United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR
----- 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 28, 1998
----- TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number: 1-10333
CENTRAL NEWSPAPERS, INC.
(Exact name of registrant as specified in its charter)
Indiana 35-0220660
(State or other jurisdiction (I.R.S Employer
of incorporation or organization) Identification Number)
200 E. Van Buren Street, Phoenix, Arizona 85004
(Address of principal executive office)
(602) 444-8000
(Registrant's telephone number)
Indicate by check mark whether the registrant has (1) filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES x NO
----- -----
The number of shares of each class of common stock outstanding as of July 28,
1998:
CLASS A COMMON STOCK 21,617,909
CLASS B COMMON STOCK 31,345,500
<PAGE> 2
Central Newspapers, Inc.
Index to Form 10-Q
Part I - FINANCIAL INFORMATION Page
Item 1 - Financial Statements
Consolidated Statement of Financial Position 3 - 4
Consolidated Statement of Income 5
Consolidated Statement of Shareholders' Equity 6
Consolidated Statement of Cash Flows 7
Notes to Consolidated Financial Statements 8
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 -12
Part II - OTHER INFORMATION
Item 4 - Submission of Matters to Vote of
Security Holders 13
Item 6 - Exhibits and Reports on Form 8-K 15
<PAGE> 3
PART I.
Item 1. Financial Statements
CENTRAL NEWSPAPERS, INC.
Consolidated Statement of Financial Position
June 28, December 28,
ASSETS 1998 1997
(In thousands) (Unaudited)
--------- ---------
CURRENT ASSETS:
Cash and cash equivalents $67,929 $36,924
Marketable securities 12,532 11,524
Accounts receivable (net of allowances of
$3,376 and $2,959) 82,560 89,707
Inventories 12,960 10,320
Deferred income tax benefit 7,768 7,919
Other current assets 7,265 5,712
--------- ---------
Total current assets 191,014 162,106
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Land 18,616 18,616
Buildings and improvements 122,755 122,409
Leasehold improvements 4,939 4,412
Machinery and equipment 390,994 383,626
Construction in progress 12,617 8,071
--------- ---------
549,921 537,134
Less accumulated depreciation 269,222 250,451
--------- ---------
280,699 286,683
--------- ---------
OTHER ASSETS:
Land held for development 3,166 3,116
Goodwill and other intangibles 120,152 122,729
Investment in Affiliate 9,054 8,321
Other 38,443 31,356
--------- ---------
170,815 165,522
--------- ---------
TOTAL ASSETS $642,528 $614,311
========= =========
See accompanying notes to consolidated financial statements.
<PAGE> 4
CENTRAL NEWSPAPERS, INC.
Consolidated Statement of Financial Position
June 28, December 28,
LIABILITIES AND SHAREHOLDERS' EQUITY 1998 1997
(In thousands, except share data) (Unaudited)
--------- ---------
CURRENT LIABILITIES:
Accounts payable $16,783 $19,672
Short-term bank debt 10,000
Accrued compensation 17,942 20,061
Dividends payable 5,309 5,613
Accrued expenses and other liabilities 17,485 16,825
Federal and state income taxes (2,719) 1,578
Deferred revenue 31,928 23,618
--------- ---------
Total current liabilities 86,728 97,367
--------- ---------
DEFERRED INCOME TAXES 25,939 26,882
--------- ---------
POSTRETIREMENT AND OTHER NONCURRENT LIABILITIES 89,046 86,997
--------- ---------
MINORITY INTEREST IN SUBSIDIARIES 2,639 1,866
--------- ---------
REDEEMABLE PREFERRED STOCK ISSUED BY SUBSIDIARY 18,920 18,920
--------- ---------
SHAREHOLDERS' EQUITY:
Preferred stock--issuable in series:
Authorized--25,000,000 shares
Issued--none
Class A common stock--without par value:
Authorized--150,000,000 shares
Issued and outstanding--22,146,739 and
22,017,626 shares 36,479 29,934
Class B common stock--without par value:
Authorized--130,000,000 shares
Issued and outstanding--31,345,500 shares 63 63
Retained earnings 382,793 352,531
Unamortized value of restricted stock (1,509) (1,924)
Unrealized gain on available-for-sale securities 1,430 1,675
--------- ---------
419,256 382,279
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $642,528 $614,311
========= =========
See accompanying notes to consolidated financial statements.
