FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarter Ending March 28, 1999 Commission file number 0-7831
-------------- ------
(3 Accounting Periods)
JOURNAL COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
WISCONSIN 39-0382060
(State or other jurisdiction of (I.R. S. Employer Identification No.)
incorporation or organization)
P.O. Box 661, 333 W. State St., Milwaukee, Wisconsin 53203
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
414-224-2728
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES X NO
Number of shares of Common Stock Outstanding - March 28, 1999
27,446,081
FORM 10-Q
JOURNAL COMMUNICATIONS, INC.
Quarter Ended March 28, 1999 Commission file number 0-7831
-------------- ------
INDEX
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Condensed Balance Sheets
March 28,1999 and December 31, 1998 2
Consolidated Condensed Statements of Income
Three Periods Ended March 28, 1999 and
March 22, 1998 3
Consolidated Condensed Statements of Cash Flows
Three Periods Ended March 28, 1999 and
March 22, 1998 4
Notes to Consolidated Condensed
Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosure of
Market Risk 10
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 11
1
FORM 10-Q
JOURNAL COMMUNICATIONS, INC.
For Quarter Ended March 28, 1999 Commission file number 0-7831
-------------- ------
(3 Accounting Periods)
Part 1, Item 1. Financial Statements (Unaudited)
Consolidated Condensed Balance Sheets
March 28, 1999 and December 31, 1998
(Dollars in thousands)
ASSETS 03/28/99 12/31/98
- ------ -------- --------
(Unaudited)
Current assets:
Cash and cash equivalents $133,582 $131,051
Receivables, less allowance for doubtful
accounts of $4,578 and $4,345 89,468 94,823
Inventories:
Paper and supplies 12,117 10,910
Work in process 2,373 2,339
Finished goods 5,170 6,633
--------- ---------
19,660 19,882
Prepaid expenses 9,501 16,211
Deferred income taxes 6,690 6,701
--------- ---------
Total current assets 258,901 268,668
Property and equipment, at cost, less accumulated
depreciation of $257,080 and $249,279 177,711 178,338
Goodwill 59,958 60,339
FCC licenses 45,326 45,700
Other intangibles assets 16,935 13,603
Deferred charges and other assets 13,029 17,500
--------- ---------
Total assets $571,860 $584,148
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 45,622 $ 47,850
Taxes on income 7,284 5,761
Accrued compensation 20,522 24,137
Deferred revenue 15,941 16,092
Accrued employee benefits 26,431 25,557
Other current liabilities 10,794 11,456
Current portion of long-term obligations 1,423 1,798
--------- ---------
Total current liabilities 128,017 132,651
Long-term obligations 1,898 1,643
Deferred income taxes 1,970 1,970
Stockholders' equity:
Common stock - authorized and issued
28,800,000 ($0.125 par value) 3,600 3,600
Retained earnings 470,593 463,110
Treasury stock, at cost (34,218) (18,826)
--------- ---------
Total stockholders' equity 439,975 447,884
--------- ---------
Total liabilities and stockholders' equity $571,860 $584,148
========= =========
Note: The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date but does not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes to consolidated condensed financial statements.
2
FORM 10-Q
JOURNAL COMMUNICATIONS, INC.
For Quarter Ended March 28, 1999 Commission file number 0-7831
-------------- ------
(3 Accounting Periods)
Consolidated Condensed Statements of Income
(Dollars in thousands except share and per share amounts)
Three Periods Ended
-------------------
03/28/99 03/22/98
-------- --------
(Unaudited) (Unaudited)
Net sales $ 165,557 $ 154,820
------------- ------------
Operating costs and expenses:
Cost of sales 88,945 88,665
Selling/administrative expenses 53,058 50,748
------------- ------------
142,003 139,413
------------- ------------
Operating earnings 23,554 15,407
Dividend and interest income, net 1,856 1,411
Gain on sale of assets 45 13
------------- ------------
Earnings before income taxes 25,455 16,831
Provision for income taxes 10,451 6,852
------------- ------------
Net income $ 15,004 $ 9,979
============= ============
Weighted average number of common
shares outstanding 27,578,515 27,814,108
============= ============
Earnings per share $ 0.54 $ 0.36
============= ============
Cash dividend per share $ 0.28 $ 0.275
============= ============
See accompanying notes to consolidated condensed financial statements.
3
FORM 10-Q
JOURNAL COMMUNICATIONS, INC.
