAIRMENT AND INTANGIBLE ASSETS
Goodwill, broadcast licenses and other intangible assets account for 40.6% and
20.5% of total assets in 1999 and 1998, respectively. These assets, resulting
primarily from acquisitions, are recorded at fair market value at the time of
acquisition and amortized on a straight-line basis over the expected benefit
period up to 40 years. The assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable. No such impairment has been identified.
22
<PAGE>
YEAR 2000 UPDATE
In prior years, the Company discussed the nature and progress of its plans to
become Year 2000 ready. In late 1999, the Company completed its remediation and
testing of systems. As a result of those planning and implementation efforts,
the Company experienced no significant disruptions in mission critical
information technology and non-information technology systems and believes those
systems successfully responded to the Year 2000 date change. The Company
estimates that labor and other operating costs associated with the Year 2000
project to date were $2.8 million. The Company is not aware of any material
problems resulting from Year 2000 issues, either with our products, our internal
systems or the products and services of third parties. The Company will continue
to monitor its mission critical computer applications and those of its suppliers
and vendors throughout 2000 to ensure that any latent Year 2000 matters that may
arise are addressed promptly.
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 productivity, cost containment programs
and, where the competitive environment exists, increased selling prices.
However, changes in newsprint prices, could have an impact on costs, which the
Company may not be able to offset fully in its pricing or cost containment
programs.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
-------------------------------------------------------------------
The Company is exposed to changes in interest rates and foreign currency
exchange rates in the normal course of its business. However, a 10% change in
the interest rate is not expected to have a material impact on the Company's
results of operations. In addition, 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 8 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.
23
<PAGE>
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 May 1, 2000. 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 May 1, 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
-------------------------------------------------
OWNERS AND MANAGEMENT
---------------------
The following are beneficial owners of the Registrant:
Shares Held Percent of Ownership
Name as of March 13, 2000(1) *denotes less than 1%
- ---- -------------------- ---------------------
Matex, Inc. (2) 2,640,000 9.2%
Heirs of Harry J. Grant (2) 240,000 *
The following chart states the equity ownership of each Director of the
Registrant:
Units Held Percent of Ownership
Name as of March 13, 2000(1) *denotes less than 1%
- ---- -------------------- --------------------
Todd K. Adams 40,490 *
Paul M. Bonaiuto 53,120 *
James J. Ditter 30,698 *
Robert M. Dye 104,240 *
James L. Forbes (a) --(3)
Carl D. Gardner 45,500 *
Richard J. Gasper 37,564 *
Dawn M. Howley (e) 2,250 *
Stephen O. Huhta 83,210 *
Robert A. Kahlor (b) 179,433 *
Mark J. Keefe 25,130 *
Douglas G. Kiel 83,998 *
Kenneth J. Kozminski 14,390 *
Paul E. Kritzer 93,590 *
Ronald G. Kurtis 130,500 *
David G. Meissner (c) --(2) -- (2)
John E. Mollwitz (e) 37,970 *
24
<PAGE>
Roger D. Peirce (d) --(3)
James P. Prather 17,780 *
David D. Reszel (e) 56,730 *
Eric J. Seebacher (e) 6,300 *
Anton J. Sinkovits (e) 4,460 *
Steven J. Smith 174,060 *
Keith K. Spore 63,500 *
Karen O. Trickle 9,194 *
Donna M. Wells (e) 9,930 *
Lloyd W. Wright (e) 525 *
Robert T. Zynda (e) 4,332 *
(a) James L. Forbes (67)
Director of Journal Communications, Inc. since September 1996; Chairman and CEO
of Badger Meter, Inc., Milwaukee, Wisconsin, since 1987.
(b) Robert A. Kahlor (66)
Director of Journal Communications, Inc. since March 1973; Chairman of the Board
of Journal Communications, Inc. from September 1992 to December 1998; Chief
Executive Officer of Journal Communications, Inc. from September 1992 to March
1998.
(c) David G. Meissner (62)
Director of Journal Communications, Inc. since June 1988; President Matex Inc.;
Executive Director, Public Policy Forum, Milwaukee, Wisconsin.
(c) Roger D. Peirce (61)
Director of Journal Communications, Inc. since September 1996; Vice Chairman and
Chief Executive Officer of Super Steel Products Corporation, Milwaukee,
Wisconsin, from 1986 to 1994.
(e) Unitholder Council Representatives - non-management employees elected to the
Board of Directors to represent all unitholders from all subsidiaries and
divisions of the Registrant.
Dawn M. Howley (38)
Director of Journal Communications, Inc. since June 1999; Accounts
Receivable, Corporate Credit and Collections Manager, IPC Communication
Services, Inc.* since 1992.
John E. Mollwitz (57)
Director of Journal Communications, Inc. since June 1998; Senior Copy
Editor of The Milwaukee Journal Sentinel, Journal Sentinel Inc.* since
November 1995; Senior Online Producer of On Wisconsin, Journal Sentinel
Inc.* from June 1994 to November 1995.
