<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
----------------------------------
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period March 27, 1994
---------------------------------------
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
-------- --------
Commission File Number: 1-10333
--------------------------------
CENTRAL NEWSPAPERS, INC.
(Exact name of registrant as specified in its charter)
Indiana
(State of Incorporation)
35-0220660
(IRS Employer Identification Number)
135 North Pennsylvania Street, Suite 1200
Indianapolis, Indiana 46204
(Address of principal executive office)
(317) 231-9200
(Registrant's telephone number)
-------------------------------
Indicate by check mark whether the registrant has (1) 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 .
The number of shares of each class of common stock outstanding as of
March 27, 1994:
CLASS A COMMON STOCK 23,461,200
CLASS B COMMON STOCK 31,578,000
<PAGE> 2
CENTRAL NEWSPAPERS, INC.
INDEX TO FORM 10-Q
Part I - FINANCIAL INFORMATION Page
Item 1 - Financial Statements:
Consolidated Statement of Financial Position 3-4
Consolidated Statement of Income 5
Consolidated Statement of Shareholders' Equity 6
Consolidated Statement of Cash Flows 7
Notes to Consolidated Financial Statements 8-9
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9-11
Part II - OTHER INFORMATION 12-13
<PAGE> 3
PART I.
Item 1. Financial Statements
CENTRAL NEWSPAPERS, INC.
Consolidated Statement of Financial Position
================================================================
ASSETS Mar. 27 Dec. 26
(In thousands) 1994 1993
(unaudited)
----------------------------------------------------------------
CURRENT ASSETS:
Cash and cash equivalents $ 23,518 $ 22,143
U. S. Government obligations 123,421 102,010
Accounts receivable--net 41,158 46,348
Inventories 8,250 10,116
Deferred income tax benefits 6,900 6,651
Other current assets 4,307 3,229
----------------------------------------------------------------
Total current assets 207,554 190,497
----------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT:
Land 11,656 11,656
Buildings and improvements 98,232 98,248
Leasehold improvements 4,145 4,141
Machinery and equipment 297,299 297,358
Construction in progress 1,754 875
----------------------------------------------------------------
413,086 412,278
Less accumulated depreciation 169,903 164,942
----------------------------------------------------------------
243,183 247,336
----------------------------------------------------------------
OTHER ASSETS:
Land held for development 4,139 4,139
Goodwill 9,753 9,807
Investment in Affiliate 2,835 3,855
Other 9,729 9,054
----------------------------------------------------------------
26,456 26,855
----------------------------------------------------------------
TOTAL ASSETS $477,193 $464,688
================================================================
See accompanying notes to consolidated financial statements.
<PAGE> 4
CENTRAL NEWSPAPERS, INC.
Consolidated Statement of Financial Position
================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY Mar. 27 Dec. 26
(In thousands, except share data) 1994 1993
(unaudited)
----------------------------------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 9,839 $ 12,675
Accrued compensation 15,115 15,166
Dividends payable 3,194 4,547
Accrued expenses and other
liabilities 14,312 15,434
Federal and state income taxes 8,783 2,406
Deferred revenue 12,604 12,270
----------------------------------------------------------------
Total current liabilities 63,847 62,498
----------------------------------------------------------------
DEFERRED INCOME TAXES 17,958 17,214
----------------------------------------------------------------
LONG-TERM DEBT (4 1/2% debentures due
December 1, 1998) 2,678 2,678
----------------------------------------------------------------
POSTRETIREMENT BENEFIT OBLIGATION 74,132 72,937
----------------------------------------------------------------
MINORITY INTEREST IN SUBSIDIARY 19,703 18,668
----------------------------------------------------------------
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--23,461,200 and 23,431,450 shares 17,722 17,137
Class B common stock--without par value:
Authorized--50,000,000 shares
Issued--31,578,000 shares 63 63
Retained earnings 280,503 273,493
Unrealized gain on securities available-
for-sale 587
----------------------------------------------------------------
298,875 290,693
----------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $477,193 $464,688
================================================================
See accompanying notes to consolidated financial statements.
