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Journal Communications Q4 2006 Earnings Call Transcript

February 14, 2007 | about: JRN

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TRANSCRIPT SPONSOR

Journal Communications, Inc. (JRN)
Q4 2006 Earnings Call
February 14, 2007 11:00 am ET

Executives

Sara Wilkins - Director of Investor Relations
Steven J. Smith - Chairman of the Board and CEO
Paul M. Bonaiuto - Executive Vice President and CFO
Douglas G. Kiel - President, Vice Chairman and CEO, Journal Broadcast Group Inc.
Betsy Brenner – EVP, COO Journal Sentinel Inc.

Analysts

Mark Bacurin – Robert W. Baird
Stacy Fleck – Merrill Lynch
Debra Schwartz – Credit Suisse
Peter Salkowski – Goldman Sachs
Craig Huber – Lehman Brothers
John Kornreich - Sandler Capital

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Journal Communications fourth quarter 2006 earnings conference call. (Operator Instructions) At this time, I would now like to turn the call over to Ms. Sara Wilkins, Director of Investor Relations. Please proceed, ma'am.

Sara Wilkins

Welcome, everyone. Before we begin, I would like to introduce the Journal Communications senior management team who will participate in this morning's call. Speaking this morning are Steven Smith, Chairman of the Board and Chief Executive Officer; and Paul Bonaiuto, Executive Vice President and Chief Financial Officer. Also with us today are Doug Kiel, President of Journal Communications and CEO of Journal Broadcast Group; and Betsy Brenner, Executive Vice President of Journal Communications and Chief Operating Officer of our publishing businesses.

I would like to remind you that certain statements in this call are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally include all statements other than statements of historical fact including statements regarding our future financial position, business strategy, budgets, projected revenues and expenses, expected regulatory actions and plans and objectives of management for future operations. These statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by those forward-looking statements.

Some such risks include decreases in advertising spending, loss of market share, inability to acquire or successfully manage broadcast properties and acquisitions, failure to retain adequate viewers and listeners, increases in the cost of television programming, broadcast limitations, and/or sanctions imposed by the FCC, inability to respond to changes in telecommunications technology, continued overcapacity and pricing pressure in the telecommunications industry, loss of large printing services customers, loss of key personnel, and other uncertainties and other factors which are contained in our periodic filings under the Securities Exchange Act of 1934.

Additionally, any discussion of EBITDA in today's conference call may be referenced back to our unaudited reconciliation of consolidated net earnings to consolidated EBITDA schedule which accompanies today's earnings release.

Now, I would like to turn the call over to Steve Smith. Please go ahead, Steve.

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Steve Smith

Thank you, Sara, and good morning, everyone. This morning, Journal Communications reported net earnings of $23.4 million for the quarter ended December 31, 2006. Earnings from continuing operations were $20.5 million. Basic and diluted earnings per share from continuing operations were $0.30 and $0.29 respectively and basic and diluted net earnings per share were $0.34 and $0.33 respectively. Included in these results are a number of unusual items which Paul will discuss in more detail shortly. The favorable aggregate after-tax impact of these items on continuing operations was $3.5 million or $0.05 per diluted share.

Note that unless otherwise indicated, all comparisons are either to the fourth quarter or the full-year ended December 25, 2005; fourth quarter and full year 2006 contained an additional week. Also note that Norlight Telecommunications has been treated as discontinued operations due to its pending sale.

Revenue from continuing operations for the fourth quarter of $186.6 million increased more than 15% compared to $161.8 million. For the full year ended December 31, 2006, net earnings were $64.4 million and earnings from continuing operations were $55.7 million. Basic and diluted earnings per share from continuing operations for the full year 2006 were $0.80 and $0.77 respectively, and basic and diluted net earnings per share were $0.93 and $0.89 respectively.

A number of unusual items are included in these results as well, which Paul will address. The favorable aggregate after-tax impact of these items for the full-year on continuing operations was $1 million or $0.01 per fully diluted share.

Now, allow me to reiterate a few things I said in this morning's press release for those of you who may not have had the opportunity to see it. During 2006, we executed a number of key strategies that sharpened our focus on our core media businesses and positioned us for the future expansion of our traditional and new revenue platforms and online initiatives. We announced an agreement to sell our Norlight Telecommunications business and executed a very successful integration of three television stations, whose assets were acquired in December 2005. The achievements of these stations in their first full year with us exceeded our high expectations, reflecting our strong integration efforts and a focus on driving operational results.

Overall, the Journal Broadcast Group delivered an exceptional financial performance, with every television and radio market posting increases in both operating earnings and margin. Although our publishing group experienced an unprecedented decline in automobile advertising revenue and a revenue reduction for litigation settlement credits to be issued towards 2007 advertising, it successfully introduced numerous web-based initiatives and grew its distribution and commercial print business in 2006. Additionally, at the Daily newspaper, interactive revenue increased 34% to $9.6 million.

Throughout the year, we maintained strict cost control across all of our businesses. Our broadcast group had an outstanding year in 2006, as I said, driven by the strength across all of our television and radio markets, surprising political advertising and solid developmental revenue and out performance at our new television stations. Better than expected political and issue advertising contributed $14.6 million from television and $1.9 million in radio during 2006. The three new television stations added $54.8 million in 2006 including $3.9 million from political and issue. These numbers did outpace our original expectations for the acquisition.

Focusing on our local strategy during 2006, we added 4.5 hours of news in Fort Myers and a half-hour of news in Omaha, which allow us to better utilize our news departments and provide the stations with additional inventory. This, as we have seen, is particularly valuable during political years.

Broadcast developmental or non-transactional advertising revenue was a significant contributor in 2006 and is expected to continue to play a large role in our future growth. In 2006, it reached $13.1 million in television and $10.7 million in radio. In total, developmental revenue was up 112% compared to 2005.

