UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 29, 1996
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 Identification Number)
of incorporation or organization)
135 North Pennsylvania Street, Suite 1200, Indianapolis, Indiana 46204
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (317) 231-9200
Securities registered pursuant to Section 12(b) of the Act:
Name of each
Title of each class exchange on which registered
------------------- ----------------------------
Class A Common Stock, without par value New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X. No .
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates on
February 28, 1997, based on the closing price for the Company's Class A Common
Stock on the New York Stock Exchange on such date and assuming the conversion of
all outstanding shares of Class B Common Stock into shares of Class A Common
Stock at a ratio of one-tenth (.1) of a share of Class A Common Stock for each
share of Class B Common Stock: approximately $571,020,000. For purposes of the
foregoing calculation only, required by Form 10-K, the Registrant has included
as shares owned by affiliates, the shares of Class A Common Stock and Class B
Common Stock beneficially owned by officers and directors of the Registrant
and by holders of 10% or more of either class. Such inclusion shall not be
construed as an admission that any such person is an affiliate for any other
purpose.
Shares outstanding at February 28, 1997:
Class A Common Stock -- 23,181,211 shares
Class B Common Stock -- 31,553,000 shares
Documents incorporated by reference:
Portions of the Company's 1996 Annual Report to Shareholders (incorporated in
Part II to the extent provided in items 5, 6, 7 and 8 hereof) and the definitive
Proxy Statement for the Company's 1997 Annual Meeting of Shareholders (to be
held April 24, 1997) filed pursuant to Rule 14a-6 of the Securities Exchange Act
of 1934 (incorporated in Part III to the extent provided in items 10, 11, 12 and
13 hereof).
Exhibit Index on Page 12 Page 1 of 17 Pages
<PAGE> 2
FORM 10-K TABLE OF CONTENTS
Page
Part I
Item 1 - Business 3
Item 2 - Properties 10
Item 3 - Legal Proceedings 10
Item 4 - Submission of Matters to a Vote of
Security Holders 11
Part II
Item 5 - Markets for Registrant's Common
Equity and Related Stockholder
Matters 11
Item 6 - Selected Financial Data 11
Item 7 - Management's Discussion and
Analysis of Results of Operations
and Financial Condition 11
Item 8 - Financial Statements and
Supplemental Data 11
Item 9 - Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 11
Part III
Item 10 - Directors and Executive Officers of
the Registrant 11
Item 11 - Executive Compensation 12
Item 12 - Security Ownership of Certain
Beneficial Owners and Management 12
Item 13 - Certain Relationships and Related Transactions 12
Part IV
Item 14 - Exhibits, Financial Schedule and
Reports on Form 8-K 12
Signatures 15
<PAGE> 3
PART I
Item 1. Business.
Central Newspapers, Inc. (the "Company") is engaged, through its subsidiaries,
in newspaper publishing primarily in the metropolitan areas of Phoenix, Arizona
and Indianapolis, Indiana. The Company is an Indiana corporation organized in
1934. Through its wholly-owned subsidiary, Phoenix Newspapers, Inc., the
Company publishes The Arizona Republic (mornings and Sunday), The Phoenix
Gazette (evenings) and the Arizona Business Gazette (weekly). Through its
subsidiary, Indianapolis Newspapers, Inc., the Company publishes The
Indianapolis Star (mornings and Sunday) and The Indianapolis News (evenings).
The Company also publishes several daily and weekly newspapers serving smaller
communities in Indiana and the Alexandria Daily Town Talk in Louisiana. The
Company is a partner (13.5% interest) in Ponderay Newsprint Company, a general
partnership that owns and operates a newsprint mill in the state of Washington.
The Company has published its newspapers in its two primary markets for more
than forty-seven years. The Company has managed its newspapers with the
objective of long-term growth and believes that this philosophy has contributed
to the stability of the Company's operations. The Company's ability to
establish and maintain its daily newspapers as the only major newspapers in
their respective markets has promoted its growth and is of primary importance in
attracting and maintaining advertising, the principal source of revenue for the
Company. Each of the Company's newspapers has substantial autonomy over
editorial policy.
On March 12, 1996 the Company purchased 100% of the outstanding common stock of
McCormick and Company, Inc., the parent company of the Alexandria Daily Town
Talk of Louisiana and McCormick Graphics, Inc. a commercial printing subsidiary.
The purchase price was approximately $62 million in cash.
PHOENIX NEWSPAPERS, INC.
Phoenix Newspapers, Inc. ("PNI") was formed in 1946 by a group of investors,
including the Company, to purchase The Arizona Republic and The Phoenix Gazette.
The Company originally owned a 30% interest in PNI and has owned 100% of the
common stock of PNI since 1977. The newspapers published by PNI in 1996 are The
Arizona Republic (mornings and Sunday), The Phoenix Gazette (evenings) and the
Arizona Business Gazette (weekly). In January, 1997, PNI announced that it
would cease publication of The Phoenix Gazette. The last day of publication for
this newspaper was January 18, 1997.
Circulation
As of December 29, 1996, approximately 86% of the daily and 74% of the Sunday
circulation of The Arizona Republic and 90% of the daily circulation of The
Phoenix Gazette were home delivered. Single copy sales account for
approximately 26% of Sunday newspaper sales and approximately 13% of combined
daily newspaper sales.
The Arizona Business Gazette contains business news and legal notices relating
to the Phoenix metropolitan area. The average paid circulation of the Arizona
Business Gazette was 10,340, 10,351 and 10,491 for 1994, 1995 and 1996.
The circulation levels of The Arizona Republic and The Phoenix Gazette are
seasonal due to the large number of part-year residents of the Phoenix area.
Historically, circulation for The Arizona Republic and The Phoenix Gazette
achieves its highest levels in February and March and decreases during the late
spring and summer months. During 1996, the seasonal variation in combined daily
<PAGE> 4
circulation and Sunday circulation was approximately 86,000 and 86,000,
respectively. The following table shows the average paid circulation for The
Arizona Republic and The Phoenix Gazette for the last three fiscal years. The
figures for 1994 and 1995 are based upon annual reports issued by the Audit
Bureau of Circulations ("ABC"), an independent agency which audits the
circulation of daily and Sunday newspapers and include circulation outside the
Phoenix metropolitan statistical area ("MSA"). The figures for 1996 are based
upon the records of the Company because, as of the date of this report, the ABC
annual report for 1996 has not been released. Net circulation revenue for the
last three fiscal years is based upon the records of the Company.
52 Weeks 53 Weeks 52 Weeks
Dec. 25 Dec. 31 Dec. 29
Fiscal Years Ended 1994 1995 1996
The Arizona Republic (Sunday) 587,919 581,337 584,496
The Arizona Republic (Daily) 379,093 387,986 407,551
The Phoenix Gazette (Daily) 75,494 71,123 49,004
Net Circulation Revenue
(in thousands) $77,537 $84,212 $87,790
Effective June 1994, the home delivery pricing structure for seven day
subscriptions is based on length of subscription. Effective August 1995, the
home-delivered price for The Arizona Republic (seven days) in the Phoenix MSA,
ranges from $3.25 per week for a fifty-two week subscription to $3.50 per week
for an eight week subscription. There is also a four week bank withdrawal
option of $3.25 per week. The home-delivered price for The Phoenix Gazette
(seven days) in the Phoenix MSA, which includes six evenings and one Sunday
paper, ranges from $3.00 per week for a fifty-two week subscription to $3.25 per
week for an eight week subscription with a four week bank withdrawal option of
$3.00 per week. The home-delivered price for The Arizona Republic (six days) is
$2.10 per week for all subscription terms. The home-delivered price for The
Phoenix Gazette (six days) is $1.80 per week for all subscription terms. A
weekend package comprising the Sunday paper and the Friday and Saturday edition
of either the morning or evening paper is offered at $2.50 per week. The single
copy price of the morning paper is $.50. The single copy price of the afternoon
paper is $.35. During March 1995, the single copy price of the Sunday paper
increased by $.50 to $2.00.
Advertising
The newspapers generate revenue from two primary types of advertisements, "run
of paper," which are printed in the body of the newspaper, and "preprinted,"
which are furnished by the advertiser and inserted into the newspaper. PNI
derives the majority of its advertising revenue from run of paper
advertisements. However, like other major newspapers, The Arizona Republic and
The Phoenix Gazette have experienced an increase in advertisers' use of
preprinted advertisements in recent years. Because preprinted advertisements
are furnished by the advertisers and can be distributed by alternate means,
revenues and profits from preprinted advertisements are generally lower than
would be derived if an advertiser had chosen to use run of paper advertisements.
To encourage use of run of paper advertisements, PNI structures its advertising
rates to provide more favorable rates to high volume and frequent run of paper
advertisers.
PNI also structures its advertising format to accommodate the numerous
communities that comprise the Phoenix metropolitan area. The Arizona Republic
and The Phoenix Gazette publish a common "Community" section that is inserted in
up to twelve zoned editions on certain days of the week. Zoned editions, which
include news stories and advertisements targeted to specific communities or
geographic areas, provide an important means of competing with news coverage of
<PAGE> 5
local newspapers and thereby promote circulation. Other part run sections are
also provided to accommodate the needs of advertisers for more targeted
distribution.
The combined run of paper advertising linage for The Arizona Republic, The
Phoenix Gazette and the Arizona Business Gazette for the past three fiscal years
and the combined advertising revenues of the newspapers for such periods are set
forth in the following table:
52 Weeks 53 Weeks 52 Weeks
Dec. 25 Dec. 31 Dec. 29
Fiscal Years Ended 1994 1995 1996
Advertising Linage--Run of Paper
(in thousands of six-
column inches):
Full run 4,014 4,513 4,518
Part run 2,350 2,278 2,164
Weekly 269 245 243
Net Advertising Revenue
(in thousands) $248,528 $284,468 $302,294
Distribution
PNI distributes The Arizona Republic and The Phoenix Gazette primarily by home
delivery through a network of independent contractors that deliver newspapers
pursuant to agreements with PNI. PNI has implemented a centralized billing
system which removes the responsibility for billing and collection from the
independent contractors. Newspapers are distributed to the independent
contractor network by an outside company which has been under contract with PNI
for over forty years.
Production
The Arizona Republic and The Phoenix Gazette merged the editorial news staffs in
1995 and share production facilities and equipment. The editing and composing
functions are performed primarily at PNI's facility in downtown Phoenix. To
increase efficiency and reduce work force requirements, the editing and
composing functions have been computerized. Electronic pagination allows entire
pages of the newspaper to be formatted at a computer terminal. Composed pages
are electronically transmitted from PNI's downtown facility to its two satellite
production facilities.
PNI's two satellite production facilities are located in Deer Valley which is
north of downtown Phoenix and in Mesa, Arizona. Construction of the Deer Valley
facility began in 1990 and was completed in 1992. This facility includes four
new offset presses and related production equipment as well as circulation,
advertising and editorial offices. Production began during the first quarter of
1992 with full operation commencing in the third quarter of 1992. The Mesa
facility began operation in 1982 and has been expanded and upgraded since that
date. It has three offset presses and related production equipment.
Because of the growth expected in the Phoenix area, PNI owns an additional site
in western Maricopa County for a future satellite production facility.
<PAGE> 6
INDIANAPOLIS NEWSPAPERS, INC.
Indianapolis Newspapers, Inc. ("INI") was formed by the Company in 1948. The
Company owns all of the issued and outstanding Class B Common Stock of INI. On
September 12, 1994 and June 1, 1995, the Company purchased 3,591 shares and 50
shares, respectively, of Class A Common Stock of INI which increased the Company
ownership of Class A Common Stock to 67.2% from 4.1%. At the end of 1996 the
Company owned 90.2% of the voting power and equity and had the right to elect
INI's Board of Directors. On January 3, 1997, INI acquired the balance of the
Class A common stock by issuing the existing shareholders one share of a newly
created, non-voting, $10,000 stated value INI preferred stock which will pay a
$700 annual dividend for each share of Class A common stock owned by such
shareholders. The preferred stock is callable in five years by the Company and
is redeemable any time by the shareholders at the stated value per share. The
primary newspapers published by INI are The Indianapolis Star (mornings and
Sunday) and The Indianapolis News (evenings).
Circulation
As of December 29, 1996, approximately 81% of the daily and 80% of the Sunday
circulation of The Indianapolis Star and 81% of the daily circulation of The
Indianapolis News were home delivered. Single copy sales account for
approximately 19% of Sunday newspaper sales and 17% of combined daily newspaper
sales.
The following table shows the average paid circulation for The Indianapolis Star
and The Indianapolis News for the last three fiscal years. The figures for 1994
and 1995 are based upon annual reports issued by the ABC and include circulation
outside the Indianapolis MSA. The figures for 1996 are based upon records of
the Company because, as of the date of this report, the ABC annual report for
1996 has not been released. Net circulation revenue for the last three fiscal
years is based upon the records of the Company.
52 Weeks 53 Weeks 52 Weeks
Dec. 25 Dec. 31 Dec. 29
Fiscal Years Ended 1994 1995 1996
The Indianapolis Star (Sunday) 404,468 399,539 402,710
The Indianapolis Star (Daily) 229,876 227,849 231,280
The Indianapolis News (Daily) 87,468 73,141 54,263
Net Circulation Revenue
(in thousands) $38,886 $39,507 $37,205
The home delivery price for The Indianapolis Star (seven days) in the
Indianapolis MSA is $3.60 per week which includes a $.30 price increase during
September 1996. The home delivery price for The Indianapolis News (six days) is
$1.80 per week which includes a $.30 price increase during March 1995. The
single copy price is $.50 for each daily paper which includes a $.15 price
increase during March 1995. The home delivery price of the Sunday newspaper is
$1.50, which includes a $.30 price increase during September 1996. The single
copy price of the Sunday newspaper is $1.75 which includes a $.25 price increase
during September 1996.
Advertising
Newspapers generate revenue from two primary types of advertisements, "run of
paper," which are printed in the body of the newspaper, and "preprinted," which
<PAGE> 7
are furnished by the advertiser and inserted into the newspaper. INI derives
the majority of its advertising revenue from run of paper advertisements.
Like the Company's Phoenix newspapers, The Indianapolis Star and The
Indianapolis News have experienced an increase in advertisers' use of preprinted
advertisements in recent years. To encourage use of run of paper
advertisements, INI structures its advertising rates to provide more favorable
rates to high volume and frequent run of paper advertisers. The combined run of
paper advertising linage for The Indianapolis Star and The Indianapolis News for
the past three fiscal years and the combined advertising revenue of the
newspapers for such periods are set forth in the following table:
52 Weeks 53 Weeks 52 Weeks
Dec. 25 Dec. 31 Dec. 29
Fiscal Years Ended 1994 1995 1996
Advertising Linage--Run of Paper
(in thousands of six-
column inches):
Full run 2,716 2,937 2,976
Part run 125 96 54
Net Advertising Revenue
(in thousands) $131,288 $145,267 $149,658
Distribution
INI distributes The Indianapolis Star and The Indianapolis News primarily by
home delivery through a network of approximately 3,200 carriers. Carriers are
independent contractors who purchase newspapers from INI and resell them to
their customers.
In 1997 INI is converting from its carrier based delivery system to an agency
based distribution system for the Indianapolis metro area and its eight
surrounding counties. Approximately 1,450 carriers will be replaced by 120
independent delivery agents.
Production
The Indianapolis Star and The Indianapolis News merged the editorial news staffs
in 1995 and share production and distribution facilities. All editorial and
production functions are handled from INI's facility in downtown Indianapolis.
Distribution functions are performed at both the downtown production facility
and at the satellite facility which was completed in 1995 at a cost of $20
million. INI's downtown production facility is equipped with six offset presses
and related production and distribution equipment.
SMALLER NEWSPAPERS
In March 1997, the Company purchased 100% of the outstanding common stock of
McCormick and Company, Inc., the parent company of the Alexandria Daily Town
Talk newspaper and McCormick Graphics, Inc., a commercial printing subsidiary.
The Daily Town Talk serves Rapides Parish in Central Louisiana and outlying
areas with a radius of about 50 miles and a population base of approximately
350,000. As of December 29, 1996, the average paid circulation of the Daily
Town Talk was 38,758 daily and 41,504 Sunday.
