SECURITIES & EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(X) Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the fiscal year ended December 31, 2002
Commission File Number: 0-7831
JOURNAL COMMUNICATIONS, INC.
----------------------------
(Exact name of Registrant as specified in its charter)
Wisconsin 39-0382060
--------- ----------
(State of incorporation) (I.R.S. Employer identification number)
333 West State Street, Milwaukee, Wisconsin 53203
- ------------------------------------------- --------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (414) 224-2728
Securities registered pursuant to Section 12(b) of the Act:
NONE
----
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $0.125 Per Share
----------------------------------------
(title of class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2) Yes No X
----- -----
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was last sold, or the average bid and asked price of such common equity, as of
the last business day of the registrant's most recently completed second
quarter: Not applicable.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of March 31, 2003:
Class
- ----- Outstanding at March 31, 2003
-----------------------------
Common Stock, par value $0.125 28,800,000
Units of Beneficial Interest 25,920,000*
*2,884,263 of which were held by us in treasury.
Documents Incorporated by Reference
-----------------------------------
Portions of the Proxy Statement for our June 3, 2003 Annual Meeting of
Shareholders are incorporated by reference into Part III.
1
Forward-Looking Statements
We make certain statements in this Annual Report on Form 10-K (including the
information that we incorporate by reference herein) that are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. We intend these forward-looking statements to be covered by the safe
harbor provisions for forward-looking statements contained in that Act, and we
are including this statement for purposes of those safe harbor provisions. These
forward-looking statements generally include all statements other than
statements of historical fact, including statements regarding our future
financial position, business strategy, budgets, projected revenues and expenses,
expected regulatory actions and plans and objectives of management for future
operations. We use words such as "may," "will," "intend," "anticipate,"
"believe," or "should" and similar expressions in this Annual Report on Form
10-K to identify forward-looking statements.
These forward-looking statements are not guarantees of future performance and
are subject to risks, uncertainties and other factors, some of which are beyond
our control. These risks, uncertainties and other factors could cause actual
results to differ materially from those expressed or implied by those
forward-looking statements. Among such risks, uncertainties and other factors
that may impact us are the following:
o changes in advertising demand;
o changes in newsprint prices and other costs of materials;
o changes in federal or state laws and regulations or their interpretations
(including changes in regulations governing the number and types of
broadcast and cable system properties, newspapers and licenses that a
person may control in a given market or in total);
o the availability of quality broadcast programming at competitive prices;
o changes in network affiliation agreements;
o quality and rating of network over-the-air broadcast programs available to
our customers;
o effects of the loss of commercial inventory resulting from uninterrupted
television news coverage and potential advertising cancellations due to war
or terrorist acts;
o effects of the rapidly changing nature of the publishing, broadcasting,
telecommunications, and printing industries, including general business
issues and the introduction of new technologies;
o effects of bankruptcies and government investigations on customers for our
telecommunications wholesale services;
o the ability of regional telecommunications companies to expand service
offerings to include intra-exchange services;
o changes in interest rates;
o the outcome of pending or future litigation;
o energy costs;
o the availability and effect of acquisitions, investments, and dispositions
on our results of operations or financial condition; and
o changes in general economic conditions.
We caution you not to place undue reliance on these forward-looking statements,
which we have made as of the date of this Annual Report on Form 10-K.
2
PART I
ITEM 1. BUSINESS
We are a diversified media and communications company with operations in
publishing, radio and television broadcasting, telecommunications and printing
services. In newspaper publishing, we publish the Milwaukee Journal Sentinel,
which serves as the principal daily and Sunday newspaper for the greater
Milwaukee area, and we publish more than 90 community newspapers and shoppers in
8 states. We own and operate 36 radio stations and 6 television stations in 11
states. We also own and operate a large fiber optic network. Over the last 10
years, we have grown operating revenue from $448 million to $801 million,
representing a compound annual growth rate of 6.7%.
We were founded in 1882 as a newspaper publisher serving Milwaukee, Wisconsin.
Our media capabilities were enhanced when WTMJ radio signed on in 1927 and,
again, in 1947 as we began operation of WTMJ-TV. In 1937, Harry J. Grant founded
our employee ownership plan, which has contributed significantly to our
company's positive culture and growth by creating the Journal Employees' Stock
Trust, which we refer to as "JESTA" or the stock trust. We believe employee
ownership has served as a competitive advantage for our company since JESTA was
established. We have been able to attract and retain motivated people who have a
passion for the business and a level of commitment and sense of accountability
that is heightened due to their participation in ownership. Our culture is
reinforced by our strong commitment to high ethical standards.
Growth in our business has come in a number of our diversified business lines;
community newspapers and shoppers, broadcasting, telecommunications and printing
services. For example, in 1972 we began Midwestern Relay, a microwave network
business in order to move broadcast feeds point to point. When the break-up of
AT&T created opportunities for regional competitors, Midwestern Relay became a
strong regional supplier in the wholesale telecommunications business. The
growth and success of this business led to the acquisition of fiber optic based
competitor Norlight Telecommunications in 1991.
Over the last 10 years, we have purchased more than 40 businesses, most of which
have been acquisitions of publishing and broadcasting properties. Our 1999
purchase of the Great Empire radio group, consisting of 13 radio stations, was
our largest acquisition during this period. As a result of this expansion, we
have significantly expanded our diversified media operations beyond our
Milwaukee base. We plan to continue to search for acquisitions that fit our
growth strategy, focusing on broadcast stations in both existing markets and in
new markets with an economic profile similar to those we presently serve. Our
experience operating daily newspaper, community newspapers and shoppers, radio
and television properties in Milwaukee, one of the "grandfathered"
cross-ownership markets, positions us to better evaluate cross ownership
opportunities created through evolving government regulations.
Our business segments are based on the organizational structure used by
management for making operating and investment decisions and for assessing
performance. We previously reported 8 business segments, which included our
corporate operations and the operations of each one of our wholly-owned
subsidiaries. In order to better reflect our operations as a diversified media
company, and to reflect certain changes in the way our management receives
internal financial information, we determined it appropriate under Statement No.
131, "Disclosures About Segments of an Enterprise and Related Information," to
aggregate previously reported segments and identify new segments by type of
business rather than by names of individual operating entities. As a result, we
changed our reportable business segments in 2002 to the following: (i)
publishing; (ii) broadcasting; (iii) telecommunications; (iv) printing services;
and (v) other. Our publishing segment consists of a daily newspaper, the
Milwaukee Journal Sentinel, and more than 90 community newspapers and shoppers.
Our broadcasting segment consists of 36 radio stations and 6 television stations
in 11 states. Our telecommunications segment consists of wholesale and
business-to-business telecommunications services provided through a high speed
fiber optic telecommunications network that covers more than 4,400 route miles
in 7 states. Our printing services segment reflects the operations of our
printing and assembly and fulfillment business. Our other segment consists of a
label printing business and a direct marketing services business. Additional
information about our segments is presented in "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and financial
information about the segments is presented in Note 12 in our Notes to
Consolidated Financial Statements.
3
The operating revenue generated by each operating segment, as a percentage of
our consolidated operating revenue, for the last 3 years is shown below.
2002 2001 2000
------ ------ ------
Publishing.................................. 38.8% 39.6% 42.1%
Broadcasting................................ 19.1 16.7 18.3
Telecommunications.......................... 18.6 18.8 15.5
Printing Services........................... 12.2 14.2 13.1
Other....................................... 11.3 10.7 11.0
------ ------ ------
Total....................................... 100.0% 100.0% 100.0%
====== ====== ======
On October 25, 2002, our board of directors directed management and our
financial adviser to explore potential sources for additional permanent capital
for the company. We indicated at that time that we expected the process could
take from six to nine months. As a result, we suspended the purchase and sale of
units under JESTA while we explore additional permanent capital. We continue to
study different sources of permanent capital for our business. However, we
cannot assure you that we will be able to obtain additional permanent capital,
or if we do, what the terms or structure will be. See "Item 5. Market for
Company's Common Stock and Related Stockholder Matters-Permanent Capital
Study."
More information regarding us is available at our website at www.jc.com. We are
not including the information contained on our Website as a part of, or
incorporating it by reference into, this annual report on Form 10-K. Our annual
report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K
and any amendments to those reports are made available to the public at no
charge, other than a reader's own internet access charges, through a link
appearing on our website. We provide access to such material through our website
as soon as reasonably practicable after we electronically file such material
with, or furnish it to, the Securities and Exchange Commission.
Publishing
Our publishing business consists of our daily newspaper, the Milwaukee Journal
Sentinel, and our community newspapers and shoppers. Our publishing business
accounted for 38.8% of our operating revenue and 26.6% of our operating earnings
for the year ended December 31, 2002. Within our publishing segment, our daily
newspaper accounted for 68.4% of our publishing operating revenue and 94.7% of
our publishing operating earnings in 2002. Our community newspapers and shoppers
accounted for 31.6% of our publishing operating revenue and 5.3% of our
publishing operating earnings in 2002. See Note 12 to our Consolidated Financial
Statements for additional financial information regarding our publishing
business. No single customer accounted for more than 10% of our publishing
operating revenue in 2002.
Daily Newspaper
The Milwaukee Journal Sentinel has the largest circulation of all newspapers
published in Wisconsin, with a circulation of approximately 445,000 on Sunday
and 250,000 daily. According to an April 2002 readership survey conducted by
Scarborough Research, the Sunday Milwaukee Journal Sentinel ranks number 1 in
readership in the 50 largest geographic markets in the United States, and the
daily newspaper ranks number 7. These rankings are calculated by dividing the
number of adults reading the newspaper in a newspaper's Metropolitan Statistical
Area divided by the number of persons over the age of 18 in the newspaper's MSA
(which, for the Milwaukee Journal Sentinel, consists of Milwaukee, Waukesha,
Washington and Ozaukee counties).
Recent traditional print media awards won by the Milwaukee Journal Sentinel
include:
o 2003 National Headliner Awards, first place for local interest column;
o 2002 Inland Press Association, first place for explanatory writing,
editorial excellence, and news picture contest; second place for front
page contest;
o 2002 Annual Society for News Design, 3 awards for excellence,
illustration and photography; and
o 2002 Better Newspaper Contest conducted by the Wisconsin Newspaper
Association, Newspaper of the Year among the state's largest
newspapers.