Beyond the acquisitions, our television stations in Las Vegas, Palm Springs, Lansing and Green Bay posted sizable growth in both revenue and operating earnings. KTNV TV, our ABC affiliate in Las Vegas, significantly improved its performance in 2006, recording an increase in revenue of 39% and operating earnings growth of 118%. The station's operating earnings margin of 41% in 2006 was the highest among all of our television properties.

In early December, KTNV broke ground for a new state of the art television facility to help its growing business transition to a fully digital infrastructure and to better support the expansion of its local news organization. Our Green Bay television operations showed excellent progress in 2006. Revenue was up about 25% and operating earnings rebounded significantly following a very tough 2005.

In late September, Journal Broadcast Group sold KBBX-FM Omaha, for $7.5 million and recently announced an agreement to sell KOMJ-AM. The divestiture of these radio stations will enable Journal Broadcast Group to complete the purchase of KMTV-TV Channel 3 from MS Communications, which we have been operating under a local marketing agreement since December of 2005.

In radio, revenue was up almost 4% for the year. Excluding the $2.5 million gain from the sale of KBBX, our radio group posted 7% annual operating earnings growth. In fact, radio has recorded a compounded annual growth rate in operating earnings excluding the gain on KBBX of more than 12% since 2002. Our ongoing commitment to cost control helped drive radio margin improvement throughout 2006.

In late 2006, we syndicated our popular Omaha morning program, the Todd and Tyler Show, into our Wichita and Springfield markets. The strength of our morning radio programming is critical to success in our local markets. We are now broadcasting high definition radio on 10 of our stations and we expect to broadcast in HD on seven additional radio stations by mid 2007.

In publishing, Journal Sentinel had a challenging year in 2006 as we faced an unprecedented decline in automobile advertising revenue, which was down $6.1 million or 29%. The newspaper's litigation settlement also had a significant negative effect on the year's performance. We took a revenue reduction of $4 million for credits to be issued toward 2007 advertising in the Milwaukee Journal Sentinel, and incurred $1.8 million in litigation related costs. These two sources, auto advertising declines and our settlement, accounted for the newspaper's entire revenue decline, compared to 2005. We have been able to somewhat mitigate the impact of the revenue declines on operating earnings by ongoing reductions in payroll expense and generally keeping tight control on other expenses. Journal Sentinel did drive increases in online and total color revenue, however, which were up 34% and 21% respectively.

In late October, under a five-year contract, we began printing the national edition of USA Today for distribution in northern Illinois and Eastern Wisconsin. Revenue growth is extending beyond our core newspaper into an expanding portfolio of new revenue streams. Interactive now accounts for nearly 6% of the advertising revenue at our daily newspaper. At our profitable MKE publication, which targets young adults, revenue increased almost 10% in 2006. Commercial print revenue was up 108% and commercial delivery revenue increased 53%.

In circulation, our emphasis on strategic market growth is beginning to show results. In our targeted top 25 zip codes, we estimate Sunday home delivery in 2006 increased about 2% with home delivery totals that are up in all of the suburban adjacent markets.

In late January, 2007, we introduced the new look of the Milwaukee Journal Sentinel, fully redesigned to be more reader-friendly. Later this month, we will begin printing the full daily newspaper on a 48 inch web, down from 50 inches. We expect that the updated design will draw new readers to the newspaper and that its slightly smaller size will save an estimated 4% in annual newsprint consumption.

Journal Community Publishing Group, after a difficult end to 2005 due to the impact of Hurricane Katrina, made great strides in overcoming the hurricane-related loss of revenue in 2006 and improved operating earnings margin. This reflects a number of economies we put in place during 2006, including the outsource of back office functions for our Milwaukee area community newspapers to Journal Sentinel, as well as $1.1 million in a hurricane insurance claim.

In 2006, the production, advertising and finance teams at the community newspapers, Journal Community Publishing Group and Journal Sentinel, began to work together to enhance product capabilities and share best practices. Last summer, they rolled out advertising packages that could make it easy for local advertisers to buy bundled web and print, and introduced a single shared mail product that serves Milwaukee and its suburbs. Journal Community Publishing Group made a significant efficiency move in late 2006 by closing its Heartland, Wisconsin print plant and consolidating all of Wisconsin community publishing printing at our Waupaca print and press location with expected annualized savings of $750,000.

You may recall that in the third quarter, CNI began to revamp its Milwaukee area community newspapers. CNI also discontinued ten shopper publications. Marketplace, the new shared mail product for the full Milwaukee market along with its community newspapers enables our Publishing Group to provide unrivaled neighborhood coverage in the greater Milwaukee area.

In late January, 2007, CNI revamped its 18 weekly community newspapers and reduced the number of publications to eight, while still maintaining the same geographic market coverage. The eight newspapers are changing their names to adopt the NOW moniker after a given community's name. This dovetails with last year's launch of 25 community NOW websites, which include local news from both the Journal Sentinel and the community newspapers, as well as local bloggers and other features. These weeklies are now being distributed free of charge with the daily newspaper, which had more than doubled their circulation in the community's target.

We will lose the subscription revenue from the suburban weeklies but expect to see increased advertising revenue that should more than cover that loss as more small advertisers will be able to precisely target specific suburbs and selective audiences. The NOW newspapers will carry higher page counts than the community newspapers and will include news, sports, and features for a specific community plus the Best of the Web from the NOW local bloggers and breaking news postings.

At IPC, the sales team sold greater than 100 new accounts, which delivered more than $7 million in revenue in 2006. And in mid-November, as you'll recall, we announced a definitive agreement to sell 100% of the stock of Norlight to privately held Q-Comm Corporation for $185 million, subject to certain working capital and long-term liability adjustments. Net proceeds after taxes and transaction expenses are expected to be approximately $125 million to $130 million.

The expected divestiture of Norlight is another in a series of steps that we have taken to hone Journal's focus as a media-centric company. We expect the sale to be completed expeditiously.