<PAGE> 5
<TABLE>
CENTRAL NEWSPAPERS, INC.
Consolidated Statement of Income
(Unaudited)
<CAPTION>
(In thousands, except per share data)
Thirteen Weeks Ended 26 Weeks Ended
June 28, June 29, June 28, June 29,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Advertising $140,344 $137,363 $276,495 $266,359
Circulation 37,338 35,349 75,839 70,903
Other 10,936 7,041 21,388 13,459
-------- -------- -------- --------
188,618 179,753 373,722 350,721
-------- -------- -------- --------
OPERATING EXPENSES:
Compensation 60,074 58,767 121,207 118,366
Newsprint and ink 28,632 27,136 58,759 51,456
Other operating costs 50,486 43,701 98,482 82,996
Depreciation and amortization 11,464 10,631 22,774 21,336
Work force reduction cost 77 682 77 6,723
-------- -------- -------- --------
150,733 140,917 301,299 280,877
-------- -------- -------- --------
OPERATING INCOME 37,885 38,836 72,423 69,844
OTHER INCOME
(principally investment income) 1,653 1,285 2,738 2,551
OTHER EXPENSES (223) (816) (451) (990)
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 39,315 39,305 74,710 71,405
PROVISION FOR INCOME TAXES 16,260 16,018 30,916 29,552
-------- -------- -------- --------
INCOME BEFORE MINORITY INTEREST
AND EQUITY IN AFFILIATE 23,055 23,287 43,794 41,853
MINORITY INTEREST IN SUBSIDIARIES (1,120) (744) (1,435) (1,287)
EQUITY IN NET EARNINGS(LOSS) OF AFFILIATE 322 (150) 476 (435)
-------- -------- -------- --------
NET INCOME $22,257 $22,393 $42,835 $40,131
======== ======== ======== ========
NET INCOME PER COMMON SHARE:
Basic $0.88 $0.86 $1.70 $1.53
Diluted 0.86 0.83 1.65 1.49
DIVIDENDS DECLARED PER CLASS A
COMMON SHARE $0.21 $0.19 $0.42 $0.38
AVERAGE COMMON SHARES OUTSTANDING:
(combined Class A and equivalent Class B shares)
Basic 25,269 26,130 25,219 26,262
Diluted 25,984 26,860 25,965 26,918
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 6
<TABLE>
CENTRAL NEWSPAPERS, INC.
Consolidated Statement of Shareholders' Equity
(Unaudited)
<CAPTION>
(In thousands, except share data) Unrealized
Unamortized Gain on
Class A Class B Value of Available-
Common Stock Common Stock Retained Restricted for-Sale
Shares Amount Shares Amount Earnings Stock Securities
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 29, 1996 23,237,711 $24,259 31,553,000 $63 $363,365 ($1,627) $1,490
Net income (26 weeks) 40,131
Dividends declared:
Class A common stock (8,608)
Class B common stock (1,195)
Exercise of stock options 108,400 3,499
Repurchase of Class A common stock (1,267,867) (1,398) (60,999)
Repurchase of Class B common stock (17,500) (99)
Issuance of restricted stock 8,000 371 (371)
Amortization of restricted stock 417
Common stock conversion 19,000 (190,000)
Change in net unrealized gain on
available-for-sale securities 280
---------- ---------- ---------- ---------- ---------- ---------- ----------
BALANCE AT JUNE 29, 1997 22,105,244 26,731 31,345,500 63 332,595 (1,581) 1,770
Net income (26 weeks) 41,364
Dividends declared:
Class A common stock (9,258)
Class B common stock (1,317)
Exercise of stock options, net 66,032 2,645
Repurchase of Class A common stock (164,400) (202) (10,853)
Repurchase of Class B common stock
Issuance of restricted stock, net
of cancellations 10,750 760 (760)
Amortization of restricted stock 417
Common stock conversion
Change in net unrealized gain on
available-for-sale securities (95)
---------- ---------- ---------- ---------- ---------- ---------- ----------
BALANCE AT DECEMBER 28, 1997 22,017,626 29,934 31,345,500 63 352,531 (1,924) 1,675
Net income (26 weeks) 42,835
Dividends declared:
Class A common stock (9,295)
Class B common stock (1,317)
Exercise of stock options 158,913 6,588
Repurchase of Class A common stock (29,800) (43) (1,961)
Issuance of restricted stock (143)
Amortization of restricted stock 558
Change in net unrealized gain on
available-for-sale securities (245)
---------- ---------- ---------- ---------- ---------- ---------- ----------
BALANCE AT JUNE 28, 1998 22,146,739 $36,479 31,345,500 $63 $382,793 ($1,509) $1,430
========== ========== ========== ========== ========== ========== ==========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 7
<TABLE>
CENTRAL NEWSPAPERS, INC.
