<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 26, 1993.
Commission file number 1-10333
CENTRAL NEWSPAPERS, INC.
(Exact name of registrant as specified in its charter)
INDIANA
(State or other jurisdiction of incorporation or organization)
35-0220660
(I.R.S. Employer Identification Number)
135 North Pennsylvania Street, Suite 1200,
Indianapolis, Indiana 46204
(Address of principal executive offices and Zip Code)
Registrant's telephone number, including area code:
(317) 231-9200
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on which registered
New York Stock Exchange
Title of each class
Class A Common Stock, without par value
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 is not contained
herein, and will not be contained, to 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.
Aggregate market value of the Company's voting stock held by
non-affiliates on February 28, 1994, based on the closing
price for the Company's Class A Common Stock on the New York
Stock Exchange on such date and assuming the conversion of
all outstanding shares of Class B Common Stock into shares of
Class A Common Stock at a ratio of one-tenth (.1) of a share
of Class A Common Stock for each share of Class B Common
Stock: approximately $308,148,000. For purposes of the
foregoing calculation only, required by Form 10-K, the
Registrant has included as shares owned by affiliates shares
of Class A Common Stock and Class B Common Stock
beneficially owned by officers and directors of the Registrant and
by holders of 10% or more of either class. Such inclusion shall
not be construed as an admission that any such person is an affiliate
for any purpose.
Shares outstanding at February 28, 1994:
Class A Common Stock -- 23,458,700 shares
Class B Common Stock -- 31,578,000 shares
Documents incorporated by reference:
Portions of the Company's 1993 Annual Report to Shareholders
(incorporated in Part II to the extent provided in items 5,
6, 7 and 8 hereof) and the definitive Proxy Statement for the
Company's 1994 Annual Meeting of Shareholders (to be held
April 21, 1994) filed pursuant to Rule 14a-6 of the
Securities Exchange Act of 1934 (incorporated in Part III to the
extent provided in items 11, 12, and 13 hereof).
Exhibit Index on Page 12 Page 1 of 22 Pages
<PAGE> 2
FORM 10-K TABLE OF CONTENTS
Part I Page
Item 1 - Business 3
Item 2 - Properties 10
Item 3 - Legal Proceedings 11
Item 4 - Submission of Matters to a Vote of
Security Holders 11
Part II
Item 5 - Market for Registrant's Common
Equity and Related Stockholder
Matters 11
Item 6 - Selected Financial Data 11
Item 7 - Management's Discussion and
Analysis of Results of Operations
and Financial Condition 11
Item 8 - Financial Statements and
Supplementary Data 11
Item 9 - Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 12
Part III
Item 10 - Directors and Executive Officers
of the Registrant 12
Item 11 - Executive Compensation 12
Item 12 - Security Ownership of Certain
Beneficial Owners and
Management 12
Item 13 - Certain Relationships and Related
Transactions 12
Part IV
Item 14 - Exhibits, Financial Statement
Schedules, and Reports on
Form 8-K 12
Signatures 17
<PAGE> 3
PART I
Item 1. Business.
Central Newspapers, Inc. (the "Company") is engaged, through
its subsidiaries, in newspaper publishing primarily in the
metropolitan areas of Phoenix, Arizona and Indianapolis,
Indiana. The Company is an Indiana corporation organized in
1934. Through its wholly-owned subsidiary, Phoenix
Newspapers, Inc., the Company publishes The Arizona Republic
(mornings and Sunday), The Phoenix Gazette (evenings) and the
Arizona Business Gazette (weekly). Through its 71.2%-owned
subsidiary, Indianapolis Newspapers, Inc., the Company
publishes The Indianapolis Star (mornings and Sunday) and The
Indianapolis News (evenings). The Company also publishes
several daily newspapers serving smaller communities in
Indiana. The Company is a partner (13.5% interest) in
Ponderay Newsprint Company, a general partnership that owns
and operates a newsprint mill in the state of Washington.
The Company has published its newspapers in its two primary
markets for more than forty-four years. The Company has
managed its newspapers with the objective of long-term growth
and believes that this philosophy has contributed to the
stability of the Company's operations. The Company's ability
to establish and maintain its daily newspapers as the only
major newspapers in their respective markets has promoted its
growth and is of primary importance in attracting and
maintaining advertising, the principal source of revenue for
the Company. Each of the Company's newspapers has substantial
autonomy over editorial policy.
PHOENIX NEWSPAPERS, INC.
Phoenix Newspapers, Inc. ("PNI") was formed in 1946 by a group
of investors, including the Company, to purchase The Arizona
Republic and The Phoenix Gazette. The Company originally
owned a 30% interest in PNI and has owned 100% of the common
stock of PNI since 1977. The newspapers published by PNI are
The Arizona Republic (mornings and Sunday), The Phoenix
Gazette (evenings) and the Arizona Business Gazette (weekly).
Circulation
As of December 26, 1993, approximately 82% of the daily and
68% of the Sunday circulation of The Arizona Republic and 88%
of the daily circulation of The Phoenix Gazette were home
delivered. Single copy sales account for approximately 32% of
Sunday newspaper sales and approximately 17% of combined daily
newspaper sales.
The Arizona Business Gazette contains business news and legal
notices relating to the Phoenix metropolitan area. The
average paid circulation of the Arizona Business Gazette was
9,686; 8,379; and 9,599 for 1991, 1992 and 1993.
The circulation levels of The Arizona Republic and The Phoenix
Gazette are seasonal due to the large number of part-year
residents of the Phoenix area. Historically, circulation for
<PAGE> 4
The Arizona Republic and The Phoenix Gazette achieves its
highest levels in February and decreases during the late
spring and summer months. During 1993 the seasonal variation
in combined daily circulation and Sunday circulation was
approximately 89,000 and 95,000. The following table shows
the average paid circulation for The Arizona Republic and The
Phoenix Gazette for the last three fiscal years. The figures
for 1991 and 1992 are based upon annual reports issued by the
Audit Bureau of Circulations ("ABC"), an independent agency
which audits the circulation of daily and Sunday newspapers
and include circulation outside the Phoenix metropolitan
statistical area ("MSA"). The figures for 1993 are based upon
the records of the Company because, as of the date of this
report, the ABC annual report for 1993 has not been released.
Net circulation revenue for the last three fiscal years is
based upon the records of the Company.
52 Weeks 52 Weeks 52 Weeks
Dec. 29 Dec. 27 Dec. 26
Fiscal Years Ended 1991 1992 1993
The Arizona Republic (Sunday) 557,399 560,850 576,576
The Arizona Republic (Daily) 358,269 360,148 366,787
The Phoenix Gazette (Daily) 87,355 86,126 81,497
Net Circulation Revenue
(in thousands) $61,930 $70,621 $74,368
The home delivered price for The Arizona Republic (seven days)
in the Phoenix MSA is $3.05 per week including a $.55 per week
increase during November 1991. The home delivered price for
The Phoenix Gazette (six days) is $1.50 per week. During
January 1993 the single copy price of the morning paper
increased by $.15 to $.50. The single copy price of the
afternoon paper is $.35. The single copy price of the Sunday
paper is $1.50 including a $.25 increase in January 1991. A
weekend package comprising the Sunday paper and the Friday
and Saturday edition of either the morning or evening paper is
offered at $2.00 per week which reflects a $.50 per week
increase effective November 1991.
Advertising
The newspapers generate revenue from two primary types of
advertisements, "run of paper," which are printed in the body
of the newspaper, and "pre-printed," which are furnished by
the advertiser and inserted into the newspaper. PNI derives
the majority of its advertising revenue from run of paper
advertisements. However, like other major newspapers, The
Arizona Republic and The Phoenix Gazette have experienced an
increase in the use by advertisers of pre-printed
advertisements in recent years. Because pre-printed
advertisements are furnished by the advertisers and can be
distributed by alternate means, revenues and profits from
pre-printed advertisements are generally lower than would be
derived if an advertiser had chosen to use run of paper
advertisements. To encourage use of run of paper
advertisements, PNI structures its advertising rates to
provide more favorable rates to high volume and frequent run
of paper advertisers.
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PNI also structures its advertising format to accommodate
the numerous communities that comprise the Phoenix metropolitan
area. The Arizona Republic and The Phoenix Gazette publish
a common "Community" section that is inserted in up to twelve
zoned editions on certain days of the week. Zoned editions,
which include news stories and advertisements targeted to
specific communities or geographic areas, provide an
important means of competing with news coverage of local newspapers
and thereby promote circulation. Other part run sections are
also provided to accommodate the needs of advertisers for more
targeted distribution.
The combined run of paper advertising linage for The Arizona
Republic, The Phoenix Gazette and the Arizona Business
Gazette for the past three fiscal years and the combined advertising
revenues of the newspapers for such periods are set forth in
the following table:
52 Weeks 52 Weeks 52 Weeks
Dec. 29 Dec. 27 Dec. 26
Fiscal Years Ended 1991 1992 1993
Advertising Linage--Run of Paper
(in thousands of six-
column inches):
Full run 3,463 3,371 3,562
Part run 1,763 2,024 2,239
Weekly 410 324 278
Net Advertising Revenue
(in thousands) $203,887 $203,267 $218,092
Distribution
PNI distributes The Arizona Republic and The Phoenix Gazette
primarily by home delivery through a network of independent
contractors that deliver newspapers pursuant to agreements
with PNI. PNI has implemented a centralized billing system
which removes the responsibility for billing and collection
from the independent contractors. Newspapers are
distributed to the independent contractor network by an outside
company which has been under contract with PNI for over
thirty-nine years.
Production
The Arizona Republic and The Phoenix Gazette have separate
editorial/news staffs but share the same production
facilities and equipment. The editing and composing functions are
performed primarily at PNI's facility in downtown Phoenix.
To increase efficiency and reduce work force requirements, the
editing and composing functions have been computerized.
Electronic pagination allows entire pages of the newspaper
to be formatted at a computer terminal instead of by manual
assembly. Composed pages are electronically transmitted
from PNI's downtown facility to its two satellite production
facilities.
<PAGE> 6
PNI has two satellite production facilities, one located in
Deer Valley which is north of downtown Phoenix and one in
Mesa, Arizona. Construction of the Deer Valley facility
began in 1990 and was completed in 1992. This facility includes
four new offset presses and related production equipment as
well as circulation, advertising and editorial offices.
Production began during the first quarter of 1992 with full
operation commencing in the third quarter of 1992. The Mesa
facility began operation in 1982 and has been expanded and
upgraded since that date. It has three offset presses and
related production equipment.
Because of the growth expected in the Phoenix area, PNI owns
an additional site in western Maricopa County for a future
satellite production facility.
INDIANAPOLIS NEWSPAPERS, INC.
Indianapolis Newspapers, Inc. ("INI") was formed by the
Company in 1948. The Company owns all of the issued and
outstanding Class B Common Stock and 4.1% of the Class A
Common Stock of INI, representing 71.2% of the voting power
and equity of INI. The remaining issued and outstanding
Class A Common Stock of INI, which represents the remaining 28.8%
of the voting power and equity of INI, is held either directly
or through trusts by members of the family which previously
owned The Indianapolis News. The holders of the Class A Common
Stock are entitled to elect a minority of INI's Board of
Directors. The primary newspapers published by INI are The
Indianapolis Star (mornings and Sunday) and The Indianapolis
News (evenings).
