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Journal Communications, Inc. (NYSE:JRN)

Q2 2008 Earnings Call

July 22, 2008 11:00 am ET

Executives

Steven J. Smith - Chairman of the Board and Chief Executive Officer, Journal Communications

Douglas G. Kiel - President, Journal Communications, Vice Chairman & CEO, Journal Broadcast Group Inc.

Paul M. Bonaiuto - Executive Vice President and Chief Financial Officer, Journal Communications

Elizabeth (Betsy) Brenner - Executive Vice President, Journal Communications, Chief Operating Officer, Publishing Businesses

Analysts

Tracy Young - J.P. Morgan

Mark Bacurin - Robert W. Baird & Co.

Craig Huber - Lehman Brothers

Peter Salkowski - Goldman Sachs

Operator

Welcome to Journal Communications’ second quarter 2008 earnings conference call. (Operator Instructions)

This conference call contains certain forward-looking statements related to Journal Communications’ businesses that are based on current expectations. Forward-looking statements are subject to certain risks, trends, and uncertainties, including changes in advertising demand and other economic conditions that could cause results to differ materially from expectations expressed in forward-looking statements.

All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. Our written policy on forward-looking statements can be found on Page 1 of Journal’s most recent annual report on Form 10-K as filed wit h the Securities and Exchange Commission.

Now I’d like to turn the call over to Steve Smith, Chairman of the Board and Chief Executive Officer.

Steven J. Smith

Paul Bonaiuto, our Executive Vice President and Chief Financial Officer, will participate with me on this morning’s call, and Doug Kiel, President of Journal Communications and CEO of the Journal Broadcast Group, and Betsy Brenner, Executive VP of Journal Communications and Chief Operating Officer of our Publishing business, will be available during the Q&A session.

Any discussion of EBITDA in today’s call may be referenced back to our unaudited reconciliation of consolidated net earnings to consolidated EBITDA schedule which accompanies today’s earnings release. Unless otherwise indicated, all comparisons are to the second quarter ended July 1, 2007. This morning, Journal Communications reported net earnings of $9 million for the quarter ended June 29, 2008. Basic and diluted net earnings per share of Class A and B common stock were $0.16 for both.

For the second quarter, revenue of $140.1 million decreased 5%. A weak economy continued to impact advertising revenues at Journal Communications during the second quarter. While television revenue grew in markets like Palm Springs, Omaha, Boise, and Lansing, and radio revenue grew in Omaha, our larger growth markets continue to experience subdued advertising spending. Publishing revenue remains soft overall, although our hyper local community newspaper surrounding Milwaukee grew revenue in the quarter.

We were also pleased to see continued increases in online advertising revenue at both the publishing and broadcast sites. We continue to execute on our strategy to grow our total audience by expanding our presence in our local markets. So far in 2008, Journal Broadcast Group formed a television duopoly in Palm Springs. We expect to close soon on the acquisition of the assets of KWBA TV to form a television duopoly in Tucson and on July 1 we announced an agreement to acquire the assets of KNIM TV in Boise for $8 million subject to regulatory approval to form another television duopoly in that growth market. You will recall that we already own KIVI TV and six radio stations in Boise.

In Tucson, both of our TV stations, as well as the radio stations, will soon consolidate in one building, eliminating a building lease and saving significant costs. We will do the same in Palm Springs next year. When the Boise acquisition is complete, we anticipate additional local programming and other consolidation related efficiencies.

While Las Vegas is weakened by a difficult real estate market, one of the most respected anchors in the market, Nina Radetich, is up and running with co-anchor Steve Wolford at KTNV TV in that market, and we are witnessing very positive audience reaction. We have high expectations for this team.

While some of our broadcast markets are showing a little spark, a number of our stations in our broadcast growth markets continue to struggle amidst the economic slowdown. Fallout from the real estate downturn has disproportionately hurt our growth markets in Las Vegas, Tucson, and Ft. Myers. We are optimistic that these markets will turn around once the economy improves and we believe when that happens they are well positioned to grow our business in each instance.