David D. Reszel (48)
Director of Journal Communications, Inc. since June 1999; Sales Manager,
Metro Display Advertising for Journal Sentinel Inc.* since 1994
25
<PAGE>
Eric J. Seebacher (30)
Director of Journal Comm unications, Inc. since June 1999; Circulation
District Sales Manager, Journal Sentinel Inc.* since January 1995.
Anton J. Sinkovits (37)
Director of Journal Communications, Inc. since June 1999; Graphic Artist
for PrimeNet Marketing Services, Inc.*- Clearwater division since 1997;
Prepress Stripper for PrimeNet Marketing Services, Inc.*- Clearwater
division from 1994 to 1997.
Donna M. Wells (43)
Director of Journal Communications, Inc. since June 1999; Sales Promotion
Director of WTMJ-TV, a station operated by Journal Broadcast Group, Inc.*
since 1997; Marketing Services employee for Journal Sentinel, Inc.* for
eighteen years.
Lloyd W. Wright (39)
Director of Journal Communications, Inc. since June 1999; Building Service
Technician, Journal Sentinel Inc.* for over five years.
Robert T. Zynda (28)
Director of Journal Communications, Inc. since June 1998; Billing
Supervisor for Ohio operations of Add, Inc.* since January 2000; Financial
Analyst for Add, Inc.* from 1998 to January 2000; Accounting Supervisor for
Buyers' Guide Group, a division of Add, Inc., from 1996 to 1998.
(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. and
whose wife is an heir of Harry J. Grant, the founder of the Trust. 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.
As of March 13, 2000, the Registrant's directors were beneficial owners of 4.5%
of the number of issued and outstanding shares of Journal Communications, Inc.
stock.
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 May 1, 2000.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
------------------------------------------------
AND REPORTS ON FORM 8-K
-----------------------
26
<PAGE>
(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, 1999 and 1998 8
Consolidated Statements of Earnings
for each of the three years in
the period ended
December 31, 1999 9
Consolidated Statements of Cash Flows
for each of the three years in the
period ended December 31, 1999 10
Consolidated Statements of Retained
Earnings for each of the three years
in the period ended December 31, 1999 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, 1999:
II - Valuation and qualifying accounts 28
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 32 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, 1999.
27
<PAGE>
JOURNAL COMMUNICATIONS, INC.
SCHEDULE II - CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1999, 1998 and 1997
(Dollars in thousands)
Balance at Additions Additions Deductions Balance
beginning charged to from from at end
of year earnings acquisitions allowances (a) of year
-------- -------- ------------ -------------- -------
Allowance for
doubtful
receivables:
1999 $4,345 $3,727 $199 $3,969 $4,302
1998 $3,444 $3,790 ----- $2,889 $4,345
1997 $3,242 $3,814 $ 9 $3,621 $3,444
Note:
(a) Accounts receivable written off, less recoveries, against the allowance.
28
<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 30, 2000
Todd K. Adams, Director
/s/ Paul M. Bonaiuto
- --------------------------------------- March 30, 2000
Paul M. Bonaiuto, Director &
Chief Financial Officer
(Principal Financial Officer)
/s/ James J. Ditter
- --------------------------------------- March 30, 2000
James J. Ditter, Director
/s/ Robert M. Dye
- --------------------------------------- March 30, 2000
Robert M. Dye, Director
- --------------------------------------- March __, 2000
James L. Forbes, Director
/s/ Carl D. Gardner
- --------------------------------------- March 30, 2000
Carl D. Gardner, Director
- --------------------------------------- March __, 2000
Richard J. Gasper, Director
29
<PAGE>
- --------------------------------------- March __, 2000
Dawn M. Howley, Director
- --------------------------------------- March __, 2000
Steven O. Huhta, Director
- --------------------------------------- March __, 2000
Robert A. Kahlor, Director
- --------------------------------------- March __, 2000
Mark J. Keefe, Director
/s/ Douglas G. Kiel
- --------------------------------------- March 30, 2000
Douglas G. Kiel, Director
- --------------------------------------- March __, 2000
Kenneth J. Kozminski, Director
/s/ Paul E. Kritzer
- --------------------------------------- March 30, 2000
Paul E. Kritzer, Director
/s/ Ronald G. Kurtis
- --------------------------------------- March 30, 2000
Ronald G. Kurtis, Director
- --------------------------------------- March __, 2000
David G. Meissner, Director
/s/ John E. Mollwitz
- --------------------------------------- March 30, 2000
John E. Mollwitz, Director
- --------------------------------------- March __, 2000
Roger D. Peirce, Director
30
<PAGE>
