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 September 28, 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 October
31, 1997:
CLASS A COMMON STOCK 21,989,891
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
September 28, Dec. 29,
ASSETS 1997 1996
(In thousands) (Unaudited)
----------- -----------
CURRENT ASSETS:
Cash and cash equivalents $55,751 $36,149
Marketable securities 11,794 25,612
Accounts receivable (net of allowances of
$3,092 and $1,638) 77,921 90,023
Inventories 11,481 8,912
Deferred income tax benefits 7,178 7,263
Other current assets 10,930 3,503
----------- -----------
Total current assets 175,055 171,462
----------- -----------
PROPERTY, PLANT AND EQUIPMENT:
Land 18,604 18,225
Buildings and improvements 122,062 121,785
Leasehold improvements 4,255 4,255
Machinery and equipment 378,665 367,173
Construction in progress 6,577 1,414
----------- -----------
530,163 512,852
Less accumulated depreciation 243,088 215,872
----------- -----------
287,075 296,980
----------- -----------
OTHER ASSETS:
Land held for development 3,105 3,118
Goodwill and other intangibles 115,902 75,449
Investment in Affiliate 8,615 8,867
Other 31,168 31,096
----------- -----------
158,790 118,530
----------- -----------
TOTAL ASSETS $620,920 $586,972
=========== ===========
See accompanying notes to consolidated financial statements.
<PAGE>4
CENTRAL NEWSPAPERS, INC.
Consolidated Statement of Financial Position
September 28, Dec. 29,
LIABILITIES AND SHAREHOLDERS' EQUITY 1997 1996
(In thousands, except share data) (Unaudited)
----------- -----------
CURRENT LIABILITIES:
Accounts payable $14,956 $19,079
Accrued compensation 20,082 17,052
Dividends payable 5,293 5,180
Accrued expenses and other liabilities 16,251 13,914
Federal and state income taxes 5,880
Deferred revenue 23,888 18,034
Short-term debt 34,400
----------- -----------
Total current liabilities 114,870 79,139
----------- -----------
DEFERRED INCOME TAXES 28,544 26,602
----------- -----------
LONG-TERM DEBT 2,678 2,678
----------- -----------
POSTRETIREMENT AND OTHER NONCURRENT LIABILITIES 85,489 81,759
----------- -----------
MINORITY INTEREST IN SUBSIDIARY 1,606 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--22,071,225 and
23,237,711 shares 27,910 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 340,460 363,365
Unamortized value of restricted stock (1,410) (1,627)
Unrealized gain on available-for-sale securities 1,790 1,490
----------- -----------
368,813 387,550
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $620,920 $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 39 Weeks Ended
September 28, September 29, September 28, September 29,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Advertising $129,431 $114,728 $395,790 $344,561
Circulation 35,642 32,398 106,545 100,070
Other 8,834 1,892 22,293 5,000
----------- ----------- ----------- -----------
173,907 149,018 524,628 449,631
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Compensation 59,068 55,832 177,434 169,068
Newsprint and ink 25,390 25,310 76,846 87,554
Other operating costs 45,426 34,280 128,422 101,673
Depreciation and amortization 10,843 9,184 32,179 26,745
Asset impairment cost 4,226
Work force reduction cost 2,632 117 9,355 1,220
----------- ----------- ----------- -----------
143,359 124,723 424,236 390,486
----------- ----------- ----------- -----------
OPERATING INCOME 30,548 24,295 100,392 59,145
OTHER INCOME (principally investment income) 813 1,041 3,364 4,348
OTHER EXPENSES (623) (237) (1,613) (754)
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 30,738 25,099 102,143 62,739
PROVISION FOR INCOME TAXES 12,752 10,229 42,304 25,903
----------- ----------- ----------- -----------
INCOME BEFORE MINORITY INTEREST AND
EQUITY IN AFFILIATE 17,986 14,870 59,839 36,836
MINORITY INTEREST IN SUBSIDIARIES (688) (408) (1,975) (916)
EQUITY IN AFFILIATE, NET OF TAX 180 604 (255) 1,951
----------- ----------- ----------- -----------
NET INCOME $17,478 $15,066 $57,609 $37,871
=========== =========== =========== ===========
NET INCOME PER COMMON SHARE $.69 $.57 $2.22 $1.42
DIVIDENDS DECLARED PER CLASS A COMMON SHARE $.21 $.19 $.59 $.53
AVERAGE COMMON SHARES