Circulation
As of December 26, 1993, approximately 80% of the daily and
81% of the Sunday circulation of The Indianapolis Star and
83% of the daily circulation of The Indianapolis News were home
delivered. Single copy sales account for approximately 18%
of Sunday newspaper sales and 17% of combined daily newspaper
sales.
The following table shows the average paid circulation for
The Indianapolis Star and The Indianapolis News for the last
three fiscal years. The figures for 1991 and 1992 are based upon
annual reports issued by ABC, and include circulation
outside the Indianapolis MSA. The figures for 1993 are based upon
records of the Company because, as of the date of this
report, the ABC annual report for 1993 has not been released. Net
circulation revenue for the last three fiscal years is based
upon the records of the Company.
52 Weeks 52 Weeks 52 Weeks
Dec. 29 Dec. 27 Dec. 26
Fiscal Years Ended 1991 1992 1993
The Indianapolis Star (Sunday) 414,080 413,630 411,261
The Indianapolis Star (Daily) 230,179 229,842 231,123
The Indianapolis News (Daily) 100,123 96,540 93,245
Net Circulation Revenue
(in thousands) $36,050 $36,979 $38,523
<PAGE> 7
The home delivered price for The Indianapolis Star (seven
days) in the Indianapolis MSA is $3.00 per week which
includes a $.25 price increase during May 1993. The home delivered
price for The Indianapolis News (six days) is $1.50 per
week. The single copy price is $.35 for each daily paper. The
single copy price of the Sunday newspaper is $1.50 which
includes a $.25 price increase during September 1991.
Advertising
Newspapers generate revenue from two primary types of
advertisements, "run of paper," which are printed in the
body of the newspaper, and "pre-printed," which are furnished by
the advertiser and inserted into the newspaper. INI derives
the majority of its advertising revenue from run of paper
advertisements.
Like the Company's Phoenix newspapers, The Indianapolis Star
and The Indianapolis News have experienced an increase in
the use by advertisers of pre-printed advertisements in recent
years. To encourage use of run of paper advertisements, INI
structures its advertising rates to provide more favorable
rates to high volume and frequent run of paper advertisers.
The combined run of paper advertising linage for The
Indianapolis Star and The Indianapolis News for the past
three fiscal years and the combined advertising revenue of the
newspapers for such periods are set forth in the following
table:
52 Weeks 52 Weeks 52 Weeks
Dec. 29 Dec. 27 Dec. 26
Fiscal Years Ended 1991 1992 1993
Advertising Linage--Run of Paper
(in thousands of six-
column inches):
Full run 2,432 2,425 2,458
Part run 33 22 62
Net Advertising Revenue
(in thousands) $102,364 $106,056 $114,004
Distribution
INI distributes The Indianapolis Star and The Indianapolis
News primarily by home delivery through a network of
approximately 3,200 carriers. Generally, a carrier is an
independent contractor who purchases newspapers from INI and
resells them to his or her customers.
Production
The Indianapolis Star and The Indianapolis News have
separate editorial/news staffs but share the same production and
distribution facilities. All editorial, production and
distribution functions are handled from INI's facility in
downtown Indianapolis. INI's production facility is
equipped with six offset presses, after the conversion of four
<page 8>
letterpress presses and the installation of two new offset
presses during 1988 - 1992 at a cost of $57.7 million.
SMALLER NEWSPAPERS
The Company also publishes several smaller newspapers.
Through Muncie Newspapers, Inc., which is 88%-owned by INI
and 12%-owned by the Company, the Company publishes The Muncie
Star (mornings and Sunday) and The Muncie Evening Press
(evenings). These two daily newspapers serve the Muncie,
Indiana area, which has a population of approximately
119,000. As of December 26, 1993, the average paid circulation
of The Muncie Star was 29,405 daily, and 36,873 Sunday and the
average paid circulation of The Muncie Evening Press was
13,174 daily.
The Company publishes the Vincennes Sun-Commercial, a daily
newspaper which serves the city of Vincennes, Indiana, with
a population of approximately 19,800. As of December 26,
1993, the average paid circulation of the Vincennes Sun-Commercial
was 13,857 daily (five days) and 15,842 Sunday.
During January 1993, the Company formed Topics Newspapers,
Inc. as a wholly owned subsidiary to purchase the net assets
of two daily newspapers, one weekly newspaper and twelve
controlled circulation newspapers that serve the fastest
growing area of metropolitan Indianapolis. As of December
26, 1993, the average paid circulation of The Daily Ledger was
9,273 (six days) and the combined weekly circulation was
85,285.
The revenues received by the Company from these smaller
publications represented approximately 4% of the total
revenues of the Company in each of its last three fiscal
years.
RAW MATERIALS - PONDERAY NEWSPRINT COMPANY
The Company consumed approximately 148,700 metric tons of
newsprint in fiscal 1993 and estimates that consumption will
increase slightly in fiscal year 1994. The Company
currently obtains its newsprint from a number of suppliers, both
foreign and domestic, under long-term contracts, standard in the
industry, which offer dependable sources of newsprint at
current market rates.
To provide the Company with an additional source of
newsprint for a portion of its needs, the Company formed Central
Newsprint Company, Inc. and Bradley Paper Company (the
"Newsprint Subsidiaries"), both of which are wholly-owned
subsidiaries of the Company. The Newsprint Subsidiaries,
together with four other newspaper publishing companies and
a Canadian newsprint manufacturer, are partners in Ponderay
Newsprint Company ("Ponderay"), a general partnership formed
to own and operate a newsprint mill in Usk, Washington. The
mill began operations in December 1989. PNI has committed
to purchase annually the lesser of 13.5% of Ponderay's
newsprint production or 28,400 metric tons on a "take if tendered"
basis until the debt of Ponderay is repaid.
<PAGE> 9
COMPETITION
The Company faces competition for advertising revenue from
television, radio and direct mail programs, as well as
competition for advertising and circulation from suburban
neighborhood and national newspapers and other publications.
Competition for advertising is based upon circulation
levels, readership demographics, price and advertiser results.
Competition for circulation is generally based upon the
content, journalistic quality and price of the newspaper.
In Indianapolis, the Company's newspapers do not receive
significant direct competition from suburban newspapers. In
Phoenix, several suburban newspapers owned by major media
corporations operate in cities that are part of the Phoenix
metropolitan area and compete with The Arizona Republic and
The Phoenix Gazette for advertising and circulation.
EMPLOYEES - LABOR
As of January 31, 1994, the Company had approximately 5,000
employees (including 1,280 part-time employees), 42% of whom
were covered by collective bargaining agreements. The
Company has never had a significant strike or work stoppage at its
operations and considers its labor relationships with its
employees to be good.
EXECUTIVE OFFICERS OF THE REGISTRANT
As of February 28, 1994, the executive officers of the
Company and their ages are as follows:
Name Age Positions
Malcolm W. Applegate 58 Director; President and
General Manager of INI
Eugene S. Pulliam 79 Director and Executive
Vice President; President
of PNI; Publisher of The
Indianapolis Star and
The Indianapolis News
Frank E. Russell 73 Director; President and
Chief Executive Officer
Louis A. Weil III 52 Director; Executive Vice
President of PNI;
Publisher of The Arizona
Republic and The Phoenix
Gazette
Wayne D. Wallace 47 Treasurer
<PAGE> 10
Malcolm W. Applegate has been President since May 1993 and
General Manager since July 1990 of Indianapolis Newspapers,
Inc. From 1985 until assuming his current position with
Indianapolis Newspapers, Inc., Mr. Applegate was publisher
of the Lansing (Michigan) State Journal. He has been a
director of the Company since 1991.
Eugene S. Pulliam has been the Publisher of The Indianapolis
Star and The Indianapolis News since 1975 and President of
Phoenix Newspapers, Inc. since 1979. He has been a director
of the Company since 1954.
Frank E. Russell has been President of the Company since
1979. He has been a director of the Company since 1974.
Louis A. Weil, III has been Publisher of The Arizona
Republic and The Phoenix Gazette and Executive Vice President of
Phoenix Newspapers, Inc. since July 1991. Mr. Weil served
as Publisher of Time from May 1989 to July 1991, and President
and Publisher of The Detroit News from May 1987 to May 1989.
Mr. Weil serves as a member of the Board of Directors of
Global Government Plus Fund, Inc. as well as eleven investment
companies within the Prudential family of mutual funds. He
has been a director of the Company since 1991.
Wayne D. Wallace has been Treasurer of the Company since
October of 1989. Previously, he had been Assistant
Treasurer of the Company since 1983.
Each executive officer will serve as such until his
successor is chosen and qualified. No family relationships exist
among the Company's executive officers.
Item 2. Properties.
The corporate headquarters of the Company are located at 135
North Pennsylvania Street, Indianapolis, Indiana. The general
character, location and approximate size of the principal
physical properties owned by the Company at the end of fiscal
year 1993 are set forth below. In addition to those listed,
the Company owns employee recreational facilities and other
real estate aggregating approximately 130 acres.
Approximate Area
in Square Feet
Printing plants, business and editorial
offices and warehouse space
Owned Leased
Phoenix, Arizona 765,613 16,828
Mesa, Arizona 151,451 ---
Indianapolis, Indiana 464,952 168,890
Muncie, Indiana 67,658 ---
Vincennes, Indiana 14,000 ---
Noblesville, Indiana 7,500 5,412
Carmel, Indiana 13,460 ---
The Company believes that its current facilities and planned building
projects are adequate to meet the needs of its newspapers.
<PAGE> 11
Item 3. Legal Proceedings.
The Company becomes involved from time to time in various
claims and lawsuits incidental in the ordinary course of its
business, including such matters as libel and invasion of
privacy actions and is involved from time to time in various
governmental and administrative proceedings. Management
believes that the outcome of any pending claims or proceedings
will not have a significant adverse effect on the Company and
its subsidiaries, taken as a whole.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of shareholders during
the quarter ended December 26, 1993 through the solicitation of
proxies or otherwise.
PART II
Item 5. Markets for Registrant's Common Equity
and Related Stockholder Matters.
The information set forth under the caption "Shareholder
Information" on page 31 of the Company's 1993 Annual Report
to Shareholders is incorporated herein by reference.
Item 6. Selected Financial Data.
The information set forth under the caption "Selected
Ten-Year Financial Data" on page 29 of the Company's 1993 Annual
Report To Shareholders is incorporated herein by reference.
Item 7. Management's Discussion and Analysis
of Results of Operations and Financial
Condition.
The information set forth under the caption "Management's
Discussion and Analysis of Results of Operations and
Financial Condition" beginning on page 11 of the Company's 1993
Annual Report To Shareholders is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data.
The Company's Consolidated Financial Statements and Notes
thereto, together with the report thereon of Geo. S. Olive &
Co. dated February 18, 1994, appearing on pages 14 through
28 of the Company's 1993 Annual Report To Shareholders, and the
information contained under the heading "Quarterly Financial
Information (unaudited)" on page 30 of such Annual Report
are incorporated herein by reference.
<PAGE> 12
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of
the Registrant.
