Journal Communications Q4 2005 Earnings Conference Call Transcript (JRN)

Journal Communications Inc. (JRN)
Q4 2005 Earnings Conference Call
February 2nd 2006, 11:00 AM.

Executives:

Steven Smith, Chairman of the Board & Chief Executive Officer
Paul Bonaiuto, Executive Vice President & Chief Financial Officer
Douglas Kiel, President & CEO

Analysts:

Douglas Arthur, Morgan Stanley
Mark Bacurin, Robert W. Baird
Stacey Smith (ph), Merrill Lynch
Craig Huber, Lehman Brothers
Peter Salkowski, Goldman Sachs

Presentation

Operator

Good day and welcome ladies and gentleman to the Fourth Quarter 2005 Journal Communications Earnings Conference Call. My name is Audrey and I will be the conference coordinator for today. Operator Instructions. I would now like to turn the call over to Ms Sara Wilkins, Director of Investor Relations, please proceed.

Sara Wilkins, Director and Investor Relations

Thank you Audrey and welcome everyone. Before we began I would like to introduce the Journal Communications Senior Management Team, who will participate in this morning’s call. Speaking from prepared remarks 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 Douglas Kiel, President of Journal Communications and CEO of Journal Broadcast group, Betsy Brenner President and Publisher of Journal Sentinel Inc and Jim Ditter, President of Norlight Telecommunications.

I would like to remind you that, certain statements in this call are forward-looking statements within the meaning of the Privates 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 operation. These statements are subject to risks, uncertainties and other factors that could cause actual result to differ materially from those expressed or implied by those forward-looking statements. Some such risks include increases in advertising spending, loss of market share, and ability 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 SEC and the ability to respond to changes in telecommunication technology, continued over capacity and pricing pressure in the telecommunication industry, loss of large printing service customers, lots 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 un audited reconciliation of consolidated net earnings to consolidated EBITDA of schedule, which are company’s today’s earnings release. And now, I would like to turn the call over to Steven Smith. Please go ahead, Steve.

Steven Smith, Chairman of the Board & Chief Executive Officer

Thank you Sara and Good morning everyone. This morning, Journal Communications recorded net earnings of $16.7 million for the quarter ended December 25th 2005. The quarter included $1.3 million, in after tax shut-down related cost in our Louisiana print plant and reflected a decrease of 26.5% compared to $22.7 million for the fourth quarter of 2004. Revenue from continuing operations decreased 4.5% to $195.3 million, compared to $204.4 million.

Basic and diluted earnings per share from continuing operations were $0.23 and $0.22 respectively compared to the basic and diluted earnings per share from continuing operations of $0.27 and $0.26 respectively for the fourth quarter of 2004. For the full year ended December 25th 2005, we reported net earnings of $66.2 million, which included $2.2 million, in after tax hurricane related shut-down cost compared to $78.5 million, a decrease of 15.6%.

For the full year 2005, basic and diluted earnings per share from continuing operations were $0.84 and $0.81 respectively, compared to basic and diluted earnings per share from continuing operations of $0.98 and $0.95 respectively last year. Clearly 2005 was a weak year in which we did not achieve our financial plan. We had expected a challenging year in 2005, without a $16 million in political and Olympic Television Advertising, we sold in 2004.

We had also anticipated a reduction in our telecommunications carrier revenue, as our customers clarify their needs in our region, reduced their spending and negotiated new market rate contracts with us. However our challenge was heightened as the MCC television network ratings fell, negatively affecting three of our stations. Hurricane Katrina and the plant shut down disrupted on going margin improvement at our Community Publishing Group. Advertising revenue is softened especially in the important automobile category during the second half of the year and the enterprise business at Norlight faced the hyper competitive environment.

And on more positive note, at Journal Sentinel, we strengthened our team with a number of veterans from among the top newspapers in the country, while continuing to drive our margin improvement imperative. During 2005, we added excellent Television stations to the Journal Broadcast family through our purchase of our WFXT TV, the Fox affiliate in Fort Myers, Naples, Florida and KGUN TV, ABC and Tucson Arizona. We also now program KMTV, the CBS affiliate at Omaha, Nebraska under our local marketing agreement.

I am pleased to say that, we’ve had a very strong start at the news stations, where great integration effort has helped us to achieve early results that were beyond our expectations. And in our Radio Group, we saw improved in our earnings in margin for the fifth consecutive year with significant progress in our developmental markets. For the year, Radio revenue was up 2.5 % following strong gains in 2004. And more impressively Radio operating earnings were up some 15.6% in 2005.

Journal Community Publishing Group recorded enhanced performance at the Connecticut, Florida and Vermont clusters. At Norlight Telecommunications in the wholesale segment, we signed a new 5-year agreement with MCI, along with new agreements with several other significant wholesale customers, which helps us to achieve clarity in our wholesale business. And at IPC, we make great progress toward our transition back to our corporate business while improving operating results.

In late January 2005, we sold our label manufacturing business NorthStar Print Group to Multi-Color Corporation. The purchase price excluding certain real estate holdings was $26 million in cash.

Turning to the fourth quarter, at the Milwaukee Journal center, revenue was down 2.7% reflecting a continuation of very weak auto advertising, softness in retail advertising and a declining circulation revenue. However, we continue to see growth of Journal Interactive, where revenues in the fourth quarter of 2005 were up over 21% with a gain of 43% for the full year.

Operating earnings of the daily newspaper are about $10.1 million in the fourth quarter were essentially flat, compared to the last year, reflecting lower revenue but also lower costs. And at community newspapers and shoppers, Hurricane Katrina had a detrimental effect on both on our Louisiana based community publishing and printing operations as well as the entire division overall. Paul, will discuss this in more detail shortly. Excluding the impact of Katrina and the shut-down of our printing plant, revenue would have been up1%, while earnings would have increased 45%.

