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 28, 1997
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)
200 E. Van Buren Street, Phoenix, Arizona 85004
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (602) 444-8000
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. x
---
The aggregate market value of the voting stock held by non-affiliates on
February 27, 1998, 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 (.10) of a share of Class A Common Stock for each
share of Class B Common Stock: approximately $1,030,000,000. 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 27, 1998:
Class A Common Stock -- 22,091,159 shares
Class B Common Stock -- 31,345,500 shares
Documents incorporated by reference:
Portions of the Company's 1997 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 1998 Annual Meeting of Shareholders (to be
held May 15, 1998) 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 13 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 11
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 12
Item 9 - Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 12
Part III
Item 10 - Directors and Executive Officers of
the Registrant 12
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 13
Signatures 16
<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) 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 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, a general partnership that owns
a newsprint mill in the State of Washington.
The Company has published its newspapers in its two primary markets for over
fifty 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.
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 are The Arizona
Republic (mornings and Sunday) and the Arizona Business Gazette (weekly). On
January 18, 1997, PNI ceased publication of The Phoenix Gazette (an evening
newspaper).
Circulation
As of December 28, 1997, approximately 87% of the daily and 72% of the Sunday
circulation of The Arizona Republic was home delivered. Single copy sales
account for approximately 27% of Sunday newspaper sales and approximately 13% of
daily newspaper sales.
The circulation level of The Arizona Republic is seasonal due to the large
number of part-year residents of the Phoenix area. Historically, circulation
for The Arizona Republic achieves its highest levels in February and March and
decreases during the late spring and summer months. During 1997, the seasonal
variation in daily circulation and Sunday circulation was approximately 66,300
and 87,500, respectively. The following table shows the average paid
circulation for The Arizona Republic for the last three fiscal years. The
figures for 1995 and 1996 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 1997 are based
upon the records of the Company because, as of the date of this report, the ABC
annual report for 1997 has not been released. Net circulation revenue for the
last three fiscal years is based upon the records of the Company.
<PAGE> 4
53 Weeks 52 Weeks 52 Weeks
Dec. 31 Dec. 29 Dec. 28
Fiscal Years Ended 1995 1996 1997
Sunday Average Circulation 581,337 583,162 583,288
Combined Average Daily Circulation (1) 459,109 455,131 460,184
Net Circulation Revenue
(in thousands) $84,212 $87,790 $86,800
(1) Combined daily circulation includes The Arizona Republic and The Phoenix
Gazette. The Phoenix Gazette ceased publication January 18, 1997
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 Arizona Republic (six days) is $2.10 per week for all
subscription terms. A weekend package consisting of the Sunday paper and the
Friday and Saturday edition of the daily paper is offered at $2.50 per week.
The single copy price of the daily paper is $.50. During March 1995, the single
copy price of the Sunday paper increased by $.50 to $2.00.
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 10,351, 10,491 and 10,561 for 1995, 1996 and 1997,
respectively.
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 has
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
publishes 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 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 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:
<PAGE> 5
53 Weeks 52 Weeks 52 Weeks
Dec. 31 Dec. 29 Dec. 28
Fiscal Years Ended 1995 1996 1997
Advertising Linage--Run of Paper
(in thousands of six-
column inches): (1)
Full run 2,657 2,669 2,829
Part run 1,150 1,091 1,182
Weekly 245 243 242
Net Advertising Revenue
(in thousands) $284,468 $302,294 $333,583
(1) For comparability, linage statistics for the years ended 1995, 1996 and
1997 exclude the linage of The Phoenix Gazette, which ceased publication in
January 1997. Net advertising revenue was not significantly affected by the
closure of The Phoenix Gazette and has not been restated.
Distribution
PNI distributes The Arizona Republic primarily by home delivery through a
network of independent contractors. PNI has implemented a centralized billing
system which removes the responsibility for billing and collection from the
independent contractors. Newspapers are delivered to the independent
contractor network by a distributor which has been under contract with
PNI for over forty years.
Production
The Arizona Republic editing and composing functions are performed primarily at
PNI's facility in downtown Phoenix. To increase efficiency and reduce work
force requirements, these 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. The Deer Valley facility became
operational in 1992. This facility includes four offset presses and related
production equipment as well as circulation, advertising and editorial offices.
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.
INDIANAPOLIS NEWSPAPERS, INC.
Indianapolis Newspapers, Inc. ("INI") was formed by the Company in 1948. The
Company has owned all of the issued and outstanding Class B Common Stock of INI
since 1948 which represented 70.0% of total INI voting power and equity. At
various times from 1993 through 1996, the Company purchased shares of INI Class
A common stock which increased its ownership to 90.2% of the voting power and
equity and acquired the right to elect all of INI's Board of Directors. On
January 3, 1997, INI acquired the balance of the Class A common stock (1,892
<PAGE> 6
shares) 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 INI and is redeemable any time by
the shareholders at the stated value per share.
The newspapers published by INI are The Indianapolis Star (mornings and Sunday)
and The Indianapolis News (evenings).
Circulation
As of December 28, 1997, approximately 81% of the daily and 80% of the Sunday
circulation of The Indianapolis Star and 80% of the daily circulation of The
Indianapolis News were home delivered. Single copy sales account for
approximately 19% of Sunday newspaper sales and 15% 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 1995
and 1996 are based upon annual reports issued by the ABC and include circulation
outside the Indianapolis MSA. The figures for 1997 are based upon records of
the Company because, as of the date of this report, the ABC annual report for
1997 has not been released. Net circulation revenue for the last three fiscal
years is based upon the records of the Company.
53 Weeks 52 Weeks 52 Weeks
Dec. 31 Dec. 29 Dec. 28
Fiscal Years Ended 1995 1996 1997
The Indianapolis Star (Sunday) 399,539 402,884 391,727
The Indianapolis Star (Daily) 227,849 230,932 230,481
The Indianapolis News (Daily) 73,141 54,423 41,231
Net Circulation Revenue
(in thousands) $39,507 $37,205 $46,444
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
implemented in 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 in March 1995. The home delivery price of the Sunday
newspaper is $1.80, 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 in 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
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
<PAGE> 6
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:
53 Weeks 52 Weeks 52 Weeks
Dec. 31 Dec. 29 Dec. 28
Fiscal Years Ended 1995 1996 1997
Advertising Linage--Run of Paper
(in thousands of six-
column inches):
Full run 2,937 2,982 3,422
Part run 96 54 72
Net Advertising Revenue
(in thousands) $145,267 $149,658 $167,212
Distribution
In 1997, INI converted its newspaper home delivery system in the Indianapolis
metropolitan area from a buy/sell carrier system consisting of approximately
1,350 distributors to a delivery fee independent contractor system consisting of
100 delivery agents. Prior to this conversion, approximately 65% of INI's
newspaper subscribers were billed directly by the Company. At the completion of
the conversion, direct billed customers increased to 93%. Home delivery of
newspapers outside the Indianapolis metropolitan area continues to be done under
the buy/sell carrier system.
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 a satellite facility which was completed in 1995 on the north-west side
of Indianapolis. INI's downtown production facility is equipped with six offset
presses and related production and distribution equipment.
SMALLER NEWSPAPERS
In March 1996, the Company purchased 100% of the outstanding common stock of
McCormick and Company, Inc. (renamed Alexandria Newspapers, Inc. in 1997),
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 28, 1997,
the average paid circulation of the Daily Town Talk was 38,169 daily and 43,837
Sunday.
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 28, 1997, the average paid circulation of The Star Press was 36,456
daily and 40,725 Sunday.
<PAGE> 8
The Company publishes, through its subsidiary Vincennes Newspapers, Inc., the
Vincennes Sun-Commercial, a daily newspaper which serves the city of Vincennes,
Indiana, with a population of approximately 20,000. As of December 28, 1997,
the average paid circulation of the Vincennes Sun-Commercial was 13,440 daily
(five days) and 15,430 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 28, 1997, the average
paid circulation of The Daily Ledger was 11,800 (six days) and the combined
weekly circulation was 105,800.
The revenues earned by the Company from these smaller publications represented
approximately 6% in 1997, 7% in 1996 and 4% in 1995 of total revenues of the
Company.
WESTECH AND HOME BUYER'S FAIR
In February 1997, the Company acquired an 80% interest in the Santa Clara,
California-based Westech companies. Westech consists of Westech ExpoCorp, which
organizes job fairs for the high tech industry; High Technology Careers, which
publishes High Technology Careers Magazine and Virtual Job Fair
(http://www.vjf.com), an internet-based resume posting and research service; and
JobsAmerica, which organizes job fairs for service industry positions. In June
1997, Westech acquired the assets of Target Career Fairs, a Boston-based company
that organizes job fairs for the high technology industry in the eastern portion
of the U.S. The Company has an option to purchase the remaining 20% of Westech.
Westech had $32.2 million of revenues in 1997.
The Company considers the acquisition of Westech a strategic extension of its
business of matching employers and employees. A substantial portion of the
Company's revenues are derived from recruitment advertising and historically,
recruitment advertising has been the most important means for employers to find
qualified employees and for job seekers to find employment. The Company
believes that recruitment classified advertising will continue to be an
important avenue for job placement in the future, that an increasing number of
placements will be made using the internet and job fairs and that the
acquisition of Westech should ensure that the Company is well positioned to
provide career services information to employers and employees through a variety
of cost-effective channels.
In October 1997, the Company acquired an 80% interest in Home Buyer's Fair
(http://www.homefair.com) which provides internet-based services and information
for people who are moving and corporations which are relocating employees.
The Company has an option to purchase the remaining 20%.
RAW MATERIALS - PONDERAY NEWSPRINT COMPANY
The Company consumed approximately 179,400 metric tons of newsprint in fiscal
year 1997 and estimates that consumption will increase in 1998 due primarily to
linage and circulation gains. 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
<PAGE> 9
partners in Ponderay Newsprint Company ("Ponderay"), a general partnership
formed to own a newsprint mill in Usk, Washington. The mill began operations in
December 1989. PNI has committed to purchase in 1998 the lesser of 13.5% of
Ponderay's newsprint production or 28,400 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 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 for advertising and circulation. The most significant
of these competitors is Thomson Corporation, which owns five daily newspapers in
the East Valley region. The Arizona Republic recently introduced four new
"Community" sections in order to maintain its position as the leading source of
news and information in this region.
In Indianapolis, the Company's newspapers do not experience significant direct
competition from suburban newspapers.
EMPLOYEES - LABOR
As of the end of January 1998, the Company had approximately 5,208 employees
(including 1,436 part-time employees), 39% 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 27, 1998, the executive officers of the Company and their ages
are as follows:
Name Age Positions
Dale A. Duncan 43 President and General Manager of Indianapolis
Newspapers, Inc.
Thomas K. MacGillivray 37 Vice President and Chief Financial Officer
John F. Oppedahl 53 Publisher and Chief Executive Officer
of Phoenix Newspapers, Inc.
Eugene S. Pulliam 84 Director and Executive Vice President;
Publisher of The Indianapolis Star and
The Indianapolis News
Frank E. Russell 77 Director; Chairman of the Board and
Assistant Secretary
Eric S. Tooker 36 Vice President, General Counsel and Corporate
Secretary
<PAGE> 10
Louis A. Weil, III 56 Director; President and Chief
Executive Officer; Chairman of the Board of
Phoenix Newspapers, Inc.
Dale A. Duncan has been President and General Manager of Indianapolis
Newspapers, Inc. since January 1998. From 1995 until assuming his current
position, Mr. Duncan was Vice President, ABC Publishing Group, where he directed
the operations of The Oakland Press, Pontiac, MI; The Belleville News-Democrat,
Illinois; and The Times Leader, Wilkes-Barre, PA. Mr. Duncan also served as
President and Publisher of The Oakland Press from 1995 to 1997 and was President
and Publisher of The Times Leader from 1986 to 1994.
Thomas K. MacGillivray has been Vice President since April 1997 and Chief
Financial Officer since January 1996. Previously, he was Director of
Investments from April 1993 to December 1995. 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 and President since March 1997. 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 Executive Vice President of the Company since
1973. 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.
Frank E. Russell has been Chairman of the Board and Assistant Secretary since
January 1996. He was President of the Company from 1979 through 1995. He has
been a Director of the Company since 1974.
Eric S. Tooker has been Vice President since April 1997 and General Counsel and
Corporate 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 200 East Van Buren
Street, Phoenix, Arizona, 85004. The general character, location and
approximate size of the principal physical properties owned by the Company at
the end of fiscal year 1997 are set forth below. In addition to those listed,
the Company owns employee recreational facilities and other real estate
aggregating approximately 130 acres.
<PAGE> 11
Approximate Area
in Square Feet
Printing plants, business and editorial
offices and warehouse space
Owned Leased
Mesa, Arizona 160,815 21,000
Phoenix, Arizona 1,017,076 146,709
Santa Clara, California --- 15,357
Fishers, Indiana 40,000 ---
Greenwood, Indiana --- 1,650
Indianapolis, Indiana 693,152 167,090
Muncie, Indiana 67,658 ---
Vincennes, Indiana 19,350 ---
Alexandria, Louisiana 112,798 ---
Concord, New Hampshire --- 1,345
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.
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 28, 1997 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 41
of the Company's 1997 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 38 of the Company's 1997 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 19
<PAGE> 12
of the Company's 1997 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 Price Waterhouse LLP dated February 2, 1998 appearing on
page 23 of the Company's 1997 Annual Report to Shareholders, and the information
contained under the heading "Quarterly Financial Information (unaudited)" on
page 40 of such Annual Report to Shareholders are incorporated herein by
reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
The Company filed a report on Form 8-K on March 12, 1997 announcing that the
Board of Directors of the Company recommended to shareholders the appointment of
Price Waterhouse LLP to examine the financial statements of the Company for the
fiscal year ending December 28, 1997. This recommendation was ratified by the
shareholders at the annual meeting held on April 24, 1997. Price Waterhouse LLP
replaced Geo. S. Olive & Co., LLC which acted as the independent public
accountant for the Company for the prior two most recent fiscal years.
There were no disagreements with accountants on accounting and financial
disclosure in the fiscal year ended December 28, 1997.
