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 29, 1997
--- 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,
1997:
CLASS A COMMON STOCK 22,106,244
CLASS B COMMON STOCK 31,345,500
<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 9-14
Part II -- OTHER INFORMATION 15-18
<PAGE>3
PART I.
Item 1. Financial Statements
CENTRAL NEWSPAPERS, INC.
Consolidated Statement of Financial Position
June 29, Dec. 29,
ASSETS 1997 1996
(In thousands) (Unaudited)
-------- --------
CURRENT ASSETS:
Cash and cash equivalents $50,065 $36,149
Marketable securities 10,268 25,612
Accounts receivable (net of allowances of
$3,010 and $1,638) 79,903 90,023
Inventories 11,605 8,912
Deferred income tax benefits 7,617 7,263
Other current assets 6,375 3,503
-------- --------
Total current assets 165,833 171,462
-------- --------
PROPERTY, PLANT AND EQUIPMENT:
Land 18,604 18,225
Buildings and improvements 121,964 121,785
Leasehold improvements 4,255 4,255
Machinery and equipment 375,486 367,173
Construction in progress 4,908 1,414
-------- --------
525,217 512,852
Less accumulated depreciation 233,796 215,872
-------- --------
291,421 296,980
-------- --------
OTHER ASSETS:
Land held for development 3,105 3,118
Goodwill and other intangibles 114,044 75,449
Investment in Affiliate 8,197 8,867
Other 30,947 31,096
-------- --------
156,293 118,530
-------- --------
TOTAL ASSETS $613,547 $586,972
======== ========
See accompanying notes to consolidated financial statements.
<PAGE>4
CENTRAL NEWSPAPERS, INC.
Consolidated Statement of Financial Position
June 29, Dec. 29,
LIABILITIES AND SHAREHOLDERS' EQUITY 1997 1996
(In thousands, except share data) (Unaudited)
-------- --------
CURRENT LIABILITIES:
Accounts payable $18,343 $19,079
Accrued compensation 18,231 17,052
Dividends payable 4,795 5,180
Accrued expenses and other liabilities 14,768 13,914
Federal and state income taxes 5,880
Deferred revenue 23,682 18,034
Short-term debt 39,400
-------- --------
Total current liabilities 119,219 79,139
-------- --------
DEFERRED INCOME TAXES 28,681 26,602
-------- --------
LONG-TERM DEBT 2,678 2,678
-------- --------
POSTRETIREMENT BENEFIT OBLIGATION 83,222 81,759
-------- --------
MINORITY INTEREST IN SUBSIDIARY 1,249 9,244
-------- --------
REDEEMABLE PREFERRED STOCK ISSUED BY SUBSIDIARY 18,920
-------- --------
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--22,105,244 and 23,237,711
shares 26,731 24,259
Class B common stock--without par value:
Authorized--50,000,000 shares
Issued and outstanding--31,345,500 and 31,553,000
shares 63 63
Retained earnings 332,595 363,365
Unamortized value of restricted stock (1,581) (1,627)
Unrealized gain on available-for-sale securities 1,770 1,490
-------- --------
359,578 387,550
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $613,547 $586,972
======== ========
See accompanying notes to consolidated financial statements.
<PAGE> 5
<TABLE>
CENTRAL NEWSPAPERS, INC.