In December, we redeployed the equipment to other Journal community publishing group printing locations with the press moving to our high performance facility in Trumbull, Connecticut. We believe, this redeployment will allow us to satisfy our customer’s desire for additional color, provide an improved return on investment from this equipment, and allow capital expenditure avoidance in 2006.

In early 2005, Journal Community Publishing Group launched several news specialty publications, which added more than $2.7 million in incremental revenue during the year, Including about $700,000 in the fourth quarter. These new products carry higher margins than our existing co-products and are targeted at specific audience, our advertisers want to reach. At our Broadcast Group, the fourth quarter also provided significantly challenging comps related to last year’s contribution from political and issue advertising in both Radio and Television.

Nearing the trend, we saw most of the year, in the fourth quarter, we continue to see soft advertising at our Television stations across most of our markets. In radio, our developmental clusters in Tulsa, Wichita, Nashville, Springfield and Boyce continue to demonstrate earnings growth. As we discussed in last quarter, declines in our television were driven by several factors. The first was the exceptional political revenue we saw in our two largest markets for last year. Absent political bears less pressure on inventory, which drives the rates.

Second MBC had a significant ratings decline during 2005, which also negatively affected our pricing in the Milwaukee, Palm Springs, and Green Bay. And automotive advertising continues to be weak. We continue to succeed in growing developmental and non-traditional revenue in our television group, while also cutting expenses on a same station basis.

Moving to our Norlight Telecommunication business, revenue decreased to about 6% in the fourth quarter of 2005, operating earnings from Telecommunications as expected decreased 43.7% to $4.6 million compared to $8.2 million due to a lower revenues as well as decreased margins associated with the enterprise business. For the past several quarters, we’ve reported reduced earnings at Norlight. As we have been projecting pricing pressure in both the wholesale and enterprise business remains a major culprit. As previously discussed, the company work aggressively to retain long term customers by meeting competitive pricing, while continuing to position for future growth in IP and enhanced services.

Additionally Norlight continues to identify opportunities with attractive returns in the wholesale market for building new revenue streams, which is reflected in the increased capital spending during second half of 2005. The increased capital expenditures in 2005 versus the previous year were on success-based projects, which are supported by long-term customer commitments.

As these starts, the anticipated reduction and carrier revenue, combined with the increasing mix of enterprise in Telephone system business will result and reduced operating margins going forward. Our discussions with Norlight management continue to focus on enterprise revenue growth, overall expense control, and disciplined capital spending, as commercial revenue becomes more significant part of the business. And now I would like to ask Paul to begin his in depth review, Paul

Paul Bonaiuto, Chief Financial Officer & Exec. VP.

Thank you Steven. As you heard, Steve provided an overview of both our fourth quarter and full year 2005 results, which are detailed in this morning’s press release. While, I will share a few additional numbers for the full year of 2005, my focus will be a more in-depth review of the fourth quarter. This should provide you, with the better understanding of our platform as we move forward into 2006. Earnings from continuing operations in 2005 were $61.1 million compared to $73.3 million in 2004. A decrease of 16.6% including $2.2 million in after-tax costs from the hurricane and shut-down of our Louisiana printing plant. Net gains on asset sales in 2004, approximated $2.2 million net of tax.

Total operating costs and SG&A increased 1.6% for the year. For the full year 2005, revenue from continuing operations decreased 1.2% to $764.5 million compared to last year’s revenue from continuing operations of $773.4 million. Note that, lost revenue from the closure of our Louisiana printing business, and the impact of the hurricane on our publications, approximated $3.1 million. Although we benefited from $9.6 million of revenue from newly acquired television stations, we were also negatively impacted by the decline of $15.5 million in political and Olympics revenue.

For the fourth quarter of 2005, earnings from continuing operations were $16.5 million compared to $20 million in 2004, a decrease of 17.8% including $1.3 million in after-tax shut-down costs at the printing plant. Note that, in the fourth quarter of 2004 Journal Communications reported a $2.2 million gain on the sale of properties net of tax and $600,000 charge for voluntary terminations net of tax.

Total operating costs and SG&A decreased 2.4% for the fourth quarter of 2005. For the fourth quarter of 2005, revenue from continuing operations decreased 4.5% to $195.3 million compared to revenue from continuing operations, last year of $204.4 million. Note that, the decline in political advertising in broadcasting were $6.5 million and that lost revenue from the hurricane and shut-down of our printing facility approximated $1.9 million in the fourth quarter of 2005.

Within publishing, revenue was down 3.8%, at the daily newspaper, total revenue decreased 2.7% to $62.1 million in 2005s fourth quarter, at our community newspapers and shoppers, revenue of $23.3 million was down 6.4% compared to last year. Excluding the impact of Katrina and the plant shut-down, revenues at our community newspaper business would have been up 1.1% year-over-year for the quarter.

Operating earnings in publishing, decreased 14.6% to $9.4 million compared to $11.1 million for the fourth quarter of 2004. This decline reflects hurricane and shut-down related cost of $2.2 million at our Louisiana based operations. Without this impact we would have shown an uptick in publishing earnings for the quarter. At the daily newspaper, operating earnings totaled $10.1 million, essentially flat compared to $10 million in last year. Operating margin was 16.2%, up 60 basis points compared to last year.

Payroll and indirect cost were down $2.3 million reflecting a 4.2% decline in FTEs. Also in 2004, there was a $1 million pretax charge for voluntary terminations. Fiscal year 2005 paper costs, were up $800,000 or 2.8%. Average newsprint pricing was up 16% and newsprint tons were down 12%. The changed to light weight paper represented approximately 6% or half of the dropping tons consumed, an approximately 5% of the 16% increase in price.