Now, I would like to ask Paul to begin his in-depth financial review.

Paul Bonaiuto

Thank you, Steve. As you've heard, Steve provided an overview of both our fourth quarter and full year 2006 results which are detailed in this morning's press release. While I will share a few additional numbers for the full year 2006, my focus will be a more in-depth review of the fourth quarter. This should provide you with a better understanding of our platform as we move forward into 2007. For the fourth quarter 2006, revenue from continuing operations of $186.6 million increased 15.3% compared to $161.8 million last year.

It's important to note, however, that two unusual favorable items affected this comparison. Although it is difficult to precisely quantify the impact of the 53rd week, we estimate that revenue was impacted by about $11.1 million. Second, we adjusted the litigation reserve for future revenue credits by $1.1 million. So on a pure comparative basis for the quarter, absent these two items, revenue increased by about 7.8%.

In the quarter, we recorded $15.3 million in revenue from the three new television stations. Political and issue advertising added $10 million in broadcast revenue including $2.1 million from the new television stations. This revenue was partially offset by softness in retail and auto advertising within publishing, the anticipated declines in printing services revenue, and persistent weakness in our direct marketing business.

Net earnings were $23.4 million compared to $16.7 million in 2005, an increase of 39.9%. Earnings from continuing operations were $20.5 million compared to $13.5 million last year, an increase of 51.5%. We estimate the impact of the additional week on operating earnings to be $1.4 million. Excluding the extra week, operating earnings increased 48.5%.

Basic and diluted earnings per share from continuing operations of $0.30 and $0.29 respectively were up from $0.19. Basic and diluted net earnings per share were $0.34 and $0.33 respectively for the quarter, compared to $0.23.

We recorded the following unusual items net of tax which impacted fourth quarter 2006 continuing operations. A $1.5 million gain from the sale of KBBX-FM; a $0.9 million gain from the sale of a garage property; $700,000 from a positive litigation revenue reserve adjustment; and a one-time curtailment credit of $400,000 related to a retiree medical plan amendment. The favorable aggregate after-tax impact of these items was $3.5 million or $0.05 per fully diluted share.

Note that unusual items also affected net earnings from discontinued operations. During the fourth quarter 2006, we suspended depreciation of the telecommunications assets held for sale. This cessation of depreciation resulted in an expense reduction of $1.5 million net of tax and was partially offset by expenses of $400,000 net of tax related to the divestiture of Norlight. For the full year 2006, revenue from continuing operations of $671.9 million net of the $4 million revenue adjustment credit increased 7.7% to $624 million last year. Excluding the litigation reserve for future revenue credits and the extra week, revenue increased by about 6.5%.

For the full year, we recorded $54.8 million of revenue from the three new television stations. Political and issue advertising added $16.5 million in broadcast revenue including $3.9 million from the three television stations. This revenue growth was partially offset by softness in retail and auto advertising within publishing; the anticipated declines in printing services revenue; and persistent weakness in our direct marketing business.

For the full-year 2006, net earnings were $64.4 million compared to $66.2 million in 2005, a decrease of 2.8%. Earnings from continuing operations were $55.7 million compared to $44.8 million, an increase of 24.5%. Excluding the extra week, operating earnings increased by 36.4%.

Basic and diluted earnings per share from continuing operations of $0.80 and $0.77 respectively compared to 60% and 59% respectively for last year. Basic and diluted net earnings per share were $0.93 and $0.89 respectively for 2006 compared to $0.91 and $0.88 respectively.

We recorded the following unusual items net of tax that impacted full year 2006 continuing operations. A $1.5 million gain from the sale of KBBX-FM; a $900,000 gain from the sale of the garage property; curtailment gains of $1.4 million related to a pension plan and retiree medical plan amendments; and $700,000 in hurricane-related insurance proceeds. These were partially offset by a $2.4 million reserve for 2007 advertising credits to be issued to advertisers related to a previous litigation settlement, and $1.1 million in litigation-related expenses. The favorable aggregate after-tax impact of all of these items was $1 million or $0.01 per fully diluted share.

Note that in 2005, net earnings were negatively impacted by $2.2 million in hurricane and plant closure-related costs. We recorded a gain from discontinued operations of $8.6 million compared to $21.5 million last year. Included within discontinued operations are Norlight's full year 2006 revenue of $127.8 million, and operating earnings of $16.2 million compared to $140.4 million and $27.2 million respectively. Also included in full year 2006 is an expense reduction of $1.5 million net of tax related to discontinued depreciation of telecommunications assets held for sale. This was partially offset by expenses of $1.4 million net of tax related to divestiture of Norlight.

Discontinued operations for 2006 also include a negative purchase price adjustment of $1 million net of tax on the sale of NorthStar Print Group compared to a $5.1 million gain net of tax in 2005. Other expense, which primarily consists of interest expense, increased $1.9 million to $4 million in the fourth quarter and by $11.8 million to $15.6 million for the full year. The increase is principally attributable to an increase in debt outstanding related to the 2005 television station acquisitions, share repurchases and higher short-term interest rates.

In the fourth quarter 2006, our effective tax rate was 38.9%. This lower rate largely reflects the benefit from being able to deduct spinoff related expenses which were previously nondeductible for tax purposes.

Within publishing, revenue was up 4.7% for the fourth quarter, in part reflecting favorable influences of $5.6 million for the additional week and $1.1 million relating to the adjustment for litigation reserve for future revenue credits. These were partially offset by continued weakness in auto advertising. This compares to $85.4 million. Absent the combined favorable influence of the extra week and the reserve adjustment, publishing revenue in the fourth quarter 2006 decreased 3.1%.

At the Daily newspaper, total revenue of $66.3 million was up 6.6% due to the extra week and the revenue credit. Excluding these two items, total revenue decreased 2%.

At our community newspapers and shoppers, revenues of $23.1 million was essentially flat compared to last year. Excluding the extra week, revenue decreased 6%.