<PAGE> 8
Through Muncie Newspapers, Inc., which is 88% owned by Indianapolis Newspapers,
Inc. and 12% owned by the Company, the Company publishes The Star Press
(mornings and Sundays). The Company had formerly published two newspapers in
the Muncie market, The Muncie Star and the Muncie Evening Press, but merged the
two newspapers into The Star Press in May 1996. The Star Press serves Muncie
and east central Indiana which has a population base of just over 300,000. As
of December 29, 1996, the average paid circulation of The Star Press was 36,220
daily and 41,318 on Sunday.
The Company publishes the Vincennes Sun-Commercial, a daily newspaper which
serves the city of Vincennes, Indiana, with a population of approximately
19,800. As of December 29, 1996, the average paid circulation of the Vincennes
Sun-Commercial was 15,326, daily (five days) and 17,604 Sunday.
During January 1993, the Company formed Topics Newspapers, Inc. as a wholly-
owned subsidiary to purchase the net assets of two daily newspapers, one weekly
newspaper and twelve controlled circulation newspapers that serve the fastest
growing area of metropolitan Indianapolis. As of December 29, 1996, the average
paid circulation of The Daily Ledger was 10,506 (six days) and the combined
weekly circulation was 108,955.
The revenues received by the Company from these smaller publications represented
approximately 4% in 1994 and 1995 and 7% in 1996 of total revenues of the
Company.
RAW MATERIALS - PONDERAY NEWSPRINT COMPANY
The Company consumed approximately 169,100 metric tons of newsprint in fiscal
year 1996 and estimates that consumption will be unchanged in fiscal year 1997.
The Company currently obtains its newsprint from a number of suppliers, both
foreign and domestic, under long-term contracts, standard in the industry, which
offer dependable sources of newsprint at current market rates.
To provide the Company with an additional source of newsprint for a portion of
its needs, the Company formed Central Newsprint Company, Inc. and Bradley Paper
Company (the "Newsprint Subsidiaries"), both of which are wholly-owned
subsidiaries of the Company. The Newsprint Subsidiaries, together with four
other newspaper publishing companies and a Canadian newsprint manufacturer, are
partners in Ponderay Newsprint Company ("Ponderay"), a general partnership
formed to own and operate a newsprint mill in Usk, Washington. The mill began
operations in December 1989. PNI has committed to purchase in 1997 the lesser
of 13.5% of Ponderay's newsprint production or 34,900 metric tons on a "take if
tendered" basis until the debt of Ponderay is repaid.
COMPETITION
The Company faces competition for advertising revenue from television, radio and
direct mail programs, as well as competition for advertising and circulation
from suburban neighborhood and national newspapers and other publications.
Competition for advertising is based upon circulation levels, readership
demographics, price and advertiser results. Competition for circulation is
generally based upon the content, journalistic quality and price of the
newspaper.
In Indianapolis, the Company's newspapers do not receive significant direct
competition from suburban newspapers. In Phoenix, several suburban newspapers
owned by major media corporations operate in cities that are part of the Phoenix
metropolitan area and compete with The Arizona Republic and The Phoenix Gazette
for advertising and circulation.
<PAGE> 9
EMPLOYEES - LABOR
As of January 31, 1997, the Company had approximately 5,341 employees (including
1,523 part-time employees), 40% of whom were covered by collective bargaining
agreements. The Company has never had a significant strike or work stoppage at
its operations and considers its labor relationships with its employees to be
good.
EXECUTIVE OFFICERS OF THE REGISTRANT
As of February 28, 1997, the executive officers of the Company and their ages
are as follows:
Name Age Positions
Malcolm W. Applegate 61 Director; President and
General Manager of Indianapolis Newspapers, Inc.
Thomas K. MacGillivray 36 Treasurer and Chief Financial Officer
John F. Oppedahl 52 Publisher and Chief Executive Officer
of Phoenix Newspapers, Inc.
Eugene S. Pulliam 82 Director and Executive
Vice President; President
of Phoenix Newspapers, Inc.; Publisher of
The Indianapolis Star and
The Indianapolis News
Frank E. Russell 76 Director; Chairman of the Board and
Assistant Secretary
Eric S. Tooker 35 General Counsel and Corporate Secretary
Louis A. Weil, III 55 Director; President and Chief
Executive Officer; Chairman of the Board of
Phoenix Newspapers, Inc.
Malcolm W. Applegate has been President since May 1993 and General Manager since
July 1990 of Indianapolis Newspapers, Inc. From 1985 until assuming his current
position with Indianapolis Newspapers, Inc., Mr. Applegate was publisher of the
Lansing (Michigan) State Journal. He has been a Director of the Company since
1991.
Thomas K. MacGillivray has been Treasurer and Chief Financial Officer since
January, 1996. Previously, he was Director of Investments since April, 1993.
He was Vice President and Equity Portfolio Manager for Sovran Capital Management
from January 1989 until March 1993.
John F. Oppedahl has been Publisher and Chief Executive Officer of Phoenix
Newspapers, Inc. since January 1996. Previously, he was Executive Editor of
Phoenix Newspapers, Inc. since 1993 and Managing Editor of the Arizona Republic
from 1989 to 1993.
Eugene S. Pulliam has been the Publisher of The Indianapolis Star and The
Indianapolis News since 1975 and President of Phoenix Newspapers, Inc. since
1979. He has been a Director of the Company since 1954. Mr. Pulliam is the
uncle of Dan Quayle, who is a Director of the Company.
<PAGE> 10
Frank E. Russell has been Chairman of the Board and Assistant Secretary since
January 1996. Previously, he was President of the Company since 1979. He has
been a Director of the Company since 1974.
Eric S. Tooker has been General Counsel and Secretary since June 1996. From
November 1989 through May 1996, he was Associate General Counsel at Conseco,
Inc.
Louis A. Weil, III has been President and Chief Executive Officer since January
1996. He served as Publisher and Chief Executive Officer of The Arizona
Republic and The Phoenix Gazette and Executive Vice President of Phoenix
Newspapers, Inc. between July 1991 and January 1996. Mr. Weil served as
Publisher of Time from May 1989 to July 1991 and President and Publisher of The
Detroit News from May 1987 to May 1989. Mr. Weil serves as an independent
director of Prudential's Domestic Equity, Domestic Fixed Income, Global Fixed
Income and Municipal Bond mutual funds. He has been a Director of the Company
since 1991.
Each executive officer will serve as such until his successor is chosen and
qualified. No family relationships exist among the Company's executive
officers.
Item 2. Properties.
The corporate headquarters of the Company is located at 135 North Pennsylvania
Street, Suite 1200, Indianapolis, Indiana 46204. The general character, location
and approximate size of the principal physical properties owned by the Company
at the end of fiscal year 1996 are set forth below. In addition to those
listed, the Company owns employee recreational facilities and other real estate
aggregating approximately 130 acres.
Approximate Area
in Square Feet
Printing plants, business and editorial
offices and warehouse space
Owned Leased
Phoenix, Arizona 1,017,076 162,309
Mesa, Arizona 160,815 ---
Indianapolis, Indiana 693,152 152,240
Alexandria, Louisiana 112,798 ---
Muncie, Indiana 67,658 ---
Vincennes, Indiana 19,350 ---
Fishers, Indiana 40,000 ---
Greenwood, Indiana --- 1,650
The Company believes that its current facilities are adequate to meet the
present needs of its newspapers.
Item 3. Legal Proceedings.
The Company becomes involved from time to time in various claims and lawsuits
incidental in the ordinary course of its business, including such matters as
libel and invasion of privacy actions and is involved from time to time in
various governmental and administrative proceedings. Management believes that
the outcome of any pending claims or proceedings will not have a significant
adverse effect on the Company and its subsidiaries, taken as a whole.
<PAGE> 11
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of shareholders during the quarter ended
December 29, 1996 through the solicitation of proxies and otherwise.
PART II
Item 5. Markets for Registrant's Common Equity and Related Stockholder Matters.
The information set forth under the caption "Shareholder Information" on page 31
of the Company's 1996 Annual Report to Shareholders is incorporated herein by
reference.
Item 6. Selected Financial Data.
The information set forth under the caption "Ten-Year Financial Highlights" on
page 28 of the Company's 1996 Annual Report to Shareholders is incorporated
herein by reference.
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
The information set forth under the caption "Management's Discussion and
Analysis of Results of Operations and Financial Condition" beginning on page 10
of the Company's 1996 Annual Report to Shareholders is incorporated herein by
reference.
Item 8. Financial Statements and Supplemental Data.
The Company's Consolidated Financial Statements and Notes thereto, together with
the report thereon of Geo. S. Olive & Co. LLC dated February 3, 1997, appearing
on pages 14 through 27 of the Company's 1996 Annual Report to Shareholders, and
the information contained under the heading "Quarterly Financial Information
(unaudited)" on page 30 of such Annual Report to Shareholders are incorporated
herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None in the fiscal year ended December 29, 1996.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Incorporated herein by reference is the information set forth under the captions
"Election of Directors," on page 4 and "Committees of the Board of Directors and
Compensation of Directors" on page 5 and "Compliance with Section 16(a) of the
Securities Exchange Act of 1934" on page 14 of the Company's definitive Proxy
Statement to be used in connection with the 1997 Annual Meeting of Shareholders.
See Part I, Item 1 of this report for information regarding the executive
officers of the Company.
<PAGE> 12
Item 11. Executive Compensation.
Incorporated herein by reference is the information set forth under the caption
"Compensation of Executive Officers" on page 6 of the Company's definitive Proxy
Statement to be used in connection with the 1997 Annual Meeting of Shareholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Incorporated herein by reference is the information set forth under the captions
"Voting Securities And Principal Holders Thereof" on page 1 and "Security
Ownership of Management" on page 3 of the Company's definitive Proxy Statement
to be used in connection with the 1997 Annual Meeting of Shareholders.
Item 13. Certain Relationships and Related Transactions.
Incorporated herein by reference is the information set forth under the captions
"Transactions With Certain Related Persons" on page 14 and "Compensation
Committee Interlocks and Insider Participation" on page 13 of the Company's
definitive Proxy Statement to be used in connection with the 1997 Annual Meeting
of Shareholders.
PART IV
Item 14. Exhibits, Financial Schedule and Reports on Form 8-K.
(a) List of Documents Included in this Report.
1. Financial Statements.
The following financial statements are incorporated into this report
by reference to the Company's 1996 Annual Report to Shareholders:
(i) Independent Auditor's Report
(ii) Consolidated Statement of Income for each of the three fiscal
years in the period ended December 29, 1996
(iii) Consolidated Statement of Financial Position as of December 29, 1996
and December 31, 1995
(iv) Consolidated Statement of Shareholders' Equity for each of the three
fiscal years in the period ended December 29, 1996
(v) Consolidated Statement of Cash Flows for each of the three fiscal
years in the period ended December 29, 1996
(vi) Notes to Consolidated Financial Statements
2. Supplemental Data and Financial Schedule.
(i) Incorporated herein by reference is the information set forth under
the caption "Quarterly Financial Information (Unaudited)" appearing
on page 30 of the Company's 1996 Annual Report to Shareholders
(ii) The following financial schedule and report with respect thereto are
filed as a part of this Report:
<PAGE> 13
Page in
this filing
Independent Auditor's Report 16
Schedule II Valuation Accounts 17
Schedules other than the one referred to above have been omitted
because they are not required or because the information is included
elsewhere in the Consolidated Financial Statements of the Company.
3. Exhibits Required by Securities and Exchange Commission Regulation
S-K.
(i) The following exhibits are filed as a part of this report:
Exhibit
Number Description of Document
10.14 Amended and Restated Central Newspapers, Inc. Stock
Compensation Plan
13 Portions of the 1996 Annual Report to Shareholders of
Central Newspapers, Inc. incorporated by reference into the
1996 Annual Report on Form 10-K
21 Subsidiaries of the Registrant
23 Consent of Geo. S. Olive & Co. LLC
27 Financial Schedule
(ii) The following exhibits are incorporated herein by reference to
documents previously filed with the Securities and Exchange
Commission as indicated:
Exhibit
Number Description of Document
2.1 Contract to buy and sell entire stock of McCormick and
Company, Inc., dated as of January 10, 1996. (Filed March
13, 1996 with Form 8-K)
3.1 Amended and Restated Articles of Incorporation of Central
Newspapers, Inc. (Filed August 10, 1989 with Form S-1
Registration Statement, No. 33-30436)
3.2 Amended and Restated Code of By-Laws of Central Newspapers,
Inc.
4.1 Form of Certificate for Class A Common Stock (Filed August
10, 1989 with Form S-1 Registration Statement, No. 33-30436)
4.2 Indenture between Indianapolis Newspapers, Inc. and the
Indiana Trust Company, as trustee, dated as of December 1,
1948 (Filed August 10, 1989 with Form S-1 Registration
Statement, No. 33-30436)
10.1 Indenture creating the Eugene C. Pulliam Trust, dated as of
December 9, 1965, as amended (Filed August 10, 1989 with
Form S-1 Registration Statement, No. 33-30436)
<PAGE> 14
10.2 Newsprint Purchase Agreement between Ponderay Newsprint
Company and Phoenix Newspapers, Inc., dated as of
November 18, 1987 (Filed August 10, 1989 with Form S-1
Registration Statement, No. 33-30436)
*10.3 The Phoenix Newspapers, Inc. Non-Qualified Supplemental
Retirement Plan (Filed with Form 10-K for year ended
December 30, 1990)
10.4 Ponderay Newsprint Company Partnership Agreement between
Lake Superior Forest Products Inc. and Central Newsprint
Company, Inc. dated as of September 12, 1985 (Filed August
10, 1989 with Form S-1 Registration Statement, No. 33-30436)
10.5 Amendment to Ponderay Newsprint Company Partnership
Agreement between Lake Superior Forest Products Inc.,
Central Newsprint Company, Inc., Bradley Paper Company,
Copley Northwest, Inc., Puller Paper Company, Newsprint
Ventures, Inc., Wingate Paper Company, Tribune Newsprint
Company and Nimitz Paper Company, dated as of June 30, 1987
(Filed August 10, 1989 with Form S-1 Registration Statement,
No. 33-30436)
10.6 Guarantee by Central Newspapers, Inc. dated as of
November 18, 1987 (Filed August 10, 1989 with Form S-1
Registration Statement, No. 33-30436)
*10.7 Form of Split Dollar Life Insurance Agreement for Executive
Officers between the Registrant and Malcolm W. Applegate,
Louis A. Weil, III and Thomas K. MacGillivray (Filed with
Form 10-K for year ended December 27, 1992)
*10.8 Form of Split Dollar Life Insurance Agreement for Outside
Directors between the Registrant and Kent E. Agness, William
A. Franke and Dan Quayle (Filed with Form 10-K for year
ended December 27, 1992)
*10.9 Form of Death Benefit Only Insurance Plan Agreement between
the Registrant and Frank E. Russell and Eugene S. Pulliam
(Filed with Form 10-K for year ended December 27, 1992)
*10.10 Central Newspapers, Inc. Unfunded Supplemental Retirement
Plan (Filed with Form 10-K for the year ended December
25, 1994)
*10.11 Central Newspapers, Inc. Non-Qualified Savings Plan, as
amended (Filed with Form 10-K for the year ended December
25, 1994)
*10.12 Central Newspapers, Inc. Director's and Officer's Charitable
Award Program (Filed with Form 10-K for the year ended
December 25, 1994)
*10.13 Termination Benefits Agreement dated as of February 23, 1996
between Central Newspapers, Inc. and Louis A. Weil, III
(Filed with Form 10-K for the year ended December 31, 1995)
* Represents a contract, plan or arrangement providing for executive officer
or director benefits.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the fourth quarter of
1996.
<PAGE> 15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the city of
Indianapolis, state of Indiana, on this 11th day of March, 1997.
CENTRAL NEWSPAPERS, INC.
By: /s/ Louis A. Weil, III
------------------------------------
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed by the following persons on behalf of the Registrant
and in the capacities indicated on this 11th day of March, 1997.