OUTSTANDING (combined Class A and
equivalent Class B shares) 25,229 26,571 25,918 26,673
<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 (39 weeks) 37,871
Dividends declared:
Class A common stock (12,439)
Class B common stock (1,672)
Exercise of stock options 130,150 2,937
Repurchase of Class A common stock (384,700) (423) (13,265)
Issuance of restricted stock 52,500 1,903 ($1,903)
Amortization of restricted stock 177
Change in net unrealized gain on
available-for-sale securities 136
----------- ---------- ----------- ----------- --------- ---------- ---------
BALANCE AT SEPTEMBER 29, 1996 23,318,561 23,384 31,553,000 63 348,931 (1,726) 1,411
Net income (13 weeks) 23,663
Dividends declared:
Class A common stock (4,417)
Class B common stock (600)
Exercise of stock options 24,550 991
Repurchase of Class A common stock (105,400) (116) (4,212)
Amortization of restricted stock 99
Change in net unrealized gain on
available-for-sale securities 79
----------- ---------- ----------- ----------- --------- ---------- ---------
BALANCE AT DECEMBER 29, 1996 23,237,711 24,259 31,553,000 63 363,365 (1,627) 1,490
Net income (39 weeks) 57,609
Dividends declared:
Class A common stock (13,243)
Class B common stock (1,853)
Exercise of stock options 139,281 4,707
Repurchase of Class A common stock (1,332,267) (1,475) (65,319)
Repurchase of Class B common stock (17,500) (99)
Issuance of restricted stock, net of
cancellations 7,500 419 (419)
Amortization of restricted stock 636
Common stock conversion 19,000 (190,000)
Change in net unrealized gain on
available-for-sale securities 300
----------- ---------- ----------- ----------- --------- ---------- ---------
BALANCE AT SEPTEMBER 28, 1997 22,071,225 $27,910 31,345,500 $63 $340,460 ($1,410) $1,790
=========== ========== =========== =========== ========= ========== =========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>7
CENTRAL NEWSPAPERS, INC.
Consolidated Statement of Cash Flows
(Unaudited)
(In thousands)
39 Weeks Ended
September 28, September 29,
1997 1996
----------- -----------
OPERATING ACTIVITIES:
Net income $57,609 $37,871
Items which did not use (provide) cash:
Depreciation and amortization 32,179 26,745
Postretirement and pension benefits 5,098 4,814
Loss (gain) on disposition of assets (74) 4,025
Minority interest in earnings of subsidiaries 1,975 916
Equity earnings in Affiliate 255 (2,076)
Deferred income taxes 1,412 (1,753)
Amortization of restricted stock awards 636 177
Other 370 929
Net proceeds from trading securities 2,160 41,850
Net change in other current assets and liabilities 10,548 62
----------- -----------
Net cash provided by operating activities 112,168 113,560
----------- -----------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment-net (18,144) (37,135)
Purchases of available-for-sale securities (24,659)
Proceeds from available-for-sale securities 11,409 52,036
Acquisition of subsidiaries (33,219) (60,509)
Other (6,027) (5,684)
----------- -----------
Net cash used by investing activities (45,981) (75,951)
----------- -----------
FINANCING ACTIVITIES:
Cash dividends paid (14,818) (13,617)
Dividends paid to minority interest (1,159) (989)
Proceeds from exercise of stock options 2,685 2,131
Borrowings of short-term debt-net 34,400
Principal repayments of long-term debt (800) (3,500)
Repurchase of common stock (66,893) (13,688)
----------- -----------
Net cash used by financing activities (46,585) (29,663)
----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS 19,602 7,946
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 36,149 26,142
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $55,751 $34,088
=========== ===========
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 51,324 $31,750
Interest paid during the period 748 520
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 $9.4 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 154,900 shares during 1997 and a total
of 645,000 shares under this authorization through September 28, 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. As of September 28, 1997, $34.4
million remains outstanding on the short-term credit agreement at an annual
interest rate of approximately 6%.