/s/ James P. Prather
- --------------------------------------- March 30, 2000
James P. Prather, Director
/s/ David D. Reszel
- --------------------------------------- March 30, 2000
David D. Reszel, Director
/s/ Eric J. Seebacher
- --------------------------------------- March 30, 2000
Eric J. Seebacher, Director
- --------------------------------------- March __, 2000
Anton J. Sinkovits, Director
/s/ Steven J. Smith
- --------------------------------------- March 30, 2000
Steven J. Smith, Director &
Chief Executive Officer
(Principal Executive Officer)
/s/ Keith K. Spore
- --------------------------------------- March 30, 2000
Keith K. Spore, Director
/s/ Karen O. Trickle
- --------------------------------------- March 30, 2000
Karen O. Trickle, Director
/s/ Donna M. Wells
- --------------------------------------- March 30, 2000
Donna M. Wells, Director
/s/ Lloyd W. Wright
- --------------------------------------- March 30, 2000
Lloyd W. Wright, Director
- --------------------------------------- March __, 2000
Robert T. Zynda, Director
31
<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 33-45
(21) Subsidiaries of the Registrant, filed herewith 46
(23) Consent of Independent Auditors, filed herewith 47
(27) Financial Data Schedule, filed herewith 48-49
32
Exhibit 13
(Pages 6 - 16 of the Registrant's Annual Report)
Item 6. Selected Financial Data
<TABLE>
Tens Years in Review
(Dollars in thousands, except per share amounts)
<CAPTION>
1999 1998 1997 1996 1995 1994
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earnings and Dividends
Earnings before income taxes (5) $ 115,014 $ 102,662 $ 95,939 $ 70,691 $ 46,231(4) $ 67,831
Net earnings 69,449 60,708 56,211 41,043 44,213 43,867
Earnings for option price 69,449 65,432 51,464 41,043 43,149 43,867
Dividends 31,286 31,057 30,243 28,563 29,156 26,699
Earnings retained 38,163 29,651 25,968 12,480 15,057 17,168
Per Share (After Two-For-One Stock Split)
Net earnings (weighted # shares) $ 2.54 $ 2.16 $ 2.05 $ 1.57 $ 1.59 $ 1.57
Earnings for option price (weighted) 2.54 2.33 1.88 1.57 1.55 1.57
Dividends 1.14 1.10 1.10 1.10 1.05 0.95
Book value (year end # shares) 17.08 15.98 14.88 13.70 13.43 13.02
Unit option price 29.94 25.48 21.69 18.58 18.12 17.70
Net Sales (5)
Publications $ 296,128 $ 291,756 $ 286,080 $ 264,883 $ 267,148 $ 261,303
Broadcast 130,857 115,113 101,889 95,690 74,623 63,445
Printing 219,864 233,650 215,581 203,477 202,556 151,853
Telecommunications 101,429 81,875 60,751 45,351 39,977 35,974
Direct Marketing 11,844 12,901 12,103 14,890 11,578 7,799
Eliminations (4,191) (2,875) (1,867) (2,057) (4,050) (2,793)
----------------------------------------------------------------------------------------
Total net sales $ 755,931 $ 732,420 $ 674,537 $ 622,234 $ 591,832 $ 517,581
Operating Expenses (5)
Payroll $ 234,005 $ 215,578 $ 192,060 $ 181,123 $ 169,198 $ 158,450
Materials and component services 177,458 189,066 178,527 171,958 172,381 117,320
Depreciation and amortization 46,653 41,614 40,350 37,635 34,413 29,779
Other services 186,025 187,419 183,964 164,501 174,461 145,756
----------------------------------------------------------------------------------------
Total operating expenses $ 644,141(10) $ 633,677(9) $ 594,901(8) $ 555,217(7) $ 550,453(6) $ 451,305(3)
Invested Capital
Property and equipment (5) $ 216,698 $ 178,338 $ 173,312 $ 163,693 $ 160,433 $ 149,687
Net working capital 975 136,017 113,045 89,980 111,116 107,675
Long-term obligations 4,991 1,643 1,808 1,524 2,762 2,947
Stockholders' equity 465,697 447,884 412,739 361,030 366,330 367,429
Total assets 639,070 584,148 550,133 473,564 474,738 461,416
Percent return on stockholders' equity 15.5% 14.7% 15.6% 11.2% 12.0% 12.6%
Percent return on beginning total assets 11.9% 11.0% 11.9% 8.6% 9.6% 10.0%
<PAGE>
<CAPTION>
average annual
1993 1992 1991 1990 compound % increase
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earnings and Dividends
Earnings before income taxes (5) $ 67,498 $ 62,670 $ 55,458 $ 48,992 9.95%
Net earnings 44,204 41,631 40,035 41,113 6.00%
Earnings for option price 44,204 41,631 40,626 49,443 3.85%
Dividends 25,156 25,244 25,358 24,192 2.90%
Earnings retained 19,048 16,387 14,677 16,921 9.46%
Per Share (After Two-For-One Stock Split)
Net earnings (weighted # shares) $ 1.58 $ 1.49 $ 1.42 $ 1.45 6.47%
Earnings for option price (weighted) 1.58 1.49 1.44 1.74 4.33%
Dividends 0.90 0.90 0.90 0.85 3.32%
Book value (year end # shares) 12.38 11.70 11.06 10.77 5.26%
Unit option price 17.32 16.80 16.30 15.74 7.41%
Net Sales (5)
Publications $ 244,529 $ 238,386 $ 232,756 $ 235,853 2.56%
Broadcast 54,851 52,891 52,088 56,456 9.79%
Printing 126,401 68,372 60,161 57,852 15.99%
Telecommunications 32,411 31,256 15,398 12,414 26.29%
Direct Marketing -- -- -- -- 0.57%
Eliminations (3,501) (1,814) (1,631) (1,462) N.A.