Signature Title
(1) Principal Executive Officer
/s/ Louis A. Weil, III President, Chief Executive
---------------------- Officer and Director
Louis A. Weil, III
(2) Principal Financial and
Accounting Officer
/s/ Thomas K. MacGillivray Treasurer and Chief Financial Officer
--------------------------
Thomas K. MacGillivray
(3) A majority of the Board of Directors
/s/ Kent E. Agness Director
------------------
Kent E. Agness
/s/ Malcolm W. Applegate Director
------------------------
Malcolm W. Applegate
/s/ William A. Franke Director
------------------------
William A. Franke
/s/ Eugene S. Pulliam Director
------------------------
Eugene S. Pulliam
/s/ Dan Quayle Director
------------------------
Dan Quayle
/s/ Richard Snell Director
------------------------
Richard Snell
/s/ Frank E. Russell Director, Chairman of the Board and
------------------------ Assistant Secretary
Frank E. Russell
<PAGE> 16
INDEPENDENT AUDITOR'S REPORT ON FINANCIAL SCHEDULE
Board of Directors and Shareholders
Central Newspapers, Inc.
We have audited the consolidated financial statements of Central Newspapers,
Inc. and Subsidiaries at December 29, 1996 and December 31, 1995 and for each of
the three fiscal years in the period ended December 29, 1996 and have issued our
report dated February 3, 1997. Such financial statements and reports are
included in the 1996 Annual Report to Shareholders and are incorporated herein
by reference.
Our audits also included the financial schedule listed under Item 14 (a)(2)(ii).
The financial schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
the financial schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information included in the schedule.
/s/ Geo. S. Olive & Co. LLC
- ---------------------------
GEO. S. OLIVE & CO. LLC
Indianapolis, Indiana
February 3, 1997
<PAGE> 17
Schedule II
CENTRAL NEWSPAPERS, INC. AND SUBSIDIARIES
Valuation Accounts
Column A Column B Column C Column D Column E
Additions
Balance at Charged to Charged to Balance at
Beginning Costs and Other End
Description of Period Expense Accounts Deductions of Period
Year Ended December 29,
1996 (52 Weeks):
Provision for doubtful
accounts and advertising
refunds $1,067,203 $7,155,959 $52,820 $(6,636,958) $1,639,024
Year Ended December 31,
1995 (53 Weeks):
Provision for doubtful
accounts and advertising
refunds $1,071,387 $5,796,378 $(5,800,562) $1,067,203
Year Ended December 25,
1994 (52 Weeks):
Provision for doubtful
accounts and advertising
refunds $1,141,957 $4,569,894 $(4,640,464) $1,071,387
AMENDED AND RESTATED
CENTRAL NEWSPAPERS, INC.
STOCK COMPENSATION PLAN
1. Purpose. The purpose of the Central Newspapers, Inc.
Stock Option Plan (the "Plan") is to provide to certain key employees
and non-employee directors of Central Newspapers, Inc. (the
"Corporation") and other key employees of any of the 50% or greater
owned subsidiaries of the Corporation or 50% or greater owned
subsidiaries of a 50% or greater owned subsidiary of the Corporation
(individually a "Subsidiary" and collectively the "Subsidiaries") who are
materially responsible for the management or operation of the business
of the Corporation or a Subsidiary, a favorable opportunity to acquire
Class A Common Stock without par value of the Corporation
("Common Stock"), thereby providing them with an increased incentive
to work for the success of the Corporation and the Subsidiaries and
better enabling the Corporation and the Subsidiaries to attract and retain
capable executive personnel. The three means by which an individual
may acquire Common Stock are:
(a) the grant to a key employee of an option to
acquire shares of Common Stock (an "Option") in accordance
with Section 5 or Section 8;
(b) the award to a key employee of shares of
Common Stock without the payment of consideration therefor
(an "Award") in accordance with Section 6 or Section 8; and
(c) the grant to a member of the Board of Directors
of the Corporation who is not employed by the Corporation (an
"Outside Director") of an option to acquire shares of Common
Stock (a "Director Option") in accordance with Section 7.
2. Administration of the Plan. The Plan shall be
administered, construed and interpreted by a committee (the
"Committee"), consisting of at least two (2) members of the Board of
Directors of the Corporation qualify as a "Non-Employee Director" as
that term is defined under Rule 16b-3(b)(3) (as the same may be
amended from time to time) promulgated under Section 16 of the
Securities Exchange Act of 1934, as amended, and who shall be
designated from time to time by the Board of Directors of the
Corporation. The decision of a majority of the members of the
Committee shall constitute the decision of the Committee, and the
Committee may act either at a meeting at which a majority of the
members of the Committee is present or by a written consent signed by
all members of the Committee. The Committee shall have the sole,
final and conclusive authority to determine, consistent with and subject
to the provisions of the Plan:
(a) the individuals (the "Optionees") to whom Options
or successive Options shall be granted under the Plan;
(b) the individuals ("Recipients") to whom Awards
shall be granted under the Plan;
(c) the time when Options and/or Awards shall be
granted hereunder;
(d) the number of shares of Common Stock of the
Corporation to be covered under each Option;
(e) the number of shares of Common Stock of the
Corporation to be awarded under each Award;
(f) the option price to be paid upon the exercise of
each Option;
(g) the period within which each Option may be
exercised;
(h) the extent to which an Option is an incentive stock
option or a non-qualified stock option;
(i) the terms and conditions of the respective option
agreements by which Options granted shall be evidenced; and
(j) the terms and conditions of the respective stock
award agreements by which Awards shall be evidenced.
The Committee shall also have authority to prescribe, amend and
rescind rules and regulations relating to the Plan and to make all other
determinations necessary or advisable in the administration of the Plan.
Those members of the Committee who are currently "outside
directors" as defined in Prop. Reg. 1.162-27(e)(3) shall constitute a
subcommittee (the "Incentive Compensation Subcommittee") which
shall administer and interpret the provisions of Section 8 of this Plan.
In the event that there are, at any time, fewer than two members of the
Incentive Compensation Subcommittee, the Board of Directors shall
appoint, from its remaining members, one or more additional Incentive
Compensation Subcommittee members so that the Incentive
Compensation Subcommittee shall include at least two "outside
directors" as defined in Prop. Reg. 1.162-27(e)(3).
3. Eligibility. The Committee may, consistent with the
purposes of the Plan, grant Options or make Awards to officers and
other key employees of the Corporation or of a Subsidiary who, in the
opinion of the Committee, are from time to time materially responsible
for the management or operation of the business of the Corporation or
of a Subsidiary; provided, however, that in no event may any employee
who owns (after application of the ownership rules in 425(d) of the
Internal Revenue Code of 1986, as amended, and any rules or
regulations promulgated thereunder (the "Code")) shares of stock
possessing more than 10% of the total combined voting power of all
classes of stock of the Corporation be granted an incentive stock option
hereunder unless, at the time such incentive stock option is granted, the
option price is at least 110% of the fair market value of the Common
Stock subject to the incentive stock option and such incentive stock
option by its terms is not exercisable after the expiration of five (5)
years from the date such incentive stock option is granted. Subject to
the provisions of Section 4 hereof, an individual who has been granted
an Option or Award under the Plan, if otherwise eligible, may be
granted additional Options or Awards if the Committee shall so
determine.
4. Stock Subject to the Plan. There shall be reserved for
issuance upon the exercise of Options granted, or for the purpose of
making Awards, under the Plan, three million (3,000,000) shares of the
Corporation's Class A Common Stock which will be authorized but
unissued shares of the Corporation. Subject to Section 10 hereof, the
shares granted pursuant to an Award and/or for which Options and/or
Director Options may be granted under the Plan shall not exceed that
number. If any Option or Director Option shall expire or terminate for
any reason without having been exercised in full or if any shares of
Common Stock awarded pursuant to an Award are forfeited, the
unpurchased or forfeited shares subject thereto shall (unless the Plan
shall have terminated) become available for other Options, Director
Options or Awards under the Plan.
5. Terms of Option. Each Option granted under the Plan
shall be evidenced by a Stock Option Agreement between the
Corporation and the Optionee and shall be subject to the following
terms and conditions and to such other terms and conditions not
inconsistent therewith as the Committee may deem appropriate in each
case:
(a) Option Price. The price to be paid for shares of
Common Stock upon the exercise of each Option shall be
determined by the Committee at the time such Option is granted,
but such price in no event shall be less than the fair market
value, as determined by the Committee consistent with the
requirements of Sec. 422 of the Code, of the Common Stock on the
date on which such Option is granted.
(b) Period for Exercise of Option. An Option shall
not be exercisable after the expiration of such period as shall be
fixed by the Committee at the time such Option is granted, but
such period in no event shall exceed ten (10) years from the date
on which such Option is granted; provided, however, that no
incentive stock option shall be exercisable prior to the date on
which the Plan is approved by the shareholders of the
Corporation as required by Sec. 422 of the Code.
(c) Exercise of Options. The option price of each
share of Common Stock purchased upon exercise of an Option
shall be paid in full in cash at the time of such exercise;
provided, however, that an Optionee may, with the approval of
the Committee, exercise an Option in whole or in part by
tendering to the Corporation whole shares of Common Stock or
any combination of whole shares of Common Stock and cash,
having a fair market value equal to the cash exercise price of the
shares with respect to which the Option is being exercised. For
this purpose, the fair market value of the shares tendered by the
Optionee shall be computed as of the exercise date in such
manner as determined by the Committee consistent with the
requirements of Sec. 422 of the Code. The Committee shall have
the authority to grant Options exercisable in full at any time
during their term or exercisable in such quotas as the Committee
shall determine. An Option may be exercised at any time or
from time to time during the term of the Option as to any or all
whole shares which have become subject to purchase pursuant to
the terms of the Option (including, without limitation, any
quotas with respect to Option exercise) or the Plan.
(d) Termination of Option. Any Option granted to an
Optionee shall terminate as of the date the Optionee ceases to be
an employee of the Corporation or of the Subsidiaries for any
reason other than retirement, permanent and total disability
(within the meaning of Sec. 105(d)(4) of the Code), or death.
Leave of absence approved by the Committee shall not constitute
cessation of employment. If an Optionee ceases to be an
employee of the Corporation or the Subsidiaries by reason of
retirement, any Option granted to that Optionee may be
exercised by the Optionee in whole or in part within three (3)
years after the date of the Optionee's retirement whether or not
the Option was otherwise exercisable at the date of such
retirement. (The term "retirement" as used herein means such
termination of employment on or after attaining age 60). If an
Optionee ceases to be an employee of the Corporation or the
Subsidiaries by reason of permanent and total disability (within
the meaning of Sec. 105(d)(4) of the Code), any Option granted to
that Optionee may be exercised by the Optionee in whole or in
part within three (3) years after the date of the Optionee's
termination of employment by reason of such disability whether
or not the Option was otherwise exercisable at the date of such
termination of employment. If an Optionee dies while in the
employ of the Corporation or the Subsidiaries, any Option
granted to that Optionee may be exercised in whole or in part by
the executor or administrator of the Optionee's estate or by the
person or persons entitled to the Option by will or by applicable
laws of descent and distribution within three (3) years after the
date of the Optionee's death, whether or not the Option was
otherwise exercisable at the date of the Optionee's death.
Notwithstanding the foregoing provisions of this subsection (d),
no Option shall in any event be exercisable after the expiration
of the period fixed by the Committee in accordance with
subsection (b) above.
(e) Nontransferability of Option. An Option may not
be transferred by the Optionee otherwise than by will or the
laws of descent and distribution, and during the lifetime of the
Optionee shall be exercisable only by the Optionee, except that
the Committee may, in its discretion, authorize all or a portion
of the non-qualified Options granted to an Optionee to be on
terms which permit transfer by such Optionee to (i) the spouse,
children or grandchildren of the Optionee ("Immediate Family
Members"), (ii) a trust or trusts for the exclusive benefit of such
Immediate Family Members, (iii) a partnership in which such
Immediate Family Members are the only partners, or (iv)
charitable organizations and other persons or entities specifically
designated by the Committee upon advice of counsel, provided
that (x) there may be no consideration for any such transfer, (y)
the Stock Option Agreement pursuant to which such Options are
granted must be approved by the Committee, and must expressly
provide for transferability in a manner consistent with this
provision, and (z) subsequent transfers of transferred Options
shall be prohibited otherwise than by will or the laws of descent
and distribution. Following a transfer, any transferred Option
shall continue to be subject to the same terms and conditions as
were applicable immediately prior to transfer. All events
described in the Plan or the Stock Option Agreement relating to
the Optionee which affect the terms and conditions of an Option
(including, but not limited to, Section 5(d) above) shall continue
to have the same affect on the terms and conditions of the
transferred Option as if such transfer had not occurred. Neither
the Committee nor the Corporation shall have any obligation to
provide to the transferee of an Option notice of any events
relating to the Optionee which may affect the terms and
conditions of such transferred Option. The Optionee will remain
subject to withholding taxes upon the exercise of a transferred
Option.
(f) Maximum Incentive Stock Options. The aggregate
fair market value (determined as of the time the incentive stock
option is granted) of Common Stock subject to incentive stock
options that are exercisable for the first time by an employee
during any calendar year under the Plan or any other plan of the
Corporation or any Subsidiary shall not exceed $100,000. For
this purpose, the fair market value of such shares shall be
determined as of the date the incentive stock option is granted
and shall be computed in such manner as shall be determined by
the Committee consistent with the requirements of Sec. 422 of the
Code. If the immediate exercisability of incentive stock options
arising from the retirement, death or permanent and total
disability of an Optionee pursuant to Section 5(d) above would
cause this $100,000 limitation to be exceeded for an Optionee,
the Committee shall convert as of the date on which such
incentive stock options become exercisable all or a portion of the
outstanding incentive stock options held by such Optionee to
non-qualified stock options to the extent necessary to comply
with the $100,000 limitation.
(g) Tax Benefit. The Committee may, in its sole
discretion, include a provision in any non-qualified stock option
agreement that provides for an additional cash payment from the
Corporation to the Optionee of such non-qualified option as soon
as practicable after the exercise date of such non-qualified stock
option equal to all or a portion of the tax benefit to be received
by the Corporation attributable to its federal income tax
deduction resulting from the exercise of such non-qualified stock
option.
(h) Certificates. The certificate or certificates for the
shares issuable upon an exercise of an Option shall be issued as
promptly as practicable after such exercise. An Optionee shall
not have any rights of a shareholder in respect to the shares of
Common Stock subject to an Option until the date of issuance of
a stock certificate for such shares. In no case may a fraction of
a share be purchased or issued under the Plan, but if, upon the
exercise of an Option, a fractional share would otherwise be
issuable, then the Corporation shall pay cash in lieu thereof.
(i) No Right to Continued Service. Nothing in this
Plan or in any agreement entered into pursuant hereto shall
confer on any person any right to continue in the employ of the
Corporation or its Subsidiaries or affect any rights the
Corporation, a Subsidiary or the shareholders of the Corporation
may have to terminate that person's service at any time.
6. Terms of Award. Each Award made under the Plan shall
be evidenced by a Stock Award Agreement between the Corporation
and the Recipient and shall be subject to the following terms and
conditions and to such other terms and conditions not inconsistent
therewith as the Committee may deem appropriate in each case:
(a) Number of Shares. The Stock Award Agreement
shall evidence the number of shares of Common Stock subject to
the Award.
(b) Transfer Restrictions. None of the shares of
Common Stock subject to an Award may be sold, assigned,
pledged or otherwise transferred, voluntarily or involuntarily, by
the Recipient except upon the lapse of those restrictions and/or
the attainment of those objective performance goals specified in
the Stock Award Agreement. The shares of Common Stock
subject to an Award shall be forfeited to the Corporation upon
the Recipient's termination of employment with the Corporation
or its Subsidiaries (other than termination of employment due to
the Recipient's permanent and total disability (within the
meaning of Sec. 105(d)(4) of the Code) or death) prior to the date
any restrictions lapse or objective performance goals are
achieved in accordance with the preceding sentence. Leave of
absence approved by the Committee shall not constitute cessation
of employment.
(c) Death or Disability. Upon the Recipient's death
or permanent and total disability (within the meaning of
Sec. 105(d)(4) of the Code) prior to the date any restrictions lapse
or objective performance goals are achieved in accordance with
Section 6(b), the shares of Common Stock subject to an Award
shall become freely transferable by the Recipient or the executor
or administrator of the Recipient's estate or by the person or
persons entitled to the shares by will or by applicable laws of
descent and distribution.
