Journal Communications Inc. Q3 2008 Earnings Call Transcript

Journal Communications Inc. (JRN)

Q3 2008 Earnings Call

October 23, 2008 12:00 pm ET

Executives

Steven J. Smith – Chairman, Chief Executive Officer

Douglas G. Kiel – President, Chief Executive Officer of Journal Broadcast Group

Paul M. Bonaiuto – Chief Financial Officer

Elizabeth Brenner – COO, Publishing

Andre Fernandez – Executive VP Finance and Strategy

Analysts

Tracy Young – JP Morgan

[Craig Huber] – Barclays Capital

Dan Levin – Robert W. Baird

Peter Salkowski – Goldman Sachs

Presentation

Operator

(Operator Instructions) I would like to turn the call over to Mr. Steven Smith, Chairman of the Board and Chief Executive Officer. Please proceed, sir.

Steven J. Smith

Thank you Operator and welcome everyone. Paul Bonaiuto, Executive Vice President and Chief Financial Officer will participate in this morning's call with me. Doug Kiel, CEO of our Broadcast Group and Betsy Benner, COO of our publishing business will also be available during our Q&A session. I would also like to introduce Andre Fernandez, who began with Journal Communications this week as Executive VP Finance and Strategy and will assume Paul Bonaiuto’s responsibilities as CFO following the filing of our third quarter 10-Q.

As we described in our news release dated September 15th, Andre joins us from NBC Universal’s Telemundo unit and we are pleased to welcome him to Journal. Any discussion of adjusted EBITDA in today’s conference call may be referenced back to our unaudited reconciliation of consolidated net earnings to consolidated adjusted EBITDA schedule which accompanies today’s earnings release. Unless otherwise indicated all comparisons are to the third quarter ended September 30, 2007.

This morning, Journal Communications reported a net loss of $17.1 million for the quarter ended September 28, 2008, including a $23.5 million after tax non-cash impairment charge for four television and thirteen radio broadcast licenses and a $2.4 million after tax charge for our workforce reductions. Excluding these charges, net earnings were $8.8 million and basic and diluted earnings per share of Class A and B common stock were $0.16 for both. For the third quarter revenue of $136.3 million, decreased 5.6%.

A tough economy resulting in a difficult advertising environment impacted our revenues once again in the third quarter, moderated somewhat by political and Olympic advertising. Television revenue grew 3% in the quarter while radio revenue was off by 3%. Publishing revenue was down 8.8%. Total company interactive revenue was up almost 16% in the quarter continuing its growth trajectory.

We remain diligent in our focus on cost reduction. Year-to-date total operating costs excluding the non cash impairment charge and the workforce reduction charges are down in both publishing and broadcasting. Strict cost control will benefit us for the remainder of the year and will continue into the foreseeable future.

In the third quarter, broadcast revenue increased almost 1% to $54 million with political and Olympic advertising contributing to the results. Olympic revenue was $2.3 million. Political and issue advertising was $3.4 million, which reflects softer spending than we anticipated thus far. Political advertising in the battleground states of Nevada and Wisconsin has been strong.

In July, Journal Broadcast Group completed the purchase of KWBA TV to form a television duopoly in Tucson, Arizona and announced an agreement to purchase KNIN TV in Boise to form another television duopoly in that market. KNIN has the potential to close by the end of the year. While the economy has hit our growth market disproportionately hard, they still make a significant contribution and we believe they will return to delivering attractive results once the economy turns.

The challenges facing the automotive market have been well documented. We are feeling this challenge in just about every market with the overall automotive category in television down 18% in the quarter versus last year. On the flip side, developmental revenue accounts for 13% of total broadcast revenues this year and is an important contributor as our talented sales forces develop value added programs for advertisers in each local market. In this environment, we continue to aggressively control broadcast expenses.