Consolidated Statement of Income
(Unaudited)
<CAPTION>
(In thousands, except per share data)
13 Weeks Ended 26 Weeks Ended
June 29, June 30, June 29, June 30,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Advertising $137,363 $117,329 $266,359 $229,833
Circulation 35,349 33,402 70,903 67,672
Other 7,041 1,986 13,459 3,108
-------- -------- -------- --------
179,753 152,717 350,721 300,613
-------- -------- -------- --------
OPERATING EXPENSES:
Compensation 58,767 56,419 118,366 113,236
Newsprint and ink 27,136 29,896 51,456 62,244
Other operating costs 43,701 34,894 82,996 67,393
Depreciation and amortization 10,631 9,102 21,336 17,561
Asset impairment cost 1,192 4,226
Work force reduction cost 682 663 6,723 1,103
-------- -------- -------- --------
140,917 132,166 280,877 265,763
-------- -------- -------- --------
OPERATING INCOME 38,836 20,551 69,844 34,850
OTHER INCOME (principally investment income) 1,285 1,450 2,551 3,307
OTHER EXPENSES (816) (253) (990) (516)
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 39,305 21,748 71,405 37,641
PROVISION FOR INCOME TAXES 16,018 9,082 29,552 15,674
-------- -------- -------- --------
INCOME BEFORE MINORITY INTEREST AND
EQUITY IN AFFILIATE 23,287 12,666 41,853 21,967
MINORITY INTEREST IN SUBSIDIARIES (744) (326) (1,287) (508)
EQUITY IN AFFILIATE, NET OF TAX (150) 656 (435) 1,347
-------- -------- -------- --------
NET INCOME $22,393 $12,996 $40,131 $22,806
======== ======== ======== ========
NET INCOME PER COMMON SHARE $.86 $.49 $1.53 $.85
DIVIDENDS DECLARED PER CLASS A COMMON SHARE $.19 $.17 $.38 $.34
AVERAGE COMMON SHARES
OUTSTANDING (combined Class A and
equivalent Class B shares) 26,130 26,749 26,262 26,725
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<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 JANUARY 1, 1996 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 48,000 1,734 ($1,734)
Amortization of restricted stock 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
Net income (26 weeks) 38,728
Dividends declared:
Class A common stock (8,846)
Class B common stock (1,199)
Exercise of stock options 70,650 1,841
Repurchase of Class A common stock (367,200) (430) (13,351)
Issuance of restricted stock 4,500 169 (169)
Amortization of restricted stock 202
Change in net unrealized gain on
available-for-sale securities 224
---------- ------- ---------- ------- -------- ---------- ----------
BALANCE AT DECEMBER 29, 1996 23,237,711 24,259 31,553,000 63 363,365 (1,627) 1,490
Net income (26 weeks) 40,131
Dividends declared:
Class A common stock (8,608)
Class B common stock (1,195)
Exercise of stock options 108,400 3,499
Repurchase of Class A common stock(1,267,867) (1,398) (60,999)
Repurchase of Class B common stock (17,500) (99)
Issuance of restricted stock 8,000 371 ($371)
Amortization of restricted stock 417
Common stock conversion 19,000 (190,000)
Change in net unrealized gain on
available-for-sale securities 280
---------- ------- ---------- ------- -------- ---------- ----------
BALANCE AT JUNE 29, 1997 22,105,244 $26,731 31,345,500 $63 $332,595 ($1,581) $1,770
========== ======= ========== ======= ======== ========== ==========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 7
CENTRAL NEWSPAPERS, INC.
Consolidated Statement of Cash Flows
(Unaudited)
(In thousands)
26 Weeks Ended
June 29, June 30,
1997 1996
-------- --------
OPERATING ACTIVITIES:
Net income $40,131 $22,806
Items which did not use (provide) cash:
Depreciation and amortization 21,336 17,561
Postretirement and pension benefits 3,306 3,395
Loss (gain) on disposition of assets (115) 3,415
Minority interest in earnings of subsidiaries 1,287 508
Equity in Affiliate 435 (1,472)
Deferred income taxes 978 (1,590)
Amortization of restricted stock awards 417 74
Other 224 129
Net proceeds from trading securities 2,072 41,936
Net change in other current assets and liabilities 11,325 1,360
-------- --------
Net cash provided by operating activities 81,396 88,122
-------- --------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment-net (12,532) (26,077)
Purchases of available-for-sale securities (14,660)
Proceeds from available-for-sale securities 13,103 32,178
Acquisition of subsidiaries (33,219) (60,509)
Other (2,126) (4,401)
-------- --------
Net cash used by investing activities (34,774) (73,469)
-------- --------
FINANCING ACTIVITIES:
Cash dividends paid (10,022) (9,078)
Dividends paid to minority interest (828) (823)
Proceeds from exercise of stock options 2,040 1,586
Borrowings of short-term debt 39,400
Principal repayments of long-term debt (800)
Repurchase of common stock (62,496) (4,235)
-------- --------
Net cash used by financing activities (32,706) (12,550)
-------- --------
INCREASE IN CASH AND CASH EQUIVALENTS 13,916 2,103
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 36,149 26,142
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $50,065 $28,245
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Issuance by subsidiary of redeemable preferred stock
in exchange for Class A common stock of subsidiary $18,920
Income taxes paid during the period 34,462 $20,087
Interest paid during the period 437 405
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 an 80%
interest in the Westech group of companies which are predominately in the jobs
fair business and a 13.5% interest in Ponderay Newsprint Company ("Affiliate"),
a partnership formed to own a newsprint mill in the State of 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 revenues and expenses
as of and for the period ending with the financial reporting date. 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 the 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 29, 1996. 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 29, 1996 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 28, 1997 and December 29, 1996 each comprise 52 weeks.