Incorporated herein by reference is the information set
forth under the captions "Election of Directors," on page 4 and
"Committees of the Board of Directors and Compensation of
Directors" on page 5 and "Compliance with Section 16(a) of
the Securities Exchange Act of 1934" on page 12 of the Company's
definitive Proxy Statement to be used in connection with the
1994 Annual Meeting of Shareholders. See Part I, Item 1 of
this report for information regarding the executive officers
of the Company.
Item 11. Executive Compensation.
Incorporated herein by reference is the information set
forth under the captions "Compensation of Executive Officers" on
page 6 of the Company's definitive Proxy Statement to be
used in connection with the 1994 Annual Meeting of Shareholders.
Item 12. Security Ownership of Certain Beneficial Owners
and Management.
Incorporated herein by reference is the information set
forth under the captions "Voting Securities And Principal Holders
Thereof" on page 1 and "Security Ownership of Management" on
page 3 of the Company's definitive Proxy Statement to be
used in connection with the 1994 Annual Meeting of Shareholders.
Item 13. Certain Relationships and Related Transactions.
Incorporated herein by reference is the information set
forth under the captions "Transactions With Certain Related
Persons" and "Compensation Committee Interlocks and Insider
Participation" on page 12 of the Company's definitive Proxy
Statement to be used in connection with the 1994 Annual
Meeting of Shareholders.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K.
(a) List of Documents Included In This Report.
1. Financial Statements.
The following financial statements are
incorporated into this report by reference to the
Company's 1993 Annual Report To Shareholders:
(i) Independent Auditor's Report
<PAGE> 13
(ii) Consolidated Statement of Income for each of
the three fiscal years in the period ended
December 26, 1993
(iii) Consolidated Statement of Financial Position
at December 26, 1993 and December 27, 1992
(iv) Consolidated Statement of Shareholders'
Equity for each of the three fiscal years in
the period ended December 26, 1993
(v) Consolidated Statement of Cash Flows for
each of the three fiscal years in the period
ended December 26, 1993
(vi) Notes to Consolidated Financial Statements
2. Supplementary Data and Financial Statement
Schedules.
(i) Incorporated herein by reference is the
information set forth under the caption
"Quarterly Financial Information
(Unaudited)" appearing on page 30 of the
Company's 1993 Annual Report To Shareholders
(ii) The following financial statement schedules
and report with respect thereto are filed as
a part of this Report:
Page in
this filing
Independent Auditor's Report on
Financial Statement Schedules 18
Schedule V Property, Plant and Equipment 19
Schedule VI Accumulated Depreciation and
Amortization of Property,
Plant and Equipment 20
Schedule VIII Valuation Accounts 21
Schedule X Supplementary Income Statement
Information 22
Schedules other than those referred to above have
been omitted because they are not required or
because the information is included elsewhere in
the Consolidated Financial Statements of the
Company.
<PAGE> 14
3. Exhibits Required by Securities and Exchange
Commission Regulation S-K.
(i) The following exhibits are filed as a
part of this report:
Exhibit
Number Description of Document
13 Portions of the 1993 Annual Report To
Shareholders of Central Newspapers, Inc.
incorporated by reference into the 1993
Annual Report on Form 10-K
21 Subsidiaries of the Registrant
23 Consent of Geo. S. Olive & Co.
(ii) The following exhibits are incorporated herein by
reference to documents previously filed with the
Securities and Exchange Commission as indicated.
Exhibit
Number Description of Document
3.1 Amended and Restated Articles of
Incorporation of Central Newspapers,
Inc. (Filed August 10, 1989 with Form S-
1 Registration Statement, No. 33-30436)
3.2 Amended and Restated Code of By-Laws of
Central Newspapers, Inc. (Filed with
Form 10-K for year ended December 29,
1991)
4.1 Form of Certificate for Class A Common
Stock (Filed August 10, 1989 with Form
S-1 Registration Statement, No. 33-
30436)
4.2 Indenture between Indianapolis
Newspapers, Inc. and the Indiana Trust
Company, as trustee, dated as of
December 1, 1948 (Filed August 10, 1989
with Form S-1 Registration Statement,
No. 33-30436)
10.1 Indenture creating the Eugene C. Pulliam
Trust, dated as of December 9, 1965, as
amended (Filed August 10, 1989 with Form
S-1 Registration Statement, No. 33-
30436)
10.2 Newsprint Purchase Agreement between
Ponderay Newsprint Company and Phoenix
Newspapers, Inc., dated as of November
18, 1987 (Filed August 10, 1989 with
Form S-1 Registration Statement, No.
33-30436)
<PAGE> 15
*10.3 Amended and Restated Central Newspapers,
Inc. Stock Option Plan (Filed with Form
10-K for year ended December 27, 1992)
*10.4 The Phoenix Newspapers, Inc.
Nonqualified Supplemental Retirement
Plan (Filed with Form 10-K for year
ended December 30, 1990)
10.5 Ponderay Newsprint Company Partnership
Agreement between Lake Superior Forest
Products Inc. and Central Newsprint
Company, Inc. dated as of September 12,
1985 (Filed August 10, 1989 with Form S-
1 Registration Statement, No. 33-30436)
10.6 Amendment to Ponderay Newsprint Company
Partnership Agreement between Lake
Superior Forest Products Inc., Central
Newsprint Company, Inc., Bradley Paper
Company, Copley Northwest, Inc., Puller
Paper Company, Newsprint Ventures, Inc.,
Wingate Paper Company, Tribune Newsprint
Company and Nimitz Paper Company, dated
as of June 30, 1987 (Filed August 10,
1989 with Form S-1 Registration
Statement, No. 33-30436)
10.7 Guarantee by Central Newspapers, Inc.
dated as November 18, 1987 (Filed August
10, 1989 with Form S-1 Registration
Statement, No. 33-30436)
*10.8 Termination Benefits Agreement dated as
of as of August 1, 1991 between Phoenix
Newspapers, Inc. and Louis A. Weil, III
(Filed with Form 10-K for year ended
December 27, 1992)
*10.9 Phoenix Newspapers, Inc. Management by
Objectives Program (Filed with Form 10-K
for year ended December 27, 1992)
*10.10 Form of Split-Dollar Life Insurance
Agreement for Executive Officers between
the Registrant and Malcolm W. Applegate,
Wayne D. Wallace and Louis A. Weil, III
(Filed with Form 10-K for year ended
December 27, 1992)
*10.11 Form of Split-Dollar Life Insurance
Agreement for Outside Directors between
the Registrant and Kent E. Agness,
William A. Franke and Dan Quayle (Filed
with Form 10-K for year ended December
27, 1992)
<PAGE> 16
*10.12 Form of Death Benefit Only Insurance
Plan Agreement between the Registrant
and Frank E. Russell, Eugene S. Pulliam
and James C. Quayle (Filed with Form 10-
K for year ended December 27, 1992)
* Represents a contract, plan or arrangement providing for
executive officer or director benefits.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the fourth
quarter of 1993.
<PAGE> 17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the Registrant
has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city
of Indianapolis, state of Indiana, on this 16th day of
March, 1994.
CENTRAL NEWSPAPERS, INC.
By: /s/ Frank E. Russell
--------------------------------
Frank E. Russell, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, this report has been signed by the
following persons on behalf of the Registrant and in the
capacities indicated on this 16th day of March, 1994.
Signature Title
(1) Principal Executive Officer
President, Chief
/s/ Frank E. Russell Executive Officer
--------------------------- and a Director
Frank E. Russell
(2) Principal Financial and
Accounting Officer
/s/ Wayne D. Wallace Treasurer
---------------------------
Wayne D. Wallace
(3) A majority of the Board of
Directors
/s/ Kent E. Agness Director
--------------------------
Kent E. Agness
/s/ Malcolm W. Applegate Director
--------------------------
Malcolm W. Applegate
/s/ William A. Franke Director
--------------------------
William A. Franke
/s/ Eugene S. Pulliam Director
--------------------------
Eugene S. Pulliam
/s/ Dan Quayle Director
--------------------------
Dan Quayle
/s/ James C. Quayle Director
--------------------------
James C. Quayle
/s/ Louis A. Weil, III Director
--------------------------
Louis A. Weil, III
<PAGE> 18
INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENT SCHEDULES
Board of Directors and Shareholders
Central Newspapers, Inc.
We have audited the consolidated statement of financial position of
Central Newspapers, Inc. and Subsidiaries as of December 26, 1993 and
December 27, 1992, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three fiscal
years in the period ended December 26, 1993, and have issued our
report dated February 18, 1994. Such financial statements and reports
are included in the 1993 Annual Report To Shareholders and are
incorporated herein by reference.
Our audits also included the financial statement schedules
listed under Item 14 (a)(2)(ii). These financial statement
schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
schedules based on our audits. In our opinion, such financial
statement schedules are fairly stated in all material respects
in relation to the basic financial statements taken as a
whole.
/s/ Geo. S. Olive & Co.
- -------------------------
GEO. S. OLIVE & CO.
Indianapolis, Indiana
February 18, 1994
<PAGE> 19
<TABLE>
Schedule V
CENTRAL NEWSPAPERS, INC. AND SUBSIDIARIES
Property, Plant and Equipment
<CAPTION>
Column A Column B Column C Column D Column E Column F
Balance at Additions Other Balance at
Beginning at Changes End
Classification of Period Cost Retirements Add(Deduct) of Period
<S> <C> <C> <C> <C> <C>
Year Ended December 26,
1993 (52 Weeks):
Land $ 10,485,657 $ 1,170,160 $ 11,655,817
Buildings and Improvements 96,474,037 1,884,786 $ (110,193) 98,248,630
Leasehold Improvements 4,025,944 115,556 4,141,500
Machinery and Equipment 290,846,106 12,340,936 (5,829,328) 297,357,714
Construction in Progress 390,894 483,844 874,738
$402,222,638 $ 15,995,282 $ (5,939,521) $412,278,399
Year Ended December 27,
1992 (52 Weeks):
Land $ 10,216,086 $ 269,571 $ 10,485,657
Buildings and Improvements 78,759,574 17,730,392 $ (15,929) 96,474,037
Leasehold Improvements 3,908,220 117,724 4,025,944
Machinery and Equipment 198,630,101 112,761,291 (20,545,286) 290,846,106
Construction in Progress 106,258,065 (105,867,171) 390,894
$397,772,046 $ 25,011,807 $(20,561,215) $402,222,638
Year Ended December 29,
1991 (52 Weeks):
Land $ 10,209,565 $ 6,521 $ 10,216,086
Buildings and Improvements 65,785,539 12,989,833 $ (15,798) 78,759,574
Leasehold Improvements 3,848,963 59,257 3,908,220
Machinery and Equipment 199,448,820 6,309,454 (7,128,173) 198,630,101
Construction in Progress 42,496,506 63,761,559 106,258,065
$321,789,393 $ 83,126,624 $ (7,143,971) $397,772,046
</TABLE>
<PAGE> 20
<TABLE>
Schedule VI
CENTRAL NEWSPAPERS, INC. AND SUBSIDIARIES
Accumulated Depreciation and
Amortization of Property, Plant and Equipment
<CAPTION>
Column A Column B Column C Column D Column E Column F
Balance at Additions Other Balance at
Beginning Charged to Changes End
Classification of Period Expense(1) Retirements Add(Deduct) of Period
Year Ended December 26,
1993 (52 Weeks):
<S> <C> <C> <C> <C>
Buildings $ 37,144,134 $ 978,294 $ (97,272) $ 38,025,156
Leasehold Improvements 3,153,312 156,944 3,310,256
Machinery and Equipment 104,587,167 24,674,365 (5,655,178) 123,606,354
$144,884,613 $25,809,603 $ (5,752,450) $164,941,766
Year Ended December 27,
1992 (52 Weeks):
Buildings $ 33,500,734 $ 3,658,828 $ (15,428) $ 37,144,134
Leasehold Improvements 2,981,411 171,901 3,153,312
Machinery and Equipment 105,817,523 17,821,255 (19,051,611) 104,587,167
$142,299,668 $21,651,984 $(19,067,039) $144,884,613
Year Ended December 29,
1991 (52 Weeks):
Buildings $ 30,385,356 $ 3,131,162 $ (15,784) $ 33,500,734
Leasehold Improvements 2,789,096 192,315 2,981,411
Machinery and Equipment 97,899,449 14,010,377 (6,092,303) 105,817,523
$131,073,901 $17,333,854 $ (6,108,087) $142,299,668
<FN>
(1) Depreciation of property, plant and equipment is provided at annual
rates based upon estimated useful lives of the assets. Rates are applied by
the straight-line method using ranges of estimated service lives as follows:
25 years for buildings; 10 years for building and leasehold improvements and
3 to 15 years for equipment.