Consolidated Statement of Cash Flows
(Unaudited)
<CAPTION>
(In thousands)
26 Weeks Ended
June 28, June 29,
1998 1997
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $42,835 $40,131
Items which did not use (provide) cash:
Depreciation and amortization 22,774 21,336
Postretirement and pension benefits 394 3,306
Loss (gain) on disposition of assets 51 (115)
Minority interest in earnings of subsidiaries 1,435 1,287
Equity loss (earnings) in Affiliate (476) 435
Deferred income taxes (353) 978
Amortization of restricted stock awards 558 417
Other (842) 224
Net proceeds from (purchases of) trading securities (1,292) 2,072
Net change in other current assets and liabilities 8,449 11,325
---------- ----------
Net cash provided by operating activities 73,533 81,396
---------- ----------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (17,648) (12,532)
Net proceeds from (purchases of)
available-for-sale securities (3,548) 13,103
Acquisitions (33,219)
Other (1,145) (2,126)
---------- ----------
Net cash used by investing activities (22,341) (34,774)
---------- ----------
FINANCING ACTIVITIES:
Cash dividends paid (10,584) (10,022)
Dividends paid to minority interest (993) (828)
Proceeds from exercise of stock options 3,396 2,040
(Repayments) borrowings of short-term debt (10,000) 39,400
Repayments of long-term debt (800)
Repurchase of common stock (2,006) (62,496)
---------- ----------
Net cash used by financing activities (20,187) (32,706)
---------- ----------
INCREASE IN CASH AND CASH EQUIVALENTS 31,005 13,916
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 36,924 36,149
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $67,929 $50,065
========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Issuance by subsidiary of redeemable preferred stock
in exchange for Class A common stock of subsidiary $18,920
Income taxes paid $37,800 34,462
Interest paid 277 437
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 8
CENTRAL NEWSPAPERS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
1. Central Newspapers, Inc. and its subsidiaries (the"Company") are
primarily engaged in the publishing and distribution of newspapers.
Revenues are principally derived from advertising and newspaper sales in
the Phoenix, Arizona and Indianapolis, Indiana metropolitan areas. The
Company also has an 80% interest in the Westech group of companies
which are predominately in the jobs fair business and a 13.5% interest in
Ponderay Newsprint Company ("Affiliate"), a partnership formed to own a
newsprint mill in the State of Washington.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities
and revenues and expenses as of and for the period ending with the
financial reporting date. Actual results could differ from those estimates.
2. The accompanying unaudited consolidated financial statements do
not include all of the information and disclosures which are normally
included in Form 10-K and the annual report to shareholders. These
financial statements should be read in conjunction with the Company's
audited consolidated financial statements and related notes for the year
ended December 28, 1997. The accompanying consolidated financial
statements have been prepared in accordance with the instructions to
Form 10-Q and Rule 10-01 of Regulation S-X. The consolidated
statement of financial position at December 28, 1997, presented herein,
has been derived from audited financial statements. In the opinion of the
Company's management, the unaudited consolidated financial statements
reflect all adjustments which are necessary to present fairly, in all material
respects, the Company's financial position, results of operations and cash
flows for the interim periods presented. All adjustments are of a normal
recurring nature. Such statements are not necessarily indicative of the
results to be expected for the full year.
3. The Company's fiscal year ends on the last Sunday of the calendar
year. The years ending December 27, 1998 and December 28, 1997
each comprise 52 weeks.
