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Executives

Steven J. Smith – Chairman, Chief Executive Officer

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

Elizabeth Brenner – Chief Operating Officer, Publishing

Andre Fernandez – Executive Vice President Finance and Strategy and Chief Financial Officer

Analysts

Tracy Young – JP Morgan

Dan Leben – Robert W. Baird

Craig Huber – Barclays Capital

[Richard Sarota] – Private Investor

Journal Communications Inc. (JRN) Q4 2008 Earnings Call February 12, 2009 11:00 AM ET

Operator

Good morning and welcome to the Journal Communications' fourth quarter and full year 2008 earnings conference call. As a reminder this call is being taped. This conference call contains certain forward-looking statements related to Journal Communications businesses that are based on current expectations. Forward-looking statements are subject to certain risk, trends and uncertainties, including changes in the advertising demand and other economic conditions that could cause actual results to differ materially from those expectations expressed in forward-looking statement.

All forward-looking statements should be evaluated with the understanding of their inherent uncertainties. Our written policy on forward-looking statements can be found on page 20 of Journal's most recently filed quarterly report on Form 10-Q as filed with the Securities and Exchange Commission.

And I would now like to turn the call over to Steven Smith, Chairman of the Board and Chief Executive Officer. Please proceed.

Steven J. Smith

Thank you, operator, and welcome everyone. Andre Fernandez, Executive Vice President of Finance and Strategy and our Chief Financial Officer will participate in this morning's call. Doug Kiel, President of Journal Communications and CEO of our broadcast group and Betsy Brenner, Executive Vice President of Journal Communications and our Chief Operating Officer of our publishing businesses will also be available during the Q&A.

And discussion of adjusted EBITDA in today's conference call may be referenced back to our unaudited reconciliation of consolidated debt earnings to consolidated adjusted EBITDA schedule which accompanies today's earnings release. Unless otherwise indicated all comparisons are to the fourth quarter or the full year ended December 30, 2007.

Obviously the fourth quarter of 2008 represented the culmination of a difficult year in a most challenging economy. Business conditions deteriorated throughout the year significantly affecting our customers and thus causing a negative impact on our business.

While we are acutely aware of the breadth of this recession, Journal Communications remains a solid company known for serving our audiences and our customers in a committed and consistent manner. In every market where we do business a focus on these ideals has never been more important.

This morning Journal Communications reported a net loss of $223 million for the quarter ended December 28, 2008, including a $228.7 million after-tax non-cash impairment charge for goodwill and all television and 24 radio broadcast licenses and a $0.7 million after-tax charge for workforce reductions. Andre will discuss the impairment charges in his part of this presentation.

Excluding these charges, net earnings were $6.4 million and basic and diluted net earnings per share of Class A and B common stock were $0.12 for both. For the fourth quarter revenue of $134.3 million decreased 9% over 2007. Total operating costs and expenses were $459.2 million. Excluding the non-cash impairment of $336.3 million and workforce reduction charges of $1.2 million, total operating costs and expenses were $121.8 million, a 3.5% decrease, adjusting for similar charges last year.

In the fourth quarter broadcast revenues were down 6.4% overall with television revenue down 5.5% and radio down 7.8%. The broadcast group was impacted by broad declines in transactional revenue, particularly in automotive. Auto was down 34% in the television group and 23% in radio. Political and issue advertising totaled just over $6.7 million. Our western United States and Florida markets continued to be most severely impacted by the downturn, although with help from political spending Las Vegas did grow revenue in the quarter.

In publishing the national recession impacted both our classified and display business. The negative trend continued in the quarter and revenues were down 10.4%. Across publishing retail was down almost 10% with classified down 30%, national down 6% and direct marketing down over 30%.

Other revenue, which consists primarily of commercial printing, increased over 15% due to new business in 2008. Total company online revenue in the quarter was down just over 2%, although it grew almost 13% for the year.

This is clearly a time to be creative and aggressive about revenue and expenses. In our local markets we are looking for more sales calls, more inventiveness, more developmental and non-traditional revenue, in order to mitigate known declining categories. We approach 2009 planning and budgeting very conservatively, given modest expectations in revenue due to the economy, we must be stringent about expense reduction and cost control.