-------------------------------------------------------------------
Total net sales $ 454,691 $ 389,091 $ 358,772 $ 361,113 8.55%
Operating Expenses (5)
Payroll $ 137,580 $ 117,815 $ 105,151 $ 102,463 9.61%
Materials and component services 99,170 75,685 77,576 80,318 9.21%
Depreciation and amortization 28,335 25,585 24,301 20,442 9.60%
Other services 123,675 109,721 101,884 103,084 6.78%
-------------------------------------------------------------------
Total operating expenses $ 388,760(2) $ 328,806(1) $ 308,912 $ 306,307 8.61%
Invested Capital
Property and equipment (5) $ 135,716 $ 124,107 $ 121,665 $ 83,154 11.23%
Net working capital 100,780 95,774 93,847 128,859 -41.88%
Long-term obligations 3,609 2,251 1,369 608 N/A
Stockholders' equity 347,447 328,230 311,772 306,793 4.75%
Total assets 437,429 409,863 389,958 401,371 5.30%
Percent return on stockholders' equity 13.5% 13.4% 13.1% 14.3%
Percent return on beginning total assets 10.8% 10.7% 10.0% 11.3%
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 $0.535 per share 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, KGMG) 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.
10) Includes Wichita, Kan., radio stations KFDI-AM, KFDI-FM and KICT-FM; Arkansas City, Kan., radio station KYQQ-FM; Augusta, Kan.,
radio station KLLS-FM; Springfield, Missouri radio stations KTTS-FM and KTTS-AM; Sparta, Missouri, radio station
KLTQ-FM,(renamed KMXH), Tulsa, Okla., radio stations KVOO-FM and KVOO-AM; Henryetta, Okla., radio station KCKI-FM; and Omaha,
Neb., radio stations WOW-FM and WOW-AM (renamed KOMJ-AM) since June 14, 1999; and Palm Springs, Cal., TV station KMIR-TV from
August 1, 1999.
</TABLE>
33
<PAGE>
JOURNAL COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
December 31
(Dollars in thousands, except share and per share amounts)
1999 1998
---- ----
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 10,108 $131,051
Receivables, net 104,434 94,823
Inventories, net 19,875 19,882
Prepaid expenses 8,756 16,211
Deferred income taxes 5,781 6,701
-------- --------
Total Current Assets 148,954 268,668
Property and equipment:
Land and land improvements 17,129 13,792
Buildings 70,529 61,312
Equipment 414,837 352,513
-------- --------
502,495 427,617
Less accumulated depreciation 285,797 249,279
-------- --------
Net property and equipment 216,698 178,338
Goodwill, net 114,429 60,339
Broadcast licenses, net 123,348 45,700
Other intangible assets, net 21,569 13,603
Other assets 14,072 17,500
-------- --------
Total Assets $639,070 $584,148
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Line of credit $ 12,115 $ ---
Accounts payable 52,092 47,850
Accrued compensation 24,258 24,137
Deferred revenue 19,807 16,092
Accrued employee benefits 27,693 25,557
Other current liabilities 9,148 17,217
Current portion of long-term obligations 2,866 1,798
-------- --------
Total Current Liabilities 147,979 132,651
Long-term obligations 4,991 1,643
Deferred income taxes 20,403 1,970
Stockholders' equity:
Common stock, $0.125 par value; authorized
and issued 28,800,000 shares 3,600 3,600
Retained earnings 504,115 463,110
Treasury stock, at cost (42,018) (18,826)
-------- --------
Total Stockholders' equity 465,697 447,884
-------- --------
Total liabilities and stockholders' equity $639,070 $584,148
======== ========
See accompanying notes.
34
<PAGE>
JOURNAL COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
Years ended December 31
(Dollars in thousands, except per share amounts)
1999 1998 1997
---- ---- ----
Revenue $755,931 $732,420 $674,537
Costs and expenses:
Cost of sales 397,938 399,105 376,341
Selling and administrative expenses 246,203 234,572 218,560
------- ------- -------
Total costs and expenses 644,141 633,677 594,901
------- ------- -------
Operating Earnings 111,790 98,743 79,636
Other income:
Net interest and dividends 4,273 6,305 6,246
Net gain (loss) on sale of assets (1,049) (2,386) 10,057
-------- ------ -------
Total other income 3,224 3,919 16,303
-------- ------ -------
Earnings before income taxes 115,014 102,662 95,939
Provision for income taxes 45,565 41,954 39,728
-------- ------- -------
Net earnings $ 69,449 $ 60,708 $ 56,211
======== ======== ========
Basic and diluted earnings per share $ 2.54 $ 2.16 $ 2.05
======== ======== ========
See accompanying notes.
35
<PAGE>
JOURNAL COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Years ended December 31
(Dollars in thousands, except per share amounts)
1999 1998 1997
---- ---- ----
Balance at Beginning of Year $463,110 $430,553 $402,301
Net earnings 69,449 60,708 56,211
Foreign currency translation adjustment (759) 233 (529)
------- ------- -------
Comprehensive Income 68,690 60,941 55,682
------- ------- -------
Cash dividends ($1.14 per share in
1999, $1.10 per share in 1998
and 1997) (31,286) (31,057) (30,243)
Treasury stock transactions 3,601 2,673 2,813
------- -------- -------
Balance at End of Year $504,115 $463,110 $430,553
======== ======== ========
See accompanying notes.