4. Net income per common share is computed using the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings Per Share", which requires companies to present basic
earnings per share (EPS) and diluted EPS. The Company adopted this
new standard in the fourth quarter of 1997 and has restated EPS for all
prior periods disclosed in the financial statements. Basic EPS is
computed based upon 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 10
shares of Class B common stock to one share of Class A common stock.
Diluted EPS includes the effect of dilutive stock options granted under the
Company's Amended and Restated Stock Compensation Plan.
5. During 1997 the Company reduced its work force in response to
circulation distribution changes, technological changes and the closure of
the Phoenix afternoon newspaper. Certain employees were offered
retirement benefits through a non-qualified supplemental retirement plan.
This work force reduction resulted in an after tax charge of $4.0 million, or
$.15 per diluted share for the six months ended June 28, 1997.
6. In June, 1997 the Financial Accounting Standards Board issued SFAS
No. 130, "Reporting Comprehensive Income." This statement establishes
standards for reporting and display of comprehensive income and its
components in a full set of financial statements. This standard is effective
for fiscal years beginning after December 15, 1997. The Company has
evaluated the impact of comprehensive income components on the
Company's financial statements and has determined that the amounts are
immaterial to the financial statements taken as a whole.
7. At the annual meeting of Shareholders of the Company on May 15,
1998, the shareholders approved an increase in the number of authorized
shares of Class A common stock from 75,000,000 to 150,000,000 shares
and Class B common stock from 50,000,000 to 130,000,000 shares.
8. Certain prior year amounts in the financial statements have been
reclassified to conform with the current year presentation.
<PAGE> 9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
GENERAL
The Company's principal line of business is newspaper publishing.
Revenues are derived primarily from advertising and newspaper sales in
the Phoenix, Arizona and Indianapolis, Indiana metropolitan areas. The
Company also has an 80% interest in the Westech group of companies,
which is predominantly in the jobs fair business and a 13.5% interest in
Ponderay Newsprint Company, a partnership formed to own a newsprint
mill in the State of Washington. The analysis of the second quarter and
six month period ended June 28, 1998 compared with comparable 1997
periods should be read in conjunction with the fiscal 1997 consolidated
financial statements and the accompanying notes to the consolidated
financial statements.
The Company's business tends to be somewhat seasonal, with peak
revenues and profits generally occurring in the second and fourth quarters
of each year.
SECOND QUARTER AND SIX MONTH PERIOD ENDED JUNE 28, 1998
COMPARED WITH 1997
QUARTERLY RESULTS OF OPERATIONS
Second quarter and year-to-date diluted earnings per share for 1998 were
$.86 and $1.65 for increases of 3.6% and 10.7%, respectively, over the
corresponding 1997 periods. The effects of work force reduction costs
(special charges) negatively impacted earnings in the first and second
quarters of 1997 and the second quarter of 1998. Excluding special
charges, diluted earnings per share would have been $.86 for the second
quarter of 1998 and $1.65 for the 1998 six month period, which
represented increases of 1.2% and .6%, respectively, versus comparable
1997 amounts.
Operating income for the second quarter and the first six months of 1998
was $37.9 million and $72.4 million, respectively, which represented a
decrease of 2.4% for the quarter and an increase of 3.7% for the six
months over comparable 1997 periods. Excluding special charges,
operating income decreased 3.9% and 5.3% for the second quarter and
six month periods, respectively, over comparable 1997 periods.
Net income for the second quarter of 1998 was $22.3 million, down .6%
from the same period of 1997. For the six month period, net income for
1998 was $42.8 million, up 6.7% over the prior year. Had the Company
not incurred the work force reduction costs, net income for the second
quarter of 1998 would have been $22.3 million, versus $22.8 million for
the second quarter of 1997 and $42.9 million versus $44.1 million for the
six month periods in 1998 and 1997, respectively. EBITDA (operating
earnings before depreciation, amortization and special charges) for the
comparable periods was $49.4 million for the second quarter 1998 and
$95.3 million year-to-date, representing decreases of 1.4% and 2.7%,
respectively, versus comparable 1997 periods.
OPERATING REVENUES
The Company's second quarter and six month revenues rose to $188.6
million and $373.7 million for increases of 4.9% and 6.6%, respectively,
when compared with the same 1997 periods.