In the third quarter, excluding the two television stations acquired this year and workforce reduction charges, television and radio expenses are down more than 1%. Our headcount was down 10% thus far this year in broadcast. Turning to publishing, revenue was down 8.8% with weakness across all categories. We continue to align our publishing expenses with declining revenues.

Journal Sentinel full time equivalents are down 11% through the third quarter this year. They have recently completed the workforce reduction announced in July and the results are greater than the anticipated 10% reduction. This resulted in a charge of $3.7 million in the third quarter. As part of this workforce reduction, we outsourced a portion of our IT support and our prepress operations which are expected to reduce ongoing costs.

In early October, we acquired the assets of the Waupaca Publishing Company adding several titles to our already strong Waupaca County cluster at Journal Community Publishing Group. We also acquired the Sarasota Weekly Shopping Guide from Sun Publications. This publication increases our footprint in Sarasota with our existing Pelican Press product.

In late September we announced the addition of two experienced sales executives to an already strong publishing team. Margie Cochrane joined us as Senior VP of Advertising from the Arizona Republic and Daryl Hively joined us VP of Online Sales from Journal Register.

Digital media revenues continue to grow and are up almost 19% for the year and almost 16% for the quarter. Our focus is growing visitors and page views as well as online revenue at all of our publishing, broadcast and niche media websites. Page views were up over 10% at both JSOnline.com and tmj4.com in Milwaukee in the third quarter. And we also saw significant page view increases at the companion sites in Fort Myers, Las Vegas, Springfield and Boise.

Our conversion to a new content management system and the relaunch of jsonline.com will be complete in the next few weeks. The new clickability platform will allow us to share news content and media feeds across multiple media brands and websites. We also launched a new ad serving platform that will enable us to manage ad inventory across the Journal Online properties. This is all part of our local market strategy to grow audiences in each market and bundle opportunities that will be even more effective for our advertisers.

We believe our balance sheet continues to position us well in this challenging environment. At the end of the quarter, our debt was $223 million which represents 2.5 times our trailing four quarters of adjusted EBITDA. Our credit facility allows us to borrow up to 4 times our trailing four quarters of adjusted EBITDA.

We have used our cash prudently to repurchase 844,000 shares this quarter, pay dividends, make capital expenditures in HDTV and other digital initiatives, and acquire publishing and broadcast businesses to help grow our company. We continue to believe we have sufficient flexibility to operate our business.

While the economy is difficult and the business model for traditional media continues to change, we are confronting these challenges and positioning our company for the future. We are delivering relevant products for our audiences, expanding our marketing reach, and effectively selling advertising to our customers. We are accomplishing this through both our traditional channels as well as new digital products.

And now I would like to ask Paul Bonaiuto to begin his in-depth financial review. Paul.

Paul M. Bonaiuto

Thanks, Steve. For the third quarter 2008, revenue of $136.3 million decreased 5.6% as we continue to experience ongoing advertising weakness across our businesses. The net loss was $17.1 million. This compares to a net earnings of $13.1 million which included a $1.3 million gain from discontinued operations of certain clusters of our community newspapers and shoppers division. The loss included a $23.5 million after tax non-cash impairment charge for four television and thirteen radio broadcast licenses as well as a $2.4 million after tax charge for workforce reduction.

Excluding these charges, earnings from continuing operations were $8.8 million compared to $11.8 million, a decrease of 25.4%. With the 2008 third quarter Other Expense, which primarily consists of Interest Expense, was $1.9 million, reflecting a decrease in the interest rate partially offset by an increase in average debt outstanding. This increase in average debt outstanding was due to expenditures for repurchases of common stock and acquisitions.

Overall, excluding the $38.8 million pretax non cash impairment charge, and the $3.9 million pretax workforce reduction charges, total operating costs have decreased by $2.4 million or 1.9%, principally reflecting the reduction in payroll and benefits across all of our businesses. For the third quarter of 2008, our effective tax benefit rate was 40.8% compared to an effective tax provision rate of 39.5%. The difference is primarily due to the settlement of certain state income tax audits, the impact of the impairment and a rate true-up based on the mix of taxable earnings.