In addition, while three of our stations are affiliated with NBC and have been impacted by a challenging ratings performance by the network, we anticipate more robust numbers in the second half of the year at those stations as advertisers participate in the Summer Olympic broadcasts. We expect third and fourth quarters also to see substantial political and issue advertising, especially in key battleground states where we have stations such as Wisconsin, Nevada, Florida, and Michigan.

In radio, we are enthusiastic about the Milwaukee Brewers broadcast on WTMJ radio and the Brewer Radio Network. We have seen an increase in the advertiser volume this year. Also in Omaha, where we own five radio stations, revenue grew in the second quarter compared to the prior year. Across all of the broadcasts we continue to focus on expense reductions with aggressive cost cutting and a reduction in head count of 6% year to date.

In each of our cross media platform markets, we have now organized them under one general manager. Developmental revenue continues to be an important factor at the Journal Broadcast Group. Developmental revenue was up 8% in television, 3% in radio, and 6% overall in the second quarter.

Turning to publishing, the downturn in the newspaper business has continued this year with the largest impact being felt in classified and retail ROP advertising at the Milwaukee Journal Sentinel. Classified ROP was down 26.9% and retail ROP advertising was down 14.5% in the second quarter. The secular declines in employment advertising combined with the cyclical economic downturn driven by real estate, automobile, and financial institutions continued.

Our response continues to be aggressive cost cutting to align expenses with revenues. To that end, on July 2, the Journal Sentinel announced an additional 10% staff reduction. While there will be a charge in the second half of the year, we expect this to lead to significant cost savings in the future.

Moving forward, we continue to restructure our content to grow total audience, drive online traffic, and reduce newsprint expense. While overall publishing revenues were soft in the quarter, our hyper local community newspapers surrounding Milwaukee did grow revenue. You may recall that in January of 2007 we consolidated a number of paid circulation weeklies into eight community editions delivered at no charge with the Milwaukee Journal Sentinel. We continue to serve the smaller communities with micro-targeted neighborhood websites. While that process meant we gave up circulation revenue, our web print local strategy is paying dividends as we experienced advertising revenue growth of 7.6% in print and 12.8% in online.

Our NOW papers were profitable in the second quarter. Advertisers find these publications attractive and we are optimistic they will continue to produce solid results. Growth in interactive is another highlight, with online advertising at both publishing and broadcasting sites seeing increases in the quarter. Total online revenues were up 15.9% in the second quarter. Work is progressing on our new content management system which will provide a more flexible, user-friendly format for all of our sites. We expect the re-launch of our premiere brand, JSOnline.com, in October. Startups like JobNoggin.com, our co-branded employment site with Monster.com, and the community NOW.com sites continue to gain momentum.

Nontraditional revenue from commercial printing continues to contribute to the bottom line with revenues up 46.9%. We announced the addition of LaRaza, Chicago’s largest Spanish language newspaper, to our lineup of commercial print customers, in May of this year.

For both broadcast and publishing, we are training and expanding our sales forces to make our groups in each market even more effective. Our sales people are incentivized to provide integrated marketing solutions and develop more active customers. We believe these sales developmental efforts will pay off, especially in cross media markets where we can leverage multiple media properties. We believe our balance sheet continues to position us well in this challenging environment. We will continue to pursue top line growth opportunities consistent with our disciplined financial approach.

Now I’d like to ask Paul Bonaiuto to begin his in-depth financial review.

Paul M. Bonaiuto

For the quarter, revenue of $140.1 million decreased 5% as we continued to experience ongoing advertising weakness across our businesses. Net earnings were $9 million compared to $14.2 million in the second quarter of 2007. Last year’s quarter included a $1.4 million gain net of tax from the discontinued operations of certain geographic clusters of our community newspapers and shopper’s division that were in the process of being divested.

For the 2008 second quarter, other expense, which primarily consists of interest expense, decreased by $0.1 million or $2.19 million, reflecting a decrease in the interest rate partially offset by an increase in average debt outstanding. This increase in average debt was due to expenditures for repurchases of our common stock. Overall, total operating expenses have decreased by $1.2 million, principally reflecting the reduction in payroll and benefits from recent staff reductions in both publishing and broadcast. For the second quarter 2008, our effective tax rate was 38.9%, compared to 38.8%.