36
<PAGE>
<TABLE>
JOURNAL COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31
(Dollars in thousands)
<CAPTION>
1999 1998 1997
---- ---- ----
Cash flow from operating activities:
<S> <C> <C> <C>
Net earnings $ 69,449 $ 60,708 $ 56,211
Adjustments to reconcile net earnings to
net cash provided by operating activities
Depreciation and amortization 46,653 41,614 40,350
Deferred income taxes 307 248 590
Net (gain) loss from sales of assets 1,049 2,386 (10,507)
Net changes in current assets and current liabilities
Receivables (5,281) 3,719 (5,307)
Inventories (240) 3,930 4,268
Accounts payable 3,956 (5,621) 16,887
Other current assets and liabilities 3,293 2,389 6,259
-------- -------- --------
Net Cash Provided by Operating Activities 119,186 109,373 109,201
-------- -------- --------
Cash flow from investing activities:
Proceeds from sales of assets 895 5,784 3,676
Property and equipment expenditures (69,316) (45,222) (39,401)
Proceeds from liquidation of corporate life insurance
investment pool --- 21,005 ---
Acquisition of businesses (132,571) (42,453) (21,063)
Other (166) (3,005) (2,215)
-------- -------- --------
Net Cash Used for Investing Activities (201,158) (63,891) (59,003)
-------- -------- --------
Cash flow from financing activities:
Net increase in line of credit 12,115 --- ---
Net increase (decrease) in long-term obligations (208) 362 (506)
Net (purchases) sales of treasury stock (19,592) 5,262 26,270
Cash dividends (31,286) (31,057) (30,243)
-------- -------- --------
Net Cash Used for Financing Activities (38,971) (25,433) ( 4,479)
-------- -------- --------
Net Increase (Decrease) in Cash and Cash Equivalents (120,943) 20,049 45,719
Cash and cash equivalents
Beginning of year 131,051 111,002 65,283
-------- -------- --------
End of year $ 10,108 $131,051 $111,002
======== ======== ========
Cash paid for income taxes $ 52,841 $ 39,782 $ 38,930
======== ======== ========
</TABLE>
See accompanying notes.
37
<PAGE>
JOURNAL COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
(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 revenue and expense items are translated at
the weighted average exchange rates for the year. The resulting translation
adjustments are reflected in other comprehensive income which is classified
as a part of retained earnings.
Revenue recognition - The Company recognizes revenue when goods are
delivered and services have been rendered.
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 27,376,645
in 1999, 28,076,274 in 1998 and 27,403,718 in 1997. Because there are no
dilutive securities, basic and diluted earnings per share are the same.
Fair values - The carrying amount of cash and cash equivalents,
receivables, accounts payable and long-term obligations approximates fair
value as of December 31, 1999 and 1998.
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:
1999 1998
---------- ----------
Commercial Paper $ --- $108,160
Bank Certificates of Deposit --- 12,600
Money Market Fund 132 470
---------- ----------
$ 132 $121,230
========== ==========
Receivables - Allowance for doubtful accounts at December 31, 1999 and 1998
was $4,302 and $4,345, 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:
1999 1998
---------- ----------
Paper and Supplies $11,984 $10,910
Work in Process 2,758 2,339
Finished Goods 6,663 8,506
Less obsolescence reserve (1,530) (1,873)
------- ---------
$19,875 $19,882
======= =======
Property and equipment - Property and equipment are recorded at cost.
Depreciation of property and equipment is provided over the estimated
useful lives (3-30 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, 1999, $2,280
of goodwill was not being amortized. Accumulated amortization at December
31, 1999 and 1998, was $12,608 and $8,926, respectively.
Broadcast licenses - Broadcast licenses resulting from acquisitions are
amortized on a straight-line basis over 30 years. Accumulated amortization
as of December 31, 1999 and 1998, was $5,972 and $2,968, respectively.
Other intangible assets - Identifiable intangible assets resulting from
acquisitions are amortized on a straight-line basis for periods up to 40
years. Accumulated amortization relating to other intangible assets at
December 31, 1999 and 1998, was $23,658 and $24,487, respectively. Other
intangible assets 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.
38
<PAGE>
1. Principal accounting policies (continued)
-----------------------------------------
Impairment of long-lived assets - Property and equipment, goodwill,
broadcast licenses and other intangible assets are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount may not be recoverable. If the sum of the expected undiscounted cash
flows is less than the carrying value of the related asset or group of
assets, a loss is recognized for the difference between the fair value and
carrying value of the asset or group of assets. Such analyses necessarily
involve significant judgment.
Use of estimates - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States 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.
Reclassifications - Certain prior year amounts have been reclassified to
conform to the 1999 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 was amended by SFAS No. 137.
Provisions of the statement are required to be adopted for years beginning
after June 15, 2000 and will require the Company to recognize all
derivatives in the balance sheet at fair value. The Company will adopt the
Statement effective January 1, 2001, and estimates that the effect of the
adoption of SFAS No. 137 will not be material to its results of operations,
financial position or cash flows.