4
In addition to winning numerous awards for journalistic excellence for
traditional print media, we have become an award-winner in the newspaper
industry for our Internet-based operations. We operate a number of websites that
provide editorial and advertising content, including JSOnline.com and
OnWisconsin.com, the combination of which achieved almost 32 million page views
in December 2002. In addition, Packerinsider.com, a website dedicated to
coverage of the Green Bay Packers, to which viewers must pay to subscribe, won
the 2002 NAA Digital Edge Award for Best Vertical Site and was the runner-up in
the 2002 Online News Association Awards for General Excellence in Online
Journalism. We continue to seek ways to best serve the growing population
interested in deriving news from the Internet.
We anticipate that our new production facility will be fully operational in
early 2003. At more than $112 million, the new production facility is the
largest capital investment in our history. The 448,750 square-foot facility is
on a 41-acre site in an industrial area in the village of West Milwaukee. The
facility will house all printing, packaging, inserting, recycling and
transportation processes for the Milwaukee Journal Sentinel. We expect that the
new presses will provide faster press speed and reduce printing waste, and
reduce the high costs of labor in the printing process. We believe the new print
processing will significantly reduce production costs, as well as increase
newspaper advertising and commercial printing opportunities as a result of
manufacturing efficiency, higher quality print reproduction and expanded color
availability.
The Milwaukee Journal Sentinel is distributed primarily by independent contract
carriers throughout southeastern Wisconsin and a small portion of northern
Illinois. Agents deliver the Milwaukee Journal Sentinel to single copy outlets
throughout the rest of Wisconsin.
Our primary goal is to grow readership, circulation and revenue in our 5 county
primary market area (which we refer to as our "PMA"). In order to achieve this
growth, we are concentrating on 4 cornerstones: content, brand, culture and
customer service. The Milwaukee Journal Sentinel is focused on increasing the
appeal of both its editorial and advertising content in order to better meet
readers' interests and to make the paper easier to read and navigate. We have
undertaken concentrated efforts to develop, implement, communicate and track
strategies to grow our well-established brand. The Milwaukee Journal Sentinel is
also committed to continue making on-time delivery its top customer service
priority. We are also developing a constructive, collaborative internal culture
that supports readership growth.
Although the penetration of the Milwaukee Journal Sentinel among southeastern
Wisconsin readers is generally high, the newspaper still has significant growth
potential, especially in targeted ZIP codes in which the newspaper's penetration
level remains low. As part of a targeted readership growth strategy, we have
undertaken a program called the "Milwaukee Initiative," with discounted
subscription and single copy offers and outreach programs at churches,
educational institutions and apartment complexes.
Circulation revenue accounted for 21.3% of our daily newspaper's total operating
revenue in 2002. The Audit Bureau of Circulations audits average net paid
circulation for the 12 months ending March 31. Our results for the last 5 years,
as audited by the Audit Bureau of Circulations, were as follows:
Average Net Paid Circulation
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Daily.......................... 250,356 270,686 281,067 283,642 286,793
Sunday......................... 445,396 452,396 458,015 458,332 459,374
The decline in average net paid circulation from 2001 to 2002 was caused
primarily by the elimination of home delivery in all but 12 counties in
southeastern Wisconsin, as part of our cost reduction initiatives. As a result,
average net paid circulation decreased in 2002 by 3.6% for our daily paper and
4.9% for our Sunday paper. Additionally, our average net paid circulation in our
PMA increased .03% for our daily paper and .25% for our Sunday paper over 2001,
representing the first increase in circulation within our PMA in almost 20
years. The Milwaukee Journal Sentinel single copy prices are $0.50 for daily and
$1.75 for Sunday.
Advertising revenue accounted for 77.0% of our daily newspaper's total operating
revenue in 2002. We have set forth in the table below annual advertising volume
as printed on our presses (measured in column inches) and the number of
preprints inserted into the Milwaukee Journal Sentinel's daily and Sunday
editions and its total market coverage (TMC) product, Weekend plus, for the last
5 calendar years. We believe the advertising volume decline during 2002 in full
run was a result of advertisers switching to preprints, the downturn in
employment advertising and several large retailers decreasing their advertising
expenditures. This is believed to be due to the weakened economy during 2002.
(Full run refers to advertisements that are published in all editions of the
newspaper, whereas part run refers to advertisements published in only certain
editions of the newspaper. Preprint pieces are the total number of individual
customer's advertisements that are provided by the customer that were inserted
into the newspapers.)
5
Annual Advertising Volume
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
(inches in thousands)
Full run in column inches............................ 1,668.3 1,763.0 2,015.2 1,987.0 2,030.6
Part run in column inches............................ 80.3 70.7 24.2 15.4 20.6
Preprint pieces (in millions)........................ 773.5 719.5 665.7 659.0 650.0
Community Newspapers and Shoppers
We own and operate more than 90 community newspapers and shoppers and 7 printing
plants through our subsidiary, Add, Inc. We publish 39 shoppers with a combined
circulation of more than 770,000 each week. Shoppers are free publications,
primarily carrier-delivered to each household in a geographic area, featuring
advertisements primarily from local and regional businesses. A few of our
shoppers also include local interest stories and weekly columns, such as
fishing/hunting reports, obituaries and television listings. These shoppers are
delivered to various communities in Wisconsin, Ohio, Louisiana, Vermont and
Massachusetts.
We publish 47 community newspapers, with a combined circulation of more than
300,000 weekly. Our community newspapers focus on local news and events that are
of interest to the local residents. In some markets, our community newspapers
are the only source of local news. These local newspapers serve communities in
Wisconsin, Connecticut and Florida.
Included in our community newspapers and shoppers operation are 10 niche
publications that are product or interest specific; therefore, they appeal to a
very specific advertiser and reader. A few examples of the niche products are
automotive and boating focused publications. We provide niche publications in
Wisconsin, Louisiana, Florida and New York. In addition to our publishing
operations, we also provide commercial printing services including cold-web
printing, electronic prepress, bindery and inserting mostly for other weekly
niche publications.
Information about our community newspapers, shoppers and niche publications is
presented below:
2002 Average Number Number Type
Revenue Weekly of Paid of Free Products/
Group (in thousands) Circulation Publications Publications Number
----------------- -------------- ----------- ------------ ------------ ------
Central Wisconsin $ 10,080 167,000 - 8 Newspapers - 2
Shoppers - 6
CNI Papers (WI) 8,911 67,000 23 - Newspapers - 23
Ohio 7,897 204,000 - 9 Shoppers - 9
Hartland (WI) 7,311 112,000 5 5 Newspapers - 6
Shoppers - 4
Fox Valley (WI) 7,145 110,000 2 6 Newspapers - 2
Niches - 3
Shoppers - 3
New York/Connecticut 6,923 131,000 3 8 Newspapers - 10
Niche - 1
Louisiana 6,620 151,000 2 3 Niches - 3
Shoppers - 2
This Week Papers (WI) 4,833 194,000 - 11 Shoppers - 11
Florida 4,224 67,000 2 3 Newspapers - 4
Niche - 1
Mariner (FL) 3,850 47,000 - 2 Niches - 2
Vermont 3,675 69,000 - 4 Shoppers - 4
--------- --------- ------- ------
Total $ 71,469 1,319,000 37 59
========= ========= ======= ======
6
Advertising revenue and circulation revenue accounted for 70% and 3%,
respectively, of our community newspapers' and shoppers' total operating revenue
in 2002; other revenue, primarily commercial printing revenue, accounted for
27%.
Newsprint
The basic raw material of newspapers is newsprint. We have purchase contracts,
which run through 2006, with 2 suppliers that provide for approximately 95% of
our estimated newsprint requirements. We pay market prices for quantities we
determine will meet our requirements. The remaining 5% of our newsprint could
come from these suppliers or from other suppliers in the spot market.
We believe we will continue to receive an adequate supply of newsprint for our
needs. Newsprint prices fluctuate based upon market factors, which include
newsprint production capacity, inventory levels, demand and consumption. Price
fluctuations for newsprint can have a significant effect on our results of
operations. The average net price per ton was $446 in 2002 compared to an
average net price per ton of $573 in 2001. Our total cost of newsprint decreased
$12.3 million during 2002. Our consumption of newsprint declined to 77,161
metric tons from 77,900 metric tons in 2001. The decrease in consumption in 2002
is attributed to fewer advertising pages and a decrease in average net paid
circulation. This decrease in consumption was partially offset by our decision
to print the weekly television guide on our own new presses versus having it
printed by another firm and the use of newsprint for the startup of the new
presses.
Industry and Competition
Newspaper publishing is the oldest segment of the media industry. Metropolitan
and community newspapers often represent the dominant medium for local
advertising due to their importance to the communities they serve. We believe
newspapers continue to be one of the most effective mediums for retail and
classified advertising because they allow advertisers to promote the price and
selection of goods and to maximize household reach. According to Scarborough
Research, readers of newspapers tend to be more highly educated and have higher
incomes than non-newspaper readers. As a result, newspapers continue to be one
of the most cost-effective means for advertisers to reach this demographic
group.
Notwithstanding the advertising advantages newspapers offer, newspapers have
many competitors for advertising dollars and paid circulation. These competitors
include local, regional and national newspapers, shoppers, magazines, broadcast
and cable television, radio, direct mail, yellow pages, the Internet and other
media. Competition for newspaper advertising revenue is based largely upon
advertiser results, advertising rates, readership, demographics and circulation
levels, while competition for circulation is based largely upon the content of
the newspaper, its price, editorial quality, and customer service. On occasion,
our businesses compete with each other for regional advertising, specifically in
the Milwaukee market.
Advertising revenue is the largest component of a newspaper's total operating
revenue. Advertising rates at newspapers, free circulars and publications are
usually based on market size, circulation, penetration, demographics and
alternative advertising media available in the marketplace. Newspaper
advertising revenue is cyclical. Our publishing business tends to see increased
operating revenue due to increased advertising activity during certain holidays,
in time for summer shopping and just prior to students returning to school.
