Business News

Journal Communications Reports Second Quarter 2009 Results

Tuesday 21. July 2009 - Journal Communications, Inc. (NYSE:JRN) today announced results for its second quarter ended June 28, 2009.

“While the advertising environment remains challenged, we recorded positive operating earnings in the second quarter excluding the $19.0 million non-cash impairment charge. We were also able to reduce debt by $22 million in the second quarter to bring our total debt down to $178 million,” said Steven J. Smith, Chairman and Chief Executive Officer of Journal Communications. “We have been able to trim our debt by $37 million in the first two quarters of 2009. We continue to aggressively cut expenses in the face of reduced revenue.

“Our long time customers in automotive, real estate and retail advertising continue to feel the effects of the economic recession. For example, in the second quarter, automotive advertising was down 49% in broadcasting and 56% in the daily newspaper. We have yet to see signs of a sustained recovery.

“Our businesses continue to focus on cash generation by maximizing our share of the advertising dollars in our local markets while seeking both traditional and non-traditional ways to enhance our advertising customers’ ability to reach their target audiences.”

Second Quarter 2009 Results

Note that unless otherwise indicated, all comparisons are to the second quarter ended June 29, 2008.

For the second quarter, revenue of $109.4 million decreased 21.9% compared to $140.1 million. The operating loss of $10.0 million included a $19.0 million non-cash impairment charge for our broadcast licenses and a $1.7 million gain related to insurance proceeds from our Wichita tower replacement. Excluding these items, operating earnings of $7.3 million compared to $16.6 million, a decrease of 56.0%. The net loss of $4.8 million compares to net earnings of $9.0 million.

In the second quarter 2009, basic and diluted net loss per share of class A and B common stock were $0.11 for both. Excluding the impact of the non-cash impairment charge and the gain related to the tower replacement, basic and diluted net earnings per share of class A and B common stock were $0.07 for both. This compared to net earnings per share of $0.16 for both in 2008.

Excluding the $19.0 million non-cash impairment charge and the $1.7 million gain related to the tower replacement, the operating margin was 6.7% compared to 11.9%. EBITDA (net earnings (loss) excluding the gain/loss from discontinued operations, net; total other expense, net; provision (benefit) for income taxes; depreciation; amortization; and non-cash impairment charges) of $16.1 million decreased 32.5% compared to $23.9 million.

Consolidated and Segment Results

The following table presents our total revenue and operating earnings (loss) by segment for the second quarter of 2009 and the second quarter of 2008:


2009

2008

% Change

Revenue:
Publishing $ 49.4 $ 61.8 (20.1 )
Broadcasting 43.8 53.5 (18.2 )
Printing services 11.2 16.8 (33.0 )
Other 5.0 8.0 (37.4 )
Total revenue
$109.4 $140.1 (21.9 )

Operating earnings (loss):
Publishing $ 3.3 $ 5.7 (42.2 )
Broadcasting (after impairment) (12.7 ) 9.7 n/a
Printing services (0.4 ) 0.8 n/a
Other (0.2 ) 0.4 n/a
Total operating earnings (loss)
$(10.0 ) $ 16.6 n/a

Broadcast license impairment
$(19.0 ) $ — n/a
Overall, total operating expenses of $119.4 million decreased 3.3% compared to $123.5 million. Excluding the non-cash impairment charge and the gain related to the tower replacement, total operating expenses were $102.1 million, a reduction of 17.3% primarily driven by workforce reduction initiatives in 2008 and early 2009, employee benefit reductions and wage reductions implemented early in 2009 and reduced expenses related to revenue declines. The aggregate cost reduction of these employee benefit reductions and wage reductions for the full year of 2009 is expected to be approximately $8 million.

Publishing

For the second quarter, publishing revenue decreased 20.1% to $49.4 million compared to $61.8 million, largely due to continued weakness in the classified and retail advertising categories. Operating earnings from publishing of $3.3 million decreased 42.2% compared to $5.7 million. Total newsprint expense in publishing was $4.1 million compared to $6.3 million, a 34.9% decrease.

Revenue at the daily newspaper for the second quarter decreased 22.7% to $39.9 million compared to $51.7 million. Classified advertising revenue decreased 52.6% largely due to decreases in the employment, automotive and real estate advertising categories while retail advertising revenue decreased 20.9%. Interactive advertising revenue at the daily newspaper decreased 33.5% to $2.5 million compared to $3.7 million, primarily due to a decline in automotive and employment online classified advertising. Operating earnings from the daily newspaper were $2.4 million compared to $5.4 million. Daily newspaper operating expenses were down 19.0% primarily due to the reduction in employee related costs and newsprint expense and other cost reduction initiatives partially offset by a $0.6 million workforce reduction charge.