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 15 of the Company's definitive Proxy
Statement to be used in connection with the 1998 Annual Meeting of Shareholders.
See Part I, Item 1 of this report for information regarding the executive
officers of the Company.
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 1998 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 1998 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 15 of the Company's
<PAGE> 13
definitive Proxy Statement to be used in connection with the 1998 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 1997 Annual Report to Shareholders:
(i) Report of Independent Accountants
(ii) Consolidated Statement of Income for each of the three fiscal
years in the period ended December 28, 1997
(iii) Consolidated Statement of Financial Position as of December 28,
1997 and December 29, 1996
(iv) Consolidated Statement of Shareholders' Equity for each of the
three fiscal years in the period ended December 28, 1997
(v) Consolidated Statement of Cash Flows for each of the three fiscal
years in the period ended December 28, 1997
(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 40 of the Company's 1997 Annual Report to Shareholders
(ii) The following financial schedule and reports with respect thereto are
filed as a part of this Report:
Page in
this filing
Reports of Independent Accountants 17-18
Schedule II Valuation Accounts 19
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
<PAGE> 14
3.2 Amended and Restated Code of By-Laws of Central Newspapers,
Inc.
13.1 Portions of the 1997 Annual Report to Shareholders of
Central Newspapers, Inc. incorporated by reference into the
1997 Annual Report on Form 10-K
13.2 Independent Auditor's Report of Geo. S. Olive & Co. LLC on
the financial statements as of and for the two fiscal years
ended December 29, 1996
21 Subsidiaries of the Registrant
23.1 Consent of Price Waterhouse LLP
23.2 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)
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)
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)
<PAGE> 15
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, Thomas K. MacGillivray and Eric S.
Tooker (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 William A. Franke, Dan
Quayle, Richard Snell and L. Ben Lytle (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)
*10.14 Amended and Restated Central Newspapers, Inc. Stock
Compensation Plan (Filed with Form 10-K for the year ended
December 29, 1996)
* 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
1997.
<PAGE> 16
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
Phoenix, state of Arizona, on this second day of March, 1998.
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 second day of March, 1998.
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 Vice President and Chief Financial
-------------------------- Officer
Thomas K. MacGillivray
(3) A majority of the Board of Directors
/s/ William A. Franke Director
---------------------
William A. Franke
/s/ L. Ben Lytle Director
---------------------
L. Ben Lytle
/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> 17
Report of Independent Accountants on Financial Statement Schedule
Our audit of the consolidated financial statements referred to in our report
dated February 2, 1998 appearing in the 1997 Annual Report to Shareholders of
Central Newspapers, Inc. (which report and consolidated financial statements
are incorporated by reference in this Annual Report on Form 10-K) also included
an audit of the information as of and for the year ended December 28, 1997
included in the Financial Statement Schedule listed in Item 14(a) of this Form
10-K. In our opinion, the Financial Statement Schedule presents fairly, in
all material respects, the information as of and for the year ended December
28, 1997 set forth therein when read in conjunction with the related
consolidated financial statements.
/s/ Price Waterhouse LLP
- ------------------------
Price Waterhouse LLP
Indianapolis, Indiana
February 2, 1998
<PAGE> 18
INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENT 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 for each of
the two 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 1997 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> 19
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 28,
1997 (52 Weeks):
Provision for doubtful
accounts and advertising
refunds $1,639,024 $8,192,776 $(6,872,881) $2,958,919
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
Adopted July 12, 1988
Revised July 28, 1989
Revised Dec. 18, 1991
Revised April 8, 1994
Revised December 13, 1995
Revised August 9, 1996
Revised April 24, 1997
AMENDED AND RESTATED
CODE OF BY-LAWS
OF
CENTRAL NEWSPAPERS, INC.
ARTICLE 1
Identification, Records, Seal and Fiscal Year
Section 1.01. Name. The name of the Corporation is Central
Newspapers, Inc. (the "Corporation").
Section 1.02. Place of Keeping Corporate Books and Records.
The Corporation shall keep at its principal office a copy of (a) its Articles
of Incorporation and all amendments thereto currently in effect (the
"Articles"); (b) its Code of By-Laws and all amendments thereto currently
in effect (the "By-Laws"); (c) resolutions adopted by the Board of
Directors (the "Board") with respect to one or more classes or series of
shares and fixing their relative rights, preferences, and limitations, if
shares issued pursuant to these resolutions are outstanding; (d) minutes of
all meetings of the shareholders of the Corporation (the "Shareholders")
and records of all actions taken by the Shareholders without a meeting
(collectively, "Shareholders Minutes") for the prior three years; (e) all
written communications by the Corporation to the Shareholders including
the financial statements furnished by the Corporation to the Shareholders
for the prior three years; (f) a list of the names and business addresses of
the current directors of the Corporation (the "Directors") and the current
officers of the Corporation (the "Officers"); and (g) the most recent
Annual Report of the Corporation as filed with the Secretary of State of
Indiana. The Corporation shall also keep and maintain at its principal
office, or at such other place or places within or without the State of
Indiana as may be provided, from time to time, in these By-Laws, (a)
minutes of all meetings of the Board and of each committee, and records
of all actions taken by the Board and by each committee without a
meeting; (b) Shareholders Minutes; (c) appropriate accounting records of
the Corporation; and (d) a record of the Shareholders in a form that
permits preparation of a list of the names and addresses of all the
Shareholders, in alphabetical order by class of shares, stating the number
and class of shares held by each Shareholder. All of the records of the
Corporation described in this Section shall be maintained in written form
or in another form capable of conversion into written form within a
reasonable time.
Section 1.03. Seal. The corporate seal of the Corporation shall be
in circular form and mounted upon a metal die, suitable for impressing
upon paper, and about the upper periphery of the seal shall appear the
words "Central Newspapers, Inc." and about the lower periphery thereof
shall appear the word "Indiana" and in the center thereof shall appear the
word "Seal" and the year "1934". The corporate seal shall be used for
ceremonial or traditional purposes in such circumstances as the Secretary
or Assistant Secretary shall deem appropriate. The Corporation shall not
be required to use the corporate seal for any purpose whatsoever, and the
absence of the impression of the corporate seal from any document shall
not affect in any way the validity or effect of such document.
Section 1.04. Fiscal Year. Each fiscal year of the Corporation
shall end on the last Sunday of each calendar year, and the next fiscal year
shall begin on the Monday following the last Sunday in each calendar
year.
ARTICLE 2
Shares
Section 2.01. Certificates for Shares. Each holder of the shares of
the Corporation shall be entitled to a certificate in such form as the Board
may prescribe from time to time. However, unless the Articles provide
otherwise, the Board may authorize the issue of some or all of the shares
of any or all of the Corporation's classes or series without certificates.
Within a reasonable time after the issue or transfer of shares without
certificates, the Corporation shall send the Shareholder a written statement
of the information required on certificates by the Indiana Business
Corporation Law, as amended from time to time (the "Act"), and the
information required by the Indiana Uniform Commercial Code, as in
effect from time to time. A holder of such shares may request that a
certificate be provided to him by giving notice to the Secretary of the
Corporation. The certificate shall be provided in the form prescribed by
the Board.
Section 2.02. Transfer of Shares. The shares of the Corporation
shall be transferable only on the books of the Corporation upon delivery to
the Corporation of the certificate(s) representing the same or, in the case
of shares without certificates, an instrument of assignment in respect of
the shares being transferred, in form and substance satisfactory to the
Corporation, properly endorsed by the registered holder or by his duly
authorized attorney, such endorsement to be guaranteed by a bank or
registered securities broker or dealer. The requirement for such guarantee
may be waived in writing upon the form of endorsement by the President
of the Corporation.
Section 2.03. Lost, Stolen or Destroyed Certificates. The Corporation may
issue a new certificate for shares in the place of any certificate theretofore
issued and alleged to have been lost, stolen or destroyed, but the Board may
require the owner of such lost, stolen or destroyed certificate, or his legal
representative, to furnish affidavit as to such loss, theft or destruction and
to give a bond in such form and substance, and with such surety or sureties,
with fixed or open penalty, as it may direct to indemnify the Corporation
against any claim that may be made on account of the alleged loss, theft or
destruction of such certificate. A new certificate may be issued without
requiring any bond when, in the judgment of the Board, it is not imprudent to do
so.
Section 2.04. Issue and Consideration for Shares. The Board may
authorize shares to be issued for consideration consisting of any tangible
or intangible property or benefit to the Corporation, including cash,
promissory notes, services performed, contracts for services to be
performed, or other securities of the Corporation. If shares are issued for
promissory notes or for promises to render services in the future, the
Corporation shall report in writing to the Shareholders the number of
shares authorized to be so issued with or before the notice of the next
Shareholders' meeting. However, if the Corporation is subject to the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), these
reporting requirements are satisfied by complying with the proxy
disclosure provisions of the Exchange Act. The adequacy of the
consideration is to be determined by the Board, and that determination is
conclusive insofar as the adequacy of the shares relates to whether the
shares are validly issued, fully paid, and nonassessable. Once the
Corporation receives the consideration for which the Board authorized the
issuance of the shares, the shares are fully paid and nonassessable.
ARTICLE 3
Meetings of Shareholders
Section 3.01. Place of Meetings. All meetings of Shareholders
shall be held at the principal office of the Corporation or at such other
place, within or without the State of Indiana, as may be specified in the
respective notices or waivers of notice thereof.
Section 3.02. Annual Meeting. Unless otherwise determined by
the Board, the annual meeting of the Shareholders for the election of
Directors, and for the transaction of such other business as may properly
come before the meeting, shall be held at 10:00 in the forenoon of the
second Wednesday in May of each year, if such day is not a legal holiday,
and if a holiday then on the first following day that is not a legal holiday.
Failure to hold the Annual Meeting at the designated time does not affect
the validity of any corporate action.
Section 3.03. Special Meetings. Special meetings, for any
purpose or purposes (unless otherwise prescribed by law), may be called
by the Board or the President, and shall be called by the President or any
Vice-President at (a) the request in writing of a majority of the Board, or
(b) at the written demand, delivered to the Secretary, of Shareholders
holding of record not less than 25% of the voting power of all the shares
of the Corporation issued and outstanding and entitled by the Articles to
vote on the business proposed to be transacted thereat. All requests or
demands for special meetings shall state the purpose or purposes thereof,
and the business transacted at such meeting shall be confined to the
purposes stated in the call and matters germane thereto.
Section 3.04. Record Date. The Board may fix a record date, not
exceeding seventy (70) days prior to the date of any meeting of the
Shareholders, for the purpose of determining the Shareholders entitled to
notice of and to vote at such meeting. In the absence of action by the
Board fixing a record date as herein provided, the record date shall be the
fourteenth (14th) day prior to the date of the meeting. A new record date
must be fixed if a meeting of Shareholders is adjourned to a date more
than 120 days after the date fixed for the original meeting.
Section 3.05. Notice of Meetings. A written or printed notice,
stating the place, day and hour of the meeting, and, in the case of a
special meeting or when otherwise required by any provision of the Act,
the Articles or these By-Laws, the purpose or purposes for which the
meeting is called, shall be delivered or mailed by the Secretary or by the
persons calling the meeting to each Shareholder at the time entitled to
vote, at such address as appears on the records of the Corporation, at least
ten (10) and not more than sixty (60) days before the date of the meeting.
Notice of any special meeting called at the written demand of
Shareholders shall be delivered or mailed within sixty (60) days of the
Secretary's receipt of such demand. Each Shareholder who has in the
manner provided in Section 3.06 of these By-Laws waived notice of a
Shareholders' meeting, or who personally attends a Shareholders'
meeting, or is represented thereat by a proxy duly authorized to appear by
an instrument of proxy complying with the requirements hereinafter set
forth, shall be conclusively presumed to have been given due notice of
such meeting.
Section 3.06. Waiver of Notice. Notice of any annual or special
meeting may be waived in writing by any Shareholder, before or after the
date and time of the meeting specified in the notice thereof, by a written
waiver delivered to the Corporation for inclusion in the minutes or filing
with the corporate records. A Shareholder's attendance at any meeting in
person or by proxy shall constitute a waiver of any objection to (a) notice
of such meeting, unless the Shareholder at the beginning of the meeting
objects to the holding of or the transaction of business at the meeting, and
(b) consideration at such meeting of any business that is not within the
purpose or purposes described in the meeting notice, unless the
Shareholder objects to considering the matter when it is presented.
Section 3.07 Proxies. A Shareholder entitled to vote at any
meeting may vote either in person or by proxy executed in writing by the
Shareholder or a duly authorized attorney-in-fact of such Shareholder. For
purposes of this Section, a proxy granted by telegram, telex, telecopy or
other document transmitted electronically for or by a Shareholder shall be
deemed "executed in writing by the Shareholder." The general proxy of a
fiduciary shall be given the same effect as the general proxy of any other
Shareholder. No proxy shall be valid after eleven months from the date of
its execution unless a longer or shorter time is expressly provided therein.
An appointment of a proxy is revocable by a Shareholder unless the
appointment form conspicuously states that it is irrevocable and the
appointment is coupled with an interest.
Section 3.08. Quorum. At any meeting of Shareholders, the
holders of outstanding shares representing a majority of the votes entitled
to be cast with respect to the business to be transacted at such meeting,
represented thereat in person or by proxy, shall constitute a quorum, and a
majority vote of such quorum shall be necessary for the transaction of any
business by the meeting, unless a greater number is required by law, the
Articles or these By-Laws. In case a quorum shall not be present at any
meeting, the holders of record representing a majority of the votes so
present in person or by proxy may adjourn the meeting from time to time,
without notice, other than announcement at the meeting, unless the date of
the adjourned meeting requires that the Board fix a new record date
therefore, in which case notice of the adjourned meeting shall be given.
At any such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been
transacted at the meeting as originally scheduled.
Section 3.09. Shareholder List. The Secretary shall cause to be
prepared before each meeting of Shareholders a complete list of the
Shareholders entitled to notice of such meeting, arranged in alphabetical
order by class of shares (and each series within a class), and showing the
address of, and the number of shares entitled to vote held by, each
Shareholder (the "Shareholder List"). Beginning five business days before
the meeting and continuing throughout the meeting, the Shareholder List
shall be on file at the principal office or at a place identified in the
meeting notice as the city where the meeting will be held, and shall be
available for inspection by any Shareholder entitled to vote at the meeting.