Advertising revenue is also generally affected by changes in national and
regional economic conditions. Classified advertising, which generally comprises
approximately 40% of U.S. newspaper advertising revenue as a whole, is the most
sensitive to economic cycles because it is driven primarily by the demand for
employment, real estate transactions and automotive sales. While circulation
revenue was not as significant as advertising revenue in 2002, circulation
trends can affect the decisions of advertisers and advertising rates.
Although there are several major national newspaper companies, we believe that
the newspaper publishing industry in the United States remains highly
fragmented. Approximately 74% of daily and non-daily newspapers have
circulations of less than 10,000, and most of these smaller publications are
owned and operated by individuals whose newspaper holdings and financial
resources are generally limited. Further, we believe that relatively few daily
newspapers have been established in recent years due to the high cost of
starting a daily newspaper operation and building a franchise identity.
Moreover, most markets cannot sustain more than 1 newspaper.
Broadcasting
Our broadcasting business is conducted through our wholly-owned subsidiary,
Journal Broadcast Corporation (doing business as Journal Broadcast Group), and
its subsidiaries, which together operate 36 radio stations and 6 television
stations in 11 states. Our broadcasting business accounted for 19.1% of our
operating revenue and 29.3% of our operating earnings for the year ended
December 31, 2002. See Note 12 to our Consolidated Financial Statements for
additional financial information regarding this business.
Two of our three broadcast stations in Milwaukee, WTMJ-TV and WTMJ-AM, are
recognized nationally as leading broadcast properties. In the November 2002
Nielsen rating period, WTMJ-TV's "The 10:00 Report" was the 10th highest rated
late night
7
newscast among all late night newscasts in its Designated Market Area based upon
surveys conducted during the Monday through Friday late night newscasts on all
television stations in the 54 metered markets. WTMJ-AM was the top rated radio
station in the Milwaukee market based on the average number of persons 12 years
and older listening when surveyed during a 15-minute increment occurring
Monday-Friday, 6:00 a.m. to midnight for 26 consecutive Arbitron rating periods.
Our radio and television stations focus on providing targeted and relevant local
programming that is responsive to the interests of the communities in which they
compete. We believe that a local focus allows our stations and clusters to serve
listeners, viewers and advertisers more effectively, strengthens each station's
brand identity and allows our stations to provide effective marketing solutions
for local advertisers by reaching their targeted audiences. No single customer
accounted for more than 10% of our broadcasting operating revenue in 2002.
Radio Broadcasting
In 2002, operating revenue from radio operations accounted for 51.2% percent of
our broadcasting operating revenue. Our radio stations are:
Station Total FCC
Year Audience Stations License
Market and Station City of License Acquired Format Rank(1) in Market Class(2)
--------------------- -------------------- ---------- ----------------------- ------------- ---------- -----------
Milwaukee, WI
WTMJ-AM Milwaukee, WI 1927 News/Talk/Sports 1 29 B
WKTI-FM Milwaukee, WI 1940 Hot Adult Contemporary 7 29 B
Omaha, NE KOSR-AM Omaha, NE 1995 Sports 17 22 C
KHLP-AM Omaha, NE 1998 Talk 22 22 B
KEZO-FM Omaha, NE 1995 Rock 4 22 C
KKCD-FM Omaha, NE 1995 Classic Hits 7+ 22 C2
KSRZ-FM Omaha, NE 1998 Hot Adult Contemporary 11+ 22 C
KOMJ-AM Omaha, NE 1999 Adult Standards 5+ 22 B
KQCH-FM Omaha, NE 1999 Contemporary Hits 3 22 C
KBBX-FM Nebraska City, NE 1997 Regional Mexican 11+ 22 C1
Tucson, AZ
KFFN-AM Tucson, AZ 1996 Sports Radio 17+ 27 C
KMXZ-FM Tucson, AZ 1996 Adult Contemporary 1 27 C
KZPT-FM Tucson, AZ 1996 Hot Adult Contemporary 9+ 27 A
KGMG-FM Oracle, AZ 1998 Rhythmic Oldies 13+ 27 C2
Knoxville, TN
WQBB-AM Powell, TN 1998 Sports 21+ 24 D
WMYU-FM Karns, TN 1997 Oldies 6+ 24 A
WWST-FM Sevierville, TN 1997 Contemporary Hits 3 24 C1
WBON-FM Knoxville, TN 1998 Classic Rock 12+ 24 A
Boise, ID
KGEM-AM Boise, ID 1998 Adult Standards 9 25 B
KJOT-FM Boise, ID 1998 Rock 17 25 C
KQXR-FM Boise, ID 1998 Alternative Rock 7 25 C1
KTHI-FM Caldwell, ID 1998 Classic Hits 10+ 25 C
KRVB-FM Nampa, ID 2000 Adult Alternative 13+ 25 C
KCID-AM Caldwell, ID 1998 Oldies 16 25 C
8
Station Total FCC
Year Audience Stations License
Market and Station City of License Acquired Format Rank(1) in Market Class(2)
--------------------- -------------------- ---------- ----------------------- ------------- ---------- -----------
Wichita, KS
KFTI-AM Wichita, KS 1999 Classic Country 4+ 22 B
KFDI-FM Wichita, KS 1999 Country 1 22 C
KICT-FM Wichita, KS 1999 Rock 6 22 C1
KFXJ-FM Augusta, KS 1999 Classic Hits 9+ 22 C2
KYQQ-FM Arkansas City, KS 1999 Regional Mexican 15+ 22 C
KMXW-FM Newton, KS 2000 Hot Adult Contemporary 15+ 22 C1
Springfield, MO
KSGF-AM Springfield, MO 1999 News/Talk 15+ 20 B
KTTS-FM Springfield, MO 1999 Country 1 20 C
Rhythmic Contemporary
KSPW-FM Sparta, MO 1999 Hits 6 20 C2
Tulsa, OK
KFAQ-AM Tulsa, OK 1999 Talk 15+ 26 A
KVOO-FM Tulsa, OK 1999 Country 5+ 26 C
KXBL-FM Henryetta, OK 1999 Classic Country 18+ 26 C1
(1) Station audience rank equals the ranking of each station, in its market, according to the Fall 2002 Arbitron ratings
book. The ranking is determined based on the average number of persons 12 years and older listening when surveyed during
a 15-minute increment occurring Monday-Friday between 6:00 a.m. and midnight. A "+" indicates a tie with another station
in the market.
(2) The FCC license class is a designation for the type of license based upon the radio broadcast service area according to
radio broadcast rules compiled in the Code of Federal Regulations.
Most of our radio broadcasting operating revenue is generated from the sale of
local advertising, with the balance generated from national, political and issue
advertising. We base our advertising rates primarily on each station's ability
to attract audiences having certain demographic characteristics in the market
area which advertisers want to reach, as well as the number of stations
competing in the market. Advertising rates generally are the highest during
morning and evening drive-time hours. We have predetermined the number of
commercials that are broadcast each hour, depending on the format of a
particular station. We attempt to determine the number of commercials broadcast
hourly that can maximize available revenue dollars without diminishing listening
levels. Although the number of advertisements broadcast during a given time
period may vary, the total number of advertisements broadcast on a particular
station generally does not vary significantly from year to year, unless there
has been a format change.
9
Television Broadcasting
In 2002, operating revenue from television operations accounted for 48.8% of our
broadcasting operating revenue. Our television stations are:
Station Station Total
Year Network Audience Audience Stations
Station Market Acquired Affiliation Rating (1) Share(1) in Market
------- ------ -------- ----------- ---------- -------- ---------
WTMJ-TV Milwaukee, WI 1947 NBC 6 15 13
KTNV-TV Las Vegas, NV 1979 ABC 3 7 10
WSYM-TV Lansing, MI 1984 Fox 2 6 6
KMIR-TV Palm Springs, CA 1999 NBC 3 11 8
KIVI-TV Boise, ID 2001 ABC 3 12 6
KSAW-TV(2) Twin Falls, ID 2001 ABC 2 6 4
(1) Ratings equal the percentage of the total potential audience in the market and shares equal the percentages of the
audience actually watching television. The station audience rating and the station audience share equals the
Designated Market Area Household Rating according to the November 2002 Nielsen ratings book. They are based on
surveys conducted 5:00 a.m. to midnight, 7 days a week.
(2) Low-power television station.
The affiliation by a station with one of the 4 major networks (NBC, ABC, CBS and
Fox) has a significant impact on the composition of the station's programming,
revenue, expenses and operations. A typical affiliate of a major network, except
Fox, receives a large portion of each day's programming from the network. This
programming is provided to the affiliate by the network in exchange for a
substantial majority of the advertising time sold during the airing of network
programs. The network then sells this advertising time for its own account. The
affiliate retains the revenue from time sold during the breaks in and between
network programs and during programs produced by the affiliate or purchased from
non-network sources. In acquiring programming to supplement the programming
supplied by the affiliated network, network affiliates compete primarily with
affiliates of other networks and independent stations in their markets. Cable
systems generally do not compete with local stations for programming. We believe
all of our television stations are strong affiliates with good relationships
with the respective networks.
Seasonal operating revenue fluctuations are common in the broadcasting industry
and are primarily due to fluctuations in advertising expenditures by retailers
and automobile manufacturers. Broadcast advertising is typically strongest in
the second and fourth quarters of the year. This coincides with increased
advertising around certain holidays. The second quarter tends to show an
increase in automotive advertising as well as increases in tourism and travel
advertising before the summer months. Because television and radio broadcasters
rely upon advertising revenue, they are subject to cyclical changes in the
economy. The size of advertisers' budgets, which are affected by broad economic
trends, affects the broadcast industry in general and the operating revenue of
individual television and radio stations.
Additionally, television advertising revenue and rates in even-numbered years
benefit from advertising placed by candidates for political offices, issue
advertising and demand for advertising time in Olympic television broadcasts.
NBC has purchased the right to broadcast the Olympics through 2008, and we
expect higher operating revenue in these years because the expected increased
ratings for our 2 NBC affiliates will allow them to sell advertising at premium
rates.