Total advertising revenues for the three and six month periods ended
June 28, 1998 were $140.3 million and $276.5 million for increases of
2.2% and 3.8%, respectively over comparable 1997 periods. The
increases in advertising revenues for the second quarter of 1998 were due
to gains in retail advertising in Phoenix and gains in the classified
recruitment category in both major markets. Decreases in national
advertising revenue in both markets and in Indianapolis retail advertising
were primarily due to difficult advertising revenue comparisons to similar
periods in 1997.
Circulation revenues for the second quarter and year-to-date periods
increased to $37.3 million and $75.8 million, respectively, for increases of
5.6% and 7.0% when compared to 1997. The increase is primarily due to
Phoenix circulation growth and a distribution system change in
Indianapolis which resulted in a revenue increase of $1.4 million in the
second quarter and $4.3 million for the six months.
<PAGE> 10
Other revenues for the second quarter and year-to-date increased $3.9
million and $7.9 million, respectively, due primarily to an increase in
Westech job fair business.
The following is a summary of major market linage and circulation
statistics for the second quarter and six month periods:
(In thousands, except circulation)
Second Quarter % Year-to-date %
----------------- -----------------
1998 1997 Change 1998 1997 Change
-------- -------- ------ -------- -------- ------
Full Run Linage in six
column inches: (1)
Retail 672.6 637.8 5.5 1,292.6 1,271.3 1.7
National 110.3 118.0 (6.5) 220.1 219.3 0.4
Classified 800.4 818.4 (2.2) 1,577.1 1,577.9 (0.1)
-------- -------- -------- --------
Total 1,583.3 1,574.2 0.6 3,089.8 3,068.5 0.7
======== ======== ======== ========
Full Run Linage by Major Markets:
Phoenix (1) 730.8 709.1 3.1 1,443.0 1,395.9 3.4
Indianapolis 852.5 865.1 (1.5) 1,646.8 1,672.6 (1.5)
-------- -------- -------- --------
Total 1,583.3 1,574.2 0.6 3,089.8 3,068.5 0.7
======== ======== ======== ========
Net Advertising
Revenue $140,344 $137,363 2.2 $276,495 $266,359 3.8
Combined Average Daily Circulation:
Phoenix 464,857 450,679 3.1 487,700 467,344 4.4
Indianapolis 277,134 270,450 2.5 277,093 272,554 1.7
Sunday Cirulation:
Phoenix 573,696 567,305 1.1 601,214 592,925 1.4
Indianapolis 392,624 393,752 (0.3) 391,172 393,486 (0.6)
(1) For comparability, linage statistics for the 13 weeks and 26 weeks
ended June 29, 1997 excluded linage of The Phoenix Gazette, which
ceased publication in January, 1997.
OPERATING EXPENSES
Compensation costs, which include fringe benefits, increased 2.2% to
$60.1 million in the second quarter and 2.4% to $121.2 million for the six
month period. The year-over-year headcount decreased 4.7% due
primarily to the closure of The Phoenix Gazette and the impact of a
conversion from a carrier-based distribution arrangement to an agency-
based distribution work force in Indianapolis. These benefits were offset
by increased employee benefits, commissions and merit increases.
Newsprint and ink expense for 1998 increased 5.5% to $28.6 million in the
second quarter and 14.2% to $58.8 million for the six month period. The
increases in newsprint expense were primarily due to higher newsprint
prices during 1998 and a volume increase of 3.0% for the second quarter
and 5.9% for the six month period over comparable 1997 periods. These
volume increases were related to increased advertising linage and
circulation gains. The Company anticipates that newsprint expense
comparisons will continue to show slight increases during the second half
of 1998.
Other operating costs rose 15.5% to $50.5 million for the second quarter
and 18.7% to $98.5 million for the six month period. Significant items
contributing to these increases in both 1998 periods versus the same
1997 periods included the circulation delivery system changes in
Indianapolis (which increased the second quarter 1998 expense by $2.0
million and increased year-to-date by $6.3 million), costs associated with
new Phoenix and Indianapolis promotional/marketing programs, higher
Arizona Republic delivery costs, and expenses related to the jobs fair
business.
