UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: June 17, 2001
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number: 0-7831
JOURNAL COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
WISCONSIN 39-0382060
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
333 W. State Street
Milwaukee, Wisconsin 53203
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 414-224-2728
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 ___
As of June 17, 2001, there were outstanding 28,353,561 shares of Journal
Communications, Inc. Common Stock - par value $0.125
The undersigned registrant hereby amends and restates Item 2 of its Quarterly
Report for the quarterly period ended June 17, 2001 to provide in its entirety
as follows:
JOURNAL COMMUNICATIONS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
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Three Accounting Periods Ended June 17, 2001 (Second Quarter, 2001) Compared to
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Three Accounting Periods Ended June 18, 2000 (Second Quarter, 2000)
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Consolidated revenue for the second quarter, 2001 of $194.8 million was slightly
higher than the same quarter last year of $192.9 million. Net earnings of $12.6
million were $4.2 million lower than the same quarter in 2000.
JOURNAL SENTINEL INC. (Journal Sentinel) had revenue of $52.8 million in the
second quarter, 2001, which was almost $2 million less than the second quarter
in 2000. Pretax earnings of $7.1 million in 2001 were $3.8 million less than the
second quarter in 2000.
JOURNAL BROADCAST GROUP recorded revenue and pretax earnings in the second
quarter, 2001 of $32.7 million and $4.1 million, respectively. Revenue from
television operations was $15.3 million in 2001, a decrease of $3.1 million from
the second quarter of 2000. The revenue at all four television stations has been
impacted by soft market conditions throughout the television industry. Pretax
earnings were $3.2 million in the second quarter, 2001 compared to $6.4 million
in 2000. Revenue from the radio operations of the Journal Broadcast Group was
$17.4 million in 2001 compared to $17.0 million in 2000. Pretax earnings were
$0.9 million in the second quarter, 2001 compared to $1 million in 2000.
NORLIGHT TELECOMMUNICATIONS, INC. (Norlight) had revenue and pretax earnings in
the second quarter, 2001 of $35.1 million and $11.3 million, respectively.
Revenue and pretax earnings were 27.0% and 33.5% higher in the second quarter,
2001 compared to the same quarter last year. Demand for telecommunication
services remains strong.
IPC COMMUNICATION SERVICES (IPC) recorded revenue of $26.7 million in 2001
compared to $25.3 million in 2000. A pretax loss of $2.6 million was recorded in
the second quarter of 2001 compared to earnings of $0.8 million in the same
quarter, 2000. Included in the pretax loss in the second quarter, 2001 are costs
for the startup of operations in Ireland and the consolidation of its Eastern
and Western Regions into one operational unit called US Operations. These items
cost over $2.2 million in the second quarter, 2001.
ADD INC. had revenue of $26.6 million in the second quarter, 2001, down $0.8
million from the same quarter last year. Pretax earnings of $1.5 million more
than doubled the pretax earnings in the second quarter, 2000 of $0.7 million.
NORTHSTAR PRINT GROUP (NorthStar) recorded revenue of $12.7 million in the
second quarter, 2001 compared to $14.5 million in the same quarter last year. A
pretax loss of $0.1 million was recorded in 2001 compared to pretax earnings of
$0.4 million in the second quarter, 2000.
PRIMENET MARKETING SERVICES (PrimeNet) had revenue of $8.2 million in 2001, a
slight increase over 2000 revenue of $8.1 million. A pretax loss of $0.1 million
was recorded in 2001 compared to pretax earnings of $0.1 million in the same
quarter last year.
Six Accounting Periods Ended June 17, 2001 Compared to Six Accounting Periods
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Ended June 18, 2000
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Consolidated revenue for the six accounting periods ended June 17, 2001 of
$379.9 million was slightly higher than the same period last year of $377.8
million. Continued increases at Norlight, IPC and PrimeNet were offset by
decreases at each of the other reporting companies.
Consolidated year-to-date pretax earnings were $35.3 million, down 30.3% from
$50.7 million for the same period last year. Overall, the Company believes the
sluggish economy is significantly impacting virtually all of our business
segments. In addition, several non-recurring items were recorded in the two
quarters of 2001 compared to the same period in 2000. The Company recorded
expenses in 2001 of $3.3 million that were associated with the sale of certain
of the assets of the Milwaukee division of NorthStar and with the consolidation
of two of IPC's United States production facilities into one operational unit.
The Company recorded $1.3 million for its litigation reserve over the same
period last year, $0.4 million for voluntary workforce "stay and go" reductions
at Journal Sentinel and increased the allowance for doubtful accounts by $1.3
million at Norlight. In the first quarter of 2001, there was one less Sunday
newspaper. These items reduced year-to-date pretax earnings by $7.5 million.
Every company has responded to the soft economic conditions by reducing
expenses. For example, both Journal Sentinel and Add, Inc. announced involuntary
workforce reductions in the third quarter of 2001. Management believes that
taking the appropriate short-term expense control actions will help us to take
advantage of any rebound in the economy that may occur.