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.
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 Company's principal line of business 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 is 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 third quarter and
nine 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 October 14,1997 the Company acquired an 80% interest in Home Buyer's Fair LLC
which provides internet based services and information for people who are moving
and corporations who are relocating employees. The Company has an option to
purchase the remaining 20%. The acquisition is not expected to have a material
impact on earnings.
THIRD QUARTER AND NINE MONTH PERIOD OF 1997 COMPARED WITH 1996
QUARTERLY RESULTS OF OPERATIONS
The Company's revenues and profits continued to reach record levels during the
third quarter and the first nine months of 1997. Third quarter and year-to-date
earnings per share for 1997 were $.69 and $2.22 for increases of 21.1% and
56.3%, 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 $.76 for the third quarter of 1997 and $2.44 for the 1997 nine
month period, representing increases of 33.3% and 58.4%, respectively, versus
comparable 1996 amounts.
Operating income for the third quarter and the first nine months of 1997 was
$30.5 million and $100.4 million, respectively, which represented increases of
25.7% and 69.7% 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
<PAGE> 11
results, excluding the effects of the acquisitions and the special charges were
as follows:
Operating Results-Exclusive of special charges and acquisitions:
Third Quarter % Year-to-date %
------------- ------------
1997 1996 Change 1997 1996 Change
---- ---- ------ ---- ---- ------
(In millions)
Advertising revenue $127.4 $114.7 11.1 $387.2 $344.6 12.4
Circulation revenue 35.6 32.4 9.9 105.9 100.0 5.9
Other revenue 2.2 1.9 15.8 5.4 5.0 8.0
----- ----- ----- -----
Total revenue 165.2 149.0 10.9 498.5 449.6 10.9
----- ----- ----- -----
Compensation 57.0 55.8 2.2 171.2 169.1 1.2
Newsprint and ink 25.2 25.3 (.4) 75.8 87.5 (13.4)
Other operating costs 42.8 34.3 24.8 120.9 101.7 18.9
Depreciation and
amortization 10.2 9.2 10.9 30.0 26.7 12.4
---- ---- ----- -----
Total expenses 135.2 124.6 8.5 397.9 385.0 3.4
----- ----- ----- -----
Operating income $30.0 $24.4 23.0 $100.6 $64.6 55.7
===== ===== ====== =====
Net income for the third quarter of 1997 was $17.5 million, up 16.0% over the
same period of 1996. For the nine month period, net income for 1997 was $57.6
million, up 52.1% over the prior year. Had the Company not incurred the special
charges, net income would have been $19.1 million, versus $15.1 million for the
third quarter and $63.2 million versus $41.1 million for the nine month period.
EBITDA (operating earnings before depreciation, amortization and special
charges) for the third quarter increased 31.0% to $44.0 million and 55.4% to
$141.9 million during the first nine months of 1997.
OPERATING REVENUES
The Company's third quarter and nine month revenues rose to $173.9 million and
$524.6 million for increases of 16.7% 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 10.9% in the
third quarter and 10.9% for the nine months.
Total advertising revenues for the three and nine month periods ended September
28, 1997 were $129.4 million and $395.8 million for increases of 12.8% and
14.9%, respectively. Excluding the acquisitions, revenues for the same periods
increased 11.0% and 12.4%. The increases in advertising revenues were primarily
due to strong retail and classified linage gains in Indianapolis, especially in
the department stores, recruitment, automobile and real estate 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
September 1996, Phoenix raised advertising prices in the range of 5-6%.