Industry and Competition
We compete with other radio and television stations, newspapers, cable
television, satellite television, direct mail services, billboards, the Internet
and, in the future, may also compete with the emerging satellite radio
technology for advertising dollars. We believe some of the factors an advertiser
considers when choosing an advertising medium include its overall marketing
strategy and reaching its targeted audience in the most cost-effective manner.
In both radio and television broadcasting, operating revenue is derived
primarily from advertising. Ratings, which represent the number of viewers or
listeners tuning in to a given station, highly influence competition in
broadcasting because they affect the advertising rates the broadcaster can
charge - higher ratings generally mean the broadcaster can charge higher rates
for advertising. Advertising rates for both the radio and television broadcast
industries are also based upon a variety of other factors, including a program's
popularity among the advertiser's target audience, the number of advertisers
competing for the available time, the size and demographic makeup of the market
served and the availability of alternative advertising in the market. By having
a "cluster" of several stations within 1 market, we can offer advertisers the
opportunity to purchase air time on more than one of our stations in order to
reach a broader audience.
10
Radio stations generate the majority of their revenue from the sale of
advertising time to local and national spot advertisers and national network
advertisers, primarily as a medium for local advertising. Changes in market
demographics, the entry of competitive stations to its markets or the adoption
of competitive formats by existing stations could result in lower ratings, which
could in turn reduce advertising revenue. Technology can play an important role
in competition as the ratings each station receives also depend upon the
strength of the station's signal in each market and, therefore, the number of
viewers or listeners who have access to the signal. We continue to invest in the
technology needed to maintain, and where possible, strengthen our signals.
Commercial television stations generally fall into 1 of 3 categories. The first
category of stations includes those affiliated with 1 of the 4 major national
networks (NBC, ABC, CBS and Fox). The second category comprises stations
affiliated with newer national networks, such as UPN, WB and Paxson
Communications Corporation (or PAX TV). The third category includes independent
stations that are not affiliated with any network and rely principally on local
and syndicated programming. Affiliation with a television network can have a
significant influence on the operating revenue of a television station because
the audience ratings generated by a network's programming can affect the rates
at which a station can sell advertising time. Generally, rates for national and
local spot advertising sold by us are determined by each station, which receives
all of the operating revenue, net of agency commissions, for that advertising.
Rates are influenced by the demand for advertising time, the popularity of the
station's programming and market size.
Telecommunications
Our telecommunications business is conducted through our subsidiary Norlight
Telecommunications, Inc., which provides both wholesale telecommunications
services (sometimes referred to as "carrier services") and business-to-business
telecommunications services (sometimes referred to as "enterprise services," or
"commercial services"). Our telecommunications business accounted for 18.6% of
our operating revenue and 35.9% of our operating earnings for the year ended
December 31, 2002. See Note 12 to our Consolidated Financial Statements for
additional financial information regarding this business.
Our wholesale telecommunications business provides network transmission
solutions for other telecommunications carriers, including interexchange
(nationwide long distance) carriers, wireless carriers, Internet service
providers, incumbent local exchange carriers and competitive local exchange
carriers in order to provide voice, video, data and Internet applications for
their customer. Our business-to-business service provides integrated voice and
data communications solutions, specifically dedicated circuits, frame relay
(statistically multiplexed packet data service), ATM (Asynchronous Transfer Mode
- - a very high speed transmission technology), Internet access and switched voice
services (pay-by-the-minute long distance including domestic, international and
calling card services) to small and medium sized businesses in the upper
Midwest. Our satellite and video services provide terrestrial and satellite
transmission of broadcast quality video signals to broadcast, entertainment and
sports industries, educational institutions and businesses.
We own and operate 3,794 route miles of fiber optic network connecting
Wisconsin, Michigan, Indiana, Minnesota, Illinois, Iowa and Ohio. We also own an
additional 669 route miles that are available for future network traffic. The
network is designed to carry telecommunications traffic to Tier 2 and 3 cities
(population sizes greater than 50,000) within its footprint. The transport layer
of the network uses SONET (Synchronous Optical NETwork) technology to transport
digital signals. The network is configured in a ring physical topology, with
multiple fibers providing redundancy. Given this configuration, in the event
that an individual fiber strand suffers a catastrophic failure, traffic is
automatically re-routed to avoid service interruption.
WorldCom, Inc. and Global Crossing, our largest telecommunications customers,
together accounted for 20.1% of our total telecommunications operating revenue
in 2002. Global Crossing filed for Chapter 11 bankruptcy protection in January
2002 and WorldCom filed for Chapter 11 bankruptcy protection in July 2002. Both
companies are also currently under investigation by the Securities and Exchange
Commission and the Justice Department. However, we continue to provide services
to both WorldCom and Global Crossing and receive payments for those services in
the ordinary course of business. The loss of the ongoing business from either of
these 2 customers would have a significant adverse effect on our results of
operations.
Industry and Competition
Norlight operates in the Inter-exchange Transport Services segment of the
telecommunications market. Its competitors consist of multiple large national
carriers such as AT&T, WorldCom, Global Crossing and Sprint; regional carriers,
such as McLeodUSA Telecommunications, US Signal, TDS Telecom; and local exchange
carriers, such as SBC Communications, Verizon and Qwest Communications.
We believe the recent financial crisis within the telecommunications industry
will continue with the resulting effect being a limited availability of capital.
Several carriers have ceased their operations or been acquired; however,
overcapacity and too many competitors continues to be a significant issue
leading to price instability. Our telecommunications business has had the
benefit of
11
adequate and timely access to financial resources from us, which has enabled it
to expand its network to meet service needs or pursue sales opportunities. We
believe our ability to react quickly by executing custom-designed integrated
solutions to meet customer requests is a significant point of positive
differentiation in the current market. We further believe that the responsive,
customer-focused approach of our sales teams and technical staff, coupled with
high quality service offerings, is a significant competitive advantage. With an
increasing focus on financial stability, reliability and responsiveness, we
believe we stand to benefit from increasing share in the markets in which we
compete.
Printing Services
Our printing services business is conducted through our subsidiary IPC
Communication Services, Inc. Our printing services business accounted for 12.2%
of our operating revenue and 1.8% of our operating earnings for the year ended
December 31, 2002. See Note 12 to our Consolidated Financial Statements for
additional financial information regarding this business.
Our printing services business performs a wide variety of services, including
electronic publishing, assembly and fulfillment. The foundation of our printing
business includes printing scientific, medical and technical journals. We
generally utilize conventional and electronic pre-press processes, web and
sheet-fed printing and complete bindery and finishing in our printing processes.
We are also a Microsoft authorized replicator of certificates of authenticity
applied to various software products. All of these markets are served through
our direct sales force.
A large computer hardware OEM (original equipment manufacturer) accounted for
37.6% of our printing services operating revenue in 2002. The loss of this
customer could have a material adverse effect on our results of operations.
Industry and Competition
The printing services industry has continued to experience consolidation over
the last few years. This trend has resulted in fewer private, independent
competitors, creating several competitors that are larger than us in size with
broader product offerings. The major competitive factors that impact our
printing services business are the quality of our customer service and our
finished products, time to market and distribution capabilities, price and
schedule flexibility.
We compete with a large number of companies, some of which have greater
resources and capacity. In recent years, there has been excess capacity in the
printing industry that has increased competition. Rapid technological changes as
well as a more global market place, both in terms of supply and demand, have
also brought new competitors to the market place. To lessen exposure to larger
competitors with greater resources, we focus generally on specialized markets
with small- to medium-sized print run requirements where we can achieve market
differentiation and gain competitive advantages through knowledge of the market
and the ability to offer high quality solutions to customers.
Other
Our other businesses consist of our label printing business conducted through
our subsidiary NorthStar Print Group and our direct marketing services business
conducted through our subsidiary PrimeNet Marketing Services. These businesses
accounted for 11.8% of our operating revenue and 3.1% of our operating earnings
for the year ended December 31, 2002. Our label printing business has 3
production facilities in Wisconsin and Michigan's Upper Peninsula and produces
glue-applied, in-mold, and pressure sensitive labels for the beverage,
automotive products, household chemical and other major industries. Our label
printing business is dedicated to providing all of its customers with superior
performance and flexibility.
SAB/Miller Brewing Company accounted for 50.7% of our label printing business'
revenue in 2002. In 2002, our label printing business was in the second year of
a 5 year contract with SAB/Miller Brewing Company. The loss of SAB/Miller
Brewing Company could have a material adverse effect on our results of
operations.
Our direct marketing business provides nationwide direct marketing support
services to marketers of automotive, retail, publishing, financial and other
services. Our direct marketing business is committed to providing innovative
data, print and mail solutions that are always on time and right.
Compliance with Environmental Laws
As the owner, lessee or operator of various real properties and facilities, we
are subject to various federal, state, and local environmental laws and
regulations. Historically, compliance with these laws and regulations has not
had a material adverse effect on
12
our business. However, there can be no assurance that compliance with existing
or new environmental laws and regulations will not require us to make future
expenditures.
Regulation
Our businesses are subject to regulation by governmental authorities in the
United States and in the various states in which we operate.
Television and Radio Regulation
Introduction. Our television and radio broadcasting operations are subject to
regulation by the FCC under the Communications Act of 1934, as amended (which we
refer to as the Communications Act). Under authority of the Communications Act,
the FCC, among other things, assigns frequency bands for broadcast and other
uses; grants permits and licenses to construct and operate television and radio
stations for particular frequencies; issues, revokes, modifies and renews radio
and television broadcasting licenses; determines the location and power of
stations and establishes areas to be served; regulates equipment used by
stations; determines whether to approve changes in ownership or control of
station licenses; regulates the content of some forms of programming; adopts and
implements regulations and policies which directly or indirectly affect the
ownership, operations and profitability of broadcasting stations; and has the
power to impose penalties for violations of its rules.
The following is a brief summary of certain provisions of the Communications Act
and specific FCC rules and policies. Failure to observe the provisions of the
Communications Act and the FCC's rules and policies can result in the imposition
of various sanctions, including monetary forfeitures, the grant of "short-term"
(less than the maximum term) license renewal or, for particularly egregious
violations, the denial of a license renewal application, the revocation of a
license or the withholding of approval for acquisition of additional broadcast
properties.