Focusing now on the Daily newspaper, advertising revenue of $49 million increased 4%. Excluding the extra week and the revenue credit, advertising revenue decreased 7.2%. Retail revenue of $29.2 million was up 11.4% reflecting increases in preprints, shared mail, online and ROP due in part to the extra week. In ROP, increases in the building, hardware, lawn and garden and other categories were offset by decreases in the communications, auto dealers, health services, and business services categories. Preprints were up 17.1% year-over-year for the quarter.

Classified advertising at the Daily newspaper of $14.8 million, which includes both print and online, decreased 6.8% for the fourth quarter of 2006. The employment vertical was up $88,000 or about 1.5%. The auto vertical was down $500,000 or approximately 17.1%. The real estate vertical was down 11.6% for the fourth quarter 2006, reflecting softness in both home sales and rentals. The other classified vertical decreased $80,000 or 3.8% year over year.

Reflecting a national trend, automobile advertising at our daily newspaper continues to be weak. On a combined retail and classified basis, auto advertising was down approximately $700,000 or 16.7% compared to last year. For the full year, combined auto advertising was down $6.1 million or 28.7%.

Our national advertising revenue category increased 43.6% to $3.2 million for the quarter. This reflects growth in the finance, health services, transportation, and communications categories partially offset by decreases in entertainment. The direct marketing category of the daily newspaper was down 36.6% largely due to lost business from Bon-Ton's consolidation of the Boston store's mail programs.

Although interactive advertising is reflected in the various revenue categories, total online revenue was up $850,000 to $2.7 million for an increase of 46.3% for the fourth quarter. For the full year 2006, online revenue was up 34.3% to $9.6 million, or 5.6% of total advertising revenue.

Circulation revenue of $13.8 million for the fourth quarter was up 5% compared to last year, primarily due to the extra week. Excluding the extra week, circulation revenue decreased 2.2%. Other revenue at the Daily newspaper of $3.5 million for the quarter was up 81.9% year over year, principally reflecting gains in commercial printing due to USA Today as well as commercial delivery. Excluding the extra week, other revenue increased 72%. In 2006, total color advertising was up 34.6% for the quarter and 21.1% for the year.

Operating earnings from publishing increased by 26.7% to $12 million compared to $9.4 million last year. Please note that last year's results included pre-tax hurricane-related costs of $2.2 million. Excluding the extra week, operating earnings increased 15.3%.

At the Daily newspaper, operating earnings totaled $11.8 million up 17.5% compared to $10.1 million last year. The increase was mostly attributable to the $1.1 million reserve adjustment, the gain on the sale of the garage property and the extra week. Absent these items, operating earnings were down 10%. Operating margin was 17.8%, up from 16.2% last year. However, when you adjust for the unusual items I just highlighted, operating margin was 14.8%.

Total expenses for 2006 at the Daily newspaper were $206.1 million, up 1.7% compared to last year. Excluding the extra week, total expenses were essentially flat. Payroll specifically was flat with last year and excluding the extra week, was actually down 2%. Fourth quarter 2006 paper costs were up by $358,000. This increase in cost reflected a 4.1% increase in newsprint pricing partially offset by a 2.9% reduction in newsprint consumption. Paper costs for the extra week were estimated to be $440,000.

Turning to our community newspapers and shoppers, we recorded operating earnings of $200,000 in the fourth quarter. These results were adversely impacted by approximately $700,000 of expense related to the shutdown of the Heartland printing facility and moving its printing press to Waupaca. This compares to a loss of $600,000 in last year's fourth quarter when we recorded $2.2 million in hurricane-related costs. The extra week had no impact on operating earnings for the quarter in this business.

At broadcasting, fourth quarter revenue increased 47.2% to $70.2 million, in part reflecting a $15.3 million increase associated with the three newly acquired television stations, a $7 million increase from station political and issue advertising, and a $2.9 million impact from the extra week on our same stations. Excluding the impact from the extra week, revenue increased 39.6%.

Operating earnings were up 70.2% to $23.1 million due to the positive impact of the new television stations, political advertising, strength at our Las Vegas, Lansing, Milwaukee, and Palm Springs television operations, as well as solid performance at our Omaha, Milwaukee, Springfield, Tucson, Tulsa, and Boise radio clusters. Excluding the extra week, operating earnings were up 68.1%.

Of note, revenue and operating earnings at our Las Vegas station were up 56.6% and 114.6% respectively. At our Green Bay operations, operating earnings improved dramatically.

Revenue at our television stations for the fourth quarter of 2006 increased $20.4 million or 82% to $45.4 million. These results include $15.3 million contribution from the television operations which we acquired in December 2005. Excluding the extra week, revenue increased 72.5%. Excluding the new operations, same station revenue of $30.1 million increased by 36.7%.

Total television political advertising in the quarter was $9.1 million including $2.1 million from our new stations. Television operating earnings of $14 million for the quarter increased 130.6% compared to $6.1 million. Excluding the extra week, operating earnings increased 126.4%. Clearly, these results were heavily influenced by the new television stations, yet same station operating earnings of $8.9 million increased by 67.2%.

Our improved network mix helped us record margin improvement in the 2006 fourth quarter. Political and issue advertising was also strong and we continue to see solid growth in local developmental revenue. Coupled with continued emphasis on cost control, this has resulted in margin growth in every television market.

Before moving on to radio, I would like to take a moment to provide a one-year report card on the performance of our three new television stations. As you may recall, the purchase price was $235 million. At the time, we estimated 2005 revenue and EBITDA from the three stations at approximately $43 million and $14.3 million respectively. We also projected approximately $1.8 million in immediately realizable cost savings, which put the pro forma 2005 EBITDA at $16.1 million, representing a purchase multiple of approximately 14.6 times.