</TABLE>
<PAGE> 21
<TABLE>
Schedule VIII
CENTRAL NEWSPAPERS, INC. AND SUBSIDIARIES
Valuation Accounts
<CAPTION>
Column A Column B Column C Column D Column E
Additions Additions
Balance at Charged to Charged to Balance at
Beginning Costs and Other End
Description of Period Expense Accounts Deductions of Period
Year Ended December 26,
1993 (52 Weeks):
<S> <C> <C> <C> <C>
Provision for doubtful
accounts and advertising
refunds $ 779,346 $3,334,553 $(2,971,942) $1,141,957
Year Ended December 27,
1992 (52 Weeks):
Provision for doubtful
accounts and advertising
refunds $ 813,689 $3,590,648 $(3,624,991) $ 779,346
Year Ended December 29,
1991 (52 Weeks):
Provision for doubtful
accounts and advertising
refunds $ 964,401 $3,167,926 $(3,318,638) $ 813,689
</TABLE>
<PAGE> 22
Schedule X
CENTRAL NEWSPAPERS,INC. AND SUBSIDIARIES
Supplementary Income Statement Information
Column A Column B
Amounts Charged to
Costs and Expenses
Fiscal Years Ended
52 Weeks 52 Weeks 52 Weeks
December 29 December 27 December 26
Description 1991 1992 1993
Maintenance $ 3,834,721 $ 4,689,386 $ 5,128,116
Advertising Costs $ 4,725,153 $ 6,166,394 $ 5,913,739
Sales Taxes $ 3,669,552 $ 4,363,303 $ 5,193,813
Property Taxes $ 3,233,614 $ 5,889,001 $ 6,682,564
EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
Central Newspapers, Inc. (the "Company") is primarily engaged
in the publishing and distribution of newspapers. Revenue is
derived from advertising and newspaper sales, principally in
the Phoenix, Arizona and Indianapolis, Indiana metropolitan
areas. The Company has a 13.5% interest in Ponderay
Newsprint Company ("Affiliate"), a partnership formed to own and
operate a newsprint mill in Washington. The following analysis
should be read in conjunction with the consolidated financial
statements and the accompanying notes to the consolidated
financial statements.
The current year operating results include the adoption of
Statement of Financial Accounting Standards (SFAS) No. 112,
"Employers' Accounting for Postemployment Benefits." During
1992 the Company adopted SFAS No. 109, "Accounting for
Income Taxes." The adoption of SFAS No. 112 and SFAS No. 109 did
not have a significant effect on operating results. The
Company also adopted SFAS No. 106, "Employers' Accounting
for Postretirement Benefits," during 1992 which resulted in a
cumulative effect adjustment of $34.2 million and increased
1992 postretirement benefit expense by $5.0 million to $8.3
million. The Company changed the eligibility requirements
to participate in its various postretirement benefit plans
during 1993.
The Company formed Topics Newspapers, Inc. (a wholly owned
subsidiary) in 1993 to acquire the net assets of two daily
newspapers, one weekly newspaper and twelve controlled
circulation weekly newspapers that serve the fastest growing
area of metropolitan Indianapolis. The operating results of
Topics Newspapers, Inc. are included in the financial
statements as of January 1, 1993.
The Phoenix production facility, on which construction began
in 1990, was completed and placed in service during 1992.
This resulted in significantly increased costs during 1992
as the existing downtown production facility was operated while
production was phased in at the new facility. After
production was transferred to the new facility all newspaper
printing ceased at the downtown location. The 1993
year reflects twelve months of operations for the new production
facility.
Indianapolis began a new advertiser marketing program called
Indianapolis Market Penetration And Custom Targeting
(IMPACT) during August 1993. This program utilizes total market
coverage, zoned run of press advertising and preprint
programs which provide advertisers flexibility in their needs for
high penetration and the ability to reach their target markets.
The utilization of this program significantly increased the
volume of part run advertising.
1993 Compared to 1992
Operating revenue increased $33.0 million, or 7.6%, to
$466.6 million in 1993. The gain resulted from a $26.7 million, or
8.4%, increase in advertising revenue and a $5.9 million, or
5.2%, increase in circulation revenue. Phoenix and
Indianapolis combined full run advertising linage was up
3.9% from 1992.
Advertising revenue at Phoenix newspapers was up 7.3%. The
revenue increase reflects a gain of 5.7% in full run linage,
an increase of 11.2% in part run linage and an increase in
advertising rates at the beginning of 1993. At Indianapolis
advertising revenue was up 7.5% from the prior year. The
revenue increase reflects a gain of 1.3% in full run linage,
a gain of 180.7% in part run linage and advertising rate
increases effective January 1, 1993.
Circulation revenue increased 5.3% at Phoenix reflecting
price increases and a gain of 2.3% in the average Sunday
circulation and a flat combined daily circulation. The single copy
price of the morning newspaper was raised by $.15, or 42.9% to
$.50, in January 1993.
Circulation revenue increased 4.2% at Indianapolis
reflecting a Sunday price increase, a loss of .5% in combined daily
circulation and a loss of .5% in Sunday circulation. The
Sunday delivered price of $1.50 reflects a $.25, or 20%,
increase in May 1993.
During the past three years circulation rates have been
increased from time to time. Generally a rate increase will
cause a temporary decline in circulation, however, the
evening newspapers are experiencing an ongoing decline in their
average annual circulation.
Operating expenses increased $19.0 million, or 5.0%, to
$400.9 million. Compensation and fringe benefit costs increased
3.0% compared to last year. Newsprint expense was up $5.1
million, or 8.4%, as newsprint prices were up slightly and
consumption increased 7.8%. Other operating, distribution and
general expenses increased $6.0 million, or 5.9%, from the prior
year. Contributing to this increase were the additional costs
related to the new production facility in Phoenix which was
operational for the full year during 1993. Other cost
increases resulted from higher sales taxes on increased
circulation revenue and the costs associated with the IMPACT
program in Indianapolis. Depreciation expense increased
$4.2 million, or 19.2%, primarily from the production facility in
Phoenix. Work force reduction costs of $1.5 million for 1993
and $3.6 million for 1992 are associated with the voluntary
early retirement programs in Indianapolis and Phoenix. These
programs were undertaken due to economic conditions and
changes in technology.
Operating income increased $14.0 million, or 27.0%, to $65.6
million for the year. Other income increased $327,000, or
9.9%, which reflects larger amounts available for investment
compared to the prior year. Other expense of $1.2 million
decreased $979,000, or 44.8%, reflecting primarily the 1992
write off of printing presses and certain production
equipment no longer used in Phoenix.
Income before income taxes increased $15.3 million, or
28.9%, to $68.0 million. The effective income tax rate for 1993
was 41.1% compared to 40.7% for 1992.
The Company's equity in Affiliate, net of tax benefits,
resulted in a loss of $4.3 million for 1993 compared to a
loss of $4.8 million during 1992.
Income before cumulative effect of accounting change
increased $8.8 million, or 37.6%, from the prior year to $32.1
million. During 1992 the Company recorded a cumulative effect of
accounting change net of tax benefits and minority interest
of $34.2 million in conjunction with the adoption of SFAS No.
106. The Company elected to immediately recognize the
accumulated benefit obligation related to prior service
costs. Net income for 1993 was $32.1 million compared to a loss of
$10.9 million last year.
1992 Compared to 1991
Operating revenue increased $13.2 million, or 3.2%, to $433.6
million in 1992. The gain resulted from a $2.9 million, or
.9%, increase in advertising revenue and a $9.7 million, or
9.5%, increase in circulation revenue. Phoenix and
Indianapolis combined full run advertising linage was down
1.7% from 1991.
Advertising revenue at Phoenix newspapers was down .3%. The
2.7% decrease in full run linage was offset by advertising
rate increases. At Indianapolis, advertising revenue was up
3.6% reflecting a decrease of .3% in full run linage that
was offset by rate increases.
Circulation revenue increased 14.0% at Phoenix reflecting
price increases and a gain of .6% in the average Sunday
circulation and a gain of .3% in average combined daily
circulation. The Sunday single copy price increased by
$.25, or 20% to $1.50 in January 1991. The weekly delivered price
of the morning newspaper was raised by $.30, or 20%, to
$1.80 per week in November 1991. The Sunday delivered price of
$1.25 reflects a $.25, or a 25%, increase in November 1991.
The weekend subscription package was raised by $.50 or
33.3%, to $2.00 in November 1991. All price increases instituted
in the latter part of 1991 were fully realized during 1992.
Circulation revenue increased 2.6% at Indianapolis due to
price increases which more than offset declines of .1% in
the average Sunday circulation and 1.3% in average combined
daily circulation. The Sunday delivered price of $1.25 reflects a
$.25, or 25%, increase in March 1991. The Sunday single
copy price was increased by $.25, or 20%, to $1.50 in September
1991. Both of these price increases were fully realized
during 1992.
Operating expenses increased $9.3 million, or 2.5%, to
$381.9 million. Compensation and fringe benefit costs increased
4.4% compared to last year. Fringe benefit costs for 1992
include $5.0 million of incremental costs for postretirement
benefits resulting from the adoption of SFAS No. 106 at the beginning
of 1992. Without this incremental expense, compensation and
the fringe benefit costs were up 1.6%. Newsprint expense
was down $14.0 million, or 18.8%, due to lower average newsprint
cost for 1992, which more than offset a 1.5% increase in
consumption. Other operating, distribution and general
expenses increased $10.7 million, or 11.5%, from the prior
year. Contributing to this increase were the additional
costs related to the new production facility in Phoenix that was
placed in service during 1992. In addition to the expenses
associated with the transfer of production, these costs
included higher expenses for utilities and property taxes.