Unfortunately this has necessitated staff reductions, payroll increase deferrals and operating budget cuts across our companies. For the year end 2007 to year end 2008 we reduced full time positions through voluntary and involuntary buy out packages and eliminated open positions. Corporate-wide we reduced our full time workforce by over 12%.

We have reduced the dividend on our Class A and B shares. If conditions do not improve our board may well suspend the dividend in the future. Further, executive salaries have been frozen for 2009. Capital budgets have been significantly reduced and other direct expenses such as customer entertainment and travel budgets have been curtailed. We have also made the difficult decision to suspend the company's matching contribution to the Journal 401(k) plan effective immediately.

We expect these aggressive steps taken to manage our cash will give us the financial flexibility to navigate through what could be a prolonged downturn. This year our priority will be to use excess cash to reduce debt. Andre will talk more about our current debt position in his upcoming remarks.

While we continue our laser focus on control of expenses in our operations during this difficult time in the economy, be assured that we continue to think about ways to stay relevant in our local markets and expand the business in the long term.

To that end, in the fourth quarter, Journal Sentinel signed an agreement with CarSoup.com to create a first of its kind franchise agreement with an online technology and content provider and continue our leadership in providing an automotive marketplace in southeastern Wisconsin.

We have signed agreements with more than 85 local dealer locations already. Our other partnerships with the Yahoo! consortium and Monster via our Jobnoggin.com employment website are also helping to capture other revenue loss from the decline in print classified advertising.

We completed the purchase of Waupaca Publishing Company, adding to our already strong position in Waupaca County. Newly acquired specialty publications like the Wisconsin Farmer and Silent Sports helped Journal Community Publishing increase revenue 3% in the quarter despite weak results from our publications in Florida, which have struggled all year.

We continue to explore developmental, non-transactional and other non-traditional revenues. On the broadcast side, negotiated retransmission fees began to be additive to results in the fourth quarter. And 75% of our cable contracts are up for renegotiation by the end of 2009. Shows like The Morning Blend include locally driven content that create new revenue opportunities in Milwaukee and Ft. Myers.

On the publishing side, Journal Sentinel saw incremental revenue by offering spadia ads, or full-page ad packages that wrap around part of the front and back of the newspaper and other premium positions, creating real results for major advertisers. We continue to seek these value-added sales opportunities to deliver results for advertisers in our local markets.

And now I would like to ask Andre to begin his in-depth financial review of the quarter. Andre?

Andre Fernandez

Thank you, Steve. I'd like to begin first by taking you through the highlights of our consolidated performance, followed by our segment results.

For the fourth quarter 2008 revenue of $134.3 million decreased 9%, as we continue to experience ongoing advertising weakness across our businesses. The net loss of $223 million was impacted by the goodwill and broadcast license non-cash impairments, and workforce reduction charges recorded in the quarter.

Excluding the $228.7 million after-tax impairment charges, and $0.7 million workforce reduction charges in 2008, and $0.3 million in after-tax impairment and $2 million in workforce reduction charges in 2007, earnings from continuing operations were $6.4 million compared to $12.5 million, a decrease of 48.8%.

At the end of the year our debt was $215 million, which represents 2.6 times our trailing four quarters of adjusted EBITDA. Our debt is down $8 million from the end of the third quarter. Our credit facility allows us to borrow up to four times our trailing four quarters of adjusted EBITDA which, as of year end, provided us debt capacity of $327 million.

We are managing our cash very carefully in order to have sufficient flexibility to operate our business in these very challenging times. We have suspended our share repurchase program, reduced the dividend on our Class A and B common stock, suspended the company matching contributions to the 401(k) plan and have reduced capital expenditures sharply for 2009.

As Steve mentioned earlier, we are driving working capital terms as we continue to take costs out of the company. For the 2008 fourth quarter interest expense was $2.1 million. This reflects a decrease in the interest rate on our borrowings, partially offset by an increase in average debt outstanding. This increase in average debt was due to expenditures in the first three quarters of the year for share repurchases and acquisitions. At the end of the year we were borrowing at a weighted average rate of 2.1%, compared to 5.55% at last year end.