<PAGE> 11
Depreciation and amortization expense for the second quarter and the
year-to-date was $11.5 million and $22.8 million, compared with $10.6
million and $21.3 million in 1997. The expense increases were primarily a
result of information technology projects in Phoenix and pagination and
remodeling projects in Indianapolis.
The Company recorded work force reduction costs of approximately $.7
million in the second quarter of 1997 and $6.7 million for the six months
ended June 29, 1997. Of this amount, approximately $4.2 million resulted
from closure of The Phoenix Gazette where approximately 85 positions
were eliminated. The balance of the charge related to the costs of
eliminating 18 positions in the conversion of distribution systems in
Indianapolis.
NON-OPERATING ITEMS AND EQUITY IN AFFILIATE
Other non-operating income (primarily investment income) increased
28.6% in the second quarter and 7.3% year-to-date primarily due to an
increase in investable cash. Other non-operating expenses decreased in
the second quarter and year-to-date due to a reduction in interest expense
from 1997.
Equity in Affiliate recorded gains in the second quarter and the six month
period due to an increase in newsprint selling prices being realized by
Ponderay Newsprint Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of liquidity is net cash provided by
operating activities. Net cash provided by operating activities for the first
six months of 1998 and 1997 was $73.5 million and $81.4 million,
respectively. The principal uses of cash in the first six months of 1998
were capital expenditures, the payment of dividends, and repayment of
the $10.0 million short-term bank line of credit. The corresponding 1997
period included the $33.2 million paid for the acquisition of an 80% interest
in the Westech group of companies and $62.5 million paid to repurchase
the Company's common stock. At the end of the six month period, the
Company's available cash and investments totaled $80.5 million, an
increase of $32.0 million over the balance at the end of 1997. Working
capital for the same period increased $39.5 million to $104.3 million.
Total capital expenditures for the six months of 1998 were $17.6 million
compared to $12.5 million for the comparable 1997 period. The Company
plans approximately $28 million of capital expenditures in 1998. As of
June 28, 1998, there were no significant formal commitments related to
future capital expenditures.
In December 1997, the Company announced that it was authorized to
repurchase up to $100.0 million of its Class A common stock on the open
market or in privately negotiated transactions over a three year time
period. During the six months ended June 28, 1998 the Company
repurchased 29,800 shares at a total cost of $2.0 million. In July 1998,
the Company repurchased 532,830 shares at a total cost of $36.3 million
funded through utilization of existing cash and investments.
In June 1998, the Company announced that it is in discussions with the
Nina Mason Pulliam Charitable Trust regarding the Company's possible
purchase of a significant portion of the 5,450,000 shares of Class A
common stock and Class A common stock equivalents held by the Trust.
Dividends of $.21 per share on the Class A common stock and $.021 on
the Class B common stock were declared during the quarter and paid July
10, 1998. Total Class A and B dividends paid during the six month period
of 1998 were $10.6 million.
The Company has demonstrated a consistent ability to generate net cash
flow from operations. Management believes that existing cash and
investments, net cash flows from operations and available bank credit
resources are sufficient to enable the Company to maintain its current
level of operations. Financing for future investing opportunities is
expected to come from a combination of existing cash, new debt facilities
and/or use of equity.
<PAGE> 12
OUTLOOK FOR THE REMAINDER OF 1998
The Company foresees continued growth in advertising revenues for the
remainder of 1998, but at a rate less than that experienced during the last
six months of 1997. Circulation revenue is also expected to increase
modestly in the second half of 1998 when compared with the similar
period in 1997 due to circulation gains and subscription price increases in
Phoenix. Non-newsprint operating expenses are expected to increase at
a rate comparable with revenue growth. The cost of newsprint, the
second largest expense item, is expected to increase in the second half of
1998. Nonetheless, the Company still expects earnings per share to
increase for the full year 1998.
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, national and/or classified advertising revenue due
to factors including retail consolidation, declines in the advertising
budgets of major customers and increased competition from print and
non-print products
* declines in circulation due to changing reader preferences and/or new
forms of information dissemination
* fluctuations in the price of newsprint
* an increase in distribution and/or production costs over anticipated
levels
* the negative impact of issues related to labor agreements
* new competitors emerging in our markets
<PAGE> 13
PART II
CENTRAL NEWSPAPERS, INC.