Turning now to our segment performance, publishing revenue declined 8.5% in the second quarter of 2008. This was seen in all advertising categories and was largely due to the shocked economy coupled with ongoing secular influences. This was partially offset by a $500,000 net favorable impact from the Easter holiday falling in the first quarter of this year versus the second quarter last year.

At the daily newspaper, total revenue of $51.7 million was down 8.9%. Advertising revenue of $35.7 million decreased 13.6%. As Steve mentioned, weakness in classified and retail advertising were major factors in this decline. Retail revenue of $21.2 million was down 6.7%, largely reflecting decreases in ROP and pre-prints. ROP declines were most prominently seen in the auto and communications categories. Retail pre-prints were down 4.5% year-over-year for the quarter.

Classified advertising at the daily newspaper of $12.1 million, which includes both print and online, decreased about 22% for the second quarter of 2008. This represents the eleventh consecutive quarter-over-quarter revenue decrease in classified advertising. Looking specifically at the verticals, employment was down 25.7%, auto declined about 18%, real estate was down about 31%, and the other classified vertical was up slightly year over year.

On a combined retail and classified basis for all products of the daily newspaper, auto advertising was down by just over $1 million or 24.4% compared to last year. Our national advertising revenue category decreased 20% to $1.5 million for the quarter. This reflected decreases in the dining and entertainment, business services, and communications categories. The direct marketing category at the daily newspaper was down about 21%. This decline represents a decrease in solo mailings.

Although interactive advertising is included in the various revenue categories, total online revenue increased by roughly 11% to $3.7 million for the second quarter. It is important to note, however, that during the quarter, each month we experienced declining rates of increase in total online revenue. Interactive classified revenue of $2.4 million increased 14%. Looking specifically at the second quarter 2008 online classified verticals, employment increased by about 17% to $1.3 million due to growing momentum for the ancillary services of our JobNoggin employment site. Auto increased about 27%, up almost $200,000. However, real estate decreased by roughly 25%, representing third consecutive quarter of declines.

Moving beyond advertising revenue, circulation revenue of $12.5 million for the second quarter was down 2.4%. Other revenue at the daily newspaper of $3.4 million was up over 34% for the quarter, reflecting gains in commercial printing, mainly from the new LaRaza contract. For the quarter, operating earnings from publishing decreased 44% to $5.7 million, largely reflecting decreased revenues partially offset by a decrease of publishing operating expenses.

At the daily newspaper, operating earnings totaled $5.4 million, down roughly 36%. Operating margin was 10.4% versus 14.8% reported last year. Total expenses for the 2008 second quarter at the daily newspaper were $46.3 million, down about $2 million or 4.2% compared to last year.

Newsprint costs were flat, reflecting a 9.7% increase in pricing and an approximate 8.4% reduction in consumption. The November 2007 work force reduction, as well as other labor savings efforts, resulted in labor and benefit savings of $1.1 million. Several other cost saving initiatives throughout the entire company such as in IT and specialty publications account for the remaining reduction in expenses.

As Steve mentioned earlier, during the quarter, we announced another round of job reductions approximating 10% of the daily newspaper work force. We estimate that the severance cost for this program will approximate $3.8 million to $4 million with cost savings of between $1 4 million and $1.6 million for the remainder of this year. Projected full year net savings are estimated to be between $5.6 million and $6 million.

Turning to our community newspapers and shoppers, revenue from continuing operations for the second quarter of $10.2 million was down 6.5% compared to last year, reflecting declines in all advertising revenue categories. Weak automotive advertising continued to affect both retail and classified and very soft real estate advertising adversely affected our Florida market in particular.

Offsetting these declines is about $0.4 million in revenue from newly acquired publications in Northern Wisconsin and Florida. Circulation revenue at the community newspapers and shoppers of $279,000 increased 14.8% or $36,000 due to the recent acquisitions of publications in Northern Wisconsin. Other revenue decreased approximately 26.3%. The community newspapers and shoppers recorded operating earnings of $338,000 for the second quarter compared to $1.8 million last year. The decrease is attributed to the decline in revenues as well as a one-time charge of $0.4 million related to a contract termination liability.

