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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 27, 1998 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-10333
CENTRAL NEWSPAPERS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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INDIANA 35-0220660
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
200 E. VAN BUREN STREET, PHOENIX, ARIZONA 85004
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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(602) 444-1100
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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CLASS A COMMON STOCK, WITHOUT PAR VALUE NEW YORK STOCK EXCHANGE
(TITLE OF CLASS) (NAME OF EACH EXCHANGE ON WHICH REGISTERED)
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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
March 1, 1999, 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 $814,730,000. 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 March 1, 1999:
Class A Common Stock -- 34,469,930 shares
Class B Common Stock -- 62,666,000 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of our 1998 Annual Report to Shareholders (incorporated in Part II
to the extent provided in items 5, 6, 7 and 8 of this Form 10-K) and the
definitive Proxy Statement for our 1999 Annual Meeting of Shareholders (to be
held May 11, 1999) (incorporated in part III to the extent provided in items 10,
11, 12 and 13).
Exhibit Index on page 13
Page 1 of 19 Pages
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FORM 10-K TABLE OF CONTENTS
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PAGE
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PART I...................................................... 3
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..................................................... 11
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.................................................... 12
Item 10. Our Directors and Executive Officers........... 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..................................................... 12
Item 14. Exhibits, Financial Schedule and Reports on
Form 8-K............................................... 12
(a) List of Documents Included in this
Report................................................. 12
(b) Reports on Form 8-K....................... 15
SIGNATURES.................................................. 16
Report of Independent Accountants on Financial Statement
Schedule.................................................. 17
Independent Auditor's Report on Financial Schedule.......... 18
Schedule II Valuation Account............................... 19
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PART I
ITEM 1. BUSINESS.
We publish the following newspapers which had average circulation as set
forth below for the fiscal year ended December 27, 1998:
- The Arizona Republic, average daily circulation of 467,276.
- The Indianapolis Star, average daily circulation of 232,266.
- The Indianapolis News, a daily afternoon newspaper, average daily
circulation of 35,719.
- The Alexandria Daily Town Talk, serving Rapides Parish, Louisiana and its
outlying areas, average circulation of 37,742 daily and 44,131 Sunday.
- The Star Press, in Muncie, Indiana, average circulation of 36,058 daily
and 39,958 Sunday.
- The Vincennes Sun-Commercial, in Vincennes, Indiana, average circulation
of 12,323 daily and 14,286 Sunday.
- The Daily Ledger, average daily circulation of 11,800.
- nine controlled circulation newspapers which are home-delivered and free
to readers serving the northern suburbs of Indianapolis, average weekly
circulation of 107,000.
We own an 80% interest in the Santa Clara, California-based Westech
companies which consist of:
- Westech ExpoCorp., an organizer of job fairs for the high tech industry;
- High Technology Careers, publisher of High Technology Careers Magazine;
- Virtual Job Fair (http://www.vjf.com), an internet-based resume posting
and research service; and
- JobsAmerica, an organizer of job fairs for service industry positions.
We also own an 89% interest in Homebuyer's Fair, Inc., which provides
Internet services and information for people who are moving and corporations
that are relocating their employees, as well as information regarding schools
across the nation. We also own 100% of Carantin & Co., Inc., a direct marketing
services company, a minority interest in a newsprint mill in the State of
Washington and a commercial printer.
We seek to maintain our position as both the primary source of news and
information for our readers as well as the most effective way for advertisers to
reach their target markets. To this end, we manage our newspapers with a
commitment to the highest standards of product quality and journalistic
excellence. For example, The Arizona Republic was the first major daily
newspaper in the country to have its pages fully composed by computer
generation, enabling us to deliver higher quality products. Since 1990, our
newspapers have won Pulitzer prizes for investigative reporting and political
cartooning, as well as numerous other awards from industry organizations such as
the American Association of Sunday and Feature Editors, the Society for
Newspaper Design and the National Press Photographers' Association, among
others.
The following is a list of Internet addresses for CNI and its subsidiaries:
- Alexandria Newspapers, which includes The Alexandria Daily Town Talk,
McCormick Graphics and Press Works: http://www.thetowntalk.com.
- Carantin & Co., Inc.: http://www.carantin.com.
- Career Services, Inc., which includes Westech ExpoCorp., JobsAmerica and
High Technology Careers Magazine: http://www.vjf.com.
- Central Newspapers, Inc.: http://www.centralnews.com.