Turning now to our third quarter segment performance, publishing revenue declined 8.8%. This was seen in all advertising categories as we experienced the effect of ongoing secular and cyclical influences. This was partially offset by an increase in online revenues of $500,000. At the daily newspaper, total revenue of $50.1 million was down 9.1%. Advertising revenue of $33.7 million decreased 15.1%. Weakness in classified, retail and national advertising were major factors in this decline.

Retail revenue of $20.2 million was down 6.2% which is about the same decline we saw in the second quarter. This decline was primarily in our OP and preprints, where we experienced decreases in nearly all categories. The most significant of the declines was experienced specifically in the finance insurance, building hardware, real estate, department stores and furniture categories.

Classified advertising at the daily newspaper of $11.1 million, which includes both press and online, decreased almost 26% in the third quarter. Looking specifically at the classified verticals, employment was down almost 30%, autos declined about 22%, real estate was down around 35%, and finally, the other classified verticals was down 1% year-over-year.

On a combined retail and classified basis for all products of the daily newspaper, auto advertising was down around $700,000, or 17.8% compared to last year. Our national advertising revenue category decreased 29% to $1.7 million dollars. This reflected decreases in both our OP and preprints.

Within our OP the declines were seen primarily in the airline travel, communication, and business service categories. The direct marketing category of the daily newspaper was down 12.6%. This decline represents a decrease in solo mailing. Although interactive advertising is included in the various revenue categories, total online revenue with the daily newspaper increased by roughly 14% to $3.8 million for the third quarter.

Interactive classified revenue of $2.4 million increased 12%. Looking specifically at the third quarter 2008 online classified advertising verticals, employment increased by about 19% to $1.2 million due to growing momentum for our JobNoggin website. Auto increased about 19%, up about $150,000; however, real estate declined by roughly 30%.

Moving beyond advertising revenue, circulation revenue of $12.9 million for the third quarter was essentially flat. We implemented an increase in cover price in mid-June that offset a modest decline in circulation. Other revenue with the daily newspaper of $3.5 million, was up almost 40% for the quarter, reflecting gains in commercial printing mainly from the new La Raza contract.

One relatively small commercial print customer, the Chicago Reader, filed Chapter 11. We recorded a reserve for the pre-bankruptcy with the accounts receivable of $246,000 and continue to print on a prepayment basis.

Operating range from publishing decreased 87.7% to $1.2 million, compared to $9.4 million. Third quarter 2008 included a $3.7 million pre-tax charge for a workforce reduction. Excluding this charge, publishing operating earnings decreased by 48.4% primarily due to the decrease in revenue.

At the daily newspaper, operating earnings totaled $943,000. Excluding the $3.7 million charge for our workforce reduction, operating earnings were $4.6 million, which resulted in a 9.2% operating margin. Projected full year net savings from the workforce reduction are estimated to be between $5.6 million and $6 million.

Total expenses at the daily newspaper, excluding the charge for workforce reduction, were $45.6 million, down about $1.3 million or 2.7% compared to last year, where we adjusted for an insurance settlement of $720,000.

Newsprint costs were up $716,000, reflecting a 27.6% increase in price, partially offset by a reduction in consumption of 11.1%. Payroll and benefit savings continue to be the primary contributor to the reduction in costs.

Turning to our community newspapers and shoppers, revenue from continuing operations of $9.4 million was down 7.1% compared to last year, reflecting declines in both retail and classified advertising revenue. The same theme continues with weakness in retail and classified automotive advertising plus very soft real estate advertising, particularly in our Florida market.

Offsetting these declines is about $365,000 in revenue from newly acquired publications in northern Wisconsin and Florida. Circulation revenue at the community newspapers and shoppers of $271,000 increased 14.8% or $35,000, due the recent acquisitions of publications in northern Wisconsin. Other revenue decreased approximately 15.5 %.

