<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 ended June 30, 1996
--- 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 35-0220660
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) 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 June 30,
1996:
CLASS A COMMON STOCK 23,529,761
CLASS B COMMON STOCK 31,553,000
<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 9-13
Part II -- OTHER INFORMATION 14-15
<PAGE>3
PART I
Item 1. Financial Statements
CENTRAL NEWSPAPERS, INC.
Consolidated Statement of Financial Position
================================================================================
June 30, Dec. 31,
ASSETS 1996 1995
(In thousands) (Unaudited)
- --------------------------------------------------------------------------------
CURRENT ASSETS:
Cash and cash equivalents $28,245 $26,142
Marketable securities 44,724 103,390
Accounts receivable (net of allowances of
$1,085 and $1,067) 58,425 62,355
Inventories 9,038 10,125
Deferred income tax benefits 6,748 6,773
Other current assets 5,762 4,233
- --------------------------------------------------------------------------------
Total current assets 152,942 213,018
- --------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT:
Land 18,185 16,943
Buildings and improvements 93,937 110,265
Leasehold improvements 4,194 4,177
Machinery and equipment 352,342 322,799
Construction in progress 31,365 33,567
- --------------------------------------------------------------------------------
500,023 487,751
Less accumulated depreciation 204,442 206,946
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295,581 280,805
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OTHER ASSETS:
Land held for development 3,108 1,607
Goodwill 76,424 29,009
Investment in Affiliate 8,063 5,843
Other 26,878 16,922
- --------------------------------------------------------------------------------
114,473 53,381
- --------------------------------- ----------------------------------------------
TOTAL ASSETS $562,996 $547,204
================================================================================
See accompanying notes to consolidated financial statements.
<PAGE>4
CENTRAL NEWSPAPERS, INC.
Consolidated Statement of Financial Position
================================================================================
June 30, Dec. 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1995
(In thousands, except share data) (Unaudited)
- --------------------------------------------------------------------------------
CURRENT LIABILITIES:
Accounts payable $16,238 $19,122
Accrued compensation 16,642 17,172
Dividends payable 4,540 5,027
Accrued expenses and other liabilities 14,448 14,567
Federal and state income taxes 1,941
Deferred revenue 18,185 17,371
- --------------------------------------------------------------------------------
Total current liabilities 70,053 75,200
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DEFERRED INCOME TAXES 26,127 23,009
- --------------------------------------------------------------------------------
LONG-TERM DEBT 7,178 2,678
- --------------------------------------------------------------------------------
POSTRETIREMENT BENEFIT OBLIGATION 80,832 79,327
- --------------------------------------------------------------------------------
MINORITY INTEREST IN SUBSIDIARY 8,425 8,249
- --------------------------------------------------------------------------------
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 and outstanding--
23,529,761 and 23,520,611 shares 22,679 18,967
Class B common stock--without par value:
Authorized--50,000,000 shares
Issued and outstanding--31,553,000 shares 63 63
Retained earnings 348,033 338,436
Unamortized value of restricted stock (1,660)
Unrealized gain on available-for-sale securities 1,266 1,275
- --------------------------------------------------------------------------------
370,381 358,741
- --------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $562,996 $547,204
================================================================================
See accompanying notes to consolidated financial statements.
<PAGE>5
CENTRAL NEWSPAPERS, INC.