- Homebuyer's Fair, Inc.: http://www.homefair.com and
http://www.theschoolreport.com.
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- Indianapolis Newspapers, which includes The Indianapolis Star and The
Indianapolis News: http://www.starnews.com.
- Muncie Newspapers, which includes The Muncie Star Press and The
Advertiser Group: http://www.thestarpress.com.
- Phoenix Newspapers, which includes The Arizona Republic and The Arizona
Business Gazette: http://www.azcentral.com.
THE ARIZONA REPUBLIC
In Phoenix, we currently publish The Arizona Republic, one of the fastest
growing major daily morning newspapers in the United States, together with The
Arizona Business Gazette, a weekly newspaper. We originally acquired a 30%
interest in The Arizona Republic and The Phoenix Gazette in 1946. We have owned
100% of these newspapers since 1977. On January 18, 1997, we stopped publishing
The Phoenix Gazette. We were able to convert approximately 85% of the
subscribers of The Phoenix Gazette to The Arizona Republic.
CIRCULATION
Approximately 87% of the daily and 73% of the Sunday circulation of The
Arizona Republic was home delivered as of December 27, 1998, with the remainder
being single copy sales. The circulation level of The Arizona Republic is
seasonal due to the large number of part-year residents in the Phoenix area.
Typically, 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 was approximately 100,475 daily and 103,434
Sunday. The following table shows the average paid daily circulation for The
Arizona Republic and The Phoenix Gazette for the periods shown. The figures for
fiscal years ended 1996 and 1997 are based upon reports issued by the ABC, an
independent agency that audits the circulation of daily and Sunday newspapers,
and include circulation outside the Phoenix metropolitan statistical area
("MSA"). The figures for the fiscal year ended December 27, 1998 are based upon
our records. Net circulation revenue for the periods shown is based upon our
records.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
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DECEMBER 29, DECEMBER 28, DECEMBER 27,
1996 1997(1) 1998
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<S> <C> <C> <C>
The Arizona Republic (Sunday)......................... 583,162 583,068 585,890
The Arizona Republic (Daily).......................... 406,725 460,406 467,276
The Phoenix Gazette (Daily)........................... 48,406 -- --
Net circulation revenue (in thousands)................ $ 87,790 $ 86,800 $ 90,170
</TABLE>
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(1) Combined daily circulation includes The Arizona Republic and The Phoenix
Gazette, and net circulation revenue includes The Phoenix Gazette, through
January 18, 1997, the last day of its publication.
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 10,491, 10,561 and 7,348 for 1996, 1997 and 1998,
respectively. The home-delivered pricing structure for seven day subscriptions
is based on length of subscription. 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 $3.80 per week for an eight-week subscription.
There is also a four-week direct bank debit option of $3.25 per week. The
home-delivered price for The Arizona Republic (six days) is $2.50 per week for
all subscription terms. A weekend package comprising the Sunday paper and the
Friday and Saturday edition is offered at $3.00 per week. The single copy price
of the morning paper is $0.50 and $2.00 for the Sunday paper.
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
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the newspaper. We derive the majority of our advertising revenue for our Arizona
newspapers 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
those from run-of-paper advertisements. To encourage use of run-of-paper
advertisements, we structure our advertising rates to provide more favorable
rates to high volume and frequent run-of-paper advertisers.
We also structure our advertising format to accommodate the numerous
communities that comprise the Phoenix metropolitan area. The Arizona Republic
publishes "Community" sections that are 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 our Arizona newspapers for
the periods shown and the combined advertising revenues of the newspapers for
such periods are set forth in the following table:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED(1)
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DECEMBER 29, DECEMBER 28, DECEMBER 27,
1996 1997 1998
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Advertising linage -- run-of-paper (in thousands of
six column inches):
Full-run.............................................. 2,669 2,829 2,904
Part-run.............................................. 1,091 1,182 1,322
Weekly................................................ 243 242 185
Net advertising revenue (in thousands)................ $302,294 $333,583 $351,681
</TABLE>
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(1) Linage statistics for 1996, 1997 and 1998 excludes linage of The Phoenix
Gazette, which ceased publication in January 1997. Net advertising revenue
includes The Phoenix Gazette.
DISTRIBUTION
We distribute The Arizona Republic primarily by home delivery through a
network of independent contractors. We have implemented a centralized billing
system that removes the responsibility for billing and collection from the
independent contractors. Newspapers are distributed to the independent
contractor network by an outside company which has been under contract for over
forty years.
