Journal Communications (JRN) 10-Q 2006 Q1 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

[X]    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: March 26, 2006

or

[   ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________ to _____________
Commission File Number: 1-31805

JOURNAL COMMUNICATIONS, INC.

(Exact name of registrant as specified in its charter)

WISCONSIN	20-0020198
(State or other jurisdiction of incorporation	(I.R.S. Employer Identification No.)
or organization)
333 W. State Street, Milwaukee, Wisconsin	53203
(Address of principal executive offices)	(Zip Code)

414-224-2616

Registrant’s telephone number, including area code

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 whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer [   ] Accelerated Filer [X] Non-accelerated Filer [   ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [   ] No [X]

Number of shares outstanding of each of the issuer’s classes of common stock as of April 21, 2006 (excluding 8,676,705 shares of class B common stock held by our subsidiary, The Journal Company):

Class	Outstanding at April 21, 2006
Class A Common Stock	45,123,429
Class B Common Stock	23,109,542
Class C Common Stock	3,264,000

JOURNAL COMMUNICATIONS, INC.

INDEX

			Page No.
Part I.	Financial Information
	Item 1.	Financial Statements
		Consolidated Condensed Balance Sheets as of
		March 26, 2006 (Unaudited) and December 25, 2005	2
		Unaudited Consolidated Condensed Statements of Earnings
		for the First Quarter Ended March 26, 2006 and March 27, 2005	3
		Unaudited Consolidated Condensed Statement of
		Shareholders’ Equity for the First Quarter Ended March 26, 2006	4
		Unaudited Consolidated Condensed Statements of
		Cash Flows for the First Quarter Ended March 26, 2006
		and March 27, 2005	5
		Notes to Unaudited Consolidated Condensed
		Financial Statements as of March 26, 2006	6
	Item 2.	Management’s Discussion and Analysis of Financial Condition
		and Results of Operations	14
	Item 3.	Quantitative and Qualitative Disclosure of Market Risk	22
	Item 4.	Controls and Procedures	22
Part II.	Other Information
	Item 1.	Legal Proceedings	22
	Item 1A.	Risk Factors	23
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23
	Item 3.	Defaults Upon Senior Securities	24
	Item 4.	Submission of Matters to a Vote of Security Holders	24
	Item 5.	Other Information	24
	Item 6.	Exhibits	24

1

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

JOURNAL COMMUNICATIONS, INC.
Consolidated Condensed Balance Sheets
(in thousands, except share and per share amounts)

	March 26, 2006			December 25, 2005
ASSETS	(unaudited)
Current assets:
Cash and cash equivalents	$	5,736		$	6,864
Receivables, less allowance for doubtful accounts
of $4,500 and $4,581		92,293			90,146
Inventories, net		8,982			9,647
Prepaid expenses		12,609			14,279
Deferred income taxes		9,977			9,968
TOTAL CURRENT ASSETS		129,597			130,904
Property and equipment, at cost, less accumulated depreciation
of $357,201 and $345,838		313,004			316,911
Goodwill		247,078			276,339
Broadcast licenses		199,670			174,835
Other intangible assets, net		29,937			41,663
Prepaid pension costs		17,492			18,603
Other assets		41,532			25,104
Non-current assets of discontinued operations		299			307
TOTAL ASSETS	$	978,609		$	984,666
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	33,625		$	40,671
Accrued compensation		19,958			18,532
Accrued employee benefits		10,516			9,722
Deferred revenue		19,745			18,971
Other current liabilities		18,140			15,516
Current liabilities of discontinued operations		57			205
Current portion of long-term liabilities		5,110			5,053
TOTAL CURRENT LIABILITIES		107,151			108,670
Accrued employee benefits		20,787			20,280
Long-term notes payable to banks		269,760			274,545
Deferred income taxes		66,746			65,630
Other long-term liabilities		32,906			31,473
Shareholders’ equity:
Preferred stock, $0.01 par - authorized 10,000,000 shares; no shares
outstanding at March 26, 2006 and at December 25, 2005		--			--
Common stock, $0.01 par:
Class C - authorized 10,000,000 shares; issued and outstanding:
3,264,000 shares at March 26, 2006 and December 25, 2005		33			33
Class B - authorized 120,000,000 shares; issued and outstanding:
23,571,923 shares at March 26, 2006 and 26,762,782
shares at December 25, 2005		322			354
Class A - authorized 170,000,000 shares; issued and outstanding:
44,585,918 shares at March 26, 2006 and 42,188,974
shares at December 25, 2005		446			422
Additional paid-in capital		346,941			353,567
Unearned compensation		--			(679	)
Retained earnings		242,232			239,086
Treasury stock, at cost		(108,715	)		(108,715	)
TOTAL SHAREHOLDERS’ EQUITY		481,259			484,068
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	978,609		$	984,666

Note: The balance sheet at December 25, 2005 has been derived from the audited financial statements at that date, but does not include all the information and footnotes required by generally accepted accounting principles in the United States for complete financial statements.

See accompanying notes to unaudited consolidated condensed financial statements.

2

JOURNAL COMMUNICATIONS, INC.
Unaudited Consolidated Condensed Statements of Earnings
(in thousands, except per share amounts)

	First Quarter Ended
	March 26, 2006			March 27, 2005
Continuing Operations:
Revenue:
Publishing	$	79,468		$	80,694
Broadcasting		51,638			37,206
Telecommunications		32,831			37,455
Printing services		16,310			18,306
Other		8,813			10,547
Total revenue		189,060			184,208
Operating costs and expenses:
Publishing		43,031			43,284
Broadcasting		21,819			17,341
Telecommunications		22,137			22,875
Printing services		13,788			15,778
Other		7,365			8,993
Total operating costs and expenses		108,140			108,271
Selling and administrative expenses		56,899			54,640
Total operating costs and expenses and selling
and administrative expenses		165,039			162,911
Operating earnings		24,021			21,297
Other income and expense:
Interest income and dividends		17			96
Interest expense		(3,651	)		(586	)
Total other income and expense		(3,634	)		(490	)
Earnings from continuing operations before income taxes		20,387			20,807
Provision for income taxes		8,114			8,242
Earnings from continuing operations		12,273			12,565
Gain from discontinued operations, net of applicable income tax
expense of $0 and $3,073, respectively		--			4,846
Net earnings	$	12,273		$	17,411
Earnings available to class A and B common shareholders	$	11,809		$	16,947
Earnings per share:
Basic:
Continuing operations	$	0.17		$	0.17
Discontinued operations		--			0.07
Net earnings	$	0.17		$	0.24
Diluted:
Continuing operations	$	0.17		$	0.17
Discontinued operations		--			0.06
Net earnings	$	0.17		$	0.23

See accompanying notes to unaudited consolidated condensed financial statements.

3

Journal Communications, Inc.
Unaudited Consolidated Condensed Statement of Shareholders’ Equity
For the Quarter Ended March 26, 2006
(dollars in thousands, except per-share amounts)

	Preferred		Common Stock								Additional			Unearned			Retained			Treasury Stock,						Comprehensive
	Stock		Class C		Class B			Class A			Paid-in-Capital			Compensation			Earnings			at cost			Total			Income
Balance at December 25, 2005	$	--	$	33	$	354		$	422		$	353,567		$	(679	)	$	239,086		$	(108,715	)	$	484,068
Net earnings and other comprehensive income																		12,273						12,273		$	12,273
Dividends declared:
Class C ($0.142 per share)																		(464	)					(464	)
Class B ($0.065 per share)																		(2,825	)					(2,825	)
Class A ($0.065 per share)																		(1,601	)					(1,601	)
Issuance of shares:
Conversion of class B to class A						(32	)		32															--
Stock grants												26												26
Employee stock purchase plan												567												567
Shares purchased and retired									(8	)		(6,672	)					(4,237	)					(10,917	)
Implementation of SFAS 123 (R)												(689	)		679									(10	)
Amortization of unearned compensation												142												142
Balance at March 26, 2006	$	--	$	33	$	322		$	446		$	346,941		$	--		$	242,232		$	(108,715	)	$	481,259

See accompanying notes to unaudited consolidated condensed financial statements.