On written demand, made in good faith and for a proper purpose and
describing with reasonable particularity the Shareholder's purpose, and if
the Shareholder List is directly connected with the Shareholder's purpose,
a Shareholder (or such Shareholder's agent or attorney authorized in
writing) shall be entitled to inspect and to copy the Shareholder List,
during regular business hours and at the Shareholder's expense, during the
period the Shareholder List is available for inspection. The original stock
register or transfer book, or a duplicate thereof kept in the State of
Indiana, shall be the only evidence as to who are the Shareholders entitled
to examine the Shareholder List, or to notice of or to vote at any meeting.
Section 3.10. Action Without Meeting. Any action required or
permitted to be taken at any meeting of the Shareholders may be taken
without a meeting if the action is taken by all the Shareholders entitled to
vote on the action. The action must be evidenced by one (1) or more
written consents describing the action taken, signed by all the
Shareholders entitled to vote on the action, and delivered to the
Corporation for inclusion in the minutes or filing with the corporate
records. Action taken under this Section is effective when the last
Shareholder signs a written consent, unless the consent specifies a
different prior or subsequent effective date.
Section 3.11. Voting Rights of Shareholders. The Shareholders of
the Corporation shall have the voting rights set forth in the Articles.
Section 3.12. Order of Business. The order of business at the
annual meetings, and so far as practicable at all other meetings, of
Shareholders, shall be:
Item (1). Proof of due notice of meeting.
Item (2). Call of roll.
Item (3). Reading and disposal of any unapproved minutes.
Item (4). Annual reports of Officers and Committees.
Item (5). Unfinished business.
Item (6). New business.
Item (7). Election of Directors.
Item (8). Adjournment.
Section 3.13. Notice of Shareholder Business. At any meeting of
the Shareholders, only such business or proposals ("Business") may be
conducted as shall have been properly brought before the meeting, and as
shall have been determined to be lawful and appropriate for consideration
by Shareholders at the meeting. To be properly brought before a meeting,
Business must be (a) specified in the notice of meeting (or supplement
thereto) given in accordance with Section 3.05 of these By-Laws,
(b) brought before the meeting by or at the direction of the Board or the
President, or (c) brought before the meeting by a Shareholder after giving
timely notice thereof in writing to the Secretary of the Corporation. To
be timely, a Shareholder's notice must be delivered to or mailed and
received at the principal office of the Corporation, not less than ten (10)
days prior to the meeting. A Shareholder's notice to the Secretary shall
set forth as to each matter the Shareholder proposes to bring before the
meeting (a) a brief description of the Business desired to be brought
before the meeting, (b) the name and address, as they appear on the
Corporation's Shareholder List, of the Shareholder proposing such
Business, (c) the class and number of shares of the Corporation which are
beneficially owned by the Shareholder, and (d) any interest of the
Shareholder in such Business. The person presiding at the meeting shall,
if the facts warrant, determine and declare to the meeting that Business
was not properly brought before the meeting in accordance with the
By-Laws, or that Business was not lawful or appropriate for consideration
by Shareholders at the meeting, and if he should so determine, he shall so
declare to the meeting, and any such Business shall not be transacted.
(Section added December 18, 1991)
Section 3.14. Notice of Shareholder Nominees. Nominations of
persons for election to the Board may be made at any meeting of
Shareholders by or at the direction of the Board or by any Shareholder of
the Corporation entitled to vote for the election of Directors at the
meeting. Shareholder nominations shall be made pursuant to timely notice
given in writing to the Secretary of the Corporation in accordance with
Section 3.13 of these By-Laws. Such Shareholder's notice shall set forth as
to each person whom the Shareholder proposes to nominate for election or
re-election as a Director, (a) the name, age, business address and
residence address of such person, (b) the principal occupation or
employment of such person, (c) the class and number of shares of the
Corporation which are beneficially owned by such person, (d) any other
information relating to such person that is required to be disclosed in
solicitation of proxies for election of Directors, or is otherwise required,
in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (including without limitation such person's
written consent to being named in the proxy statement as a nominee and to
serving as a Director if elected), and (e) the qualifications of the nominee
to serve as a Director of the Corporation. The Corporation may require
any proposed nominee to furnish such other information as may
reasonably be required by the Corporation to determine the eligibility of
such proposed nominee to serve as a Director of the Corporation. No
Shareholder nomination shall be effective unless made in accordance with
the procedures set forth in this Section 3.14. The person presiding at the
meeting shall, if the facts warrant, determine and declare to the meeting
that a Shareholder nomination was not made in accordance with the
By-Laws, and if he should so determine, he shall so declare to the meeting
and the defective nomination shall be disregarded. (Section added
December 18, 1991)
ARTICLE 4
Board of Directors
Section 4.01. Duties and Number. The business and affairs of the
Corporation shall be managed under the direction of a Board of seven (7)
Directors.
Section 4.02. Election, Term of Office and Qualification.
Directors shall be elected at each annual meeting by the Shareholders
entitled by the Articles to elect Directors. Directors shall be elected for a
term of one year and shall hold office until their respective successors are
elected and qualified. Directors need not be residents of the State of
Indiana or Shareholders of the Corporation. No decrease in the number of
Directors at any time provided for by these By-Laws shall have the effect
of shortening the term of any incumbent Director.
Section 4.03. Powers of Directors. The Board shall exercise all
the powers of the Corporation, subject to the restrictions imposed by law,
the Articles, or these By-Laws.
Section 4.04. Annual Meeting. Unless otherwise determined by
the President or the Board, the Board shall meet each year immediately
after the annual meeting of the Shareholders, at the place where such
meeting of the Shareholders has been held, for the purpose of
organization, election of Officers, and consideration of any other business
that may properly be brought before the meeting. No notice shall be
necessary for the holding of this annual meeting. If such meeting is not
held as above provided, the election of Officers may be held at any
subsequent duly constituted meeting of the Board.
Section 4.05. Regular Board Meetings. Regular meetings of the
Board may be held at stated times or from time to time, and at such place,
either within or without the State of Indiana, as the Board may determine,
without call and without notice.
Section 4.06. Special Board Meetings. Special meetings of the
Board may be called at any time or from time to time, and shall be called
on the written request of at least two Directors or the President, by
causing the Secretary or any Assistant Secretary to give to each Director,
either personally or by mail, telephone, telegraph, teletype or other form
of wire or wireless communication at least two days' notice of the date,
time and place of such meeting. Special meetings shall be held at the
principal office or at such other place, within or without the State of
Indiana, as shall be specified in the respective notices or waivers of notice
thereof. A Director may waive notice of any special meeting of the Board
before or after the date and time stated in the notice by a written waiver
signed by the Director and filed with the minutes or corporate records. A
Director's attendance at or participation in a special meeting waives any
required notice to the Director of the meeting unless the Director at the
beginning of the meeting (or promptly upon the Director's arrival) objects
to holding the meeting or transacting business at the meeting and does not
thereafter vote for or assent to action taken at the meeting.
Section 4.07. Meeting by Telephone, etc. Any or all of the
members of the Board or of any committee designated by the Board may
participate in a meeting of the Board or the committee, or conduct a
meeting through the use of, any means of communication by which all
persons participating may simultaneously hear each other during the
meeting, and participation in a meeting using these means constitutes
presence in person at the meeting.
Section 4.08. Quorum. At all meetings of the Board, a majority
of the number of Directors designated for the full Board shall be necessary
to constitute a quorum for the transaction of any business, except (a) that
for the purpose of filling of vacancies of the Board a majority of Directors
then in office shall constitute a quorum, and (b) that a lesser number may
adjourn the meeting from time to time until a quorum is present. The
affirmative vote of a majority of the Directors present at a meeting at
which a quorum is present shall be the act of the Board, unless the act of a
greater number is required by law, the Articles or these By-Laws.
Section 4.09. Action Without Meeting. Any action required or
permitted to be taken at any meeting of the Board or of any committee
thereof may be taken without a meeting if the action is taken by all
members of the Board or of such committee. The action must be
evidenced by one (1) or more written consents describing the action taken,
signed by each member of the Board or of the committee, and included in
the minutes or filed with the corporate records reflecting the action taken.
Action taken under this Section is effective when the last member of the
Board or of the committee signs a written consent, unless the consent
specifies a different prior or subsequent effective date.
Section 4.10. Resignations. Any Director may resign at any time
by delivering written notice to the Board, its Chairman, the President, or
the Secretary. Such resignation shall take effect when the notice is
delivered unless the notice specifies a later effective date. If the
resignation specifies a later effective date, the Board may fill the pending
vacancy before the effective date, but the new Director may not take
office until the vacancy occurs.
Section 4.11. Removal. Any Director may be removed, with or
without cause, at any meeting of the Shareholders by the vote specified in
the Articles, if notice of the intention to act upon such matter shall have
been given in the notice calling such meeting.
Section 4.12. Vacancies. Any vacancy occurring in the Board,
including a vacancy resulting from an increase in the number of Directors,
may be filled by the Board, or if the Directors remaining in office
constitute fewer than a quorum of the Board, they may fill the vacancy by
the affirmative vote of a majority of all the Directors remaining in office.
Each Director so chosen shall hold office until the expiration of the term
of the Director, if any, whom he has been chosen to succeed, or, if none,
until the expiration of the term designated by the Board for the
directorship to which he has been elected, or until his earlier removal,
resignation, death, or other incapacity.
Section 4.13. Compensation of Directors. The Board is
empowered and authorized to fix and determine the compensation of
Directors for attendance at meetings of the Board and additional
compensation for such additional services any of such Directors may
perform for the Corporation.
Section 4.14. Interest of Directors in Contracts. Any contract or
other transaction between the Corporation and (a) any Director, or (b) any
corporation, unincorporated association, business trust, estate,
partnership, trust, joint venture, individual or other legal entity ("Legal
Entity") (1) in which any Director has a material financial interest or is a
general partner, or (2) of which any Director is a director, officer or
trustee (collectively, a "Conflict Transaction"), shall be valid for all
purposes, if the material facts of the Conflict Transaction and the
Director's interest were disclosed or known to the Board, a committee
with authority to act thereon, or the Shareholders entitled to vote thereon,
and the Board, such committee, or such Shareholders authorized,
approved, or ratified the Conflict Transaction. A Conflict Transaction is
authorized, approved or ratified:
(a) By the Board or such committee, if it receives the
affirmative vote of a majority of the Directors who have no interest
in the Conflict Transaction, notwithstanding the fact that such
majority may not constitute a quorum or a majority of the Board or
such committee or a majority of the Directors present at the
meeting, and notwithstanding the presence or vote of any Director
who does have such an interest; provided, however, that no
Conflict Transaction may be authorized, approved or ratified by a
single Director; or
(b) By such Shareholders, if it receives the vote of a
majority of the shares entitled to be counted, in which vote shares
owned or voted under the control of any Director who, or of any
Legal Entity that, has an interest in the Conflict Transaction may
be counted.
This Section shall not be construed to require authorization, ratification or
approval by the Shareholders of any Conflict Transaction, or to invalidate
any Conflict Transaction that would otherwise be valid under the common
and statutory law applicable thereto.
ARTICLE 5
Executive Committee and Other Committees
Section 5.01. Designation of Committees. The Board may, by
resolution adopted by a majority of the actual number of Directors elected
and qualified, from time to time, designate (i) any two (2) or more of its
members to constitute an Executive Committee, and (ii) any one (1) or
more of its members to constitute any other Committee. The Board shall
have the power at any time to increase or decrease the number of
members of the Executive Committee or any other Committee, to fill
vacancies thereon, to change any member thereof and to change the
functions or terminate the existence thereof.
Section 5.02. Powers of Committees. During the intervals
between meetings of the Board, and subject to such limitations as may be
required by law or by resolution of the Board, the Executive Committee
shall have and may exercise all of the authority of the Board, and any
other Committee shall have and may exercise such authority of the Board
as may be provided in the resolution designating such Committee;
provided, however, that neither the Executive Committee nor any other
Committee shall have authority to do any of the following:
(a) authorize dividends or other distributions, except
that the Executive Committee (or an Officer designated by the
Board) may authorize or approve a reacquisition of Shares if done
according to a formula or method prescribed by the Board;
(b) approve or propose to the Shareholders action
required by the law to be submitted to the Shareholders for
approval;
(c) fill vacancies on the Board or any Committee;
(d) amend the Articles, except to the extent authorized
in subsection (g);
(e) adopt, amend or repeal these By-Laws;
(f) approve a plan of merger not requiring Shareholder
approval; or
(g) authorize or approve the issuance or sale of
Shares, or determine the designation and relative rights,
preferences and limitations of a class or series of Shares, except
that the Executive Committee (or an Officer designated by the
Board) may take the actions described in this subsection within
limits prescribed by the Board.
The members of any Committee shall act only as a Committee, and the
individual members shall have no power as such. All minutes of
Committee Meetings shall be submitted to the next succeeding Board
Meeting; but failure to submit the same shall not invalidate any completed
or incomplete action taken by the Corporation upon proper authorization
by such Committee prior to the time when the same should have been or
were submitted as above provided.
Section 5.03. Meetings; Procedure; Quorum. Sections 4.05
through 4.09 of these By-Laws dealing with meetings, action without a
meeting, notice and waiver of notice, and quorum and voting
requirements of the Board apply to the committees and their members as
well.
ARTICLE 6
Officers
Section 6.01. Number. The Officers of the Corporation shall
consist of the President, the Executive Vice President, one (1) or more
Vice-Presidents, the Secretary, the Treasurer, and such other officers as
may be chosen by the Board at such time and in such manner and for such
terms as the Board may prescribe. Any two (2) or more offices may be
held by the same person.
Section 6.02. Election and Term of Office. The Officers shall be
chosen by the Board or by an Officer duly elected or appointed and duly
authorized by the Board. Each Officer shall hold office until his successor
is chosen and qualified, until his death, until he shall have resigned, or
until he shall have been removed pursuant to Section 6.04 of these By-
Laws.