Community newspapers and shoppers revenue for the second quarter decreased 6.6% to $9.5 million compared to $10.2 million. The decrease was primarily due to declines in automotive and real estate retail and classified advertising revenue and was partially offset by $1.2 million in revenue from recent acquisitions. Operating earnings from community newspapers and shoppers were $0.9 million compared to $0.3 million. Operating expenses were down 12.3% primarily due to cost savings from workforce reduction initiatives, a $0.4 million charge recorded in 2008 for a contract termination liability and a decrease in newsprint expense partially offset by expenses relating to acquisitions during 2008.

Broadcasting

For the second quarter, broadcasting revenue decreased 18.2% to $43.8 million compared to $53.5 million largely due to decreases in local advertising revenue of 16.3% and national advertising revenue of 34.8%. Total broadcast political and issue advertising revenue was $0.6 million compared to $0.7 million. Retransmission revenue was $1.0 million compared to $0.4 million. Broadcasting operating loss of $12.7 included a $19.0 million non-cash impairment for broadcast licenses and a $1.7 million gain related to insurance proceeds from our Wichita tower replacement. Excluding these items, operating earnings of $4.6 million decreased 52.7% compared to $9.7 million.

Revenue from television stations for the second quarter decreased 18.2% to $26.7 million compared to $32.6 million. Television political and issue advertising revenue was $0.4 million compared to $0.6 million. Operating loss from television stations of $13.4 million included a $14.9 million non-cash impairment charge for television broadcast licenses. Excluding the non-cash impairment charge, operating earnings of $1.5 million decreased 68.1% compared to $4.6 million. Television operating expenses (including KWBA-TV that was acquired in July 2008 and KNIN-TV acquired in April 2009 but excluding the non-cash impairment charge) were down 10.0% compared to last year due to the reduction in employee related costs and other cost reduction initiatives.

For the second quarter, revenue from radio stations of $17.1 million was down 18.1% compared to $20.9 million. Operating earnings from radio stations of $0.7 million included a $4.1 million non-cash impairment charge for radio broadcast licenses and a $1.7 million gain related to the Wichita tower replacement. Excluding the non-cash impairment charge and the gain related to the tower replacement, operating earnings of $3.1 million decreased 39.1% compared to $5.1 million. The decline in operating earnings were due to declines in revenue partially offset by an 11.3% decrease in radio operating expenses from the reduction in employee related costs and other cost saving initiatives.

Printing Services

For the second quarter, revenue from printing services decreased 33.0% to $11.2 million compared to $16.8 million due to a general overall decline from all printing segments. The operating loss from printing services of $0.4 million compared to operating earnings of $0.8 million, primarily due to the decline in revenue, partially offset by employee related cost reduction initiatives.

Other (Direct Marketing and Corporate)

For the second quarter, revenue for “Other” of $5.0 million decreased 37.4% compared to revenue of $8.0 million due to a decrease in revenue at our mailing services business. “Other” operating loss of $0.2 million compared to operating earnings of $0.4 million.

Non-Operating Items

For the second quarter, other expense, which primarily consists of interest expense, was $0.7 million compared to $1.9 million. Interest expense decreased due to a decline in both the average borrowings during the quarter and the interest rate on our borrowings.

The second quarter effective tax benefit rate of 54.9% was impacted by the operating loss created by the non-cash impairment charge and a favorable adjustment to our income tax reserve due to the lapsing of certain open tax years.

Debt and Cash Flows

At the end of the second quarter, our debt of $178.3 million represented 2.94 times the trailing four quarters of EBITDA. During the first two quarters of 2009, debt was reduced by $36.8 million. Year to date cash from operating activities was $46.8 million compared to $29.5 million, an increase of $17.3 million primarily due to cash provided by changes in working capital and an $8.7 million income tax refund due to the settlement of an income tax assessment. Capital expenditures were $3.8 million compared to $8.5 million. There were no share repurchases in 2009 compared to $40.8 million. Dividends paid to shareholders were $1.5 million compared to $9.5 million.

Third Quarter 2009 Outlook

For the third quarter of 2009, the Company currently anticipates that its publishing, television and radio revenues will be down compared to the prior year period, reflecting continued challenges across its businesses.