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. In February 1997 the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share." This statement establishes new standards for
reporting earnings per share. This standard is effective for interim and
annual periods ending after December 15, 1997. It is not expected to have a
material impact on the Company's earnings per share.
6. During 1997 and 1996, the Company reduced its work force in response to
circulation distribution changes, technological changes and the closure of the
Phoenix afternoon newspaper. Certain employees were offered retirement benefits
through a non-qualified supplemental retirement plan. Year-to-date 1997 work
force reduction costs were $6.7 million.
7. On March 19, 1996, the Board of Directors authorized the repurchase of up
to 1.0 million shares of the Company's Class A common stock. The shares may be
purchased over three years on the open market or in privately negotiated
transactions. The Company has repurchased 90,500 shares during 1997 and a total
of 580,600 shares under this authorization through June 29, 1997.
<PAGE> 9
8. On May 20, 1997 the Company repurchased an aggregate of 1,177,367 shares of
the Company's Class A common stock from three non-profit organizations at
$49.50 per share, plus interest from April 11, 1997, for total consideration of
$58.6 million. This repurchase was not part of the March 19, 1996 repurchase
program. On May 8, 1997, the Company entered into a $60 million unsecured,
uncommitted, short-term credit agreement of which $39.4 million was drawn to
partially fund this repurchase. The balance of the repurchase amount was
financed with existing cash and through the sale of investments.
9. On January 3, 1997, the Company acquired the remaining 9.8% of Indianapolis
Newspapers, Inc. ("INI") common stock that it did not already own. This
transaction, which was recorded using purchase accounting, was accomplished by
issuing to the minority shareholders an aggregate of 1,892 shares of newly
created, non-voting, INI preferred stock, with an aggregate stated value of
$18.9 million, in exchange for the shares of INI common stock owned by them. The
preferred stock provides for aggregate annual dividends of $1.3 million on a
cumulative basis, is callable in five years by INI, and is redeemable at any
time by the shareholders of INI at the stated value plus accrued but unpaid
dividends. This transaction is not expected to have a dilutive effect on future
earnings.
10. In February 1997, the Company acquired 80% of the Santa Clara, California
based Westech group of companies for $34.8 million. The transaction was recorded
using purchase accounting. The group, which had 1996 sales of approximately
$20 million, includes Westech ExpoCorp., which organizes job fairs for the high
technology industry, High Technology Careers, which publishes High Technology
Careers Magazine and Virtual Job Fair, an internet-based resume posting and
research service and JobsAmerica, which organizes job fairs for service industry
positions. The transaction generated approximately $32.4 million of goodwill
which is being amortized on a straight line basis over 15 years. On June 30,
1997 Westech acquired the assets of Target Career Fairs, a Boston based
company that organizes job fairs for the high technology industry, predominately
in the eastern United States.