Moving to our community newspapers and shoppers, we recorded an operating loss of $600,000 down from operating earnings of $1.1 million in last year’s fourth quarter. Excluding the impact of the hurricane and the facility shut-down, earnings would have been $1.6 million.

Looking at the full year of 2005, we believe normalized results, absence of storm and shut-down, would have reflected growth in revenues and operating earnings over 2004. Equally as important, the operating margin’s was adversely impacted by approximately 400 basis points. Total publishing advertising revenue was down 3.4% with a 3.8% increase of the daily newspaper and 2.2% decrease at the community newspaper and shoppers.

Turning to this morning’s press releases, I want to note that, we have made some changes and how daily newspaper revenues was summarized. Previously the Milwaukee Journal Sentinel included such items as online-shared mail, event marketing, solo mail and direct print in the other advertising revenue category. Effective in period 12 or December and going forward, these items are being reported in the traditional categories of classified retail and national, with the exceptions of solo mail which is now reflected in the new classification direct marketing. The advertising classification previously labeled General is now called National.

Further any advertising, which runs in the classified section of our daily newspapers various products, including online, MKE and specialty publications is now included in the pertinent classified verticals of employment, auto, real estate and other. We believe these changes provide a better understanding of our business and are more inline with our other publishers report their revenues.

Lastly, Journal Sentinel has revised circulation revenue numbers for 2004 and 2005 reflecting a change in the way we are reporting carrier compensation. We are now recording circulation revenue on a retail, rather than a wholesale or net basis, as do many newspapers. The impact is an increase in revenue, offset by a light amount in increased operating expense. This reclassification has no impact on earnings. In the 2004 and 2005 fourth quarters, the impact to circulation revenue was $2.8 million and $2.7 million respectively.

Note that, the 2004 and 2005 comparisons, all of these adjustments were made and reflected in today’s press releases, both in the text and the tables as well as in today’s conference call data. Also, a 12 period of 2004 and 2005 table which reflects these changes is attached to the December revenue release disseminated this morning.

At the daily newspaper, retail revenue of $26.2 million was down 3.3% compared to the fourth quarter of last year. This was due in part to a short fall in ROP advertising, offset by games and preprints and online. Increases in the financial services and buildings/hardware categories were offset by decreases in the telecommunications, department stores, auto, amusement as well as other categories.

Classified advertising at the daily newspaper, which includes both print and online, decreased 1.5% for the fourth quarter of 2005. The employment print vertical was up 2.7%. Real estate rental vertical continued to be very strong, posting a 10.4% increase compared to the 2004 fourth quarter. Narrowing the National trend automobile advertising at the daily newspaper continues to be weak across the board. Auto classifieds were down 24% for the quarter and retail ROP auto was down 37%, on a combined basis auto advertising was down approximately 28% for the quarter compared to the last year. Our National advertising revenue category, which we previously call General was down 25.4% for the quarter reflecting lower spending in the telecommunications, finance and business services categories.

The direct marketing category at the daily newspaper was up 1.3% for General and Interactive revenue was $1.8 million up 21.5% for the quarter and 43.2% for the year. Circulation revenue of $13.1 million for the quarter was down 4.3% compared to last year, this decline was do impart to our decision to decrease third party sales and talking at events as well as a decline in single copy sale.

Other revenue at the daily newspaper of $1.9 million was up 55.7% year-over-year for the quarter reflecting recent gains in commercial printing. I would like to take the moment to provide an update on circulation of the Milwaukee Journal Sentinel. The audit bureau of circulation has advised us, that they will issue corrected audit reports of the 12 month period ended March 31, 2003 and March 31, 2004 to reflect adjustments to average net paid circulations primarily will related to third party sponsor distributions, newspapers sold at events together with premium items and a distributor incentive program.

We anticipate the decline in the average net paid circulations for each of the 12 month periods to be in the range of 2.6% to 2.8% for the Sunday edition and 0.6% to 0.8% for the daily edition. ABC is also in the process of finalizing it’s regularly scheduled audit of the 12 month period ended March 31 2005.

Moving to our community newspapers and shoppers advertising revenue of $16.3 million was down 2.2% compared to $16.7 million for the fourth quarter 2004. Retail advertising of $13.5 million was down 3.9% compared to the $14.1 million. Classified advertising revenue increased 9.4% and other advertising revenue decreased 7%. The impact of the hurricane was particularly noticeable in other revenue, which, consist of commercial printing down 17% for the quarter.

Moving on to the Broadcasting for the fourth quarter 2005, revenue decreased 6.9% to $47.7 million and operating earnings were down 9.5% to $13.6 million. We were heavily impacted by the challenging comparatives for the political and issue advertising as well as continued overall softness in advertising particularly at our MBC stations partially offset by a one million dollar reserve reduction and a $600,000 gain on the sale of radio station KHLP. For reference total broadcast political and issue advertising revenue approximated $6.9 million for the fourth quarter of 2004.

Radio revenue of $22.8 million was down 2.5% reflecting a loss of $600,000 in political revenue compared to last year’s fourth quarter. In fact absent for the loss of political, radio would have been up slightly year-over-year. Operating earnings of $7.5 million were up 28.6% the five developmental market recorded improvement in operating earnings margin of 641 basis points.

Revenue at our televisions stations for the fourth quarter of 2005 decreased $3.6 million or 10.6% to $24.9 million including a $2.9 million contribution from the television operations, which we acquired in December 2005. Excluding these new operations revenue of $22 million decreased 21%, the decline reflects the absence of approximately $6.1 million of politically related advertising demand that benefited results for the fourth quarter of 2004. Absent for loss of political television revenue excluding the newly acquired stations would have been virtually even year-over-year. Television operation earnings of $6.1 million decreased to 33.7% from $9.2 million in the fourth quarter of 2004. Excluding the new television operations, operating earnings of $5.2 million decreased to 42.8%. As we discussed throughout 2005 softness in MBC Prime and the continued lack of strong ABC leading shows to our late news on several nights negatively impacted our results although, the ABC is beginning to show improvements.