Our credit facility also contains an interest coverage ratio of a minimum of three times our trailing four quarters of adjusted EBITDA to interest expense. As of the end of the year our interest coverage ratio was 10 times.

As mentioned during our last call, we significantly curtailed share repurchase activity in Q4 and repurchased only 8,300 shares in the quarter. For the year we repurchased 6.8 million of our Class A shares for a total of $45 million.

For the fourth quarter our effective tax benefit rate was 31.8%, compared to an effective tax provision rate of 34.8%. This quarter's tax benefit is primarily the result of the impairment of goodwill and FCC licenses, for which we recorded a full tax benefit. The difference between the statutory federal income tax rate and our effective income tax rate is that a portion of the goodwill impairment is non-deductible for tax purposes.

For the year, our operating cash flow was $72 million. Our primary uses of cash during the year consisted of $22.2 million in capital expenditures, $25 million of acquisitions, $45 million for the share repurchase, as I mentioned previously, and $18.5 million of cash dividends.

Our acquisitions allowed us to create additional duopolies in Palm Springs and Tucson, and expand our existing communities newspapers' and shoppers' footprint in northern Wisconsin and Florida. With multiple stations in a market or additional product offerings, we believe we are in a good position to grow our audiences and serve our viewers and advertisers like we have in other cross-media markets such as Milwaukee, Omaha and Boise. Going forward we expect these acquisitions to enhance margins.

Results of our cost reduction initiatives for the year have showed a decrease in total operating costs, excluding the impairment in workforce reduction charges of $13.2 million, or 2.6%, principally reflecting the reduction in payroll and benefits. The workforce reductions this year have eliminated approximately $19 million in annualized costs.

Moving on now, I'd like to turn to our fourth quarter segment performance. Publishing revenue declined 10.4% as we experienced the effect of ongoing secular and cyclical influences affecting all of our advertising categories.

Publishing operating earnings, excluding impairment and workforce reduction charges, were $3.6 million compared to $9.4 million last year. The decrease is primarily due to the decrease in revenue at our daily newspaper. When we look at non-paper cash costs, defined as total operating expenses, less depreciation, amortization, impairment charges, paper costs and workforce reduction charges, non-paper cash costs have decreased by almost 3% in the fourth quarter, and almost 5% for the year. We expect non-paper cash costs to continue to decrease in 2009.

At the daily newspaper, total revenue of $50 million was down almost 13%. The major revenue category of advertising was down 18.6%, while circulation revenue was essentially flat and our other revenue category was up nearly 12%. I'll walk through each of these categories briefly now.

The major component of advertising revenue is retail revenue, where we reported a decrease of almost 12% to $22 million. We experienced decreases in nearly all ROP and preprint categories. The most significant of the declines was experienced specifically in the furniture, building hardware, finance and insurance and retail automotive categories.

Classified advertising at the daily newspaper of $8 million, which includes both print and online, decreased 34% in the fourth quarter. Employment, auto, real estate and other were down 50%, 27%, 33% and 4% year-over-year, respectively. On a combined retail and classified basis for all products of the daily newspaper, auto advertising was down about $1 million, or 27% compared to last year.

Our national advertising revenue category was down only 6%, reflecting decreases in entertainment, movies, communications and business service categories. However, revenue from national preprints was up 11.9% for the quarter.

The direct marketing, or solo mail category at the daily newspaper, was down 30%. We have lost a significant piece of business from a major retailer, and our other customers have reduced the numbers of mailings they sent.

Overall, interactive advertising included in the various revenue categories of the daily newspaper, decreased by 3% to $3.6 million for the fourth quarter, driven by a 15% decline in classifieds, led by real estate and employment. On a positive note online retail advertising was up 14% for the quarter and auto was up 6%. We look forward to other potential revenue opportunities as we roll out our CarSoup.com product offerings.

Moving beyond advertising revenue, circulation revenue up $12.8 million continues to be essentially flat. We have been able to maintain our circulation revenue by implementing an increase in home delivery cover price in mid-June that has offset the modest decline in circulation.