Consolidated Statement of Income
(Unaudited)
================================================================================
(In thousands, except per share data) 13 Weeks Ended 26 Weeks Ended
June 30, June 25, June 30, June 25,
1996 1995 1996 1995
- --------------------------------------------------------------------------------
OPERATING REVENUES:
Advertising $117,329 $109,519 $229,833 $213,511
Circulation 33,402 32,042 67,672 64,010
Other 1,986 911 3,108 1,833
- --------------------------------------------------------------------------------
152,717 142,472 300,613 279,354
- --------------------------------------------------------------------------------
OPERATING EXPENSES:
Operating costs 69,524 63,745 141,570 125,275
Distribution and general 51,685 48,868 101,303 96,706
Depreciation and amortization 9,102 7,226 17,561 14,400
Asset impairment cost 1,192 4,226
Work force reduction cost 663 1,510 1,103 1,758
- --------------------------------------------------------------------------------
132,166 121,349 265,763 238,139
- --------------------------------------------------------------------------------
OPERATING INCOME 20,551 21,123 34,850 41,215
OTHER INCOME (principally
investment income) 1,450 2,725 3,307 5,258
OTHER EXPENSE (253) (270) (516) (548)
- --------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 21,748 23,578 37,641 45,925
PROVISION FOR INCOME TAXES 9,082 9,731 15,674 18,854
- --------------------------------------------------------------------------------
INCOME BEFORE MINORITY INTEREST AND
EQUITY IN AFFILIATE 12,666 13,847 21,967 27,071
MINORITY INTEREST IN SUBSIDIARY (326) (325) (508) (629)
EQUITY IN AFFILIATE, NET OF TAX 656 (111) 1,347 (648)
- --------------------------------------------------------------------------------
NET INCOME $12,996 $13,411 $22,806 $25,794
================================================================================
NET INCOME PER COMMON SHARE $.49 $.51 $.85 $.97
================================================================================
DIVIDENDS DECLARED PER
CLASS A COMMON SHARE $.17 $.14 $.34 $.28
AVERAGE COMMON SHARES OUTSTANDING (combined
Class A and equivalent
Class B shares) 26,749 26,643 26,725 26,641
See accompanying notes to consolidated financial statements.
<PAGE>6
<TABLE>
CENTRAL NEWSPAPERS, INC.
Consolidated Statement of Shareholders' Equity
(Unaudited)
<CAPTION>
========================================================================================================
(In thousands, except share data) Unrealized
Unamortized Gain on
Common Stock Common Stock Value of Available-
Class A Class B Retained Restricted for-Sale
Shares Amount Shares Amount Earnings Stock Securities
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 26, 1994 23,483,000 $18,182 31,553,000 $63 $300,968 $549
Net income (26 weeks) 25,794
Dividends declared:
Class A common stock (6,577)
Class B common stock (884)
Exercise of stock options 7,350 154
Change in net unrealized gain on
available-for-sale securities 319
- --------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 25, 1995 23,490,350 18,336 31,553,000 63 319,301 868
Net income (27 weeks) 28,204
Dividends declared:
Class A common stock (7,996)
Class B common stock (1,073)
Exercise of stock options 30,261 631
Change in net unrealized gain on
available-for-sale securities 407
- --------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995 23,520,611 18,967 31,553,000 63 338,436 1,275
Net income (26 weeks) 22,806
Dividends declared:
Class A common stock (8,010)
Class B common stock (1,073)
Exercise of stock options 84,050 2,087
Repurchase of Class A
common stock (122,900) (109) (4,126)
Issuance of restricted
stock grants 48,000 1,734 ($1,734)
Amortization of restricted stock
grants 74
Change in net unrealized gain on
available-for-sale securities (9)
- --------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1996 23,529,761 $22,679 31,553,000 $63 $348,033 ($1,660) ($1,266)
========================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>7
CENTRAL NEWSPAPERS, INC.