Section 6.03. Resignations. Any Officer may resign at any time
by delivering written notice to the Board, its Chairman, the President, or
the Secretary. Such resignation shall take effect when the notice is
delivered unless the notice specifies a later effective date. If a resignation
is made effective at a later date and the Corporation accepts the future
effective date, the Board may fill the pending vacancy before the effective
date if the Board provides that the successor does not take office until the
effective date.
Section 6.04. Removal. Any Officer may be removed either with
or without cause, at any time, by the vote of a majority of the actual
number of Directors elected and qualified from time to time, or by the
Officer who appointed that Officer.
Section 6.05. Vacancies. Whenever any vacancy shall occur in
any office, the same shall be filled by the Board, the President, or by an
Officer duly appointed by the Board, and the Officer so chosen shall hold
office during the remainder of the term for which his predecessor was
chosen or as otherwise provided herein.
Section 6.06. President. Subject to the general control of the
Board, the President shall manage and supervise all the affairs and
personnel of the Corporation and shall discharge all the usual functions of
the chief executive officer of a corporation. He shall preside at all
meetings of Shareholders and Directors, discharge all the duties which
devolve upon a presiding officer, and shall exercise and perform such
other powers and duties as these By-Laws or the Board may prescribe.
The President shall have full authority to execute proxies in behalf of the
Corporation, to vote stock owned by it in any other corporation, and to
execute, with the Secretary, powers of attorney appointing other
corporations, partnerships, or individuals the agent of the Corporation, all
subject to the provisions of the Act, the Articles and these By-Laws.
Section 6.07. The Executive Vice-President and Vice-Presidents.
The Executive Vice-President shall perform all duties incumbent upon the
President during the absence or disability of the President, and perform
such other duties as the By-Laws may require or the Board of Directors or
President may prescribe. The Vice-Presidents shall perform all duties
incumbent upon the Executive Vice-President during the absence or
disability of the Executive Vice-President, and perform such other duties
as these By-Laws may require or the Board of Directors or President may
prescribe.
Section 6.08 Secretary. The Secretary shall attend all meetings of
the Shareholders and of the Board, and shall keep or cause to be kept in a
book provided for the purpose a true and complete record of the
proceedings of such meetings, and shall perform a like duty, when
required, for all committees created by the Board. He shall authenticate
the records of the Corporation when necessary and shall exercise and
perform such other powers and duties as these By-Laws, the Board, or the
President may prescribe. He shall give all notices of the Corporation and,
in case of his absence, negligence, or refusal so to do, any notice may be
given by a person so directed by the President or by the requisite number
of Directors or Shareholders upon whose request the meeting is called as
provided by these By-Laws.
Section 6.09. Treasurer. The Treasurer shall keep correct and
complete records of account, showing accurately at all times the financial
condition of the Corporation. He shall be the legal custodian of all
moneys, notes, securities and other valuables that may from time to time
come into the possession of the Corporation. He shall immediately deposit
all funds of the Corporation coming into his hands in some reliable bank
or other depository to be designated by the Board, and shall keep such
bank account in the name of the Corporation. He shall furnish at
meetings of the Board, or whenever requested thereby, a statement of the
financial condition of the Corporation, and shall exercise and perform
such other powers and duties as these By-Laws, the Board, or the
President may prescribe. The Treasurer may be required to furnish bond
in such amount as shall be determined by the Board.
Section 6.10. Chairman of the Board. The Chairman of the Board
shall be elected from the Directors of the Corporation and shall have the
usual duties of a Chairman of the Board.
Section 6.11. Assistant Officers. The Board or an Officer duly
appointed by the Board may from time to time designate assistant Officers
who shall exercise and perform such powers and duties as the Officers
whom they are elected to assist shall specify and delegate to them, and
such other powers and duties as these By-Laws, the Board, or the
President may prescribe. An Assistant Secretary may, in the absence or
disability of the Secretary, attest the execution of all documents by the
Corporation.
Section 6.12. Delegation of Authority. In case of the absence of
any Officer of the Corporation, or for any other reason that the Board
may deem sufficient, the Board may delegate the powers or duties of such
Officer to any other Officer or to any Director, for the time being.
ARTICLE 7
Negotiable Instruments, Deeds, Contracts,
Stock and Limitation of Liability
Section 7.01. Execution of Negotiable Instruments. All checks,
drafts, bills of exchange and orders for the payment of money by the
Corporation shall, unless otherwise directed by the Board, or unless
otherwise required by law, be signed by any two of the following
Officers: the President, the Executive Vice-President, any Vice-President,
the Secretary or the Treasurer. The Board may, however, authorize any
one or more of such Officers to sign checks, drafts, bills of exchange and
orders for the payment of money by the Corporation singly and without
necessity of countersignature; and the Board may designate any other
employee or employees of the Corporation, who may, in the name of the
Corporation, execute checks, drafts, bills of exchange and orders for the
payment of money by the Corporation or in its behalf.
Section 7.02. Execution of Deeds, Contracts, Etc. All deeds,
notes, bonds and mortgages made by the Corporation and all other written
contracts and agreements, other than those executed in the ordinary course
of corporate business, to which the Corporation shall be a party shall be
executed in its name by the President, the Executive Vice-President, a
Vice-President or by any other Officer so authorized by the Board, acting
by resolution; and the Secretary, when necessary or required, shall attest
the execution thereof.
Section 7.03. Ordinary Contracts and Agreements. All written
contracts and agreements into which the Corporation enters in the ordinary
course of business operations shall be executed by any Officer or by any
other employee of the Corporation designated by the President to execute
such contracts and agreements.
Section 7.04. Endorsement of Certificates for Shares. Unless
otherwise directed by the Board, any share or shares issued by any
corporation and owned by the Corporation (including reacquired shares of
the Corporation) may, for sale or transfer, be endorsed in the name of the
Corporation by the President, the Executive Vice-President or a Vice-
President, and the Secretary, when necessary or required, shall attest such
endorsement.
Section 7.05. Voting of Shares Owned by Corporation. Unless
otherwise directed by the Board, any share or shares issued by any other
corporation and owned or controlled by the Corporation may be voted at
any shareholders' meeting of such other corporation by the President of
the Corporation, or in his absence by the Executive Vice-President of the
Corporation. Whenever, in the judgment of the President, it is desirable
for the Corporation to execute a proxy or give a shareholder's consent in
respect to any share or shares issued by any other corporation and owned
by the Corporation, such proxy or consent shall be executed in the name
of the Corporation by the President or the Executive Vice-President of the
Corporation. Any person or persons designated in the manner above stated
as the proxy or proxies of the Corporation shall have full right, power and
authority to vote the share or shares issued by such other corporation and
owned by the Corporation in the same manner as such share or shares
might be voted by the Corporation.
Section 7.06. Limitation of Liability. The following provisions
apply with respect to liability on the part of a Director, a member of any
committee appointed by the Board (an "Appointed Committee"), Officer,
employee or agent of the Corporation (collectively, "Corporate Persons,"
and individually, a "Corporate Person") for any loss or damage suffered
on account of any action taken or omitted to be taken by a Corporate
Person:
(a) General Limitation. No Corporate Person shall be
liable for any loss or damage if, in taking or omitting to take any
action causing such loss or damage, either (1) such Corporate
Person acted (A) in good faith, (B) with the care an ordinarily
prudent person in a like position would have exercised under
similar circumstances, and (C) in a manner such Corporate Person
reasonably believed was in the best interests of the Corporation, or
(2) such Corporate Person's breach of or failure to act in
accordance with the standards of conduct set forth in Clause (a)(1)
above (the "Standards of Conduct") did not constitute willful
misconduct or recklessness.
(b) Reliance on Corporate Records and Other
Information. Any Corporate Person shall be fully protected, and
shall be deemed to have complied with the Standards of Conduct,
in relying in good faith, with respect to any information contained
therein, upon (1) the Corporation's records, or (2) information,
opinions, reports or statements (including financial statements and
other financial data) prepared or presented by (A) one or more
other Corporate Persons whom such Corporate Person reasonably
believes to be competent in the matters presented, (B) legal
counsel, public accountants or other persons as to matters that such
Corporate Person reasonably believes are within such person's
professional or expert competence, (C) an Appointed Committee,
of which such Corporate Person is not a member, if such
Corporate Person reasonably believes such Appointed Committee
merits confidence, or (D) the Board, if such Corporate Person is
not a Director and reasonably believes that the Board merits
confidence.
ARTICLE 8
Amendments
Section 8.01. Amendment of By-Laws. The power to make,
alter, amend or repeal these By-Laws is vested in the Board, but the
affirmative vote of a number of Directors equal to a majority of the
number who would constitute a full Board of Directors at the time of such
action shall be necessary to take any action for the making, alteration,
amendment or repeal of these By-Laws.
<PAGE> 19
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.
Price Waterhouse LLP, independent auditors, has been appointed by the Board of
Directors, 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 Price Waterhouse LLP report appears on page 23.
The Audit Committee of the Board of Directors is comprised of three outside
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 Vice President and
Chief Financial Officer
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
GENERAL
The Company's principal line of business is newspaper publishing. Revenues
are derived primarily from advertising and newspaper sales in the Phoenix,
Arizona and Indianapolis, Indiana metropolitan areas. The Company also has an
80% interest in the Westech group of companies, which is predominantly in the
jobs fair business and a 13.5% interest in Ponderay, a partnership formed to
own a newsprint mill in the State of Washington. The following analysis
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 seasonal, with peak revenues and profits
generally occurring in the second and fourth quarters of each year. The
results for 1997, 1996 and 1995 reflect these seasonal patterns. In addition,
the 1997 and 1996 fiscal years each included 52 weeks and fiscal year 1995
included 53 weeks.
RECENT EVENTS
In December 1997, the Board of Directors authorized additional repurchases of
up to $100.0 million of the Company's Class A common stock. The shares may be
purchased within the subsequent three years on the open market or in privately
negotiated transactions. This authorization replaces the March 19, 1996,
repurchase program under which 745,000 shares of Class A common stock had been
repurchased at a cost of approximately $33.2 million.
In June 1997, the Company completed the registration and resale of 2,354,733
shares of its Class A common stock priced at $64.125 per share. The shares
were sold by three non-profit beneficiaries of the estate of Enid Goodrich,
the widow of an original investor in the Company. No new shares were issued
in this transaction and the Company received no proceeds from the sale.
In May 1997, the Company repurchased an aggregate of 1,177,367 shares of its
Class A common stock from three non-profit organizations for total
consideration of $58.6 million.
In February 1997, the Company acquired 80% of Westech for $34.8 million.
Westech consists of Westech ExpoCorp., which organizes job fairs for the high
tech industry; High Technology Careers, which publishes High Technology
Careers Magazine and Virtual Job Fair (http://www.vjf.com), an internet-based
resume posting and research service; and JobsAmerica, which organizes job
fairs for service industry positions. Westech had $32.2 million of revenues
in 1997. In June 1997, Westech acquired the assets of Target Career Fairs, a
Boston-based company that organizes job fairs for the high-technology industry
in the eastern portion of the U.S., including the cities of Boston, Raleigh,
Orlando, Philadelphia and St. Louis. Target had 1996 revenues of
approximately $3 million.
In October 1997, the Company acquired an 80% interest in Home Buyer's Fair LLC
which provides internet based services and information for people who are
moving and corporations which are relocating employees. The Company has an
option to purchase the remaining 20%. The acquisition is not expected to have
a material impact on future earnings.
In January 1997, the Company ceased publication of its afternoon newspaper,
The Phoenix Gazette, and realigned the news gathering structure of its morning
newspaper, The Arizona Republic. These changes resulted in the Company
recording a one-time pre-tax charge to earnings of approximately $4.3 million
in 1997, and resulted in a reduction in operating expenses of approximately
$5.0 million in 1997 and anticipated ongoing annual operating expense savings
in future years of approximately $6.4 million. A substantial portion of the
savings were derived from the approximately 85 positions eliminated as a
result of these actions.
In January 1997, the Company acquired the remaining 9.8% of Indianapolis
Newspapers, Inc. ("INI") common stock that it did not already own. This
transaction, which was recorded using purchase accounting, was accomplished by
issuing the minority shareholders an aggregate of 1,892 shares of newly
created, non-voting, INI preferred stock with an aggregate stated value of
$18.9 million in exchange for the shares of INI common stock owned by them.
The preferred stock provides for aggregate annual dividends of $1.3 million on
a cumulative basis, is callable five years from the date of issuance by INI,
and is redeemable at any time by the shareholders of INI at the stated value
plus accrued but unpaid dividends. This transaction is not expected to have a
material effect on future earnings.
In March 1996, the Company purchased 100% of the outstanding common stock of
McCormick and Company, Inc. ("McCormick"), which owns the Alexandria Daily
Town Talk newspaper of Alexandria, Louisiana and McCormick Graphics, Inc., a
commercial printing subsidiary. The purchase price was approximately $62.0
million in cash. Since a significant portion of the purchase price was
allocated to intangible assets, the amortization of which is not deductible
for tax purposes, the Company's net income may be negatively impacted for
approximately three years from the date of acquisition. 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.
<PAGE> 20
RESULTS OF OPERATIONS
Fiscal 1997 was the fourth consecutive year of record revenues and profits for
the Company. Basic earnings per share for 1997 were $3.17, up $.86 from the
$2.31 reported in 1996. Basic earnings per share for 1996 increased $.28 from
the $2.03 earned in 1995. All three years included work force reduction
and/or asset impairment costs ("special charges") that negatively impacted
earnings. Basic earnings per share, adjusted to exclude these costs, would
have been $3.40 in 1997, $2.43 in 1996 and $2.11 in 1995. Diluted earnings
per share for 1997, 1996 and 1995 were $3.08, $2.28 and $2.01, and excluding
the special charges would have been $3.31, $2.39 and $2.09, respectively. The
results for 1995 include an additional week when compared with the 1997 and
1996 periods.