Other cost increases resulted from higher sales taxes on
increased circulation revenue and higher product promotional
expenses which had been reduced from normal expenditure
levels during 1991. Depreciation expense increased $4.3 million,
or 24.9%, primarily from the new production facility in
Phoenix. Work force reduction costs of $3.6 million are associated
with the voluntary early retirement programs in Indianapolis and
Phoenix. The prior year included work force reduction costs
of $3.3 million. These programs were undertaken due to
economic conditions and changes in technology.
Operating income increased $3.9 million, or 8.2%, to $51.7
million for the year. Other income decreased $1.5 million,
or 31.4%, which reflects lower interest income due to the
decrease in yields on investments and lower amounts
available for investment as construction payments were being made
during the year on the new production facility in Phoenix. Other
expense of $2.2 million increased $1.1 million, or 104.5%,
reflecting primarily the write off of printing presses and
certain production equipment no longer used in Phoenix.
Income before income taxes increased $1.3 million, or 2.5%, to
$52.8 million. The effective income tax rate for 1992 was
40.7% compared to 40.4% for 1991.
The Company's equity in Affiliate, net of tax benefits,
resulted in a loss of $4.8 million for 1992 compared to a
loss of $3.1 million during 1991.
Income before cumulative effect of accounting change
decreased $2.5 million, or 9.8%, from the prior year to $23.4 million.
The cumulative effect of accounting change net of tax
benefits and minority interest of $34.2 million was recorded in
conjunction with the adoption of SFAS No. 106 during 1992.
The Company elected to immediately recognize the accumulated
benefit obligation related to prior service costs.
Investment In Affiliate
The Company owns a 13.5% interest in Ponderay Newsprint
Company ("Ponderay"), a general partnership formed to own
and operate a newsprint mill. The Company's investment in
Ponderay is accounted for using the equity method, which
reflects the Company's share of Ponderay's net loss, tax
credits and related income tax expense or benefits. While
Ponderay's operating results will be affected by movements in
newsprint prices, it is currently anticipated that Ponderay
will experience operating losses for the next several years
and that such losses will adversely affect the Company's net
income. The Company expects to make additional cash
investments to help finance the operating losses of
Ponderay. See Note 9 of Notes to Consolidated Financial Statements.
Capital Resources and Liquidity
Cash provided by operations is the Company's primary source of
liquidity. In the past three years net cash provided from
operations in conjunction with cash investments has been
sufficient to fund all capital expenditures including the
replacement and modernization of presses in Indianapolis and
the construction of a satellite production facility in
Phoenix. Operating activities generated $73.7 million of
cash during 1993, up 9.0% from $67.6 million in 1992. The
Company had working capital of $128.0 million at December 26,
1993 and $90.5 million at December 27, 1992.
Total capital expenditures in 1993 were $16.0 million, down
from $26.2 million for 1992. During 1992 the conversion from
letterpress to offset printing in Indianapolis and the
construction of a production facility in Phoenix were
completed and placed in service. It is estimated capital
expenditures for 1994 will be $37.0 million and includes the
anticipated expenditures on the Phoenix office building and
Indianapolis production facility discussed in Note 14 of
Notes to Consolidated Financial Statements.
The Company invested $3.8 million in Ponderay Newsprint
Company during 1993 and during 1992. See Note 9 of Notes to
Consolidated Financial Statements for guarantees of certain
debt related to Ponderay. Cash dividend payments of $13.9
million and $12.9 million were made in 1993 and 1992.
The Company anticipates that cash flow generated from
operations and cash reserves in conjunction with credit
resources are adequate to meet its requirements for capital
expenditures, working capital and dividend payments.
Inflation
The impact of inflation on the Company's operations has
become less significant with lower inflation rates in recent years.
Generally the Company has been able to offset the
inflationary effects on operating expenses by increasing advertising and
circulation rates. Over the last three years newsprint
prices have declined due to an oversupply in the newsprint
industry. The Company is unable to predict how long the newsprint
supply imbalance will continue.
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Shareholders
Central Newspapers, Inc.
We have audited the accompanying consolidated statement of financial
position of Central Newspapers, Inc. and Subsidiaries as of December 26,
1993 and December 27, 1992, and the related consolidated statements of
income, shareholders' equity and cash flows for each of the three fiscal
years in the period ended December 26, 1993. These consolidated
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Central Newspapers, Inc. and Subsidiaries as of December 26,
1993 and December 27, 1992, and the consolidated results of their
operations and their cash flows for each of the three fiscal years in
the period ended December 26, 1993, in conformity with generally
accepted accounting principles.
As discussed in Note 3, the Company adopted, effective at the beginning
of 1992, SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions."
/s/ Geo. S. Olive & Co.
- --------------------------
Geo. S. Olive & Co.
Indianapolis, Indiana
February 18, 1994
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share data)
FOR THE YEAR ENDED Dec. 26 Dec. 27 Dec. 29
1993 1992 1991
Operating revenues:
Advertising $346,566 $319,872 $316,950
Circulation 118,032 112,180 102,459
Other 1,969 1,548 942
466,567 433,600 420,351
Operating expenses:
Operating costs 200,200 187,611 197,584
Distribution and general 173,444 169,105 154,410
Depreciation 25,810 21,649 17,334
Work force reduction cost 1,491 3,572 3,281
400,945 381,937 372,609
Operating income 65,622 51,663 47,742
Other income--net 2,417 1,111 3,735
Income before income taxes 68,039 52,774 51,477
Provision for income taxes 27,948 21,491 20,792
Income before minority interest
and equity in Affiliate 40,091 31,283 30,685
Minority interest in subsidiary (3,683) (3,105) (1,729)
Equity in Affiliate,
net of tax benefits (4,280) (4,820) (3,053)
Income before cumulative effect
of accounting change 32,128 23,358 25,903
Cumulative effect of accounting
change, net of tax benefits (34,212)
Net income (loss) $ 32,128 $(10,854) $25,903
Net income per common share:
Income before cumulative
effect of accounting change $1.21 $ .88 $.98
Cumulative effect of accounting
change, net of tax benefits (1.29)
Net income (loss) $1.21 $ (.41) $.98
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(In thousands, except share data)
Dec. 26 Dec. 27
ASSETS 1993 1992
Current assets:
Cash and cash equivalents $ 22,143 $ 17,221
U. S. Government obligations
(approximates market) 100,612 71,367
Accrued investment income 1,423 902
Accounts receivable (net of
allowances of $1,142 and $779) 46,348 41,746
Inventories 10,116 9,990
Deferred income tax benefits 6,651 6,327
Other current assets 3,204 4,271
Total current assets 190,497 151,824
Property, plant and equipment:
Land 11,656 10,486
Buildings and improvements 98,248 96,474
Leasehold improvements 4,141 4,026
Machinery and equipment 297,358 290,846
Construction in progress 875 391
412,278 402,223
Less accumulated depreciation 164,942 144,885
247,336 257,338
Other assets:
Land held for development 4,139 4,156
Goodwill and other intangibles 9,807 7,048
Investment in Affiliate 3,855 5,315
Other 9,054 7,191
26,855 23,710
TOTAL ASSETS $464,688 $432,872
See accompanying notes to consolidated financial statements.
Dec. 26 Dec. 27
1993 1992
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 12,675 $ 12,573
Accrued compensation 15,166 15,476
Dividends payable 4,547 4,316
Accrued expenses and
other liabilities 15,434 14,350
Federal and state income taxes 2,406 3,283
Deferred revenue 12,270 11,338
Total current liabilities 62,498 61,336
Deferred income taxes 17,214 9,849
Long-term debt 2,678 2,678
Postretirement benefit obligation 72,937 70,741
Minority interest in subsidiary 18,668 18,271
Shareholders' equity:
Preferred stock--issuable
in series:
Authorized--25,000,000 shares
Issued--none
Class A common stock--without
par value:
Authorized--75,000,000 shares
Issued--23,431,450 and
23,314,450 shares 17,137 16,340
Class B common stock--without
par value:
Authorized--50,000,000 shares
Issued--31,578,000 and
32,353,000 shares 63 65
Retained earnings 273,493 253,592
290,693 269,997
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $464,688 $432,872
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(In thousands, except share data)
Class A
Common Stock
Shares Amount
Balance at December 31, 1990 23,246,450 $15,276
Net income
Dividends declared:
Class A common stock
Class B common stock
Exercise of stock options 3,000 54
Balance at December 29, 1991 23,249,450 15,330
Net loss
Dividends declared:
Class A common stock
Class B common stock
Exercise of stock options 52,500 1,010
Common stock conversion 12,500
Balance at December 27, 1992 23,314,450 16,340
Net income
Dividends declared:
Class A common stock
Class B common stock
Exercise of stock options 39,500 795
Common stock conversion 77,500 2
Balance at December 26, 1993 23,431,450 $17,137
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
Class B Total
Common Stock Retained Shareholders'
Shares Amount Earnings Equity
<S> <C> <C> <C> <C>
Balance at December 31, 1990 32,478,000 $65 $260,282 $275,623
Net income 25,903 25,903
Dividends declared:
Class A common stock (9,299) (9,299)
Class B common stock (1,299) (1,299)
Exercise of stock options 54
Balance at December 29, 1991 32,478,000 65 275,587 290,982
Net loss (10,854) (10,854)
Dividends declared:
Class A common stock (9,782) (9,782)
Class B common stock (1,359) (1,359)
Exercise of stock options 1,010
Common stock conversion (125,000)
Balance at December 27, 1992 32,353,000 65 253,592 269,997
Net income 32,128 32,128
Dividends declared:
Class A common stock (10,757) (10,757)
Class B common stock (1,470) (1,470)
Exercise of stock options 795
Common stock conversion (775,000) (2)
Balance at December 26, 1993 31,578,000 $63 $273,493 $290,693
</TABLE>
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
<CAPTION>
FOR THE YEAR ENDED Dec. 26 Dec. 27 Dec. 29
1993 1992 1991
<S> <C> <C> <C>
Operating activities:
Net income (loss) $ 32,128 $(10,854) $ 25,903
Items which did not use (provide) cash:
Cumulative effect of accounting change 34,212
Depreciation and amortization 26,305 21,666 17,351
Postretirement and pension benefits 2,741 4,471 (245)
(Gain) loss on disposition of assets (56) 1,420 516
Gain on sale of marketable securities (37) (174)
Minority interest in earnings of subsidiary 3,683 3,105 1,729
Equity in Affiliate 4,280 4,820 3,053
Deferred income taxes 4,979 1,346 1,063
Change in assets and liabilities:
Accounts receivable (4,602) (3,349) 543
Inventories (126) 2,306 (390)
Other current assets 539 (845) 42
Accounts payable (712) (1,069) (2,003)
Accrued compensation (310) 1,005 (77)
Accrued expenses and other liabilities 398 4,269 1,234
Federal and state income taxes 3,591 4,361 5,411
Deferred revenue 931 944 1,657
Net cash provided by operating activities 73,732 67,634 55,787
Investing activities:
Purchase of property, plant and equipment (16,049) (26,175) (82,067)
Proceeds from disposition of assets 258 706 207
Purchase of land held for development (8) (8) (679)
Purchase of U. S. Government obligations (161,331) (128,739) (137,593)
Proceeds from U. S. Government obligations 132,087 106,203 166,497
Sale of marketable securities 39 199
Investment in Affiliate (3,834) (3,780) (3,881)
Purchase of intangibles, minority interest
and other (6,709) (325) (45)
Net cash used by investing activities (55,547) (51,919) (57,561)
Financing activities:
Cash dividends paid (11,956) (10,870) (10,598)
Dividends paid to minority interest (1,991) (1,993) (2,020)
Proceeds from exercise of stock options 684 907 54
Net cash used by financing activities (13,263) (11,956) (12,564)
Increase (decrease) in cash and cash equivalents 4,922 3,759 (14,338)
Cash and cash equivalents, beginning of year 17,221 13,462 27,800
Cash and cash equivalents, end of year $ 22,143 $17,221 $ 13,462
Supplemental cash flow information:
Income taxes paid during the year $ 19,377 $17,926 $ 19,558
Interest paid during the year 221 295 208
See accompanying notes to consolidated financial statements.