For Quarter Ended March 28, 1999 Commission file number 0-7831
-------------- ------
(3 Accounting Periods)
Consolidated Condensed Statements of Cash Flows
(Dollars in thousands)
Three Periods Ended
-------------------
03/28/99 03/22/98
-------- --------
(Unaudited) (Unaudited)
Cash flow from operating activities:
Net earnings $ 15,004 $ 9,979
Adjustments to net earnings for
non-cash items:
Depreciation and amortization 9,394 9,440
Net gain from sales of assets (45) (13)
Change in:
Accounts receivable 5,071 5,479
Inventories 79 1,245
Accounts payable 354 (6,110)
Other current assets and liabilities 3,518 (5,657)
--------- ----------
Net cash provided by operating activities 33,375 $ 14,363
--------- ----------
Cash flow from investing activities:
Proceeds from sale of assets 1 13
Property and equipment expenditures (7,872) (8,684)
Assets of business acquired (188) (6,194)
Other-net 89 (973)
--------- ----------
Net cash used by investing activities (7,970) (15,838)
--------- ----------
Cash flow from financing activities:
Net increase (decrease) in long-term obligations (342) 172
Net (purchases)/sales of treasury stock (14,804) 15,185
Cash dividends (7,728) (7,844)
--------- ----------
Net cash provided/(used) by financing activities (22,874) 7,513
--------- ----------
Net increase in cash and cash equivalents 2,531 6,038
Cash and cash equivalents
Beginning of year 131,051 111,002
--------- ----------
March 28, 1999, and March 22, 1998 $ 133,582 $ 117,040
========= ==========
See accompanying notes to consolidated condensed financial statements.
4
FORM 10-Q
JOURNAL COMMUNICATIONS, INC.
For Quarter Ended March 28, 1999 Commission file number 0-7831
-------------- ------
(3 Accounting Periods)
Notes to Consolidated Condensed Financial Statements
(Unaudited, Dollars in thousands)
1. Basis of Presentation
The accompanying unaudited consolidated condensed financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulations S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included. Certain amounts in the December 31, 1998 balance sheet have
been restated to conform to classifications made in the March 28, 1999
balance sheet. Operating results for the three periods ended March 28,
1999, are not necessarily indicative of the results that may be expected
for the year ended December 31, 1999. For further information, refer to
the consolidated financial statements and footnotes thereto included in
the Journal Communications, Inc. annual report on Form 10-K for the year
ended December 31, 1998.
2. Accounting Periods
The Registrant divides its calendar year into thirteen four-week
accounting periods, except that the first and thirteenth periods may be
longer or shorter to the extent necessary to make each accounting year
end on December 31. Registrant follows a practice of publishing its
financial statement at the end of the third accounting period (its first
quarter), at the end of the sixth accounting period (its second quarter),
and at the end of the tenth accounting period (its third quarter).
3. Segment Information
Three Periods Ended
-------------------
03/28/99 03/22/98
-------- ---------
(Unaudited) (Unaudited)
Revenues by segment
Publications $ 74,158 $ 67,255
Broadcast 23,346 20,734
Printing 42,449 48,075
Telecommunications 23,174 16,254
Direct Marketing 3,173 2,883
Corporate and eliminations (743) (381)
---------- ----------
$ 165,557 $ 154,820
========== ==========
5
FORM 10-Q
JOURNAL COMMUNICATIONS, INC.
For Quarter Ended March 28, 1999 Commission file number 0-7831
-------------- ------
(3 Accounting Periods)
Notes to Consolidated Condensed Financial Statements
(Unaudited, Dollars in thousands)
Three Periods Ended
-------------------
03/28/99 03/22/98
-------- --------
(Unaudited) (Unaudited)
Earnings (losses) before income taxes by segment
Publications $ 9,598 $ 8,246
Broadcast 4,985 3,649
Printing 1,142 (1,017)
Telecommunications 7,760 4,157
Direct Marketing 110 65
Corporate and eliminations 5 320
Net interest and dividends 1,855 1,411
---------- ---------
$ 25,455 $ 16,831
========== =========
Three Periods Ended
-------------------
03/28/99 12/31/98
-------- --------
(Unaudited) (Unaudited)
Total assets by segment
Publications $ 119,009 $ 120,949
Broadcast 125,196 127,598
Printing 101,521 108,900
Telecommunications 63,222 61,849
Direct Marketing 15,436 15,292
Corporate and eliminations 147,476 149,560
---------- ---------
$ 571,860 $ 584,148
========== =========
4. Comprehensive Income
Total comprehensive income was $14,621 for the three periods ended March
28, 1999, and $9,849 for the three periods ended March 22, 1998.