Operating income for 1997, 1996 and 1995 was $141.0 million, $99.9 million and
$85.9 million, respectively, rising 41.2% in 1997 and by 16.3% in 1996. The
1997 results include the effects of the Westech and McCormick acquisitions
(the "acquisitions"), while 1996 includes the acquisition of McCormick for ten
months. All three years include the effects of the special charges. EBITDA
for the three year period (excluding asset impairment and work force reduction
costs) increased each year to $193.1 million, $141.0 million and $117.7
million for 1997, 1996 and 1995, respectively.
Operating results, exclusive of special charges, acquisitions and the fifty-
third week of 1995:
(In millions)
Fiscal Year Ended
-----------------
1996-1997 1995-1996
1997 1996 1995 % change % change
------ ------ ------ -------- --------
Advertising revenue $521.0 $471.4 $439.3 10.5 7.3
Circulation revenue 139.2 131.0 127.2 6.3 3.0
Other revenue 4.5 3.0 3.7 50.0 (18.9)
------ ------ ------
Total revenue 664.7 605.4 570.2 9.8 6.2
------ ------ ------
Compensation 226.8 223.8 219.2 1.3 2.1
Newsprint and ink 101.2 110.1 107.9 (8.1) 2.0
Other operating costs 162.4 134.5 128.0 20.7 5.1
Depreciation and amortization 36.9 33.4 28.5 10.5 17.2
------ ------ ------
Total expenses 527.3 501.8 483.6 5.1 3.8
------ ------ ------
Operating income $137.4 $103.6 $ 86.6 32.6 19.6
====== ====== ======
Net income for 1997 was $81.5 million, up 32.4% over 1996's net income of
$61.5 million which increased 14.0% over 1995's net income of $54.0 million.
If the Company had not incurred the special charges, net income would have
been $87.5 million, $64.7 million and $56.2 million in 1997, 1996 and 1995,
respectively.
OPERATING REVENUES
The Company's operating revenues rose 15.4% in 1997 and 7.0% in 1996. These
comparisons include the effects of the acquisitions and the fifty-third week
of 1995. Excluding these items, operating revenues would have increased 9.8%
and 6.2%.
Total advertising revenues were $541.3 million in 1997, $479.5 million in 1996
and $446.7 million in 1995. The gains in 1997 and 1996 of 12.9% and 7.3%,
respectively, were both affected by the acquisitions and the 1995 to 1996
comparison was also impacted by the fifty-third week of 1995. Excluding these
items, comparable increases would have been 10.5% and 7.3%, 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:
(In thousands)
Full run linage in six column inches (1)
-----------------------------------------------------
1996-1997 1995-1996
1997 1996 1995 % change % change
By advertising category:
Retail 2,679.8 2,507.2 2,708.5 6.9 (7.4)
National 460.2 325.4 218.2 41.4 49.1
Classified 3,110.8 2,817.6 2,666.8 10.4 5.7
------- ------- -------
Total 6,250.8 5,650.2 5,593.5 10.6 1.0
======= ======= =======
By major market:
Phoenix 2,828.9 2,668.6 2,657.0 6.0 .4
Indianapolis 3,421.9 2,981.6 2,936.5 14.8 1.5
------- ------- -------
Total 6,250.8 5,650.2 5,593.5 10.6 1.0
======= ======= =======
Net advertising revenue $541,311 $479,474 $446,693 12.9 7.3
(1) For comparability, linage statistics for 1997, 1996 and 1995 exclude linage
of the Phoenix Gazette which ceased publication in January 1997.
Advertising revenue in 1997 increased primarily due to linage gains. Areas of
particular strength in 1997 included recruitment and national advertising in
both major markets. Advertising rates are adjusted at varying times
throughout the year and in varying amounts based upon local market conditions
for each type of advertising category.
Circulation revenues for 1997, 1996 and 1995 were $143.2 million, $134.1
million and $129.5 million, respectively for increases of 6.7% for the 1997
period and 3.6% for the 1996 period. The increase in 1997 was primarily a
result of a circulation distribution system change in Indianapolis (resulting
in a revenue increase of $10.7 million in 1997) and a September 1996 increase
in the single copy price (from $1.50 to $1.75) and home delivered price (from
$1.50 to $1.80) of the Sunday newspaper, both in Indianapolis. The last price
increases in Phoenix were in 1995. The closure of The Phoenix Gazette in
January 1997 did not have a significant impact on revenues since The Arizona
Republic gains in daily circulation in 1997 were greater than Gazette losses.
The combined average daily and Sunday circulation for Phoenix and Indianapolis
were:
(In millions)
Fiscal year ended 1996-1997 1995-1996
-----------------------
1997 1996 1995 % change % change
---- ---- ---- -------- --------
Combined Average Daily Circulation:
Phoenix 460,184 455,131 459,109 1.1 ( .9)
Indianapolis 271,712 285,355 300,990 (4.8) (5.2)
Sunday Average Circulation:
Phoenix 583,288 583,162 581,337 -- .3
Indianapolis 391,727 402,884 399,539 (2.8) .8
Other revenues increased $25.0 million in 1997 versus 1996 due primarily to
Westech's jobs fair business which was acquired in 1997.
OPERATING EXPENSES
Compensation costs, which include payroll and fringe benefits, increased 5.0%
to $239.8 million in 1997 and 2.5% to $228.3 million in 1996. Excluding the
acquisitions and the fifty-third week of 1995, compensation costs would have
increased 1.3% in 1997 and 2.1% in 1996. Headcount for 1997 compared with
1996 decreased approximately 3.7%, due primarily to the Indianapolis
circulation distribution system change and the closure of The Phoenix Gazette,
offset by increased headcount in the advertising, marketing and information
technology areas. Headcount decreased 2.8% in 1996 but compensation costs
increased due to the change in the discount rates used in the postretirement
and pension calculations and one-time labor costs associated with the move of
personnel in Phoenix to a new office building.
Newsprint and ink expense decreased 6.8% to $105.5 million in 1997 and
increased 2.8% to $113.2 million in 1996. Excluding the acquisitions and the
fifty-third week in 1995, newsprint expense would have decreased 8.1% for
1997 and increased 2.0% in 1996. The major factor in newsprint expense
fluctuations was decreasing prices throughout 1996 which leveled out in early
1997 and subsequent newsprint price increases over the last three quarters of
1997. Newsprint consumption for 1997, when compared with 1996, increased 6.8%
due to higher advertising linage in both major markets and to a new product
initiative targeting the southeast region of the Phoenix metropolitan area.
<PAGE> 21
Other operating costs for 1997, 1996 and 1995 were $177.8 million, $137.9
million and $129.4 million, respectively, representing a 1997 increase of
29.0% and a 1996 increase of 6.6%. Excluding the effects of the acquisitions,
and the fifty-third week of 1995, other operating costs would have increased
20.7% and 5.1%. Significant items contributing to the 1997 increase included
the change in the circulation delivery system in Indianapolis (which increased
1997 expense by $11.0 million), costs associated with a new Phoenix
promotional/marketing program, higher Arizona Republic delivery costs due to
increased circulation and computer system design enhancements. Items
contributing to the 1996 versus 1995 increase included operating duplicate
office facilities, implementation of a new client server computer system,
additional circulation costs and the opening of new distribution centers in
Phoenix.
Depreciation and amortization expense was $42.0 million, $35.5 million and
$28.5 million for 1997, 1996 and 1995, respectively. Excluding the
acquisitions, 1997 and 1996 depreciation and amortization expense would have
been $36.9 million and $33.4 million, for increases of 10.5% and 17.2%. The
1997 increase was primarily due to a new office building and client server
computer system in Phoenix and new distribution centers and inserting
equipment at both locations and the amortization of goodwill associated with
the acquisitions.
During 1996, the Company recognized asset impairment costs for a Phoenix
office building held for sale 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 in 1997 of $10.0 million.
Approximately $4.2 million resulted from the closure of The Phoenix Gazette
where approximately 85 positions were eliminated. The balance of the charges
relates to composing room and transportation work force reductions of 40
individuals and the conversion from the carrier-based work force to an agent-
based circulation arrangement, both in Indianapolis.
NON-OPERATING ITEMS
Other non-operating income (primarily investment income), was $4.3 million,
$5.5 million and $9.5 million for 1997, 1996 and 1995, respectively. The
decreases from year to year reflect the reduction in investable cash resulting
from the acquisitions and the repurchases of common stock. Other non-
operating expenses increased due to interest expense on short-term borrowings
used for the repurchase of common stock.
Income tax expense for 1997, 1996 and 1995 was $58.8 million, $42.4 million
and $38.0 million, respectively, reflecting effective tax rates of 41.1%,
40.8% and 40.5%, respectively. The increase in the effective tax rates was
the result of non-tax deductible goodwill associated with the acquisitions
offset, in part, by tax benefits received from filing a consolidated state
income tax return in Arizona.
EQUITY 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 and
related income tax expense or benefit. Ponderay's operating results include
interest expense on its long-term debt. Equity income (loss) from Affiliate,
net of tax, was $(.3) million, $1.7 million and $(.6) million in 1997, 1996
and 1995, respectively. These changes were mostly attributable to
fluctuations in newsprint prices realized by Ponderay over the respective
periods. Based upon current and anticipated 1998 newsprint pricing, Ponderay
is expected to report income in 1998. The Company does not anticipate making
additional cash investments in Ponderay during 1998. See further discussion
in Note 11 to the 1997 Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities is the Company's primary source of
liquidity. Net cash provided by operating activities for 1997, 1996 and 1995
was $153.8 million, $122.0 million and $62.3 million, respectively. Net cash
provided by operating activities, excluding the effects of net proceeds from
(or purchases of) trading securities for 1997, 1996 and 1995 was $142.2
million, $81.3 million and $79.9 million, respectively. Changes between all
years were primarily attributable to increases in earnings and/or changes in
working capital. The principal uses of cash in 1997 were the repurchases of
Class A common stock, acquisitions, capital expenditures and the payment of
dividends. As of December 28, 1997, the Company's available cash and
investments totaled $48.4 million, down $13.3 million from the end of 1996.
Working capital for the same period decreased $27.6 million to $64.7 million
due primarily to the use of a short-term credit facility for the repurchase of
common stock.
Total capital expenditures for 1997 were $25.1 million compared with $46.5
million for the comparable 1996 period. The Company plans approximately $30.0
million of capital expenditures in 1998. As of December 28, 1997, there were
no significant formal commitments related to future capital expenditures.
In December 1997, the Board of Directors authorized additional repurchases of
up to $100.0 million of the Company's Class A common stock. The shares may be
purchased within the subsequent three years on the open market or in privately
negotiated transactions. This authorization replaces the March 19, 1996
repurchase program under which 745,000 shares of Class A common stock had been
repurchased in 1997 and 1996 at a total cost of $33.2 million.
In May 1997, the Company repurchased 1,177,367 shares of its Class A common
stock (not related to the March 1996 authorized repurchase) from three non-
profit beneficiaries of the estate of Enid Goodrich. The aggregate $58.6
million transaction utilized existing cash and investments for part of the
repurchase with $39.4 million being obtained from a $60 million uncommitted,
unsecured short-term bank line of credit that the Company obtained May 8,
1997. As of December 28, 1997, $10.0 million remained outstanding under this
short-term bank line of credit.
In February 1997, the Company acquired Westech for approximately $34.8
million.
Dividends of $.80 per share on the Class A common stock and $.08 on the Class
B common stock were declared during the year. Total Class A and B dividends
paid during 1997 were $20.1 million.
The Company guarantees debt related to Ponderay which is discussed in Note 11
to the Consolidated Financial Statements.
The Company demonstrates 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 the use of equity.
<PAGE> 22
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
In 1996, the Company adopted 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 1996 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 elected
the pro forma disclosure provisions of this statement.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share," which established new standards in reporting
earnings per share. This standard is effective for reporting periods ending
after December 15, 1997, including interim periods, and therefore has been
adopted in this report by the Company. Earnings per share amounts for all
prior periods have been restated.
YEAR 2000 PLANS
In 1997, the Company instituted a program to analyze and evaluate all internal
systems, equipment and operations to ensure their year 2000 compliance. As of
December 28, 1997, phase one of this program was completed which included
reviewing all significant systems and equipment and documenting where
modifications are required. Phase two of this program, which is scheduled to
be completed by the end of 1998, includes prioritized system modification and
testing. The Company believes that it has fully quantified the total expense
of converting the systems, equipment and operations to be fully year 2000
compliant and the Company does not expect the costs to be material.
In addition, the Company has initiated a program to review year 2000
compliance by all major suppliers in order to determine any exposure to year
2000 issues. It is not anticipated that non-compliance to year 2000 concerns
by major vendors could have a material adverse effect on the Company.
OUTLOOK FOR 1998
The Company foresees continued growth in advertising revenues in 1998, but at
a rate less than that experienced during 1997. Despite the closure of The
Phoenix Gazette in January 1997 circulation revenue is also expected to
increase modestly in 1998 when compared with 1997 due to circulation gains in
Phoenix and circulation delivery changes in Indianapolis. Non-newsprint
operating expenses are expected to increase at a rate comparable with revenue
growth. The cost of newsprint expense, the second largest expense item, is
expected to increase significantly in 1998. Nonetheless, the Company still
expects net income to increase in 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. These forward-looking statements may be identified by use of words
such as "anticipate," "believe," or "expect" or derivations thereof. All
forward-looking statements are based upon information available to the Company
at the time they are made and the Company assumes no obligation to update any
forward-looking statements. The Company notes that a variety of factors could
cause the Company's actual results to differ materially from the expectations
expressed in the forward-looking statements. The risks and uncertainties that
may affect the operations, performance and results of the Company's business
include, but are not limited to:
* economic weakness in the Company's geographic markets
* weakness in retail and/or classified advertising revenue due to factors
including retail consolidations, declines in the advertising budgets of
major customers and increased competition from print and non-print
products
* declines in circulation due to changing reader preferences and/or new
forms of information dissemination
* fluctuations in the price of newsprint
* an increase in distribution and/or production costs over anticipated
levels
* the negative impact of issues related to labor agreements
* new competitors emerging in our markets
<PAGE> 23
Report of Independent Accountants
To the Board of Directors and Shareholders
of Central Newspapers, Inc.