11. Certain amounts in the financial statements have been reclassified to
conform with the 1997 presentation.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
GENERAL
The principal line of business of the Company is newspaper publishing. Revenues
are derived primarily from advertising and newspaper sales in the Phoenix,
Arizona and Indianapolis, Indiana metropolitan areas. The Company also has an
80% interest in the Westech group of companies, which are predominantly in the
jobs fair business and a 13.5% interest in Ponderay, a partnership formed to own
a newsprint mill in the State of Washington. The analysis of the second quarter
and six month period of 1997 compared with comparable 1996 periods should be
read in conjunction with the fiscal 1996 consolidated financial statements and
the accompanying notes to the consolidated financial statements.
The Company's business tends to be somewhat seasonal, with peak revenues and
profits generally occurring in the second and fourth quarters of each year.
RECENT EVENTS
On June 24, 1997 the Company completed the registration and resale of 2,354,733
shares of its Class A common stock priced at $64.125 per share. The shares were
sold by three non-profit beneficiaries of the estate of Enid Goodrich, the widow
of an original investor in the Company. No new shares were issued in this
transaction and the Company received no proceeds from the sale.
<PAGE> 10
On May 20, 1997 the Company purchased an aggregate of 1,177,367 shares of Class
A common stock from the beneficiaries of the Enid Goodrich estate at $49.50 per
share, plus interest from April 11,1997, for total consideration of $58.6
million. The shares were retired by the Company.
In February 1997, the Company acquired 80% of the Westech group of companies.
Based in Santa Clara, California, the group consists of Westech ExpoCorp., which
organizes job fairs for the high technology industry; High Technology Careers,
which publishes High Technology Careers Magazine and Virtual Job Fair
(http://www.vjf.com), an internet-based resume posting and research service; and
JobsAmerica, which organizes job fairs for service industry positions. Westech
had approximately $20 million of revenues in 1996. On June 30, 1997 Westech
acquired the assets of Target Career Fairs, a Boston based company that
organizes job fairs for the high technology industry in the eastern portion of
the U.S., including the cities of Boston, Raleigh, Orlando, Philadelphia and St.
Louis. Target had 1996 revenues of approximately $3 million.
Effective January 18, 1997, the Company ceased publication of its afternoon
newspaper, The Phoenix Gazette, and realigned the news gathering structure of
its morning newspaper, The Arizona Republic. These changes resulted in the
Company recording a one-time pre-tax charge to earnings of approximately $4.2
million in 1997 and are expected to result in a reduction in operating expenses
of approximately $5.0 million in 1997 and ongoing operating expense savings in
future years of approximately $6.4 million. Approximately 85 positions were
eliminated as a result of these actions.
On January 3, 1997, the Company acquired the remaining 9.8% of Indianapolis
Newspapers, Inc. ("INI") common stock that it did not already own. This
transaction, which was recorded using purchase accounting, was accomplished by
issuing to the minority shareholders an aggregate of 1,892 shares of newly
created, non-voting, INI preferred stock with an aggregate stated value of $18.9
million in exchange for the shares of INI common stock owned by them. The
preferred stock provides for aggregate annual dividends of $1.3 million on a
cumulative basis, is callable in five years by INI, and is redeemable at any
time by the shareholders of INI at the stated value plus accrued but unpaid
dividends. This transaction is not expected to have a dilutive effect on future
earnings.
On March 12, 1996, the Company purchased 100% of the outstanding common stock of
McCormick & Company, Inc. ("McCormick"), which owns the Alexandria Daily Town
Talk newspaper of Louisiana and McCormick Graphics, Inc., a commercial printing
subsidiary. The purchase price was approximately $62.0 million in cash. Since
a significant portion of the purchase price was allocated to intangible assets,
the amortization of which is not deductible for tax purposes, the Company's net
income may be negatively impacted for up to three years from the date of
acquisition. Thereafter, the acquisition is expected to contribute positively
to net income. However, the Company's EBITDA has been positively impacted since
the acquisition.