We said, however, that when looking at multiples, we assess television performance over a blended two-year cycle, thereby smoothing the biannual effect of political advertising. At that time, we announced the acquisition would have an estimated multiple of 13.8 times EBITDA for the blended period of 2005 and 2006. That, however, did not reflect the rather significant tax shield from the step up in value from these stations based on the fact that this was an asset acquisition. We estimated the present value of that benefit to be in excess of $40 million which essentially drove the EBITDA multiple down to 11.3 times blended 2005/2006.

So how did we do? With $54.8 million in reported 2006 revenue, and $22 million in EBITDA, the actual blended two year EBITDA multiple was 12.3 times, well below our original estimate of 13.8. When considering the step up benefit for taxes, the actual multiple was 10.1 times compared to our original estimate of 11.3.

Moving on to radio, for the fourth quarter 2006, revenue of $24.8 million was up $2.1 million or 9.1% including political and issue advertising revenue of $1 million. Excluding the extra week, revenue increased 3.5%. Operating earnings of $9.1 million increased by $1.6 million or 21.2%. Excluding the extra week and the pre-tax gain on the sale of KBBX-FM, operating earnings decreased $0.9 million or 12.2%.

Moving on to printing services, revenues in the fourth quarter of 2006 decreased 1.7% to $18.5 million. This reflects the expected decline in revenue from Dell Computer Corporation and other software customers partially offset by $2.4 million in new print business. Excluding the extra week, revenue decreased 9%.

For the fourth quarter of 2006, operating earnings from printing services were $1.2 million compared to $1 million, an increase of 20.5%. Once again, excluding the extra week, operating earnings were essentially flat compared to last year.

For the fourth quarter 2006, other revenue of $8.5 million decreased 14% due in part to the loss of a large customer and weakness at PrimeNet's St. Paul location. Excluding the extra week, revenue decreased 19.3%.

Other operating earnings were $1.4 million reflecting the gain from the sale of the garage property and the curtailment gain related to a retiree medical plan amendment. Excluding the extra week, operating earnings were $1.6 million.

Our balance sheet remains sound. For the 2006 year, operating cash flow was $120 million. At the end of the quarter, debt was $235 million, reflecting our acquisitions of the television stations in late 2005 and share repurchases. Shareholders equity stood at $480.9 million after recording a charge to accumulated other comprehensive income of $17.1 million relating to the adoption of FAS 158 accounting for defined benefit pension and other post-retirement plans.

Our capital expenditures from continuing operations in 2006 were $22.2 million compared to $19.5 million last year.

During the fourth quarter 2006, the Company repurchased 776,600 of its Class A shares. Through December 31, 2006, we had repurchased a total of 6.3 million Class A shares including 2.8 million purchased throughout 2006. Approximately 3.7 million shares remain available for purchase under our second 5 million share buyback authorization which runs through October of 2007.

In terms of our outlook for the first quarter of 2007, we currently anticipate that publishing revenues will be down compared to the prior year, reflecting continued challenges in automotive advertising, partially offset by strong growth in online, commercial printing, and commercial distribution. Radio revenue should be up modestly reflecting growth in developmental revenue, partially offset by the sale of KBBX-FM in Omaha. Television revenue should be down somewhat, reflecting the loss of Olympics revenue as partially offset by continued growth in development and interactive revenue.

On a final note, this morning we filed an 8-K that provides quarterly financial data for 2006 showing Norlight as a discontinued operation. We hope this proactively provides investors with the information necessary to better evaluate our performance.

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.

Steve Smith

Thank you, Paul. We will continue to focus on growing revenue and operating earnings, margin, and aggressively pursuing new media and digital platforms. As you may have seen, we recently named Carl Gardner to the new position of Vice President of Digital Media to lead the development and implementation of our overall digital and online strategy.

In publishing, our priorities for 2007 include targeted local new media initiatives, non-traditional revenue growth, focused cost control, creation or acquisition of targeted publications, and continued excellence in commercial printing. We see ongoing opportunities to enhance our publishing margins, but our challenge is to grow the top line. As we said last quarter, the advertising climate in our Milwaukee market is still challenging as we look forward and the Daily newspaper will continue to face some hurdles. Ownership changes in the department store category have led to marketing program changes and, like many other markets, we have seen sluggish housing sales. And like other markets around the country, we still don't see an upturn in automotive spending by local dealers or by the factories.

However, we are continuing to pursue revenue growth initiatives such as specialty and additional products, core product growth and commercial printing. We are committed to providing a full suite of print and web-based products to our advertisers and will continue to pursue web development of our traditional printed lifestyle products.

The publishing team sought efficiencies throughout the business in 2006 and these initiatives will continue in 2007. In circulation, we consolidated nine distribution centers into three super distribution centers, resulting in savings in 2006 of about $500,000 with another $2.9 million projected through 2008.

Our fee for delivery conversion should result in $1 million in delivery cost savings in 2007, and we also expect to continue cost efficiencies at our combined Wisconsin printing operations and have plans in place that we believe will deliver meaningful cost savings throughout our community newspapers and shopper operations. We expect continued margin improvement at our community newspapers and shoppers, as we discussed.

In late 2006, we finally lapped the effects of the hurricane and the shutdown of the Dixie web printing plant, and we should provide more favorable revenue and earnings comparables. Around Milwaukee, our weeklies are working together with the daily newspaper to supplement publications, events, and other products with that dynamic local news coverage and Internet capabilities while reducing duplicative operating costs.

In northern Wisconsin, we expect to gain further efficiencies through enhanced capacity utilization and streamline printing operations resulting from the consolidation of the community newspapers and shoppers Wisconsin printing operations.

In Broadcasting, our priorities for 2007 include developmental and interactive initiatives, focused cost control and growth in ratings especially in Fort Myers, Tucson and Omaha. We will maintain our local advertising sales franchises and extend them to new channels, continue to be a leader in local video and audio content, incorporate additional new media platforms, and develop targeted new brands and products.