During the fourth quarter of 2005, we continued to experience weakness in the advertising revenue at our Milwaukee television station due to the negative impact of the MBC prime rating and soft health care and health care advertising market.

As Steve mentioned earlier we will successful in reducing overall expenses in television to help mitigate the softness. Notably same station costs were down approximately 12% in the fourth quarter. At the Green Bay station our November’s Suite improved our targeted 25:54 ratings some 25% from the year ago for 10:00 PM late news. And while costs were inline the decline of MBC heard our ability to carry out pricing strategy to WGBA-TV.

Within the telecommunications segment revenues of $33.7 million were down 6.2% compared to the fourth quarter of 2004 reflecting continuing service disconnections and reprising in the wholesale market and sluggishness in the enterprise business. Operating earnings for the fourth quarter of 2005 were down 43.7% to $4.6 million from $8.2 million in last year’s fourth quarter. This was due in part of formidable competition and decreased margins associated with the enterprise business as well as lower wholesale revenue due to reprising and service disconnects.

In the fourth quarter of 2005 Norlight effected a work force reduction of 24 positions, which on an annualized basis for 2006 will results in a reduction of $1.7 million in payroll and benefits. Also severance from out-end-out placements cost of $200,000 were reflected in the quarter. Wholesale revenues of $17.9 million were 8.7% compared to 2004 and an up 1.4% sequentially compared to the third quarter of 2005. We now expect that the full impact of the new MCI contract will not be felt in it’s entirety until March.

Enterpriser revenues of $15.8 million were down 3.1% and down 2.3% compared to the third quarter of this year. This decline reflects a decrease in long distance revenue and aggressive competition from RBOC. We continue to see growth and managed services and data center offerings, which are the products that open doors to new customers to sell all Norlight’s products.

At our printing services business, revenues in the fourth quarter of 2005 decreased 1.8%, to $18.8 million reflecting the continued reduction of DELL business partially offset by new business. For the fourth quarter of 2005 operating March earnings from printing services were $960,000 compared to a breakeven quarter for the fourth quarter of 2004. Sequentially this performance represents our fourth quarter of profitability and a $2.7 million turnaround when comparing full year results to 2004 loss.

IPC has built the strong sales team with an intense focus on publications printing. In 2005 this team sold 90 new accounts delivering some $4.2 million in revenue. IPC has competed its plan transitions at the Hawthorne assembly and fulfillment facility and it is now in a smaller footprint within that facility. By the end of the first quarter of 2006, IPC will complete final shipments of software kits to DELL and officially exit the software kitting business for high tech customers. IPC continues to perform fulfillment wrapping and assembly for our printing customers in this facility.

Moving on to our other business segment for the fourth quarter 2005 other revenue of $9.8 million increased 3.5% compared to the fourth quarter 2004. For the fourth quarter of 2005 other operating earnings increased to $0.5 million from a loss of $100,000, our balance sheet remains sound. In 2005 operating cash flow was $106.4 million at the end of the fourth quarter debt was $274.5 million reflecting our recent television purchase. This represents a Debt-to-EBDTA ratio of approximately 1.8x with very lead little EBITDA benefit from the acquired stations. Shareholders equity stood at $484.1 million. Our capital expenditures in 2005, were $34.3 million compared to $28.9 million. For 2006, we expect capital spending to approximate $50 million.

In February 2005, the company’s Board of Directors authorized a stock repurchase program of up to 5 million shares of Journal Communications class A common stock. During the fourth quarter of 2005, the company repurchased 1,273,700 shares at an average price of $14. Through the end of the fourth quarter of 2005, the company has repurchased a total of 3,434,995 shares. In terms of our guidance for the first quarter of 2006, we currently anticipate revenue to be between $187 million and $192 million and net earnings to be between $10.5 million and $12.5 million. Please remember that our guidance can be affected by the risks that we outlined in forward-looking statements, in the beginning of this call. I would like to take this opportunity to reiterate our full year 2006 operating earnings margins targets ranges for key assumptions as follows.

Daily newspaper. Projection is 16% to 20% and the key assumptions, ongoing production efficiencies such as the new super distribution center, greater distribution efficiencies and greater press utilization to more color availability coupled with revenue initiatives in online commercial printing, total market coverage for advertisers and third party distribution. At community publishing which projects 7% to 10% operating earnings margins with the key assumptions being the Milwaukee market product enhancements and cost efficiencies, redeployment of the press from Louisiana to Trumbull, Connecticut, which would better serve customers and allow us to benefit from a better returned on invested capital, as well as capital expenditure avoidance in 2006 and on going growth in specialty publications. Within broadcasting, the expectation is 27% to 31%, key assumptions, rapid integration of the 3 new stations as well as revenue recovery driven by ratings in several of our markets, the Olympics, elections and the superbowl, all of which drive ratings and increased pricing panel. Within telecommunications, a range of 11% to 13% ,the key assumptions being disconnects and re pricing in the wholesale segment, coupled with the changing mix to the enterprise side of the business. Also in 2006, achieving a steady state were operating margins. Printing, the assumption of 5% to 7%, with the key assumption being the successful strategic return to commercial printing as the model and reduce customer concentration. Now I would like to turn the call back over to Steve for wrap up, before we open up to Q&A, Steve.