4

JOURNAL COMMUNICATIONS, INC.
Unaudited Consolidated Condensed Statements of Cash Flows
(in thousands)

	First Quarter Ended
	March 26, 2006			March 27, 2005
Cash flow from operating activities:
Net earnings	$	12,273		$	17,411
Less gain from discontinued operations		--			4,846
Earnings from continuing operations		12,273			12,565
Adjustments for non-cash items:
Depreciation		11,089			11,105
Amortization		578			334
Provision for doubtful accounts		(182	)		85
Deferred income taxes		1,107			106
Net gain from disposal of assets		--			(44	)
Net operating activities of discontinued operations		(148	)		(2,338	)
Net changes in operating assets and liabilities:
Receivables		(1,862	)		6,868
Inventories		665			373
Accounts payable		(7,237	)		(4,145	)
Other assets and liabilities		9,387			4,890
NET CASH PROVIDED BY OPERATING ACTIVITIES		25,670			29,799
Cash flow from investing activities:
Capital expenditures for property and equipment		(6,773	)		(6,499	)
Proceeds from sales of assets		--			133
Net investing activities of discontinued operations		--			24,656
NET CASH (USED FOR) PROVIDED BY
INVESTING ACTIVITIES		(6,773	)		18,290
Cash flow from financing activities:
Proceeds from long-term notes payable to banks		48,837			37,065
Payments on long-term notes payable to banks		(53,622	)		(78,485	)
Proceeds from issuance of common stock		567			595
Purchase and retirement of common stock		(10,917	)		(1,907	)
Cash dividends		(4,890	)		(5,160	)
NET CASH USED FOR FINANCING ACTIVTIES		(20,025	)		(47,892	)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(1,128	)		197
Cash and cash equivalents:
Beginning of year		6,864			6,374
At March 26, 2006 and March 27, 2005	$	5,736		$	6,571

See accompanying notes to unaudited consolidated condensed financial statements.

5

JOURNAL COMMUNICATIONS, INC.
Notes to Unaudited Consolidated Condensed Financial Statements
(in thousands, except per share amounts)

1 BASIS OF PRESENTATION

The accompanying unaudited consolidated condensed financial statements have been prepared by Journal Communications, Inc. and its wholly owned subsidiaries in accordance with U.S. generally accepted accounting principles for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and reflect normal and recurring adjustments, which we believe to be necessary for a fair presentation. As permitted by these regulations, these statements do not include all of the information and footnotes required by U.S. generally accounting principles for annual financial statements. However, we believe that the disclosures are adequate to make the information presented not misleading. The operating results for the first quarter ended March 26, 2006 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2006. You should read these unaudited consolidated condensed financial statements in conjunction with the consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 25, 2005.

2 ACCOUNTING PERIODS

Our fiscal year is a 52-53 week year ending on the last Sunday of December in each year. In addition, we have four quarterly reporting periods, each consisting of 13 weeks and ending on a Sunday, provided that once every six years, the fourth quarterly reporting period will be 14 weeks. The 2006 fiscal year ends on December 31st and is a 53 week year with a 14 week fourth quarter.

3 EARNINGS PER SHARE

Basic earnings per share is computed by dividing net earnings available to class A and B common shareholders by the weighted average number of class A and B shares outstanding during the period and excludes non-vested restricted stock. Diluted earnings per share is computed based upon the assumption that the class C shares outstanding were converted into class A and B shares, common shares are issued upon exercise of certain of our non-statutory stock options, and common shares will be outstanding upon expiration of the vesting periods for our non-vested restricted stock.

Basic and diluted earnings per share are computed as follows:

	First Quarter Ended
	March 26, 2006			March 27, 2005
Basic earnings:
Earnings from continuing operations	$	12,273		$	12,565
Discontinued operations		--			4,846
Net earnings		12,273			17,411
Less dividends on class C common stock		(464	)		(464	)
Earnings available to class A and B common shareholders	$	11,809		$	16,947
Weighted average class A and B shares outstanding		68,364			72,242
Basic earnings per share:
Continuing operations	$	0.17		$	0.17
Discontinued operations		--			0.07
Net earnings	$	0.17		$	0.24
Diluted earnings:
Earnings available to class A and B common shareholders	$	11,809		$	16,947
Plus dividends on class C common stock		464			464
Net earnings	$	12,273		$	17,411
Weighted average shares outstanding		68,364			72,242
Impact of restricted stock		43			6
Conversion of class C shares		4,452			4,452
Adjusted weighted average shares outstanding		72,859			76,700
Diluted earnings per share:
Continuing operations	$	0.17		$	0.17
Discontinued operations		--			0.06
Net earnings	$	0.17		$	0.23

6

JOURNAL COMMUNICATIONS, INC.
Notes to Unaudited Consolidated Condensed Financial Statements
(in thousands, except per share amounts)

3 EARNINGS PER SHARE (continued)

Each of the 3,264,000 class C shares outstanding is convertible at any time at the option of the holder into either (i) 1.363970 class A shares (or a total of 4,451,998 class A shares) or (ii) 0.248243 class A shares (or a total of 810,265 class A shares) and 1.115727 class B shares (or a total of 3,641,733 class B shares).

4 STOCK-BASED COMPENSATION

Effective December 26, 2005, we adopted Statement of Financial Accounting Standards Statement No. 123(R), “Share-Based Payment” (SFAS No. 123(R)), using the modified prospective application transition method. Under the modified prospective application transition method, the fair value and recognition provisions of SFAS No. 123(R) are applied to stock-based awards granted or modified subsequent to the date of adoption and prior periods are not restated. Before we adopted SFAS No. 123(R), we accounted for stock-based compensation by using the intrinsic value-based method in accordance with Accounting Principles Board Opinion (APB) No. 25, “Accounting for Stock Issued to Employees.” Other than for restricted stock, no stock-based employee compensation cost has been reflected in net earnings prior to December 26, 2005.

During the first quarter of 2006, we recognized $237 in stock-based compensation expense. Total income tax benefit recognized related to stock-based compensation for the first quarter of 2006 was approximately $94. We recognize compensation expense on a straight-line basis over the service period. As of March 26, 2006, total unrecognized compensation cost related to stock-based compensation awards was approximately $1,464, net of estimated forfeitures, which we expect to recognize over a weighted average period of approximately 2.3 years. Stock-based compensation expense is included in selling and administrative expenses in our consolidated condensed statement of earnings. There was no impact on basic or diluted earnings per share from adopting SFAS No. 123(R).

Our 2003 Equity Incentive Plan rewards outside directors and key employees for achieving designated corporate and individual performance goals. Awards may be granted in any one or a combination of stock grants, non-statutory stock options, incentive stock options, performance unit grants and stock unit grants. Subject to certain adjustments, 6,000,000 shares of our class B common stock are authorized to be issued under the plan. Not more than 3,000,000 shares of our class B common stock may be issued under the plan in the form of stock grants, performance unit grants or stock unit grants.

Non-statutory stock options

The compensation committee of our board of directors may grant non-statutory stock options to employees and directors at a purchase price equal to at least the fair market value of our class B common stock on the grant date for an exercise term determined by the committee, but not more than ten years from the grant date. As of March 26, 2006, there are 5,753,075 shares available for issuance under the Plan.

Fair value was calculated using the Black-Scholes option pricing model, with the following weighted-average assumptions for options granted in 2004 and 2003. There were no options granted in 2005 or in the first quarter of 2006.

	2004			2003
Dividend yield		1.43	%		1.45	%
Expected volatility		28.95	%		33.00	%
Risk-free rate of return		3.90	%		3.81	%
Expected life of options (in years)		7			7
Weighted average fair value of options granted		$5.94			$6.54

A summary of stock option activity during the first quarter of 2006 is:

	Shares (000's)		Weighted Average Exercise Price		Weighted Average Contractual Term (years)
Outstanding at December 25, 2005 and March 26, 2006		66		18.24		4.9
Exercisable at March 26, 2006		50		17.82		4.9

The aggregate intrinsic value of stock options outstanding and exercisable at the end of the first quarter is zero because the fair market value of our class B common stock on March 26, 2006 was lower than the weighted average exercise price of the options.

7

JOURNAL COMMUNICATIONS, INC.
Notes to Unaudited Consolidated Condensed Financial Statements
(in thousands, except per share amounts)

4 STOCK-BASED COMPENSATION (continued)

Stock grants

Each stock grant may be accompanied by restrictions, or may be made without any restrictions, as the compensation committee of the board of directors determines. Such restrictions may include requirements that the participant remain in our continuous employment for a specified period of time, or that we or the participant meet designated performance goals. As of March 26, 2006, there are 2,818,825 shares available for issuance in the form of stock grants under the plan.