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1--SIGNIFICANT ACCOUNTING POLICIES
Central Newspapers, Inc. and its subsidiaries (the
"Company") are engaged primarily in the publication of
newspapers in Phoenix, Arizona and Indianapolis, Indiana
as well as smaller communities in Indiana.
Principles of Consolidation - The consolidated financial
statements include the accounts of the Company after the
elimination of all significant intercompany transactions.
Fiscal Year - The Company's fiscal year ends on the last
Sunday of the calendar year. The fiscal years 1993, 1992
and 1991 each comprised 52 weeks.
Revenue Recognition - Advertising revenue is recognized when
the advertisement appears in the newspaper. Deferred
subscription revenue, which primarily represents amounts
received from customers in advance of newspaper delivery, is
included in revenue over the subscription term.
Cash Equivalents - The Company considers highly liquid
investments with a maturity of three months or less when
purchased to be cash equivalents.
Concentrations of Credit Risk - Financial instruments which
potentially subject the Company to concentrations of credit
risk consist primarily of cash equivalents, trade accounts
receivable and investments in U.S. Government obligations.
The Company places its temporary cash with financial
institutions and limits the amount of credit exposure to any
one financial institution. The accounts receivable are with
customers located primarily in the immediate geographical
area of each city of publication. The Company reviews a
customer's credit history before extending credit and establishes
an allowance for doubtful accounts based on factors surrounding
the credit risk of specific customers, historic trends and
other information.
Inventories - Newsprint is valued at the lower of cost or
market on the last-in, first-out (LIFO) method. Other
inventories are valued at the lower of cost or market using
the first-in, first-out (FIFO) and moving average methods.
Property, Plant and Equipment - Property, plant and equipment
are carried at cost. Depreciation is computed using
primarily the straight-line method based on the estimated useful
lives of the assets.
Goodwill and Other Intangibles - Goodwill acquired before 1970
is not being amortized. Goodwill and other intangibles
acquired after 1970 are being amortized on a straight-line
basis over periods from 15 to 40 years. Amortization
amounted to $495,000 for 1993, $17,000 for 1992 and $17,000 for 1991.
Accumulated amortization was $804,000 and $309,000 at the end
of 1993 and 1992.
Investment in Affiliate - The Company uses the equity method
of accounting for its 13.5% partnership interest in Ponderay
Newsprint Company.
Income Taxes - In 1992 the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting
for Income Taxes" which provides for the determination of
deferred tax liabilities and assets at the end of each period based
on the difference between financial statement and tax basis of
assets and liabilities using presently enacted tax rates. The
Company files a consolidated federal income tax return with its
wholly owned subsidiaries. Indianapolis Newspapers, Inc., a
majority owned subsidiary, files separate consolidated income
tax returns with its majority owned subsidiary.
Net Income Per Common Share - The net income per common
share is computed based on the weighted average number of common
shares outstanding in each year. The Class B common stock
is included in the computation as if converted to Class A
common stock at a ratio of ten shares of Class B common stock to
one share of Class A common stock. The weighted average common
shares outstanding were 26,570,973; 26,514,750; and 26,495,961
for 1993, 1992 and 1991. Outstanding stock options are
common stock equivalents but are excluded from net income per
common share computations as their effect is not significant.
Accounting Changes - During 1993 the Company adopted Statement
of Financial Accounting Standards (SFAS) No. 112, "Employers'
Accounting for Postemployment Benefits". During 1992 the
Company adopted SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions", and SFAS No.
109, "Accounting for Income Taxes".
2--EMPLOYEE BENEFIT PLANS
The Company has defined-benefit plans to provide pension
benefits to all employees who have met the eligibility
requirements. Benefits are based primarily on length of
service, age and the amount of optional employee
contributions. The Company's policy is to fund at least the
minimum amount required by ERISA. Assets of the plans consist
primarily of stocks, bonds and short-term investments.
During 1991 the Company changed its method for calculating
deferred (gain) loss on return on plan assets of its
defined-benefit plans from fair value to a market-related asset
value to reduce the volatile effects of temporary market movements
on pension expense. For 1991 net income increased by $442,000
due to this change.
The funded status for the Company's defined-benefit plans at year end:
(In thousands) 1993 1992
Actuarial present value of plan benefits:
Vested $156,061 $135,604
Nonvested 3,773 3,319
Accumulated benefit obligation 159,834 138,923
Effect of future salary increases 17,501 15,967
Projected benefit obligation 177,335 154,890
Plan assets at fair value 180,805 172,491
Plan assets in excess of projected
benefit obligation 3,470 17,601
Unrecognized SFAS No. 87
transition asset (10,118) (11,404)
Unrecognized prior service cost 3,665 4,067
Unrecognized net (gain) loss 7,668 (5,645)
Prepaid pension cost $ 4,685 $ 4,619
Assumptions used in determining funded status at the end of
1993 were an 8.5% rate of return, 7.25% discount rate and 4%
rate of compensation increase. The assumptions for
determining funded status at the end of 1992 were the same as
used for 1992 pension income.
Pension income, excluding the special retirement benefits
discussed in Note 5, included the following components:
(In thousands) 1993 1992 1991
Service cost--benefits earned
during the year $ 3,231 $ 3,185 $ 3,193
Interest cost on projected
benefit obligation 12,492 11,944 11,279
Return on assets:
Actual (17,927) (15,070) (23,456)
Deferred gain 3,028 780 9,640
Amortization of:
Transition asset (1,286) (1,287) (1,286)
Prior service cost 403 403 403
Gain (7) (8) (18)
Pension income $ (66) $ (53) $ (245)
Significant assumptions used in determining pension income:
1993 1992 1991
Expected long-term rate of return 9.0% 9.0% 9.0%
Discount rate 8.25 8.25 8.75
Rate of increase in future
compensation levels 5.0 5.0 5.0
Effective January 1, 1994 the pension plans were amended to
eliminate the voluntary employee contributions, provide
future benefits based on the participants' years of service and
average compensation at retirement, enhance pension benefits
of participants who begin receiving benefits before age 65 and
increase benefits to all eligible retirees. The amendments
are subject to approval by the Internal Revenue Service and
will be accounted for as of January 1, 1994.
The Company has a wage-deferral plan qualified under Section
401(k) of the Internal Revenue Code that covers all eligible
employees. Company contributions to this plan were
$1,743,000, $1,704,000 and $1,655,000 for 1993, 1992 and 1991.
The plan was amended effective January 1, 1994 to increase the
allowable amount of participants' contributions and to change
the basis of company contributions.
3--POSTRETIREMENT BENEFIT OBLIGATION
The Company sponsors postretirement medical and life insurance
plans which are available to most of its employees. In order
to be eligible for these plans, employees must retire from the
Company and have been covered under an active plan. The level
of benefits provided depends on the year of retirement and
years of service. The plans are contributory with periodic
adjustments in the amount of contributions by retirees. The
Company's policy is to fund these benefits as claims and
premiums are paid.
During 1992 the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions". Under SFAS
No. 106, the costs of providing retiree health care and life
insurance benefits are actuarially determined and accrued over
the employee's service life.
The Company elected to immediately recognize in 1992 the
accumulated benefit obligation related to prior service costs.
The postretirement obligation of $34,212,000 (net of income
tax benefits of $22,243,000 and minority interest) is shown on
the Consolidated Statement of Income as the cumulative effect
of accounting change. The plans were amended January 1, 1993
to change the service requirements to become eligible for plan
benefits. The amendments resulted in an unrecognized
reduction in prior service cost, which is being amortized over
future years. The adoption of SFAS No. 106 increased
operating expense by $2,566,000 and $4,972,000 for 1993 and 1992.
The status of the postretirement benefit obligation at year end:
(In thousands) 1993 1992
Accumulated postretirement
benefit obligation:
Retirees $38,120 $35,062
Fully eligible active
plan participants 15,812 14,701
Other active plan participants 18,596 24,579
Total accumulated postretirement
benefit obligation 72,528 74,342
Unrecognized prior service costs 8,625
Unrecognized net gain (4,246)
Accrued postretirement
benefit obligation $76,907 $74,342
The net postretirement benefit
cost included the following
components:
Service cost--benefits earned
during the year $ 2,451 $ 2,254
Interest costs on accumulated
benefit obligation 5,851 6,070
Amortization of unrecognized
prior service cost (1,898)
Postretirement benefit expense $ 6,404 $ 8,324
The accumulated postretirement benefit obligation was
determined using a discount rate of 7.75% and a health care
cost trend rate of 13% in 1993 decreasing to 6% in the year
2000 and thereafter. The discount rate used for 1992 was
8.75%. The effect on the accumulated postretirement benefit
obligation at the beginning of 1993, of a 1% increase each
year in the health care cost trend rate used, would result in
an increase of approximately $6,018,000 in the obligation and
$950,000 in the aggregate service and interest components of
the 1993 expense. In 1991 the costs of these benefits were
expensed as claims were paid and amounted to $3,576,000.
4--POSTEMPLOYMENT BENEFITS
The Company has certain postemployment benefit plans covering
most of its employees. The benefit plans provide severance,
disability, supplemental health care, life insurance and
other welfare benefits. The Company adopted SFAS No. 112,
"Employers' Accounting for Postemployment Benefits" in 1993.
SFAS No. 112 prescribes accounting methods for employers who
provide certain benefits to former or inactive employees after
employment but before retirement. Adoption of this accounting
standard did not have a significant effect on the results of
operations and did not require a cumulative effect adjustment.
5--WORK FORCE REDUCTION
The Company has reduced its work force in response to economic
conditions, increasing costs and changes in technology. The
reductions were effected through voluntary early retirement
incentive programs and involuntary job elimination plans.
Employees were offered early retirement benefits through a
nonqualified supplemental retirement plan and those terminated
due to job eliminations received severance payments. Work
force reduction costs included retirement benefits, severance
payments and professional support.