Steven Smith, Chairman of the Board and Chief Executive Officer

Thank you Paul. So clearly we did face challenges in 2005. Indeed these challenges have focused us even more entirely on opportunities for future growth and value creation. We are determined to drive performance going forward to demonstrate the ability of our businesses to grow revenues, deliver consistently strong cash flow and improve margins. We expect continued margin improvement in the Journal Sentinel through on going production and distribution efficiencies and online revenue initiatives such as the local search solution and further development of our news sites for the packers MKV, Metro Parent and a key Milwaukee magazines. We remained focused on expanding our single copy and Home Delivery sales gaining additional commercial print customers and developing new shared mail products.

Journal Sentinel will not print Milwaukee and Madison based alternative weeklies as well one from as far away from Cleveland, Ohio. The addition of two news titles in 2005, Yang Yin and Shepherd Express enabled us to double commercial per revenue for the year, with another healthy increase projective for 2006. As you heard Paul say, markets of general community publishing group should improve, as we continue to launch new specialty publications and better utilized printing equipment deployed from shuttered New Orleans facility. We also recently announced that our Journal Sentinel and Journal Community publishing groups are pursing a project to enhance product offerings and streamline operations at CNI and the Milwaukee based division of JCPG. CNI will be repositioned into a separate subsidiary of Journal Communications and will report to Betsy Brenner. The project leverages the strength of both CNI and Milwaukee Journal Sentinel to supplement publication events and other products with dynamic local news coverage and Internet capabilities, while reducing duplicative operating cost. We anticipate efficiencies in CNI departments including pre-press accounting, classified advertising, sales and circulation, telemarketing.

Overall, we see a strategic benefit in earning multimedia platforms in local markets. Due to this strategy, we intended to facilitate cross promotion between stations, create new opportunities for advertisers and drive synergistic expense, savings for our company. These cross media platforms allow us to build brands faster which, in turn drive it’s ratings, grow it’s pricing power and ultimately increases revenue in our station.

We now, have the opportunities to demonstrate, these enhanced results in Radio and Television in Milwaukee, Omaha, Tucson and Boyce. Our broadcast management is sharply focused on integration of the television assets that we acquired from MS in December 2005. The acquisition allows us to be even more effective in serving the communities and advertisers in Tucson and Omaha where we already have very successful radio clusters and in the budgeting Fort Myers Naples markets, we are moving quickly to build the compelling local news presence. And as I said, we had a very strong start of new stations were in a great integration effort has helped us achieve early results that were beyond our expectations.

In 2005 our MBC affiliated stations contributed about 56% of our total television revenue followed by ABC 34% and FOX UPN at 9%. For 2006 we estimate that the MBC will drop 37% of our total revenue with ABC remaining at 34% due to the addition of a second ABC station as well as continuing strength in the network end of 2006 Superbowl. FOX and UPN are expected to grow at 20% as we added the second FOX station and our local market agreement for the CBS affiliated in Omaha, should contribute about 9% of the total revenue. As we result exposure to a downturn at MBC should be mitigated substantially in the weight of the contribution of our MBC station in Milwaukee should be reduced.

Looking forward we do we also expect revenue recovery driven by ratings improvement in several on our markets, the 2006 Olympics, elections, the Superbowl and new developmental revenue platforms. Our exposure to the new CW Network is currently limited to our LMA in Green Bay. We intend the complete for the affiliation there but should we not be successful, It will not have material effect on our broadcast results. On the radio side we anticipate to continue progress and earnings and margins propelled by growth in the developmental markets. And in telecommunications we expect to realign on the wholesale side while defined by several large new contract renewals will continue to adjust downwards to 2006 as we work through the implementation of those new contracts. We also anticipate continuing price erosion in ongoing modest to maintenance capital expenditures along with capital spending supported by new revenues streams.

We will continue to focus on growing our enterprise business. In December 2005 the Journal Communication Board of Directors approved the purchase of soft switch to add the expansion of the delivery of local and long distance through Voice Over IP as well as capital necessary to open a new data center within our footprint. Both of these initiatives should drive growth in the enterprise side of our business. Although we continue anticipate a solid return on invested capital at Norlight as the enterprise revenue grows at a faster pace.

Operating margins will trend lower due to the mix change from wholesale to retail. Consequently a longest gross products, our focus at Norlight will be on cost control productivity and careful expenditure of capital. And as Paul mentioned despite pressure on margins through out 2006 we do expect to reach a steady state this year in terms of how we see the business going forward. At IPC the new products is have a significant impact on our efficiencies and we expect to drive further benefits through 2006.

IPC is also installing a new binding in its finishing operation to expand capacity and improve efficiencies in those operations. Because IPC will be exiting the software kitting business with DELL by the end of the first quarter, we anticipate further declines in revenue from DELL. However growth in our cooperating business will lead to margin expansion in 2006. Finally we continue to maintain a solid balance sheet with the lower level of debt. We believe our debt capacity to significant free cash flow generation will allow us to continue to repurchasing our Class A common stock under our share buyback program under our dividend program and make prudent capital expenditures. Operator this concludes my remarks you may begin the question and answer session.

Questions & Answers

Operator

Thank you so much. Operator Instructions Our first question will come from the line of Douglas Arthur with Morgan Stanley, please proceed.

Q - Douglas Arthur

Yeah, Good Morning, I am wondering, your comments on TV phasing in the first quarter, obviously the Winter Olympics should be helping to some and any comment on newspaper ad trends early in the year, thanks.

A – Douglas Kiel

Doug, it is Doug Kiel, I will start with television phasing, they were very strong in the first quarter up double digits across, same station basis across our group. The MS television stations are also off to an extremely good start versus our plan up again in double digits over how we plan. The talk about the Olympics, because I know, some have had different results, our Olympic sales we generally do very well with this. We are doing well but again this year, it’s the Milwaukee market we are over our plan by double digits. We are about on it in Green Bay and are especially on local little behind Palm Springs. Overall we will be up, probably 15%to 20% in Olympics revenue over 2004.