In our opinion, the accompanying consolidated statement of financial position
and the related consolidated statements of income, shareholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Central Newspapers, Inc. and its subsidiaries at December 28, 1997, and the
results of their operations and their cash flows for the year in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audit. We
conducted our audit of these statements in accordance with generally accepted
auditing standards which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for the opinion expressed above. The
financial statements of Central Newspapers, Inc. for the two years ended
December 29, 1996, prior to restatement of earnings per share for the adoption
of Statement of Financial Accounting Standard No. 128, were audited by other
independent accountants whose report dated February 3, 1997 expressed an
unqualified opinion on those financial statements. We have audited the
adjustments that were applied to restate the 1995 and 1996 earnings per share.
In our opinion, such adjustments are appropriate and have been properly
applied to the 1995 and 1996 financial statements.
/s/ Price Waterhouse LLP
- ------------------------
Price Waterhouse LLP
Indianapolis, Indiana
February 2, 1998
<PAGE> 26
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED: Dec. 28 Dec. 29 Dec. 31
1997 1996 1995
------- ------- -------
(In thousands, except per share data)
Operating revenues:
Advertising $541,311 $479,474 $446,693
Circulation 143,153 134,133 129,537
Other 31,673 6,708 3,671
-------- -------- --------
716,137 620,315 579,901
-------- -------- --------
Operating expenses:
Compensation 239,783 228,316 222,748
Newsprint and ink 105,467 113,171 110,085
Other operating costs 177,829 137,875 129,362
Depreciation and amortization 42,022 35,528 28,487
Asset impairment cost 4,226
Work force reduction cost 9,999 1,340 3,328
------- ------- -------
575,100 520,456 494,010
------- ------- -------
Operating income 141,037 99,859 85,891
Other income
(principally investment income) 4,318 5,486 9,502
Other expenses (2,166) (1,477) (1,348)
------- ------- -------
Income before income taxes 143,189 103,868 94,045
Provision for income taxes 58,797 42,431 38,048
------- ------- -------
Income before minority interest and
equity in Affiliate 84,392 61,437 55,997
Minority interests in subsidiaries (2,566) (1,629) (1,409)
Equity in net earnings (loss)
of Affiliate (331) 1,726 (590)
-------- -------- --------
Net income $ 81,495 $ 61,534 $ 53,998
======== ======== ========
Net income per common share:
Basic $ 3.17 $ 2.31 $ 2.03
Diluted 3.08 2.28 2.01
Average common shares outstanding:
Basic 25,732 26,619 26,651
Diluted 26,473 27,038 26,869
See accompanying notes to consolidated financial statements.
<PAGE> 24
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(In thousands)
Dec. 28 Dec. 29
1997 1996
------- -------
ASSETS
Current assets:
Cash and cash equivalents $ 36,924 $ 36,149
Marketable securities 11,524 25,612
Accounts receivable (net of allowances of
$2,959 and $1,638) 89,707 90,023
Inventories 10,320 8,912
Deferred income taxes 7,919 7,263
Other current assets 5,712 3,503
------- -------
Total current assets 162,106 171,462
------- -------
Property, plant and equipment:
Land 18,616 18,225
Buildings and improvements 122,409 121,785
Leasehold improvements 4,412 4,255
Machinery and equipment 383,626 367,173
Construction in progress 8,071 1,414
------- -------
537,134 512,852
Less accumulated depreciation 250,451 215,872
------- -------
286,683 296,980
------- -------
Other assets:
Land held for development 3,116 3,118
Goodwill and other intangibles 122,729 75,449
Investment in Affiliate 8,321 8,867
Other 31,356 31,096
-------- --------
165,522 118,530
-------- --------
TOTAL ASSETS $614,311 $586,972
======== ========
See accompanying notes to consolidated financial statements.
<PAGE> 25
(In thousands, except share data) Dec. 28 Dec. 29
1997 1996
------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 19,672 $ 19,079
Short-term bank debt 10,000
Accrued compensation 20,061 17,052
Dividends payable 5,613 5,180
Accrued expenses and other liabilities 16,825 13,914
Federal and state income taxes 1,578 5,880
Deferred revenue 23,618 18,034
------- -------
Total current liabilities 97,367 79,139
------- -------
Deferred income taxes 26,882 26,602
------- -------
Long-term debt 2,678
------- -------
Postretirement and other
noncurrent liabilities 86,997 81,759
------- -------
Minority interests in subsidiaries 1,866 9,244
------- -------
Redeemable preferred stock issued
by subsidiary 18,920
------- -------
Shareholders' equity:
Preferred stock--issuable in series:
Authorized--25,000,000 shares
Issued--none
Class A common stock--without par value:
Authorized--75,000,000 shares
Issued and outstanding 22,017,626
and 23,237,711 shares 29,934 24,259
Class B common stock--without par value:
Authorized--50,000,000 shares
Issued and outstanding--31,345,500
and 31,553,000 shares 63 63
Retained earnings 352,531 363,365
Unamortized value of restricted stock (1,924) (1,627)
Unrealized gain on
available-for-sale securities 1,675 1,490
-------- --------
382,279 387,550
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $614,311 $586,972
======== ========
See accompanying notes to consolidated financial statements.
<PAGE>27
<TABLE>
CENTRAL NEWSPAPERS, INC.
Consolidated Statement of Shareholders' Equity
<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 26, 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 52,500 1,903 $(1,903)
Amortization of restricted stock 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
Net income (52 weeks) 81,495
Dividends declared:
Class A common stock (17,866)
Class B common stock (2,512)
Exercise of stock options, net 174,432 6,144
Repurchase of Class A common stock (1,432,267) (1,600) (71,852)
Repurchase of Class B common stock (17,500) (99)
Issuance of restricted stock, net
of cancellations 18,750 1,131 (1,131)
Amortization of restricted stock 834
Common stock conversion 19,000 (190,000)
Change in net unrealized gain on
available-for-sale securities 185
---------- ------- ---------- ------- -------- ----------- ----------
BALANCE AT DECEMBER 28, 1997 22,017,626 $29,934 31,345,500 $63 $352,531 ($1,924) $1,675
========== ======= ========== ======= ======== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 28
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
FOR THE YEAR ENDED: Dec. 28 Dec. 29 Dec. 31
1997 1996 1995
------- ------- -------
Operating activities:
Net income $ 81,495 $ 61,534 $ 53,998
Items which did not use (provide) cash:
Depreciation and amortization 42,022 35,528 29,281
Postretirement and pension benefits 6,593 2,050 2,072
Asset impairment cost 4,226
Unrealized gain (loss) on
trading securities 96 821 (1,009)
Minority interests in subsidiaries
earnings 2,566 1,629 1,409
Equity in Affiliate earnings (loss) 331 (1,864) 540
Deferred income taxes (583) (1,543) 1,791
Other 2,299 634 357
Change in current assets and liabilities:
Net proceeds from (purchases of)
trading securities 11,631 40,671 (17,630)
Accounts receivable 2,985 (26,320) (7,730)
Inventories (1,409) 1,835 (983)
Other current assets (1,826) 2,363 (1,429)
Accounts payable 1,606 (1,041) 1,056
Accrued compensation 2,935 (317) 749
Accrued expenses and other liabilities 949 (1,617) (4,869)
Federal and state income taxes (1,905) 3,338 1,739
Deferred revenue 4,038 88 2,941
------- ------- ------
Net cash provided by operating
activities 153,823 122,015 62,283
Investing activities:
Purchases of property, plant and equipment (25,135) (46,530) (58,676)
Proceeds from disposition of assets 407 1,975 2,452
Purchases of available-for-sale securities (24,659) (76,726)
Proceeds from available-for-sale securities 2,057 62,243 99,051
Acquisitions (44,219) (60,509)
Other (3,816) (5,557) (8,564)
------- ------- ------
Net cash used by investing activities (70,706) (73,037) (42,463)
------- ------- -------
Financing activities:
Cash dividends paid (20,111) (18,647) (15,724)
Dividends paid to minority interest (1,159) (989) (678)
Proceeds from exercise of stock options 3,279 2,882 619
Borrowings of short-term debt 39,400
Repayments of short-term debt (29,400)
Repayments of long-term debt (800) (4,200)
Repurchases of common stock (73,551) (18,017)
------- ------- -------
Net cash used by financing activities (82,342) (38,971) (15,783)
------- ------- -------
Increase in cash and cash equivalents 775 10,007 4,037
Cash and cash equivalents,
beginning of period 36,149 26,142 $ 22,105
-------- -------- --------
Cash and cash equivalents, end of period $ 36,924 $ 36,149 $ 26,142
======== ======== ========
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 62,172 $ 40,798 $ 34,492
Interest paid 1,706 615 215
See accompanying notes to consolidated financial statements.
<PAGE> 29
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 an 80% interest in the Westech group of companies
which are predominantly 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 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 1997 and 1996 included fifty-
two weeks and fiscal year 1995 included fifty-three weeks.
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. Amortization expense amounted to
$4,945,000 in 1997, $1,928,000 in 1996 and $794,000 in 1995.
Accumulated amortization was $9,130,000 and $4,185,000 at the end
of 1997 and 1996, respectively.
The Company reviews goodwill and other intangibles for impairment
whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. If the undiscounted
expected future cash flows from use of the asset are less than its
carrying value, an impairment loss would be recognized.
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 the 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 - In February 1997, the Financial
Accounting Standards Board issued 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 has adopted this new standard in 1997 and has
restated EPS for all prior periods.
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 ten shares of Class B common stock to one share of Class A
common stock.
Diluted EPS includes the effect of stock options granted under the
Company's Stock Compensation Plan.
Accounting Changes - The Company adopted 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 in 1996 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. The
Company has elected to continue to use existing methods for
recognizing the expense of these plans and provide pro forma
disclosures in the financial statements and EPS using the fair
value method prescribed in the statement.
Reclassifications - Certain amounts in the financial statements
have been reclassified to conform to the 1997 presentation.
<PAGE> 30
2--BASIC AND DILUTED EARNINGS PER SHARE
The following is a reconciliation of the numerators and
denominators of the basic and diluted EPS computations as required
by SFAS No. 128, "Earnings Per Share":
(In thousands, except per share data)
1997 1996 1995
---- ---- ----
Basic EPS Computation:
Numerator (Net income) $81,495 $61,534 $53,998
------- ------- -------
Denominator:
Average common shares outstanding 25,732 26,619 26,651
------- ------- -------
Basic EPS $ 3.17 $ 2.31 $ 2.03
======= ======= =======
Diluted EPS Computation:
Numerator (Net income) $81,495 $61,534 $53,998
------- ------- -------
Denominator:
Average common shares outstanding 25,732 26,619 26,651
Stock options 741 419 218
------- ------- -------
Total 26,473 27,038 26,869
------- ------- -------
Diluted EPS $ 3.08 $ 2.28 $ 2.01
======= ======= =======
3--ACQUISITIONS, REDEEMABLE PREFERRED STOCK AND STOCK REPURCHASES
In February 1997, the Company acquired 80% of the Santa Clara,
California based Westech group of companies for $34,800,000. The
transaction was recorded using purchase accounting. The group,
which had 1997 sales of $32,200,000 includes Westech ExpoCorp.,
which organizes job fairs for the high technology industry, High
Technology Careers, which publishes High Technology Careers
Magazine and Virtual Job Fair, an internet-based resume posting and
research service and JobsAmerica, which organizes job fairs for
service industry positions. The transaction generated $32,400,000
of goodwill which is being amortized on a straight line basis over
15 years. In June, 1997, Westech acquired the assets of Target
Career Fairs, a Boston-based company that organizes job fairs for
the high technology industry in the eastern portion of the U.S.,
including the cities of Boston, Raleigh, Orlando, Philadelphia and
St. Louis. Target had 1996 revenues of approximately $3,000,000.
The Company has an option to purchase the remaining 20%.
In January 1997, the Company acquired the remaining 9.8% of
Indianapolis Newspapers, Inc. ("INI") common stock that it did not
already own. This transaction was accomplished by issuing to the
minority shareholders an aggregate of 1,892 shares of newly
created, non-voting, INI preferred stock, with an aggregate stated
value of $18,920,000 in exchange for the shares of INI common stock
owned by them. The preferred stock provides for aggregate annual
dividends of $1,324,000 on a cumulative basis, is callable in five
years by INI, and is redeemable at any time by the shareholders of
INI at the stated value plus accrued but unpaid dividends. The
total acquisition consideration of $18,920,000 was accounted for
using the purchase method of accounting. This transaction resulted
in goodwill of $8,468,000 and a reduction of the minority interest
of $9,244,000.
In March 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 December 1997, the Board of Directors authorized the repurchase
of up to $100,000,000 of the Company's Class A common stock. The
shares may be purchased within the subsequent three years on the
open market or in privately negotiated transactions. This
authorization replaces the March 19, 1996 repurchase program under
which 745,000 shares of Class A common stock had been repurchased
at a cost of approximately $33,200,000.
In May 1997, the Company repurchased an aggregate of 1,177,367
shares of the Company's Class A common stock from three non-profit
organizations for total consideration of $58,600,000.
In October 1997, the Company acquired an 80% interest in Home
Buyer's Fair LLC which provides internet based services and
information for people who are moving and corporations which are
relocating employees. The Company has an option to purchase the
remaining 20%.
<PAGE> 31
4--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 and preferred stock 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 28, 1997:
(In thousands)
Gross Gross
Amortized Unrealized Unrealized Fair
Available-for-Sale Securities Cost Gains Losses Value
- ----------------------------- --------- ---------- -------- --------
Equity securities $ 128 $ 2,794 $ 2,922
Other 283 283
--------- ----------- -------- --------
411 2,794 3,205
--------- ----------- -------- --------
Trading Securities
- ------------------
Preferred stock 10,945 118 $ (8) 11,055
Other 204 (18) 186
---------- ---------- -------- --------
11,149 118 (26) 11,241
---------- ---------- -------- --------
$ 11,560 $ 2,912 $ (26) $ 14,446
========== ========== ======== ========
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
======== ======= ======== ========
Included in the Company's earnings for 1997, 1996 and 1995 were
changes in net unrealized holding gains (losses) of $96,000,
$(821,000) and $1,009,000, respectively, from trading investments.