<PAGE> 5
CENTRAL NEWSPAPERS, INC.
Consolidated Statement of Income
(Unaudited)
===============================================
(In thousands, except Thirteen Weeks Ended
per share data) Mar. 27 Mar. 28
1994 1993
-----------------------------------------------
OPERATING REVENUES:
Advertising $ 91,891 $ 80,482
Circulation 31,152 30,338
Other 485 498
-----------------------------------------------
123,528 111,318
-----------------------------------------------
OPERATING EXPENSES:
Operating costs 53,163 48,475
Distribution and general 44,477 43,982
Depreciation 6,612 6,458
Work force reduction cost 132 580
-----------------------------------------------
104,384 99,495
-----------------------------------------------
OPERATING INCOME 19,144 11,823
OTHER INCOME
(principally interest) 1,329 821
OTHER EXPENSE (241) (319)
-----------------------------------------------
INCOME BEFORE INCOME TAXES 20,232 12,325
PROVISION FOR INCOME TAXES 8,257 4,949
-----------------------------------------------
INCOME BEFORE MINORITY
INTEREST AND EQUITY IN
AFFILIATE 11,975 7,376
MINORITY INTEREST IN
SUBSIDIARY (757) (405)
EQUITY IN AFFILIATE, NET
OF TAX BENEFITS (1,014) (1,148)
-----------------------------------------------
NET INCOME $ 10,204 $ 5,823
===============================================
NET INCOME PER COMMON
SHARE $ .38 $ .22
===============================================
DIVIDENDS DECLARED PER
COMMON SHARE $ .12 $ .11
AVERAGE COMMON SHARES
OUTSTANDING 26,610 26,553
See accompanying notes to consolidated financial statements.
<PAGE> 6
CENTRAL NEWSPAPERS, INC.
Consolidated Statement of Shareholders' Equity
(Unaudited)
====================================================================
(In thousands) Unrealized
Gain on
Class A Class B Securities
Common Common Retained Available-
Stock Stock Earnings for-Sale
--------------------------------------------------------------------
BALANCE AT DEC. 28, 1992 $16,340 $65 $253,592
Net income (13 weeks) 5,823
Dividends declared:
Class A common stock (2,566)
Class B common stock (356)
Exercise of stock options 235
-------------------------------------------------------------------
BALANCE AT MAR. 28, 1993 16,575 65 256,493
Net income (39 weeks) 26,305
Dividends declared:
Class A common stock (8,191)
Class B common stock (1,114)
Exercise of stock options 560
Common stock conversion 2 (2)
--------------------------------------------------------------------
BALANCE AT DEC. 26, 1993 17,137 63 273,493
Adoption of SFAS No. 115,
net of deferred income
taxes and minority
interest $649
Net income (13 weeks) 10,204
Dividends declared:
Class A common stock (2,815)
Class B common stock (379)
Exercise of stock options 585
Change in unrealized gain
on securities available-
for-sale (62)
--------------------------------------------------------------------
BALANCE AT MAR. 27, 1994 $17,722 $63 $280,503 $587
====================================================================
See accompanying notes to consolidated financial statements.
<PAGE> 7
CENTRAL NEWSPAPERS, INC.