A – Betsy Brenner

Doug, This is Betsy talking about the early first quarter trend in Milwaukee at the newspaper. I think, we are encouraged to see some recovery particularly in our retail advertisement business and our local classified business. Automotive is still soft for us, but we are not seeing the depth of the decline that we saw last year. And I think, we are expecting the first quarter to come in low single digits but that represents the recovery in number of our businesses from where we finished '05.

Q - Douglas Arthur

Yeah, Betsy, the one thing that does a little odd to me, is your Help-wanted ad trends were positive or I am really sort of one market phenomenon but Help-wanted has been, fairly robust throughout industry in the fourth quarter, you don’t seem to be sharing as much of that upside in the Milwaukee, any comments?

A – Betsy Brenner

I think, we did see some slowdown in the fourth quarter of '05. Overall, for last year Help-wanted was up, almost to 11% and we saw it, start to tail off in the fourth quarter. I am encouraged by something about recovery in the first month of the first quarter and again, I think, it’s seasonal, I think, we were cycling against the very tough comparison in '05, kind of midway through '04, we started to see that business grow. But I think, we are doing some of the right things, consistently at a recovery level through '06.

Q - Douglas Arthur

Great, thank you.

Operator

Our next question comes from the line of Mark Bacurin with Robert W. Baird, please proceed.

Q - Mark Bacurin

Good Morning everyone. A couple of things, Doug, it was helpful on the, being ahead of plan with regards to the Olympics, but could you give us specifically, you had zero revenue into Olympics in '05 and what the expected dollar revenue list is in the first quarter?

A - Douglas Kiel

We did 2.5% in Olympics in the '04 Olympics and we will be up 15% to 20% over that all said and done.

Q - Mark Bacurin

Okay , perfect and then, if I back out the boost from MS, in this, in Q1, it looks like overall because all business you are looking for relatively flat revenue year-over-year, so, I am just wondering Paul maybe you could walk us through, what’s your kind of organic growth assumptions are, obviously Telecom is a big way, weighing down quite a bit . But just wondering, what’s you are expecting out of publishing & broadcasting organic growth?

A - Paul Bonaiuto

Yeah, I think, what I would suggest you as, look at the first quarter that we are not expecting a lot of revenue growth in publishing although we do see some, but it’s modest. Clearly at broadcasting, we do see the impact coming through as Doug mentioned. Within Telecommunications, there we do see a fairly significant decline as you might well guess and you can see how that’s been trending as you look through 2005. And then within printing services, we obviously continue to have an impact there, as we see further reductions with DELL business. And then finally, even though I mentioned there is only a modest amount of growth as we look at publishing, we should keep in mind that the closure of our printing operations in Louisiana coupled with the continued impact of the Hurricane on the region has been, well continued to be depressant on Journal Community Publishing.

Q - Mark Bacurin

Okay , then, Doug , could you comment on the relatively flat even if you back up the political year-over-year impact in Radio the revenue is relatively flat, any particular areas that are driving that softness and may be if you can give us the split between what you saw in terms of growth being local and national?

A - Douglas Kiel

Are you talking last fourth quarter Mark?

Q - Mark Bacurin

Q4 ’05 versus Q4 ‘04, excluding political?

A - Douglas Kiel

Yeah, excluding political, lets talk about the, first of all on the Television side, if you back out the effect of MS as well as they predict in Olympics in the fourth quarter. I think, Paul alluded us in his script. Our local revenue was about flat, it was just up a few dollars, National was up about 2.9%, it wound up flattish, we had some production revenue that did not come back in the fourth quarter and they connected into couple of our markets. And in Radio, we have some Yang and Yin doing dealing with some of our sports belt. So, that’s kind happened last year, as we get into this year though, we see it in Television, as I mentioned before, our phasing station up double digits as we go through the first quarter of this year. Radio, we see is started off, a little slowly, this year we have one last Packer games, so we are starting up slowly and radio. We expect over the year’s old, said and done relevant Radio will be up and full single digits in revenue.

Q - Mark Bacurin

And Doug, what you did say the growth in the fourth quarter physically was local versus national?

A - Douglas Kiel

In Television alone, I am talking about same station.

Q - Mark Bacurin

Yeah, I know, as that of a radio?

A - Douglas Kiel

Oh in Radio. (Audio gap) Why don’t you should that, Paul.

A - Paul Bonaiuto

For the fourth quarter, local, where all of radio was down by about a point and national was up about a point. We did have some pretty significant growth in the other area, Doug.

Q - Mark Bacurin

And those special focus areas, is it non-traditional?

A - Douglas Kiel

Yeah, we have done in both Radio and Television to make up for some of the shortfalls, that we have seen this, we have seen focusing on a new developmental revenue platforms. We started this during the course of last year, obviously Television was really significant issue for us in. But in the fourth quarter, our development on new revenue’s are up 88% year-over-year , quarter-to-quarter and in Radio we were able to boost that to in double digits. And we will continue to do that as we go forward, so that we can be less dependent on specific categories, that are more questionable as we go forward thrust.

A - Paul Bonaiuto

And that growth in developmental for the quarter was about 40% granted on a reasonably strong base but nonetheless, as Doug mentioned an area of key focus.

Q - Mark Bacurin

Yeah, I am just surprised, it sort of flat numbers given the, I think, most market share really good ratings gains, throughout the course the year so, may be I can call Steve on some of the details there on offline. Paul, and then just finally, I want to make sure in the press release you put out with the new classifications all of the new revenue categories and then the restated circulation numbers. Did those adjustment also back out the sale of the New Orleans facility as well?

A - Paul Bonaiuto

No

Q - Mark Bacurin

So New Orleans is there, upto the point when it was sold in the historical result.