PRODUCTION
The Arizona Republic's editing and composing functions are performed
primarily at its facility in downtown Phoenix. The Arizona Republic was the
first major daily newspaper in the country to have its pages fully composed by
computer generation, enabling us to produce a higher quality product. Electronic
pagination allows entire pages of the newspaper to be formatted at a computer
terminal. Composed pages are electronically transmitted from the newspaper's
downtown facility to its two satellite production facilities.
The Arizona Republic's two satellite production facilities are located in
Deer Valley, which is north of downtown Phoenix, and in Mesa, Arizona. The Deer
Valley facility includes four offset presses and related production equipment,
as well as circulation, advertising and editorial offices. This facility began
production during the first quarter of 1992 with full operation commencing in
the third quarter of 1992. The Mesa facility began operation in 1982 and has
been subsequently expanded and upgraded. It has three offset presses and related
production equipment. We own an additional undeveloped site in western Maricopa
County for a possible satellite production facility to meet future growth.
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INDIANAPOLIS NEWSPAPERS
In Indianapolis, our primary newspapers are The Indianapolis Star (mornings
and Sunday) and The Indianapolis News (evenings). We formed Indianapolis
Newspapers, a division of Indiana Newspapers, Inc. ("INI") in 1948, through
which we currently publish The Indianapolis Star and The Indianapolis News. At
the end of 1996, we owned 90.2% of the voting equity of INI and had the right to
elect INI's Board of Directors. On January 3, 1997, we acquired the remaining
voting equity of INI.
CIRCULATION
Approximately 81% of the daily and 78% of the Sunday circulation of The
Indianapolis Star and 78% of the daily circulation of The Indianapolis News was
home-delivered as of December 27, 1998, with the remainder being single copy
sales.
The following table shows the average paid daily circulation for The
Indianapolis Star and The Indianapolis News for the last three fiscal years. The
figures for 1996 and 1997 are based upon reports issued by the ABC and include
circulation outside the Indianapolis metropolitan statistical area. The figures
for the fiscal year ended December 27, 1998 are based upon our records. Net
circulation revenue is based upon our records.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
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DECEMBER 29, DECEMBER 28, DECEMBER 27,
1996 1997 1998
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The Indianapolis Star (Sunday)........................ 402,884 391,820 390,479
The Indianapolis Star (Daily)......................... 230,932 228,421 232,266
The Indianapolis News (Daily)......................... 54,423 41,165 35,719
Net circulation revenue (in thousands)................ $ 37,205 $ 46,444 $ 50,020
</TABLE>
The home-delivered price for The Indianapolis Star (seven days) in the
Indianapolis metropolitan statistical area ranges from $3.60 to $3.80 per week
based on the subscription term and type. The home-delivered price for The
Indianapolis News (six days) ranges from $1.80 to $1.98 per week. The single
copy price is $0.50 for each daily paper. The home-delivered price of the Sunday
newspaper is $1.80, and the single copy price is $1.75.
ADVERTISING
As is the case for the Arizona newspapers, our Indianapolis newspapers
derive the majority of their advertising revenues from run-of-paper
advertisements. The Indianapolis Star and The Indianapolis News have also
experienced an increase in advertisers' use of preprinted advertisements in
recent years. To encourage use of run-of-paper advertisements, we structure our
advertising rates to provide more favorable rates to high volume and frequent
run-of-paper advertisers. The combined run-of-paper advertising linage for The
Indianapolis Star and The Indianapolis News for the past three fiscal years and
the combined advertising revenue of the newspapers for such periods are set
forth in the following table:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------------
DECEMBER 29, DECEMBER 28, DECEMBER 27,
1996 1997 1998
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<S> <C> <C> <C>
Advertising linage -- run-of paper (in
thousands of six column inches):
Full-run...................................... 2,982 3,422 3,476
Net advertising revenue (in thousands)........ $149,658 $167,212 $170,946
</TABLE>
DISTRIBUTION
Through 1996, we distributed The Indianapolis Star and The Indianapolis
News primarily by home delivery through a network of approximately 3,200
carriers. Carriers are independent contractors who purchase newspapers from us
and resell them at a markup to their customers.