A summary of stock grant activity during the first quarter of 2006 is:

	Shares (000's)			Weighted Average Fair Value
Outstanding at December 26, 2005		63		$	16.46
Granted		80			12.68
Exercised		(2	)		12.52
Forfeited		(2	)		14.36
Outstanding at March 26, 2006		139			14.37

Prior year pro forma expense

The following table illustrates the effect on net income and earnings per share as if the fair value-based method provided by SFAS No. 123, “Accounting for Stock-Based Compensation”, had been applied for all outstanding and unvested awards for periods prior to the adoption of SFAS 123(R):

	First Quarter Ended March 27, 2005
Net earnings as reported	$	17,411
Add compensation cost of restricted stock, net of related tax
effects, included in the determination of net earnings
as reported		37
Deduct stock based compensation determined under fair value-
based method, net of related tax effects:
Stock options		(38	)
Employee stock purchase plan		(40	)
Restricted stock		(37	)
Pro forma net earnings including the effect of stock compensation expense	$	17,333
Net earnings per share of common stock:
Basic earnings per share:
As reported	$	0.24
Pro forma including the effect of stock compensation expense	$	0.23
Diluted earnings per share:
As reported	$	0.23
Pro forma including the effect of stock compensation expense	$	0.23

5 INVENTORIES

Inventories are stated at the lower of cost (first in, first out method) or market. Inventories at March 26, 2006 and December 25, 2005 consisted of the following:

	March 26, 2006			December 25, 2005
Paper and supplies	$	7,287		$	7,673
Work in process		992			1,053
Finished goods		930			1,272
Less obsolescence reserve		(227	)		(351	)
Inventories, net	$	8,982		$	9,647

8

JOURNAL COMMUNICATIONS, INC.
Notes to Unaudited Consolidated Condensed Financial Statements
(in thousands, except per share amounts)

6 NOTES PAYABLE TO BANKS

We have a $475 million unsecured revolving credit facility that expires on June 2, 2011. The interest rate on borrowings is either LIBOR plus a margin that ranges from 37.5 basis points to 87.5 basis points, depending on our leverage, or the base rate, which equals the higher of the prime rate set by U.S. Bank, N.A. or the Federal Funds Rate plus 100 basis points. As of March 26, 2006, we had borrowings of $269,760 under the facility at a weighted average rate of 5.34%. Fees in connection with the facility of $1,717 are being amortized over the term of the facility using the straight-line method which approximates the effective-interest method.

7 EMPLOYEE BENEFIT PLANS

The components of our net periodic benefit costs for our defined benefit and non-qualified pension plans and our postretirement health benefit plan are as follows:

	Pension Benefits
	March 26, 2006			March 27, 2005
Service cost	$	1,274		$	1,361
Interest cost		2,150			2,087
Expected return on plan assets		(2,552	)		(2,544	)
Amortization of:
Unrecognized prior service cost		(119	)		(119	)
Unrecognized net loss		574			723
Net periodic benefit cost included in total operating costs and
expenses and selling and administrative expenses	$	1,327		$	1,508
	Other Postretirement Benefits
	March 26, 2006			March 27, 2005
Service cost	$	161		$	120
Interest cost		444			502
Amortization of:
Unrecognized prior service cost		(27	)		58
Unrecognized net transition obligation		137			137
Unrecognized net loss		193			164
Net periodic benefit cost included in total operating costs and expenses and
selling and administrative expenses	$	908		$	981

8 GOODWILL AND OTHER INTANGIBLE ASSETS

Definite-lived Intangible Assets

Our definite-lived intangible assets consist primarily of network affiliation agreements, customer lists and non-compete agreements. We amortize the network affiliation agreements over a period of 25 years, the customer lists over a period of five to 40 years and the non-compete agreements over the terms of the contracts.

Amortization expense was $578 for the first quarter ended March 26, 2006 and $334 for the first quarter ended March 27, 2005. Estimated amortization expense for our next five fiscal years is $2,347 for 2006, $2,317 for 2007, $2,257 for 2008, $1,978 for 2009 and $1,607 for 2010.

9

JOURNAL COMMUNICATIONS, INC.
Notes to Unaudited Consolidated Condensed Financial Statements
(in thousands, except per share amounts)

8 GOODWILL AND OTHER INTANGIBLE ASSETS (continued)

The gross carrying amount, accumulated amortization and net carrying amount of the major classes of definite-lived intangible assets as of March 26, 2006 and December 25, 2005 are as follows:

	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
As of March 26, 2006
Network affiliation agreements	$	26,930	$	(1,973	)	$	24,957
Customer lists		21,448		(17,132	)		4,316
Non-compete agreements		22,579		(22,559	)		20
Other		3,451		(2,807	)		644
Total	$	74,408	$	(44,471	)	$	29,937
As of December 25, 2005
Network affiliation agreements	$	40,506	$	(1,738	)	$	38,768
Customer lists		19,698		(16,830	)		2,868
Non-compete agreements		22,579		(22,552	)		27
Other		2,773		(2,773	)		--
Total	$	85,556	$	(43,893	)	$	41,663

Indefinite-lived Intangibles

Broadcast licenses are deemed to have indefinite useful lives because we have renewed these agreements without issue in the past and we intend to renew them indefinitely in the future. Accordingly, we expect the cash flows from our broadcast licenses to continue indefinitely.

Goodwill

The change in the carrying amount of goodwill for the first quarter ended March 26, 2006 is as follows:

Reporting unit	Goodwill at December 25, 2005		Adjustment			Goodwill at March 26, 2006
Daily newspaper	$	2,084	$	--		$	2,084
Community newspapers & shoppers		26,095		--			26,095
Broadcasting		247,562		(29,261	)		218,301
Telecommunications		188		--			188
Direct marketing services		410		--			410
Total	$	276,339	$	(29,261	)	$	247,078

The change to the carrying amount of network affiliation agreements, customer lists, other intangibles, broadcast licenses and goodwill in the first quarter ended March 26, 2006 represents the revised purchase price allocation for our purchase of FOX-affiliate WFTX-TV, in Fort Myers/Naples, Florida, ABC-affiliate, KGUN-TV, in Tucson, Arizona and certain assets of CBS-affiliate KMTV-TV, in Omaha, Nebraska, from subsidiaries of Emmis Communications Corporation on December 5, 2005.

9 ACQUISITIONS

All acquisitions are accounted for using the purchase method. Accordingly, the results of operations and cashflows since the respective date of acquisition are included in the consolidated condensed financial statements.

On December 5, 2005, we acquired the business and assets of FOX-affiliate WFTX-TV, in Fort Myers/Naples, Florida and ABC-affiliate, KGUN-TV, in Tucson, Arizona from subsidiaries of Emmis Communications Corporation. We also acquired certain assets of CBS-affiliate KMTV-TV, in Omaha, Nebraska, and have begun programming KMTV under a local marketing agreement. The total purchase price for the three stations is $235,000, subject to certain adjustments. We paid $228,779, including $3,848 for expenses associated with the transaction, in 2005. The remaining $10,000 will be paid upon the earlier of the transfer to us of the broadcast license associated with KMTV-TV, or a $5,000 payment no later than October 15, 2007 and another $5,000 payment no later than October 15, 2008. The acquisition allows us to operate television stations in two growth markets where we already own radio stations and to leverage our market resources to be more effective in serving the communities and advertisers of Tucson and Omaha. The acquisition also adds a new mid-size growth market (Fort Myers/Naples) to our broadcast operations. These are among the factors that contributed to the recognized goodwill.

10

JOURNAL COMMUNICATIONS, INC.
Notes to Unaudited Consolidated Condensed Financial Statements
(in thousands, except per share amounts)

9 ACQUISITIONS (continued)

The unaudited pro forma consolidated condensed statement of earnings information for the first quarter of 2005, set forth below, presents the results of operations as if the acquisition of the three television stations had occurred at the beginning of 2005 and is not necessarily indicative of future results or actual results that would have been achieved had the acquisition occurred as of the beginning of such year.

	2005
Revenue	$	194,952
Earnings from continuing operations		12,410
Earnings per common share from continuing operations
Basic	$	0.17
Diluted		0.16

The revised purchase price allocation for this acquisition is as follows:

	Preliminary Purchase Price			Adjustments			Revised Purchase Price
Accounts receivable	$	69		$	104		$	173
Prepaid expenses		3,069			(186	)		2,883
Property and equipment		29,119			(1,224	)		27,895
Other intangibles		--			677			677
Customer list		--			1,750			1,750
Other assets		13,791			17,051			30,842
Goodwill		140,786			(29,261	)		111,525
Broadcast licenses		34,900			24,835			59,735
Network affiliation agreements		28,364			(13,576	)		14,788
Accounts payable		(2,103	)		(191	)		(2,294	)
Other current liabilities		(3,075	)		154			(2,921	)
Other long-term liabilities		(6,141	)		(133	)		(6,274	)
Total purchase price	$	238,779		$	--		$	238,779

The revised purchase price allocation does not reflect the purchase of the broadcast license for KMTV-TV in Omaha; the sale of which is subject to certain FCC regulations.