SECOND QUARTER AND SIX MONTH PERIOD OF 1997 COMPARED WITH 1996
QUARTERLY RESULTS OF OPERATIONS
The Company's revenues and profits continued to reach record levels during the
second quarter and the first six months of 1997. Second quarter and year-to-date
earnings per share for 1997 were $.86 and $1.53 for increases of 75.5% and
80.0%, respectively. All periods included the effects of work force reduction
and/or asset impairment costs ("special charges") which negatively impacted
earnings. Had the Company not incurred the special charges, earnings per
share would have been $.87 for the second quarter of 1997 and $1.68 for the
1997 six month period, representing increases of 64.2% and 73.2%, respectively,
versus comparable 1996 amounts.
<PAGE> 11
Operating income for the second quarter and the first six months of 1997 was
$38.8 million and $69.8 million, respectively, which represented increases of
89.0% and 100.4% over comparable 1996 periods. The 1997 periods included the
effects of the Westech and McCormick acquisitions (the "acquisitions") and all
1997 and 1996 periods included the impact of the special charges. Operating
results, excluding the effects of the acquisitions and the special charges were
as follows:
Operating Results-Exclusive of special charges and acquisitions
Second Quarter % Year-to-date %
-------------- ------------
1997 1996 Change 1997 1996 Change
---- ---- ------ ---- ---- ------
(In millions)
Advertising revenue $ 134.5 $ 117.3 14.7 $ 259.9 $ 229.8 13.1
Circulation revenue 35.3 33.4 5.7 70.3 67.7 3.8
Other revenue 2.0 2.0 3.2 3.1 3.2
--------- ------- -------- --------
Total revenue 171.8 152.7 12.5 333.4 300.6 10.9
--------- ------- -------- --------
Compensation 57.3 56.4 1.6 114.3 113.2 1.0
Newsprint and ink 26.9 29.9 (10.0) 50.6 62.2 (18.6)
Other operating costs 41.4 34.9 18.6 78.1 67.4 15.9
Depreciation and
amortization 10.2 9.1 12.1 19.8 17.6 12.5
--------- ------- -------- --------
Total expenses 135.8 130.3 4.2 262.8 260.4 .9
--------- ------- -------- --------
Operating income $ 36.0 $ 22.4 60.7 $ 70.6 $ 40.2 75.6
========= ======= ======== ========
Net income for the second quarter of 1997 was $22.4 million, up 72.3% over the
same period of 1996. For the six month period, net income for 1997 was $40.1
million, up 76.0% over the prior year. Had the Company not incurred the special
charges, net income would have been $22.8 million, versus $14.1 million for the
second quarter and $44.2 million versus $25.9 million for the six month period.
EBITDA (operating earnings before depreciation, amortization and special
charges) for the second quarter increased 59.2% to $50.1 million and 69.6% to
$97.9 million during the first half of 1997.
OPERATING REVENUES
The Company's second quarter and six month revenues rose to $179.8 million and
$350.7 million for increases of 17.7% and 16.7%, respectively, when compared
with the same 1996 periods. Both 1997 periods included the effects of the
acquisitions. Excluding the acquisitions, operating revenues rose 12.5% and
10.9%.
Total advertising revenues for the three and six month periods ended June 29,
1997 were $137.4 million and $266.4 million for increases of 17.1% and 15.9%,
respectively. Excluding the acquisitions, revenues for the same periods
increased 14.7% and 13.1%. The increases in advertising revenues were primarily
due to strong retail and classified linage gains in Indianapolis, especially in
the retail, recruitment and automobile sectors, and in Phoenix, where both
increased pricing and linage gains, primarily in the recruitment advertising
sector, contributed to the overall gains. National advertising linage increased
significantly in both major markets. Since June 1996, Phoenix raised advertising
prices in the range of 5-6%.
Circulation revenues for the second quarter and year-to-date periods increased
to $35.3 million and $70.9 million, respectively, for increases of 5.8% and 4.8%
when compared with 1996. The acquisitions did not significantly affect
circulation revenues. The overall increase is mostly in response to a September
1996 price increase and a change in the circulation distribution system in
Indianapolis. The closure of The Phoenix Gazette in January, 1997 did not have
a substantial impact on revenues since the majority of this paper's circulation
was converted to The Arizona Republic.