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In 1997, our Indianapolis newspapers converted from a carrier-based
delivery system to an agency-based distribution system for the Indianapolis
metropolitan area and its eight surrounding counties. We replaced approximately
1,350 carriers with 79 independent delivery agents, who are paid on a commission
basis.
In 1998, we converted the home-delivered system in the State area of
Indiana to an agency-based distribution system. We replaced approximately 250
carriers with 14 delivery agents, who are paid on a commission basis. We believe
the conversions have:
- allowed for uniform pricing;
- resulted in higher levels of customer satisfaction; and
- helped facilitate the creation of customer data bases.
We have implemented a centralized billing system that removes the responsibility
for billing and collection from the agents.
PRODUCTION
The Indianapolis Star and The Indianapolis News merged their editorial news
staffs in 1995 and share production and distribution facilities. All editorial
and production functions are handled from our facility in downtown Indianapolis,
which is equipped with six offset presses and related production and
distribution equipment.
The Indianapolis Star and The Indianapolis News have recently implemented
several formatting changes to promote greater standardization and customization.
The weather, editorial and obituary sections are now anchored daily on the same
pages, and there are weekday stand-alone classified and automotive sections, as
well as a four-page daily "Metro" section with local coverage for each of the
major metropolitan distribution areas.
SMALLER NEWSPAPERS
In March 1996, we purchased 100% of the outstanding common stock of
McCormick & Company, Inc., now Alexandria Newspapers, Inc., the parent company
of The Alexandria Daily Town Talk newspaper and McCormick Graphics, Inc., a
commercial printing subsidiary. The Alexandria Daily Town Talk serves Rapides
Parish in Central Louisiana and the outlying areas within a 50 mile radius, with
a population base of approximately 282,000. For the fiscal year ended December
27, 1998, the average paid circulation of The Alexandria Daily Town Talk was
37,742 daily and 44,131 Sunday.
We also publish The Star Press (mornings and Sundays) in Muncie,
Indiana -- we 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 to improve product quality and cost efficiency. The Star Press
serves Muncie and east central Indiana, which has a population base of just over
370,000. For the fiscal year ended December 27, 1998, the average paid
circulation of The Star Press was 36,058 daily and 39,958 Sunday.
We publish The Daily Ledger (which for 1998 had an average daily
circulation of 11,800) and nine controlled circulation newspapers (which for
1998 had an average weekly circulation of 107,000) that serve the northern
suburbs of Indianapolis, the fastest growing area of metropolitan Indianapolis.
We publish The Vincennes Sun-Commercial, a daily newspaper that serves the
city of Vincennes, Indiana, with a population of approximately 24,700. For the
fiscal year ended December 27, 1998, the average paid circulation of The
Vincennes Sun-Commercial was 12,323 (five days) and 14,286 Sunday.
The revenues earned by these smaller publications represented approximately
7.0%, 6.0% and 6.0% in 1996, 1997 and 1998, respectively, of our total revenues.
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WESTECH
In February 1997, we 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.
Westech has enjoyed rapid growth in recent years and had approximately
$32.2 million of revenue in 1998. Operating margins in this business have
historically been higher than those associated with the newspaper publishing
industry.
We believe that the acquisition of Westech is a strategic extension of our
business of matching employers and employees. A substantial portion of our
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. We believe that:
- recruitment classified advertising will continue to be an important
avenue for job placement in the future;
- an increasing number of placements will be made using the Internet and
job fairs; and
- the acquisition of Westech should ensure that we are well positioned to
provide career services information to employers and employees through a
variety of cost-effective channels.
Westech operates predominantly in the western half of the United States.
HOMEBUYER'S FAIR
In October, 1997, we purchased an 80% interest in Homebuyer's Fair, Inc.
Homebuyer's Fair is a Phoenix-based Internet company, which provides services
and information for people who are moving and for corporations that are
relocating their employees. We considered this acquisition to be a strategic
extension of our print classified advertising business. In September, 1998, we
enhanced this line extension by acquiring National School Reporting Services,
Inc., a leading provider of information about schools and school systems across
the nation. This school information is important to a large percentage of people
going through the relocation process.
CARANTIN & CO., INC.
In December, 1998, we acquired Carantin & Co., Inc., a Phoenix-based
company that provides direct mail and other direct marketing support services to
its clients. This acquisition will enhance the direct marketing and database
marketing capabilities of CNI.