Consolidated Statement of Cash Flows
(Unaudited)
==============================================================================
(In thousands)
June 30, June 25,
1996 1995
- ------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income $22,806 $25,794
Items which did not use (provide) cash:
Depreciation and amortization 17,561 14,794
Postretirement and pension benefits 3,395 2,223
Loss (gain) on disposition of assets 3,415 (151)
Minority interest in earnings of subsidiary 508 629
Equity in Affiliate (1,472) 648
Deferred income taxes (1,590) 1,734
Amortization of restricted stock grants 74
Net change in unrealized gain on trading securities 129 (917)
Net proceeds from (purchases of) trading securities 41,936 (15,309)
Net change in other current assets and liabilities 1,360 (6,120)
- ------------------------------------------------------------------------------
Net cash provided by operating activities 88,122 23,325
- ------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment-net (26,077) (26,870)
Purchases of available-for-sale securities (14,660) (41,482)
Proceeds from available-for-sale securities 32,178 58,140
Investment in Affiliate (2,012)
Acquisition of McCormick and Company, Inc. (60,509)
Other (4,401) (4,090)
- ------------------------------------------------------------------------------
Net cash used by investing activities (73,469) (16,314)
- ------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Cash dividends paid (9,078) (7,459)
Dividends paid to minority interest (823) (612)
Proceeds from exercise of stock options 1,586 126
Repurchase of Class A common stock (4,235)
- ------------------------------------------------------------------------------
Net cash used by financing activities (12,550) (7,945)
- ------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,103 (934)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 26,142 22,105
- ------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $28,245 $21,171
==============================================================================
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid during the period $20,087 $19,789
Interest paid during the period 405 104
See accompanying notes to consolidated financial statements.
<PAGE>8
CENTRAL NEWSPAPERS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
1. Central Newspapers, Inc. and its subsidiaries (the "Company") are primarily
engaged in the publishing and distribution of newspapers. Revenues are
principally derived from advertising and newspaper sales, in the Phoenix,
Arizona and Indianapolis, Indiana metropolitan areas. The Company also has a
13.5% interest in Ponderay Newsprint Company ("Affiliate"), a partnership formed
to own and operate a newsprint mill in Washington.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. 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 31, 1995. 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 statement of financial position at December 31, 1995 has
been derived from audited financial statements. In the opinion of the 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.
3. The Company's fiscal year ends on the last Sunday of the calendar year. The
years ending December 29, 1996 and December 31, 1995 comprise 52 and 53 weeks,
respectively.
4. Net 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.
5. During 1996 and 1995, the Company reduced its work force in response to the
advertising environment and technological changes. Certain employees were
offered retirement benefits through a non-qualified supplemental retirement
plan. Year-to-date 1996 work force reduction costs were $1,103,000. For the
six months ended June 25, 1995, work force reduction costs were $1,758,000.
6. 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 June 30,
1996 and June 25, 1995 was $36.4 million and $35.9 million.
The Company has committed to purchase for use in Phoenix the lesser of 13.5% of
annual newsprint production or 34,900 metric tons on a "take if tendered" basis
until the partnership debt is repaid. During the twenty-six weeks ended June 30,
1996 and June 25, 1995 the Company purchased $12.1 million and $8.3 million of
newsprint from Ponderay. For the six months ended June 30, 1996, Ponderay's net
revenue and net income were $90 million and $17.8 million, respectively,
<PAGE>9
compared to net revenue of $67.1 million and a net loss of $7.4 million
during the first six months of 1995.
7. The Company's Stock Compensation Plan has 445,550 options exercisable as of
June 30, 1996. During the fiscal six months ended June 30, 1996, options for
84,050 shares of Class A common stock were exercised.
In 1995, the shareholders adopted as part of the Stock Compensation Plan the
issuance of restricted stock grants to certain key executives who have a
critical impact on the long-term performance of the Company. In the first six
months of 1996, the Compensation Committee of the Board of Directors awarded
48,000 shares of Class A common stock whereby transfer restrictions lapse at
the end of five years from the award date or as early as three years upon
achieving certain performance goals. The restricted stock grants have all the
rights of shareholders including the right to receive dividends, except for
conditions regarding transferability of shares and the termination of
employment. Upon issuance of shares, unearned compensation equivalent to the
market value at the date of grant is recorded as unamortized value of
restricted stock and is being charged to earnings over the period during
which the restrictions lapse.
8. On March 19, 1996 the Board of Directors authorized the repurchase of up to
1,000,000 shares of the Company's Class A common stock. The shares may be
purchased over the next three years on the open market or in privately
negotiated transactions. As of June 30, 1996 the Company had repurchased
122,900 shares of Class A common stock.