(d) Tax Benefit. The Committee may, in its sole
discretion, include a provision in any Stock Award Agreement
that provides for an additional cash payment from the
Corporation to the Recipient as soon as practicable after an
Award is no longer subject to a substantial risk of forfeiture
under Sec. 83(b) of the Code (or such other time as the Recipient
first becomes subject to federal income tax as the result of the
receipt of an Award) equal to all or a portion of the tax benefit
to be received by the Corporation attributable to its federal
income tax deduction resulting from the Award.
(e) Certificates. The certificate or certificates for the
shares subject to an Award shall be issued as promptly as
practicable after such Award. Subject to the restrictions set
forth in Section 6(b), a Recipient shall have all rights of a
shareholder (including any voting rights and the right to receive
dividends) with respect to the shares of Common Stock subject
to an Award as of the date of issuance of a stock certificate for
such shares.
(f) No Right to Continued Service. Nothing in this
Plan or in any agreement entered into pursuant hereto shall
confer on any person any right to continue in the employ of the
Corporation or its Subsidiaries or affect any rights of the
Corporation or a Subsidiary may have to terminate that person's
service at any time.
7. Director Options. Director Options shall be granted as
of the first day following each annual meeting of the Corporation's
shareholders (a "Grant Date"). As of each Grant Date, each Outside
Director serving as a director of the Corporation on that Grant Date
shall automatically be granted a Director Option to purchase 1,000
shares of Common Stock. Each Director Option granted under the Plan
shall be a non-qualified stock option and shall be evidenced by a
Director Stock Option Agreement between the Corporation and the
Outside Director. The Director Stock Option Agreement shall specify
the number of shares of Common Stock subject to the Director Option
and shall also be subject to the following terms and conditions:
(a) Director Option Price. The price to be paid for
shares of Common Stock upon the exercise of each Director
Option shall be the average of the high and low prices of the
Common Stock as traded on the New York Stock Exchange on
the Grant Date; provided, however, that if the Grant Date falls
on a day when shares of Common Stock are not traded, the
option price of the Director Option shall be determined as of the
first day following the Grant Date on which such shares are
traded on the New York Stock Exchange.
(b) Period for Exercise of Director Option. A
Director Option shall be exercisable any time during the period
that begins six months after the Grant Date on which such
Director Option is granted and that ends on the ten (10) year
anniversary of that Grant Date.
(c) Exercise of Director Options. The option price of
each share of Common Stock purchased upon exercise of a
Director Option shall be paid in full in cash at the time of such
exercise; provided, however, that an Outside Director may
exercise a Director Option in whole or in part by tendering to
the Corporation whole shares of Common Stock or any
combination of whole shares of Common Stock and cash, having
a fair market value equal to the cash exercise price of the shares
with respect to which the Director Option is being exercised.
For this purpose, the fair market value of the shares tendered by
the Outside Director shall be the average of the high and low
prices of the Common Stock as traded on the New York Stock
Exchange on the exercise date (or, if the Common Stock is not
traded on that date, the first preceding date on which the
Common Stock was traded on the New York Stock Exchange).
A Director Option may be exercised at any time or from time to
time during the term of the Director Option as to any or all
whole shares which have become subject to purchase pursuant to
the terms of the Director Option or the Plan.
(d) Termination of Director Option. If an Outside
Director ceases to be a director of the Corporation for any
reason other than death, any Director Option granted to that
Outside Director may be exercised in whole or in part at any
time within the three (3) year period immediately following the
date on which his or her status as a director terminated. Leave
of absence approved by the Inside Directors shall not constitute
termination of status as director. In the event of the death of an
Outside Director while serving as a director of the Corporation,
any Director Option granted to that Outside Director may be
exercised in whole or in part by the executor or administrator of
the Outside Director's estate or by the person or persons entitled
to the Director Option by will or by applicable laws of descent
and distribution within three (3) years after the date of the
Outside Director's death, whether or not the Director Option
was otherwise exercisable at such date of death.
Notwithstanding the foregoing provisions of this subsection (d),
no option shall in any event be exercisable after the expiration of
the period set forth in Section 7(b) above.
(e) Nontransferability of Director Option. A Director
Option may not be transferred by the Outside Director otherwise
than by will or the laws of descent and distribution, and during
the lifetime of the Outside Director shall be exercisable only by
that Outside Director.
(f) Certificates. The certificate or certificates for the
shares issuable upon an exercise of a Director Option shall be
issued as promptly as practicable after such exercise. An
Outside Director shall not have any rights of a shareholder in
respect to the shares of Common Stock subject to a Director
Option until the date of issuance of a stock certificate for such
shares. In no case may a fraction of a share be purchased or
issued under the Plan, but if, upon the exercise of a Director
Option, a fractional share would otherwise be issuable, then the
Corporation shall pay cash in lieu thereof.
(g) No Right to Continued Service. Nothing in this
Plan or in any agreement entered into pursuant hereto shall
confer on any person any right to continue as a director of the
Corporation or affect any rights the Corporation or the
shareholders of the Corporation may have to terminate that
person's status as a director at any time.
8. Section 162(m) Compliance. The purpose of this Section
8 is to permit the Incentive Compensation Subcommittee to grant
Options or make Awards to a key employee who is a "covered
employee" as defined in Prop. Reg. Sec. 1.162-27(c)(2) (a "Covered
Employee") in a manner that causes such Options or Awards to be
treated as qualified performance-based compensation excluded from the
deduction limits of Sec. 162(m) of the Code. Options or Awards may be
granted or made to a Covered Employee under this Section 8 in lieu of
or in addition to Options or Awards granted or made under Section 5 or
Section 6.
Any Options granted under this Section 8 shall be subject to all
terms and conditions set forth in Section 5 and shall also be subject to
the following additional terms and conditions:
(a) The number of shares of Common Stock subject
to an Option granted under this Section 8 in any calendar year
shall not exceed:
(i) in the case of the chief executive officer of
the Corporation, one hundred thousand (100,000) shares;
and
(ii) in the case of each of the four highest paid
officers of the Corporation and its Subsidiaries, other
than the chief executive officer of the Corporation, fifty
thousand (50,000) shares.
Any Awards made under this Section 8 shall be subject to all
terms and conditions set forth in Section 6 and shall also be subject to
the following additional terms and conditions:
(b) An Award made under this Section 8 shall
provide that shares of Common Stock subject thereto shall
become freely transferable (and any other restrictions applicable
thereto shall lapse) only upon the satisfaction of objective,
quantified performance standards based on the Corporation's (or
a Subsidiary's) net operating income before taxes and
extraordinary charges against income. The Incentive
Compensation Subcommittee shall be solely responsible for
setting actual performance targets in accordance with the
performance standards set forth in the preceding sentence and
for determining whether such targets have been attained.
(c) The number of shares of Common Stock subject
to an Award made under this Section 8 in any calendar year
shall not exceed:
(i) in the case of the chief executive officer of
the Corporation, twenty thousand (20,000) shares; and
(ii) in the case of each of the four highest paid
officers of the Corporation and its Subsidiaries, other
than the chief executive officer of the Corporation, ten
thousand (10,000) shares.
9. Incentive Stock Options and Non-Qualified Stock Options.
Options granted under the Plan may be incentive stock options under
Sec. 422 of the Code or non-qualified stock options. All Options granted
hereunder shall be clearly identified as either incentive stock options or
non-qualified stock options. In no event shall the exercise of an
incentive stock option affect the right to exercise any non-qualified
stock option, nor shall the exercise of any non-qualified stock option
affect the right to exercise any incentive stock option. Nothing in this
Plan shall be construed to prohibit the grant of incentive stock options
and non-qualified stock options to the same person; provided, however,
that incentive stock options and non-qualified stock options shall not be
granted in a manner whereby the exercise of a non-qualified stock
option or incentive stock option affects the exercisability of the other.
Notwithstanding the foregoing, Director Options shall in all events be
non-qualified stock options.
10. Adjustment of Shares. In the event of any change after
the effective date of the Plan in the outstanding stock of the
Corporation by reason of any reorganization, recapitalization, stock
split, stock dividend, combination of shares, exchange of shares,
merger or consolidation, liquidation, or any other change in the nature
of the shares of stock of the Corporation, the Committee shall
determine what changes, if any, are appropriate in the number and kind
of shares reserved under the Plan and in the option price under and/or
the number and kind of shares covered by outstanding Options,
Director Options or Awards granted under the Plan. Any
determination of the Committee hereunder shall be conclusive.
11. Tax Withholding. Whenever the Corporation proposes or
is required to issue or transfer shares of Common Stock under the Plan
or whenever a Recipient first becomes subject to federal income tax on
an Award of shares, the Corporation shall have the right to require the
Optionee (or Recipient) or his or her legal representative to remit to the
Corporation an amount sufficient to satisfy any federal, state and/or
local withholding tax requirements prior to the delivery of any
certificate or certificates for such shares, and whenever under the Plan
payments are to be made in cash, such payments shall be net of an
amount sufficient to satisfy any federal, state and/or local withholding
tax requirements.
12. Amendment. The Board of Directors of the Corporation
may amend the Plan from time to time and, with the consent of the
affected Optionee, Outside Director or Recipient, the terms and
provisions of his or her Option, Director Option or Award, except that,
without the approval of the Corporation's shareholders:
(a) the number of shares of Common Stock which
may be reserved for issuance under the Plan may not be
increased except as provided in Section 10 hereof;
(b) the option price under any Option (or Director
Option) may not be reduced to less than the fair market value,
as determined by the Committee (or the Inside Directors)
consistent with the requirements of Sec. 422 of the Code, of the
Common Stock on the date such Option or Director Option is
granted except as provided in Section 10 hereof;
(c) the period during which an Option or Director
Option may be exercised may not be extended beyond ten (10)
years from the date on which such Option or Director Option
was granted;
(d) the class of employees or directors to whom
Awards, Options or Director Options may be granted under the
Plan shall not be modified materially; and
(e) the benefits accruing to Recipients, Optionees or
Outside Directors under the Plan shall not be increased
materially within the meaning of Reg. 16b-3(a)(2)(ii)(A)
promulgated under the 1934 Act.
No amendment of the Plan, however, may, without the consent
of the affected Optionee, Outside Director or Recipient, make any
changes in any outstanding Options, Director Options or Awards
theretofore granted under the Plan which would adversely affect the
rights of such Optionee, Outside Director or Recipient.
13. Termination. The Board of Directors of the Corporation
may terminate the Plan at any time and no Options, Director Options or
Awards shall be granted thereafter. Such termination, however, shall
not affect the validity of any Option, Director Option or Award
theretofore granted under the Plan. In any event, no Option, Director
Option or Award may be granted after the conclusion of a ten (10) year
period commencing on the date the Plan was originally adopted or, if
earlier, the date the Plan is approved by the Corporation's shareholders.
14. Successors. The Plan shall be binding upon the
successors and assigns of the Corporation.
15. Governing Law. The terms of any Options, Director
Options or Awards granted hereunder and the rights and obligations
hereunder of the Corporation, the Optionees, Outside Directors and
Recipients and their successors in interest shall, except to the extent
governed by federal law, be governed by Indiana law.
16. Government and Other Regulations. The obligations of
the Corporation to issue or transfer and deliver shares under Options,
Director Options and Awards granted under the Plan shall be subject to
compliance with all applicable laws, governmental rules and
regulations, and administrative action.
Adopted July 14, 1989
Amended May 16, 1991
Amended September 22, 1992
Amended March 17, 1993
Amended March 21, 1995
Amended December 10, 1996
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The Company's management is responsible for the preparation and content of the
consolidated financial statements and other financial information in this
annual report. The financial statements have been prepared in conformity with
generally accepted accounting principles and include some amounts that must be
based on management's estimates and judgments.
The Company's management maintains an accounting system and related internal
controls designed to provide reasonable assurance that there is proper
authorization and accounting for all transactions, that financial records are
reliable for preparing financial statements and that assets are safeguarded
against loss or unauthorized use. The system is supported by written policies
and guidelines and the selection and training of qualified personnel.
Geo. S. Olive & Co. LLC, independent auditors, have been appointed by the
Board of Directors, with the ratification of the shareholders, to conduct an
independent audit and to express an opinion as to the fairness of the
presentation of the consolidated financial statements of Central Newspapers,
Inc. The Geo. S. Olive & Co. LLC report appears on page 14.
The Audit Committee of the Board of Directors is composed of three directors.
The Audit Committee meets periodically with management and the independent
auditors to discuss accounting, financial reporting, auditing and internal
control matters. The Audit Committee reviews the Company's financial reports
and accounting practices to ascertain they are appropriate in the
circumstances. The independent auditors have direct and private access to the
Audit Committee.
/s/Louis A. Weil III /s/Thomas K. MacGillivray
- -------------------- -------------------------
Louis A. Weil III Thomas K. MacGillivray
President and Chief Executive Officer Treasurer and
Chief Financial Officer
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITON
GENERAL
The principal line of business of Central Newspapers, Inc. (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 has a 13.5% interest in Ponderay Newsprint Company
("Ponderay"), a partnership formed to own and operate a newsprint mill in the
State of Washington. The following analysis should be read in conjunction
with the 1996 consolidated financial statements and the accompanying notes to
the consolidated financial statements.
The Company's business tends to be seasonal, with peak revenues and profits
generally occurring in the second and fourth quarters of each year. The
results for 1996, 1995 and 1994 reflect these seasonal patterns. In addition,
the 1996 and 1994 fiscal years each included 52 weeks and fiscal year 1995
included 53 weeks.
RECENT EVENTS
On December 10, 1996, the Company announced that it would acquire the
remaining 9.8% of Indianapolis Newspapers, Inc. ("INI") that it does not
already own. This transaction, which will be recorded using purchase
accounting, will be accomplished by issuing the current minority shareholders
one share of a newly created, non-voting, $10,000 stated value INI preferred
stock in exchange for each share of INI common stock owned by them. The
preferred stock will pay a dividend of $700 per year on a cumulative basis,
will be callable in five years by the Company and redeemable at any time by
the shareholders at the stated value per share. This transaction, which is
not expected to have a material effect on future earnings, occurred on January
3, 1997.
The Company's subsidiary, Phoenix Newspapers, Inc. ("PNI") announced that
effective January 18, 1997 publication of its Phoenix afternoon newspaper, The
Phoenix Gazette, would cease and PNI would realign the news gathering
structure of its morning newspaper, The Arizona Republic. These changes will
result in the Company recording a one-time pre-tax charge to earnings of
approximately $4.8 million in the first quarter of 1997 and is excepted to
result in pre-tax earnings benefits of approximately $5.0 million in 1997 and
ongoing annual pre-tax benefits in future years of approximately $6.4 million.
Approximately 85 positions will be eliminated as a result of these actions.
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 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 is expected to be negatively
impacted for approximately three years. Thereafter, the acquisition is
expected to contribute positively to net income. However, the Company's
operating income before interest, taxes, depreciation and amortization
("EBITDA") has been positively impacted since the acquisition.
The Company announced on February 21, 1997 that it acquired for cash 80% of
the Westech group of companies. Based in Santa Clara, California the Westech
group consists of Westech ExpoCorp., which organizes job fairs for the high-
tech industry; HTC, which publishes High Tech Careers magazine, and Jobs
America, which organizes job fairs for service industry positions. The
Westech group had $20 million of revenues in 1996.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
Fiscal 1996 was a year of record revenues and profits for the Company.
Earnings per share for 1996 were $2.31, up $.28 from the $2.03 reported in
1995. The 1995 earnings increased $.48 from the $1.55 earned in 1994. All
three years included work force reduction or asset impairment costs that
negatively impacted earnings. Earnings per share, adjusted for these costs,
would have been $2.43 in 1996, $2.11 in 1995 and $1.71 in 1994. The results
for 1995 include an additional week when compared with the 1996 and 1994
periods.
Operating income for 1996, 1995 and 1994 was $99.9 million, $85.9 million and
$75.7 million, respectively, rising 16.3% from 1995 to 1996 and by 13.5% from
1994 to 1995. The 1996 results include ten months of activity from the
McCormick acquisition and all three years include the effects of asset
impairment and/or work force reduction costs. Excluding these items,
operating income would have been $103.6 million, $89.2 million and $82.8
million in 1996, 1995 and 1994, respectively. EBITDA for the three year
period (excluding asset impairment and work force reduction charges) increased
each year to $141.0 million, $117.7 million and $109.4 million.