The community newspapers and shoppers operations recorded operating earnings of $200,000 which were essentially flat with last year. This was achieved by proactively identifying cost reductions that helped to offset the decline in revenue and positive results from the new publication in northern Wisconsin and Florida.

Broadcast is where we experience the effects of the interim impairment testing of intangible assets. The test results showed that primarily due to a decline in the expected growth rates in several of the markets where we own radio and television stations, a number of our FCC licenses were impaired. A pre-tax, non-cash impairment charge of $21.1 million was taken for four television stations and $17.7 million for 13 radio stations. There was no impairment to goodwill.

For the third quarter, broadcasting revenue increased almost 1% to $54 million. Broadcast operating earnings, excluding the pre-tax non-cash impairment charge of $38.8 million, were $9.7 million, down less than 1% compared to last year.

For the third quarter, revenue from television stations increased $1.1 million or 3.4% to $32.3 million. Political and issue advertising revenue for the 2008 third quarter was $3.2 million, compared to $100,000 last year. Olympics advertising revenue on our NBC station was $2.3 million.

Revenue from the two television stations acquired this year was $900,000, excluding the pre-tax non-cash impairment charge of $21.1 million, operating earnings from television stations increased 18.8% to $4 million. This mainly reflects the increases in revenue at our Milwaukee, Green Bay and Lansing stations. Overall, when you exclude the non-cash impairment charge, television same station expenses were down 1% compared to third quarter last year.

Moving on to radio, for the third quarter 2008, revenue decreased $800,000 or 3.3% to $21.7 million. Radio revenue was down across all radio markets, except in Milwaukee, where WTMJ AM is having a good year, and we also enjoy a revenue boost from the success of our Milwaukee Brewer broadcasts.

Operating earnings, excluding the $17.7 million pretax non-cash impairment charge and $200,000 in workforce reduction charges of $5.8 million decreased about 8%. This decrease was due to the revenue decline, partially offset by tight cost controls. Radio operating expenses, excluding these charges, were down 1.2% when compared to last year.

In printing services for the 2008 third quarter, revenue decreased about 12% to $16.1 million. Operating earnings from printing services decreased about 66% to about $800,000, largely due to the declining revenue. In the fourth quarter, due to the changing mix and reduced volume of business, the workforce was reduced by about 10%. The expected annualized savings next year is approximated to be around $2 million.

For the 2008 third quarter revenue for the other segment of $6.7 million decreased approximately 7%, due to a decrease in mailing services, partially offset by an increase in offset and laser printing. Other operating earnings were $190,000. Through three quarters of 2008, operating cash flow was $45.2 million. At the end of the third quarter, debt was $223 million. Shareholder's equity stood at 429.

Our capital expenditures from continuing operations through the three quarters of 2008 were $15.1 million compared to $23.5 million last year. During the third quarter, we repurchased 844,000 of our Class A shares as part of our share repurchase program. Year-to-date, we've repurchased 6,748,800 of our Class A shares.

From the inception of the repurchase program in early 2005 through the end of the third quarter, we've repurchased 22.6 million shares. This represents a reduction in our diluted share count of approximately 29.5%. Although we've been very active during the first three quarters with our share repurchase program, we are throttling back our efforts.

We continue to believe that reinvesting in JRN shares represents a solid investment. However, we also believe that it is prudent to be more conservative in these difficult times, especially given that we've achieved our targeted debt level of two x debt]to EBITDA. This year, we've acquired or committed to acquire, businesses in both broadcast and publishing.

The three television stations create additional duopolies in Palm Springs, Tucson and Boise. These stations allow us to build out cross-platform businesses in markets where we already do business. With multiple stations in the market, we believe we are in a good position to grow our total audience and serve our viewers.