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JOURNAL COMMUNICATIONS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, cont.
JOURNAL SENTINEL had year-to-date pretax earnings of $13.9 million, down 35.2%
from $21.5 million in the same period last year. The comparison is adversely
impacted by a reserve recorded for voluntary workforce reductions in 2001 and
one additional Sunday newspaper in 2000. Included in the cost for voluntary
workforce reductions are payments to be made to 23 employees plus extended
medical benefits. The impact of these items represented $1.6 million. The
additional earnings shortfall can be attributed to a revenue shortfall. Revenue
year-to-date was $104.5 million, down $6.9 million from $111.4 million last
year. Classified advertising declined $7.7 million primarily due to a 27.9%
decrease in employment classified advertising from 2000. In addition,
circulation revenue declined by $0.3 million in the two quarters of 2001. These
decreases in revenue categories were offset by slight increases in retail
advertising. Included in the revenue shortfall is approximately $2 million of
revenue from the extra Sunday newspaper in the first quarter of 2000.
Progress on a new production facility, with an approved cost of up to $106.6
million, is on time and on budget. The building that will house the new KBA
Commander presses and the GMA inserting equipment will be completed in 2001.
Press installation, which is nearly a yearlong process, will begin in early 2002
as the presses begin to arrive from Germany. The Company plans to complete this
project in the fourth quarter of 2002.
JOURNAL BROADCAST GROUP recorded revenue of $59.6 million for the six periods
ended June 17, 2001, an 8.6% decrease from 2000 revenue of $65.2 million. Pretax
earnings in two quarters of 2001 were $4.1 million compared to $10.3 million in
2000.
Revenue from the television operations for two quarters in 2001 was $28.2
million, compared with $34.2 million in two quarters of 2000, a decrease of
17.6%. The revenue at all four television stations has been impacted by soft
market conditions throughout the television industry. Television earnings before
taxes were $3.9 million in two quarters in 2001 compared with $10.3 million in
2000. The Company believes the cost containment programs in place at all of the
television stations have helped to mitigate the negative impact on earnings from
the slowdown in the economy.
Revenue from the radio operations was $31.4 million and $31 million for the two
quarters of 2001 and 2000, respectively, an increase of 1.3%. Radio operations
reported pretax earnings of $0.2 million in two quarters ended June 17, 2001
compared with breakeven results in 2000. The combination of operating
improvements in the Omaha, Tucson, Knoxville and Boise radio markets and tight
cost controls in all markets has resulted in earnings improvement.
NORLIGHT grew year-to-date revenue by 27% over a year ago, to $68.9 million from
$54.2 million in 2000. Pretax earnings were $22.2 million, a 32.7% increase over
2000. Demand for capacity remains strong; however, the growth has been tempered
by recent financial difficulties in the telecommunication industry. Norlight has
increased their allowance for doubtful accounts by almost $1.3 million since
December 31, 2000.
IPC had revenue of $54.4 million, a 5.3% increase over the same period last
year. However, IPC reported a pretax loss of $3 million in two quarters of 2001
compared to pretax earnings of $2.5 million in the same period last year.
Included in the pretax loss in 2001 are costs for the startup of operations in
Ireland and the consolidation of its Eastern and Western Regions into one
operational unit called US Operations. These items cost over $2.4 million in
2001. In the two quarters of 2001, the Western region recorded a $1.0 million
pretax loss from operations, compared to $0.5 million in pretax earnings in
2000.
ADD INC. recorded year-to-date revenue of $50.1 million and $51.3 million in the
two quarters of 2001 and 2000, respectively. Revenue increases in the Northern
Wisconsin, Vermont, Florida and Connecticut publication regions and the Fox
Cities Newspapers were offset by decreases in the Ohio and Louisiana publication
regions and the CNI group in Southeastern Wisconsin. In addition, revenue at the
Waupaca, Wisconsin print plant increased by $1.7 million in 2001 over the same
period in 2000 from the new press startup that began in early 2000. Add Inc.
continues to develop creative sales and marketing plans and administer tight
cost controls in their publication regions in an effort to grow revenue and
earnings in a year of a weakened economy. Add Inc. recorded year-to-date pretax
earnings of $0.5 million and a pretax loss of $0.5 million in 2001 and 2000,
respectively.
NorthStar recorded year-to-date revenue of $26.1 million compared with $28.2
million in 2000, a decrease of 7.3%. For the six periods in 2001, NorthStar
recorded a pretax loss of $1.5 million compared to pretax earnings of $0.3
million in 2000. On March 2, 2001, the sale of certain of the assets of the
Milwaukee operations was completed. NorthStar continues to operate the label
division, which has operations in Norway, Michigan, and Watertown and Green Bay,
Wisconsin. In the two quarters of 2001, the label division had revenue of $22.8
million compared to $19.7 million in the same period last
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JOURNAL COMMUNICATIONS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, cont.
year. The label division has been successful securing new business in 2001.