9. The Board of Directors has approved a total of $33.2 million for the
construction and purchase of distribution centers, computer networking
equipment, editorial systems and a new conveyor system for use in Phoenix.
Completion of the distribution centers and editorial systems are anticipated in
1996. Conversion to the new computer system and installation of the conveyor
system is scheduled for completion in 1997. During 1993, the Board of Directors
approved the construction of a new downtown Phoenix office building. The
building, which was completed in July, 1996 cost approximately $32 million.
Formal commitments totaling $38.3 million have been entered into related to
these capital projects. Cumulative expenditures on these commitments were
$34.2 million through June 30, 1996.
In 1995 the Board of Directors approved $5.3 million for the purchase of a
currently leased building at Indianapolis and $10 million for investments in
partnership business ventures. Expenditures as of June 30, 1996 approximate
$6.1 million.
10. Statement of Financial Accounting Standards (SFAS) No. 123, "Stock-Based
Compensation," is effective for the Company for 1996. This statement establishes
a fair value based method of accounting for stock-based compensation plans. The
Company intends to account for stock-based compensation as prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," with appropriate proforma disclosures made in the notes to the
financial statements.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
The Company's business is to a certain extent seasonal with peak revenues and
profits generally occurring in the second and fourth quarters.
On March 12, 1996 the Company purchased 100% of the outstanding common stock of
McCormick and Company, Inc. ("McCormick"), the parent company of the Alexandria
Daily Town Talk newspaper of Louisiana and McCormick Graphics, Inc., a
<PAGE>10
commercial printing subsidiary. The purchase price was approximately $62
million in cash and was accounted for using the purchase method of accounting
as of March 1, 1996.
The Company recorded 1996 asset impairment charges in the amounts of $3 million
for a Phoenix office building in the first quarter and $1.2 million for a
conveyor system in the second quarter. These losses were recorded using the
provisions of SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of."
On April 30, 1996 the Company consolidated its Muncie, Indiana subsidiary's
morning and evening newspapers. Management's objective of the consolidation is
to create, in a cost effective manner, an excellent newspaper for readers which
will provide added value to advertisers. This consolidation resulted in
staff reductions of 33 full time and 35 part time employees at a cost of $.7
million.
Results of Operations - Fiscal Second Quarter Comparisons
Operating revenues for the quarter increased $10.2 million, or 7.2%, which
consisted of an increase in advertising revenue of $7.8 million, or 7.1%, and an
increase in circulation revenue of $1.4 million, or 4.2%. The second quarter of
1996 includes revenues from the McCormick acquisition. Excluding McCormick,
second quarter operating revenues increased $5.7 million or 4%.
Advertising full run-of-press (ROP) linage was up .2% for the quarter. Retail
linage was down 9.8%, national linage was up 31.9% and classified linage
increased 7.1%. The volume of preprinted inserts, which includes local and
national advertising supplements inserted into the newspapers, decreased 4.7%.
Advertising revenue at Phoenix increased 4.8% while full run linage decreased
.6%. At Indianapolis, advertising revenue was up 3.9% while full run linage
increased 1.3%. Indianapolis newspapers increased advertising rates during the
first quarter of 1996 and Phoenix raised certain advertising rates in January
1996 and October 1995.
Circulation revenue increased 6.1% at Phoenix. Circulation of the Phoenix
morning newspaper was up 3.3%, evening down 33.4% and Sunday circulation
decreased 1%. Circulation revenue was favorably impacted by a home delivered
price increase of $.35 per week in August 1995 and a Sunday single copy price
increase of $.50 to $2.00 effective March 1995. Circulation revenue decreased
9.1% at Indianapolis. Circulation of the Indianapolis morning newspaper was up
1.9%, evening down 24.6% and Sunday circulation was up .8%. Revenues were
impacted by the March 6, 1995 home delivered price increase in the daily
newspaper to $1.80 per week from $1.50 and the daily single copy price increase
to $.50 from $.35. In 1995, the Phoenix and Indianapolis newspapers
consolidated their morning and evening newsroom staffs. These changes were
designed to create more resources for expanded coverage of urban and suburban
issues along with continued expansion of new forms of information
distribution. Due to the combination of the newsrooms, the morning and evening
products have similar news content which has caused most duplicate subscribers
to drop their evening subscriptions.