2. Employee benefit plans
----------------------
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
---------------- -----------------------
December 31 1999 1998 1999 1998
---- ---- ---- ----
Change in benefit obligations
-----------------------------
<S> <C> <C> <C> <C>
Benefit obligation at beginning of year $103,228 $91,390 $27,639 $29,277
Service cost 3,774 3,066 566 562
Interest cost 6,768 6,560 1,797 2,035
Actuarial (gain) loss (9,482) 8,290 (2,316) (1,358)
Benefits paid (6,505) (6,235) (2,375) (2,877)
Special termination benefits -- 157 -- -
-------- -------- -------- --------
Benefit obligation at end of year $ 97,783 $103,228 $25,311 $27,639
-------- -------- -------- --------
<CAPTION>
Other
Pension Benefits Postretirement Benefits
---------------- -----------------------
Years ended December 31 1999 1998 1999 1998
---- ---- ---- ----
Change in plan assets
---------------------
<S> <C> <C> <C> <C>
Fair value of plan assets at beginning of
year $82,962 $75,560
Actual return on plan assets 6,123 9,813
Company contributions 3,252 3,824
Benefits paid (6,505) (6,235)
-------- --------
Fair value of plan assets at end of year $85,832 $82,962
-------- --------
Funded status of the plan (underfunded) (11,951) (20,266) $(25,311) $(27,639)
Unrecognized net actuarial (gain) loss (695) 8,103 (2,880) (564)
Unrecognized prior service cost 1,781 2,035 -- -
Unrecognized transition obligation (asset) (232) (469) 14,431 15,541
-------- -------- -------- --------
Accrued net benefit cost $(11,097) $(10,597) $(13,760) $(12,662)
======== ======== ======== ========
</TABLE>
39
<PAGE>
2. Employee benefit plans (continued)
----------------------------------
<TABLE>
<CAPTION>
Other
Pension Benefits Postretirement Benefits
---------------- -----------------------
Years ended December 31 1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic benefit cost
Service cost $3,774 $3,066 $2,647 $ 566 $ 562 $ 476
Interest cost 6,768 6,560 6,391 1,797 2,035 2,055
Expected return on plan assets (7,097) (6,538) (6,183) - - -
Amortization of prior service cost 254 254 254 - - -
Amortization of transition obligation (asset) (237) (237) (237) 1,110 1,110 1,110
Recognized net actuarial loss 291 82 - - - -
------- ------ ------- ------- ------ -------
Benefit cost 3,753 3,187 2,872 3,473 3,707 3,641
------- ------ ------- ------- ------ -------
Recognized special termination benefits - 157 1,604 - - -
------- ------ ------- ------- ------ -------
Total cost $3,753 $3,344 $4,476 $3,473 $3,707 $3,641
======= ====== ======= ======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
Other
Pension Benefits Postretirement Benefits
---------------- -----------------------
Major assumptions as of December 31 1999 1998 1999 1998
----------------------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Discount rate 7.50% 6.75% 7.50% 6.75%
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 2000 are 5.50% in 2000,
5.00% in 2001 and thereafter, and for 1999 were 6.0% grading down to 5.0% 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 1999 $ 155 $( 139)
Effect on postretirement benefit obligation
As of 12/31/99 $1,160 $(1,097)
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 $2,273 $2,333
and $2,271 in 1999, 1998 and 1997, 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 $596,
$602 and $673 in 1999, 1998 and 1997, respectively.
40
<PAGE>
3. Income taxes
------------
The components of the provision for income taxes consist of the following:
Years ended December 31 1999 1998 1997
---- ---- ----
Current:
Federal $37,241 $34,814 $31,127
State 8,017 6,892 8,011
-------- ------- --------
45,258 41,706 39,138
Deferred 307 248 590
--------- -------- --------
$45,565 $41,954 $39,728
======= ======= ========
The significant differences between the statutory federal tax rates and the
effective tax rates are as follows:
Years ended December 31 1999 1998 1997
---- ---- ----
Statutory federal income tax rate 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefit 4.1 5.4 5.0
Foreign net operating losses -- -- 0.9
Other 0.5 0.5 0.5
----- ----- -----
Actual provision 39.6% 40.9% 41.4%
===== ===== =====
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities include:
December 31 1999 1998
---- ----
Deferred tax assets:
Accrued compensation and employee benefits $12,448 $11,844
Inventories803 895
Receivables1,249 1,261
Domestic loss carryforwards 8,755 4,489
Foreign loss carryforwards 3,160 3,948
Other 2,312 2,257
------- -------
Total deferred tax assets 28,727 24,694
Deferred tax liabilities:
Property and equipment (11,629) (12,060)
Intangible assets (23,978) ( 2,304)
Other ( 2,156) ( 1,180)
----------- -----------
Total deferred tax liabilities (37,763) (15,544)
Valuation allowances:
Domestic loss carryforwards ( 2,426) ( 2,082)
Foreign loss carryforwards ( 3,160) ( 2,337)
----------- ----------
Total valuation allowances ( 5,586) ( 4,419)
----------- ----------
Net deferred tax asset (liability) $(14,622) $ 4,731
========= ========
These deferred tax assets and liabilities are classified in the balance
sheet as current or long-term based on the balance sheet classification of
the related assets and liabilities as follows:
December 31 1999 1998
---- ----
Current deferred income tax assets $ 5,781 $ 6,701
Long-term deferred income tax liabilities (20,403) ( 1,970)
-------- ---------
Net deferred tax asset (liability) $(14,622) $ 4,731
========= ========
At December 31, 1999, the Company had federal net operating loss
carryforwards which begin to expire in 2009; state net operating loss
carryforwards which begin to expire in 2001; state income tax credit
carryforwards which begin to expire in 2004; and foreign net operating loss
carryforwards which begin to expire in 2005. The Company expects to utilize
these carryforwards, except to the extent reserves have been provided.