Net income for 1996 was $61.5 million, up 14.0% over 1995's net income of
$54.0 million and 1995 was up 30.7% over 1994's net income of $41.3 million.
Had the Company not incurred the charges for asset impairment and work force
reductions, net income would have been $64.7 million, $56.2 million, and $45.6
million in 1996, 1995 and 1994, respectively.
OPERATING REVENUES
The Company's operating revenues rose 7.0% from 1995 to 1996 and 11.6% from
1994 to 1995. These comparisons include the effects of the McCormick
acquisition which was accounted for as of March 1, 1996 and the fifty-third
week in 1995. Excluding these two items, operating revenues would have
increased 6.2% and 9.7%.
Total advertising revenues were $479.5 million in 1996, $446.7 million in 1995
and $395.5 million in 1994. The 1995 to 1996 gain of 7.3% and the 1994 to
1995 gain of 13.0% were both affected by the fifty-third week in 1995 and 1996
was impacted by the acquisition of McCormick. Excluding both of these items,
comparable increases would have been 7.3% and 11.1%, respectively. The
balance of the advertising revenue changes resulted primarily from increases
in advertising linage and higher advertising rates. Major market linage
volume for the period was:
Full run linage in six column inches:
(In thousands)
1996 % change 1995 % change 1994
----- -------- ----- -------- -----
Retail 3,280 (7.8%) 3,559 9.2% 3,258
National 439 54.6 284 .4 283
Classified 3,775 4.7 3,607 13.1 3,189
----- ---- ----- ---- -----
Total 7,494 .6 7,450 10.7 6,730
Full run linage by major markets:
Phoenix 4,518 .1 4,513 12.8 4,014
Indianapolis 2,976 1.3 2,937 8.1 2,716
The 1995 linage amounts include the effects of the fifty-third week. Areas of
particular advertising strength in 1996 included real estate and automotive
advertising in Phoenix and major department stores and automotive in
Indianapolis. Areas which showed a decrease in linage during 1996 included
certain areas of retail advertising; primarily the department store category
in Phoenix and the grocery store category in both major markets. Advertising
revenues were further enhanced by Phoenix rate increases ranging from 5% to 8%
and Indianapolis rate increases ranging from 4.5% to 7%. Both newspapers also
raised rates at various times throughout 1995.
Circulation revenues for 1996, 1995 and 1994 were $134.1 million, $129.5
million and $121.8 million, or increases of 3.6% for the 1995 to 1996 period
and 6.3% for the 1994 to 1995 period. Excluding the effects of McCormick and
the fifty-third week of 1995, the corresponding increases would have been 3.0%
and 4.4%, respectively. The combined average daily and Sunday circulation
amounts for Phoenix and Indianapolis were:
Combined average daily circulation:
1996 % change 1995 % change 1994
------- -------- ------- -------- -------
Phoenix 456,555 ( .1%) 461,101 .7% 457,846
Indianapolis 285,543 (5.5) 302,138 (4.8) 317,246
Sunday circulation:
Phoenix 584,496 ( .1) 585,226 (1.0) 591,087
Indianapolis 402,710 .8 399,347 (1.3) 404,468
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
combinations, the morning and evening newspaper products have similar news
content which has caused most duplicate subscribers to drop their evening
subscriptions resulting in decreased combined average daily circulation in
both markets. Circulation rate increases more than offset the decline in the
number of papers sold.
Circulation revenues were favorably impacted by a Phoenix home delivered price
increase of $.35 per week to a range of $3.00 to $3.50 in August, 1995 and a
Sunday single copy price increase of $.50 to $2.00 in March, 1995.
Indianapolis instituted September 1996 increases for the weekly home delivery
price of The Indianapolis Star of $.30 per week to $3.60 and a single copy
price increase for the Sunday Star of $.25 to $1.75. Indianapolis also
increased prices for the home delivered afternoon paper by $.30 to $1.80 and
the daily single copy price of both papers from $.35 to $.50 in March, 1995.
OPERATING EXPENSES
Compensation costs, which include payroll and fringe benefits, increased 2.5%
to $228.3 million in 1996 and 2.6% to $222.7 million in 1995. Excluding
McCormick and the fifty-third week of 1995, compensation costs would have
increased 2.1% for the 1995 to 1996 period and 1.0% for 1994 compared with
1995. Although 1996 year-over-year headcount has decreased approximately
2.8%, the 1996 increase in costs is attributable to a change in the discount
rate used in postretirement and pension calculations and one-time labor costs
associated with a move to a new Phoenix office building.
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Newsprint and ink expense increased 2.8% to $113.2 million in 1996 and 44.4%
to $110.1 million in 1995. Excluding the effects of McCormick and the fifty-
third week in 1995, newsprint and ink would have increased 2.0% for the 1995
to 1996 period and 41.6% for the 1994 to 1995 period. The increase in year-
over-year comparisons is due to the effects of rapidly escalating newsprint
prices throughout 1995 which reached a peak in early 1996 followed by
decreasing prices throughout the last three quarters of 1996. Newsprint
consumption for 1996 when compared with 1995 (excluding McCormick) decreased
.4% compared with a 2.5% consumption increase in 1995 versus 1994 levels.
Other operating costs for 1996, 1995 and 1994 were $137.9 million, $129.4
million and $116.9 million, respectively, for a 1995 to 1996 increase of 6.6%
and a 1994 to 1995 increase of 10.6%. Excluding the effects of McCormick and
the fifty-third week of 1995, operating costs would have increased 5.0% and
9.5%. Items contributing to the 1995 to 1996 increase included operating
duplicate office facilities, implementation of a new client server computer
system, additional circulation costs and new distribution centers in Phoenix.
The 1994 to 1995 operating cost increases related to production and delivery
of zoned advertising products, promotional expenses and higher property taxes.
Depreciation and amortization expense was $35.5 million, $28.5 million and
$26.6 million for 1996, 1995 and 1994, respectively. Excluding the McCormick
acquisition, 1996 depreciation and amortization expense would have been $33.4
million. The 1995 to 1996 comparable increase of 17.4% is associated with
depreciation expense of the Phoenix client server computer system, a packaging
facility in Indianapolis and additional distribution centers. The 1994 to
1995 increase of 6.9% was primarily due to the first phase of the client
server computer system and a new inserting facility in Indianapolis.
During 1996 the Company recognized asset impairment costs for a Phoenix office
building that is being held for disposal and a charge for the premature
retirement of a Phoenix conveyor system. 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" which the Company adopted during
1996.
The Company recorded work force reduction costs of $1.3 million, $3.3 million
and $7.1 million in 1996, 1995 and 1994, respectively. The 1996 amount
relates primarily to voluntary early retirement programs in Indianapolis and
work force reduction costs related to the consolidation of the Muncie, Indiana
subsidiary's morning and evening newspapers. The 1995 and 1994 work force
reduction costs related to voluntary early retirement programs in Indianapolis
and Phoenix which were undertaken due to economic conditions, increasing costs
and changes in technology.
NON-OPERATING ITEMS
Other non-operating income (primarily investment income), was $4.0 million,
$8.2 million and $5.0 million for 1996, 1995 and 1994. The $4.2 million
decrease in 1996 compared with 1995 is attributable to a reduction in
investible cash from the acquisition of McCormick and a general reduction in
interest rates. The $3.2 million increase in income when comparing 1995 with
1994 reflects higher rates of return on investments and the full year effect
of a new cash management policy implemented in July 1994.
Income tax expense for 1996, 1995 and 1994 was $42.4 million, $38.0 million
and $32.8 million, respectively; reflecting effective tax rates of 40.8%,
40.5% and 40.7%. The increase in the effective income tax rate in 1996 over
1995 is primarily due to the McCormick goodwill which is not tax-deductible
offset by benefits received from filing a consolidated state income tax return
in Arizona.
Income from Equity in Affiliate increased $2.3 million to $1.7 million in 1996
from a loss of $.6 million in 1995. A loss in the amount of $3.6 million from
the Equity in Affiliate was reported in 1994. These changes are attributable
to fluctuations in the sales price of newsprint realized by Ponderay.
INVESTMENT IN AFFILIATE
The Company's investment in Ponderay is accounted for using the equity method,
which reflects the Company's share of Ponderay's net income or loss, tax
credits and related income tax expense or benefit. Ponderay's operating
results include interest expense on its long-term debt. Since Ponderay's
operating results are significantly affected by movements in newsprint prices,
the Company's net income will be impacted positively or negatively depending
on the volatility of newsprint pricing. Based upon current pricing, Ponderay
is expected to report a loss in 1997. The Company does not anticipate making
additional cash investments in Ponderay during 1997. See further discussion
in Note 10 to the 1996 Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations is the Company's primary source of liquidity. Net
cash provided by operating activities of $122.0 million, $62.3 million and
$41.9 million in 1996, 1995 and 1994, respectively, include the effects of net
purchases of trading securities. Operating cash flows, excluding the impact
of net purchases of trading securities were $81.3 million, $79.9 million and
$87.6 million for the comparable periods. Changes between the years are
attributable to increases in earnings and changes in working capital.
Principal uses of cash in 1996 were capital expenditures, the acquisition of
McCormick, payment of dividends and the repurchase of Class A common stock.
At the end of 1996, the Company's cash and investments in marketable
securities totaled $61.7 million, down $67.8 million from $129.5 million at
the end of 1995. Working capital at the end of 1996 was $92.3 million, down
$45.5 million from the end of 1995. These reductions were primarily from the
acquisition of McCormick and the repurchase of the Class A common stock.
Total capital expenditures in 1996 were $46.5 million, down from $58.7 million
in 1995 and up from $23.3 million in 1994. The majority of these expenditures
in 1996 and 1995 relate to the new Phoenix office building completed in 1996
and a client server computer system placed in service in 1996 and 1995. It is
expected that capital expenditures for 1997 will be approximately $28.0
million. As of December 29, 1996, there are no significant formal commitments
related to future capital projects.
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITON
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 year ending December 29, 1996
the Company repurchased 490,100 shares in the aggregate amount of $18.0
million.
The Company guarantees debt related to Ponderay which is discussed in Note 10
to the Consolidated Financial Statements.
Dividends of $.72 per share on Class A common stock and $.072 per share on
Class B common stock were declared during the year. This represents an
increase over the prior year of $.10 per share on the Class A common stock and
$.01 per share on the Class B common stock. Cash dividend payments of $19.6
million, $16.4 million and $15.2 million were made in 1996, 1995 and 1994.
The Company has significant cash balances and a consistent ability to generate
cash flow from operations. At this time, the Company foresees no difficulty
in maintaining its present financial condition and liquidity. Funding for
planned current and future capital programs, the repurchase of Class A common
stock, the retirement of minority preferred stock of INI and projected working
capital needs is considered adequate for the foreseeable future.
INFLATION AND CHANGING PRICES
Over the past several years, the impact of inflation on the Company's
operations has become less significant because of lower overall inflation
rates. However, the Company and the newspaper industry as a whole have
experienced wide fluctuations in newsprint pricing. Variations in newsprint
pricing can have a significant impact on earnings for any given year. The
Company has attempted to offset newsprint price increases through the
conservation of newsprint and by increasing advertising and circulation rates.
NEW ACCOUNTING STANDARDS
The Company adopted in 1996 SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of". The
application of this standard resulted in a charge to earnings of $2.5 million,
net of tax.
The Company adopted SFAS No. 123, "Accounting for Stock Based Compensation" in
1996. The statement prescribes accounting and reporting standards for all
stock based compensation plans. SFAS No. 123 allows companies to continue to
use existing methods for recognizing the expense of these plans and provide
pro forma earnings per share and other disclosures in the financial statements
using the fair value method prescribed in the statement. The Company has
elected the pro forma disclosure provisions of this statement.
OUTLOOK FOR 1997
The Company foresees continued growth in advertising revenues for 1997 derived
from increased advertising linage and rates. Despite the closure of The
Phoenix Gazette in January, 1997, circulation revenue is also expected to
increase modestly due to September, 1996 Indianapolis price increases and
circulation growth. Non-newsprint operating expenses are expected to increase
at a comparable rate with revenue growth. Newsprint and ink expense, the
second largest expense category, is expected to be lower in 1997 than 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.
<PAGE> 14
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Shareholders
Central Newspapers, Inc.
We have audited the accompanying consolidated statement of financial position
of Central Newspapers, Inc. and Subsidiaries as of December 29, 1996 and
December 31, 1995 and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three fiscal years in the
period ended December 29, 1996. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Central Newspapers, Inc. and Subsidiaries as of December 29, 1996 and
December 31, 1995 and the consolidated results of their operations and their
cash flows for each of the three fiscal years in the period ended December 29,
1996, in conformity with generally accepted accounting principles.
As discussed in Note 1, the Company adopted, effective at the beginning of
1994, SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities."
/s/Geo. S. Olive & Co., LLC
- ---------------------------
Geo. S. Olive & Co. LLC
Indianapolis, Indiana
February 3, 1997
<PAGE> 15
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except share data)
FOR THE YEAR ENDED: Dec. 29 Dec. 31 Dec. 25
1996 1995 1994
-------- -------- --------
Operating revenues:
Advertising $479,474 $446,693 $395,450
Circulation 134,133 129,537 121,823
Other 6,708 3,671 2,429
------- ------- -------
620,315 579,901 519,702
------- ------- -------
Operating expenses:
Compensation 228,316 222,748 217,078
Newsprint and ink 113,171 110,085 76,247
Other operating costs 137,875 129,362 116,944
Depreciation and amortization 35,528 28,487 26,639
Asset impairment cost 4,226
Work force reduction cost 1,340 3,328 7,064
------- ------- -------
520,456 494,010 443,972
------- ------- -------
Operating income 99,859 85,891 75,730
Other income--net 4,009 8,154 4,965
------- ------- -------
Income before income taxes 103,868 94,045 80,695
Provision for income taxes 42,431 38,048 32,847
------- ------- -------
Income before minority interest and
equity in Affiliate 61,437 55,997 47,848
Minority interest in subsidiary (1,629) (1,409) (2,977)
Equity in Affiliate, net of tax 1,726 (590) (3,550)
------- ------ -------
Net income $ 61,534 $ 53,998 $ 41,321
======== ======== ========
Net income per common share $ 2.31 $ 2.03 $ 1.55
======== ======== ========
Average common shares outstanding 26,619 26,651 26,621
See accompanying notes to consolidated financial statements.
<PAGE> 16
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(In thousands, except share data)
Dec. 29 Dec. 31
1996 1995
------- -------
ASSETS
Current assets:
Cash and cash equivalents $ 36,149 $ 26,142
Marketable securities 25,612 103,390
Accounts receivable (net of allowances of
$1,638 and $1,067) 90,023 62,355
Inventories 8,912 10,125
Deferred income taxes 7,263 6,773
Other current assets 3,503 4,233
------- -------
Total current assets 171,462 213,018
------- -------
Property, plant and equipment:
Land 18,225 16,943
Buildings and improvements 121,785 110,265
Leasehold improvements 4,255 4,177
Machinery and equipment 367,173 322,799
Construction in progress 1,414 33,567
------- -------
512,852 487,751
Less accumulated depreciation 215,872 206,946
------- -------
296,980 280,805
------- -------
Other assets:
Land held for development 3,118 1,607
Goodwill and other intangibles 75,449 29,009
Investment in Affiliate 8,867 5,843
Other 31,096 16,922
------- -------
118,530 53,381
------- -------
TOTAL ASSETS $586,972 $547,204
======== ========
See accompanying notes to consolidated financial statements.
<PAGE> 17
Dec. 29 Dec. 31
1996 1995
------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 19,079 $ 19,122
Accrued compensation 17,052 17,172
Dividends payable 5,180 5,027
Accrued expenses and other liabilities 13,914 14,567
Federal and state income taxes 5,880 1,941
Deferred revenue 18,034 17,371
------ ------
Total current liabilities 79,139 75,200
------ ------
Deferred income taxes 26,602 23,009
------ ------
Long-term debt 2,678 2,678
------ ------
Postretirement benefit obligation 81,759 79,327
------ ------
Minority interest in subsidiary 9,244 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--23,237,711 and 23,520,611 shares 24,259 18,967
Class B common stock--without par value:
Authorized--50,000,000 shares
Issued--31,553,000 shares 63 63
Retained earnings 363,365 338,436
Unamortized value of restricted stock (1,627)
Net unrealized gain on
available-for-sale securities 1,490 1,275
------- -------
387,550 358,741
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $586,972 $547,204
======== ========
<TABLE>
CENTRAL NEWSPAPERS, INC.