Proceeds from the sale of available-for-sale investments totaled
approximately $2,057,000, $62,243,000 and $99,051,000 in 1997, 1996
and 1995. Gross realized gains and losses for 1997, 1996 and 1995
on available-for-sale investments based upon the specific
identification method, were insignificant. The fair value of equity
securities in the amounts of $2,922,000 in 1997 and $3,246,000 in
1996 have been classified with other noncurrent assets.
<PAGE> 32
5--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) 1997 1996
---- ----
Actuarial present value of plan benefits:
Vested $209,591 $195,864
Nonvested 10,190 9,941
-------- --------
Accumulated benefit obligation 219,781 205,805
Effect of future salary increases 14,775 11,335
-------- --------
Projected benefit obligation 234,556 217,140
Plan assets at fair value 279,734 241,397
-------- --------
Plan assets in excess of projected
benefit obligation 45,178 24,257
Unrecognized SFAS No. 87 transition asset (4,981) (6,265)
Unrecognized prior service cost 2,792 3,236
Unrecognized net gain (39,559) (14,226)
-------- --------
Prepaid pension cost $ 3,430 $ 7,002
======== ========
Assumptions used in determining funded status at the end of 1997
were a 9% rate of return, 7.25% discount rate and a 4% rate of
compensation increase. The assumptions for 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.
Pension expense included the following components:
(In thousands) 1997 1996 1995
Service cost--benefits earned during the year $ 6,572 $ 6,861 $ 4,904
Interest cost on projected benefit obligation 16,437 14,575 14,116
Return on assets:
Actual (53,472) (35,418) (48,898)
Deferred gain 34,885 18,274 33,542
Amortization of:
Transition asset (1,283) (1,283) (1,283)
Prior service cost 444 444 444
(Gain) loss (11) 39 (10)
-------- ------- -------
Pension expense $ 3,572 $ 3,492 $ 2,815
======== ======= =======
Significant assumptions used in determining pension expense:
1997 1996 1995
---- ---- ----
Expected long-term rate of return 9.0% 9.0% 9.0%
Discount rate 7.50 7.00 8.75
Rate of increase in future compensation levels 4.0 4.0 5.0
The Company has a wage deferral plan qualified under Section 401(k)
of the Internal Revenue Code that covers all eligible employees.
Company matching contributions to this plan were $4,517,000,
$4,600,000, and $4,397,000 for 1997, 1996 and 1995.
<PAGE> 33
6--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) 1997 1996
---- ----
Accumulated postretirement benefit obligation:
Retirees $51,096 $55,048
Fully eligible active plan participants 14,828 14,340
Other active plan participants 21,704 20,511
------- -------
Total accumulated postretirement benefit obligation 87,628 89,899
Unrecognized prior service cost 1,189 2,957
Unrecognized net loss (1,330) (8,198)
------- -------
Accrued postretirement benefit obligation $87,487 $84,658
======= =======
The net postretirement benefit cost included the following
components:
1997 1996 1995
---- ---- ----
Service cost--benefits earned
during the year $3,185 $2,859 $1,941
Interest cost on accumulated
benefit obligation 6,091 5,974 5,387
Amortization of unrecognized
prior service cost (1,947) (1,927) (1,927)
Amortization of loss (gain) 38 128 (241)
------ ------ ------
Postretirement benefit expense $7,367 $7,034 $5,160
====== ====== ======
The accumulated postretirement benefit obligation was determined
using a discount rate of 7.25% and a health care cost trend rate of
7% in 1997 decreasing to 5% in the year 2000 and thereafter.
Discount rates used for 1996 and 1995 were 7.5% and 7.0%,
respectively. The effect of a 1% increase each year in the health
care cost trend rate, would result in an increase of approximately
$8,089,000 in the accumulated postretirement benefit obligation at
the end of 1997 and $1,121,000 in the aggregate service and interest
components of the 1997 expense.
7--WORK FORCE REDUCTION
The Company has reduced its work force in response to The Phoenix
Gazette closure, changes in distribution methods in Indianapolis,
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, carrier conversion incentives, agency signing bonuses and
professional support.
8--OTHER INCOME AND OTHER EXPENSES
(In thousands) 1997 1996 1995
---- ---- ----
Income items:
Interest $ 2,598 $5,196 $7,213
Change in unrealized gain on
trading securities (96) (821) 1,009
Gain on disposition of assets 90 72
Dividends 830 960 572
Other 896 79 708
------- ------ ------
Total $ 4,318 $5,486 $9,502
======= ====== ======
Expense items:
Interest 1,710 618 238
Loss on disposition of assets 56 463 357
Other 400 396 753
------- ------ ------
Total $ 2,166 $1,477 $1,348
======= ====== ======
<PAGE> 34
9--INCOME TAXES
The provision for income taxes, exclusive of tax effects from equity
in earnings of Affiliate, consisted of:
(In thousands) 1997 1996 1995
---- ---- ----
State:
Currently payable $10,903 $ 8,007 $ 7,347
Deferred (60) (301) 354
------- ------- -------
10,843 7,706 7,701
------- ------- -------
Federal:
Currently payable 48,477 35,967 28,910
Deferred (523) (1,242) 1,437
------- ------- -------
47,954 34,725 30,347
------- ------- -------
Provision for income taxes $58,797 $42,431 $38,048
======= ======= =======
Components of net deferred income tax liability:
(No valuation allowance required)
(In thousands) 1997 1996 1995
---- ---- ----
Depreciation $57,796 $55,533 $53,520
Pension 2,878 2,490 562
Other 1,933 1,647 1,731
------- ------- -------
Gross deferred tax liability 62,607 59,670 55,813
------- ------- -------
Postretirement benefits (35,488) (33,938) (33,124)
Vacation (3,767) (3,995) (3,857)
Other (4,351) (2,398) (2,596)
------- ------- -------
Gross deferred tax asset (43,606) (40,331) (39,577)
------- ------- -------
Net deferred income tax liability $19,001 $19,339 $16,236
Reconciliation of the U.S. federal statutory tax rate to the
effective tax rate:
(In thousands) 1997 1996 1995
-------------- -------------- --------------
Federal statutory tax rate $50,116 35.0% $36,354 35.0% $32,916 35.0%
State taxes net of federal
tax effect 7,048 5.0 5,009 4.8 5,006 5.3
Goodwill and other 1,633 1.1 1,068 1.0 126 .2
------- ---- ------- ---- ------- ----
Provision for income taxes $58,797 41.1% $42,431 40.8% $38,048 40.5%
======= ==== ======= ==== ======= ====
10--INVENTORIES
Newsprint inventory, valued at LIFO, amounted to $7,710,000 and
$6,455,000 at the end of 1997 and 1996. If the FIFO inventory
valuation method had been exclusively used for newsprint, the value
would have been $5,139,000 and $3,352,000 higher, respectively.
Other inventories, consisting primarily of newspaper production
supplies, amounted to $2,610,000 and $2,457,000 at the end of 1997
and 1996.
11--INVESTMENT IN AFFILIATE
The Company, through its subsidiaries, has a 13.5% partnership
interest in Ponderay Newsprint Company, which was formed to own a
newsprint mill in the State of 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 1997 and 1996, $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 28,400
metric tons on a "take if tendered" basis until the debt is repaid. Newsprint
purchased from Ponderay amounted to $23,735,000 during 1997 and $22,177,000
during 1996.
<PAGE> 35
Summarized financial data for Affiliate:
(In thousands) 1997 1996 1995
---- ---- ----
Results of operations:
Net sales $131,330 $160,979 $151,690
Net income (loss) (4,040) 22,399 (4,666)
Financial position:
Current assets $ 22,150 $ 17,934 $ 27,881
Property and equipment, at cost--net 250,038 263,013 278,224
Other assets 2,433 3,098 3,457
-------- -------- --------
$274,621 $284,045 $309,562
======== ======== ========
Current liabilities $ 29,018 $ 18,336 $ 37,252
Long-term debt ($125 million
guaranteed by partners) 183,982 200,048 229,048
Partners' capital 61,621 65,661 43,262
-------- -------- --------
$274,621 $284,045 $309,562
======== ======== ========
Summary of the Company's investment in Affiliate:
(In thousands) 1997 1996 1995
---- ---- ----
Investment, beginning of year $ 8,867 $ 5,843 $ 3,989
Equity in partnership income (loss) (546) 3,024 (630)
Additional investments 2,484
------- ------- -------
Investment, end of year $ 8,321 $ 8,867 $ 5,843
======= ======= =======
Equity in Affiliate:
Equity in partnership income (loss) $ (546) $ 3,024 $ (630)
Current income tax expense (377) (1,425) (606)
Deferred tax benefit 593 265 696
Other (1) (138) (50)
------- ------- --------
Equity in net earnings (loss)
of Affiliate $ (331) $ 1,726 $ (590)
======= ======= =======
12--SHORT-TERM BORROWINGS AND LONG-TERM DEBT
In May 1997, the Company entered into a $60,000,000 unsecured,
uncommitted, short-term credit agreement of which $39,400,000 was
drawn to partially fund the repurchase of stock. As of December 28,
1997, $10,000,000 remained outstanding on the short-term credit
agreement at an annual interest rate of approximately 6%.
Included in accrued expenses and other liabilities is the $2,678,000
amount relating to the fifty-year 4 1/2% debentures due December 1,
1998. The trust indenture 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 expense on these facilities and other debt amounted to
$1,710,000 in 1997, $347,000 in 1996 and $121,000 in 1995.
13--RENTAL EXPENSE AND LEASE COMMITMENTS
Rental expense for 1997, 1996 and 1995 amounted to $5,532,000,
$5,000,000 and $4,429,000. Future obligations for minimum annual
rentals under noncancelable long-term leases are not significant.
<PAGE> 36
14--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 28, 1997, the Company has
reserved 2,400,537 shares of Class A common stock for issuance under
its Stock Compensation Plan, 500,000 shares for issuance under its
401(k) plan and 3,134,550 shares for issuance upon conversion of
Class B common stock.
Dividends declared per share: 1997 1996 1995
---- ---- ----
Class A common stock $.80 $.72 $.62
Class B common stock .080 .072 .062
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 Stock Option 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 25, 1994 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 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 1997,
1996 and 1995 was estimated on the grant date using the Black-
Scholes option pricing model using the following assumptions:
1997 1996 1995
---- ---- ----
Risk-free interest rates 6.2% 6.5 - 6.6% 6.0 - 7.0%
Dividend yields 1.2% 2.0% 2.0%
Expected volatility 29.0% 27.0% 27.0%
Weighted average expected
life of options 4 years 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:
1997 1996 1995
---- ---- ----
(In thousands, except per share data)
Net income:
As reported $ 81,495 $ 61,534 $ 53,998
Pro forma 79,656 60,316 53,543
Earnings per share:
As reported
Basic $ 3.17 $ 2.31 $ 2.03
Diluted 3.08 2.28 2.01
Pro forma
Basic 3.10 2.27 2.00
Diluted 3.01 2.23 1.99
<PAGE> 37
The following is a summary of the status of the Company's Stock
Compensation Plan as of and for the three years ended December 28,
1997:
Weighted
Average Per Share
Shares Shares -----------------
Reserved Under Exercise Market
For Grants Option Price Price
---------- ------ ------------------
Outstanding, December 25, 1994 2,055,950 868,450 $21.34 $27.13
Additional reserved 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 ---
Restricted Shares (52,500)
--------- ---------
Outstanding, December 29, 1996 2,595,900 1,483,900 27.63 42.88
Granted 123,975 48.45 48.45
Exercised (176,613) (176,613) 21.53 59.44
Restricted shares-net (18,750)
Cancelled (10,050) 32.16 ---
--------- ---------
Outstanding, December 28, 1997 2,400,537 1,421,212 30.18 70.06
========= =========
The following table summarizes information about stock options
outstanding at December 28, 1997:
Outstanding Exercisable
------------------------------------- --------------------
Weighted Weighted
Average Average
Exercise Average Exercise Exercise
Price Range Shares Life(a) Price Shares Price
- ----------- ------ ------ ----- ------ -----
$15.00 - $24.99 476,950 5.1 $22.53 476,950 $22.53
$25.00 - $34.99 504,000 7.6 28.41 6,000 30.22
$35.00 - $44.99 316,837 8.6 37.37 72,817 37.75
$45.00 - $54.99 114,425 9.2 46.57 4,000 51.75
$55.00 - $74.99 9,000 9.8 72.50 -- --
--------- -------
1,421,212 7.1 30.18 559,767 24.81
========= =======
(a) Weighted average contractual life remaining in years
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 19,250 shares and 52,500 shares of Class A common stock in
1997 and 1996, respectively, 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 or upon 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 1997 and 1996, compensation expense
in the amount of $834,000 and $276,000, respectively, has been
recorded related to these restricted stock grants.
15--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 Ponderay debt. The carrying value approximates the guaranteed
amount.
16--CONTINGENCIES
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.