6
FORM 10-Q
JOURNAL COMMUNICATIONS, INC.
For Quarter Ended March 28, 1999 Commission file number 0-7831
-------------- ------
(3 Accounting Periods)
Item 2. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations
Results of Operations
During the first quarter, consolidated net earnings were up 50.4% over a year
ago to $15 million. These results came on first quarter revenue of $165.6
million, up 6.9%.
Retail advertising and shared and solo mail drove a 21.4% increase in pre-tax
earnings at Journal Sentinel Inc. to $10.8 million, on sales of $57.7 million,
up 9.4%. The increase in retail revenue offset a softening in classified
employment advertising, compared to last year. Newsprint costs were about
$470,000 below 1998's first quarter costs and are expected to be below last year
for the remainder of 1999. Journal Sentinel also got a boost this year by the
extra six days in the first quarter, compared with 1998, because that included
an additional Sunday newspaper in Milwaukee.
Our other publishing operation, Add Inc., had a first quarter revenue increase
of 11.4% to $24.3 million, but pre-tax earnings dropped from $502,000 last year
to $68,000 in 1999. Much of the earnings shortfall was due to losses at two
Florida operations, Clay Today in Orange Park and the Jacksonville shopper, as
we invested in turnaround plans at both publications.
At Journal Broadcast Group Inc., pre-tax earnings grew 36.6% to $5 million, on
sales of $23.3 million, up 12.6%. Earnings growth was particularly impressive at
WTMJ-TV in Milwaukee and at the radio operations in Omaha and Tucson.
Norlight Telecommunications Inc. continued its impressive growth, with a pre-tax
earnings increase from $4.2 million in 1998 to $7.8 million in 1999's first
quarter, an 86.7% increase. Revenue was up 42.6% to $23.2 million. Carrier
results have been particularly strong and should continue through the second
quarter. The expansion of the fiber network into Michigan and Indiana should be
completed by the end of 1999.
A dramatic turnaround was reported at IPC Communication Services with first
quarter pre-tax earnings of $234,000, compared to a loss of $2.5 million last
year. Revenue in 1999 was $22.4 million, down 19.5% due to the closure last year
of the unsuccessful northern California plant.
At NorthStar Print Group Inc., the pre-tax loss was $338,000, after last year's
first quarter positive results of $329,000. Bookings at Milwaukee were strong,
but Norway / Watertown continued with year-to-date volume behind last year as a
result of the economic turmoil in Brazil. Label Products & Design was working to
gain back lost accounts in the face of aggressive pricing by competitors.
7
FORM 10-Q
JOURNAL COMMUNICATIONS, INC.
For Quarter Ended March 28, 1999 Commission file number 0-7831
-------------- ------
(3 Accounting Periods)
Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations
PrimeNet Marketing Services had pre-tax earnings growth of 68.4% to $110,000 for
the first quarter on sales of $3.2 million, up 10%.
Cash generated from operations during the first quarter was a strong $33.4
million. Capital expenditures in the first quarter were $7.9 million, while $7.7
million was paid out in quarterly dividends to unitholders, and $14.8 million
was used to repurchase treasury stock that should quickly be resold to
employees.
Total assets have decreased $12 million from December 31, 1998, to $572 million,
while stockholders' equity is $440 million.
YEAR 2000 ISSUES
Project Overview
Journal Communications initiated an enterprise-wide effort in 1997 to address
the issues related to the ability of computer programs and embedded technology
to properly distinguish between years beginning with "20" and "19".
The project plan includes six phases:
1. An awareness phase, to educate and prepare staff at all levels for the
effort required to complete the project;
2. A planning phase, during which a comprehensive inventory of all
technology is completed, assessed for risk, investigated for known
compliance, vendors and suppliers surveyed, and strategies for upgrade or
replacement of non-compliant systems planned;
3. A remediation phase, during which corrective actions planned in the prior
phase are completed;
4. A testing phase, during which both corrected systems and those believed
to be compliant are verified for correct handling of the year
calculations;
5. An implementation phase, which includes placing into production those
systems that passed tests successfully, and
6. A contingency planning phase, which includes planning for individual
system issues as well as each company's planning for Year 2000 related
issues outside of their control.
8
FORM 10-Q
JOURNAL COMMUNICATIONS, INC.