Circulation revenues for the third quarter and year-to-date periods increased to
$35.6 million and $106.5 million, respectively, for increases of 10.0% and 6.5%
when compared with 1996. The acquisitions did not significantly affect
circulation revenues. The overall increase is primarily in response to a
circulation distribution system change (resulting in revenue increases of $3.6
million and $7.1 million for the third quarter and nine-month periods) and a
September, 1996 increase in the single copy and home delivered price of the
Sunday paper, both in Indianapolis. The closure of The Phoenix Gazette in
January, 1997 did not have a significant impact on revenues since The Arizona
<PAGE> 12
Republic gains in daily circulation for the third quarter and year-to-date have
more than offset Gazette losses.
Other revenues for the third quarter and year-to-date increased $6.9 million and
$17.3 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 third quarter and nine month periods:
(In thousands, except circulation)
Third Quarter % Year-to-date %
------------- ------------
1997 1996 Change 1997 1996 Change
---- ---- ------ ---- ---- ------
Full Run Linage in six
column inches: (1)
Retail 603.9 578.0 4.5 1,875.2 1,749.4 7.2
National 114.5 80.9 41.5 333.8 223.9 49.1
Classified 787.1 719.9 9.3 2,365.0 2,082.8 13.5
------- ------- ------- -------
Total 1,505.5 1,378.8 9.2 4,574.0 4,056.1 12.8
======= ======= ======= =======
Full Run Linage by Major Markets:
Phoenix (1) 679.8 635.0 7.1 2,075.7 1,941.9 6.9
Indianapolis 825.7 743.8 11.0 2,498.3 2,114.2 18.2
------- ------- ------- -------
1,505.5 1,378.8 9.2 4,574.0 4,056.1 12.8
======= ======= ======= =======
Net Advertising
Revenue $129,431 $114,728 12.8 $395,790 $344,561 14.9
Combined Average Daily Circulation:
Phoenix 433,862 421,938 2.8 456,183 456,169 --
Indianapolis 260,153 279,024 (6.8) 268,421 286,438 (6.3)
Sunday Circulation:
Phoenix 552,142 553,262 (.2) 579,331 581,834 ( .4)
Indianapolis 391,894 403,010 (2.8) 392,955 403,682 (2.7)
(1) For comparability, linage statistics for the 13 weeks and 39 weeks ended
September 28, 1997 and September 29, 1996 exclude linage of The Phoenix
Gazette, which ceased publication in January, 1997.
OPERATING EXPENSES
Compensation costs, which include fringe benefits, increased 5.8% to $59.1
million for the third quarter and 4.9% to $177.4 million for the nine month
period. Excluding the acquisitions, compensation expense increased 2.0% and 1.3%
for the same periods. The year-over-year headcount (excluding the acquisitions)
decreased 2.5% due primarily to the Gazette closure and the conversion from a
carrier-based distribution arrangement to an agency-based distribution work
force in Indianapolis. The lower costs associated with the reduction in
headcount were offset by increased training expenses, contract signing bonuses,
other employee benefits and merit increases.
Newsprint and ink expense for 1997 increased .3% to $25.4 million in the third
quarter and decreased 12.2% to $76.8 million for the nine month period.
Comparable changes without the acquisitions were decreases of .4% and 13.5%,
respectively. The decreases in newsprint expense (excluding acquisitions) were
primarily due to lower newsprint prices during both 1997 periods when compared
with 1996. The lower newsprint prices were offset by higher consumption in the
third quarter of 6.4% and for the nine month period of 6.9% 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 quarter of 1997.
<PAGE> 13
Other operating costs rose 32.5% to $45.4 million for the third quarter and rose
26.3% to $128.4 million for the nine month period. Excluding the acquisitions
and a change in the circulation delivery system in Indianapolis, other operating
costs would have increased 10.6% for both the quarter and nine month periods.