<PAGE> 12
Other revenues for the second quarter and year-to-date increased $5.1 million
and $10.4 million, respectively, due primarily to Westech's jobs fair business
acquired in 1997.
The following is a summary of major market linage and circulation statistics for
the second quarter and six month periods:
(In thousands, except circulation)
Second Quarter % Year-to-date %
-------------- ------------
1997 1996 Change 1997 1996 Change
---- ---- ------ ---- ---- ------
Full Run Linage in six
column inches: (1)
Retail 637.8 604.3 5.6 1,271.3 1,171.5 8.5
National 118.0 80.6 46.4 219.3 142.9 53.4
Classified 818.4 706.0 16.0 1,577.9 1,362.9 15.8
------ ------- ------- -------
Total 1574.2 1,390.9 13.2 3,068.5 2,677.3 14.6
====== ======= ======= =======
Full Run Linage by Major Markets:
Phoenix (1) 709.1 654.4 8.4 1,395.9 1,306.9 6.8
Indianapolis 865.1 736.5 17.5 1,672.6 1,370.4 22.0
------- ------- ------- -------
1,574.2 1,390.9 13.2 3,068.5 2,677.3 14.6
======= ======= ======= =======
Net Advertising
Revenue $137,363 $117,329 17.1 266,359 229,833 15.9
Combined Average Daily Circulation:
Phoenix 450,679 454,153 ( .8) 467,344 473,284 (1.3)
Indianapolis 270,450 290,176 (6.8) 272,554 290,144 (6.1)
Sunday Circulation:
Phoenix 567,305 570,931 (.7) 592,925 596,120 ( .5)
Indianapolis 393,752 404,902 (2.8) 393,486 404,018 (2.6)
(1) For comparability, linage statistics for the 13 weeks and 26 weeks ended
June 29, 1997 and June 30, 1996 exclude linage of The Phoenix Gazette, which
ceased publication in January, 1997.
OPERATING EXPENSES
Compensation costs, which include fringe benefits, increased 4.2% to $58.8
million for the second quarter and 4.5% to $118.4 million for the six month
period. Excluding the acquisitions, compensation expense increased 1.6% and 1.0%
for the same periods. The year-over-year headcount (excluding the acquisitions)
decreased 2.4% due primarily to the Gazette closure and the conversion from a
carrier-based distribution arrangement to an agency-based distribution work
force in Indianapolis. These benefits were offset by increased training, other
employee benefits and merit increases.
Newsprint and ink expense for 1997 decreased 9.2% to $27.1 million in the second
quarter and 17.3% to $51.5 million for the six month period. Comparable
decreases without the acquisitions were 10.0% and 18.6%, respectively. The
decreases in newsprint expense were primarily due to substantially lower
newsprint prices during both 1997 periods when compared with 1996. The lower
newsprint prices were offset by higher consumption in the second quarter of 9.3%
and for the six month period of 7.3% due to sharply higher advertising linage in
both major markets and to a new product initiative targeting the southeast
region of the Phoenix metropolitan area. Since newsprint prices leveled out in
late 1996, and began to rise in early 1997, the Company anticipates that
newsprint expense comparisons will show increases during the last half of 1997.
Other operating costs rose 25.2% to $43.7 million for the second quarter and
rose 23.2% to $83 million for the six month period. Excluding the acquisitions,
other operating costs would have increased 18.6% and 15.9%. Significant items
contributing to these increases in both 1997 periods versus the same 1996
<PAGE> 13
periods included the circulation delivery system changes in Indianapolis, bad
debt costs, higher property taxes and expenses associated with the Phoenix
client server computer system.
Depreciation and amortization expense for the second quarter and the year-to-
date was $10.6 million and $21.3 million, compared with $9.1 million and $17.6
million in 1996. Excluding the acquisitions, depreciation and amortization
expense would have been $10.2 million and $19.8 million, respectively. The
expense increases were due to a new office building and client server computer
systems in Phoenix and new distribution centers and inserting equipment at both
locations.