10 DISCONTINUED OPERATIONS

On January 25, 2005, we entered into a definitive asset sale agreement with Multi-Color Corporation pursuant to which Multi-Color Corporation acquired substantially all of the assets and certain liabilities of NorthStar Print Group, Inc. (NorthStar), our label printing business. The purchase price, excluding certain real estate holdings that we retained, was $26,144 in cash and resulted in a gain on discontinued operations before income taxes of $8,382, of which $7,919 was recognized in the first quarter of 2005. The revenue of NorthStar for the period December 27, 2004 through the date of sale totaled $4,112.

11

JOURNAL COMMUNICATIONS, INC.
Notes to Unaudited Consolidated Condensed Financial Statements
(in thousands, except per share amounts)

10 DISCONTINUED OPERATIONS

The current and non-current assets and liabilities of discontinued operations in the consolidated condensed balance sheets at March 26, 2006 and December 25, 2005 consisted of the following:

	March 26, 2006		December 25, 2005
Property and equipment	$	299	$	307
Total non-current assets	$	299	$	307
Accounts payable	$	37	$	114
Accrued employee benefits		6		15
Other current liabilities		14		76
Total current liabilities	$	57	$	205

11 SEGMENT INFORMATION

We conduct our operations through four reportable segments: publishing, broadcasting, telecommunications and printing services. In addition, our direct marketing services business and certain administrative activities are aggregated and reported as “other.” All operations conduct their business in the United States. We publish a daily newspaper, theMilwaukee JournalSentinel, and about 90 community newspapers and shoppers in eight states. Our broadcasting segment consists of 37 radio stations and nine television stations in 12 states, as well as the operation of two additional television stations under local marketing agreements. Our telecommunications segment consists of wholesale and business-to-business telecommunications services provided through a high speed fiber optic telecommunications network that covers more than 4,400 route miles in seven states, of which we operate about 4,150 route miles. Our printing services segment includes the operations of our printing and assembly and fulfillment business.

The following tables summarize revenue, operating earnings, depreciation and amortization and capital expenditures from continuing operations for the first quarter ended March 26, 2006 and March 27, 2005 and identifiable total assets at March 26, 2006 and December 25, 2005:

	First Quarter Ended
	March 26, 2006		March 27, 2005
Revenue
Publishing	$	79,468	$	80,694
Broadcasting		51,638		37,206
Telecommunications		32,831		37,455
Printing services		16,310		18,306
Other		8,813		10,547
	$	189,060	$	184,208
Operating earnings
Publishing	$	7,665	$	7,480
Broadcasting		11,586		5,384
Telecommunications		4,211		7,775
Printing services		492		391
Other		67		267
	$	24,021	$	21,297
Depreciation and amortization
Publishing	$	3,381	$	3,700
Broadcasting		2,999		2,186
Telecommunications		4,603		4,782
Printing services		471		579
Other		213		192
	$	11,667	$	11,439

12

JOURNAL COMMUNICATIONS, INC.
Notes to Unaudited Consolidated Condensed Financial Statements
(in thousands, except per share amounts)

11 SEGMENT INFORMATION (continued)

	First Quarter Ended
	March 26, 2006		March 27, 2005
Capital expenditures
Publishing	$	2,118	$	2,305
Broadcasting		2,578		2,223
Telecommunications		1,385		1,667
Printing services		575		222
Other		117		82
	$	6,773	$	6,499

	March 26, 2006		December 25, 2005
			Audited
Identifiable total assets
Publishing	$	209,082	$	212,058
Broadcasting		614,128		611,418
Telecommunications		93,215		94,575
Printing services		21,652		24,620
Other including corporate and discontinued operations		40,532		41,995
	$	978,609	$	984,666

12 SUBSEQUENT EVENT

On April 25, 2006, we announced our plan to spin-off to our shareholders our telecommunications business, Norlight Telecommunications, Inc. (“Norlight”). The spin-off will be accomplished through a pro-rata distribution of all of Norlight’s shares to our shareholders. We will announce the record date, the distribution date and the distribution ratio at a later time. Norlight is expected to apply for listing on the NASDAQ Global Market (formerly known as the NASDAQ National Market).

Norlight filed a registration statement with the SEC on April 25, 2006. Completion of the spin-off is subject to the effectiveness of the registration statement and receipt of an opinion from counsel to the effect that the spin-off will qualify as a tax-free transaction for us and our shareholders. Additionally, we intend to submit a request to the Internal Revenue Service seeking a private letter ruling as to the tax-free nature of the spin-off. No other significant approvals are required, and completion of the spin-off is expected to take up to six months.

Our telecommunications segment will be reported as a discontinued operation at the time of the spin-off.

13

ITEM 2.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read together with our unaudited consolidated condensed financial statements for the first quarter ended March 26, 2006, including the notes thereto.

More information regarding us is available at our website atwww.journalcommunications.com. We are not including the information contained in our website as a part of, or incorporating it by reference into, this Quarterly Report on Form 10-Q. Our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports are made available to the public at no charge, other than a reader’s own internet access charges, through a link appearing on our website. We provide access to such material through our website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission.

Forward-Looking Statements

We make certain statements in this Annual Report on Form 10-K (including the information that we incorporate by reference herein) that are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in that Act, and we are including this statement for purposes of those safe harbor provisions. These forward-looking statements generally include all statements other than statements of historical fact, including statements regarding our future financial position, business strategy, budgets, projected revenues and expenses, expected regulatory actions and plans and objectives of management for future operations. We often use words such as “may,” “will,” “intend,” “anticipate,” “believe,” or “should” and similar expressions in this Annual Report on Form 10-K to identify forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control. These risks, uncertainties and other factors could cause actual results to differ materially from those expressed or implied by those forward-looking statements. Among such risks, uncertainties and other factors that may impact us are the following:

• changes in advertising demand or the buying strategies of advertisers;

• changes in newsprint prices and other costs of materials;

• changes in federal or state laws and regulations or their interpretations (including changes in regulations governing the number and types of broadcast and cable system properties, newspapers and licenses that a person may control in a given market or in total);

• changes in legislation or customs relating to the collection, management and aggregation and use of consumer information through telemarketing and electronic communication efforts;

• the availability of quality broadcast programming at competitive prices;

• changes in network affiliation agreements;

• quality and rating of network over-the-air broadcast programs, including programs changing networks and changing competitive dynamics regarding how and when programs are made available to our viewers;

• effects of the loss of commercial inventory resulting from uninterrupted television news coverage and potential advertising cancellations due to war or terrorist acts;

• effects of the rapidly changing nature of the publishing, broadcasting, telecommunications and printing industries, including general business issues, competitive issues and the introduction of new technologies;

• effects of bankruptcies on customers for our telecommunications wholesale services;

• the ability of regional telecommunications companies to expand service offerings to include intra-exchange services;

• effects of potential acquisitions of or mergers of telecommunications companies or advertisers;

• changes in interest rates;

• the outcome of pending or future litigation;

• energy costs;

• the availability and effect of acquisitions, investments, and dispositions on our results of operations or financial condition; and

• changes in general economic conditions.

We caution you not to place undue reliance on these forward-looking statements, which we have made as of the date of this Quarterly Report on Form 10-Q.

Overview

Our business segments are based on the organizational structure used by management for making operating and investment decisions and for assessing performance. Our reportable business segments are: (i) publishing; (ii) broadcasting; (iii) telecommunications; (iv) printing services; and (v) other. Our publishing segment consists of a daily newspaper, theMilwaukee Journal Sentinel, and about 90 community newspapers and shoppers in eight states. Our broadcasting segment consists of 37 radio stations and nine television stations in 12 states, as well as the operation of two additional television stations under local marketing agreements. Our telecommunications segment consists of wholesale and business-to-business, or enterprise, telecommunications services provided through a high speed fiber optic telecommunications network that covers more than 4,150 route miles in seven states. Our printing services segment reflects the operations of our printing and kit assembly and fulfillment business. Our other segment consists of a direct marketing services business and corporate expenses and eliminations.