6--OTHER INCOME-NET
(In thousands) 1993 1992 1991
Income items:
Interest $3,083 $2,722 $4,500
Dividends 57 57 53
Gain on sale of
marketable securities 37 174
Other 445 342 250
3,622 3,295 4,803
Expense items:
Interest 221 295 208
Loss on disposition
of assets 102 1,420 516
Other 882 469 344
1,205 2,184 1,068
Other income - net $2,417 $1,111 $3,735
7--INCOME TAXES
During 1992 the Company adopted SFAS No. 109, "Accounting for
Income Taxes". Adoption of this statement did not have a
significant effect on the results of operations for 1992 and
did not require a cumulative effect adjustment. The 1991
amounts reflect accounting using the deferred method which was
required under the previous rules. The provision for income
taxes, exclusive of tax benefits from equity in Affiliate and
the cumulative effect of the adoption of SFAS No. 106, consisted of:
(In thousands) 1993 1992 1991
State:
Currently payable $ 4,192 $ 3,795 $ 4,155
Deferred 1,381 445 125
5,573 4,240 4,280
Federal:
Currently payable 17,376 15,264 15,574
Deferred 4,999 1,987 938
22,375 17,251 16,512
Provision for income taxes $27,948 $21,491 $20,792
Components of net deferred income tax liability:
(No valuation allowance
required)
(In thousands) 1993 1992 1991
Depreciation $47,160 $37,848 $29,874
Postretirement expense (31,015) (31,240)
Pension cost 1,864 1,917 1,565
Vacation expense (3,740) (3,816) (3,572)
Tax credit carryforward (2,400) (1,000)
Other (1,726) (1,010) (1,757)
Net deferred income
tax liability $10,143 $ 2,699 $26,110
The components of current and non-current deferred income tax
assets and liabilities:
1993 1992 1991
Current asset $(6,651) $(6,327) $(5,994)
Noncurrent asset (420) (823)
Noncurrent liability 17,214 9,849 32,104
Net deferred income
tax liability $10,143 $ 2,699 $26,110
Reconciliation of the U. S. federal statutory tax rate to the
effective tax rate:
(In thousands) 1993 1992 1991
Amount % Amount % Amount %
Federal statutory
tax rate $23,814 35.0 $17,943 34.0 $17,502 34.0
State taxes net of
federal tax effect 3,622 5.3 2,799 5.3 2,825 5.5
Dividend benefit
eliminations 335 .5 322 .6 325 .6
Rate variations (184) (.3)
Other 361 .6 427 .8 140 .3
Provision for income
taxes $27,948 41.1% $21,491 40.7% $20,792 40.4%
8--INVENTORIES
Newsprint inventory amounted to $6,686,000 and $6,982,000 at
the end of 1993 and 1992, and the current value exceed LIFO
value by $2,088,000 and $1,959,000. Other inventories
amounted to $3,430,000 and $3,008,000 at the end of 1993 and
1992.
9--INVESTMENT IN AFFILIATE
The Company, through its subsidiaries, has a 13.5% partnership
interest in Ponderay Newsprint Company (Ponderay), which was
formed to own and operate a newsprint mill in Washington.
During 1992 the lending agent for the banks that provided
financing for the mill issued a Completion Receipt
acknowledging that completion was deemed to have occurred as
of April 7, 1992. Under the terms of the loan agreement, the
Company's guarantee of debt became $16,875,000 as the assets
of the completed mill became collateral for a portion of the
partnership debt. At the end of 1993 and 1992, $28,313,000
and $23,602,000 had been invested in Ponderay. The Company
has committed to purchase for use in Phoenix the lesser of
13.5% of annual newsprint production or 28,400 metric tons on
a "take if tendered" basis until the debt is repaid.
Newsprint purchased from Ponderay amounted to $14,679,000
during 1993 and $12,205,000 during 1992.
Summarized financial data for Affiliate:
(Audited by other independent accountants)
(In thousands) 1993 1992 1991
Results of operations:
Net sales $ 94,375 $ 89,807 $112,295
Net loss 45,713 49,435 31,058
Financial position:
Current assets $ 19,633 $ 18,361 $ 19,249
Property and equipment,
at cost--net 304,315 321,065 336,343
Other assets 5,690 10,075 15,326
$329,638 $349,501 $370,918
Current liabilities $ 33,771 $ 27,515 $ 17,416
Long-term debt
($125 million guaranteed
by partners) 267,330 282,636 292,717
Partners' capital 28,537 39,350 60,785
$329,638 $349,501 $370,918
Summary of the Company's investment in Affiliate:
(In thousands) 1993 1992 1991
Investment, beginning of year $ 5,315 $ 8,209 $ 8,520
Equity in partnership loss (6,171) (6,674) (4,192)
Additional investments 4,711 3,780 3,881
Investment, end of year $ 3,855 $ 5,315 $ 8,209
Equity in Affiliate:
(In thousands) 1993 1992 1991
Equity in partnership loss $ (6,171) $ (6,674) $ (4,192)
Current income tax benefit 4,356 4,187 3,608
Deferred tax expense (2,465) (2,333) (2,469)
Equity in Affiliate, net
of tax benefit $ (4,280) $ (4,820) $ (3,053)
10--LONG-TERM DEBT
The trust indenture relating to the fifty-year 4 1/2%
debentures due December 1, 1998 contains various requirements
and restrictions as to the financial activities of
Indianapolis Newspapers, Inc. and its subsidiary. There are
certain restrictions on capital expenditures and dividend
payments by Indianapolis Newspapers, Inc. Interest paid
amounted to $121,000 for 1993, 1992 and 1991.
11--RENTAL EXPENSE AND LEASE COMMITMENTS
Rental expense for 1993, 1992 and 1991 amounted to $4,190,000,
$3,522,000 and $3,528,000. Future obligations for minimum
annual rentals under noncancelable long-term leases are not
considered to be significant.
12--CAPITAL STOCK AND STOCK OPTION PLAN
Class A common stock is entitled to 1/10 of a vote per share.
At December 26, 1993 the Company has reserved 2,105,000 shares
that are available for issuance under its Stock Option Plan,
500,000 shares for issuance under its 401(k) plan and
3,157,800 shares for issuance upon conversion of Class B
common stock. The Class B common stock has one vote per share
while its dividend and liquidation distributions are 1/10 of
the amount of Class A common stock. Class B common stock may
be converted into Class A common stock at a ratio of ten
shares of Class B common stock for one share of Class A common
stock. The Eugene C. Pulliam Trust owns Class B common stock
which provides the Trust the majority voting control of the
Company.
Dividend declared per share: 1993 1992 1991
Class A common stock $.46 $.42 $.40
Class B common stock .046 .042 .04
The Stock Option Plan provides for the granting of stock
options to certain officers and key employees. The options
are granted at prices determined by the Stock Option Committee
of the Board of Directors but not less than fair market value
on date of grant. Options granted may be incentive or
nonqualified options with a term of ten years. Options
granted before December 29, 1991 are currently exercisable.
Options granted in 1992 and 1993 become exercisable two and
three years, respectively, from date of grant.
Stock Option Plan Summary:
Shares Price
Outstanding,
December 30, 1990 200,000 $16.625
Granted 283,500 18.00
Exercised (3,000) 16.625
Cancelled (21,500) 16.625 - 18.00
Outstanding,
December 29, 1991 459,000 16.625 - 18.00
Granted 273,000 23.00
Exercised (52,500) 16.625 - 18.00
Cancelled (5,500) 16.625 - 18.00
Outstanding,
December 27, 1992 674,000 16.625 - 23.00
Granted 300,500 23.875
Exercised (39,500) 16.625 - 18.00
Cancelled (11,500) 23.00
Outstanding,
December 26, 1993 923,500 16.625 - 23.875
Exercisable,
December 26, 1993 359,000 16.625 - 18.00
13--FAIR VALUE OF FINANCIAL INSTRUMENTS
Other than the marketable equity securities, the carrying
amount of the Company's financial instruments approximates
fair value. Included in other long term assets are marketable
equity securities with a cost basis of $131,000 and a fair
market value of $1,682,000 and $2,049,000 at the end of 1993
and 1992.
14--COMMITMENTS, CONTINGENCIES AND SUBSEQUENT EVENTS
See Note 9 for commitments related to Affiliate.
The Internal Revenue Service (IRS) has issued a notice of
proposed adjustments for certain tax matters involving
Ponderay Newsprint Company, a partnership in which the
Company owns a 13.5% interest, for the years 1987, 1988 and 1989.
Ponderay filed a protest on February 17, 1993 in opposition to
the proposed adjustments. The matter is now pending before an
IRS appeals officer, with several legal issues having been
referred to the IRS national office for technical advice.
While this process is expected to extend over a lengthy
period, management of the Company and tax counsel currently
believe that Ponderay has meritorious defenses available and
that the IRS' position is unlikely to be fully sustained in
the amounts proposed. The contested issues concern investment
tax credit for the three years and the amount of 1989
depreciation expense reported on the partnership tax return.
The amount of investment tax credit claimed by the Company was
approximately $2.6 million and its share of depreciation was
approximately $4.5 million. No provision for additional
income taxes, penalties or interest has been recorded in the
financial statements. The IRS has completed its examination
of the Company's federal income tax returns through 1989 and
all adjustments have been settled except for the items noted
above.
There are various libel and other legal actions that have
arisen in the normal course of business and are now pending
against the Company. It is the opinion of management that
final disposition of such litigation will not have any
material adverse effect on the Company's financial position
or results of operations.
During 1993 the Board of Directors approved the construction
of a new downtown Phoenix office building. Total costs of the
building and related expenditures are expected to be
$32,000,000 with completion anticipated in 1996. Formal
commitments totaling $2,245,000 have been entered into as of
December 26, 1993 relating to this building project and
equipment at other facilities. Expenditures as of December
26, 1993 related to these commitments approximate $206,000.
The Board of Directors approved the construction of a
production facility in Indianapolis at an estimated cost of
$17,000,000 with completion expected during the second
quarter of 1995. No formal commitment or expenditures have been
made on this project.