41
<PAGE>
4. Debt and lease commitments
--------------------------
Long-term obligations consist of the following:
December 31 1999 1998
---- -----
Capital lease and other obligations,
average interest 8% in 1999 and 1998 $ 6,938 $2,341
Television program contracts, due in the
subsequent year 919 1,100
---------- ------
7,857 3,441
Less current portion 2,866 1,798
------- ------
$ 4,991 $1,643
======== ======
On January 21, 2000, the Company renewed its unsecured short-term line of
credit and increased the aggregate amount from $35 million to $45 million.
The balance outstanding at December 31, 1999 under the line of credit was
$12,115. The Company is required to pay a fee of 0.07% on the line of
credit. The unused portion of the line of credit at December 31, 1999 was
$22,885.
In addition, the Company has the rights to broadcast certain television
programs during the years 2000-2003 under contracts aggregating $12,276.
Rental expense for office facilities and equipment including noncancellable
operating leases was $22,912, $17,806 and $18,926 in 1999, 1998 and 1997,
respectively. Future minimum annual rental payments due under operating
leases total $69,261 and are due as follows: 2000 - $12,818; 2001- $11,350;
2002 - $10,426; 2003 - $9,798; 2004 - $7,793; and thereafter - $17,076.
5. Stockholders' equity
--------------------
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>
Years ended December 31 1999 1998 1997
---- ---- ----
Units Amount Units Amount Units Amount
<S> <C> <C> <C> <C> <C> <C>
Beginning balance 780,328 $18,825 1,061,994 $ 21,414 2,453,634 $ 44,871
Purchases 2,582,664 69,018 3,019,620 68,627 2,440,002 47,496
Sales (1,833,615) (45,825) (3,301,286) (71,215) (3,831,642) (70,953)
---------- -------- ---------- -------- ---------- ---------
Ending balance 1,529,377 $42,018 780,328 $ 18,826 1,061,994 $ 21,414
========== ======= ========= ======== ========= ========
Gain on sales of treasury stock $ 3,601 $ 2,673 $ 2,813
======== ======== ========
</TABLE>
6. Sales and acquisitions
----------------------
On August 1, 1999, the Company acquired the business and substantially all
of the assets of KMIR-TV in Palm Springs, California. The cash purchase
price was approximately $30.6 million.
On June 14, 1999, the Company acquired all the issued and outstanding
capital stock of Great Empire Broadcasting, Inc. (GEB). GEB owns and
operates radio stations KFDI-AM, KFDI-FM and KICT-FM in Wichita, Kansas;
KYQQ-FM in Arkansas City, Kansas; KLLS-FM in Augusta, Kansas; KTTS-FM and
KTTS-AM in Springfield, Missouri; KLTQ-FM in Sparta, Missouri; KVOO-FM and
KVOO-AM in Tulsa, Oklahoma; KCKI-FM in Henryetta, Oklahoma; and WOW-FM and
WOW-AM (renamed KOMJ-AM) in Omaha, Nebraska. The aggregate acquisition
price for the capital stock and related non-compete agreement was
approximately $105.3 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, Oregon. The combined cash purchase price was approximately $15.1
million. Pending approval of the FCC, the Company expects to complete the
sale of KSRV-AM and KSRV-FM in early 2000.
On June 9, 1998, the Company acquired the business and substantially all of
the assets of KLQB-FM (renamed KGMG-FM) in Oracle, Arizona. The cash
purchase price was approximately $5.8 million
42
<PAGE>
6. Sales and acquisitions (continued)
----------------------------------
On April 20, 1998, the Company acquired the stock of WQBB-FM (renamed
WQIX-FM) and WQBB-AM in Knoxville, Tennessee. The combined cash purchase
price was approximately $7.1 million.
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, Nebraska.
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, Wisconsin. 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, Tennessee, in exchange
for the business and substantially all of the assets of KQRC-FM in Kansas
City, Missouri. The Company reported a pretax gain on the sale of KQRC of
approximately $7.8 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
----------------
Journal Communications, Inc. is an employee-owned, diversified
communications company with operations in 24 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 120 paid and free periodicals
are published. The broadcasting business consists of 36 radio and four
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.
The accounting policies of the reportable segments are the same as those
described in the "Principal Accounting Policies" outlined in Note 1.