Not only are we one of the best read newspapers in the country but in the latest Scarborough report released just last week Journal Sentinel ranked number one among newspapers in the top 50 U.S. markets for integrated newspaper audience showing strength in print and online.

Other revenue at the daily newspaper of $3.6 million was up almost 12% for the quarter, reflecting gains in commercial printing and commercial delivery. We continue to evaluate additional commercial print opportunities in an effort to maximize our efficient production facility.

At the daily newspaper operating earnings excluding the impairment in workforce reduction charges were $3.2 million. Payroll and benefit savings continue to be the primary contributor to the reduction in costs. However, newsprint costs are up $300,000 reflecting a 30% increase in pricing partially offset by a reduction in consumption of 22%.

Turning now to our community newspapers and shoppers, revenue at $10 million was up 3% compared to last year; reflecting $1 million of revenue from the publications acquired during the year. Excluding revenue from new acquisitions the same theme continues with weakness in retail and classified automotive advertising combined with soft real estate advertising particularly in our Florida market.

Circulation revenue at the community newspapers and shoppers of $455,000 increased 74% due to the recent acquisitions publications, in northern Wisconsin. Other revenue increased almost 30% from new commercial printing business.

The community newspapers and shoppers' operation recorded operating earnings excluding the impairment charge of $319,000 compared to an operating loss of $700,000 last year. This swing was achieved by proactively identifying cost reductions that helped to offset the decline in revenue and positive results from the new publications in northern Wisconsin and Florida.

The next segment I will discuss is broadcast. For the fourth quarter broadcasting revenue decreased 6.4% to $53.1 million. Broadcast is where we recorded the most significant effects of the interim impairment testing of intangible assets.

Due to the continuation of the downturn in the economic environment impacting our fourth quarter and our 2009 outlook and beyond we performed interim impairment testing of our intangible assets as of year end.

The test results showed that $229 million in goodwill and $90 million in FCC licenses were impaired. The continued decline and the expected growth rates in several of the markets where we owned radio and television stations was the major cause of our FCC license impairment.

Broadcast operating earnings excluding the impairment on workforce production charges of $0.1 million were $90.2 million down 10.6% compared to last year. For the fourth quarter revenue from television stations decreased $1.9 million or 5.5% to $33.4 million.

Local and national advertising was down $5.1 million and $2.7 million respectively. Political and issue advertising revenue in the fourth quarter was $6.1 million compared to $0.4 million. Revenue from KWBA in Tucson, acquired this year, was $0.8 million.

Television operating earnings excluding the charges were $5 million, essentially flat compared to last year. Television operating expenses were down 6.5% compared to fourth quarter last year due to our cost reduction initiatives.

For radio fourth quarter 2008 revenue decreased $1.7 million or 7.8% to $19.7 million. Local advertising was down $1.7 million across all of our radio markets and national advertising was down $0.5 million across all of our radio markets except Tucson, Wichita and Springfield. Radio operating earnings excluding the charges were $4.3 million down $1.1 million compared to last year. The decrease in revenue more than offset the 3.4% decrease in radio operating expenses compared to last year.

Printing services, for the 2008 fourth quarter revenue decreased about 10% to $15.8 million. Breakeven operating earnings included a $0.1 million charge for workforce reduction. In the fourth quarter due to the changing mix and reduced volume of business the workforce was reduced by 10%. The expected annualized savings in 2009 is expected to be around $2 million.

For the 2008 fourth quarter revenue for the other segment of $5.4 million decreased approximately 14%, due to a decrease in mailing services partially offset by an increase in offset and laser printing at our direct marketing business. Other operating loss was $601,000.

For the first quarter of 2009 we find it more challenging then ever to predict revenues in the future. We expect that revenues across nearly all of our properties will be down compared to the prior year. We expect the expense actions taken in 2008 will deliver savings in 2009. Like a number of media companies we determine that starting in 2009 we will no longer publish monthly revenue results. We do not believe that releasing this information on a monthly basis is more helpful than providing it on a quarterly basis and the monthly releases are not consistent with our longer term focus.