14

In the first quarter of 2006, operating earnings increased at our television stations driven by a strong performance at our three new stations acquired in December 2005, an increase in Olympics revenue and a solid start to the year by our Las Vegas station. At our radio stations, we were coming off of a tough comparison in the first quarter of 2005, where revenues had increased 9% over the first quarter of 2004. Our radio stations in Omaha, Knoxville, Boise and Springfield saw increased operating earnings in the first quarter of 2006, and we continue to focus on expense control, with overall radio expenses decreasing 4.5%. Our daily newspaper, which continues to concentrate on controlling expenses, posted a disappointing February and March as overall classified and automobile advertising decreased despite a small increase in retail advertising. Journal Interactive revenues of $2.1 million increased 28.2%. Operating earnings increased at our community newspapers and shoppers due to a decrease in expenses and an increase in revenue from specialty publications, which carry higher profit margins than our existing core products. Overall revenue at our community newspapers and shoppers decreased due to the closure of our Dixie Web printing facility in New Orleans and the reduction in publication revenue in New Orleans due to the impact of Hurricane Katrina. At our telecommunications business, revenue decreased due to the anticipated lower contract pricing in the wholesale business. Our printing services business experienced operating earnings improvement despite the expected lower revenue.

Subsequent Event

On April 25, 2006, we announced our plan to spin-off to our shareholders our telecommunications business, Norlight Telecommunications, Inc. The spin-off will be accomplished through a pro-rata distribution of all of Norlight’s shares to our shareholders. We will announce the record date, the distribution date and the distribution ratio at a later time. Norlight is expected to apply for listing on the NASDAQ Global Market (formerly known as the NASDAQ National Market).

Norlight filed a registration statement with the SEC on April 25, 2006. Completion of the spin-off is subject to the effectiveness of the registration statement and receipt of an opinion from counsel to the effect that the spin-off will qualify as a tax-free transaction for us and our shareholders. Additionally, we intend to submit a request to the Internal Revenue Service seeking a private letter ruling as to the tax-free nature of the spin-off. No other significant approvals are required, and completion of the spin-off is expected to take up to six months.

Our telecommunications segment will be reported as a discontinued operation at the time of the spin-off.

Results of Operations

First Quarter Ended March 26, 2006 compared to First Quarter March 25, 2005

Consolidated

Our consolidated operating revenue from continuing operations in the first quarter of 2006 was $189.1 million, an increase of $4.9 million, or 2.6%, compared to $184.2 million in the first quarter of 2005. Our consolidated operating costs and expenses from continuing operations in the first quarter of 2006 were $108.2 million, a decrease of $0.1 million, or 0.1%, compared to $108.3 million in the first quarter of 2005. Our consolidated selling and administrative expenses from continuing operations in the first quarter of 2006 were $56.9 million, an increase of $2.3 million, or 4.1%, compared to $54.6 million in the first quarter of 2005.

The following table presents our total revenue by segment, total operating costs and expenses, selling and administrative expenses and total operating earnings as a percent of total revenue for the first quarter of 2006 and 2005:

		2006		Percent of Total Revenue			2005		Percent of Total Revenue
		(dollars in millions)
Continuing Operations:
Revenue:
Publishing		$	79.5		42.0	%	$	80.7		43.8	%
Broadcasting			51.7		27.3			37.2		20.2
Telecommunications			32.8		17.4			37.5		20.3
Printing services			16.3		8.6			18.3		10.0
Other	��		8.8		4.7			10.5		5.7
Total revenue			189.1		100.0			184.2		100.0
Total operating costs and expenses			108.2		57.2			108.3		58.8
Selling and administrative expenses			56.9		30.1			54.6		29.6
Total operating costs and expenses and selling
and administrative expenses			165.1		87.3			162.9		88.4
Total operating earnings		$	24.0		12.7	%	$	21.3		11.6	%

The increase in total revenue from continuing operations was due to the contribution from the television operations we acquired in December 2005 and an increase in Olympics advertising revenue at our television stations. These increases were partially offset by a decrease in wholesale revenue at our telecommunications business due to repricings and service disconnections and a decrease in enterprise services revenue due to a reduction in long-distance services and aggressive competition, a decrease in revenue from several computer-related customers in our printing services business, a decrease in postage amounts at our direct marketing services business, a decrease in local advertising at our radio stations, a decrease in other revenue at our community newspapers and shoppers due to the closure of our Louisiana printing facility in New Orleans due to the impact of Hurricane Katrina and a decrease in national advertising at our daily newspaper.

15

The decrease in total operating costs and expenses from continuing operations is due to cost reduction initiatives and lower sales volume at our printing services business, a decrease in postage and freight expenses at our direct marketing services business, a decrease in total operating costs and expenses in enterprise services at our telecommunications business due to the decrease in revenue, a decrease in production costs at our community newspapers and shoppers due to the closure of our Louisiana printing facility in New Orleans, a decrease in syndicated programming expense at our television stations and a decrease in technology and programming expenses at our radio stations. These decreases were partially offset by an increase in total operating costs and expenses at the television operations acquired in December 2005 and an increase in total newsprint and paper cost at our publishing businesses.

The increase in selling and administrative expenses from continuing operations is primarily due to the television operations acquired in December 2005 and an increase in relocation, recruitment and legal expenses at our daily newspaper. These increases were partially offset by decreases in legal and bad debt expenses at our community newspapers and shoppers, sales commissions and promotion expenses at our radio stations and marketing, advertising and payroll expenses at our telecommunications business. Included in our total operating costs and expenses was a decrease in employee welfare benefit costs of $0.4 million.

Our consolidated operating earnings from continuing operations in the first quarter of 2006 were $24.0 million, an increase of $2.7 million, or 12.8%, compared to $21.3 million in the first quarter of 2005. The following table presents our operating earnings by segment for the first quarter of 2006 and 2005:

	2006		Percent of Total Operating Earnings			2005		Percent of Total Operating Earnings
	(dollars in millions)
Publishing	$	7.6		31.9	%	$	7.5		35.1	%
Broadcasting		11.6		48.2			5.4		25.3
Telecommunications		4.2		17.5			7.8		36.5
Printing services		0.5		2.1			0.4		1.8
Other		0.1		0.3			0.2		1.3
Total operating earnings	$	24.0		100.0	%	$	21.3		100.0	%

The increase in total operating earnings from continuing operations was primarily due to the contribution from our television stations partially offset by the decrease in revenue and continued competitive pressure at our telecommunications business.

Our consolidated EBITDA in the first quarter of 2006 was $35.7 million, an increase of $3.0 million, or 9.2%, compared to $32.7 million in the first quarter of 2005. We define EBITDA as net earnings excluding gain/loss from discontinued operations, net, provision for income taxes, total other expense, net, depreciation and amortization. We believe the presentation of EBITDA is relevant and useful because it helps improve our investors’ ability to understand our operating performance and makes it easier to compare our results with other companies that have different financing and capital structures or tax rates. Our management uses EBITDA, among other things, to evaluate our operating performance, to value prospective acquisitions and as a component of incentive compensation targets for certain management personnel. In addition, our lenders use EBITDA as one of the measures of our ability to service our debt. EBITDA is not a measure of performance calculated in accordance with U.S. generally accepted accounting principles. EBITDA should not be considered in isolation of, or as a substitute for, net earnings as an indicator of operating performance or cash flows from operating activities as a measure of liquidity. EBITDA, as we calculate it, may not be comparable to EBITDA measures reported by other companies. In addition, EBITDA does not represent funds available for discretionary use.

The following table presents a reconciliation of our consolidated net earnings to consolidated EBITDA for the first quarter of 2006 and 2005:

	2006		2005
	(dollars in millions)
Net earnings	$	12.3	$	17.4
Gain from discontinued operations, net		--		(4.8	)
Provision for income taxes		8.1		8.2
Total other expense, net		3.6		0.5
Depreciation		11.1		11.1
Amortization		0.6		0.3
EBITDA	$	35.7	$	32.7

The increase in EBITDA is consistent with increases in operating earnings in our broadcasting, publishing, and printing services segments partially offset by a decrease in operating earnings at our telecommunications and other segments.

16

Publishing

Revenue from publishing in the first quarter of 2006 was $79.5 million, a decrease of $1.2 million, or 1.5%, compared to $80.7 million in the first quarter of 2005. Operating earnings from publishing in the first quarter of 2006 were $7.6 million, an increase of $0.1 million, or 2.5%, compared to $7.5 million in the first quarter of 2005.