The Company recorded work force reduction costs in 1997 of $.7 million in the
second quarter and $6.7 million for the six month period. Of the year-to-date
amounts, approximately $4.2 million resulted from the closure of The Phoenix
Gazette where approximately 85 positions were eliminated. The balance of the
charges relates to the conversion from the carrier-based work force to an agent-
based circulation arrangement in Indianapolis.
NON-OPERATING ITEMS
Other non-operating income for 1997 (primarily investment income) decreased $.2
million in the second quarter and $.8 million for the year-to-date primarily due
to a reduction in investable cash related to the acquisitions and the
repurchases of common stock. Other non-operating expenses increased in the
second quarter due to interest expense on borrowings for the repurchase of
1,177,367 shares of Class A common stock. Income tax expense increased due to
higher taxable income. Equity in Affiliate recorded losses in the second
quarter and the six month period due to a reduction in newsprint selling prices
realized by Ponderay Newsprint Company.
LIQUIDITY AND CAPITAL RESOURCES FOR THE QUARTER ENDED JUNE 29, 1997
Net cash provided by operating activities is the Company's primary source of
liquidity. Net cash provided by operating activities, excluding the effects of
net proceeds from trading securities for the first six months of 1997 and 1996,
was $79.3 million and $46.2 million, respectively. Changes for both years were
primarily attributable to net income and/or working capital differences. The
principal uses of cash in the first six months of 1997 were the repurchase of
Class A common stock, acquisition of Westech, capital expenditures and the
payment of dividends. At the end of the six month period, the Company's
available cash and investments totaled $60.3 million, down $1.4 million from the
end of 1996. Working capital for the same period decreased $45.7 million to
$46.6 million due primarily to the use of a short-term credit facility for the
repurchase of common stock.
Total capital expenditures for the first six months of 1997 were $12.5 million
compared with $26.1 million for the comparable 1996 period. The Company plans
approximately $28 million of capital expenditures in 1997. As of June 29, 1997,
there were no significant formal commitments related to future capital
expenditures.
The Company announced in March, 1996 that it was authorized to repurchase up to
1.0 million shares of its Class A common stock on the open market or in
privately negotiated transactions over a three year time period. Through June
29, 1997 the Company had repurchased a total of 580,600 shares. During the six
months ended June 29, 1997 the Company repurchased 90,500 shares at an aggregate
cost of $4.1 million.
On May 20, 1997, the Company repurchased 1,177,367 shares of its Class A common
stock (not related to the March 1996 authorized repurchase) at $49.50 per share,
plus accrued interest from April 11, 1997, from three non-profit beneficiaries
of the estate of Enid Goodrich. The aggregate $58.6 million transaction utilized
<PAGE> 14
existing cash and investments for part of the repurchase with $39.4 million
being obtained from a $60 million uncommitted, unsecured short-term bank line of
credit that the Company obtained May 8, 1997.
Dividends of $.19 per share on the Class A common stock and $.019 on the Class
B common stock were declared during the quarter and paid July 10, 1997. Total
Class A and B dividends paid during the six month period of 1997 were $10
million.
The Company has demonstrated a consistent ability to generate net cash flow from
operations. Management believes that existing cash and investments, net cash
flows from operations and available bank credit resources are sufficient to
enable the Company to maintain its current level of operations. Financing for
future investment opportunities is expected to come from a combination of
existing cash, new debt facilities and/or the use of equity.
OUTLOOK FOR THE REMAINDER OF 1997
The Company foresees continued growth in advertising revenues for the balance of
1997, but at a rate less than that experienced in the first half of 1997.
Despite the closure of The Phoenix Gazette in January, 1997, circulation revenue
is also expected to increase modestly compared to 1996 due to September, 1996
price increases and circulation delivery changes in Indianapolis. Non-newsprint
operating expenses are expected to increase at a rate comparable with revenue
growth. The cost of newsprint expense, the second largest expense category, is
expected to increase during the latter half of 1997; but total 1997 newsprint
and ink expense is expected to be less than comparable 1996 levels. If so, the
Company expects favorable financial performance in 1997 compared with 1996.