Operating expenses of $132.2 million, which includes $1.2 million of asset
impairment costs and $.7 million of work force reduction costs, were up 8.9% for
the period. Excluding the asset impairment charge, work force reduction costs
and the effects of the McCormick acquisition, operating expenses increased
5.4%. Compensation expense, which includes fringe benefits, was up 1.5% for the
period, and excluding McCormick, compensation expense decreased .8%. The
comparable decrease is attributable to savings from work force reductions.
Newsprint expense increased $3.2 million or 12.8%, reflecting a .9% increase in
consumption from the Alexandria acquisition and higher newsprint prices.
Without McCormick, newsprint expense increased $2.8 million or 11.3% on a
slight decrease in consumption. Depreciation and amortization expense of $9.1
million increased 26% due to the new distribution facility in Indianapolis, the
computer system in Phoenix and depreciation and amortization expense associated
<PAGE>11
with the acquisition of McCormick. Depreciation and amortization expenses
associated with McCormick were $.6 million. Other operating, distribution and
general expenses were up 14.4% (8.9% excluding McCormick) reflecting, in part,
costs associated with operating two office buildings in Phoenix, moving expenses
and other costs related to the new facilities.
Operating income, excluding the impairment charge and work force reduction
costs, decreased 1% and excluding McCormick, decreased 3.3%. Other income was
down $1.3 million, or 46.8%, due to the use of cash in the McCormick acquisition
and a reduction in interest rates. Income before provision for income taxes was
down $1.8 million, or 7.8%. The provision for income taxes decreased $.6
million, or 6.7%, and reflects lower income for the period.
Income from Equity in Affiliate, net of tax, changed from a loss of $.1 million
in 1995 to income of $.7 million in 1996 due to the increase in newsprint prices
realized by Ponderay.
Net income for the quarter decreased $.4 million, or 3.1%, compared to the same
period the prior year. Earnings per share for the quarter were $.49 for 1996,
a decrease of 3.9%, from the $.51 per share the prior year quarter. Excluding
the charges for impairments and work force reductions, earnings were $14.1
million or $.53 per share, compared with $14.3 million, or $.54 per share, in
1995.
Results of Operations - Fiscal Six Month Comparisons
Operating revenues for the period increased $21.3 million, or 7.6%, which
consisted of an increase in advertising revenue of $16.3 million, or 7.6%, and
an increase in circulation revenue of $3.7 million, or 5.7%. The six month
period of 1996 includes four months of activity from the acquisition of
McCormick which was accounted for as of March 1, 1996. Excluding McCormick,
operating revenues increased 5.4%.
Advertising full run-of-press (ROP) linage was up .8% for the period. Retail
linage was down 6.7%, national linage was up 25.1% and classified linage
increased 5.8%. The volume of preprinted inserts, which includes local and
national advertising supplements inserted into the newspapers, decreased 3.8%.
Advertising revenue at Phoenix increased 6.8% while full run linage was up 1.4%.
At Indianapolis, advertising revenue was up 4% while full run linage was flat.
Indianapolis newspapers increased advertising rates during the first quarter of
1996 and Phoenix raised certain advertising rates in January 1996 and October
1995.
Circulation revenue increased 8.3% at Phoenix. Circulation of the Phoenix
morning newspaper was up 2.9%, evening down 26.2% and Sunday circulation
decreased 1.4%. Circulation revenue was favorably impacted by a home delivered
price increase of $.35 per week in August 1995 and a Sunday single copy price
increase of $.50 to $2.00 effective March 1995. Circulation revenue decreased
6.2% at Indianapolis. Circulation of the Indianapolis morning newspaper was up
2%, evening down 24.4% and Sunday circulation was up 1.3%. Revenues were
impacted by the March 6, 1995 home delivered price increase in the daily
newspaper to $1.80 per week from $1.50 and the daily single copy price increase
to $.50 from $.35. In 1995, the Phoenix and Indianapolis newspapers consolidated
their morning and evening newsroom staffs. These changes were designed to create
more resources for expanded coverage of urban and suburban issues along with
continued expansion of new forms of information distributions. Due to the
combination of the newsrooms, the morning and evening products have similar news
content which has caused most duplicate subscribers to drop their evening
subscriptions.