In closing, as Steve mentioned, we continue to be very aggressive in managing our costs and driving cash flow generation throughout the entire company. Now I would like to turn the call back over to Steve for a brief wrap up before we open it up to Q&A.

Steven J. Smith

Thank you, Andre. We continue to make the changes necessary to weather an incredibly difficult environment. I remain proud of the quality work we do. We continue to build strong relationships with our customers and provide relevant high quality products to the viewers, listeners and readers of our media businesses.

Our business strategy executed in our local markets will continue to focus on ways we can serve our communities better and assist our customers as they face the hurdles of this economy. Operator, this concludes our remarks. You may begin the question and answer session.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question will come from Tracy Young - JP Morgan.

Tracy Young - JP Morgan

Hi, two questions, one is related to retransmission if you could give us some sense of how much you received in Q4 and what deals you have pending in 2009, and also if you could speak perhaps a little bit, I know you're not going to give guidance for a first quarter, but are you seeing the same kind of pacing in first quarter in radio and television? Thank you.

Steven J. Smith

Doug?

Douglas G. Kiel

First on retransmission fees, a couple things to note here. We have now 2.8 million cable subscribers across our television groups so that's increased a little bit over the last year and about 850,000 satellite subscribers.

Now to your question about potential deals that carried over from 2008, and Steve mentioned this in his remarks, they're about 55% of our total retransmission consent agreements in terms of the potential subs. As of this point they are not fully executed. We're in the process of doing that. We're following our strategy and we're close to finalizing most of the remaining contracts that opened in '08.

We didn't as you know get significant cable retransmission revenues in 2008, just minimal amount of money in the fourth quarter, but we expect that to be meaningful this year. Last year our satellite retrains revenue was just under $1.5 million.

Now I'll take the broadcast on what we're doing looking forward and maybe Betsy wants to add in. You've heard this before from us, our visibility both to radio and TV so it's really not that different, continues just like it did in the fourth quarter to be very cloudy even some weeks in to the future. It's hand-to-hand, day-to-day combat really.

Continue to have late bookings, particularly happened early in the quarter, cancellations as we move through the quarter, and of course the softness in auto has actually escalated some. It's moved in the first quarter. I want to ad our sellers are focused on new business and developmental revenue initiatives.

And I know we've talked about that before. It's about 13% of our total revenue. Also interactive, we were flat in the fourth quarter, but up significantly last year and of course as I just mentioned there's an organization retrans to make up for the softness both in national and local transactional business because of the difficulties on cost per point.

So as we've said before and I think this is key for us we've moved into building the skills for new business and developmental revenue, the non-transactional business, to do well in that several years ago and that’s going to help us we think moving forward in this really difficult environment.

Steven J. Smith

Betsy, do you want to comment on what you're seeing?

Elizabeth Brenner

I'll add a little bit on publishing. Much like Doug’s experiencing on the broadcast side, we’re seeing a tremendous reluctance on the part of our local advertisers and some of the national dealership organizations we do business with to project their business going forward. And that’s impacted our ability to look into the future and have any clear visibility toward advertising spending trends.

What we saw in period one was much more of the same as the fourth quarter of 2008. For the most part, our classified businesses all continue to trend down. We’re not seeing any relief on the automotive side; employment and real estate as well remain soft for us.

Retail, for the most part, held with what we saw in the fourth quarter. You might remember last year in period one we realized about $370,000 worth of revenue attached to the Green Bay Packers run at the playoffs. So we’re performing against that this year. We got a little lift from the Inauguration, but nothing like we saw from our sports marketing initiatives in period one last year.

So continued reluctance on the part of advertisers, real trepidation about signing even annual contracts, which is a new experience for us. We’re kind of going month-to-month, quarter-to-quarter with a number of our customers because they have those concerns about the future of their business.

Operator

Your next question will come from Dan Leben – Robert W. Baird.

Dan Leben – Robert W. Baird

You guys talked a little bit about cutting back on the CapEx in 2009, what type of levels should we expect for the year?