FORWARD-LOOKING STATEMENTS
This document contains material that is forward-looking in nature. From time to
time, the Company may provide forward-looking statements relating to such
matters as anticipated financial performance, business prospects and similar
matters. All forward-looking statements are based upon information available to
the Company at the time they are made and the Company assumes no obligation to
update any forward-looking statements. The Company notes that a variety of
factors could cause the Company's actual results to differ materially from the
expectations expressed in the forward-looking statements. The risks and
uncertainties that may affect the operations, performance and results of the
Company's business include, but are not limited to:
* economic weakness in the Company's geographic markets
* weakness in retail and/or classified advertising revenue due to factors
including retail consolidations, declines in the advertising budgets of
major customers, and increased competition from print and non-print
products
* declines in circulation due to changing reader preferences and/or new forms
of information dissemination
* fluctuations in the price of newsprint
* an increase in distribution and/or production costs over anticipated
levels
* the negative impact of issues related to labor agreements
* new competitors emerging in our markets
<PAGE> 15
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 24, 1997,
the shareholders elected the following directors by the votes
specified opposite each director's name:
Votes Broker
Director Votes For Withheld Abstentions Non-Votes
William A. Franke 32,989,192 17,895 --- ---
L. Ben Lytle 32,986,928 20,159 --- ---
Eugene S. Pulliam 33,000,060 7,027 --- ---
Dan Quayle 32,992,503 14,584 --- ---
Frank E. Russell 33,000,030 7,057 --- ---
Richard Snell 32,989,666 17,421 --- ---
Louis A. Weil III 32,999,979 7,108 --- ---
The shareholders approved the selection of Price Waterhouse LLP as the
independent auditors for the Company by the following vote:
Votes Broker
Votes For Withheld Abstentions Non-Votes
30,497,741 2,050 2,507,296 ---
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
a) Exhibits 1a and 1b -- Independent Accountant's Reports
b) No reports on Form 8-K were filed during the quarter.
<PAGE> 16
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 8, 1997 By: /s/ Louis A. Weil, III
----------------------
Louis A. Weil, III
President and Chief Executive
Officer
By: /s/ Thomas K. MacGillivray
--------------------------
Thomas K. MacGillivray
Vice President and 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 29, 1997 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-28-1997
<PERIOD-END> JUN-29-1997
<CASH> 50065
<SECURITIES> 10268
<RECEIVABLES> 82913
<ALLOWANCES> 3010
<INVENTORY> 11605
<CURRENT-ASSETS> 165833
<PP&E> 525217
<DEPRECIATION> 233796
<TOTAL-ASSETS> 613547
<CURRENT-LIABILITIES> 119219
<BONDS> 2678
18920
0
<COMMON> 26794
<OTHER-SE> 332784
<TOTAL-LIABILITY-AND-EQUITY> 613547
<SALES> 350721
<TOTAL-REVENUES> 350721
<CGS> 0
<TOTAL-COSTS> 280877
<OTHER-EXPENSES> 990
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 437
<INCOME-PRETAX> 71405
<INCOME-TAX> 29552
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40131
<EPS-PRIMARY> 1.53
<EPS-DILUTED> 0
</TABLE>
Exhibit 1a
INDEPENDENT ACCOUNTANT'S REPORT
To the Board of Directors and Shareholders of
Central Newspapers, Inc.
We have reviewed the accompanying consolidated statement of financial position
of Central Newspapers, Inc. as of June 29, 1997, and the consolidated statements
of income, shareholders' equity and cash flows for the three-month and six-month
periods then ended. 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 accompanying financial statements as of and for the three-month
and six-month periods ended June 29, 1997 for them to be in conformity with
generally accepted accounting principles.
/s/Price Waterhouse LLP
- -----------------------
Price Waterhouse LLP
Indianapolis, Indiana
July 21, 1997
Exhibit 1b
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 (not presented herein), and the
consolidated statements of income, shareholders' equity and cash flows for the
fiscal three and six-month periods ended June 30, 1996. 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 29,
1996, 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 3, 1997, 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