Operating expenses of $265.8 million, which includes $4.2 million of asset
impairment costs and $1.1 million of work force reduction costs, were up 11.6%
for the period. Excluding the asset impairment charges, work force reduction
<PAGE>12
costs and the effects of the McCormick acquisition, operating expenses increased
9.4%. Compensation expense, which includes fringe benefits, was up 2.7% for the
period, and excluding McCormick, compensation expense increased 1%. The slight
increase in compensation costs are the direct result of inflation offset by
savings associated with work force reductions. Newsprint expense increased $11.5
million or 23.7%, reflecting a .7% increase in consumption, the Alexandria
acquisition and higher newsprint prices. Without McCormick, newsprint expense
increased $10.8 million or 22.3% offset by a .5% decrease in consumption.
Depreciation and amortization expense of $17.6 million increased 22% due to the
new distribution facility in Indianapolis, the computer system in Phoenix and
depreciation and amortization expense associated with the acquisition of
McCormick. Depreciation and amortization expense associated with McCormick was
$.8 million. Other operating, distribution and general expenses were up 10.2%
(7% excluding McCormick) reflecting, in part, costs associated with operating
two office buildings in Phoenix, moving expenses and other costs related to the
new facilities.
Operating income, excluding impairment and work force reduction charges,
decreased $2.8 million, or 6.5% and excluding McCormick, decreased 8.1%. Other
income was down $2 million, or 37.1%, due to the use of cash in the McCormick
acquisition and a reduction in interest rates. Income before provision for
income taxes was down $8.3 million, or 18%. The provision for income taxes was
down $3.2 million, or 16.9%, and reflects lower income for the period.
Income from Equity in Affiliate, net of tax, changed from a loss of $.6 million
in 1995 to income of $1.3 million in 1996 due to the increase in newsprint
prices realized by Ponderay.
Net income for the period decreased $3 million, or 11.6%, compared to the same
period the prior year. Earnings per share for the six month period were $.85,
a decrease of 12.4%, from the $.97 per share the prior year. Excluding the
charges for impairments and work force reductions, earnings were $25.9 million
or $.97 per share, compared with $26.8 million, or $1.01 per share, in 1995.
Liquidity and Capital Resources
Cash provided by operations is the Company's primary source of liquidity. Net
cash provided by operating activities of $88.1 million includes $41.9 million
from the sale of trading securities. Operating cash flow net of the impact of
trading securities was $46.2 million compared to $38.6 million for the first six
months of 1995 and the difference was primarily attributable to changes in
working capital. Principal uses of cash flow for the six month period were
capital expenditures, the acquisition of McCormick, payment of dividends and the
repurchase of Class A common stock. At the end of the period, the Company's
cash and investments in marketable securities totaled $73 million, down $56.6
million from the beginning of the year. Working capital at June 30, 1996 was
$82.9 million, down $54.9 million, from the beginning of the year. These
reductions are primarily attributable to the purchase of McCormick.
Capital expenditures through June 30, 1996 were $26.1 million. Capital
expenditures for the year are expected to approximate $40 million.
Phoenix Newspapers, Inc. (PNI) completed construction of a new downtown Phoenix
office building in July 1996. Total costs of the building and related
expenditures were approximately $32 million. PNI will install a new computer
system with an estimated maximum cost of $24 million with completion expected in
mid-1997. Formal commitments totaling $38.3 million have been entered into
related to these and other capital projects at PNI. Cumulative expenditures on
these commitments were $34.2 million through June 30, 1996.