Consolidated Statement of Shareholders' Equity
<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 27, 1993 23,431,450 $17,137 31,578,000 $63 $273,493
Adoption of SFAS No. 115, net of deferred
income taxes and minority interest $649
Net income (52 weeks) 41,321
Dividends declared:
Class A common stock (12,204)
Class B common stock (1,642)
Exercise of stock options 49,050 1,045
Common stock conversion 2,500 (25,000)
Change in net unrealized gain on
available-for-sale securities (100)
---------- -------- ---------- -------- -------- ----------- ----------
BALANCE AT DECEMBER 25, 1994 23,483,000 18,182 31,553,000 63 300,968 549
Net income (53 weeks) 53,998
Dividends declared:
Class A common stock (14,573)
Class B common stock (1,957)
Exercise of stock options 37,611 785
Change in net unrealized gain on
available-for-sale securities 726
---------- -------- ---------- -------- -------- ----------- ----------
BALANCE AT DECEMBER 31, 1995 23,520,611 18,967 31,553,000 63 338,436 1,275
Net income (52 weeks) 61,534
Dividends declared:
Class A common stock (16,856)
Class B common stock (2,272)
Exercise of stock options 154,700 3,928
Repurchase of Class A common stock (490,100) (539) (17,477)
Issuance of restricted stock grants 52,500 1,903 ($1,903)
Amortization of restricted stock grants 276
Change in net unrealized gain on
available-for-sale securities 215
---------- -------- ---------- -------- -------- ----------- ----------
BALANCE AT DECEMBER 29, 1996 23,237,711 $24,259 31,553,000 $63 $363,365 ($1,627) $1,490
========== ======== ========== ======== ======== =========== ==========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 19
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
FOR THE YEAR ENDED: Dec. 29 Dec. 31 Dec. 25
1996 1995 1994
------- ------- ------
Operating activities:
Net income $ 61,534 $ 53,998 $ 41,321
Items which did not use (provide) cash:
Depreciation and amortization 35,528 29,281 27,284
Postretirement and pension benefits 2,050 2,072 7,815
Asset impairment cost 4,226
Change in unrealized gain on
trading securities 821 (1,009) (105)
Minority interest in earnings of
subsidiary 1,629 1,409 2,977
Equity in Affiliate (1,864) 540 3,550
Deferred income taxes (1,543) 1,791 (92)
Other 634 357 (203)
Change in assets and liabilities:
Net proceeds (purchases) of
trading securities 40,671 (17,630) (45,682)
Accounts receivable (26,320) (7,730) (8,276)
Inventories 1,835 (983) 974
Other current assets 2,363 (1,429) 428
Accounts payable (1,041) 1,056 3,564
Accrued compensation (317) 749 1,257
Accrued expenses and other liabilities (1,617) (4,869) 3,586
Federal and state income taxes 3,338 1,739 1,340
Deferred revenue 88 2,941 2,159
------- ------- -------
Net cash provided by operating activities 122,015 62,283 41,897
------- ------- -------
Investing activities:
Purchases of property, plant and equipment (46,530) (58,676) (23,256)
Proceeds from disposition of assets 1,975 2,452 622
Purchases of available-for-sale securities (24,659) (76,726) (234,011)
Proceeds from available-for-sale securities 62,243 99,051 274,800
Acquisition of McCormick and Co., Inc. (60,509)
Investment in Affiliate (2,484) (5,603)
Purchase of minority interest in subsidiary (500) (36,205)
Purchase of intangibles and other (5,557) (5,580) (3,877)
------- ------- -------
Net cash used by investing activities (73,037) (42,463) (27,530)
------- ------- -------
Financing activities:
Cash dividends paid (18,647) (15,724) (13,308)
Dividends paid to minority interest (989) (678) (1,937)
Proceeds from exercise of stock options 2,882 619 840
Principal repayments on long-term debt (4,200)
Repurchase of Class A common stock (18,017)
------- ------- -------
Net cash used by financing activities (38,971) (15,783) (14,405)
------- ------- -------
Increase (decrease) in cash and
cash equivalents 10,007 4,037 (38)
Cash and cash equivalents,
beginning of year 26,142 22,105 22,143
-------- ------- -------
Cash and cash equivalents, end of year $ 36,149 $ 26,142 $ 22,105
======== ======== ========
Supplemental cash flow information:
Income taxes paid $ 40,798 $ 34,492 $ 31,920
Interest paid 615 215 208
See accompanying notes to consolidated financial statements.
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1--NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations - 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.
Principles of Consolidation - The consolidated financial statements
include the accounts of the Company and all wholly-owned and
majority-owned subsidiaries. Investments in companies in which the
Company exercises significant influence are accounted for using the
equity method. All significant intercompany accounts and
transactions have been eliminated.
Fiscal Year - The Company's fiscal year ends on the last Sunday of
the calendar year. The fiscal years 1996, 1995 and 1994 included
fifty-two, fifty-three and fifty-two weeks, respectively.
Revenue Recognition - Advertising revenue is recognized when the
advertisement appears in the newspaper. Deferred subscription
revenue, which primarily represents amounts received from customers
in advance of newspaper delivery, is included in revenue over the
subscription term.
Cash Equivalents - The Company considers highly liquid investments
with a maturity of three months or less when purchased to be cash
equivalents.
Concentrations of Credit Risk - Financial instruments which
potentially subject the Company to concentrations of credit risk
consist primarily of cash equivalents, trade accounts receivable
and investments in marketable securities. The Company places its
temporary cash with financial institutions and limits the amount of
credit exposure to any one financial institution. Accounts
receivable are with customers located primarily in the immediate
geographical area of each city of publication. The Company reviews
a customer's credit history before extending credit and establishes
an allowance for doubtful accounts based on factors surrounding the
credit risk of specific customers, historic trends and other
information. The Company, by policy, limits the type and amount of
its investments in marketable securities.
Inventories - Newsprint is valued at the lower of cost or market on
the last-in, first-out (LIFO) method. Other inventories are valued
at the lower of cost or market using the first-in, first-out (FIFO)
and moving average methods.
Property, Plant and Equipment - Property, plant and equipment are
carried at cost. Depreciation is computed using primarily the
straight-line method based on the estimated useful lives of the
assets. The principal estimated useful lives range from three to
fifteen years for machinery and equipment and ten to forty years
for buildings and leasehold improvements.
Investment in Affiliate - The Company uses the equity method of
accounting for its 13.5% partnership interest in Ponderay Newsprint
Company.
Goodwill and Other Intangibles - Goodwill acquired before 1970 is
not being amortized. Goodwill and other intangibles acquired after
1970 are being amortized on a straight-line basis over periods of
fifteen to forty years.
Income Taxes - The Company provides for the determination of
deferred tax liabilities and assets at the end of each period based
on the difference between financial statement and tax basis of
assets and liabilities using tax rates expected to be in effect
when taxes are actually paid or recovered. The Company files a
consolidated federal income tax return with its wholly and majority
owned subsidiaries.
Net Income Per Common Share - The net income per common share is
computed based on the weighted average number of common shares
outstanding in each year. The Class B common stock is included in
the computation as if converted to Class A common stock at a ratio
of ten shares of Class B common stock to one share of Class A
common stock. Outstanding stock options are common stock
equivalents but are excluded from net income per common share
computations since their effect is not significant.
Accounting Changes - The Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of," in the first quarter of 1996. The statement
establishes accounting standards for recognizing and measuring
impairment of long-lived assets, and requires reducing the carrying
amount of any impaired assets to fair value. Application of SFAS
No. 121 resulted in a charge to earnings of approximately
$2,500,000, net of tax.
The Company also adopted SFAS No. 123, "Accounting for Stock Based
Compensation," in 1996. The statement prescribes accounting and
reporting standards for all stock-based compensation plans. SFAS
No. 123 allows companies to continue to use existing methods for
recognizing the expense of these plans and provide pro forma
disclosures in the financial statements and earnings per share
using the fair value method prescribed in the statement. The
Company has elected this approach.
At the beginning of the 1994 fiscal year, the Company adopted SFAS
No. 115, "Accounting for Certain Investments in Debt and Equity
Securities."
Reclassification - Certain amounts in the financial statements have
been reclassified to conform to the 1996 presentation.
<PAGE> 21
2--MARKETABLE SECURITIES
Management determines the classification of its investments in debt
and equity securities at the time of purchase. Securities
classified as available-for-sale are carried at fair value, with
unrealized gains and losses, net of tax, reported as a separate
component of shareholders' equity. Securities classified as
trading securities are carried at fair value with unrealized gains
and losses reported in earnings. The cost of securities sold is
based on the specific identification method. All marketable debt
securities are classified as current assets. Certain available-
for-sale equity securities are classified as noncurrent assets.
The following is a summary of securities at December 29, 1996:
(In thousands)
Gross Gross
Amortized Unrealized Unrealized Fair
Available-for-Sale Securities Cost Gains Losses Value
Debt securities of the
U.S. Treasury and agencies $ 1,998 $ 1,998
Equity securities 373 $3,107 3,480
Other 268 268
----- ----- ---- -----
2,639 3,107 5,746
----- ----- ---- -----
Trading Securities
Debt securities of the
U.S. Treasury and agencies 806 $ (4) 802
Corporate debt securities 1,259 (6) 1,253
Mortgage-backed securities 9,576 184 9,760
Preferred stock 11,070 94 (13) 11,151
Other 213 (67) 146
------ ----- ---- ------
22,924 278 (90) 23,112
------ ----- ---- ------
$ 25,563 $3,385 $ (90) $ 28,858
====== ===== ==== ======
The following is a summary of securities at December 31, 1995:
(In thousands)
Gross Gross
Amortized Unrealized Unrealized Fair
Available-for-Sale Securities Cost Gains Losses Value
Debt securities of the
U.S. Treasury and agencies $ 35,408 $ 158 $ (5) $ 35,561
Equity securities 153 2,624 2,777
Corporate debt securities 2,783 2 2,785
------ ----- ---- ------
38,344 2,784 (5) 41,123
------ ----- ---- ------
Trading Securities
Debt securities of the
U.S. Treasury and agencies 19,860 243 (3) 20,100
Corporate debt securities 14,025 286 14,311
Mortgage-backed securities 19,517 479 (1) 19,995
Preferred stock 10,515 136 (64) 10,587
Other 118 (67) 51
------ ----- ---- ------
64,035 1,144 (135) 65,044
------- ----- ---- -------
$102,379 $3,928 $(140) $106,167
======= ===== ==== =======
Included in the Company's earnings for 1996, 1995 and 1994 were
changes in net unrealized holding gains of $(821,000), $1,009,000
and $105,000, respectively, from trading investments.
Proceeds from the sale of available-for-sale investments totaled
approximately $62,243,000, $99,051,000 and $274,800,000 in 1996,
1995 and 1994. Gross realized gains and losses for 1996, 1995 and
1994 on available-for-sale investments were insignificant. All
available-for-sale debt securities had a contractual maturity of
one year or less at the end of 1996. The fair value of equity
securities in the amounts of $3,246,000 in 1996 and $2,777,000 in
1995 have been classified with other noncurrent assets.
<PAGE> 22
3--ACQUISITIONS
On March 12, 1996, the Company acquired 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 commercial printing
subsidiary. The purchase price of approximately $62,000,000 was
paid entirely with cash. The amount of the purchase price
allocated to goodwill was approximately $47,473,000 and is being
amortized over forty years.
In July 1994, the Company made a tender offer for the 5,533 shares
of Class A common stock of Indianapolis Newspapers, Inc. ("INI")
not already owned for $10,000 net in cash per share. On September
12, 1994, the Company purchased 3,591 shares of INI which increased
the Company's ownership to 89.9% from 71.2%. The total acquisition
cost of $36,200,000, including consulting fees, was accounted for
using the purchase method of accounting. The fair value of assets
acquired was $22,800,000, including $19,700,000 of goodwill. The
transaction resulted in a reduction of the minority interest of
$13,400,000. In June 1995, the Company purchased an additional 50
shares of INI for $10,000 net in cash per share which increased the
Company's ownership to 90.2%. The effects of these purchases were
insignificant to earnings for 1996, 1995 and 1994. See Note 16 for
discussion on the acquisition of the remaining minority interest of
INI.
4--EMPLOYEE BENEFIT PLANS
The Company has defined benefit plans to provide pension benefits
to all employees who have met certain eligibility requirements.
Benefits are based primarily on length of service, wages earned,
age and the amount of optional employee contributions. The
Company's policy is to fund at least the minimum amount required by
ERISA. Assets of the plans consist primarily of stocks, bonds and
short-term investments. During 1996, the defined benefit plan of
McCormick was combined into the defined benefit plan of the
Company. The plan assets of McCormick exceeded the projected
benefit obligation by approximately $5,308,000.
The funded status for the Company's defined benefit plans at year
end:
(In thousands) 1996 1995
------- -------
Actuarial present value of plan benefits:
Vested $195,864 $180,545
Nonvested 9,941 10,236
------- -------
Accumulated benefit obligation 205,805 190,781
Effect of future salary increases 11,335 11,999
------- -------
Projected benefit obligation 217,140 202,780
Plan assets at fair value 241,397 207,401
------- -------
Plan assets in excess of projected
benefit obligation 24,257 4,621
Unrecognized SFAS No. 87 transition asset (6,265) (7,548)
Unrecognized prior service cost 3,236 3,680
Unrecognized net (gain) loss (14,226) 716
------- ------
Prepaid pension cost $ 7,002 $ 1,469
======= ======
Assumptions used in determining funded status at the end of 1996
were a 9% rate of return, 7.5% discount rate and a 4% rate of
compensation increase. The assumptions for determining funded
status at the end of 1995 were a 9% rate of return, 7% discount
rate and a 4% rate of compensation increase.
Pension expense included the following components:
(In thousands) 1996 1995 1994
----- ----- -----
Service cost--benefits earned during the year $ 6,861 $ 4,904 $ 5,959
Interest cost on projected benefit obligation 14,575 14,116 12,851
Return on assets:
Actual (35,418) (48,898) 84
Deferred gain (loss) 18,274 33,542 (14,551)
Amortization of:
Transition asset (1,283) (1,283) (1,286)
Prior service cost 444 444 443
Loss (gain) 39 (10) (10)
----- ----- -----
Pension expense $ 3,492 $ 2,815 $ 3,490
===== ===== =====
Significant assumptions used in determining pension expense:
1996 1995 1994
---- ---- ----
Expected long-term rate of return 9.0% 9.0% 8.5%
Discount rate 7.00 8.75 7.25
Rate of increase in future
compensation levels 4.0 5.0 4.0
The Company has a wage deferral plan qualified under Section 401(k)
of the Internal Revenue Code that covers all eligible employees.
Company contributions to this plan were $4,600,000, $4,397,000 and
$4,414,000 for 1996, 1995 and 1994.
<PAGE> 23
5--POSTRETIREMENT BENEFIT OBLIGATION
The Company sponsors postretirement medical and life insurance
plans which are available to most of its employees. In order to be
eligible for these plans, employees must retire from the Company
and have been covered under an active plan. The level of benefits
provided depends on the year of retirement and years of service.
The plans are contributory with periodic adjustments in the amount
of contributions by retirees. The Company's policy is to fund
these benefits as claims and premiums are paid.
The status of the postretirement benefit obligation at year end:
(In thousands) 1996 1995
------ ------
Accumulated postretirement benefit obligation:
Retirees $55,048 $52,077
Fully eligible active plan participants 14,340 13,556
Other active plan participants 20,511 19,452
------ ------
Total accumulated postretirement benefit
obligation 89,899 85,085
Unrecognized prior service cost 2,957 4,884
Unrecognized net loss (8,198) (7,544)
------ ------
Accrued postretirement benefit obligation $84,658 $82,425
====== ======
The net postretirement benefit cost included the following
components:
1996 1995 1994
---- ---- ----
Service cost--benefits earned
during the year $2,859 $1,941 $2,646
Interest cost on accumulated
benefit obligation 5,974 5,387 5,765
Amortization of unrecognized
prior service cost (1,927) (1,927) (1,934)
Amortization of loss (gain) 128 (241) 6
----- ----- -----
Postretirement benefit expense $7,034 $5,160 $6,483
===== ===== =====
The accumulated postretirement benefit obligation was determined
using a discount rate of 7.5% and a health care cost trend rate of
8% in 1996 decreasing to 5% in the year 2000 and thereafter.