We expect tougher television comparables in the first quarter as we face the loss of $3.3 million in Olympics revenue generated in Q1 2006, but continued growth in developmental revenue, enhanced programming such as the Morning Blend and additional newscasts in several markets should bolster television revenue, although we expect overall growth to be slightly down in 2007 due to the loss of significant political and issue revenue.

We remain excited about the continued opportunities in Las Vegas and look forward to the completion of the new television facility there, and also we believe we have a very solid framework in place at the three new television stations, which will continue to drive growth and enhance performance.

On the radio side, we see continued success in generating developmental revenue and ongoing strength across most of our markets. We are also focused on enhancing our online radio initiatives such as podcasting, on-demand programming, text alerts, blogs, and more. All of these revenue streams should translate into a slight increase in radio revenue through 2007 as we also need to replace about $1 million in revenue due to the sale of KBBX last September. Our recently announced agreement to sell KOMJ-AM in Omaha will also impact 2007 radio revenue.

IPC, which has fully exited the Dell fulfillment business, continues to successfully grow its core printing business and we expect ongoing margin improvement.

We are extremely pleased today to announce that yesterday Ellen Siminoff was elected to our Board of Directors. Ellen currently serves as President and Chief Executive Officer of Efficient Frontier, the leading provider of paid search engine marketing solutions. She was a member of the founding executive team at Yahoo! and spent six years there in a number of positions including Vice President, Business Development and Planning; Senior Vice President of Corporate Development; and Senior Vice President Small Business and Entertainment. Prior to joining Yahoo!, Ellen worked for the Los Angeles Times as Electronic Classifieds manager. With her husband David, she founded EastNet, a global syndicate barter company distributing television programming to 14 emerging market countries in exchange for advertising time. She holds a Bachelor's degree in economics from Princeton and received an MBA from Stanford University School of Business. Ellen's broad range of experience and expertise in finance, corporate development, new media and marketing complements our current board composition and we are confident that she will help us execute our strategic growth plans, particularly in interactive and new media.

So as we begin 2007, we are well positioned to focus on our core media businesses and to expand both our traditional revenue platforms and our online initiatives. Our solid balance sheet and strong cash flow will provide us with the financial flexibility to make further investments in our businesses, evaluate potential acquisitions, fund our share repurchase program and continue our dividend policy.

Yesterday, our Board of Directors increased the Company's quarterly dividend on its Class A and B shares by 15% from $0.065 to $0.075 per share reflecting our strong cash flow and financial position. We remain committed to driving additional efficiencies through expense initiatives in every business, and as always, our most important priority is continuing to deliver meaningful value to our shareholders.

Operator, this concludes our remarks. You may begin the question-and-answer session.

Question-and-Answer Session

Operator

Your first question comes from Mark Bacurin – Robert W. Baird.

Mark Bacurin – Robert W. Baird

Good morning, everyone. A couple things. I had to jump on late so I apologize if you guys addressed this at the beginning, but did you provide an update of the Norlight sale and where that stands and kind of expectation of closing?

Steve Smith

When we announced it in November, you'll recall that we said four to six months to receive the regulatory approvals for the closing of Norlight. We continue to believe that that timeline is good. We all believe that the shorter end of that range is better for everyone. But we are working hard to close the Norlight transaction.

Mark Bacurin – Robert W. Baird

Contemplating use of proceeds, there still would be a temporary use to pay down debt and then longer-term still looking at M&A and share buyback as the strategic priorities?

Steve Smith

Obviously, we will immediately reduce debt, but going forward, our management and our board is keenly focused on driving shareholder value. You know we have the buyback program in place and we are executing on that and we just raised the dividends 15%, but we are also evaluating actions we could take to further our growth strategy.

We clearly understand that we will have a very strong balance sheet, so we also are planning to continue to look for acquisitions that are on strategy while remembering to be disciplined in our evaluation and be mindful of the ongoing growth strategy.

Mark Bacurin – Robert W. Baird

Paul, this is probably for you. A little bit of a departure from the historical norm on your guidance. You're talking about revenue growth in the three main businesses and not talking about net income. Are there reduced visibility issues there that you're worried about or is it just a change in the procedure going forward?

Paul Bonaiuto

Mark, it isn't a function of reduced visibility. It really is a change in the procedure going forward. I think as we look at what others in the industry are doing, we find that we were coloring a bit outside of the lines there.

Steve Smith

We provide monthly revenue reports with the rest of the industry, the consistent quarterly calls and do have our operators here, and also with Norlight now entering discontinued operations, I think we may have also taken a little bit of the mystery out of Journal Communications with that move.

Mark Bacurin – Robert W. Baird

Fair enough. Don't know who wants to address this one, but on the Google arrangement yesterday, I am just curious. It sounds interesting, not really clear how big of a revenue opportunity it is. It sounds more like you are just testing it to see how it may go. I'm curious if you've actually seen any advertising content flow through that arrangement yet and what your expectations are to be able to help you guys monetize some excess inventory.

Betsy Brenner

Under the terms of the agreement, we really can't commit to any kind of a revenue stream, and more importantly, it is absolutely brand new. We're still setting up the procedures to make it work. Couldn't report to you on our progress. Hope to be able to know more the next time we're on the call.

Mark Bacurin – Robert W. Baird

So still very early stages there. And then, I guess lastly, Paul, you may have addressed this, again I apologize. The reversal of some of those '07 credits you were expecting to issue and you got some add back there on the fourth quarter. What allowed you to do that?

Paul Bonaiuto

As we went through the year, and part of the workings of the settlement, it required that advertisers make filings to participate. We had a number of advertisers that didn't file to participate as part of that settlement, and as we reevaluated what that meant as of year end, it resulted in an adjustment to the reserve at approximately $1 million.