This business continues to proactively identify cost reductions. These efforts saved just over $0.3 million across the operations in the second quarter. Included in the 2007 second quarter was a $0.9 million gain on the sale of the Heartland facility. Adjusting for these two unusual items in both years, operating expenses declined 5.2%. For the second quarter, broadcasting revenue decreased 4.6% to 53.5 million. Broadcast operating earnings of $9.7 million were down about 14% in the quarter, principally reflecting the decrease in revenues.

For the second quarter, revenue from television stations decreased $1.4 million or 4.3% to 32.6 million. Political and issue advertising revenue for the 2008 second quarter was $0.6 million compared to $0.2 million in the prior year. Although sell out rates remain comparable to last year, average unit rates have declined with weakened demand as a consequence of the struggling economy.

Operating earnings from television stations decreased 24.4% to $4.6 million. This mainly reflects the declines in revenue at our Tucson, Ft. Meyers, Milwaukee, and Las Vegas stations. Overall, total television expenses were essentially flat compared to second quarter last year, even including the acquisition of KPSE in January 2008 and expenses were down sequentially when compared to first quarter 2008.

Moving on to radio, for the second quarter 2008, revenue decreased $1.1 million or 5% to $22 million. Radio revenue was down across nearly all revenue categories except for developmental and interactive revenue. A portion of the decline reflects changes in the Milwaukee sports affiliation agreement that previously included advertising revenue and is now based on a fee per game. That change had a $150,000 negative impact on the second quarter revenue comparison. Absent the impact from the sports affiliation agreement change, revenues declined by 4.4%.

Omaha was the only market to report revenue growth. Operating earnings from radio stations of $5.1 million decreased about 2% due to the revenue declines as partially offset by type cost controls in payroll, benefits, and promotional spending. Radio operating costs have decreased nearly 6% in the second quarter compared to prior year. Imprinting services for the 2008 second quarter revenue increased about 2% to $16.8 million. Operating earnings from print and services decreased about 24% to about $800,000 due to increased healthcare costs and lower margins for printing documentation materials.

For the 2008 second quarter, revenue from the other segment of $8 million increased approximately 9% due to an increase in revenue in our Clearwater, Florida direct marketing business. Other operating earnings were $400,000. Our balance sheet remains sound. Through two quarters of 2008, operating cash flow was $29.5 million. At the end of the second quarter 2008, debt was $211.5 million. Shareholders equity stood at $454.1 million.

Our capital expenditures from continuing operations through the two quarters of 2008 were $8.5 million compared to $16.9 million last year. We remain committed to returning value to our shareholders. Year to date, through the end of the second quarter, we’ve repurchased 5,904,800 of our Class A shares, completing our fourth 5 million share repurchase authorization and starting on our fifth 5 million share repurchase authorization.

From the inception of the repurchase program in early 2005, through the end of the second quarter 2008, we have repurchased 21.8 million shares. This represents a reduction in our diluted share count of 28.4%. So far this year, we have also acquired or committed to acquire 3 television stations that will create additional duopolies in Palm Springs, Tucson, and Boise. The aggregate purchase price for the three stations is just under $25 million. We expect these stations to enhance margin opportunities in all three markets.

For the third quarter of 2008, Journal Communications currently anticipates that its publishing revenues will be down compared to the prior year, reflecting continued challenges in classified advertising, partially offset by continued strength in commercial printing and interactive at the daily newspaper. In addition, we expect to record the severance charges that I mentioned earlier. Television revenues, however, are expected to be up in the low double digit range compared to the prior year period, primarily due to political and issue as well as Olympic advertising. Radio revenues are expected to be slightly down compared to the prior year period.

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

Steven J. Smith

Despite ongoing challenges in many parts of our business, we believe general communications is strong financially because we have maintained a solid balance sheet while using capital to repurchase shares. We continue to expand our presence in our local markets and grow our total audience. We deliver the relative products that our audiences seek. Further, we are expanding training, incentivizing our sales force to connect advertisers with these audiences in an increasing number of ways. We believe our targeted sales efforts can become an important differentiator, especially in our cross media markets.

In this environment, aggressive expense management is a way of life. As our company continues its digital transformation, we will align our expenses with revenue. We believe we are well-positioned to weather cyclical advertising weakness as well as longer term industry change by enhancing our current products and developing new ones, growing our non-traditional revenue streams in both publishing and broadcasting, maintaining tight cost controls, and expanding our presence in specific local markets. We continue our focus on shareholder value activities and maintaining our solid balance sheet so we are prepared for opportunities that may arise.