A - Paul Bonaiuto

That’s right

Q - Mark Bacurin

Will you be giving us updated statements to reflect the discontinued Op?

A - Paul Bonaiuto

No, we won’t be considering that discontinued Op.

Q - Mark Bacurin

Okay, thank you.

A - Paul Bonaiuto

In my opinion in terms of GAAP, discontinued Op obviously.

Q - Mark Bacurin

Right okay.

A - Paul Bonaiuto

And the one thing I could add to, what you are, no, that’s okay.

A - Douglas Kiel

I would like to mark on the radio question again, it’s a good question, in terms of what happened to us with revenue overall. Our development of markets in the fourth quarter revenue wise were up very, very strongly all of them, except with Tulsa. And overall, they were up strongly, the questions then is, why were we so flattish and slightly down, we have higher ratings in all of our markets. But last year, we had a disruption here in the Milwaukee, in terms of the new format competitive called the Brew which impacted our FM station of Milwaukee WKTI which is a very very strong station. And as far as high performer, still it was a high performer, their revenue was soft in the fourth quarter. Their rating book is come into here in the fall was very strong, we expected that to write at that as we ago through this year. Also we have an issue in the Tulsa radio market were couple of our stations have been softness ratings or a mix link each stations, continues to be strong. And so, we have revenue issues in Tucson in the fourth quarter and during the last year. And we have changed the format there, just recently in order to solve their problem. So, we expect progress on in both those of markets here, this year.

Q - Mark Bacurin

Okay, thanks for the extra.

Operator

And our next question will come from the line of Stacey Smith (ph) with Merrill Lynch please proceed.

Q – Stacey Smith

Hi good morning. Just a couple of questions, I guess starting on the telecom side what would make you guys kind of end up at the high end versus the low end of your range, just trying to get sense of, you also mentioned stabilization. Are you expected to kind of beat the run rate margin by the end of 2006 or do you think that will happen and you’ll kind of stabilize margins by the second half of 2006.

A - Steven Smith

No I think, its Steve and I’ll let Jim go ahead and embellish. But I think that 11% to 13% is where we are comfortable being right now and I don’t know there is visibility to the specific higher or lower end of that range right now. Given the fact that clearly we feel is that more clarification on the wholesale side, in the carrier side but we are pursuing some growth initiatives obviously on the enterprise side and we will be reporting on our success as we go through the year on a number of those enterprise initiatives. So I think that we need at point because of just visibility in that business state of the 11% to 30% as range we feel pretty good about that range though. Go ahead Jim.

A - James Prather

The one thing this is Jim. But one thing I want add is as you take look at our wholesale business we talk about that clarity, relates to contracts that we have negotiated. Many of those, you take a look at the events, the trigger events that will either cause the pricing to go down and maybe a customer is going read a bigger facility and then turn something back which would at that point give change in the pricing. We see those events happening to what we have negotiated through the first half of the year. But it happens throughout the first six months.

A - Steven Smith

So that will be at the run rate in the second half.

A - James Prather

Right.

Q – Stacey Smith

What about lead margins, does that stabilize in the second half or do you think they will continue this trend down or hard to say given the-.

A - Steven Smith

It’s hard to say belief is that they begin to stabilize at that second half level.

Q – Stacey Smith

All right. I guess turning this TV world quickly could you just update us on your expectations for political revenues in 2006 and just the races you have going on in the market?

A - Douglas Kiel

Yes, Stacey, this Doug Kiel, we have started to see a trickle of issue advertising across our markets to answer that question, Superbowl in Las Vegas and Tucson particularly in occasionally issues advertising elsewhere but we are not really not into that in a big way that will happen hopefully sooner rather than later but in the next quarter more likely. Remember this year we don’t have a Presidential I mean so that will not get to the level and political as we did in ‘04. This year will be more similar in our expectation to the election year that was in 2002.

Q – Stacey Smith

And can you remind us what that was, what you guys booked in 2002?

A - Douglas Kiel

Well we booked in 2002 about $6 million.

Q – Stacey Smith

Okay. And then I got just a couple of question on the publishing side. When do you cycles the newsprints switch till the lighter weight newsprints and also have you been proactively speaking to advertises reading the historical statements that you had in circulation.

A – Betsy Brenner

Stacey, this is Betsy, regarding the lighter basis weight newsprints which that will cycle the very beginning of our second quarter of this year.

Q – Stacey Smith

Okay.

A – Betsy Brenner

And so we’ll come up against that the first period. And regarding conversation to advertisers I think we mentioned in mid year media and also in subsequent conversations we have continued to have on going dialog with our advertises keeping them abreast and explaining storage based in our newspapers as well. And answering all the questions that have come up so we’ve been very open throughout the course of this year and don’t see any issues out there left unanswered.

Q - Stacey

All right thank you.

Operator

Our next question will come from the line of Craig Huber with Lehman Brothers, please proceed.

Q - Craig Huber

Yes, good morning thanks a few questions first. CapEx you mentioned $50 million for ’06, how much of that is in large one time projects for this year, can you just quantify that and some follow ups?

A - Steven Smith

I don’t know the exact amount that but what I’d suggest is, we have a couple of building projects that we broadcast through which are included in there. Which are in the $8 to $10 million range. So I’d suggest those are large and unusual and then beyond that I think we have about, I’m trying to think on the digital side of.

A - Douglas Kiel

On radio?

A - Steven Smith

Yeah. 1.2 on the digital side of radio and I can’t think of anything else that quickly comes to mind that would be a larger and unusual item.

Q - Craig Huber

All right how much then would you expect to CapEx to drop down to in 2007?