Consolidated Statement of Cash Flows
(Unaudited)
==================================================================
(In thousands) Thirteen Weeks Ended
Mar. 27 Mar. 28
1994 1993
------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income $10,204 $ 5,823
Items which did not use (provide) cash:
Depreciation and amortization 6,738 6,629
Postretirement and pension benefits 1,620 1,346
Gain on disposition of assets (205) (90)
Minority interest in earnings of
subsidiary 757 405
Equity in Affiliate 1,014 1,148
Deferred income taxes 67 1,237
Changes in assets and liabilities-net 10,887 8,371
------------------------------------------------------------------
Net cash provided by operating activities 31,082 24,869
------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment-net (3,378) (7,183)
Purchases of U. S. Government obligations (77,412) (46,867)
Proceeds from U. S. Government obligations 55,676 39,503
Investment in Affiliate (540) (743)
Purchases of intangibles, minority interest
and other (20) (4,733)
------------------------------------------------------------------
Net cash used by investing activities (25,674) (20,023)
------------------------------------------------------------------
FINANCING ACTIVITIES:
Cash dividends paid (3,191) (2,922)
Dividends paid to minority interest (1,356) (1,395)
Proceeds from exercise of stock options 514 209
------------------------------------------------------------------
Net cash used by financing activities (4,033) (4,108)
------------------------------------------------------------------
INCREASE IN CASH AND CASH EQUIVALENTS 1,375 738
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 22,143 17,221
------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $23,518 $17,959
==================================================================
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid during the period $ 1,280 $ 2,371
Interest paid during the period $ 58 $ 56
See accompanying notes to consolidated financial statements.
<PAGE> 8
CENTRAL NEWSPAPERS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
1. The accompanying unaudited consolidated financial statements do
not include all of the information and disclosures which are
normally included in Form 10-K and annual report to shareholders.
These financial statements should be read in conjunction with the
Company's audited consolidated financial statements and related
notes for the year ended December 26, 1993. The accompanying
consolidated financial statements have been prepared in
accordance with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. The consolidated financial position at December
26, 1993 has been derived from audited financial statements. In
the opinion of Company's management, the unaudited consolidated
financial statements reflect all adjustments which are necessary
to present fairly the Company's financial position, results of
operations and cash flows for the interim periods presented. All
adjustments are of a normal recurring nature. Such statements
are not necessarily indicative of the results to be expected for
the full year. Certain 1993 amounts have been reclassified to
conform with the 1994 presentation.
2. The Company's fiscal year ends on the last Sunday of the calendar
year. The years ending December 25, 1994 and December 26, 1993
each comprise 52 weeks.
3. The income per common share is computed based on the weighted
average number of common shares outstanding. The Class B common
shareholders have the right to convert their shares into shares
of Class A common stock at the ratio of ten shares of Class B
common stock for one share of Class A common stock. The Class B
common stock is included in the computation as if converted into
Class A common stock.
4. During 1994 and 1993, the Company reduced its work force in
response to the advertising environment and technological
changes. Certain employees were offered retirement benefits
through a nonqualified supplemental retirement plan. As of March
27, 1994 work force reduction costs were $132,000. As of March
28, 1993 work force reduction costs were $580,000.
5. 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. The
Company's investment in Ponderay at March 27, 1994 and March 28,
1993 was $28,853,000 and $24,345,000.
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 partnership debt is
repaid. During the thirteen weeks ended March 27, 1994 and March
28, 1993 the Company purchased $2,875,000 and $3,204,000 of
newsprint from Ponderay. For the three months ended March 31,
1994, Ponderay's net revenue and net losses were $23,118,000 and
$11,556,000, respectively; compared to $22,257,000 and
$12,884,000 during the first three months of 1993.
6. The Company's Stock Option Plan had 331,750 options exercisable
as of March 27, 1994. During the quarter ended March 27, 1994
options for 29,750 shares of Class A common stock were exercised.
7. On January 21, 1993 the Company completed the purchase 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 this
acquisition are included in the financial statements as of
January 1, 1993.
<PAGE> 9
8. During 1993 the Board of Directors approved the construction of a
new downtown Phoenix office building. Total cost of the building
and related expenditures are expected to be $32,000,000 with
completion anticipated in 1996. Formal commitments totaling
$2,143,000 have been entered into as of March 27, 1994 relating
to this project. Expenditures as of March 27, 1994 on these
commitments were $832,000.
The Board of Directors also 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 commitments have been made on this project.