Discount rates used for 1995 and 1994 were 7.0% and 8.75%. The
effect of a 1% increase each year in the health care cost trend
rate, would result in an increase of approximately $7,815,000 in
the accumulated postretirement benefit obligation at the end of
1996 and $1,048,000 in the aggregate service and interest
components of the 1996 expense.
6--WORK FORCE REDUCTION
The Company has reduced its work force in response to economic
conditions, increasing costs and changes in technology. Early
retirement incentive programs contributed to the staff reductions.
Employees were offered early retirement benefits through a non-
qualified supplemental retirement plan and those terminated due to
job eliminations received severance payments. Work force reduction
costs include retirement benefits, severance payments and
professional support.
7--OTHER INCOME--NET
(In thousands) 1996 1995 1994
----- ----- -----
Income items:
Interest $ 5,196 $7,213 $5,457
Change in unrealized gain on
trading securities (821) 1,009 105
Gain on disposition of assets 171
Dividends 960 572 62
Other 79 708 204
----- ----- -----
5,414 9,502 5,999
===== ===== =====
Expense items:
Interest 618 238 204
Loss on disposition of assets 391 357
Other 396 753 830
----- ----- -----
1,405 1,348 1,034
----- ----- -----
Other income--net $ 4,009 $8,154 $4,965
===== ===== =====
<PAGE> 24
8--INCOME TAXES
The provision for income taxes, exclusive of tax effects from
equity in earnings of Affiliate, consisted of:
(In thousands) 1996 1995 1994
------- ------- -------
State:
Currently payable $ 8,007 $ 7,347 $ 6,376
Deferred (301) 354 54
----- ----- -----
7,706 7,701 6,430
----- ----- -----
Federal:
Currently payable 35,967 28,910 26,077
Deferred (1,242) 1,437 340
------ ------ ------
34,725 30,347 26,417
------ ------ ------
Provision for income taxes $42,431 $38,048 $32,847
====== ====== ======
Components of net deferred income tax liability:
(No valuation allowance required)
(In thousands) 1996 1995 1994
------- ------- -------
Depreciation $55,533 $53,520 $52,982
Pension 2,490 562 549
Other 1,647 1,731 641
------ ------ ------
Gross deferred tax liability 59,670 55,813 54,172
------ ------ ------
Postretirement benefits (33,938) (33,124) (32,020)
Vacation (3,995) (3,857) (3,830)
Other (2,398) (2,596) (3,742)
------ ------ ------
Gross deferred tax asset (40,331) (39,577) (39,592)
------ ------ ------
Net deferred income tax liability $19,339 $16,236 $14,580
====== ====== ======
Reconciliation of the U.S. federal statutory tax rate to the
effective tax rate:
(In thousands) 1996 1995 1994
-------------- -------------- ---------------
Federal statutory tax rate $36,354 35.0% $32,916 35.0% $28,243 35.0%
State taxes net of federal
tax effect 5,009 4.8 5,006 5.3 4,181 5.2
Goodwill and other 1,068 1.0 126 .2 423 .5
------ ---- ------ ---- ------ ----
Provision for income taxes $42,431 40.8% $38,048 40.5% $32,847 40.7%
====== ==== ====== ==== ====== ====
9--INVENTORIES
Newsprint inventory, valued at LIFO, amounted to $6,455,000 and
$7,559,000 at the end of 1996 and 1995. If the FIFO inventory
valuation method had been exclusively used for newsprint, the value
would have been $3,352,000 and $8,517,000 higher in respective
years. Other inventories, consisting primarily of newspaper
production supplies, amounted to $2,457,000 and $2,566,000 at the
end of 1996 and 1995.
<PAGE> 25
10--INVESTMENT IN AFFILIATE
The Company, through its subsidiaries, has a 13.5% partnership
interest in Ponderay Newsprint Company, which was formed to own and
operate a newsprint
mill in Washington. Under the terms of a loan agreement, the
Company has guaranteed certain partnership bank debt in the amount
of $16,875,000. At the end of 1996 and 1995, $36,400,000 had been
invested in Ponderay. The Company has committed to purchase for
use in Phoenix the lesser of 13.5% of annual newsprint production
or 34,900 metric tons on a "take if tendered" basis until the debt
is repaid. Newsprint purchased from Ponderay amounted to
$22,177,000 during 1996 and $19,601,000 during 1995.
Summarized financial data for Affiliate:
(In thousands) 1996 1995 1994
-------- -------- -------
Results of operations:
Net sales $160,979 $151,690 $100,233
Net income (loss) 22,399 (4,666) (40,509)
Financial position:
Current assets $ 17,934 $ 27,881 $ 19,484
Property and equipment, at cost--net 263,013 278,224 291,033
Other assets 3,098 3,457 1,654
------- ------- -------
$284,045 $309,562 $312,171
======= ======= =======
Current liabilities $ 18,336 $ 37,252 $ 34,010
Long-term debt ($125 million
guaranteed by partners) 200,048 229,048 248,633
Partners' capital 65,661 43,262 29,528
------- ------- -------
$284,045 $309,562 $312,171
======= ======= =======
Summary of the Company's investment in Affiliate:
(In thousands) 1996 1995 1994
------- ------- -------
Investment, beginning of year $ 5,843 $ 3,989 $ 3,855
Equity in partnership income (loss) 3,024 (630) (5,469)
Additional investments 2,484 5,603
----- ----- -----
Investment, end of year $ 8,867 $ 5,843 $ 3,989
----- ----- -----
Equity in Affiliate:
Equity in partnership income (loss) $ 3,024 $ (630) $(5,469)
Current income tax (expense) benefit (1,425) (606) 1,325
Deferred tax benefit 265 696 594
Other (138) (50)
----- ----- -----
Equity in income (loss) in Affiliate,
net of tax $ 1,726 $ (590) $(3,550)
===== ===== =====
11--LONG-TERM DEBT
The trust indenture relating to the fifty-year 4 1/2% debentures
due December 1, 1998 contains various requirements and restrictions
as to the financial activities of INI and its subsidiary. There
are certain restrictions on capital expenditures and dividend
payments by INI. Interest paid on this and other debt amounted to
$347,000 in 1996 and $121,000 for 1995 and 1994.
12--RENTAL EXPENSE AND LEASE COMMITMENTS
Rental expense for 1996, 1995 and 1994 amounted to $5,000,000,
$4,429,000 and $3,843,000. Future obligations for minimum annual
rentals under noncancelable long-term leases are not considered to
be significant.
<PAGE> 26
13--CAPITAL STOCK AND STOCK COMPENSATION PLAN
Class A common stock is entitled to 1/10 of a vote per share. The
Class B common stock has one vote per share while its dividend and
liquidation distributions are 1/10 of the amount of Class A common
stock. Class B common stock may be converted into Class A common
stock at a ratio of ten shares of Class B common stock for one
share of Class A common stock. The Eugene C. Pulliam Trust
("Trust") owns Class B common stock which provides the Trust the
majority voting control of the Company. At December 29, 1996, the
Company has reserved 2,648,400 shares of Class A common stock for
issuance under its Stock Compensation Plan, 500,000 shares for
issuance under its 401(k) plan and 3,155,300 shares for issuance
upon conversion of Class B common stock.
Dividends declared per share: 1996 1995 1994
---- ---- ----
Class A common stock $.72 $.62 $.52
Class B common stock .072 .062 .052
The Company's Stock Compensation Plan provides for the granting of
stock options and the issuance of restricted stock grants to
certain officers, key employees and members of the Board of
Directors. Options issued under this plan are granted at prices
determined by the Compensation Committee of the Board of Directors
but not less than fair market value on the date of the grant.
Options granted may be incentive or non-qualified options with a
term of ten years. Options granted before December 26, 1993 and
Board of Director member options are currently exercisable.
Options granted in 1995 and prior to September 13, 1996 are
exercisable three years from date of grant and options granted
after September 13, 1996 become exercisable ratably over a three
year period beginning on the first anniversary of the grant.
The Company has historically accounted for employee stock
compensation in accordance with APB Opinion No. 25, "Accounting for
Stock Issued to Employees." Under APB No. 25, no compensation
costs are recognized if options are granted at an exercise price
equal to the current market value of the stock. SFAS No. 123,
"Accounting for Stock-Based Compensation," was adopted by the
Company on January 1, 1996. As permitted by SFAS No. 123, the
Company has elected to continue accounting for employee stock
compensation under the APB No. 25 rules, but will disclose pro
forma results using SFAS No. 123's alternative accounting
treatment, which calculates the total compensation expense to be
recognized as the fair value of the award at the date of grant.
The fair value of options granted in 1996 and 1995 was estimated on
the grant date using the Black-Scholes option pricing model using
the following assumptions:
1996 1995
---- ----
Risk-free interest rates 6.5 - 6.6% 6.0 -7.0%
Dividend yields 2.0% 2.0%
Expected volatility 27.0% 27.0%
Weighted average expected
life of options 4 - 6 years 6 years
Under SFAS No. 123, compensation cost is recognized in the amount
of the estimated fair value of the options and amortized to expense
over the options' vesting period. The pro forma effects on net
income and earnings per share of this statement are as follows:
1996 1995
---- ----
(In thousands, except per share data)
Net income:
As reported $ 61,534 $53,998
Pro forma 60,316 53,543
Earnings per share:
As reported $ 2.31 $ 2.03
Pro forma 2.27 2.00
The following is a summary of the status of the Company's Stock
Compensation Plan as of and for the three years ended December 29,
1996:
Weighted
Average Per Share
-----------------
Reserved Exercise Market
Shares Shares Price Price
--------- ------- -------- ------
Outstanding, December 27, 1993 2,105,000 923,500 $21.13 $27.38
Exercised (49,050) (49,050) 17.11 27.56
Cancelled (6,000) 23.88 ---
--------- -------
Outstanding, December 25, 1994 2,055,950 868,450 21.34 27.13
Additional reserved shares 800,000
Granted 543,000 28.34 28.34
Exercised (52,850) (52,850) 20.35 28.81
Cancelled (7,500) 23.75 ---
--------- ---------
Outstanding, December 31, 1995 2,803,100 1,351,100 24.18 31.38
Granted 339,000 37.36 37.36
Exercised (154,700) (154,700) 19.20 36.08
Cancelled (51,500) 26.58 ---
--------- ---------
Outstanding, December 29, 1996 2,648,400 1,483,900 27.63 42.88
========= =========
<PAGE> 27
The following table summarizes information about stock options
outstanding at December 29, 1996:
Outstanding Exercisable
------------------------------------ -------------------
Weighted Weighted
Average Average
Exercise Average Exercise Exercise
Price Range Shares Life(a) Price Shares Price
------- -------- ------- ------- --------
$15.00 - $19.99 179,400 4.5 $17.75 179,400 $17.75
$20.00 - $24.99 454,500 6.4 23.48 454,500 23.48
$25.00 - $29.99 236,000 8.3 25.74 4,000 25.69
$30.00 - $34.99 277,500 8.7 30.63 4,000 34.75
$35.00 - $39.99 336,500 9.6 37.36 -- ---
--------- -------
1,483,900 7.6 27.63 641,900 22.00
========= =======
(a) Weighted Average contractual life remaining in years
In 1996, the Company issued restricted stock grants to certain key
executives who have a critical impact on the long-term performance
of the Company. The Compensation Committee of the Board of
Directors awarded 52,500 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 the shares, unearned compensation
equivalent to the market value at the date of grant was recorded as
unamortized value of restricted stock and is being charged to
earnings over the period during which the restrictions lapse.
During 1996, compensation expense in the amount of $276,000 has
been recorded related to these restricted stock grants.
During 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. For the year ending December 29, 1996, the Company
has repurchased 490,100 shares.
14--FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments
approximate the fair value. The Company has guaranteed $16,875,000
of the total $243,085,000 debt of Ponderay. The carrying value
approximates the guaranteed amount.
15--CONTINGENCIES
See Note 10 for commitments related to Affiliate.
There are various libel and other legal actions that have arisen in
the normal course of business and are now pending against the
Company. It is the opinion of management that final disposition of
such litigation will not have any material adverse effect on the
Company's financial position or results of operations.
16--SUBSEQUENT EVENTS
On December 10, 1996, the Company announced that it would acquire
the remaining 9.8% of Indianapolis Newspapers, Inc. that it does
not already own. The transaction, which will be recorded using
purchase accounting, will be accomplished by issuing the current
minority shareholders one share of a newly created, non-voting,
$10,000 stated value INI preferred stock in exchange for each share
of common stock owned by them. The preferred stock will pay a
dividend of $700 per year on a cumulative basis, will be callable
in five years and redeemable at any time by the shareholders at the
stated value per share. This transaction, which is not expected to
have a material effect on future earnings, occurred on January 3,
1997.
The Company's subsidiary, Phoenix Newspapers, Inc. announced that
effective January 18, 1997, PNI would cease publication of its
Phoenix afternoon newspaper, The Phoenix Gazette. As a result of
these actions, the Company will record a one-time pretax charge to
earnings of approximately $4,800,000 in the first quarter of 1997.
<PAGE> 28
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The Company's business is to a certain extent seasonal, with peak revenue and
profits generally occurring in the second and fourth quarters of each year.