This concludes our remarks. You may begin the question and answer session.

Question-and-Answer Session

Operator

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

Tracy Young - J.P. Morgan

Doug, if you could give some color on the local and national sales for both television and radio, and also, are you still expecting CapEx to be about $30 million for the year? Thanks.

Douglas G. Kiel

Local and national, looking back on the second quarter, our local, both radio and television did better than national, although transactional in both cases were down some. Looking forward, television revenue is facing the third quarter in the mid-teens ahead of last year. Political and Olympics are impacting that. We continue to have late bookings, combined with cancellations, as we’ve had softness generally in transactional business. Wild card for us again is political and issue advertising and how the impact that may have on our rates. It’ll certainly impact our sell out. Radio, as Paul mentioned, is pacing behind last year in the low single digits.

Paul M. Bonaiuto

With respect to capital spending, Tracy, obviously in the first half, we were operating at a pace slower than what we’ve projected, but nonetheless, we still view full year spending to be in that $25 million to $30 million range that we discussed during the last quarter’s call.

Operator

Your next question comes from Mark Bacurin - Robert W. Baird

Mark Bacurin - Robert W. Baird & Co.

First on the direct mail project out of the Florida facility, is that a sustainable project or was there anything else. On the direct mail side of the business, is there anything there that was sustainable or was there just a one-time large project there?

Steven J. Smith

As I think we’ve talked about, Mark Keith, our President of the Prime Net business, is spending quite a bit of time in Clearwater, and they have improved the operation and they have also driven new customers into the facility, so we’re really pleased with what’s going on in Clearwater. Obviously it’s a very small operation but they’re showing some improvement in the business. Direct marketing is challenging. It’s clearly being impacted by the overall economic activity. We’re seeing that in St. Paul and to a certain extent in Milwaukee as well, but Mark is doing a nice job in Clearwater.

Douglas G. Kiel

And it really didn’t come down to a one-time order during the quarter that caused the results to finish as they did. It really is sustainable business that Mark’s been working to add into that operation.

Mark Bacurin - Robert W. Baird & Co.

And that would be spread among multiple customers, not specifically one customer either?

Steven J. Smith

That is one of the nice things about that business.

Mark Bacurin - Robert W. Baird & Co.

Great, and then maybe just a second more nit-picky question for Paul. On the interest expense, looking at the average debt balance relative to what interest expense did from Q1 to Q2, it looks like it dropped pretty substantially which would imply your rates came down quite a bit. I don’t know if you can give us any color in terms of borrowing costs and is this a trend we should see continuing on into the back half of the year?

Paul M. Bonaiuto

I think if you look at our average rate for the second quarter, it was actually pretty similar to where we were in the first market at about 3.3 in the first and about 3.4 in the second, so in terms of average rate, we’re pretty much the same. It all comes down to obviously the average borrowing level during the quarter and we, depending on how that averages out, clearly it has an impact on cost, but we did average out a little less this quarter than we did in first.

Mark Bacurin - Robert W. Baird & Co.

Yes, it’s probably just a timing issue where it falls in the quarter and then just finally on the M&A environment, just curious, obviously your balance sheet is in good shape. You have an appetite for additional acquisitions. Are you starting to see or are you continuing to see a softening in terms of the multiples, private sellers willing to come down a little bit in terms of their asking prices?

Steven J. Smith

Actually there have not been probably enough transactions recently to make a trend but we actually have not witnessed a reduction in seller expectations and so therefore, I think you can integrate to open a new market, but I think you can anticipate us attempting to get stronger where we’re doing business.

The acquisition of the television stations in Palm Springs and Tucson and anticipate the acquisition in Tucson and anticipate an acquisition in Boise, creating these duopolies and getting stronger where we are is, we think, a good use of our dollars, given the current environment out there, so we still have difficulty making strategic sense of the gap that exists from a value standpoint and I think you can look for us to continue to try to get stronger where we’re doing business.

Operator

Your next question comes from Craig Huber - Lehman Brothers.