Broadcast Licenses/Renewals. The Communications Act permits the operation of
broadcast stations only in accordance with a license issued by the FCC upon a
finding that the grant of a license would serve the public interest, convenience
and necessity. The FCC grants broadcast licenses for specified periods of time
and, upon application, may renew the licenses for additional terms (ordinarily
for the maximum 8 years). Generally, the FCC renews broadcast licenses upon a
finding that: (i) the broadcast station has served the public interest,
convenience and necessity; (ii) there have been no serious violations by the
licensee of the Communications Act or the FCC's rules; and (iii) there have been
no other violations by the licensee of the Communications Act or other FCC rules
which, taken together, indicate a pattern of abuse. After considering these
factors, the FCC may renew a broadcast station's license, either with
conditions, or without, or it may designate the renewal application for hearing.
Although there can be no assurance that our licenses will be renewed, we have
not to date had a violation of the FCC's regulations that jeopardized the
renewal of our licenses and we are not currently aware of any facts that would
prevent their timely renewal.
Ownership Restrictions. The Communications Act and FCC rules and policies
include a number of limitations regarding the number and reach of broadcasting
properties that any person or entity may own, directly or by attribution. FCC
approval is also required for transfers of control and assignments or licenses.
In September 2002, the FCC issued a notice of proposed rulemaking which
consolidated other proceedings and collectively sought comment on six broadcast
ownership rules: the Broadcast-Newspaper Cross-Ownership Rule; the Local Radio
Ownership Rule; the Television-Radio Cross-Ownership Rule; the Dual Network
Rule; the Local Television Ownership Rule; and the National Television Ownership
Rule. The FCC is required by the Communications Act to review these rules
biennially and to repeal or modify any rule it determines to be no longer in the
public interest; certain of the rules are again being reviewed by the FCC in
this proceeding after remand from a federal court charging the FCC to better
justify their retention.
Under the Broadcast-Newspaper Cross-Ownership Rule, unless grandfathered or
subject to waiver, no party may have an attributable interest in both a
television station and a daily English-language newspaper in the same market if
the television station's Grade B contour encompasses the entire community in
which the newspaper is published. Our media operations in Milwaukee were
grandfathered under this rule.
Under the Local Radio Ownership Rule, the number of radio stations an entity may
own in a given market is dependent upon the size of that radio market.
Specifically, in a radio market with 45 or more commercial radio stations, a
party may own, operate, or control up to 8 commercial radio stations, not more
than 5 of which are in the same service (AM or FM). In a radio market with
between 30 and 44 commercial radio stations, a party may own, operate, or
control up to 7 commercial radio stations, not more than 4 of which are in the
same service. In a radio market with between 15 and 29 (inclusive) commercial
radio stations, a party may own, operate, or control up to 6 commercial radio
stations, not more than 4 of which are in the same service. In a radio market
with 14 or fewer
13
commercial radio stations, a party may own, operate, or control up to 5
commercial radio stations, not more than 3 of which are in the same service,
except that a party may not own, operate, or control more than 50% of the
stations in such market.
The Television-Radio Cross-Ownership Rule generally allows common ownership of 1
or 2 television stations and up to 6 radio stations in any market where at least
20 independent voices would remain post-combination; 2 television stations and
up to 4 radio stations in a market where at least 10 independent voices would
remain post-combination; and 1 television and 1 radio station notwithstanding
the number of independent voices in the market. A "voice" generally includes
independently owned, same-market, commercial and noncommercial broadcast
television and radio stations, newspapers of certain circulation, and a cable
system of sufficient size. Waivers of the radio/television cross-ownership rule
are available only where the station being acquired is "failed" (i.e., off the
air for at least 4 months or involved in court-supervised involuntary bankruptcy
or insolvency proceedings). A buyer seeking such a waiver must also demonstrate,
in most cases, that it is the only buyer ready, willing, and able to operate the
station, and that sale to an out-of-market buyer would result in an artificially
depressed price.
The Dual Network Rule permits a television broadcast station to affiliate with a
network that maintains more than 1 broadcast network, unless the dual or
multiple networks are created by a combination between ABC, CBS, Fox, or NBC.
Under the Local Television Ownership Rule, absent a waiver, an individual (or
entity) may not have attributable interests in more than 1 television station in
a market, unless the market will have at least 8 independent voices after the
combination and at least one of the stations is not one of the top-four-rated
stations in the television market or unless the stations' Grade B contours do
not overlap.
Under the National Television Ownership Rule, any entity is prohibited from
controlling television stations the combined audience reach of which exceeds 35%
of the television households in the United States (the number of households
served by UHF stations is discounted by 50% for the purposes of this
calculation).
We cannot predict the outcome of the FCC review of ownership rules. Each of our
previous acquisitions of radio or television stations has been reviewed by the
FCC under these rules, and we believe our current ownership of media properties
does not conflict with these rules. For any new acquisitions, the filing of
petitions or complaints against us or any FCC licensee from which we acquire a
station could result in the FCC delaying the grant of, or refusing to grant or
imposing conditions on its consent to the assignment or transfer or control of
licenses.
Digital Television. The FCC has approved technical standards and channel
assignments for digital television ("DTV") service. DTV will permit broadcasters
to transmit video images with higher resolution than existing analog signals and
broadcast in multiple streams with various programs on 1 channel. The U.S.
Congress and the FCC have directed all U.S. television stations and consumer
television sets to transition from analog to digital format, which will (i)
enable stations to transmit high-definition television (or several channels of
standard definition television) and data, and (ii) reduce the amount of spectrum
needed for broadcast television to the spectrum located between what are now
television channels 2 through 51 (called the "core spectrum"). Operators of
full-power television stations have each been assigned a second channel for DTV
while they continue analog broadcasts on the original channel.
During the digital television transition period, all established television
stations have been allocated a separate 6 megahertz channel on which to conduct
digital operations. Beginning in April 2003, every station must simulcast at
least half of its analog programming in a digital format on its digital channel,
with the simulcast percentage increasing to 100% by April 2005.
To the extent a station has "excess" digital capacity (i.e., digital capacity
not used to transmit a single free, over-the-air video program), it may elect to
use that capacity in any manner consistent with FCC technical requirements,
including data transmission, interactive or subscription video services, or
paging and information services. If a station uses its digital capacity for such
"ancillary or supplementary" services, it must pay the FCC 5% of the gross
revenues realized from such "feeable" services.
The transition to DTV is to occur, if not delayed pursuant to the statutes, by
December 31, 2006. The FCC is required to reclaim the non-core spectrum from
broadcasters unless certain conditions are met, including that digital-to-analog
be generally available and that at least 85% of viewers have access to digital
broadcast signals either over-the-air or through cable or satellite. At the end
of the transition period, broadcasters will be required to return one of the two
channels to the FCC and broadcast exclusively in digital format.
The effect digital broadcasting will have on us remains to be seen. Like other
television broadcasters, we have made substantial capital investments for
digital equipment in order to meet the FCC's mandates. The opportunities
provided by digital broadcasting are all in the formation stages. In November
2000, WTMJ-TV became the first commercial television station in Milwaukee to
broadcast digitally on WTMJ-DT. We have completed and paid for the installation
of High Definition transmission facilities at each of our full power television
stations and each station is broadcasting in High Definition in accordance with
standards set forth by the FCC.
14
Relationship With Cable/Satellite
A number of provisions of the Communications Act and FCC regulations regulate
aspects of the relationship between broadcast television and subscriber services
such as cable and satellite. The rules generally provide certain protections for
broadcast stations, for whom cable and satellite services are both an important
distribution channel and a provider of competing television channels.
To ensure that every local television station can be received in its local
market without requiring a cable subscriber to switch between cable and off-air
signals, the FCC allows every full-power television broadcast station to require
that all local cable systems transmit that station's analog programming to their
subscribers within the station's market (the so-called "must-carry" rule).
Alternatively, a station can elect to forego its must-carry rights and seek a
negotiated agreement to establish the terms of its carriage by a local cable
system -- "retransmission consent." A station electing retransmission consent
assumes the risk that it will not be able to strike a deal with the cable
operator and will not be carried. A station must elect must-carry or
retransmission consent every 3 years. A station that fails to notify a cable
system of its election is presumed to have elected must-carry.
A somewhat similar arrangement governs carriage of local broadcast channels by
satellite television. A satellite provider is not required to transmit the
signal of any television station to its subscribers in that station's market.
However, as of January 1, 2002, if a satellite provider chooses to provide even
1 station to its subscribers in a defined market area, the provider also must
transmit locally every other station in that market that elects must-carry
status. (As with cable, stations may opt to pursue retransmission consent
agreements.) A local television station that fails to make any election is
deemed to have elected retransmission consent and is not guaranteed carriage. A
satellite provider need not carry a station on any particular channel, but all
channels from the same market must be contiguous. The first carriage election
applies until December 31, 2005. After this initial term, all successive periods
will be 3 years long, consistent with cable must-carry periods.
Employees
As of December 31, 2002, we and our subsidiaries had approximately 4,300
full-time and 1,800 part-time employees compared to approximately 4,600
full-time and 2,000 part-time employees at December 31, 2001. The decrease in
the number of employees is a result of workforce reduction programs, business
divestitures, and attrition. Currently, there are 14 bargaining units
representing approximately 1,100 full and part-time employees, or 17% of our
total number of employees.