A - Steven Smith

We haven’t provided any thought on that what we’ve said in the past is we think we are running at rate of about 45 but as could see we’ve been running it a rate lower than that what with the three year average time horizon that we’ve been looking at. So I’d suggest it’s somewhere between that 35 and 50 but more to follow. I mean it all depends on situations as they unfold.

Q - Craig Huber

Okay I don’t think you said non-newsprint cash cost percent change in 4th quarter?

A - Steven Smith

Sure. The daily newspaper it was down about 3.8% or the community newspaper how would you like it. Would like straight or would you like adjusted for the hurricane and shutdown.

Q - Craig Huber

With the clean numbers please.

A - Steven Smith

Okay adjusted for the hurricane and shutdown the 4th quarter was down about 6.3% and then for, so that would be the 4th quarter.

Q - Craig Huber

Actually, so what is it non adjusted percent?

A - Steven J. Smith

Non-adjusted it was up about 5.3%.

Q - Craig Huber

Okay and then since MCI contract, I think it finally hit you guys unfortunately in 2nd quarter that you said of 2006, can you just tell investor would you quantify how much for revenue that you were expecting there quarterly?

A - James Prather

This is Jim, I believe what we said is like it is going to, see impact reflected in the 1st quarter of this year that as it falls through going all the way up to the 2nd quarter. And it really it two events out there, one is defines like when we provided them the system, and then the other event is going to defined by when the actually roll the traffic off some of the existing systems, so those are going to be three events that will trigger the pricing changes. And we have not mentioned or given any guidance as to what that decreases will be.

A - Steven Smith

So just to be clear the pricing will be declining during the first quarter and will feel the full effect of it, sometime in the 2nd quarter and through the balance of the year

A - James Prather

That’s fair. And the other thing I would mention is when we first told you about the new MCI spring of last year, we also told you that some of the pricing impact was going to occur in 2005 and it did. So it occurred throughout 2005 and so and into 2006 and to the final system is implemented in the traffic as Paul told.

A - Steven Smith

And naturally Craig, as you’d expect all of that impact is fully reflected in the margin guidance that we provided you for ‘06.

Q - Craig Huber

Sure you did. Thank you.

Operator

Operator instruction Our next question will come from the line Peter Salkowski with Goldman Sachs, please proceed.

Q - Peter Salkowski

Good morning everybody. If you we could just look at the print publishing business for a second, looks like, talk about the cost there I know you’ve done a couple of things with regards to CNI newspapers bringing them underneath the daily newspapers, the new distribution facility, the color couples will add some things there as well, it running to your expectations for cost in that business for ‘06.

A - James Prather

Betsy.

A - Betsy Brenner

Peter, as you know we managed the whole costs throughout 2005 in our new factory and the impact of the three extra days we had in 2005, our non-newsprint cash actually dropped 1%. We did pretty successfully by reducing SGES throughout the newspaper, we were down to 5% in total positions from ’03 to ‘05 that’s about 54 fine positions in ‘05 alone and as we look forward we are looking for a better or more efficient ways to streamline our distribution both in terms of the truck fleet we use and in terms of the number of carrier routes and the ways in which are carriers are compensated.

Q - Peter Salkowski

Can you quantify that on, can you give a numbers?

A - Betsy Brenner

We are in the process of reviewing it right now so I don’t know that we have any quantification because we are optimistic that we’ll see some results here but we really don’t have any handle on the deciding field.

A - James Prather

I think we can quantify based on the operating margin guidance that we provided you for a full year ‘06 and that was for the daily newspaper to be between 16 and 20.

Q - Peter Salkowski

That’s fairly wide range. Are there going to be any clarifications on the reduction of the web with reduction with 48 inches by ‘07.

A – Betsy Brenner

I think there will, at some point we’ve got that factored in the plan for probably early ‘07 so we haven’t quantified it to any great degree.

Q - Peter Salkowski

Okay and then a couple quick questions, the interest expense obviously in the 4th quarter was up, I assuming that’s on the MS expectations for ‘06 any sense of that roll into through the year? Do you see it-?

A - James Prather

Well, there was one adjustment in interest expense for the quarter, we did accelerate the amortization of some of the cost associated with the prior facility because remember this was a restated facility or an amended facility so we accelerated $360 thousand during the quarter, so I think if you pull that out it give you a better reflection of what to expect going forward.

Q - Peter Salkowski

So you’d say, you recorded what was a $2 million I believe in the quarter an interest, which is way up from the previous quarters. So you are expecting to flat line somewhere $1.5 million range on a going forward basis.

A - James Prather

Well remember we made the acquisition in December, in early December so you’ll have to factor that that in as well.

Q - Peter Salkowski

Okay so it’s going to be up in ‘06. On the share count I know in factory it was a type was the number of B Shares that are converted to A. Do you have idea was that doing to the 4th quarter and then my last question is, what was the share count at the end of the quarter please.

A - Steven Smith

It’s Steven it is Paul’s looking for the share count. We’ve seen approximately 20 million B shares convert. Steve.

Q - Peter Salkowski

Great thank you.

A - Paul Bonaiuto

And as of the end of the year our class A stood at 42.2 million and our class B stood at 26.8 million.

Q - Peter Salkowski

Great. Thank you very much.

Operator

Ladies and gentlemen this does conclude the Q&A potion of the call, I would now like to turn the call over Ms. Sara Wilkins, Director of Investor Relations.

Sara Wilkins, Director and Investor Relations

Once again thank you all for joining us on this morning’s call. We appreciate your interest in Journal Communications. As a reminder a replay of the call will be available of today through February 4th. Please refer that this morning’s press release for the dial in information for the replay of the call. Also an archive of the webcast will also be available today through February 16th at www.journalcommunications.com/investors. Thank you all again.

Operator

Ladies and gentlemen this does conclude your presentation at this time you all may disconnect and have a wonderful day.

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