Item 4. Submission of Matters to a Vote of Security Holders - At the
Annual Meeting of Shareholders of the Company on May 15, 1998,
the shareholders elected the following directors by the votes
specified opposite each director's name:
Votes Broker
Director Votes For Withheld Abstentions Non-Votes
- ------------------- ---------- -------- ----------- ---------
William A. Franke 32,503,287 693,814 - -
L. Ben Lytle 32,503,822 693,279 - -
Eugene S. Pulliam 32,504,494 692,607 - -
Dan Quayle 32,504,067 693,034 - -
Frank E. Russell 32,504,289 692,812 - -
Richard Snell 32,502,734 694,367 - -
Louis A. Weil III 32,504,664 692,437 - -
The shareholders approved an amendment to the Articles of Incorporation to
increase the number of authorized shares of Class A common stock from
75,000,000 to 150,000,000 shares and Class B common stock from 50,000,000 to
130,000,000 shares.
Votes Broker
Votes For Withheld Abstentions Non-Votes
---------- -------- ----------- ---------
32,540,157 648,277 5,667 3,000
The shareholders approved an amendment to the Articles of Incorporation to
remove the provisions regarding the indemnification of the directors and
officers of the Company.
Votes Broker
Votes For Withheld Abstentions Non-Votes
---------- -------- ----------- ---------
33,127,305 56,416 10,380 3,000
No other matters were submitted for a vote of the shareholders during the
quarter.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit 15 - Letter from PricewaterhouseCoopers LLP with
respect to unaudited interim financial information.
Exhibit 27 - Selected financial data.
b) No reports on Form 8-K were filed during the quarter.
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CENTRAL NEWSPAPERS, INC.
Dated: August 4, 1998 By:/s/Louis A. Weil, III
------------------------
Louis A. Weil, III
President and Chief
Executive Officer
By:/s/ Thomas K. MacGillivray
-----------------------------
Thomas K. MacGillivray
Vice President and Chief
Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's unaudited financial statements as of and for the fiscal six month
period ended June 28,1998 and is qualified in its entirety by reference to such
statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-27-1998
<PERIOD-END> JUN-28-1998
<CASH> 67929
<SECURITIES> 12532
<RECEIVABLES> 85936
<ALLOWANCES> 3376
<INVENTORY> 12960
<CURRENT-ASSETS> 191014
<PP&E> 549921
<DEPRECIATION> 269222
<TOTAL-ASSETS> 642528
<CURRENT-LIABILITIES> 86728
<BONDS> 0
18920
0
<COMMON> 36542
<OTHER-SE> 382714
<TOTAL-LIABILITY-AND-EQUITY> 642528
<SALES> 373722
<TOTAL-REVENUES> 373722
<CGS> 0
<TOTAL-COSTS> 301299
<OTHER-EXPENSES> 451
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 277
<INCOME-PRETAX> 74710
<INCOME-TAX> 30916
<INCOME-CONTINUING> 42835
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 42835
<EPS-PRIMARY> 1.70
<EPS-DILUTED> 1.65
</TABLE>
Report of Independent Accountants
To the Board of Directors and Shareholders of
Central Newspapers, Inc.
We have reviewed the accompanying consolidated statement of financial position
of Central Newspapers, Inc. and its subsidiaries as of June 28, 1998, and the
consolidated statements of income, shareholders' equity and of cash flows for
the three-month and six-month periods ended June 28, 1998 and June 29, 1997.
These financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an option.
Based on our review, we are not aware of any material modifications that should
be made to the consolidated financial statements referred to above for them to
be in conformity with generally accepted accounting principles.
We previously audited in accordance with generally accepted auditing standards,
the consolidated statements of financial position as of December 28, 1997, and
the related consolidated statements of income, shareholders' equity and of cash
flows for the year then ended (not presented herein), and in our report dated
February 2,1998 we expressed an unqualified opinion on those consolidated
financial statements of financial position as of December 28, 1997, is fairly
stated in all material respects in relation to the consolidated statement of
financial position from which it has been derived.
August 3, 1998
Phoenix, Arizona
/s/PriceWaterhouseCoopers LLP
- -----------------------------
PriceWaterhouseCoopers LLP