15
ITEM 2. PROPERTIES
Our corporate headquarters are located in Milwaukee, Wisconsin. We believe all
of our properties are well maintained, are in good condition, and suitable for
present operations. There are no material encumbrances on any of our properties
or equipment. The following are the principal properties operated by us and our
subsidiaries in which the approximate areas are reported in square feet, as of
December 31, 2002:
Owned Leased
----- ------
Publishing
Printing plants, newsrooms, offices, warehouses and a garage located in:
Milwaukee, WI (1)................................................. 596,000 155,000
West Milwaukee, WI (2)............................................ 449,000 -
Cedarburg, WI..................................................... 16,000 -
Waukesha, WI...................................................... - 35,000
Wauwatosa, WI..................................................... 20,000 -
Sturtevant, WI.................................................... - 11,000
New Berlin, WI.................................................... 15,000 8,000
Madison, WI....................................................... - 10,000
Waupaca, WI (3)................................................... 58,000 -
Hartland, WI...................................................... 58,000 -
Appleton, WI...................................................... - 5,000
Mukwonago, WI..................................................... - 6,000
Elkhorn, WI....................................................... - 5,000
Waterford, WI..................................................... - 7,000
Oconomowoc, WI.................................................... - 8,000
West Bend, WI..................................................... 7,000 -
Hartford, WI...................................................... 7,000 -
New London, WI.................................................... 6,000 -
Rhinelander, WI................................................... 9,000 -
Fond du Lac, Sheboygan, Beaver Dam, Johnson Creek, Germantown
Muskego, Port Washington, Whitewater, Jefferson, Marshfield,
Merrill, Oshkosh, Seymour, Stevens Point, Menomonee Falls,
Wausau, and Wisconsin Rapids, WI.............................. 10,000 33,000
Shelton, CT....................................................... - 7,000
Trumbull, CT...................................................... 86,000 -
Venice, Orange Park, Jacksonville, Sarasota and Ponte Vedra, FL... - 14,000
Baton Rouge and Kenner, LA........................................ - 28,000
New Orleans, LA................................................... 10,000 53,000
Dalton and Lee, MA................................................ - 3,000
Carroll, OH....................................................... 37,000 -
Cambridge, Chilicothe, Circleville, Coshocton, Jackson, Logan,
New Lexington, Newark, Waverly and Zanesville OH ............. - 17,000
Bennington and Manchester Village, VT............................. - 13,000
Broadcasting
Offices, studios and transmitter and tower sites located in:
Milwaukee, WI (3)................................................. 109,000 -
Las Vegas, NV..................................................... 22,000 -
Lansing, MI....................................................... 2,000 13,000
Palm Springs, CA.................................................. 19,000 1,000
Omaha, NE......................................................... 3,000 25,000
Tucson, AZ........................................................ 1,000 9,000
Knoxville, TN..................................................... 25,000 -
Boise, ID......................................................... 49,000 14,000
Wichita, KS (4)................................................... 23,000 6,000
Springfield, MO................................................... 2,000 9,000
Tulsa, OK......................................................... 22,000 1,000
16
Owned Leased
----- ------
Telecommunications
Offices and satellite antennae located in:
Brookfield, WI (3)................................................ - 51,000
Green Bay, WI..................................................... - 3,000
Madison, WI....................................................... - 2,000
Afton, WI......................................................... 4,000 -
Skokie, IL........................................................ - 6,000
Chicago, IL....................................................... 6,000 -
Buffalo Grove, IL................................................. 3,000 -
Grand Rapids, MI.................................................. 2,000 -
Lansing, MI....................................................... - 2,000
Indianapolis, IN.................................................. - 2,000
St. Paul, MN...................................................... - 3,000
Printing services
Offices, printing plants and warehouses located in:
St. Joseph, MI (3)................................................ - 333,000
Lebanon, TN....................................................... - 11,000
Austin, TX........................................................ - 11,000
Foothill Ranch, CA (5)............................................ - 201,000
San Jose, CA (6).................................................. - 368,000
Fremont, CA (6)................................................... - 253,000
Label printing
Offices, printing plants and warehouses located in:
Norway, MI........................................................ 108,000 4,000
Watertown, WI (3)................................................. 63,000 22,000
Green Bay, WI..................................................... 40,000 -
Milwaukee, WI (7)................................................. 128,000 -
Direct marketing services Offices, plants and warehouses located in:
St. Paul, MN (3).................................................. - 87,000
Clearwater, FL.................................................... - 32,000
Milwaukee, WI..................................................... - 23,000
(1) Includes our corporate headquarters and the Milwaukee Journal Sentinel's business and editorial offices and
printing operations.
(2) New production facility housing printing, packaging, inserting, recycling and transportation operations of the
Milwaukee Journal Sentinel.
(3) Includes our business operations headquarters office.
(4) Includes 4,700 square feet not in use.
(5) 138,000 square feet is sublet to third parties [pursuant to subleases expiring June 2005] and 63,000 square
feet is not in use.
(6) Property is sublet to third parties [pursuant to subleases that begin to expire December 2003].
(7) Property is currently not in use and held for sale.
ITEM 3. LEGAL PROCEEDINGS
See Note 8 in our Notes to Consolidated Financial Statements, which is
incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 2002.
17
ITEM 4A. EXECUTIVE OFFICERS OF REGISTRANT
Information with respect to our executive officers, as of March 7, 2003, is set
forth below. The descriptions of the business experience of these individuals
include the principal positions held by them since 1998. Each officer listed
below will hold office until the next annual meeting of the board of directors,
which will be held immediately following the Annual Meeting of shareholders on
June 3, 2003.
Name Title Age
- ---------------------------- -------------------------------------------------------------------------- --------
Steven J. Smith Chairman of the Board, Chief Executive Officer and Director 52
Douglas G. Kiel President and Director 54
Paul M. Bonaiuto Executive Vice President, Chief Financial Officer and Director 52
Anne M. Bauer Vice President and Corporate Controller 38
James J. Ditter Vice President and Director 41
Robert M. Dye Vice President of Corporate Affairs 55
Carl D. Gardner Vice President 46
Richard J. Gasper Vice President 59
Daniel L. Harmsen Vice President of Human Resources 47
Mark J. Keefe Vice President 43
Kenneth J. Kozminski Vice President 37
Paul E. Kritzer Vice President, Secretary and General Counsel-Media 60
Mary Hill Leahy Vice President and General Counsel-Business Services and Director 48
James P. Prather Vice President 45
Keith K. Spore Senior Vice President and Director 60
Mary Alice Tierney Vice President of Corporate Communications 52
Karen O. Trickle Vice President, Treasurer and Director 46
Steven J. Smith is a director and our Chairman of the Board and Chief Executive
Officer. Mr. Smith was elected Chief Executive Officer in March 1998 and
Chairman in December 1998. Mr. Smith was our President from September 1992 to
December 1998.
Douglas G. Kiel is a director and our President. Mr. Kiel was elected President
in December 1998. In addition, Mr. Kiel has been the Chief Executive Officer of
Journal Broadcast Corporation, one of our subsidiaries, since December 2001. He
was our Executive Vice President between June 1997 and December 1998 and
President of Journal Broadcast Group, Inc., one of our subsidiaries, from June
1990 to July 2001.
Paul M. Bonaiuto is a director and our Executive Vice President and Chief
Financial Officer. Mr. Bonaiuto was elected Executive Vice President in June
1997 and Chief Financial Officer in January 1996. Mr. Bonaiuto was our Senior
Vice President between March 1996 and June 1997.
Anne M. Bauer is a Vice President and our Corporate Controller. Ms. Bauer was
elected Vice President and Corporate Controller in June 2000. She was our
Corporate Controller from January 1999 to June 2000 and our Assistant Corporate
Controller from January 1995 to January 1999.
James J. Ditter is a director and a Vice President. Mr. Ditter was elected Vice
President in September 1995. In addition, Mr. Ditter has been President of
Norlight Telecommunications, Inc., one of our subsidiaries, since September
1995.
Robert M. Dye is Vice President of Corporate Affairs. Mr. Dye was elected Vice
President of Corporate Affairs in June 2000. Mr. Dye was our Vice President of
Corporate Communications from March 1990 to June 2000.
Carl D. Gardner is a Vice President. Mr. Gardner was elected Vice President in
June 1999. In addition, Mr. Gardner has been the President-Radio, Journal
Broadcast Group since December 1998.
Richard J. Gasper is a Vice President. Mr. Gasper was elected Vice President in
June 1996. In addition, Mr. Gasper has been the President of NorthStar Print
Group, one of our subsidiaries, since January 1996.
Daniel L. Harmsen is Vice President of Human Resources. Mr. Harmsen was elected
Vice President of Human Resources in March 1996.
18
Mark J. Keefe is a Vice President. Mr. Keefe was elected Vice President in March
1996. Mr. Keefe has also been President of PrimeNet Marketing Services, one of
our subsidiaries, since October 1995.
Kenneth J. Kozminski is a Vice President. Mr. Kozminski was elected Vice
President in December 1999. In addition, Mr. Kozminski has been President of IPC
Communication Services, one of our subsidiaries, since July 1999. He was Vice
President and General Manager of Eastern Region-IPC Communication Services from
July 1998 to July 1999; Vice President of Operations of IPC Communication
Services from May 1998 to July 1998; and General Manager of IPC Communication
Services Europe, a subsidiary of IPC Communication Services from February 1997
to May 1998.
Paul E. Kritzer is a Vice President, Secretary and our General Counsel-Media.
Mr. Kritzer was elected Vice President and General Counsel-Media in July 2001
and Secretary in September 1992. In addition, Mr. Kritzer was Vice
President-Legal from June 1990 to July 2001.
Mary Hill Leahy is a director and Vice President and our General
Counsel-Business Services. She was elected Vice President and General Counsel -
Business Services in July 2001. Ms. Leahy was General Counsel Americas, GE
Medical Systems, a developer and manufacturer of medical imaging equipment, from
January 1999 to July 2001; Counsel for Products and Distribution, GE Medical
Systems from June 1997 to January 1999; and Consulting Attorney for Miller
Brewing Company from 1995 to 1997.
James P. Prather is a Vice President. Mr. Prather was elected Vice President in
March 1999. In addition, Mr. Prather has been President-Television, Journal
Broadcast Group since December 1998 and General Manager of WTMJ-TV since 1995.
He was Executive Vice President-Television, Journal Broadcast Group from
December 1997 to December 1998.
Keith K. Spore is a director and our Senior Vice President. Mr. Spore was
elected Senior Vice President in September 1995. In addition, Mr. Spore has been
President of Journal Sentinel, Inc., one of our subsidiaries, since September
1995 and Publisher of the Milwaukee Journal Sentinel since June 1996.