Operating results for the last three years:
(In thousands, except 1st 2nd 3rd 4th
share data) Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- ------
1996 (52 weeks)
Operating revenues $147,896 $152,717 $149,018 $170,684 $620,315
Operating expenses 133,597 132,166 124,723 129,970 520,456
------- ------- ------- ------- -------
Operating income 14,299 20,551 24,295 40,714 99,859
------- ------- ------- ------- -------
Other income--net 1,593 1,197 804 415 4,009
Provision for income taxes (6,592) (9,082) (10,229) (16,528) (42,431)
Minority interest (182) (326) (408) (713) (1,629)
Equity in Affiliate--net 691 656 604 (225) 1,726
------- ------- ------- ------- -------
Net income $ 9,809 $ 12,996 $ 15,066 $ 23,663 $ 61,534
======= ======= ======= ======= =======
Net income per common share $ .37 $ .49 $ .57 $ .89 $ 2.31
=== === === === ====
1995 (53 weeks)
Operating revenues $136,882 $142,472 $135,504 $165,043 $579,901
Operating expenses 116,790 121,349 118,336 137,535 494,010
------- ------- ------- ------- -------
Operating income 20,092 21,123 17,168 27,508 85,891
Other income--net 2,255 2,455 1,820 1,624 8,154
Provision for income taxes (9,123) (9,731) (7,649) (11,545) (38,048)
Minority interest (304) (325) (284) (496) (1,409)
Equity in Affiliate--net (537) (111) 79 (21) (590)
------- ------- ------- ------- -------
Net income $ 12,383 $ 13,411 $ 11,134 $ 17,070 $ 53,998
======= ======= ======= ======= =======
Net income per common share $.46 $.51 $.42 $.64 $2.03
=== === === === ====
1994 (52 weeks)
Operating revenues $123,528 $129,262 $124,850 $142,062 $519,702
Operating expenses 104,384 106,626 108,078 124,884 443,972
------- ------- ------- ------- -------
Operating income 19,144 22,636 16,772 17,178 75,730
Other income--net 1,088 1,192 1,303 1,382 4,965
Provision for income taxes (8,257) (9,771) (7,347) (7,472) (32,847)
Minority interest (757) (1,150) (668) (402) (2,977)
Equity in Affiliate--net (1,014) (930) (753) (853) (3,550)
------- ------- ------- ------- -------
Net income $ 10,204 $ 11,977 $ 9,307 $ 9,833 $ 41,321
======= ======= ======= ======= =======
Net income per common share $.38 $.45 $.35 $.37 $1.55
=== === === === ====
<PAGE>
<TABLE>
TEN-YEAR FINANCIAL HIGHLIGHTS
Central Newspapers, Inc. and Subsidiaries
<CAPTION>
Growth Rates
--------------------------
Compounded Annual Dec. 29 Dec. 31 Dec. 25 Dec. 26
10-Year 5-Year 1-Year 1996 1995 1994 1993
(In thousands, except share data 1986-96 1991-96 1995-96 52 Weeks 53 Weeks 52 Weeks 52 Weeks
<S> <C> <C> <C> <C> <C> <C> <C>
Summary of Operations
Operating revenues 4.8% 8.1% 7.0% $620,315 $579,901 $519,702 $466,567
Operating expenses 4.8% 6.9% 5.4% 520,456 494,010 443,972 400,945
------- ------- ------- -------
Operating income 4.6% 15.9% 16.3% 99,859 85,891 75,730 65,622
Other income - net 4,009 8,154 4,965 2,417
------- ------ ------ ------
Income before income taxes 4.2% 15.1% 10.4% $103,868 $94,045 $80,695 $68,039
Income before minority interest and
equity in Affiliate 5.7% 14.9% 9.7% $61,437 $55,997 $47,848 $40,091
Income before cumulative effect of
accounting change 6.8% 18.9% 14.0% $61,534 $53,998 $41,321 $32,128
Cumulative effect of accounting changes
------ ------ ------ ------
Net income (loss) 6.8% 18.9% 14.0% $61,534 $53,998 $41,321 $32,128
Cash Flow Data (a)
Provided by operating activities (e) 8.7% 16.7% 94.2% $120,969 $62,283 $41,897 $73,732
Effect of trading securities (40,671) 17,630 45,682
Capital spending 3.7% -10.7% -20.7% (46,530) (58,676) (23,256) (16,049)
------ ------ ------ ------
Operating free cash flow 5.3% NM 59.0% $33,768 $21,237 $64,323 $57,683
Dividends paid 10.6% 12.0% 18.6% $18,647 $15,724 $13,308 $11,956
Earnings before interest, income taxes,
depreciation and amortization ("EBITDA")(b) 6.6% 15.6% 19.8% $140,953 $117,706 $109,433 $92,923
Class A Share Data and Other Share Information
Income before cumulative effect of
accounting changes 6.9% 18.7% 13.8% $2.31 $2.03 $1.55 $1.21
Cumulative effect of accounting changes
---- ---- ---- ----
Net income (loss) 6.9% 18.7% 13.8% $2.31 $2.03 $1.55 $1.21
Dividends declared 8.3% 12.5% 16.1% $0.72 $0.62 $0.52 $0.46
Book value per share at year-end 7.5% 6.0% 9.2% $14.68 $13.45 $12.00 $10.93
Market price per share at year-end 17.8% 36.7% $42.875 $31.375 $27.125 $27.625
Class A common equivalent shares at year-end 26,393,011 26,675,911 26,638,300 26,589,250
Average shares outstanding used to
calculate income (loss) per share (c) 26,619,136 26,651,007 26,621,133 26,570,973
Balance Sheet Data
Total assets 8.0% 7.8% 7.3% $586,972 $547,204 $500,444 $464,688
Working capital -0.9% 5.6% -33.0% 92,323 137,818 132,907 127,999
Long-term debt 2,678 2,678 2,678 2,678
Shareholders' equity 7.4% 5.9% 8.0% 387,550 358,741 319,762 290,693
Ratios
Return on average shareholders' equity (d) 16.49% 15.92% 13.54% 11.46%
EBITDA as a percentage of operating revenues (b) 22.72% 20.30% 21.06% 19.92%
<FN>
This data was compiled from the consolidated financial statements of Central Newspapers, Inc. and Subsidiaries.
The consolidated financial statements and related notes and discussions for the year ended December 29, 1996
should be read in order to obtain a better understanding of this data.
(a) Cash flows from investing and financing activities, which are not presented, are an integral part of total cash activities.
(b)EBITDA excludes the effects of non-operating income and the costs associated with asset impairments and
workforce reduction costs. The use of EBITDA should not be construed as an alternative measure of the Company's
income or cash flows from operating activities since EBITDA excludes significant costs of doing business.
(c) See Note #1 for discussion on computation of number of shares used in computing earnings per share.
(d) The return on average shareholders' equity is calculated using income before cumulative effect of accounting changes.
(e)Amounts for 1996, 1995 and 1994 include the effects of trading securities on cash flows provided by operating activities.
NM Not meaningful
</TABLE>
<TABLE>
TEN-YEAR FINANCIAL HIGHLIGHTS
Central Newspapers, Inc. and Subsidiaries
<CAPTION>
Dec. 27 Dec. 29 Dec. 30 Dec. 31 Dec. 25 Dec. 27
1992 1991 1990 1989 1988 1987
(In thousands, except share data) 52 Weeks 52 Weeks 52 Weeks 53 Weeks 52 Weeks 52 Weeks
<S> <C> <C> <C> <C> <C> <C>
Summary of Operations
Operating revenues $433,600 $420,351 $431,659 $436,228 $417,608 $402,698
Operating expenses 381,937 372,609 378,894 376,300 372,186 350,605
------- ------- ------- ------- ------- -------
Operating income 51,663 47,742 52,765 59,928 45,422 52,093
Other income - net 1,111 3,735 8,963 8,389 5,918 5,134
------ ------ ------ ------ ------ ------
Income before income taxes $52,774 $51,477 $61,728 $68,317 $51,340 $57,227
Income before minority interest and
equity in Affiliate $31,283 $30,685 $35,915 $40,569 $32,429 $33,156
Income before cumulative effect of
accounting change $23,358 $25,903 $28,283 $38,467 $29,256 $29,410
Cumulative effect of accounting changes (34,212) 3,388
------ ------ ------ ------ ------ ------
Net income (loss) ($10,854) $25,903 $28,283 $38,467 $29,256 $32,798
Cash Flow Data (a)
Provided by operating activities (e) $67,634 $55,787 $58,965 $65,924 $44,973 $43,220
Effect of trading securities
Capital spending (26,175) (82,067) (50,178) (27,208) (25,036) (28,443)
------ ------ ------ ------ ------ ------
Operating free cash flow $41,459 ($26,280) $8,787 $38,716 $19,937 $14,777
Dividends paid $10,870 $10,598 $10,267 $12,678 $8,418 $8,531
Earnings before interest, income taxes,
depreciation and amortization ("EBITDA")(b) $76,884 $68,357 $70,749 $74,836 $66,978 $64,283
Class A Share Data and Other Share Information
Income before cumulative effect of
accounting changes $0.88 $0.98 $1.07 $1.45 $1.10 $1.10
Cumulative effect of accounting changes ($1.29) 0.13
----- ---- ---- ---- ---- ----
Net income (loss) ($0.41) $0.98 $1.07 $1.45 $1.10 $1.23
Dividends declared $0.42 $0.40 $0.40 $0.325 $0.325 $0.325
Book value per share at year-end $10.17 $10.98 $10.40 $9.74 $8.66 $8.01
Market price per share at year-end $22.250 $18.875 $16.875 $22.750
Class A common equivalent shares at year-end 26,549,750 26,497,250 26,494,250 26,494,250 26,604,250 26,661,850
Average shares outstanding used to
calculate income (loss) per share (c) 26,514,750 26,495,961 26,494,250 26,517,800 26,656,300 26,661,850
Balance Sheet Data
Total assets $432,872 $403,627 $383,758 $356,103 $321,809 $300,966
Working capital 90,488 70,217 122,710 134,755 116,192 106,705
Long-term debt 2,678 2,678 2,678 2,678 2,678 2,678
Shareholders' equity 269,997 290,982 275,623 257,938 230,316 213,579
Ratios
Return on average shareholders' equity (d) 8.33% 9.14% 10.60% 15.76% 13.18% 14.60%
EBITDA as a percentage of operating revenues(b) 17.73% 16.26% 16.39% 17.16% 16.04% 15.96%
<FN>
This data was compiled from the consolidated financial statements of Central Newspapers, Inc. and Subsidiaries.
The consolidated financial statements and related notes and discussions for the year ended December 29, 1996
should be read in order to obtain a better understanding of this data.
(a) Cash flows from investing and financing activities, which are not presented, are an integral part of total cash activities.
(b)EBITDA excludes the effects of non-operating income and the costs associated with asset impairments and
workforce reduction costs. The use of EBITDA should not be construed as an alternative measure of the Company's
income or cash flows from operating activities since EBITDA excludes significant costs of doing business.
(c) See Note #1 for discussion on computation of number of shares used in computing earnings per share.
(d) The return on average shareholders' equity is calculated using income before cumulative effect of accounting changes.
(e)Amounts for 1996, 1995 and 1994 include the effects of trading securities on cash flows provided by operating activities.
</TABLE>
<PAGE> 31
SHAREHOLDER INFORMATION
Since an initial public offering on September 21, 1989, shares of
Class A common stock have traded on the New York Stock Exchange
under the symbol "ECP." No established trading market currently
exists for the Company's Class B common stock. Shares of Class B
common stock are convertible into Class A common stock at a ratio
of ten B shares for one A share. At December 29, 1996, there were
approximately 337 shareholders of record of Class A common stock
and 24 shareholders of record of Class B common stock.
Dividends
Dividends declared per share:
1996 Class A Class B
1st Quarter $.17 $.017
2nd Quarter .17 .017
3rd Quarter .19 .019
4th Quarter .19 .019
--- ----
$.72 $.072
=== ====
1995 Class A Class B
1st Quarter $.14 $.014
2nd Quarter .14 .014
3rd Quarter .17 .017
4th Quarter .17 .017
--- ----
$.62 $.062
=== ====
Shares Outstanding
The net income per common share is computed based on the weighted
average number of common shares outstanding in each year. The
Class B common stock is included in the computation as if converted
to Class A common stock at a ratio of ten shares of Class B common
stock to one share of Class A common stock.
The weighted common shares outstanding were:
1996 26,619,136
1995 26,651,007
1994 26,621,133
Form 10-K
The Central Newspapers, Inc. annual report on Form 10-K filed with
the Securities and Exchange Commission is available at no charge
upon written request to Chief Financial Officer, Central
Newspapers, Inc., 135 North Pennsylvania Street, Suite 1200,
Indianapolis, Indiana 46204.
Closing Stock Prices
Calendar Quarter 1st 2nd 3rd 4th
1996 High $37 7/8 $38 3/8 $39 $44
Low 30 3/4 34 1/4 33 1/2 38 1/8
1995 High $28 $28 7/8 $30 5/8 $32 5/8
Low 24 1/8 25 3/8 26 5/8 29 1/4
Annual Meeting
The Annual Meeting of Shareholders will be held at the Phoenix
Newspapers, Inc. headquarters, 200 E. Van Buren Street, Phoenix,
Arizona 85004 on April 24, 1997, at 10:00 a.m. local time.
Transfer Agent and Registrar
Norwest Bank Minnesota, N.A.
Stock Transfer
161 North Concord Exchange
Post Office Box 738
South St. Paul, Minnesota 55075-0738
<PAGE> 32
CORPORATE DIRECTORY
Board of Directors and Corporate Officers
Malcolm W. Applegate
President and General Manager
Indianapolis Newspapers, Inc.
Director
Central Newspapers, Inc.
William A. Franke
Chairman
America West Airlines, Inc.
Chairman and Chief Executive Officer
America West Holdings Corporation
President
Franke & Company, Inc.
Director
Central Newspapers, Inc.
Eugene S. Pulliam
Executive Vice President
Central Newspapers, Inc.
President
Phoenix Newspapers, Inc.
Publisher
The Indianapolis Star
The Indianapolis News
Director
Central Newspapers, Inc.
Dan Quayle
Vice President
United States of America
1988-1992
Chairman
Campaign America
Director
Central Newspapers, Inc.
Frank E. Russell
Chairman of the Board and Assistant Secretary
Central Newspapers, Inc.
Director
Central Newspapers, Inc.
Richard Snell
Chairman and Chief Executive Officer
Pinnacle West Capital Corp.
Director
Central Newspapers, Inc.
Louis A. Weil III
President and Chief Executive Officer
Central Newspapers, Inc.
Director
Central Newspapers, Inc.
Eric S. Tooker
General Counsel and Corporate Secretary
Central Newspapers, Inc.
Thomas K. MacGillivray
Treasurer and Chief Financial Officer
Central Newspapers, Inc.
Kent E. Agness
Partner
Barnes & Thornburg
Director
Central Newspapers, Inc.
<PAGE> 33
Executive Management
Central Newspapers, Inc.
Louis A. Weil III
President and Chief Executive Officer
Central Newspapers, Inc.
Eugene S. Pulliam
Executive Vice President
Central Newspapers, Inc.
President
Phoenix Newspapers, Inc.
Publisher
The Indianapolis Star
The Indianapolis News
Frank E. Russell
Chairman of the Board and Assistant Secretary
Central Newspapers, Inc.
Thomas K. MacGillivray
Treasurer and Chief Financial Officer
Central Newspapers, Inc.
Malcolm W. Applegate
President and General Manager
Indianapolis Newspapers, Inc.
John F. Oppedahl
Publisher and Chief Executive Officer
Phoenix Newspapers, Inc.
Robert L. Lowry
Controller and Director of Accounting
Central Newspapers, Inc.
Kevin J. Salcido
Human Resources Director
Central Newspapers, Inc.
Bill Toner
Chief Information Officer
Central Newspapers, Inc.
Eric S. Tooker
General Council and Corporate Secretary
Central Newspapers, Inc.
Henry F. Bird
Publisher and Vice President
Muncie Newspapers, Inc.
David A. Lewis
Publisher
Topics Newspapers, Inc.
John E. Newhouse
Publisher and Chief Executive Officer
Alexandria Newspapers, Inc.
Michael E. Quayle
Publisher
Vincennes Sun-Commercial
EXHIBIT 21
Subsidiaries of Central Newspapers, Inc.
The following chart lists the subsidiaries of Central Newspapers, Inc. and the
state of incorporation of each as of February 28, 1997.
Name State of Incorporation
- ------------------------------ ----------------------
Bradley Paper Company Delaware
Central Newsprint Company, Inc. Indiana
Indianapolis Newspapers, Inc. Indiana
McCormick and Company, Inc. Louisiana
Muncie Newspapers, Inc. Indiana
Phoenix Newspapers, Inc. Arizona
McCormick Graphics, Inc. Louisiana
Lee Fulton, Inc. Louisiana
Career Services, Inc. Arizona
Topics Newspapers, Inc. Indiana
Westech Expocorporation California
CONSENT OF GEO. S. OLIVE & CO., LLC
We consent to the incorporation by reference into this Annual Report on Form
10-K of our report dated February 3, 1997 with respect to the consolidated
financial statements of Central Newspapers, Inc. for the year ended December 29,
1996, included in the Central Newspapers, Inc. Annual Report to Shareholders and
to the incorporation of such report by reference into (a) the Registration
Statements on Form S-8 (File Numbers 33-37566, 33-40776 and 33-61397) and
related Prospectus pertaining to the Central Newspapers, Inc. Stock
Compensation Plan (formerly Central Newspapers, Inc. Stock Option Plan) and (b)
the Registration Statement on Form S-8 (File Number 33-33026) and related
Prospectus pertaining to the Central Newspapers, Inc. Savings Plus Plan.
/s/ Geo. S. Olive & Co.,
- ------------------------
GEO. S. OLIVE & CO. LLC
Indianapolis, Indiana
March 20, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains unaudited summary financial information extracted from
the consolidated statement of financial position of Central Newspapers, Inc. as
of December 29, 1996 and the consolidated statements of income, shareholders,
equity and cash flows for the fiscal year then ended and is qualified in its
entirety by reference to such statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-END> DEC-29-1996
<CASH> 36149
<SECURITIES> 25612
<RECEIVABLES> 90023
<ALLOWANCES> 1638
<INVENTORY> 8912
<CURRENT-ASSETS> 171462
<PP&E> 512852
<DEPRECIATION> 215872
<TOTAL-ASSETS> 586972
<CURRENT-LIABILITIES> 79139
<BONDS> 2678
0
0
<COMMON> 24322
<OTHER-SE> 363228
<TOTAL-LIABILITY-AND-EQUITY> 586972
<SALES> 620315
<TOTAL-REVENUES> 620315
<CGS> 0
<TOTAL-COSTS> 520456
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 618
<INCOME-PRETAX> 103868
<INCOME-TAX> 42431
<INCOME-CONTINUING> 61534
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 61534
<EPS-PRIMARY> 2.31
<EPS-DILUTED> 0
</TABLE>