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The Company's business is to a certain extent seasonal, with peak revenue
and profits generally occurring in the second and fourth quarters of each
year. Operating results for the last three years:
(In thousands, except per share data)
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Total
1993 (52 weeks)
Operating revenues $111,318 $116,943 $110,238 $128,068 $466,567
Operating expenses 99,495 98,873 97,469 105,108 400,945
Operating income 11,823 18,070 12,769 22,960 65,622
Other income--net 502 615 811 489 2,417
Provision for income
taxes (4,949) (7,553) (5,754) (9,692) (27,948)
Minority interest (405) (1,038) (758) (1,482) (3,683)
Equity in
Affiliate--net (1,148) (997) (1,153) (982) (4,280)
Net income $ 5,823 $ 9,097 $ 5,915 $ 11,293 $ 32,128
Net income per
common share $.22 $.34 $.22 $.43 $1.21
1992 (52 weeks)
Operating revenues $104,162 $109,136 $102,134 $118,168 $433,600
Operating expenses 96,146 94,434 92,613 98,744 381,937
Operating income 8,016 14,702 9,521 19,424 51,663
Other income--net 899 766 529 (1,083) 1,111
Provision for
income taxes (3,634) (6,255) (4,151) (7,451) (21,491)
Minority interest (265) (968) (509) (1,363) (3,105)
Equity in
Affiliate--net (698) (1,348) (1,151) (1,623) (4,820)
Income before cumulative
effect of accounting
change 4,318 6,897 4,239 7,904 23,358
Cumulative effect of
accounting change--net
of tax benefits (34,212) (34,212)
Net income (loss) $(29,894) $ 6,897 $ 4,239 $ 7,904 $(10,854)
Net income per
common share:
Income before
cumulative effect
of accounting
change $ .16 $.26 $.16 $.30 $ .88
Cumulative effect
of accounting
change--net of
tax benefits (1.29) (1.29)
Net income (loss)
per common share $(1.13) $.26 $.16 $.30 $ (.41)
1991 (52 weeks)
Operating revenues $102,797 $105,628 $ 99,139 $112,787 $420,351
Operating expenses 96,515 93,178 89,817 93,099 372,609
Operating income 6,282 12,450 9,322 19,688 47,742
Other income--net 1,546 1,076 849 264 3,735
Provision for
income taxes (3,237) (5,415) (4,131) (8,009) (20,792)
Minority interest (46) (372) (334) (977) (1,729)
Equity in
Affiliate--net (664) (590) (717) (1,082) (3,053)
Net income $ 3,881 $ 7,149 $ 4,989 $ 9,884 $ 25,903
Net income per
common share $.15 $.27 $.18 $.38 $.98
<TABLE>
SELECTED TEN-YEAR FINANCIAL DATA
(In thousands, except per share data)
<CAPTION>
Fiscal Years Ended Dec. 26 Dec. 27 Dec. 29 Dec. 30 Dec. 31
1993 1992 1991 1990 1989
52 Weeks 52 Weeks 52 Weeks 52 Weeks 53 Weeks
Consolidated Statement of Income
<S> <C> <C> <C> <C> <C>
Operating revenues:
Advertising $ 346,566 $319,872 $ 316,950 $335,795 $ 346,924
Circulation 118,032 112,180 102,459 94,689 88,160
Other 1,969 1,548 942 1,175 1,144
466,567 433,600 420,351 431,659 436,228
Operating expenses:
Operating costs 200,200 187,611 197,584 209,191 213,377
Distribution and general 173,444 169,105 154,410 151,719 148,015
Depreciation 25,810 21,649 17,334 15,902 14,908
Work force reduction cost 1,491 3,572 3,281 2,082
400,945 381,937 372,609 378,894 376,300
Operating income 65,622 51,663 47,742 52,765 59,928
Other income--net 2,417 1,111 3,735 8,963 8,389
Income before income taxes 68,039 52,774 51,477 61,728 68,317
Provision for income taxes 27,948 21,491 20,792 25,813 27,748
Income before minority
interest and equity
in Affiliate 40,091 31,283 30,685 35,915 40,569
Minority interest in
subsidiary (3,683) (3,105) (1,729) (3,117) (3,411)
Equity in Affiliate, net
of tax benefit (4,280) (4,820) (3,053) (4,515) 1,309
Income before cumulative
effect of accounting change 32,128 23,358 25,903 28,283 38,467
Cumulative effect of accounting
change (34,212)
Net income (loss) $ 32,128 $ (10,854) $ 25,903 $ 28,283 $ 38,467
Class A Share Data
Income before cumulative
effect of accounting change $ 1.21 $ .88 $ .98 $ 1.07 $ 1.45
Cumulative effect of accounting
change (1.29)
Net income (loss) 1.21 (.41) .98 1.07 1.45
Dividends declared .46 .42 .40 .40 .325
Other Financial Data
Total assets $464,688 $432,872 $403,627 $383,758 $356,103
Working capital 127,999 90,488 70,217 122,710 134,755
Long-term debt 2,678 2,678 2,678 2,678 2,678
Shareholders' equity 290,693 269,997 290,982 275,623 257,938
<FN>
This data was compiled from the consolidated financial statements of
Central Newspapers, Inc. and Subsidiaries. The consolidated financial
statements and related notes and discussions for the year ended December
26, 1993 should be read in order to obtain a better understanding of
this data.
</TABLE>
<TABLE>
<CAPTION>
Dec. 25 Dec. 27 Dec. 28 Dec. 29 Dec. 30
1988 1987 1986 1985 1984
52 Weeks 52 Weeks 52 Weeks 52 Weeks 53 Weeks
Consolidated Statement of Income
<S> <C> <C> <C> <C> <C>
Operating revenues:
Advertising $ 337,854 $329,067 $ 319,237 $299,077 $ 278,166
Circulation 78,575 72,434 68,806 64,001 59,417
Other 1,179 1,197 1,084 1,002 1,057
417,608 402,698 389,127 364,080 338,640
Operating expenses:
Operating costs 216,788 208,633 193,521 191,349 179,583
Distribution and general 133,842 129,782 120,969 110,922 101,846
Depreciation 13,970 12,190 10,952 9,682 8,935
Work force reduction cost 7,586
372,186 350,605 325,442 311,953 290,364
Operating income 45,422 52,093 63,685 52,127 48,276
Other income--net 5,918 5,134 5,071 6,600 6,349
Income before income taxes 51,340 57,227 68,756 58,727 54,625
Provision for income taxes 18,911 24,071 33,339 28,560 26,388
Income before minority
interest and equity
in Affiliate 32,429 33,156 35,417 30,167 28,237
Minority interest in
subsidiary (3,916) (3,754) (3,496) (2,908) (2,702)
Equity in Affiliate, net
of tax benefits 743 8
Income before cumulative
effect of accounting change 29,256 29,410 31,921 27,259 25,535
Cumulative effect of accounting
change 3,388
Net income (loss) $ 29,256 $ 32,798 $ 31,921 $ 27,259 $ 25,535
Class A Share Data
Income before cumulative
effect of an accounting change $ 1.10 $ 1.10 $ 1.19 $ 1.01 $ .94
Cumulative effect of accounting
change .13
Net income (loss) 1.10 1.23 1.19 1.01 .94
Dividends declared .325 .325 .325 .325 .275
Other Financial Data
Total assets $321,809 $300,966 $270,815 $241,211 $216,134
Working capital 116,192 106,705 101,566 92,753 87,151
Long-term debt 2,678 2,678 2,678 2,678 2,678
Shareholders' equity 230,316 213,579 189,312 165,939 149,416
</TABLE>
SHAREHOLDER INFORMATION
Since an initial public offering on September 21, 1989, shares
of Class A common stock have traded on the New York Stock
Exchange under the symbol ECP. No established trading market
currently exists for the Company's Class B common stock.
Shares of Class B common stock are convertible into Class A
common stock at a ratio of ten B shares for one A share. At
December 31, 1993, there were approximately 367 shareholders
of record of Class A common stock and 25 shareholders of
record of Class B common stock.
Dividends
Dividends declared per share:
1993 Class A Class B
1st Quarter $ .11 $ .011
2nd Quarter .11 .011
3rd Quarter .12 .012
4th Quarter .12 .012
$ .46 $ .046
1992 Class A Class B
1st Quarter $ .10 $ .01
2nd Quarter .10 .01
3rd Quarter .11 .011
4th Quarter .11 .011
$ .42 $ .042
Form 10-K
The Central Newspapers, Inc. annual report on Form 10-K filed
with the Securities and Exchange Commission is available at
no charge upon written request to Corporate Secretary, Central
Newspapers, Inc., 135 North Pennsylvania Street, Suite 1200,
Indianapolis, Indiana 46204.
Stock Prices
Calendar Quarter 1st 2nd 3rd 4th
1993 High $23 7/8 $25 7/8 $27 3/8 $27 3/4
Low 20 7/8 23 5/8 24 1/4 23
1992 High 23 3/8 23 1/8 23 3/8 23 3/4
Low 19 20 3/4 20 1/8 21 1/8
Annual Meeting
The Annual Meeting of Shareholders will be held at the First
Indiana Plaza, 135 North Pennsylvania Street, Seventh Floor,
Indianapolis, Indiana on April 21, 1994 at 10:00 A.M. local
time.
Transfer Agent and Registrar:
Bank One, Indianapolis, NA
Security Holder Services
Bank One Center/Tower
111 Monument Circle - Suite 1611
P.O. Box 7700
Indianapolis, Indiana 46277-0116
CORPORATE DIRECTORY
BOARD OF DIRECTORS
Kent E. Agness
Partner
Barnes & Thornburg
Malcolm W. Applegate
President and General Manager
Indianapolis Newspapers, Inc.
William A. Franke
Chairman and Chief Executive Officer
America West Airlines, Inc.
President
Franke & Company, Inc.
Eugene S. Pulliam
Executive Vice President
Central Newspapers, Inc.
President
Phoenix Newspapers, Inc.
Publisher
The Indianapolis Star
The Indianapolis News
Dan Quayle
Chairman
Circle Investors, Inc.
James C. Quayle
President
Huntington Newspapers, Inc.
Frank E. Russell
President and Chief Executive Officer
Central Newspapers, Inc.
Louis A. Weil III
Executive Vice President
Phoenix Newspapers, Inc.
Publisher
The Arizona Republic
The Phoenix Gazette
CORPORATE OFFICERS AND
EXECUTIVE MANAGEMENT
Frank E. Russell
President and Chief Executive Officer
Central Newspapers, Inc.
Eugene S. Pulliam
Executive Vice President
Central Newspapers, Inc.
President
Phoenix Newspapers, Inc.
Publisher
The Indianapolis Star
The Indianapolis News
Marjorie C. Tarplee
Secretary
Central Newspapers, Inc.
Wayne D. Wallace
Treasurer
Central Newspapers, Inc.
Malcolm W. Applegate
President and General Manager
Indianapolis Newspapers, Inc.
Louis A. Weil III
Executive Vice President
Phoenix Newspapers, Inc.
Publisher
The Arizona Republic
The Phoenix Gazette
EXHIBIT 21
SUBSIDIARIES OF CENTRAL NEWSPAPERS, INC.
The following chart lists all six subsidiaries of Central
Newspapers, Inc. (the "Company") and the state of
incorporation of each. Each subsidiary of the Company does
business under its legal name.
State of
Name Incorporation
Bradley Paper Company Delaware
Central Newsprint Company, Inc. Indiana
Indianapolis Newspapers, Inc. Indiana
Muncie Newspapers, Inc. Indiana
Phoenix Newspapers, Inc. Arizona
Topics Newspapers, Inc. Indiana
EXHIBIT 23
CONSENT OF GEO. S. OLIVE & CO.
We consent to the incorporation by reference into this Annual
Report on Form 10-K of our report dated February 18, 1994 with
respect to the consolidated financial statements of Central
Newspapers, Inc. for the year ended December 26, 1993,
included in the Central Newspapers, Inc. Annual Report to
Shareholders, and to the incorporation of such report by
reference into (a) the Registration Statement on Form S-8
(File Number 33-37566) and related Prospectus pertaining to
the Central Newspapers, Inc. Stock Option Plan and (b) the
Registration Statement on Form S-8 (File Number 33-33026)
and related Prospectus pertaining to the Central Newspapers,
Inc. Saving Plus Plan.
/s/ Geo. S. Olive & Co.
- -------------------------------
GEO. S. OLIVE & CO.
Indianapolis, Indiana
March 14, 1994