Mary Alice Tierney is Vice President of Corporate Communications. Ms. Tierney
was elected Vice President of Corporate Communications in June 2000. Ms. Tierney
was Communications and Corporate Affairs Manager from March 1999 to June 2000;
and Vice President of Communications and Community Affairs for Journal Broadcast
Group Inc. from June 1994 to August 1999.
Karen O. Trickle is a director, a Vice President and our Treasurer. Ms. Trickle
was elected Treasurer in December 1996 and Vice President in March 1999. She has
been a director June 1999.
There are no family relationships between any of the executive officers. All of
the officers are elected annually at the first meeting of the board of directors
held after each Annual Meeting of the shareholders. There is no arrangement or
understanding between any executive officer and any other person pursuant to
which he or she was elected as an officer.
19
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The majority of our common stock is owned by JESTA, which is a trust (which we
sometimes refer to as the stock trust) created in 1937 under the Journal
Employees' Stock Trust Agreement (which we sometimes refer to as the trust
agreement) by all of the shareholders of our company. Its creation was due to
the determination of Harry J. Grant, Chairman from 1935 to his death in 1963, to
offer employees the opportunity to obtain a beneficial interest in ownership of
our company. The purpose of the stock trust and the trust agreement is to
promote and facilitate the acquisition and ownership of a beneficial interest in
our stock by our employees and to promote stability and continuity of management
and control of the company in the interest of the company, our shareholders and
employees. Among other consequences of that stability and continuity, we remain
an independent company, and our media businesses can express independent
editorial voices.
Employees own units of beneficial interest (units) representing beneficial
interests in the stock trust. A unit is different than a share of common stock
offered by publicly traded companies. Units cannot be traded on the open market.
In most circumstances, a unit only can be sold to another employee, the Grant
family shareholders or to our company. A unit does not provide a unitholder with
all of the rights typically associated with stock ownership. The trust agreement
governs all aspects of unitholders' rights and obligations. The trust agreement
is filed as an exhibit hereto and is incorporated by reference herein.
In 1937, the shareholders sold 25% of the company's outstanding common stock to
the stock trust. The stock trust then issued units reflecting beneficial
ownership in the 25% of our common stock held by the stock trust. The units were
then sold to employees. Similar sales of our common stock by the Grant family
and other shareholders to the stock trust have increased the number of shares of
our common stock owned by the stock trust to 90% of the outstanding common
stock, or 25,920,000 shares, and an equal number of units have been issued.
There is one share of common stock in the stock trust for every unit issued.
Employees take part in the employee ownership program by buying units in the
stock trust. The Grant family shareholders own the remaining 10% of our common
stock.
On October 25, 2002, our board of directors directed us and our financial
adviser to explore potential sources for additional permanent capital. We
indicated at that time that we expected the process could take from 6 to 9
months. As a result, we suspended the purchase and sale of units under the trust
agreement while we explore additional permanent capital.
Oversight of the Stock Trust
The stock trust is administered by 5 trustees who currently are each an officer
and a director. It engages in no business other than being the holder of record
of our common stock, issuing units in exchange for shares of our common stock,
and in limited instances, voting shares of our common stock held by it.
A trustee holds office until resignation, termination of employment, death,
incapacity or prolonged absence from the United States or until he or she ceases
to be an owner of 1 or more units. Successor trustees are elected by the
trustees remaining in office or, if there are none so remaining or if those
remaining fail to act within 1 month of a vacancy, by majority vote of the units
owned by active employee unitholders and employee benefit trusts. The trustees
receive no remuneration for their service as trustees.
We have paid and intend to continue to pay all administrative costs of the stock
trust, and so long as that continues neither we nor the stock trust will impose
any charges or deductions for these items and liabilities against unitholders or
against trust assets. There are no liens on any trust assets. However,
unitholders may pledge units to secure loans in accordance with the trust
agreement and upon terms offered by lenders.
Purchases and Sales of Units
All purchases and sales of units are transacted at the option price set forth by
the trust agreement. The option price is based upon a formula prescribed within
the trust agreement. The formula uses our book value and the past 5 year's net
income as factors in calculating the option price. An option price is calculated
approximately every 4 weeks.
After a 90-day waiting period, full-time employees are eligible to take part in
the employee-ownership program. Part-time employees are eligible to buy units if
they have 1,000 or more hours of service during each of the 2 then most recent
calendar years. As we add new operations and companies, employees become
eligible for employee-ownership under these rules. We and the Grant family
shareholders are also eligible to purchase and hold units. In addition, employee
benefit trusts established by
20
us or established by employees to provide retirement benefits and certain other
trusts for the benefit of individual beneficiaries or charities are eligible to
own units.
In recent years, we offered units to eligible employees on a rotation basis. A
rotation schedule determined the time we would make the offering to the group to
which each employee had been assigned for purposes of the employee-ownership
rotation. Most often, we assigned all the employees of a given business unit to
the same group, which only included employees from that business unit. However,
we reserved the right to divide the employees of a business unit into 2 or more
groups for rotation purposes. The frequency of the rotation and the number of
units offered to employees depended on the number of units that we had, or
anticipated having, available to sell and the number of units that we desired to
sell.
In addition to offering units to employees on a rotation basis, from time to
time we allowed participants in some incentive plans to use all or a portion of
a cash incentive award to purchase units. For this purpose, units were valued at
the option price then in effect. Units that participants acquired in this manner
are subject to all terms and conditions of the trust agreement.
All units are subject to mandatory offers to sell upon termination of employment
and to restrictions on their resale. In general, the trust agreement requires
that an employee must offer to sell his or her units when he or she retires or
otherwise terminates employment and that employees sell units only to certain
eligible purchasers. For this purpose, termination occurs when one ceases to be
an employee. Employees who retire, as defined in the trust agreement, must offer
to sell a pro rata share of their units over 10 years after their retirement. In
such circumstances, the cumulative number of units that a retired employee must
offer to sell increases in equal increments of 10% each year for 10 years
beginning on the first anniversary of the employee's retirement. Employees who
are terminated because of downsizing, restructuring, reorganization, job
elimination, divestiture, outsourcing or similar event in each case that results
in the termination of a sufficient number of employees (as determined by the
trustees at their sole discretion) must offer to sell a pro rata portion of
units over a period of up to 5 years after such termination, depending on the
number of years the employee has owned units. Employees who terminate their
employment for reasons other than retirement or for downsizing, restructuring,
etc. are required to offer to sell all of their units immediately.
The trust agreement provides that, when a unitholder offers to sell units,
certain persons have the option to purchase the units at the option price in
accordance with procedures and time periods that the trust agreement prescribes.
Persons who have the option to purchase units include employees and employee
benefit trusts designated by the President or the board of directors, the Grant
family shareholders and us, in the order of priority and during periods set
forth in the trust agreement. Where the trust agreement requires a unitholder to
offer to sell units, our option to purchase the units extends for 5 years after
the date our option to purchase begins. While we are not obligated to do so, we
have elected in recent years to immediately purchase units offered for sale.
However, we suspended the purchase and sale of units on October 25, 2002, while
we explore potential sources of additional permanent capital. There is no
assurance we will elect to buy units offered for sale in the future.
Under the terms of the trust agreement, if units become subject to an option
event and are not purchased by employee-eligibles, employee benefit trusts or
stockholder-eligibles within 12 months of the option event (the "Expiration
Date"), then the unitholder may freely transfer those units (subject to
applicable law) to any person, even though not an "eligible" under the terms of
the trust agreement. However, units that are transferred in this manner are
subject to our continuing right to repurchase those units at the option price
set forth in the trust agreement for a period of 5 years from the Expiration
Date.
Permanent Capital Study
On October 25, 2002, our board of directors determined to indefinitely suspend
our purchase and sale of units and also directed us to explore potential sources
for additional permanent capital. Should we proceed with a permanent capital
transaction various approvals may be required, including amendments to our
articles of association and changes to JESTA.
We have been discussing capital structures with the Grant family shareholders as
a part of our permanent capital process. During our discussions, the Grant
family shareholders asserted that they have certain rights under Sections 21
(voting rights), 24 (sale of stock by trustees) and 38 (amendment or
termination) of JESTA. The discussions have centered on the Grant family
shareholders' desire to either perpetuate certain rights after a permanent
capital transaction or in the alternative to have value provided to them in
exchange for the modification of these rights.
We have reached an agreement in principle with the Grant family shareholders for
modification of their rights under JESTA and their support of the permanent
capital process. That agreement in principle provides that the Grant family
shareholders will receive additional shares of common stock and shares of
preferred stock in exchange for their current common stock as part of the
permanent capital process. The preferred stock will be designed to pay a
dividend that when aggregated with the common stock dividend will
21
initially be somewhat less than the aggregate dividend paid to the Grant family
shareholders on their shares of common stock in 2002. We would retain rights to
redeem portions of the shares held by the Grant family shareholders.
This agreement in principle is subject to negotiation of a definitive agreement
and its approval by our board of directors. Further, any changes to JESTA and
our capital structure will be subject to the approval of the JESTA trustees and
the unitholders in accordance with the terms of JESTA as part of the approvals
to be sought for adding permanent capital to our business.
Unitholders' Rights and Restrictions
Each unit entitles its holder to the rights set forth in the trust agreement,
which to some extent are similar to rights associated with 1 share of our common
stock.
Unitholders do not have preemptive rights or the right to maintain a
proportionate interest in our common stock or the stock trust. Unitholders also
do not have the right to force anyone to purchase units from them, and units are
not convertible into cash or any other security. However, the Grant family
shareholders may convert their shares into a proportionate number of units, and
any units held by them into shares, at any time.
The stock trust, as holder of our common stock, is entitled to such dividends as
the board of directors may declare in its discretion. The trustees in turn pass
the dividends (other than stock dividends) through to the unitholders as soon as
practicable after receipt (stock dividends are retained by the stock trust). If
we deliver any shares of our common stock to the stock trust through a stock
dividend or stock split, then the stock trust retains those shares. Upon the
receipt of such shares, the trustees distribute additional units to the
unitholders so as to retain the relationship of 1 unit for each share of common
stock. At the direction of the trustees, we have paid all dividends directly to
the unitholders. The stock trust, as such, pays no dividends. The board of
directors determines payment of future dividends and may reduce the dividend
payment rate or terminate the payment of dividends at any time.