The following table presents our publishing revenue and operating earnings for the first quarter of 2006 and 2005:

	2006						2005
	Daily Newspaper		Community Newspapers & Shoppers		Total		Daily Newspaper		Community Newspapers & Shoppers		Total		Percent Change
	(dollars in millions)
Revenue	$	58.0	$	21.5	$	79.5	$	57.7	$	23.0	$	80.7		(1.5	)
Operating earnings	$	6.6	$	1.0	$	7.6	$	7.2	$	0.3	$	7.5		2.5

The following table, which reflects these changes, presents our publishing revenue by category for the first quarter of 2006 and 2005:

	2006						2005
	Daily Newspaper		Community Newspapers & Shoppers		Total		Daily Newspaper		Community Newspapers & Shoppers		Total		Percent Change
	(dollars in millions)
Advertising revenue:
Retail	$	21.3	$	12.3	$	33.6	$	21.0	$	12.8	$	33.8		(0.4	)
Classified		16.4		2.4		18.8		16.7		2.1		18.8		0.1
National		2.5		--		2.5		2.9		--		2.9		(13.3	)
Direct Marketing		1.4		--		1.4		1.3		--		1.3		5.2
Other		--		0.4		0.4		--		0.4		0.4		(7.1	)
Total advertising revenue .		41.6		15.1		56.7		41.9		15.3		57.2		(0.8	)
Circulation revenue		13.0		0.7		13.7		13.2		0.7		13.9		(1.7	)
Other revenue		3.4		5.7		9.1		2.6		7.0		9.6		(5.4	)
Total revenue	$	58.0	$	21.5	$	79.5	$	57.7	$	23.0	$	80.7		(1.5	)

Advertising revenue in the first quarter of 2006 accounted for 71.3% of total publishing revenue compared to 70.9% in the first quarter of 2005.

Retail advertising revenue in first quarter of 2006 was $33.6 million, a decrease of $0.2 million, or 0.4%, compared to $33.8 million in the first quarter of 2005. A $0.5 million decrease in community newspapers and shoppers retail advertising was partially offset by the $0.3 million increase in daily newspaper retail advertising. The $0.5 million decrease at our community newspapers and shoppers was primarily due to a decrease in automotive advertising and the reduction in business at our Louisiana publications from the impact of Hurricane Katrina. The $0.3 million increase at the daily newspaper was primarily due to increases in advertising at Journal Interactive, preprints and shared mail, partially offset by a decrease in retail ROP advertising. The decrease in retail ROP advertising is attributed to decreases in automotive and department store advertising partially offset by increases in insurance and financial services, food and real estate advertising.

Classified advertising revenue in the first quarter of 2006 of $18.8 million was essentially even compared to the first quarter of 2005. The decrease in automotive advertising of $0.9 million was partially offset by increases in real estate advertising of $0.4 million and other advertising of $0.2 million at our daily newspaper, and an increase in other advertising of $0.3 million at our community newspapers and shoppers. Employment advertising, which accounted for 45.0% of classified advertising at the daily newspaper in the first quarter of 2006, was essentially even compared to the first quarter of 2005. The decrease in automotive classified advertising combined with the decrease in retail advertising was $1.6 million, or 29.6%. This decrease is consistent with the national trend.

National advertising revenue in the first quarter of 2006 was $2.5 million, a decrease of $0.4 million, or 13.3%, compared to $2.9 million in first quarter of 2005. The decrease was due to reductions in transportation/airlines and entertainment ROP advertising partially offset by an increase in movies ROP advertising. National preprint advertising decreased due to reductions in business services, communications and manufacturers advertising.

17

The following table presents our daily newspaper’s core newspaper advertising linage by category for the first quarter of 2006 and 2005:

	2006		2005		Percent Change
Advertising linage (inches):
Full run
Retail		153,874		164,465		(6.4	)
Classified		162,022		181,814		(10.9	)
National		14,005		13,177		6.3
Total full run		329,901		359,456		(8.2	)
Part run		25,350		33,871		(25.2	)
Total advertising linage		355,251		393,327		(9.7	)
Preprint pieces (in thousands)		208,250		204,872		1.6

Total advertising linage in the first quarter of 2006 decreased 9.7% compared to the first quarter of 2005. Full run advertising linage in the first quarter of 2006 decreased 8.2% compared to the first quarter of 2005 due to a reduction in classified and retail advertising linage partially offset by an increase in national advertising lineage. Retail ROP advertising linage decreased in the automotive, entertainment and furniture store categories. The decrease in classified advertising linage is primarily due to a decrease in automotive advertising. Part run advertising linage decreased in the first quarter of 2006 due to a decrease in automotive zoned classified and overall reductions in the zoned product. Preprint advertising pieces increased 1.6% due to certain large advertisers switching advertising from ROP to preprints.

The following table presents the full pages of advertising and revenue per page for our community newspapers and shoppers business for the first quarter of 2006 and 2005:

	2006		2005		Percent Change
Full pages of advertising:
Community newspapers		20,770		20,912		(0.7	)
Shoppers and specialty products		24,283		25,586		(5.1	)
Total full pages of advertising		45,053		46,498		(3.1	)
Revenue per page	$	297.68	$	293.57		1.4

Total full pages of advertising for our community newspapers and shoppers business in the first quarter of 2006 decreased 3.1% compared to the first quarter of 2005. The decrease was due to the reduction in advertising in our Louisiana publications due to the impact of Hurricane Katrina, reformatting certain papers to more efficiently use the amount of available space on each page and the merger of two shoppers into one new shopper. This was partially offset by an increase in advertising in specialty products. Revenue per page increased 1.4% primarily due to the decrease in total full pages of advertising and the increase in advertising rates.

Direct marketing revenue, consisting of revenue from direct mail efforts for our daily newspaper was $1.4 million in the first quarter of 2006, an increase of $0.1 million, or 5.2%, compared to $1.3 million in the first quarter of 2005. The increase was due to an increase in our solo mail initiatives. Other advertising revenue, consisting of revenue from company-sponsored event advertising at our community newspapers and shoppers, was $0.4 million in the first quarter of 2006 and 2005.

Circulation revenue accounted for 17.2% of total publishing revenue in the first quarter of 2006 and 2005. Circulation revenue in the first quarter of 2006 was $13.7 million, a decrease of $0.2 million, or 1.7%, compared to $13.9 million in the first quarter of 2005. The decrease is primarily due to lower daily average net paid circulation, partially offset by an increase in the Sunday average rate per copy. Circulation revenue was essentially flat at our community newspapers and shoppers.

Other revenue, which consists of revenue from commercial printing at the printing plants for our community newspapers and shoppers and promotional, commercial delivery, events and commercial printing revenue at our daily newspaper, accounted for 11.5% of total publishing revenue in the first quarter of 2006 compared to 11.9% in the first quarter of 2005. Other revenue in the first quarter of 2006 was $9.1 million, a decrease of $0.5 million, or 5.4%, compared to $9.6 million in the first quarter of 2005. The decrease was due to a $1.3 million decrease at our community newspapers and shoppers primarily due to the closure of our Louisiana printing facility due to the impact of Hurricane Katrina and was partially offset by a $0.8 million increase in commercial delivery revenue and commercial printing revenue at the daily newspaper.

Publishing operating earnings in the first quarter of 2006 were $7.6 million, an increase of $0.1 million, or 2.5%, compared to $7.5 million in the first quarter of 2005. Operating earnings increased $0.7 million in the first quarter of 2006 at our community newspapers and shoppers due to reductions in labor, legal, bad debt and depreciation expenses. Operating earnings decreased $0.6 million at the daily newspaper primarily due to increases in direct expenses, litigation, relocation and recruitment expenses and paper costs. These expense increases were partially offset by lower payroll and employee benefit expenses. Total newsprint and paper cost in the first quarter of 2006 was $10.2 million, a decrease of $0.1 million, or 1.1%, compared to $10.3 million in the first quarter of 2005. Average newsprint pricing per metric ton was up 20.4% and consumption of newsprint tonnage was down by 14.6% at our daily newspaper. In the second quarter of 2005, the daily newspaper switched to lighter basis-weight newsprint.

18

Broadcasting

Revenue from broadcasting in the first quarter of 2006 was $51.7 million, an increase of $14.5 million, or 38.8%, compared to $37.2 million in the first quarter of 2005. Operating earnings from broadcasting in first quarter of 2006 were $11.6 million, an increase of $6.2 million, or 115.2%, compared to $5.4 million in the first quarter of 2005.