However, the division has reported a year-to-date pretax loss of $0.2 million in
2001 compared to pretax earnings of $0.1 million in 2000.
At PRIMENET, year-to-date revenue of $16.3 million increased 2.2% from $15.9
million in the same period last year. The increase is primarily the result of
the two postal rate increases that occurred in 2001. However, the postal rate
increases have also had a negative impact on sales volume in the two quarters in
2001. A pretax loss of $233,000 was recorded in two quarters of 2001 compared to
pretax earnings of $363,000 in 2000. Both the St. Paul and the Milwaukee
operations recorded a pretax loss while the Clearwater facility recorded pretax
earnings of over $100,000 in the two quarters of 2001.
Nonoperating Income and Taxes
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Net interest and preferred stock dividends increased to $860,000 in two quarters
in 2001 compared to $112,000 in the same period last year. The increase in
interest income is attributed to an increase in cash and cash equivalents
balances and interest received from the refund of federal corporation income
taxes. The year-to-date effective tax rate was 39.3% in 2001 compared to 39.6%
in the same period in 2000. The change is the result of implementing strategies
that reduced state income taxes, the impact of foreign net operating losses and
permanent tax differences.
Liquidity and Capital Resources
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Cash provided by operations was $41.4 million in two quarters in 2001 compared
to $36.3 million in two quarters in 2000. The increase in cash from operations
primarily came from changes in current assets and liabilities such as decreases
in accounts receivable and prepaid expenses and changes in accounts payable
balances. Cash from operations primarily is used to invest in capital projects,
acquire businesses and pay dividends to unitholders.
Cash used for investing purposes was $26.4 million year-to-date in 2001 compared
to $47.8 million during the same time period in 2000. The Company continues to
invest in technology that will provide additional capacity to the Norlight fiber
optic network and the building of the new Journal Sentinel production facility.
Cash provided by financing was $3.3 million in two quarters of 2001 compared
with $9.8 million in the same period in 2000. The Company sold more shares of
treasury stock in 2001 compared with the same period in 2000. The Company
decreased its borrowing on its line of credit by $16.1 million since the end of
the first quarter on March 25, 2001.
As of June 17, 2001, the balance outstanding under the Company's $45 million
credit facility was $0. The Company expects to have minimal borrowings under the
line of credit throughout the remainder of the year. Cash provided from
operations and from the sale of treasury stock is expected to contribute to the
Company's cash flow to fund its capital expenditures of property and equipment,
including payments for the new Journal Sentinel production facility, and other
general corporate purposes.
Recent Accounting Pronouncements
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In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations" and SFAS No. 142, "Accounting for Goodwill and Other
Intangible Assets" (the Statements). The Statements require new accounting for
business combinations that, among other things, will change the accounting for
goodwill and other intangibles recorded in business acquisitions. The Company
plans to adopt SFAS No.141 as of the effective date of the statement and
estimates that the effect of the adoption will not be material to its results of
operations, financial position or cash flows.
An important part of the SFAS No. 142 is that amortization of goodwill and
broadcast licenses determined to have indefinite lives will cease, effective
January 1, 2002, for assets acquired prior to June 30, 2001. In addition,
goodwill and broadcast licenses acquired after June 30, 2001 will be subject
immediately to the nonamortization provisions of this statement. Rather than
amortizing these assets, goodwill and broadcast licenses will be reviewed for
impairment using a "market value" approach. As our amortization of goodwill and
broadcast licenses is a significant non-cash expense that we currently record,
SFAS No. 142 should have a materially favorable impact on our results of
operations and, ultimately, our net equity.
Ninety percent of the Company's common stock is owned by the Journal Employees'
Stock Trust (the Trust), which offers employees of the Company the opportunity
to indirectly own a part of the Company by owning units of the benefits interest
(units) in shares of the Company's common stock. Under the agreement that
governs the Trust, the price at which holders may buy or offer to sell units
under the Trust is determined by a formula based on the net equity (which the
Trust refers to
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JOURNAL COMMUNICATIONS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, cont.
as "book value") and net income of the Company. As a result, to the extent SFAS
142 materially affects the Company's net income and net equity, it would also
affect the price of units.
Forward Looking Statements
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This Interim Report on Form 10-Q contains forward-looking statements that may
state Journal Communications, Inc.'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 outcome of pending or future
litigation, 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 to the Company's
customers, economic conditions and the effect of acquisitions, investments, and
dispositions on the Company's results of operations or financial condition. The
words "believe," "expect," "anticipate," "intends," "plans," "should," "could,"
"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.
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JOURNAL COMMUNICATIONS, INC.
SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned thereunto duly authorized.
JOURNAL COMMUNICATIONS, INC.
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Registrant
Date January 4, 2002 /s/ Steven J. Smith
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Steven J. Smith, Chairman and Chief
Executive Officer
Date January 4, 2002 /s/ Paul M. Bonaiuto
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Paul M. Bonaiuto, Executive Vice President
and Chief Financial Officer
6