Craig Huber - Lehman Brothers

First, concerning your newspaper group, can you give us the non-newsprint cash cost percent change in the quarter?

Steven J. Smith

I’d be delighted to. If we look at the daily newspaper, non-paper cash costs for the second quarter this year were 37.375, last year 39.263, so we saw a decline of 4.8%. If we look at our community newspaper and shopper group, adjusted for the unusual contract term liability we had this year and the sale of the building last year, those expenses were $8.3 million non-paper cash costs this year versus $8.8 million last year, so that’s a decline of 5.1%, and if we look at overall publishing, we see, I once again adjusted, this year at $45.7 million, last year at $48.1 million for a decline of 4.9%.

Craig Huber - Lehman Brothers

Can you just review again those cost saving numbers around the 10% headcount reduction at your flagship paper? I would particularly be interested in hearing what the annualized cost savings are and putting aside the actual severance costs with the actual annualized cost savings.

Elizabeth (Betsy) Brenner

We’ve just announced that program and we’re still in the throes of accepting voluntary reductions before we move forward, so what we have are estimates on the cost, but we’re looking at the cost this year for the separation program of about $3.9 million and then going forward, I believe Paul mentioned a range of savings annualized over next year around $6 million, $5.8 million to $6 million.

Craig Huber - Lehman Brothers

And that’s not netted against that severance cost, is it?

Elizabeth (Betsy) Brenner

No.

Steven J. Smith

The only netting we’ve done, is we are outsourcing some areas and to the extent that we’ll have additional costs for that outsourcing, that’s netted against the benefits. We thought that was the fairest presentation methodology.

Craig Huber - Lehman Brothers

Can you just comment on how July numbers are tracking relative to your percent decline in the month of June?

Elizabeth (Betsy) Brenner

Craig, it’s pretty much a continuation of the trends we’ve seen through June. Our retail business is down but down in the high single digits. Classified continues to be where we’re seeing the most challenge right now and it’s in the categories of recruitment and real estate. Automotive is down slightly. That’s really due to two customers. One of those customers has come back in the newspaper so we expect to see a little bit of lift in July in our automotive business.

Craig Huber - Lehman Brothers

What is your expectation for pricing for newsprint? They’ve announced a $20 per ton increase each month through September. More importantly, what’s your expectation, what you’ve heard from your suppliers the fourth quarter?

Steven J. Smith

As we look at fourth quarter, our expectation is that we’ll be upwards of $770 a ton on average for that quarter, Craig. If you look at our average for the second quarter, we were at about $668. So it’s roughly $100 increase between now and the end of the year that we would expect.

Operator

Your next question comes from Peter Salkowski – Goldman Sachs.

Peter Salkowski - Goldman Sachs

Just following up on Craig’s question on the newsprint, consumption was down in the second quarter. Do you expect that to continue in the third quarter and second half of the year, Betsy?

Elizabeth (Betsy) Brenner

Really a reflection of reduced consumption in terms of both paging and content. We’ve also instituted some pretty effective waste control measures that have helped us reduce newsprint and those continue. We’re monitoring our single copy returns more effectively with the new tool, and just overall awareness so I think the trend you see will continue and maybe even get a little better.

Peter Salkowski - Goldman Sachs

So it was down 8.5 or so in the second quarter. You think you can keep it down at that level or even greater?

Elizabeth (Betsy) Brenner

Our expectations for the end of the third quarter and end of the fourth is to increase or actually reduce consumption so increase the savings because of some consolidation and streamlining we’re doing in the daily and Sunday paper. So we’re reducing page count even more the trend you see will improve the back end of the third quarter.

Peter Salkowski - Goldman Sachs

Great and then keeping in the publishing space, the online revenues, I’m curious with regards to, obviously the majority of it is help wanted advertising. I’m wondering how much of the online revenues in the newspaper is an upsell of print help wanted advertising.

Elizabeth (Betsy) Brenner

Look at our overall online and let’s just talk about the recruitment category for a moment. The entire category declined over the quarter by 26% but all of our online business, including those lines that we picked up in the Monster agreement, rose by 17%. Now our online upsell business was flat. If you recall last quarter, we actually saw it decline. We’ve actually been able to improve that upsell trend due to some pricing that we put into place in the second quarter.