Our publishing acquisitions in northern Wisconsin and Florida provide additional community newspapers, shoppers and niche products within our existing footprint, which also helps us to even more effectively serve readers and advertisers in these markets. Advertisers will benefit from the additional reach the new family of journal community publishing groups products will provide.

We expect to spend approximately $34 million for acquisitions this year. Going forward, these acquisitions are expected to enhance margins. For the fourth quarter of 2008, Journal Communications currently anticipates that its publishing revenues will be down compared to prior year, reflecting continued challenges in classified advertising partially offset by continued strength in commercial printing and interactive at the daily newspaper.

Television revenues, however, are expected to be down in the mid-single digit range, compared to the prior year period, including political and issue advertising. Radio revenues are expected to also be down in the mid-single digit range. However, I would quickly add that during these difficult economic times, we find it more challenging than ever to predict revenues in the future.

Now, I'd like to turn the call back over to Steve, for a brief wrap-up before we open it up to Q&A. Steve?

Steven J. Smith

Thank you, Paul. Despite the realities in the economy, and more specifically in industry in recession, we are optimistic about the strengths of our brand and the talent we have to take us into the future. We believe that the quality of our products in each of our local markets will continue to grow audiences advertisers want to reach.

In this dramatic downturn, some of the markets which had the most vibrant projections are the ones that have been hit the hardest, yet we remain optimistic about the long-term outlook for markets like Las Vegas, Tucson, Boise and Ft. Myers. Expanding, training and incentivizing our sales forces to connect advertisers with our local broadcast, publishing and digital audiences will remain a priority and a differentiator, especially in our cross-media markets.

Operator, this concludes our remarks. You may begin the Question and Answer Session.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Tracy Young – JP Morgan.

Tracy Young – JP Morgan

Two questions on broadcasting to start, the first is on your television guidance. Excluding your Olympics and political revenues, it appears that the core business is down about 14%. Is that similar to what you're expecting or it's terms that you're expecting for 4Q? And then on the second question, I understand your stations were down on the radio side, but how did you do compared to your markets? Thanks.

Douglas G. Kiel

Tracy, this is Doug. Thanks for the question. Looking forward to the fourth quarter, your first question is more difficult than we've seen it in many years because of the amount of cancellations we're getting. The fact that in this environment, holding to a rate is very difficult. Our current pacing going into the month we're in right now in the fourth quarter is actually quite good, and that's because the political and issue advertising levels in several of our markets, led by of course, Las Vegas, Milwaukee, Green Bay, even Tucson, where they have a good congressional race and some others.

But the picture's really cloudier after Election Day, so that's why it makes it very difficult to look much after the early first week in November. Advertisers apparently, and we're seeing this in many of our markets, they're taking a wait and see attitude about prospects for the year before they jump in.

So what we're seeing and led to our outlook was because of that, because we're not seeing folks placing later anyway, as you know, all during the year. We're seeing that very true right now, so, auto, retail, furniture, other categories all being impacted by that. So our bookings are slower and we experience – continue to experience cancellations. But the feedback is, well let's just wait until we get a little farther and see what's going to happen.

Radio's basing flat early in the quarter. I had similar circumstances to television when you look out a little farther, and a little bit less pronounced because the volatility is less in radio. So, that's really our outlook. You asked about our radio compared to our marketplaces, and it's a very spend market. As you know, we have stations in all of our markets that are doing well ratings-wise. As we mentioned in Paul and Steve's comments, WTMJ radio in Milwaukee is doing exceptionally well.

We had one of its strongest rating period's books in a lot time in the summer. It came here just a day or so ago, so we're excited about that. And others are trickling in and we've done that well.

So, our goal is, and we're seeing this in our markets, the markets vary in terms of how they're doing and several of our markets now, we're not getting the same reports that we traditionally have gotten in terms of our market revenue models. So it's a little harder to get that information quickly.

But we have strong shares in our marketplaces and our goal for all of our sales folks – sales management is to over-index the market on share and that's what we intend to do.