Andre Fernandez

We spent about $22 million in CapEx. We’re looking at significant reductions. I guess as the day we're really – I’m not prepared to put a number out, but we’re really looking at CapEx really at maintenance levels, so pretty significant cutbacks from year-to-year levels.

Dan Leben – Robert W. Baird

Could you just talk a little bit about the impact of the digital transition on the TV segment getting delayed from next week back into June? Any impacts on the cost side there?

Douglas G. Kiel

There will be some and we’ve worked hard. We’ve got ongoing costs to save those initiatives in the year so we’re going to save it up. It’s about $30,000 to $35,000 a month. So we are moving all of our TV stations to convert at this point on June 12th. We have the electricity costs of about that amount, $30,000 to $35,000 a month and that’s the only impact we have at this point on any of our costs. We’ll make up for it.

Dan Leben – Robert W. Baird

And both Doug and Betsy, could you talk a little bit what you’re seeing in terms of pricing trends? One of the things we’ve heard from some of the major advertisers is that they’re looking to keep their aggregate amount of spending flat, but using better pricing to get more airtime or ad space. Could you just comment on what you’re seeing in terms of rate trends?

Elizabeth Brenner

We did not put through an annual rate increase in January for either our classified or our retail customers because last year on the retail side, we rolled out a new innovative pricing strategy that really focused more on frequency and multiple impressions. Over the course of last year, by tightening up on discounts, we actually saw our retail rate yield rise by close to 4%. So I think we’re managing to get more rate from customers, but at the same time, giving them the frequency and the opportunity to use our paper and get better results in more impactful ways.

Going forward this year we’re really looking at strategic opportunities to give advertisers more exposure for incentive pricing and we’re trying to disperse in our employment and our real estate segments, the two hardest hit businesses in our area. So no traditional rate increase, strategic pricing where necessary to drive business and we’re really trying to work with our customers to give them the greatest exposure to the market; get their message out when they need to.

Douglas G. Kiel

Television and radio, let’s talk about television first fourth quarter, we traditionally sell it at a pretty high level. That usually gives us a little leverage on rate, averaging our rate. Didn’t happen in many of our markets in the fourth quarter because of the circumstances you mentioned, late bookings, cancellations and the fact everybody’s looking for a deal.

Radio sell out traditionally has not been as high in radio markets as you know. And so that caused us some of the difficulty we saw in the fourth quarter. Those trends aren’t changing much at this point. We're early in the first quarter really, it’s just about half way through it, that’s traditionally in television where you get a lot of rate pressure usually very little early in the year and as you move through the year, more of it. That’s starting to see some glimmers of sell out happening in some of our markets. It’s too early to tell, but that’s the only way we’ll get pricing leverage.

Dan Leben – Robert W. Baird

Just two more quick ones, first, given the fact that the variable interest rate's at 2% now, any thoughts as to going forward at some point trying to lock in the low rates that you have now through hedging or some other means?

Andre Fernandez

We’re giving it some thought. As I've mentioned our rates are low and we are within our revolvers. We can borrow on different terms, one month, two months, three months, so yes, we are giving some thought, I guess, given how low rates are and given also that loan rates have been starting to inch up to potentially looking at potentially turning out a portion of our borrowing beyond the typical one or two month rolls that we traditionally do.

Dan Leben – Robert W. Baird

Last question, just what are you seeing in terms of paper costs giving both the significant drop in Canadian dollar, as well as demand levels pulling back, any relief there?

Elizabeth Brenner

Slight amount of relief. Pricing in period one '09 was actually slightly lower than what we saw across segments in the remainder of last year. Overall, as you know, pricing for the year was up probably about 15% on all of our newsprint, regular papers and ground wood. Through consumption, through cutbacks in consumption, we were able to moderate some of that.

So our consumption was down about 22%, pricing was up and throughout what we are going to continue to do this year is put through some content changes in the paper that will save us about a $1 million annualized through '09 and continue to watch for more effective ways to limit waste, limit returns and just cutback overall on the consumption.