So online recruitment business up 17, traditional print recruitment business down 34% and then those two combined for the 26% decline we saw in the quarter. So our online businesses are helping us. Our online upsells actually improved this quarter, but overall we’d like to see more of a switch. Currently, 27% of our employment business runs online, and that compares to about 17% a year ago, so we’re moving the trend more online. We just need to accelerate that transition.

Peter Salkowski - Goldman Sachs

Great, thank you and then on to broadcasting. Doug, can you remind us what political was in ’06 in the second and third quarters?

Douglas G. Kiel

Sure. I can tell you that we did about $16.5 million in ’06 for the year and of course a significant amount of that was in the last half of the year. ’04 we did about $13.9 million and our expectation this year is to be closer to 2004. We’ve done about $2.6 million so far this year.

Peter Salkowski - Goldman Sachs

And what was in the third quarter just in ’06 or ’04, whichever one. You think you’re going to be trending closer to the ’04 numbers, so maybe --

Douglas G. Kiel

We’ll be trending somewhere between ’04, close to the ’04 number, because so many of the races we see are connected to presidential. There are fewer governors and congressional races than we had in ’06 and the wild card is some issues that may come up. We have dozens of potential ballot issues up across the country but that’s the wild card.

Peter Salkowski - Goldman Sachs

So you think for political in third quarter of ’08 or even in last year you’re going to be able to get around $4 million, $4.5 million in the quarter?

Douglas G. Kiel

We don’t know exactly what the number will be in the specific quarters. The quarter we’re in, third quarter, comes in relatively slowly, but what we’re going to see, Pete, as we go through this year, is as we go week to week, we have McCain, Obama money in several of our markets. They escalate that. We’ll see if that money comes through for the Olympics in our three markets for either candidate. That’s up in the air right now and the candidates watch each other very closely. If one spends, the other tends to match it. So it’s unclear right now exactly how it’ll split between third and fourth quarter, so we’re looking more at the macro number. We feel pretty good about that.

Peter Salkowski - Goldman Sachs

Paul, just a quick question on the share repurchases. Can you give a sense of the average price paid for the stock in the second quarter?

Paul M. Bonaiuto

In the second quarter. Hold one one second.

Peter Salkowski - Goldman Sachs

It was 1.7 million shares I believe.

Paul M. Bonaiuto

It was about $5.66.

Operator

Your next question is a follow up question from Craig Huber - Lehman Brothers.

Craig Huber – Lehman Brothers

These three small TV station acquisitions, can you just talk a little bit about the timing of when those are supposed to close, and then also perhaps how different the margins are there versus your consolidated TV margins?

Douglas G. Kiel

Craig, we have closed on KPSE, the Palm Springs station. That one we are operating now and have been operating it over the last several months this year. The other two are uncertain depending. KWBA, the station in Tucson, should be not too far away, depending on upon when we get the final discussion finished. K9, which is our Boise acquisition, just announced a few weeks ago that it’s going through the FCC and depending on how that all works, should be sometime in the fall, early to mid-fall. The margins of these additive stations, and that would include in Green Bay where we operate an [Ellen May], are higher than the normal television station to put that into perspective.

We can operate them leveraging off of our existing staff for the most part. We have a small number of folks that need to be added for sales. We’re building a combined control room in Tucson, for example, where we can run our television and both television stations will have one control room and so the opportunity to leverage our existing cost structure over two platforms is significant and secondarily, of course, these particular stations allow us to get at demographics we haven’t been able to get at in a mainline television station, generally younger as CW’s are, so it gets us into an additional source of numbers of advertisers we don’t generally see or call on, and that’s significant.

Then the last piece of it, which is not inconsequential going forward, is the fact that it doubles up our bandwidth now that we’re high-def, and we don’t talk about that as much as we should, but to have two television stations with that additional bandwidth is going to be significant going forward as we build up side channels, secondary channels, and even mobile TV markets, so we think it’s a really additive strategy with very little risk.

Operator

There are no more questions.

Steven J. Smith

Well thank you everyone for joining us and we look forward to seeing you in the next conference call. Have a good day.

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Source: Journal Communications, Inc. Q2 2008 Earnings Call Transcript
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