Operator

Your next question comes from [Craig Huber] – Barclays Capital

Unidentified Corporate Participant

We don’t have the line for – maybe just [Craig's] line was lost.

Operator

(Operators Instructions) Once again, we have [Craig Huber] – Barclays Capital.

[Craig Huber] – Barclays Capital

Yes, I'm not sure what happened there. I was asking first, do you have a ballpark guess as to what you think political advertising in fourth quarter will be for your TV stations and also for your radio stations?

Steven J. Smith

Doug?

Douglas G. Kiel

Yes, [Craig], this is Doug. We expect political for the year to finish at about $12 million and as you know, we have just over 59 in and that's radio and TV together. Through three quarters, our radio political was about $540,000 some; TV about 5.4 and going forward, the bulk of our political money will be in television, less than $1 million in radio.

[Craig Huber] – Barclays Capital

Then if you switch over to the newspapers, please. Adjusting for the one-time items both years, what was the percent change or non-newsprint cash costs in your newspaper division?

Elizabeth Brenner

This is Betsy. So the third quarter our non-news print cash costs without the severance charge of $3.7 million were down 4.1% or $1.5 million.

[Craig Huber] – Barclays Capital

Great. And then also, on the newspaper side and I guess, frankly TV side too, just given the worsening economy here, are you finding that you're having any additional problems collecting payments for your advertising from you various advertisers?

Douglas G. Kiel

This is Doug I’ll talk about the broadcast site first. We’ve been very, very, very careful about that in ongoing way in terms of keeping track of our advertisers and payment schedules. So no, we’re not seeing that to be anymore difficult I suppose, but we’re not finding that to be an issue.

We’re really concerned about going forward and of course right now with political advertising that’s not an issue.

Steven J. Smith

[Craig] I just wanted to add something to what Betsy said. Adjusting for that work force reduction this year as well as an adjustment in 2007 we saw actually at the daily news paper about a 4.5% decline.

And at the community newspapers we saw about a 7.4% decline. So that an aggregate for publishing overall we saw roughly a 5% decline.

[Craig Huber] – Barclays Capital

I appreciate that clarity.

Douglas G. Keil

So do you want to talk about the bad debt in terms of collection? Any issues?

Elizabeth Brenner

We’ve not seen any issues so far and we’ve been staying pretty close to it both for our commercial print customers where they have the same pressures that our advertisers have. We, as Paul mentioned in his comments, we did have the one chapter 11 declaration but otherwise we’re staying close to those. And our regular advertisers in the market, if anything they’re cutting back on their spending and cutting back on their plans for the holidays. But that hasn’t resulted in any bad debt situations for us.

[Craig Huber] – Barclays Capital

And then also if I could sneak another one in here about an October trend at your newspapers, are the significantly different at all versus year-over-year percent change versus what you saw in the month of September as far as revenues?

Elizabeth Brenner

As we’ve forecast through the fourth quarter, we’re looking at a slight deterioration but really less than a percent. We were down about 15.1 as the third quarter ad revenue at the daily newspaper in Milwaukee.

We’re looking to maybe down 15.9 for the fourth quarter and where that’s coming for us is really in two areas. Some slight deterioration continuing in our employment advertising and then our preprint advertisers are already projecting fewer pages, same number of issues but smaller books and we also have the liquidation of one of our major preprint advertisers in the fourth quarter, that being Linens 'N Things.

[Craig Huber] – Barclays Capital

And, then, lastly if I could just ask looking out to 2009 I guess you’re starting to do your preliminaries, your discussion for next year for advertising rates for your newspapers. Do you have a sense of what – if you will be able to get any price increases next year for that for advertising for your newspapers?

Elizabeth Brenner

This year we’ve had some success in revamping our display rate structure and we’ve really been pretty successful in realizing that an 8% rate increase year-to-date through three quarters. So through really a combination of rethinking of price we’ve gone back out and been able to realize rate yields.