CLASSIFIED VENTURES
We own a 3% interest in Classified Ventures, an independent company owned
by a consortium of newspaper companies whose mission is to be the preeminent
online national classified service in the automotive, apartments and new homes
classified categories. Classified Ventures utilizes both national sales
personnel and sales representatives from our newspapers to sell advertising and
services. Investment in this business fits with our strategy of new business
development and protection of our classified business.
RAW MATERIALS -- PONDERAY NEWSPRINT COMPANY
We consumed approximately 182,000 metric tons of newsprint in fiscal year
1998 and expect that consumption will increase in 1999 due primarily to
anticipated linage gains. We currently obtain newsprint
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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 us with an additional source of newsprint for a portion of our
needs, we joined with four other newspaper publishing companies and a major
newsprint manufacturer in forming a general partnership, Ponderay Newsprint
Company ("Ponderay"), to own and operate a newsprint mill in Usk, Washington.
The mill began operations in December 1989. We are required to purchase on an
annual basis the lesser of 13.5% of Ponderay's newsprint production or 28,400
metric tons on a "take if tendered" basis until the related debt recorded by
Ponderay is repaid.
COMPETITION
We face competition for advertising revenue from television, radio, the
Internet 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;
- advertising rates; and
- advertiser results.
Competition for circulation is generally based upon:
- content;
- journalistic quality; and
- the 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. These newspapers had a combined paid daily circulation
of 93,407, compared to 186,003 for The Arizona Republic in this region in 1997,
the period for which the latest ABC audit figures are available. In 1997, The
Arizona Republic introduced four new "Community" sections to maintain its
position as the leading source of news and information in this region. In
Indianapolis, our newspapers do not experience significant direct competition
from suburban newspapers.
EMPLOYEES -- LABOR
As of December 27, 1998, we had approximately 4,984 employees (including
1,105 part-time employees), 35% of whom were covered by a total of 23 collective
bargaining agreements. Given the large number of collective bargaining
agreements, we are frequently involved in labor negotiations. As of March 8,
1999, we were involved in ongoing negotiations with respect to four different
bargaining agreements, involving approximately 330 employees engaged in various
trades at our facilities. No assurance can be given as to the outcome of these
negotiations or as to their impact on us. We have never had a significant strike
or work stoppage at our operations and we consider our labor relationships with
our employees to be satisfactory.
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OUR EXECUTIVE OFFICERS
Our executive officers are:
<TABLE>
<CAPTION>
NAME AGE POSITIONS
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<S> <C> <C>
Louis A. Weil, III................... 58 Chairman, President, and Chief Executive Officer
Thomas K. MacGillivray............... 38 Vice President and Chief Financial Officer
Eric S. Tooker....................... 37 Vice President, General Counsel, and Secretary
Dale A. Duncan....................... 44 Publisher, President, and General Manager of
Indianapolis Newspapers
John F. Oppedahl..................... 54 Publisher and Chief Executive Officer of Phoenix
Newspapers, Inc.
</TABLE>
Louis A. Weil, III has been Chairman of the Board of Directors since
December 31, 1998 and 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 since 1991.
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.
Eric S. Tooker has been Vice President since April 1997 and General Counsel
and Secretary since June 1996. From November 1989 through May 1996, he was
Associate General Counsel at Conseco, Inc.
Dale A. Duncan has been Publisher since January 1999, and President and
General Manager of Indianapolis Newspapers since January 1998. From 1995 until
assuming his current positions, 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.
John F. Oppedahl has been Publisher and Chief Executive Officer of Phoenix
Newspapers, Inc. since January 1996. Previously, he was Executive Editor of
Phoenix Newspapers, Inc. from 1993 to January 1996 and Managing Editor of The
Arizona Republic from 1989 to 1993.
Each executive officer will serve as such until his successor is chosen and
qualified. No family relationships exist among executive officers.
ITEM 2. PROPERTIES.
Our corporate headquarters are located at 200 East Van Buren Street,
Phoenix, Arizona, 85004. The general character, location and approximate size of
the principal physical properties we owned at the end of fiscal year 1998 are
set forth below. In addition to those properties listed, we own employee
recreational facilities and other real estate aggregating approximately 130
acres.