Mark Bacurin – Robert W. Baird

Lots of noise in the quarter obviously. $0.05 of add-backs related to all the gains that flow in the various different places and then $0.04 of discontinued ops, so there's essentially a $0.09 delta if you're kind of trying to get down to an operating number, is that the right way to think about it?

Paul Bonaiuto

No, I don't think so Mark. I think if you look at the fourth quarter, what we had suggested is that based on the sale of KBBX, the gain on the garage, the curtailment gain associated with the amendment to our retiree medical, and the $1.1 million associated with the litigation on a pre-tax basis that was roughly 5.6; after-tax, 3.5 positive which had a nickel impact on the quarter.

If you look at what occurred in discontinued ops, we had spin-off related expenses of roughly $600,000 and we discontinued depreciation for Norlight. That had a positive impact of $2.4 million pretax. So on an after-tax basis in discontinued operations, we had a positive impact of $1.1 million which resulted in a[$0.015 EPS positive impact. So if you look at it on a combined basis, it would be the $0.05 and the $0.015.

Mark Bacurin – Robert W. Baird

That's embedded within that $0.04 in the discontinued ops?

Steve Smith

That's correct.

Mark Bacurin – Robert W. Baird

So the operating EPS contribution within Norlight would have been closer to $0.025?

Steve Smith

That sounds right. I haven't done the math.

Operator

Your next question comes from Stacy Fleck - Merrill Lynch.

Stacy Fleck – Merrill Lynch

Good morning. I was hoping you guys could discuss January trends in both publishing and broadcasting and if it looks kind of better or worse than December?

Doug Kiel

I'll go with broadcasting first and I'll take radio and television separately. Radio right now, the pacing supports a slight increase in revenue, probably low single-digits. Now remember, in radio we are operating all year without KBBX-FM, as Paul had mentioned, which generally had sales of around $400,000 a quarter. No political in the first quarter, which is about $150,000 and we have one less Packer game in the first quarter of this year, so we're looking at low single digits as possibly the increase.

In television, our pacing is down from last year. Again, no Olympics; $3.3 million political; almost $400,000 last year in the quarter. In television, the visibility isn't all we would like at this point to March for some reason, but the quarter appears to be pacing behind last year by low to mid single-digits, and that's how it kind of wraps up for broadcasting.

Betsy Brenner

This is Betsy talking about primarily the daily newspaper. Pretty similar to the trends we saw in December, but with some changes in mix of business. And in particular, our classified business, real estate and recruitment in particular was stronger in the first period of the quarter and we're hoping that means a little bit of a rebound there. Our automotive business, as both Paul and Steve mentioned, continues to struggle and so that's pretty consistent with what we saw in December. National business is down compared to strong gains in the back end of last year.

In our direct marketing business, as you might recall, we're still cycling some changes, primarily Boston store and some other shifts in revenue there. So, same trend, different mix of business we're seeing in the first period and we think that will play out throughout the quarter.

Stacy Fleck – Merrill Lynch

Is there any sense on the auto category? Do you guys expect to hit easier comparisons or do you still expect large declines throughout 2007?

Betsy Brenner

I'll speak for the Daily newspaper again. I don't think we can continue to see the kind of declines we've seen in this market for the last two years. I think there's a shift in terms of where those declines come from and what we are seeing locally, is that more of the cutbacks are coming from our local dealers in either the dealer associations or the factory business. So you can say that trend is kind of accelerating down to the local markets. We don't expect it to get worse, but we aren't seeing anything on the horizon that says it will improve through the first quarter.

Doug Kiel

This is Doug again for broadcasting. Last year, automotive was not as significantly impacted, as you know, as probably the Daily newspaper was, but in the fourth quarter, we saw that happening down on a same station basis in TV about 12%; radio down about 5%. That, of course, impacted by political advertising because it took up the inventory and some of the auto stuff either couldn't get on or the shares weren't as large.

Early this year in January, we saw auto start to be off somewhat from the pacing we had seen last year, particularly in a couple of domestic categories in many of our markets. We see that slightly improving. I think that's going to be a rocky through this quarter, but because there are several new brands coming out, products coming out, generally that is very, very helpful to television and our look at it now as we go beyond the first quarter, is to see auto getting back to more normal trends for us, which is more similar to last year. But we'll see.

Stacy Fleck – Merrill Lynch

What are your expectations for political in 2007?

Doug Kiel

That's a good question, Stacy. I wish I had a clearer answer for you is the honest one. We've got some money that we expect to come in; a very small amount of money in 2007 starting probably mid year. That was our best look at it. Today, as you are reading the same things we are, and where we see the political probably developing is going to be in our Las Vegas market because of the adjustment there and the way the political process is there. They have an early caucus there and so we expect to get something probably this year.

But it's way too early for us to tell. We're hopeful, but that isn't something I can give you a number on. This year, we'll see how it plays out. It's going to be very interesting to watch and if it happens, it will be probably happening towards the end of the second quarter, early third.

Stacy Fleck – Merrill Lynch

Overall, if you could talk a bit about the broadcast M&A market and kind of what is your view of the current multiples that transaction are being done at?

Steve Smith

I will start and Doug, feel free to jump in. It is interesting. It's good that we are seeing values continue to stay strong in television and radio. Having said that, they're very strong values and we're going to need to continue to look at a number of opportunities, but as you do so, as you look at staying disciplined and as you look at your modeling, and discounted cash flow and accretion dilution and return on invested capital and all of the things we look at, it's continued to be a very strong market in terms of broadcasting.

But I'll remind you that the strategy here is attempting to get deeper in our existing markets; the whole idea of the markets that we like, the state capitals, the university towns, the diversified growing economies, the mid markets. So we think that we will be able to find, we are hopeful that we will be able to find the ability to grow, but it is not going to be extremely easy given the strong values that we are seeing out there, but we're going to stay at that.