9. Effective December 27, 1993 the Company adopted Statement of
Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" (SFAS No. 115). SFAS
No. 115 requires that available-for-sale debt securities and
equity securities be reported at fair value. As of the beginning
of the current year and March 27, 1994, all investments in equity
and U.S. Government obligations have been classified as
available-for-sale securities and, accordingly, the net
unrealized gain has been reflected as a change in shareholders'
equity net of deferred income taxes and minority interest.
Debt and equity securities at March 27, 1994 (in thousands):
Gross
Carrying Unrealized Fair
Value Gain (loss) Value
Available-for-sale securities:
Equity securities $ 131 $1,630 $ 1,761
U.S. Government obligations
due within one year 123,579 (158) 123,421
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations - First Quarter 1994 Versus First Quarter 1993
--------------------------------------------------------------------
The Company's business is to a certain extent seasonal with peak
revenues and profits generally occurring in the second and fourth
quarters. On January 21, 1993 the Company completed its acquisition
of two daily newspapers, one weekly newspaper and twelve controlled
circulation weekly newspapers that serve the fastest growing area of
metropolitan Indianapolis. These newspapers along with the other
smaller community newspapers constituted approximately 4% of
operating revenue during 1993 and it is anticipated to be the same
for 1994.
Operating revenues for the quarter increased $12.2 million, or 11.0%,
which consisted of an increase in advertising revenue of $11.4
million, or 14.2%, and an increase in circulation revenue of $.8
million, or 2.7%.
<PAGE> 10
Advertising full run of press (ROP) linage was up 12.2% for the
quarter. Retail linage was up 4.0%, national linage was up 19.9% and
classified linage gained 20.7%. The increase in ROP linage reflects
improved economic conditions in our markets. The volume of
preprinted inserts, which includes local and national advertising
supplements inserted into the newspapers, increased 35.0%.
Advertising revenue at Phoenix increased 13.8% while full run linage
was up 14.8%. At Indianapolis advertising revenue was up 15.8% while
full run linage was up 8.4%. Both newspapers increased advertising
rates during the first quarter of 1994.
Circulation revenue increased 1.8% at Phoenix. Circulation of the
Phoenix morning newspaper was up 3.0%, evening down 3.4% while Sunday
circulation increased 2.5%. The morning single copy price was
increased during January 1993 by 42.8% to $.50. Circulation revenue
increased 4.8% at Indianapolis. Circulation of the Indianapolis
morning newspaper was down 1.3%, evening down 6.8% and Sunday
circulation was down 2.1%. The Sunday delivered price was increased
during May 1993 by 20% to $1.50. Generally a rate increase will
cause a temporary decline in circulation, however, the evening
newspapers are experiencing an ongoing decline in their circulation.
Operating expenses of $104.4 million were up 4.9% for the period.
Compensation expense, which includes fringe benefits, was up 7.1% for
the period. The increase in compensation expense reflects higher
payroll costs related to the zoned and total market advertising
program in Indianapolis that began during August 1993 and payroll
expense related to production volume increases in Phoenix. Changes
to the retirement plans that were effective January 1, 1994 also
increased compensation costs. These changes contributed to an
increase of 9.8% in fringe benefit costs. Newsprint expense
increased 3.3%, reflecting a 10.0% increase in consumption which was
somewhat offset by average lower newsprint prices. Depreciation
expense of $6.6 million increased 2.4%. Work force reduction costs
in the current quarter were $132 thousand compared to $580 thousand
in the same quarter last year. These costs were related to staff
reductions made in Indianapolis. Other operating, distribution and
general expenses were up 4.3% reflecting costs associated with
production and delivery of the zoned advertising products and
increased promotional expenses. Other expenses for the first quarter
of 1994 include a decrease in property tax expense of $951,000
resulting from a property tax refund.