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<TABLE>
<CAPTION>
APPROXIMATE AREA
IN SQUARE FEET
PRINTING PLANTS, BUSINESS AND --------------------
EDITORIAL OFFICES AND WAREHOUSE SPACE OWNED LEASED
- ------------------------------------- --------- -------
<S> <C> <C>
Chandler, Arizona........................................... -- 10,000
Mesa, Arizona............................................... 160,815 21,000
Phoenix, Arizona............................................ 1,017,076 146,709
Scottsdale, Arizona......................................... -- 750
Santa Clara, California..................................... -- 15,357
Stamford, Connecticut....................................... -- 5,450
Fishers, Indiana............................................ 40,000 --
Greenwood, Indiana.......................................... -- 1,650
Indianapolis, Indiana....................................... 749,822 88,300
Muncie, Indiana............................................. 67,658 --
Vincennes, Indiana.......................................... 19,350 --
Alexandria, Louisiana....................................... 112,798 --
Concord, New Hampshire...................................... -- 1,345
</TABLE>
We believe that our current facilities are adequate to meet our present
needs.
ITEM 3. LEGAL PROCEEDINGS.
We become involved from time to time in various claims and lawsuits in the
ordinary course of our business that are incidental to our business. These
claims include libel and invasion of privacy actions and involve from time to
time various governmental and administrative proceedings. We believe that the
outcome of any pending claims or proceedings will not have a significant adverse
effect on us.
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 27, 1998 through the solicitation of proxies or 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 43 of our 1998 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 40 of our 1998 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 23
of our 1998 Annual Report to Shareholders is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA.
Our Consolidated Financial Statements and the Notes, together with
PricewaterhouseCoopers LLP's report on the financial statements dated January
29, 1999 appearing on page 27 of our 1998 Annual Report to Shareholders, and the
information contained under the heading "Quarterly Financial Information
(unaudited)" on page 42 of our 1998 Annual Report to Shareholders are
incorporated herein by reference.
11
<PAGE> 12
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
We filed a report on Form 8-K on March 12, 1997 announcing that our Board
of Directors recommended to shareholders the appointment of Price Waterhouse LLP
(now PricewaterhouseCoopers LLP) to examine financial statements for the fiscal
year ending December 28, 1997. This recommendation was ratified by the
shareholders at the annual meeting held on April 24, 1997.
PricewaterhouseCoopers LLP replaced Olive LLP which acted as our independent
public accountant for prior fiscal years. We had no disagreements on matters of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure with Olive LLP.
There were no disagreements with accountants on accounting and financial
disclosure in the fiscal year ended December 27, 1998.
PART III
ITEM 10. OUR DIRECTORS AND EXECUTIVE OFFICERS.
Incorporated herein by reference is the information set forth under the
captions "Election of Directors," and "Compliance with Section 16(a) of the
Securities Exchange Act of 1934" of our Proxy Statement for the 1999 Annual
Meeting of Shareholders. See Part I, Item 1 of this report for information
regarding our executive officers.
ITEM 11. EXECUTIVE COMPENSATION.
Incorporated herein by reference is the information set forth under the
caption "Compensation of Named Executive Officers" of our Proxy Statement for
the 1999 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 "Beneficial Security Ownership of Directors, Nominees, and Executive
Officers" and "Beneficial Owners of 5% or More of Our Common Stock" of our Proxy
Statement for the 1999 Annual Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Incorporated herein by reference is the information set forth under the
caption "Transactions With Certain Related Persons" of our Proxy Statement for
the 1999 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 our 1998 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 27, 1998
(iii) Consolidated Statement of Financial Position as of December 27, 1998
and December 28, 1997
(iv) Consolidated Statement of Shareholders' Equity for each of the three
fiscal years in the period ended December 27, 1998
12
<PAGE> 13
(v) Consolidated Statement of Cash Flows for each of the three fiscal years
in the period ended December 27, 1998
(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
42 of our 1998 Annual Report to Shareholders
(ii) The following financial schedule and reports are filed as a part of
this Report:
<TABLE>
<CAPTION>
PAGE IN
THIS FILING
-----------
<S> <C>
Report of Independent Accountants........................... 17
--
Independent Auditor's Report................................ 18
--
Schedule II. Valuation Accounts............................. 19
--
</TABLE>
We have omitted all schedules, other than the one referred to above,
because they are not required or because we have included the information
elsewhere in our Consolidated Financial Statements.