We expect to be doing the same thing next year. And that program will cycle in August so we will announce a rate increase in January for the people who are not under that program and for those that are we hope to continue to see the same good results through 2009.

[Craig Huber] – Barclays Capital

But you are expecting to be able to raise your ad rates next year in your newspapers?

Elizabeth Brenner

Collectively yes.

[Craig Huber] – Barclays Capital

For the print versions we’re talking about?

Elizabeth Brenner

Yes.

Operator

Your next question comes from the line of Dan Levin – Robert W. Baird.

Dan Levin – Robert W. Baird

Thank you. Just looking out into 2009 do you talk about some of the swing factors that we’re going to have next year with some cable re-transmission fee coming in? Obviously the political goes away and so forth, could you just talk about what the moving pieces are looking forward into 2009?

Douglas G. Keil

Yes, Dan, this is Doug Keil again, yes. No I will just talk about re-trans generally and kind of give a quick update on that. That’s certainly significant for us looking forward. The other moving pieces really are, I’ll get to that last, is political – Olympics goes away. And, of course, that takes inventory on our stations for that period of time in the four stations where we had Olympics so but inventory will be sold to somebody at some rates, so that’s not a zero sum game.

The same thing with political. I guess the flip side to us not having as much political advertising as we had hoped and expected is that the impact that it would’ve generally had on rates hasn’t been there so we’re kind of starting out fresh. That’s why this period of time after the election is going to be really important to us as we get through the first quarter to reset rates in our marketplaces.

So let’s talk about re-trans just for a second. As we’ve said before still true we have a 2.7 million cable subs around the country, about half of those subs are impacted by agreements that some set at the end of this year and another 25% at the end of last year.

So right now there is nothing new to report beyond that except that the effort, which we’re leading at the corporate level in our negotiations with our big cable operators, is well underway. We’re in negotiations with nearly all large and small cable operators in which agreements are sun setting at the end of this year even a few that are already for next year.

How I describe them is they’re progressing in a constructive manner and we continue to expect to see that being very additive to us over the next few years and we’ll have more to report hopefully next quarter.

Dan Levin – Robert W. Baird

And then when you look at paper costs, obviously we’ve been expecting a pretty big uptake in fourth quarter and going into ’09 coming from the mills but given what’s happened with the Canadian dollar now down below $0.80, we’ve seen oil prices almost get cut in half. Is there any relief there coming for you guys on the paper cost side?

Unidentified Corporate Participant

I think even though we’re most recently seen certainly the relation, the strengthening of the dollar the mills are still struggling in terms of making what they believe to be a fair level of profit.

They continue to rationalize the level of capacity that they have online and so our expectation is that certainly through the balance of this year we’ll continue to see those increases that we had spoken to earlier and then when it comes to next year who knows but the balance of power certainly hasn’t shifted.

I mean there is still a need for that profitability to be achieved for the mills to cover their capital and earnings requirements.

Dan Levin – Robert W. Baird

And if you could just give us a brief comment in terms of what you are seeing out there on private sector evaluations on media companies? Obviously there’s a couple acquisitions getting ready to go through right now, just what you’re seeing out there as multiple contractions as much as happening in the public markets?

Steven J. Smith

I think that we, it’s been quiet enough that I don’t think there’s necessarily a trend. And, I think that we will see that when the market picks up again after we, after the credit markets settle into normalization. But I don’t think that there is. The perception is that there, that multiples will be modified and will be down but I don’t think we’ve seen a trend yet.

Operator

Your next question comes from Peter Salkowski – Goldman Sachs.

Peter Salkowski – Goldman Sachs

Firstly on the newspaper costs Paul mentioned that expectations are still going to be up in 2008 and probably 2009. I’m just wondering on the consumption side is there anymore that you guys can do there that offset that?