The following table presents our broadcasting revenue and operating earnings for the first quarter of 2006 and 2005:

	2006						2005						Percent
	Radio		Television		Total		Radio		Television		Total		Change
	(dollars in millions)
Revenue	$	17.6	$	34.1	$	51.7	$	18.2	$	19.0	$	37.2		38.8
Operating earnings	$	3.8	$	7.8	$	11.6	$	3.8	$	1.6	$	5.4		115.2

Revenue from our radio stations in the first quarter of 2006 was $17.6 million, a decrease of $0.6 million, or 3.5%, compared to $18.2 million in the first quarter of 2005. The decrease was primarily attributed to a $0.6 million decrease in local advertising revenue and a $0.1 million decrease in national revenue, partially offset by a $0.1 million increase in political and issue advertising.

Operating earnings from our radio stations were $3.8 million in the first quarter of 2006 and 2005. The decrease in revenue was offset by decreases in sales commissions, technology, promotion and programming expenses.

Revenue from our television stations in the first quarter of 2006 was $34.1 million, an increase of $15.1 million, or 79.4%, compared to $19.0 million in the first quarter of 2005. The increase was primarily attributed to a $12.7 million contribution from the television operations we acquired in December 2005, a $3.3 million increase in Olympics advertising revenue and a $0.1 million increase in political and issue advertising partially offset by a $1.0 million decrease in national advertising revenue.

Operating earnings from our television stations in the first quarter of 2006 were $7.8 million, an increase of $5.2 million, or 386.2%, compared to $1.6 million in the first quarter of 2005. The increase in operating earnings was primarily due to a $4.2 million contribution from the television operations we acquired in December 2005 and a decrease in syndicated programming and promotion expenses partially offset by an increase in sales, news and technology expenses.

Telecommunications

Revenue from telecommunications in the first quarter of 2006 was $32.8 million, a decrease of $4.7 million, or 12.3%, compared to $37.5 million in the first quarter of 2005. Operating earnings from telecommunications in the first quarter of 2006 were $4.2 million, a decrease of $3.6 million, or 45.8%, compared to $7.8 million in the first quarter of 2005.

Wholesale telecommunication services provide network transmission solutions for other service providers by offering bulk transmission capacity. Revenue from wholesale services in the first quarter of 2006 was $17.7 million, a decrease of $2.7 million, or 13.0%, compared to $20.4 million in the first quarter of 2005. The decrease was primarily due to lower prices on customer contract renewals and service disconnections. Monthly recurring revenue from wholesale services at the end of the first quarter of 2006 was $5.3 million compared to $5.8 million at the beginning of the first quarter of 2006 and $6.3 million at the beginning of the first quarter of 2005. During the first quarter of 2006, new circuit connections of $0.6 million in monthly recurring revenue were more than offset by service disconnections and repricings.

We have substantial business relationships with a few large customers, including major long distance carriers. Our top 10 customers accounted for 39.6% and 36.3% of our telecommunications revenue in the first quarter of 2006 and 2005, respectively. As expected, the terms of the new Verizon Business (formerly MCI) contract were fully implemented in mid-March, further reducing monthly recurring revenue, but resulting in a stable Verizon Business run-rate going forward.

Enterprise telecommunication services provide advanced data communications and long distance service to small and medium-sized businesses in the Upper Midwest, principally in Wisconsin, Michigan, Indiana, Minnesota and Illinois. Revenue from enterprise services in the first quarter of 2006 was $15.1 million, a decrease of $2.0 million, or 11.5%, compared to $17.1 million in the first quarter of 2005. The decrease was primarily due to a reduction in long-distance revenue and aggressive competition from the Regional Bell Operating Companies. Monthly recurring revenue from enterprise advanced data services at the end of the first quarter of 2006 was $3.3 million, compared to $3.4 million at the beginning of the first quarter of 2006 and $3.4 million at the beginning of the first quarter of 2005.

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The decrease in operating earnings from telecommunications was primarily due to the decrease in wholesale revenue and reduced margins due to competitive pricing in the enterprise business. Partially offsetting these revenue decreases were reductions in marketing, advertising and payroll expenses.

Printing Services

Revenue from printing services in the first quarter of 2006 was $16.3 million, a decrease of $2.0 million, or 10.9%, compared to $18.3 million in the first quarter of 2005. Operating earnings from printing services in the first quarter of 2006 were $0.5 million, an increase of $0.1 million, compared to $0.4 million in the first quarter of 2005.

The decrease in printing services revenue was primarily due to a $1.9 million decrease in revenue from our largest customer, Dell Computer Corporation, and a $0.3 million decrease in revenue from other computer-related customers. These decreases were partially offset by a $0.2 million increase in revenue from the printing of publications. Dell accounted for 11.6% and 20.8% of our printing services revenue in the first quarter of 2006 and 2005, respectively. As previously discussed, we expect our revenue from Dell to decline by 85% in 2006 compared to 2005 as we stopped producing software kits for Dell at the end of January 2006. We do not expect this reduction in revenue to have an adverse impact on our results of operations.

The increase in printing services operating earnings was primarily attributed to cost reduction initiatives partially offset by reductions in sales volume to computer-related customers.

Other

Other revenue in the first quarter of 2006 was $8.8 million, a decrease of $1.7 million, or 16.4%, compared to $10.5 million in the first quarter of 2005. Other operating earnings in the first quarter of 2006 were $0.1 million, a decrease of $0.1 million, compared to $0.2 million in first quarter of 2005.

The following table presents our other revenue and operating earnings for the first quarter of 2006 and 2005:

	2006								2005
	Direct Marketing Services			Corporate and Eliminations			Total		Direct Marketing Services		Corporate and Eliminations			Total		Percent Change
	(dollars in millions)
Revenue	$	9.8		$	(1.0	)	$	8.8	$	11.5	$	(1.0	)	$	10.5		(16.4	)
Operating earnings	$	(0.1	)	$	0.2		$	0.1	$	--	$	0.2		$	0.2		(74.9	)

The decrease in other revenue in the first quarter of 2006 compared to the first quarter of 2005 was primarily attributed to a decrease in postage amounts billed to customers at our direct marketing services business. Included in revenue and operating costs and expenses from our direct marketing services business is $4.9 million and $6.8 million of postage amounts billed to customers in the first quarter of 2006 and 2005, respectively.

The decrease in other operating earnings was primarily from the revenue decrease at our direct marketing business.

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Non-Operating Income and Taxes

There were no interest income and dividends in the first quarter of 2006 compared to $0.1 million in the first quarter of 2005. Interest expense in the first quarter of 2006 was $3.7 million, an increase of $3.1 million, compared to $0.6 million in the first quarter of 2005. Gross interest expense from borrowings under our credit agreement was $3.6 million in the first quarter of 2006 and $0.5 million in the first quarter of 2005. The increase is primarily due to an increase in debt outstanding relating to the television operations we acquired in December 2005, share repurchase activity and higher short-term interest rates. Amortization of deferred financing fees was $0.1 million in both the first quarter of 2006 and 2005.

The effective tax rate from continuing operations was 39.8% in the first quarter of 2006 and 39.6% in the first quarter of 2005.

Earnings per Share

Our basic and diluted earnings per share in the first quarter of 2006 were $0.17, a decrease of $0.07 and $0.06 compared to basic and diluted earnings per share of $0.24 and $0.23, respectively, in the first quarter of 2005. Our basic and diluted earnings per share from continuing operations were $0.17 in the first quarter of 2006 and 2005. Basic and diluted earnings per share from discontinued operations were $0.07 and $0.06, respectively, in first quarter of 2005.

Discontinued Operations

In January 2005, we entered into a definitive asset sale agreement with Multi-Color Corporation pursuant to which Multi-Color Corporation acquired substantially all of the assets and certain liabilities of NorthStar Print Group, Inc., our label printing business. The sale price, excluding certain real estate holdings that we retained, was $26.1 million in cash. The operations of NorthStar Print Group have been reflected as discontinued operations for all periods presented in our consolidated condensed financial statements.

Revenue from discontinued operations in the first quarter of 2005 was $4.1 million. Net assets of discontinued operations at March 26, 2006 were $0.2 million. Real estate holdings in Green Bay, WI are to be sold to Multi-Color Corporation upon the achievement of certain environmental standards. Gain from discontinued operations was $4.8 million in the first quarter of 2005. Applicable income tax expense was $3.1 million in the first quarter of 2005.