<PAGE>
<TABLE>
<PAGE> 38
TEN-YEAR FINANCIAL HIGHLIGHTS
Central Newspapers, Inc. and Subsidiaries
<CAPTION>
Growth Rates
------------------------------
Compounded Annual Dec. 28 Dec. 29 Dec. 31 Dec. 25
10-Year 5-Year 1-Year 1997 1996 1995 1994
(In thousands, except share data) 1987-97 1992-97 1996-97 52 Weeks 52 Weeks 53 Weeks 52 Weeks
<C> <C> <C> <C> <C> <C> <C>
Summary of Operations
Operating revenues 5.9% 10.6% 15.4% $716,137 $620,315 $579,901 $519,702
Operating expenses 5.1% 8.5% 10.5% 575,100 520,456 494,010 443,972
--------------------------------------------
Operating income 10.5% 22.2% 41.2% 141,037 99,859 85,891 75,730
Other income - net 2,152 4,009 8,154 4,965
--------------------------------------------
Income before income taxes 9.6% 22.1% 37.9% $143,189 $103,868 $94,045 $80,695
Income before minority interest and
equity in Affiliate 9.8% 22.0% 37.4% $84,392 $61,437 $55,997 $47,848
============================================
Income before cumulative effect of
accounting change 10.7% 28.4% 32.4% $81,495 $61,534 $53,998 $41,321
Cumulative effect of accounting change
--------------------------------------------
Net income (loss) 9.5% NM 32.4% $81,495 $61,534 $53,998 $41,321
============================================
Cash Flow Data (a)
Provided by operating activities (e) 13.5% 17.9% 26.1% $153,823 $122,015 $62,283 $41,897
Effect of trading securities (11,631) (40,671) 17,630 45,682
Capital spending -1.2% -0.8% -46.0% (25,135) (46,530) (58,676) (23,256)
--------------------------------------------
Operating free cash flow 23.0% 23.1% 236.2% $117,057 $34,814 $21,237 $64,323
============================================
Dividends paid 9.0% 13.1% 7.9% $20,111 $18,647 $15,724 $13,308
Earnings before interest, income taxes,
depreciation and amortization ("EBITDA")(b) 11.6% 20.2% 37.0% $193,058 $140,953 $117,706 $109,433
Class A Share Data and Other Share Information
Basic income per share before cumulative
effect of accounting change 11.2% 29.2% 37.2% $3.17 $2.31 $2.03 $1.55
Cumulative effect of accounting change
--------------------------------------------
Basic income (loss) per share 9.9% NM 37.2% $3.17 $2.31 $2.03 $1.55
============================================
Diluted income per share before cumulative
effect of accounting change 10.8% 28.5% 35.1% $3.08 $2.28 $2.01 $1.54
Cumulative effect of accounting change
--------------------------------------------
Diluted income (loss) per share 9.6% NM 35.1% $3.08 $2.28 $2.01 $1.54
============================================
Dividends declared 9.4% 13.8% 11.1% $0.80 $0.72 $0.62 $0.52
Book value per share at year-end 6.6% 8.4% 3.5% $15.20 $14.68 $13.45 $12.00
Market price per share at year-end 25.8% 63.4% $70.063 $42.875 $31.375 $27.125
Class A common equivalent shares at year-end 25,152,176 26,393,011 26,675,911 26,638,300
Average shares outstanding used to
calculate basic income (loss) per share (c) 25,731,737 26,619,136 26,651,007 26,621,133
Average shares outstanding used to
calculate diluted income (loss) per share (c) 26,472,924 27,037,714 26,868,972 26,824,989
Balance Sheet Data
Total assets 7.4% 7.3% 4.7% $614,311 $586,972 $547,204 $500,444
Working capital -4.9% -6.5% -29.9% 64,739 92,323 137,818 132,907
Long-term debt 2,678 2,678 2,678
Redeemable preferred stock issued
by subsidiary 18,920
Shareholders' equity 6.0% 7.2% -1.4% 382,279 387,550 358,741 319,762
Ratios
Return on average shareholders' equity (d) 21.17% 16.49% 15.92% 13.54%
EBITDA as a percentage of operating revenues (b) 26.96% 22.72% 20.30% 21.06%
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 28, 1997
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 Notes #1 and #2 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 change.
(e) Amounts for 1997, 1996, 1995 and 1994 include the effects of trading securities on cash flows provided by operating activities.
NM Not Meaningful
</TABLE>
<PAGE> 39
<TABLE>
TEN-YEAR FINANCIAL HIGHLIGHTS
Central Newspapers, Inc. and Subsidiaries
Dec. 26 Dec. 27 Dec. 29 Dec. 30 Dec. 31 Dec. 25
1993 1992 1991 1990 1989 1988
(In thousands, except share data) 52 Weeks 52 Weeks 52 Weeks 52 Weeks 53 Weeks 52 Weeks
<S> <C> <C> <C> <C> <C> <C>
Summary of Operations
Operating revenues $466,567 $433,600 $420,351 $431,659 $436,228 $417,608
Operating expenses 400,945 381,937 372,609 378,894 376,300 372,186
--------------------------------------------------------------------
Operating income 65,622 51,663 47,742 52,765 59,928 45,422
Other income - net 2,417 1,111 3,735 8,963 8,389 5,918
--------------------------------------------------------------------
Income before income taxes $68,039 $52,774 $51,477 $61,728 $68,317 $51,340
Income before minority interest and
equity in Affiliate $40,091 $31,283 $30,685 $35,915 $40,569 $32,429
====================================================================
Income before cumulative effect of
accounting change $32,128 $23,358 $25,903 $28,283 $38,467 $29,256
Cumulative effect of accounting change (34,212)
---------------------------------------------------------------------
Net income (loss) $32,128 ($10,854) $25,903 $28,283 $38,467 $29,256
=====================================================================
Cash Flow Data (a)
Provided by operating activities (e) $73,732 $67,634 $55,787 $58,965 $65,924 $44,973
Effect of trading securities
Capital spending (16,049) (26,175) (82,067) (50,178) (27,208) (25,036)
---------------------------------------------------------------------
Operating free cash flow $57,683 $41,459 ($26,280) $8,787 $38,716 $19,937
=====================================================================
Dividends paid $11,956 $10,870 $10,598 $10,267 $12,678 $8,418
Earnings before interest, income taxes,
depreciation and amortization ("EBITDA")(b) $92,923 $76,884 $68,357 $70,749 $74,836 $66,978
Class A Share Data and Other Share Information
Basic income per share before cumulative
effect of accounting change $1.21 $0.88 $0.98 $1.07 $1.45 $1.10
Cumulative effect of accounting change ($1.29)
---------------------------------------------------------------------
Basic income (loss) per share $1.21 ($0.41) $0.98 $1.07 $1.45 $1.10
=====================================================================
Diluted income per share before cumulative
effect of accounting change $1.20 $0.88 $0.98 $1.07 $1.45 $1.10
Cumulative effect of accounting change ($1.29)
---------------------------------------------------------------------
Diluted income (loss) per share $1.20 ($0.41) $0.98 $1.07 $1.45 $1.10
=====================================================================
Dividends declared $0.46 $0.42 $0.40 $0.40 $0.325 $0.325
Book value per share at year-end $10.93 $10.17 $10.98 $10.40 $9.74 $8.66
Market price per share at year-end $27.625 $22.250 $18.875 $16.875 $22.750 ---
Class A common equivalent shares at year-end26,589,250 26,549,750 26,497,250 26,494,250 26,494,250 26,604,250
Average shares outstanding used to
calculate basic income (loss) per share 26,570,973 26,514,750 26,495,961 26,494,250 26,517,800 26,656,300
Average shares outstanding used to
calculate diluted income (loss) per share 26,706,479 26,599,647 26,520,742 26,495,731 26,517,800 26,656,300
Balance Sheet Data
Total assets $464,688 $432,872 $403,627 $383,758 $356,103 $321,809
Working capital 127,999 90,488 70,217 122,710 134,755 116,192
Long-term debt 2,678 2,678 2,678 2,678 2,678 2,678
Redeemable preferred stock issued
by subsidiary
Shareholders' equity 290,693 269,997 290,982 275,623 257,938 230,316
Ratios
Return on average shareholders' equity (d) 11.46% 8.33% 9.14% 10.60% 15.76% 13.18%
EBITDA as a percentage of operating revenue 19.92% 17.73% 16.26% 16.39% 17.16% 16.04%
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 28, 1997
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 Notes #1 and #2 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 change.
(e) Amounts for 1997, 1996, 1995 and 1994 include the effects of trading securities on cash flows provided by operating activities.
<PAGE> 40
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 share data) 1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Total
1997 (52 weeks)
- --------------
Operating revenues $170,968 $179,753 $173,907 $191,509 $716,137
Operating expenses 139,960 140,917 143,359 150,864 575,100
-------- -------- -------- -------- ---------
Operating income 31,008 38,836 30,548 40,645 141,037
Other income--net 1,092 469 190 401 2,152
Provision for income taxes (13,534) (16,018) (12,752) (16,493) (58,797)
Minority interest (543) (744) (688) (591) (2,566)
Equity in Affiliate--net (285) (150) 180 (76) (331)
-------- -------- -------- -------- ---------
Net income $ 17,738 $ 22,393 $ 17,478 $ 23,886 $ 81,495
======== ======== ======== ======== =========
Net income per common share:
Basic $ .67 $ .86 $ .69 $ .95 $ 3.17
Diluted .66 .83 .67 .92 $ 3.08
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:
Basic $ .37 $ .49 $ .57 $ .89 $ 2.31
Diluted .36 .48 .56 .88 2.28
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:
Basic $.46 $.51 $.42 $.64 $2.03
Diluted .46 .51 .41 .63 2.01
<PAGE> 41
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 February 11, 1998, there were
approximately 332 shareholders of record of Class A common stock
and 22 shareholders of record of Class B common stock.
Dividends
Dividends declared per share:
1997 Class A Class B
1st Quarter $.19 $.019
2nd Quarter .19 .019
3rd Quarter .21 .021
4th Quarter .21 .021
---- -----
$.80 $.080
==== =====
1996 Class A Class B
1st Quarter $.17 $.017
2nd Quarter .17 .017
3rd Quarter .19 .019
4th Quarter .19 .019
---- -----
$.72 $.072
==== =====
Shares Outstanding
Net income per common share is computed based on the weighted
average number of common shares outstanding in each year. 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.
Weighted average common shares outstanding:
(Used for computing basic earnings per share)
(In thousands)
1997 25,732
1996 26,619
1995 26,651
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., 200 E. Van Buren Street, Phoenix, AZ 85004.
Stock Prices
Calendar Quarter 1st 2nd 3rd 4th
1997 High $50 3/4 $71 5/8 $76 1/4 $76 7/8
Low 43 3/8 47 7/8 65 7/8 65 3/8
1996 High $37 7/8 $38 3/8 $39 3/8 $44 1/4
Low 30 3/4 34 1/8 33 3/8 38 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 on May 15, 1998, 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> 43
Executive Management
Robert L. Lowry
Director of Accounting and Controller
Kevin J. Salcido
Human Resources Director
Bill Toner
Chief Information Officer
John E. Newhouse, II
Publisher and Chief Executive Officer
Alexandria Newspapers, Inc.
Dale A. Duncan
President and General Manager
Indianapolis Newspapers, Inc.
Eugene S. Pulliam
Executive Vice President, Central Newspapers, Inc.
Publisher, The Indianapolis Star, The Indianapolis News
Henry C. Bird
Publisher and Vice President
Muncie Newspapers, Inc.
John F. Oppedahl
President, Publisher and Chief Executive Officer
Phoenix Newspapers, Inc.
David A. Lewis
Publisher
Topics Newspapers, Inc.
Michael E. Quayle
Publisher
Vincennes Sun-Commercial
Fred H. Faltersack
President
Westech ExpoCorp.
</Page>
<PAGE> 45
Board of Directors
Frank E. Russell
Chairman of the Board
Louis A. Weil III
President and Chief Executive Officer
Ricahrd Snell
Chairman and CEO
Pinnacle West Capital Corp.
Dan Quayle
Vice President, United States of America 1988-1992
Chairman
Campaign America
William A. Franke
Chairman and CEO
America West Holdings Corporation
Chairman, America West Airlines, Inc.
President
Franke & Company, Inc.
L. Ben Lytle
President and CEO
Anthem, Inc.
Eugene S. Pulliam
Executive Vice President
Central Newspapers, Inc.
Publisher
The Indianapolis Star
The Indianapolis News
<PAGE> 44
Corporate Officers
Louis A. Weil III
President and Chief Executive Officer
Thomas K. MacGillivray
Vice President and Chief Financial Officer
Eric S. Tooker
Vice President, General Counsel and Corporate Secretary
Frank E. Russell
Chairman of the Board
</TABLE>
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 the
related consolidated statements of income, shareholders' equity and cash flows
for each of the two 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 the consolidated
results of their operations and their cash flows for each of the two fiscal
years in the period ended December 29, 1996, in conformity with generally
accepted accounting principles.
/s/ Geo. S. Olive & Co. LLC
- ---------------------------
Geo. S. Olive & Co. LLC
Indianapolis, Indiana
February 3, 1997
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, 1998.
Name State of Incorporation
Bradley Paper Company Delaware
Central Newsprint Company, Inc Indiana
Indianapolis Newspapers, Inc. Indiana
Alexandria Newspapers, Inc. Louisiana
Muncie Newspapers, Inc. Indiana
Phoenix Newspapers, Inc. Arizona
McCormick Graphics, Inc. Louisiana
Career Services, Inc. Arizona
Topics Newspapers, Inc. Indiana
Westech Expocorporation California
Home Buyer's Fair, Inc. Arizona
Vincennes Newspapers, Inc. Indiana
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No's. 33-37566, 33-40776, 33-61397, and 33-33026) of
Central Newspapers, Inc. of our report dated February 2, 1998 appearing on
page 23 of the Annual Report to Shareholders which is incorporated in this
Annual Report on Form 10-K. We also consent to the incorporation by reference
of our report on the Financial Statement Schedule, which appears on page 17
of this Form 10-K.
/s/Price Waterhouse LLP
- ----------------------
Price Waterhouse LLP
Indianapolis, Indiana
March 13, 1998
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. LLC
- ----------------------------
Geo. S. Olive & Co. LLC
Indianapolis, Indiana
March 13, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains unaudited summary information extracted from the
consolidated statement of financial position of Central Newspapers, Inc. as of
December 28, 1997 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-28-1997
<PERIOD-END> DEC-28-1997
<CASH> 36924
<SECURITIES> 11524
<RECEIVABLES> 92666
<ALLOWANCES> 2959
<INVENTORY> 10320
<CURRENT-ASSETS> 162106
<PP&E> 537134
<DEPRECIATION> 250451
<TOTAL-ASSETS> 614311
<CURRENT-LIABILITIES> 97367
<BONDS> 0
18920
0
<COMMON> 29997
<OTHER-SE> 352282
<TOTAL-LIABILITY-AND-EQUITY> 614311
<SALES> 716137
<TOTAL-REVENUES> 716137
<CGS> 0
<TOTAL-COSTS> 575100
<OTHER-EXPENSES> 2166
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1710
<INCOME-PRETAX> 143189
<INCOME-TAX> 58797
<INCOME-CONTINUING> 81495
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 81495
<EPS-PRIMARY> 3.17
<EPS-DILUTED> 3.08
</TABLE>