Elizabeth Brenner

Yes, we took a hard look at our entire daily newspaper in September, Pete, and you may be aware we’ve made some consolidations of space allocation. For 2009 we’re projecting newsprint savings in the neighborhood of $1.7 million.

Now most of that will come from compressed newspaper about $0.5 million of that comes from improved waste performance on our press and with our circulation returns. So we’re looking at entire newspaper throughout next year and hope that will yield continuing newsprint savings.

Peter Salkowski – Goldman Sachs

Great thank you and then on the online side, I guess the part where you don’t have a newsprint problem, just wondering in terms of your online sales in the daily newspaper how – what percentage of that is up sells from prints?

Elizabeth Brenner

You know our up sales primarily from classifieds have been declining and they did again in the third quarter. We were down actually 13% in up sell-related revenues year over year and that impasses at all categories primarily in employment.

All of the rest of our categories sponsorships, our classified packages, for both automotive and for jobs, we’ve started selling into the Yahoo behavioral part – behavioral targeting partnership through the consortium in September and realized about $40,000 in our first forays there so every one of our other online categories is strong and growing; it’s just the online up sell area where we’ve seen about 13% fall off.

Peter Salkowski – Goldman Sachs

Great thank you and then Paul I don’t want you to get out of here without some questions so we’ll give you a couple here. First of all on the share count issue can you give a sense of how many of the B shares are still out there and those are the employee owned shares. I’m just wondering how many are still B shares?

Paul M. Bonaiuto

Yes, we have about 10.4 million B shares of which 9 million are held by employees or former employees and about 1.5 million are held by heirs to the founding family, Pete.

Peter Salkowski – Goldman Sachs

And, then, lastly Steve on your discussion of use of this cash and I think Paul mentioned there you were going to pull back a little bit on the share repurchase, just get a sense of where your priorities are now in terms of using that cash, are you more inclined to look at TV assets, more incline to look at additional, either community newspapers or some other sort of newspapers that might come up along the way?

Steven J. Smith

Well Pete I think that the – if you look at this year, we are pleased with our ability to strengthen where we have existing properties. We’re going right to strategy in terms of getting these local markets, the ability to do duopolies in Palm Springs, Tucson, Boise, and then in essence to do the same thing in Waupaca County where we took an existing property and purchase some additional publication allowing us to leverage that purchase and drive more profitability.

So that, what we’ve been talking about over the years that we would like to get stronger where we are and I think we’ve accomplished that. We still, we did look at – we have looked at a few opportunities in broadcast. It still is an area where we would really like to grow but found nothing compelling beyond the purchases that we’ve made.

And in terms of use of cash I just tell you that our board is very much interested in us driving cash and being very focused on driving cash flow which allows us to prioritize the use of cash which allows us to look at acquisitions to dividend to repurchase shares if we choose to and to you know to have that be a balance situation so that’s what our, where we’re focusing on.

Operator

And there are no more questions; I’ll return the call over to Mr. Smith for concluding remarks.

Steven J. Smith

Thank you operator. Thank you everyone for joining us and we appreciate your interest in Journal Communications. Before I do conclude I would like to recognize Paul M. Bonaiuto on his last official earnings conference call for Journal Communications. While Paul’s financial duties will soon transition to Andre Fernandez, Paul will continue to help us through this transition.

Paul’s dedication at the Journal over the years, his solid execution of his duties, and his sound advice to all of us have been of immeasurable value which we certainly appreciate. He’s been a great personal partner of mine and we will all certainly miss him. So thank you, Paul, for your great service.

Paul M. Bonaiuto

And Steve, thank you very, very much for those kind words.

Steven J. Smith

You’re welcome as a reminder to all of you a replay of our call is available through July 24th, you can refer to our press release from this morning for the dial in information for the replay and we’ll also have the call available, archived on our website at journalcommunications.com/investors. Have a great day everyone.

Operator

Thank you for your participation in today’s conference, this concludes the presentation you may now disconnect.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Analyst – Company.

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