The stock trust, as holder of our common stock, is entitled to 1 vote per share
in the election of directors and in all matters requiring a vote of the
shareholders. When the trustees receive notice of any meeting of the
shareholders, the trust agreement requires them to issue to each active employee
unitholder a proxy empowering him or her to vote the number of shares in which
his or her units represents an interest. However, active employee unitholders do
not have the power or authority to vote (i) to sell or lease all or
substantially all of our assets, or (ii) to dissolve us, or (iii) to merge or
consolidate us with any other corporation or corporations in which we and/or our
shareholders upon completion of such consolidation or merger do not control
directly or indirectly a majority of the voting stock, unless the employee
owners of at least two-thirds of the outstanding units owned by
employee-eligibles have authorized the trustees to offer all shares held by the
trustees for sale in accordance with the provisions of Section 24 of the trust
agreement and the purchase options under Section 24 have expired within 3 months
prior to such vote. The trustees have exclusive authority to vote all shares
represented by units owned by ex-employee-eligibles, employee benefit trusts and
employee-eligible-transferees, except that employee benefit trusts may vote on a
proposal to amend or terminate the trust agreement.
From time to time the stock trust holds meetings of its unitholders to vote with
respect to proposed amendments to the trust agreement. In addition, prior to
termination of the trust agreement by consent, there must be a meeting of
unitholders. Each active employee unitholder and employee benefit trust may vote
the number of units the unitholder owns. Unitholders may vote by proxy at these
meetings. The trust agreement may be amended or terminated by consent if all of
the following vote to amend or terminate it: two-thirds of the outstanding units
that active employees and employee benefit trusts hold; all of the trustees; and
80% of the shares of our common stock that the Grant family shareholders hold.
We do not vote at meetings of unitholders, and our approval is not required to
amend or terminate the trust agreement. The trustees may sell or otherwise
permanently dispose of any shares of our common stock that the stock trust
holds, subject to certain procedures contained in the trust agreement. If active
employee unitholders and employee benefit trust owners of at least two-thirds of
the units then outstanding owned by such holders authorize a sale of our stock,
then the stock will be offered, successively, to any employee unitholder and
employee benefit trust owner of units who did not consent to the proposed sale
or other permanent disposition (nonconsenting eligibles) and then to the Grant
family shareholders. If any such offered stock remains unsold, first the
nonconsenting eligibles and then the Grant family shareholders have a second
opportunity to purchase. Finally, if any such offered stock still remains, then
we may purchase it.
If we liquidate or dissolve, then the stock trust, as holder of our common
stock, is entitled to a pro rata share of the assets available for distribution
on our common stock. In addition, if we liquidate or dissolve or if the stock
trust terminates as a result of a sale or other disposition of all or any part
of our common stock that the stock trust holds, then the unitholders will
receive a pro rata distribution of the assets of the stock trust (or of the
proceeds of any partial disposition), less any amounts withheld for taxes,
expenses and other charges.
22
On March 7, 2003, the holders of beneficially owned shares included the
following:
Shares Percent of
Beneficially Common Stock
Owned Outstanding
------------ ------------
Active employees....................................................... 15,046,648 52.3%
Former employees....................................................... 7,989,089 27.7
Treasury (us).......................................................... 2,884,263 10.0
Matex, Inc. (1)........................................................ 2,640,000 9.2
Abert Family Journal Stock Trust (1)................................... 240,000 0.8
(1) The Grant family shareholders.
Though we are not obligated to do so, we currently anticipate that we will
continue to pay cash dividends. Our option price and dividend history (adjusted
for stock splits) for the years ended December 31 are presented in the following
table:
Beginning Ending Total Total
Option Option Price Cash Annual
Year Quarter Price Price Inc/(Dec) Dividend Return
- ---- ------- --------- -------- --------- -------- ------
2002 4th $ 37.81 $ 38.45 $ 0.64 $ 0.30 4.0%
2002 3rd 37.47 37.81 0.34 0.30
2002 2nd 36.75 37.47 0.72 0.30
2002 1st 38.14 36.75 (1.39) 0.30
2001 4th 37.68 38.14 0.46 0.30 13.7
2001 3rd 36.56 37.68 1.12 0.35
2001 2nd 35.03 36.56 1.53 0.35
2001 1st 34.74 35.03 0.29 0.35
2000 29.94 34.74 4.80 1.35 20.5
1999 25.48 29.94 4.46 1.14 22.0
1998 21.69 25.48 3.79 1.10 22.5
1997 18.58 21.69 3.11 1.10 22.7
1996 18.12 18.58 0.46 1.10 8.6
1995 17.70 18.12 0.42 1.05 8.3
1994 17.32 17.70 0.38 0.95 7.7
1993 16.80 17.32 0.52 0.90 8.5
ITEM 6. SELECTED FINANCIAL DATA
The following table presents our selected historical financial data. The
selected financial data for the years ended December 31, 2000, 2001 and 2002 and
as of December 31, 2001 and 2002 have been derived from our audited consolidated
financial statements, including the notes thereto, appearing elsewhere in this
annual report on Form 10-K. The selected financial data for the years ended
December 31, 1998 and 1999 and as of December 31, 1998, 1999 and 2000 have been
derived from our audited consolidated financial statements, including the notes
thereto, not included in this annual report on Form 10-K. This table should be
read together with our other financial information, including "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements, including the notes thereto, appearing
elsewhere in this annual report on Form 10-K. Fox Cities Newspapers and IPC
Communication Services, S.A. have been reflected as discontinued operations in
all years presented.
23
Year ended December 31,
1998(1) 1999(2) 2000 2001 2002
---- ---- ---- ---- ----
(in thousands, except per share amounts)
Statement of Earnings Data
Operating revenue.................................... $ 731,033 $ 753,360 $ 819,232 $ 808,787 $ 801,376
Operating costs and expenses......................... 636,858 642,806 710,041 724,683 687,303
--------- --------- --------- --------- ---------
Operating earnings (3) (4)........................... 94,175 110,554 109,191 84,104 114,073
Non-operating income, net............................ 6,237 4,227 884 1,235 339
--------- --------- --------- --------- ---------
Earnings from continuing operations before income
taxes and accounting change..................... 100,412 114,781 110,075 85,339 114,412
Income taxes......................................... 41,998 44,537 44,162 35,860 49,418
--------- --------- --------- --------- ---------
Earnings from continuing operations before
accounting change............................... 58,414 70,244 65,913 49,479 64,994
Gain (loss) from discontinued operations, net of taxes 2,294 (795) 471 (1,722) (565)
Cumulative effect of accounting change, net of taxes. -- -- -- -- (6,509)
--------- --------- --------- --------- ---------
Net earnings (3)..................................... $ 60,708 $ 69,449 $ 66,384 $ 47,757 $ 57,920
========= ========= ========= ========= =========
Weighted average shares outstanding-basic and diluted 28,124 27,393 27,101 28,084 26,430
========= ========= ========= ========= =========
Basic and Diluted Earnings Per Share Amounts
Continuing operations before accounting change....... $ 2.08 $ 2.56 $ 2.43 $ 1.76 $ 2.46
Discontinued operations, net of taxes................ 0.08 (0.02) 0.02 (0.06) (0.02)
Cumulative effect of accounting change, net of taxes. -- -- -- -- (0.25)
--------- --------- --------- --------- ---------
Net earnings (3)..................................... $ 2.16 $ 2.54 $ 2.45 $ 1.70 $ 2.19
========= ========= ========= ========= =========
Cash dividends....................................... $ 1.10 $ 1.14 $ 1.35 $ 1.35 $ 1.20
========= ========= ========= ========= =========
Segment Data
Operating revenue:
Publishing...................................... $ 344,565 $ 347,137 $ 345,321 $ 320,615 $ 311,138
Broadcasting.................................... 115,113 130,857 149,886 134,801 152,749
Telecommunications.............................. 81,875 101,428 126,586 151,992 148,674
Printing services............................... 107,564 91,663 107,334 114,612 97,841
Other........................................... 81,916 82,275 90,105 86,767 90,974
--------- --------- --------- --------- ---------
Total operating revenue..................... $ 731,033 $ 753,360 $ 819,232 $ 808,787 $ 801,376
========= ========= ========= ========= =========
Operating earnings: (3) (4)
Publishing...................................... $ 48,196 $ 48,670 $ 39,265 $ 24,898 $ 30,315
Broadcasting.................................... 34,015 27,817 30,435 15,453 33,384
Telecommunications.............................. 24,092 32,474 40,114 48,007 40,956
Printing services............................... (13,450) 2,621 3,336 (756) 2,131
Other........................................... 1,322 (1,028) (3,959) (3,498) 7,287
--------- --------- --------- --------- ---------
Total operating earnings.................... $ 94,175 $ 110,554 $ 109,191 $ 84,104 $ 114,073
========= ========= ========= ========= =========
Other Financial Data
Depreciation (4)..................................... $ 33,549 $ 36,657 $ 38,710 $ 40,882 $ 44,726
Amortization (4)..................................... $ 8,618 $ 8,940 $ 11,408 $ 10,814 $ 1,909
EBITDA (4)........................................... $ 136,342 $ 156,151 $ 159,309 $ 135,800 $ 160,708
Capital expenditures................................. $ 44,821 $ 68,529 $ 96,758 $ 90,172 $ 53,169
Cash dividends....................................... $ 31,057 $ 31,286 $ 36,765 $ 37,866 $ 31,597
Cash Flow Data Net cash provided by (used for):
Operating activities............................ $ 106,181 $ 117,481 $ 133,123 $ 118,411 $ 86,060
Investing activities............................ (63,412) (199,893) (94,030) (108,144) (51,409)
Financing activities............................ (25,371) (38,798) (33,035) (11,918) (31,714)
24
As of December 31,
---------------------------------------------------------------
1998(1) 1999(2) 2000