Liquidity and Capital Resources

We have a $475 million unsecured revolving credit facility that expires on June 2, 2011. The interest rate on borrowings is either LIBOR plus a margin that ranges from 37.5 basis points to 87.5 basis points, depending on our leverage, or the base rate, which equals the higher of the prime rate set by U.S. Bank, N.A. or the Federal Funds Rate plus 100 basis points. As of March 26, 2006, we had borrowings of $269.8 million under the facility at a weighted average rate of 5.34%. Fees in connection with the facility of $1,717 are being amortized over the term of the facility using the straight-line method which approximates the effective-interest method. The material covenants of this agreement include the following:

• A consolidated funded debt ratio as determined for the four fiscal quarter period preceding the date of determination.

• An interest coverage ratio as determined for the four fiscal quarter period preceding the date of determination.

As of March 26, 2006, we are in compliance with all of our material covenants.

Cash balances were $5.7 million at March 26, 2006. We believe our expected cash flows from operations and borrowings available under our credit facility will adequately meet our needs for the foreseeable future. In April 2006, our Board of Directors authorized the repurchase of up to five million additional shares of our class A common stock over the next 18 months. Under the program, share purchases may be made at our discretion, from time to time, in the open market and/or in private transactions. Our share purchases will depend on market conditions, share price, trading volume and other factors. The action supplements the five million share repurchase authorization approved in February 2005.

Cash Flow

Cash provided by operating activities was $25.7 million in the first quarter of 2006 compared to $29.8 million in the first quarter of 2005. The decrease was primarily due to the decrease in working capital items.

Cash used for investing activities was $6.8 million in the first quarter of 2006 compared to cash provided by investing activities of $18.3 million in first quarter of 2005. Capital expenditures for property and equipment were $6.8 million in the first quarter of 2006 compared to $6.5 million in the first quarter of 2005. Partially offsetting these activities was the benefit from net investing activities of discontinued operations of $24.7 million in the first quarter of 2005.

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Cash used for financing activities was $20.0 million in the first quarter of 2006 compared to $47.9 million in the first quarter of 2005. Borrowings under our credit facility during the first quarter of 2006 were $48.8 million and we made payments of $53.6 million. In the first quarter of each of 2006 and 2005, employees purchased $0.6 million worth of our class B common stock under our Employee Stock Purchase Plan. In the first quarter of 2006, we paid $10.9 million to purchase and retire shares of our class A common stock under a share repurchase plan compared to $1.9 million in the first quarter of 2005. We paid cash dividends of $4.9 million and $5.2 million in the first quarter of 2006 and 2005, respectively.

New Accounting Standards

Effective December 26, 2005, we adopted Statement of Financial Accounting Standards Statement No. 123(R), “Share-Based Payment” (SFAS No. 123(R)), using the modified prospective application transition method. Under the modified prospective application transition method, the fair value and recognition provisions of SFAS No. 123(R) are applied to stock-based awards granted or modified subsequent to the date of adoption and prior periods are not restated. Before we adopted SFAS No. 123(R), we accounted for stock-based compensation by using the intrinsic value-based method in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.” Other than for restricted stock, no stock-based employee compensation cost has been reflected in net earnings prior to December 26, 2005.

During the first quarter ended March 26, 2006, we recognized $0.2 million in stock-based compensation expense. Total income tax benefit recognized related to stock-based compensation for the first quarter of 2006 was approximately $0.1 million. We recognize compensation expense on the grants of stock-based compensation awards on a straight-line basis over the service period of each award recipient. As of March 26, 2006, total unrecognized compensation cost related to stock-based compensation awards was approximately $1.5 million, net of estimated forfeitures, which we expect to recognize over a weighted average period of approximately 2.3 years. Stock-based compensation expense is included in selling and administrative expenses in our consolidated condensed statement of earnings. There was no impact on basic or diluted earnings per share from adopting SFAS No. 123(R).

Critical Accounting Policies

There are no material changes to the disclosures regarding critical accounting policies made in our Annual Report on Form 10-K for the year ended December 25, 2005

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK

There are no material changes to the disclosures regarding interest rate risk and foreign currency exchange risk made in our Annual Report on Form 10-K for the year ended December 25, 2005.

ITEM 4.    CONTROLS AND PROCEDURES

We carried out an evaluation, under the supervision and with the participation of our Disclosure Committee, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Exchange Act Rules 13a-14(c) and 15d-14(c) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to them to allow timely decisions regarding required disclosure.

There has been no change in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

Milwaukee Public Interest Media Coalition Litigation. On November 1, 2005, the Milwaukee Public Interest Media Coalition (“MPIMC”) filed a petition at the Federal Communications Commission (the “FCC”) asking it to deny the pending license renewal applications of all eleven commercial television stations in the Milwaukee Designated Market Area, including our station, WTMJ-TV, on the grounds that the stations failed to provide adequate coverage of state and local issues during the 2004 election campaign. We filed an opposition to the petition at the FCC on December 15, 2005, and MPIMC filed a reply to our opposition on January 18, 2006. The pleading cycle is now closed and the matter is under review by the staff of the FCC. It is impossible to predict when the FCC will rule on this matter. We believe the petition is without merit and will continue to defend the allegations against us vigorously in any continuing proceedings before the FCC.

Shorewest Realtors Litigation.On April 25, 2005, a lawsuit was filed against Journal Sentinel, Inc., a subsidiary of Journal Communications, Inc., in Milwaukee County Circuit Court.  The plaintiff, Shorewest Realtors, seeks to bring a class action lawsuit on behalf of Milwaukee Journal Sentinel advertisers, alleging that the newspaper improperly inflated its circulation numbers since 1996. Shorewest is seeking disgorgement or restitution by Journal Sentinel of alleged improperly collected charges (with interest), plus an unspecified amount of damages. Journal Sentinel, Inc. filed a motion to dismiss the plaintiff’s claims on July 20, 2005. On October 10, 2005, the court ruled on Journal Sentinel’s amended motion to dismiss.  The court dismissed the plaintiffs’ claims based on breach of contract and breach of the duty of good faith and fair dealing and allowed the plaintiffs to proceed with their other claims. We intend to continue to defend the action vigorously. No litigation reserve has been recorded for this matter.

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ITEM 1A.    RISK FACTORS

There are no material changes to the disclosures regarding risk factors made in our Annual Report on Form 10-K for the year ended December 25, 2005. Additionally, as recently announced, we intend to spin-off Norlight, our telecommunications business, to our shareholders. In connection with the spin-off, Norlight filed a Registration Statement on Form 10 (the” Registration Statement”) with the SEC on April 25, 2006. We refer you to the section entitled “Risk Factors” in the Information Statement (which is preliminary and subject to completion) that is included as Exhibit 99 to the Registration Statement for additional risk factors relating to our telecommunications business.

ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

In February 2005, we announced a stock repurchase program of up to 5,000,000 of our class A common stock over a term to expire in August 2006. The following table provides information about our repurchases of our class A common stock in the first quarter ended March 26, 2006:

Issuer Purchases of Equity Securities

	(a)	(b)	(c)	(d)
Period	Total Number of Shares Purchased	Average Price Paid Per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans Or Programs(1)	Maximum Number Of Shares that May Yet Be Purchased Under the Plans or Programs
December 26, 2005 to January 22, 2006	375,000	$  13.67	375,000	1,190,005
January 23 to February 19, 2006	461,730	$  12.54	461,730	728,275
February 20 to March 26, 2006	--	--	--	728,275

(1) All shares of class A common stock purchased by us were purchased pursuant to a repurchase program publicly announced on February 10, 2005 and commenced on March 14, 2005, pursuant to which our board of directors authorized the repurchase of up to 5,000,000 shares. These shares will remain authorized but unissued. The repurchase program is expected to expire in August 2006.

In April 2006, our Board of Directors authorized the repurchase of up to five million additional shares of our class A common stock over the next 18 months.

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5.    OTHER INFORMATION

None.

ITEM 6.    EXHIBITS

(a) Exhibits

Exhibit No. Description

(31.1) Certification by Steven J. Smith, Chairman and Chief Executive Officer of Journal Communications, Inc., pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

(31.2) Certification by Paul M. Bonaiuto, Executive Vice President and Chief Financial Officer of Journal Communications, Inc., pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

(32) Certification of Steven J. Smith, Chairman and Chief Executive Officer and Paul M. Bonaiuto, Executive Vice President and Chief Financial Officer of Journal Communications, Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	JOURNAL COMMUNICATIONS, INC.
	Registrant
Date:  April 27, 2006	/s/ Steven J. Smith
	Steven J. Smith, Chairman and Chief Executive Officer
Date:  April 27, 2006	/s/ Paul M. Bonaiuto
	Paul M. Bonaiuto, Executive Vice President and Chief Financial Officer

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