Intersegment sales have been excluded from segment revenues and are
immaterial.
<TABLE>
<CAPTION>
Revenue Earnings(Loss)
------- --------------
Years ended December 31 1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Publications $296,128 $291,756 $286,080 $43,834 $46,393 $42,068
Broadcast 130,857 115,113 101,889 27,817 34,015 38,174
Printing 219,864 233,650 215,581 8,294 (8,158) (971)
Telecommunications 101,429 81,875 60,751 32,474 24,092 12,320
Direct marketing 11,844 12,901 12,103 (2,596) (365) (1,315)
Corporate and eliminations (4,191) (2,875) (1,867) 918 381 (583)
------- ------- -------
$755,931 $732,420 $674,537
======== ======== ========
Net interest and dividends 4,273 6,304 6,246
-------- -------- -------
Earnings before income taxes $115,014 $102,662 $95,939
======== ======== =======
</TABLE>
43
<PAGE>
8. Segment analysis (continued)
----------------------------
<TABLE>
<CAPTION>
December 31 Years ended December 31
----------- -----------------------
Identifiable total assets Depreciation & amortization Capital expenditures
------------------------- --------------------------- --------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Publications $123,102 $120,949 $103,475 $11,916 $ 10,479 $ 9,027 $15,793 $ 14,698 $ 12,590
Broadcast 277,834 127,598 90,727 10,564 6,825 6,974 5,868 3,988 4,739
Printing 104,117 108,900 116,441 12,414 13,954 12,946 9,625 14,749 8,103
Telecom-
munications 91,861 61,849 66,420 9,656 9,022 8,829 37,010 10,159 12,928
Direct
marketing 14,426 15,292 14,616 1,518 1,389 1,788 659 1,299 764
Corporate and
eliminations 27,730 149,560 158,454 585 (55) 786 361 329 277
-------- -------- -------- -------- -------- --------- ------- ------- -------
$639,070 $584,148 $550,133 $46,653 $ 41,614 $ 40,350 $69,316 $ 45,222 $ 39,401
======== ======== ======== ======= ======== ======== ======== ======== ========
</TABLE>
44
<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, 1999 and 1998, and the related
consolidated statements of earnings, retained earnings, and cash flows for each
of the three years in the period ended December 31, 1999. 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 auditing standards generally
accepted in the United States. 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, 1999 and 1998, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States.
Milwaukee, Wisconsin
January 28, 2000
45
Exhibit No. 21
JOURNAL COMMUNICATIONS, INC.
Subsidiaries of the Registrant
The following list shows the subsidiaries of the Registrant as of March 13,
2000, 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
IPC Communication Services, Inc. Michigan 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.
Journal Broadcast Group of Kansas, Inc. Kansas 100% by Journal Broadcast Corp.
Journal Broadcast Group of Oklahoma, Inc. Oklahoma 100% by Journal Broadcast
Group of Kansas, Inc.
IPC Communication Services, S. A. France 99% by IPC Communication Services*
Label Products & Design, Inc. Wisconsin 100% by NorthStar Print Group
Mega Direct Holdings, Inc. Nevada 100% by ADD, Inc.
IPC Holdings, LLC Wisconsin 100% by IPC Communication Services
</TABLE>
- -----------------------------
* 1 % by other subsidiaries of the Registrant
Nordoc Europe B.V., a former operation in Amsterdam, Netherlands and a
subsidiary of IPC Communication Services, Inc. was liquidated on October 31,
1999. On January 1, 2000, a merger took place to combine Add, Inc., Trumbull
Printing, Inc., a former wholly-owned subsidiary of the Registrant, Automart
Publications, Inc., Community Newspapers, Inc., and Hometown Publications, Inc.,
with Add, Inc. remaining the surviving corporation. Automart Publications, Inc.,
Community Newspapers, Inc., and Hometown Publications, Inc. were wholly-owned
subsidiaries of Add, Inc.
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 13, 2000, 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 28, 2000,
included in the 1999 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 28, 2000, with respect to
the consolidated financial statements incorporated herein by reference, and our
report included in the preceding paragraph with respect to the financial
statement schedule included in this Annual Report (Form 10-K) of Journal
Communications, Inc.
ERNST & YOUNG LLP
Milwaukee, Wisconsin
March 29, 2000
<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, 1999 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 10
<SECURITIES> 0
<RECEIVABLES> 104,434
<ALLOWANCES> 0
<INVENTORY> 19,875
<CURRENT-ASSETS> 148,954
<PP&E> 502,495
<DEPRECIATION> 285,797
<TOTAL-ASSETS> 639,070
<CURRENT-LIABILITIES> 147,979
<BONDS> 4,991
0
0
<COMMON> 3,600
<OTHER-SE> 462,097
<TOTAL-LIABILITY-AND-EQUITY> 639,070
<SALES> 755,931
<TOTAL-REVENUES> 755,931
<CGS> 397,938
<TOTAL-COSTS> 397,938
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 473
<INCOME-PRETAX> 115,014
<INCOME-TAX> 45,565
<INCOME-CONTINUING> 69,449
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 69,449
<EPS-BASIC> 2.54
<EPS-DILUTED> 2.54
</TABLE>