Significant items contributing to increases in both 1997 periods versus the same
1996 periods include costs associated with a new Phoenix promotional/marketing
program, higher Arizona Republic delivery costs due to increased circulation,
computer system enhancements, new Indianapolis products, bad debt costs and
higher property taxes.
Depreciation and amortization expense for the third quarter and the year-to-date
was $10.8 million and $32.2 million, respectively, compared with $9.2 million
and $26.7 million in 1996. Excluding the acquisitions, depreciation and
amortization expense for 1997 would have been $10.2 million and $30.0 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 $2.6 million in the
third quarter and $9.4 million for the nine 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 a composing room work force reduction of 30 individuals in
the third quarter and the conversion from the carrier-based work force to an
agent-based circulation arrangement, both in Indianapolis.
NON-OPERATING ITEMS
Other non-operating income for 1997 (primarily investment income) decreased $.2
million in the third quarter and $1.0 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
third 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 reported income in the third quarter
and losses for the nine month period due to mid-1997 increases in newsprint
selling prices realized by Ponderay Newsprint Company.
LIQUIDITY AND CAPITAL RESOURCES FOR THE QUARTER ENDED SEPTEMBER 28, 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 nine months of 1997 and 1996,
was $110.0 million and $71.7 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 nine 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 nine month period, the Company's
available cash and investments totaled $67.5 million, up $5.8 million from the
end of 1996. Working capital for the same period decreased $32.1 million to
$60.2 million due primarily to the use of a short-term credit facility for the
repurchase of common stock.
Total capital expenditures for the first nine months of 1997 were $18.1 million
compared with $37.1 million for the comparable 1996 period. The Company plans
approximately $28 million of capital expenditures in 1997. As of September 28,
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
September 28, 1997 the Company had repurchased a total of 645,000 shares. During
<PAGE> 14
the nine months ended September 28, 1997 the Company repurchased 154,900 shares
at an aggregate cost of $8.5 million under this authorization.
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
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. As of September 28, 1997, $34.4
million remains outstanding under this short term bank line of credit.
Dividends of $.21 per share on the Class A common stock and $.021 on the Class
B common stock were declared during the quarter and paid October 10, 1997. Total
Class A and B dividends paid during the nine month period of 1997 were $14.8
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 during the first nine months of
1997. Despite the closure of The Phoenix Gazette in January, 1997, circulation
revenue is also expected to increase modestly when compared with 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 item after payroll, is expected to increase during the last
quarter 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 the last quarter of 1997 compared with the comparable period of
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 -- None
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: October 31, 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
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 September 28, 1997, and the consolidated
statements of income, shareholders' equity and cash flows for the three-month
and nine-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 nine-month periods ended September 28, 1997 for them to be in conformity
with generally accepted accounting principles.
/s/Price Waterhouse LLP
- -----------------------
Price Waterhouse LLP
Indianapolis, Indiana
October 20, 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 September 29, 1996 (not presented herein), and the
consolidated statements of income, shareholders' equity and cash flows for the
fiscal three and nine month periods ended September 29, 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 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
November 6, 1996
<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 nine month
period ended September 28,1997 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-END> SEP-28-1997
<CASH> 55751
<SECURITIES> 11794
<RECEIVABLES> 81013
<ALLOWANCES> 3092
<INVENTORY> 11481
<CURRENT-ASSETS> 175055
<PP&E> 530163
<DEPRECIATION> 243088
<TOTAL-ASSETS> 620920
<CURRENT-LIABILITIES> 114870
<BONDS> 2678
18920
0
<COMMON> 27973
<OTHER-SE> 340840
<TOTAL-LIABILITY-AND-EQUITY> 620920
<SALES> 524628
<TOTAL-REVENUES> 524628
<CGS> 0
<TOTAL-COSTS> 424236
<OTHER-EXPENSES> 1613
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 748
<INCOME-PRETAX> 102143
<INCOME-TAX> 42304
<INCOME-CONTINUING> 0
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<NET-INCOME> 57609
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<EPS-DILUTED> 0
</TABLE>