Operator

(Operator Instructions). Your next question will come from Craig Huber – Barclays Capital

Craig Huber – Barclays Capital

First question, what non-newsprint cash costs, somebody gave it down 3%; do you have that just for the newspaper division excluding those one-time items?

Andre Fernandez

Yes, we do. It’s down 2.4% for the newspaper only in the quarter and down 4.3% for the year.

Craig Huber – Barclays Capital

Your CapEx comments, out of the $22 million for 2008, how much of that would you say was maintenance or at least it would just list off [inaudible]? It's a backwards number, my friend.

Andre Fernandez

I would say there was still within the 20 and granted we took this down from well over $30 million the year prior so even within the $22 million we pulled back what we were able to finance particularly in broadcast some of the digital build out that we needed to do at our television stations. So again, as we look now to 2009, that’s certainly an area that we’re going to look to for CapEx savings. That was in the $22 million, some of that digital activity, so we’ll look there and that will probably get us biggest the year-over-year, single biggest year-over-year increase.

Craig Huber – Barclays Capital

Was that like a $5 million number? This digital buildup that you’re not going to repeat this new year?

Douglas G. Kiel

It’s hard to say, Craig. I think that the significant amount of the capital last year was really allocated to the television digital build out.

Craig Huber – Barclays Capital

Was there any else real large, one time sort of in nature in the $22 million?

Douglas G. Kiel

No, there really wasn’t.

Craig Huber – Barclays Capital

Just a nit-pick housekeeping question; you guys mentioned $1.1 million workforce reduction charge. How does that breakdown between your various segments in the quarter?

Andre Fernandez

I believe the bulk of it was in our publishing business which was $700,000 of the $1.1 million and the rest was spread across broadcasting and the other segments.

Craig Huber – Barclays Capital

So fairly even leafed with the other stuff?

Andre Fernandez

Correct

Craig Huber – Barclays Capital

You mentioned auto, how much that was down for TV and radio in the quarter. What did auto represent as a percent of the revenues within your TV and radio segments?

Douglas G. Kiel

I’ll do TV first and then radio. The year-to-date, let’s go through the whole year for our auto revenue now is down to about 19% of our business in the television group. Slightly less than that in the fourth quarter, but of course the political coming in may have impacted that, so the yearly comparison is really the valid one. So it’s down in two years from about 22% to 19.2%.

In radio, we are about 15.9% for the year and that is down a little bit from last year but hasn’t dropped as significantly as a percentage of the overall revenue.

Craig Huber - Barclays Capital

Okay then switching if we could over to newspapers. How much was the online help wanted, auto class and real estate the online portions? I see them down in the fourth quarter.

Elizabeth Brenner

Online our employment business was down 32%, auto was actually up as Andre mentioned 6%, and our real estate category was up slightly, 5%.

Craig Huber - Barclays Capital

Would you have that for the month of December? Did it vary very much?

Elizabeth Brenner

You know for the most part it didn’t. As you know fourth quarter is always the softest month for classified overall. We didn’t see much movement by category that would have been different in December from the rest of the quarter.

Craig Huber - Barclays Capital

Okay and I guess just lastly the television radio pacings here for the first quarter. Do you have a couple of numbers there on actually what percent the changes versus a year ago as you stand right now versus a year ago at this time?

Douglas G. Kiel

No I don’t have it compared to last year but like I said earlier for both radio and TV what we’re seeing early in this quarter feels very much like we saw late in the fourth quarter. And again, for us our focus is going to have to be on new business, developmental programs to help make up for that shortfall that's been occurring with auto down and with the negotiated cost for points being difficult in the early going this year.

Craig Huber - Barclays Capital

I'd like then to squeeze in one more here, on the expense front given your various reductions on the newspaper and TV side, what do you think the incremental cost savings are, the stuff you already put in place in 2008 what's the incremental cost savings for 2009 both in your broadcasting and also your publishing? If you don't do anything else on the cost savings front what would the incremental cost savings be year-over-year in terms of dollars?

Andre Fernandez

I could give it broadly and then turn over to Doug. In addition to the work force reductions that took place we're also obviously promotional expense is where we're going to be looking to; that will represent a significant year-over-year savings. We've got reductions in syndicated programming that should be meaningful year-over-year and then miscellaneous but those are sort of the two.