Doug Kiel

Steve said and Paul outlined what happened with our acquisition in December of '05 with the three stations, so we feel very strongly that as Steve outlined, our disciplined approach, finding markets we like, getting deeper in them, the cross platform markets like we put together in Omaha and Tucson, that really works. So, we believe very strongly that if we're disciplined and we find the right opportunity in the markets we like where we can get deeper or markets similar, that we can build value.

Operator

Your next question comes from Debra Schwartz - Credit Suisse.

Debra Schwartz – Credit Suisse

I don't think I saw or heard this, but can you give us a category breakout for the Daily newspaper excluding the extra week of the fourth quarter?

Paul Bonaiuto

Actually, we didn't provide that. I don't know if I have that here with me.

Betsy Brenner

Paul, let me jump in because I think I have it. Category breakdown, Debra, fourth quarter for '06 and these numbers exclude the 53rd week as well as the credit adjustment that Paul mentioned. Retail was down about two-tenths of a percent, classified down about 12%; national, strong month, up 33%; and our direct marketing business was down 43%. Interactive, by the way, was up 42% as well.

Debra Schwartz – Credit Suisse

You put in place several revenue and cost initiatives in 2006. I was wondering if you have any update to your long-term margin targets for each division?

Steve Smith

We really don't at this point.

Operator

Your next question comes from Peter Salkowski - Goldman Sachs.

Peter Salkowski – Goldman Sachs

Good morning everybody. Steve, a question on the new media digital platform initiatives that you were addressing in the call. If you could give some sort of indication of what you guys are thinking about doing, and what your expectations may be in 2007 or even in 2008 for revenue from those initiatives, that would be kind of helpful.

I'm assuming that there would be some cost involved in generating some of these new initiatives and just wondering, again on the cost side, what you expect to possibly see on that and whether that's going to ramp up in the first half or during 2007 and then we start seeing the revenue contribution in '08.

Steve Smith

Good question, Peter, and I can address that. Naming Carl Gardner to this position is certainly an important step for us and Carl had been working on new media initiatives in broadcasting right along and he's going to continue with some of his broadcasting duties, but he's going to step into this strategic role.

I would hasten to add, though, that we have a group in the Publishing Group led by Sharon Parrell who is an excellent general manager for us in publishing, and publishing has been ahead of broadcasting in the revenue that's been generated to this point. So, we've been continuing to build out platforms for us where we hopefully will be able to drive our local revenue.

As a matter of fact, we have a strategic meeting in the next couple of weeks where Carl is going to lead us through and we're going to get our management in one room and talk about, we have built out a number of platforms. How do we build great sales organizations in order to drive revenue in those platforms? And I'll let Betsy talk for a minute about the platforms that are built out in Milwaukee, but generally speaking, in all of our markets, we are finding that being in the local business and continuing to drive our local leadership is going to be critically important to us. Local databases trying to drive traffic to those local sites.

The two very important things is prioritization of these activities and also a very heavy emphasis on building effective sales groups, just like we do in broadcast.

In terms of the expense, the additional expense, I would say that what you've just heard me talk about is a lot of activity that will be done within the existing resources, but we do expect to be investing in sales resources. I don't have a specific number for you, but development, but also sales resources are going to be a priority for us to drive this local business.

Betsy and Doug, if you want to add something, that would be great.

Betsy Brenner

Hello, Peter. This is Betsy. I want to talk a little bit about the strategy we've taken at the newspaper because as Steve mentioned, that's where the bulk of our interactive investment has gone over the course of the past year. Obviously we have our news platform, JS Online, but more recently we've been building out specialty targeted segments for local neighborhoods in 25 local community websites, targeting local parents through our Milwaukee Moms acquisition, and all of that helped us grow by the 34% you're aware of that we mentioned in the call over the course of 2006.

Now, already in first period this year, we're seeing strong growth in interactive, stronger than we saw across all of last year, and that's coming in a number of these specialty sites because as you know, our dependence on classified upsells is declining and our emphasis on category based revenue is growing. So, mix of business change there, stronger growth we're looking forward to in 2007, and we feel real good about the emphasis we put on developing these new targeted sites.

Peter Salkowski – Goldman Sachs

Betsy, just to follow up with you, on the publishing side, if you could give a sense for the cost there. I know payroll is down I think also 2% in the quarter. Could you give us a sense of what the FTE's were at the end of 2006 for the Milwaukee Journal Sentinel versus what it was at 2005?

Betsy Brenner

I know overall we declined about 53 positions from the end of '05 to the end of '06. I don't have the base number. I can get it for you before too long. But I think it's important to note that that decline happened even as we added some 47 positions from our community newspapers. We went from 1,527 total FTEs in '06 and that was down from 1,559 in '05.

Peter Salkowski – Goldman Sachs

Paul, just a quick question on CapEx. You gave a number of $22 million, I think, for 2006 from continuing operations. Do you have a number for 2006 for total?

Paul Bonaiuto

I certainly do. It was right around $37 million.

Peter Salkowski – Goldman Sachs

What are you expecting for 2007?

Paul Bonaiuto

What we are thinking is it will be a little more expensive in 2007 for continuing ops as we make the investments that Steve spoke of in the building for Las Vegas, because you can well imagine that's a fairly expensive endeavor. So our estimate is we will do a little over $46 million in 2007.

Peter Salkowski – Goldman Sachs

Will any of that carry into 2008?

Paul Bonaiuto

Actually our thought is when we look at what will carry over from 2006 into 2007 and then what will carry over from 2007 into 2008, that it will net to about zero, so that we're really looking at the cash outflow being about a little over $46 million.

Peter Salkowski – Goldman Sachs

So you should be back to about a $40 million level by the time you get to 2008 again?

Paul Bonaiuto

Actually, our expectation is that on a go-forward basis, capital spending levels will be lower.

Peter Salkowski – Goldman Sachs

Lower ex the telecom stuff?

Paul Bonaiuto
Absolutely.

Operator

Your next question comes from Craig Huber - Lehman Brothers.