Operating income increased $7.3 million, or 61.9%. Other income was
up $508 thousand, or 61.9%, due to higher earnings on cash
investments and a $200,000 gain on disposal of equipment. Other
expense was down $78 thousand. Income before provision for income
taxes was up $7.9 million, or 64.2%. The provision for income taxes
was up $3.3 million, or 66.8%, which reflects higher income for the
period and a one percent increase in the federal income tax rate that
became effective during 1993. The Company recorded the cumulative
tax adjustment during the third quarter of 1993.
Minority interest in subsidiary increased due to higher earnings of
the Company's 71.2% owned subsidiary. The loss from Equity in
Affiliate (Ponderay Newsprint Company), net of tax benefits,
decreased $134 thousand in the current quarter and reflects a smaller
loss by Ponderay.
Net income for the quarter increased $4.4 million, or 75.2%, compared
to the same period the prior year. Earnings per share for the
quarter were $.38 for 1994, an increase of 72.7%, from the $.22 per
share the prior quarter. Included in the 1994 per share amount is an
after tax property tax settlement gain of $.02 per share.
<PAGE> 11
Liquidity and Capital Resources
-------------------------------
Net cash provided by operating activities during the current quarter
of $31.1 million was used primarily for the purchase of property and
equipment, investment in Affiliate, the payment of dividends and
purchases of U. S. Government obligations.
Capital expenditures through March 27, 1994 were $3.7 million.
Capital expenditures for the year are expected to approximate $37
million.
The Company invested $540 thousand in Ponderay (Affiliate) during the
first quarter and expects to contribute additional funds to help
finance losses for several years. Debt guarantees related to
Ponderay are discussed in Notes to Consolidated Financial Statements
of the 1993 Annual Report.
Quarterly dividends of $.12 per share on Class A common stock and
$.012 per share on Class B common stock were declared during the
quarter. Dividend rates increased 9.1% compared to the prior year
quarterly amounts. The Company expects cash generated from
operations and cash reserves, in conjunction with credit resources,
to be adequate to satisfy its liquidity needs.
<PAGE> 12
Part II.
CENTRAL NEWSPAPERS, INC.
Item 1. Legal Proceedings--None
Item 2. Changes in Securities--None
Item 3. Default Upon Senior Securities--None
Item 4. Submission of Matters to a Vote of Security Holders--
None
Item 5. Other Information--None
Item 6. Exhibits and Reports on Form 8-K
Exhibit 1 - Independent Accountant's Report
No reports on Form 8-K were filed during the
quarter.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf of
the undersigned thereunto duly authorized.
April 20, 1994 CENTRAL NEWSPAPERS, INC.
By: /s/ Frank E. Russell
-----------------------
Frank E. Russell
President and
Chief Executive Officer
By: /s/ Wayne D. Wallace
-----------------------
Wayne D. Wallace
Treasurer
<PAGE> 13
Exhibit 1
INDEPENDENT ACCOUNTANT'S REPORT
To the Board of Directors
Central Newspapers, Inc.
We have reviewed the consolidated statement of financial position of
Central Newspapers, Inc. as of March 27, 1994, and the consolidated
statements of income, shareholders' equity and cash flows for the
fiscal three-month periods ended March 27, 1994 and March 28, 1993.
These financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by
the American Institute of Certified Public Accountants. A review of
interim financial information consists principally of applying
analytical procedures to financial data and making inquiries of
persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the consolidated financial statements referred
to above for them to be in conformity with generally accepted
accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated statement of financial position
as of December 26, 1993, and the related consolidated statements of
income, shareholders' equity and cash flows for the year then ended
(not presented herein); and in our report dated February 18, 1994 we
expressed an unqualified opinion on those consolidated financial
statements.
As discussed on Note 9 to the consolidated financial statements, the
Company adopted, effective at the beginning of 1994, Statement of
Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" (SFAS No. 115).
/s/ Geo S. Olive & Co.
----------------------------
Geo S. Olive & Co.
Indianapolis, Indiana
April 20, 1994