Douglas G. Kiel

I will just add on. Radio and TV just generally, or separately, in radio we dropped the workforce 11.7% held positions open so in '08 that was about $900,000, just over $900,000. But we've done things as you know we've talked about this we consolidated to one general manager for both radio and TV in our Milwaukee, Omaha and Tucson operations.

There employee benefit savings associated with the workforce reductions and open positions of over $500,000 and as Andre said we postponed or eliminated all non-essential audience and client promotional projects and that continues and we're looking for more as we go forward.

And in television briefly the numbers are slightly higher, about 12.1% in the workforce reduction and that saved us over $1.3 million and we have benefit savings beyond and again the same kinds of issues, client promotion that's not essential, not connected with driving revenue, travel, entertainment, sales commission, and of course marketing as well. Those are the pieces we're looking at as we, from '08 that we'll carry over through '09.

Elizabeth Brenner

Craig this is Betsy. Let me give you the overview of publishing cost reductions going forward that will impact, that were announced or planned in '08, that will impact in '09. We're looking at a total of $27.8 million and let me break that out for you; $15.8 million comes in Journal Sentential payroll reduction of about close to 20% and those were all the wage reductions Andre referred to that we took last year that will benefit us this year.

On the direct expense side we have savings of slightly over $10 million at the daily newspaper. Those include savings of about $3 million in newsprint and ink through some of the content and other waste reduction changes I mentioned.

Our online fees are going down by $1.8 million due to the change from Cars.com to CarSoup that Andre referenced. There's some other miscellaneous cost savings, everything from reductions in solo mail postage expense to eliminating the non-critical travel and entertainment just like Doug mentioned in broadcast.

For our community newspapers total reduction of $1.7 million; most of that is through payroll savings. We have a wide variety of other smaller savings across the board. That's how that breaks out for you in publishing.

Operator

Your next question will come from Richard [Sarota] - Private Investor

Richard [Sarota] - Private Investor

I'm a private investor from Yucca Valley, California. I'm concerned about all the stock you're giving to officers and directors that there's – not options but just shares which is then converted into Class A and is very dilutive. Would you comment on whether you're going to discontinue that for the time being at least and its affect on the bottom line?

Steven J. Smith

Yes, Richard, I can comment on that. As you, as to the shares that we provide to directors, we believe that having directors take a part of their compensation in shares is very appropriate and we appreciate the fact that they do and so long term we think that's a good investment and we don’t think it is excessive.

In terms of the executives, we have impacted the executives this year. We are asking them to be responsible about what's going on in this economy and we think that we are. We have frozen executive pay. We have not included the executives, the senior executives in the management incentive plan, and we have not provided cash bonuses to them for 2008.

So giving incentives in stock is something that we think focuses our management on the long term and on the appropriate goal of building shareholder value.

Richard [Sarota] - Private Investor

But my concern is that there's no options involved, in other words they have no money in the pot unlike most companies I'm involved with and that really concerns me. All they have to do to get these shares is to still be there is that correct?

Steven J. Smith

Well there's a combination of – in the past we have done stock appreciation rights. In recent history we have done some restricted stock. Again our compensation committee studies this very closely and they believe that these are appropriate incentives for management.

Richard [Sarota] - Private Investor

Well, when the directors vote to give stock to themselves, isn’t that a conflict of interest?

Steven J. Smith

No, sir.

Richard [Sarota] - Private Investor

Well, I don’t understand that but thank you very much anyway.

Operator

And there are no more questions in the queue. I would now like to turn the call back over to Mr. Smith for concluding remarks.

Steven J. Smith

Once again thank you to all of you for joining this morning's call. We appreciate your interest in Journal Communications. As you know as usual a replay of the call will be available through February 14th and it will be archived on the Website through February 26th. So again thank you for joining us this morning and we will see you after the first quarter.

Operator

Thank you for your participation in today's conference. This concludes your presentation. You may now disconnect. Good day everyone.

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Source: Journal Communications Inc. Q4 2008 Earnings Call Transcript
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