The Board of Directors has approved investments in partnership business ventures
<PAGE>13
of $10 million. As of June 30, 1996, $6.1 million has been expended. The
Company currently does not anticipate borrowing any funds for these capital
projects and investments.
On March 19,1996 the Board of Directors of the Company authorized the repurchase
of up to 1,000,000 shares of the Company's Class A common stock. The shares may
be purchased within the next three years on the open market or in privately
negotiated transactions. For the six month period ending June 30, 1996 the
Company had repurchased 122,900 shares.
The Company guarantees debt related to Ponderay which is discussed in Notes to
Consolidated Financial Statements in the 1995 Annual Report.
Quarterly dividends of $.17 per share on Class A common stock and $.017 per
share on Class B common stock were declared during the quarter. This represents
an increase over the prior year quarter of $.03 per share on the Class A common
stock and $.003 on the Class B common stock.
The Company has significant cash balances and a consistent ability to generate
cash flow from operations. The Company foresees no difficulty in maintaining its
present financial condition and liquidity. Funding for current and future
capital programs, the repurchase of Class A common stock, investment in
partnerships and projected working capital needs is considered adequate for the
foreseeable future.
<PAGE>14
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 -- At the Annual
Meeting of Shareholders of the Company on April 17, 1996, the
shareholders elected the following direct vote specified opposite
each director's name:
Votes Broker
Director Votes For Withheld Abstentions Non-Votes
- ---------------- ---------- -------- ----------- ---------
Kent E. Agness 32,793,701 22,472 ---
Malcolm W. Applegate 32,793,495 22,678 --- ---
William A. Franke 32,799,906 16,267 --- ---
Eugene S. Pulliam 32,793,158 23,015 --- ---
Dan Quayle 32,791,713 24,460 --- ---
James C. Quayle 32,793,367 22,806 --- ---
Frank E. Russell 32,792,583 23,590 --- ---
Louis A. Weil, III 32,793,373 22,800 --- ---
The shareholders approved the selection of Geo. S. Olive & Co. LLC to serve as
the independent auditors for the Company by the following vote:
Votes Broker
Votes for Against Abstentions Non-Votes
-------- ------- ----------- ---------
32,815,151 331 692 --
No other matters were submitted for a vote of the shareholders during the
quarter.
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.
<PAGE>15
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 by the undersigned
thereunto duly authorized.
CENTRAL NEWSPAPERS, INC.
Dated: August 7, 1996 By:/s/Louis A. Weil, III
-----------------------------
Louis A. Weil, III
President and Chief Executive
Officer
By:/s/Thomas K. MacGillivray
-----------------------------
Thomas K. MacGillivray
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's unaudited financial statements as of and for the fiscal six month
period ended June 30, 1996 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-END> JUN-30-1996
<CASH> 28245
<SECURITIES> 44724
<RECEIVABLES> 59510
<ALLOWANCES> 1085
<INVENTORY> 9038
<CURRENT-ASSETS> 152942
<PP&E> 500023
<DEPRECIATION> 204442
<TOTAL-ASSETS> 562996
<CURRENT-LIABILITIES> 70053
<BONDS> 7178
0
0
<COMMON> 22742
<OTHER-SE> 347639
<TOTAL-LIABILITY-AND-EQUITY> 562996
<SALES> 300613
<TOTAL-REVENUES> 300613
<CGS> 0
<TOTAL-COSTS> 265763
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 405
<INCOME-PRETAX> 37641
<INCOME-TAX> 15674
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22806
<EPS-PRIMARY> .85
<EPS-DILUTED> 0
</TABLE>
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 June 30, 1996, and the consolidated statements of income,
shareholders' equity and cash flows for the fiscal six-month periods ended June
30, 1996 and June 25, 1995. 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 31,
1995, 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 7, 1996, we expressed an unqualified opinion on those
consolidated financial statements.
/s/ Geo. S. Olive & Co. LLC
- ---------------------------
Geo. S. Olive & Co. LLC
Indianapolis, Indiana
July 22, 1996