For Quarter Ended March 28, 1999 Commission file number 0-7831
-------------- ------
(3 Accounting Periods)
Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations
Current Status of the Year 2000 Project
The awareness phase is a continuing effort that has been underway since 1997.
The inventory is substantially complete including an assessment of the risk
associated with each item and vendor. The noted exception is new acquisitions,
for which an inventory and assessment effort is in the planning phase. Vendor
surveys have been sent to approximately 90% of the critical suppliers of the
Company, and a majority of the responses have been received. Through these
efforts and those of a consultant contracted in 1998 to assist with the planning
phase, the compliance status of over 90% of the inventoried technology is known.
As a result, corrective action for over 3/4 of the Company's technology impacted
by the Year 2000 has been planned.
Corrective actions were complete for a majority of the critical systems of the
Company by December 31, 1998. These included systems impacting the delivery of
goods or services, safety, or revenues of the Company. The Company plans to
replace or upgrade all critical, date-impacted technology by September 1, 1999.
Non-critical systems are generally in the planning phase. In both cases, the
Company plans to use both internal and external resources to make the needed
corrections to software and embedded technologies.
Communications with vendors and suppliers are being reviewed to determine the
extent to which the Company may be vulnerable to the failure of these suppliers
to resolve their own Year 2000 issues. The Company will assess and attempt to
mitigate its risks with respect to the failure of these entities to be Year 2000
ready through a variety of options, including contingency planning and vendor
selection, where practical.
The Company plans to complete all phases of its Year 2000 project on time based
upon the results to date and certain assumptions of future events including the
continued availability of resources, suppliers meeting their commitments to
deliver needed upgrades or replacements, and other factors. However, actual
results could differ materially from those planned. Specific factors that might
cause such material differences include, but are not limited to, the
availability and cost of personnel needed to complete the project, the ability
to locate and correct all impacted technology, and similar uncertainties.
9
FORM 10-Q
JOURNAL COMMUNICATIONS, INC.
For Quarter Ended March 28, 1999 Commission file number 0-7831
-------------- ------
(3 Accounting Periods)
Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations
Costs Associated with the Year 2000 Project
Based upon presently available information, the Company has estimated that the
operating costs associated with the Year 2000 project to date have been $2.3
million. This includes the cost of third-party resources used to assist in the
assessment of technology at each of the subsidiaries and an estimate of the
internal labor costs associated with the project.
The total estimated capital costs, much of which would have been incurred
regardless of Year 2000 issues, were $5.9 million through the end of 1998. The
Company estimates capital costs for 1999 and through the completion of the
project to be $1.2 million. Labor and other operating costs associated with the
project are estimated at $2.7 million for the same period. At this time, the
Company does not anticipate delaying any major information systems projects due
the Year 2000 project.
Risks Associated with Year 2000
The Year 2000 is a complex and significant project and, accordingly, contains
the risk of underestimating the tasks, resources, and costs associated with its
successful completion. The risk of not finding a material Year 2000 problem that
may impact normal business activities or operations also exists. Due to the
general uncertainty inherent in the Year 2000 problem, resulting in part from
the uncertainty of the Year 2000 readiness of suppliers and customers, the
Company is unable to determine at this time whether the consequences of the Year
2000 failures will have a material impact on the Company's results of
operations, cash flows or financial condition. Through the efforts of the Year
2000 project, the Company is making every effort to reduce the level of
uncertainty about the Year 2000 problem and, through its contingency planning
efforts, mitigate the associated risks.
Contingency Plans
Each of the operating companies is expected to complete contingency planning at
the system and company level. In part, the contingency plan's goal is to attempt
to minimize identified third-party exposures. While some of the subsidiaries
have begun this effort, a majority of the companies are expected to begin this
effort in earnest in the second quarter of 1999.
Item 3. Quantitative and Qualitative Disclosure of Market Risk
There have been no material changes in the reported market risks since 12/31/98.
10
FORM 10-Q
JOURNAL COMMUNICATIONS, INC.
For Quarter Ended March 28, 1999 Commission file number 0-7831
-------------- ------
(3 Accounting Periods)
Part II. Other Information
Item 6 - Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K. There were no reports on Form 8-K filed for
the three accounting periods ended March 28, 1999.
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 May 11, 1999 /s/Steven J. Smith
Steven J. Smith, Chairman and Chief
Executive Officer
Date May 11, 1999 /s/Paul M.Bonaiuto
Paul M. Bonaiuto, Executive Vice President
And Chief Financial Officer
11