3. Exhibits Required by Securities and Exchange Commission Regulation S-K.
(i) The following exhibits are filed as a part of this report:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
13.1 Portions of the 1998 Annual Report to Shareholders of
Central Newspapers, Inc. incorporated by reference into the
1998 Annual Report on Form 10-K
13.2 Independent Auditor's Report of Olive LLP on the financial
statements for the fiscal year ended December 29, 1996
21 Subsidiaries of the Registrant
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Olive LLP
27 Financial Data Schedule
</TABLE>
(ii) The following exhibits are incorporated herein by reference to
documents previously filed with the Securities and Exchange Commission
as indicated:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
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.
3.2 Amended and Restated Code of By-Laws of Central Newspapers,
Inc.
4.1 Form of Certificate for Class A Common Stock (Filed August
10,1989 with Form S-1 Registration Statement, No. 33-30436)
4.2 Indenture between Indianapolis Newspapers, Inc. and the
Indiana Trust Company, as trustee, dated as of December 1,
1948 (Filed August 10, 1989 with Form S-1 Registration
Statement, No. 33-30436)
10.1 Indenture creating the Eugene C. Pulliam Trust, dated as of
December 9, 1965, as amended (Filed August 10, 1989 with
Form S-1 Registration Statement, No. 33-30436)
</TABLE>
13
<PAGE> 14
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
10.2 Newsprint Purchase Agreement between Ponderay Newsprint
Company and Phoenix Newspapers, Inc., dated as of November
18, 1987 (Filed August 10, 1989 with Form S-1 Registration
Statement, No. 33-30436)
*10.3 The Phoenix Newspapers, Inc. Non-Qualified Supplemental
Retirement Plan (Filed with Form 10-K for year ended
December 30, 1990)
10.4 Ponderay Newsprint Company Partnership Agreement between
Lake Superior Forest Products Inc. and Central Newsprint
Company, Inc. dated as of September 12, 1985 (Filed August
10, 1989 with Form S-1 Registration Statement, No. 33-30436)
10.5 Amendment to Ponderay Newsprint Company Partnership
Agreement between Lake Superior Forest Products Inc.,
Central Newsprint Company, Inc., Bradley Paper Company,
Copley Northwest, Inc., Puller Paper Company, Newsprint
Ventures, Inc., Wingate Paper Company, Tribune Newsprint
Company and Nimitz Paper Company, dated as of June 30, 1987
(Filed August 10,1989 with Form S-1 Registration Statement,
No. 33-30436)
10.6 Guarantee by Central Newspapers, Inc. dated as of November
18, 1987 (Filed August 10, 1989 with Form S-1 Registration
Statement, No. 33-30436)
*10.7 Form of Split Dollar Life Insurance Agreement for Executive
Officers between the Registrant and 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,
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 (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)
10.15 Stock Purchase Agreement by and between the Nina Mason
Pulliam Charitable Trust and Central Newspapers, Inc., dated
as of September'21, 1998 incorporated by reference to Form
10-Q dated November 5, 1998
10.16 Standstill and Option Agreement by and between the Nina
Mason Pulliam Charitable Trust and Central Newspapers, Inc.,
dated as of September 21, 1998 incorporated by reference to
Form 10-Q dated November 5, 1998
10.17 Stock Purchase Agreement by and between the Nina Mason
Pulliam Charitable Trust and Central Newspapers, Inc., dated
as of November 13, 1998
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
10.18 Credit Agreement among Central Newspapers, Inc., The First
National Bank of Chicago, Bank of Montreal, and Norwest Bank
Minnesota dated as of November 10, 1998
10.19 First Amendment to Credit Agreement among Central
Newspapers, Inc., The First National Bank of Chicago, Bank
of Montreal, and Norwest Bank of Minnesota dated as of
November 16, 1998
</TABLE>
- ---------------
* Represents a contract, plan or arrangement providing for executive officer or
director benefits.
(b) REPORTS ON FORM 8-K.
During the quarter ended December 27, 1998, we filed one report on Form
8-K, dated September 21, 1998 and filed October 9, 1998, pursuant to Item 7, to
file a copy of our press release entitled "Central Newspapers to Purchase 2.5
Million Shares of the Stock from Nina Mason Pulliam Charitable Trust; Trust to
Sell Additional 1.3 Million Shares in Secondary Offering."
15
<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 9th day of March, 1999.
CENTRAL NEWSPAPERS, INC.
By:
------------------------------------
Chairman of the Board, 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 9th day of March, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
(1) Principal Executive Officer
Chairman of the Board, President, and Chief
- --------------------------------------------------- Executive Officer
Louis A. Weil, III
(2) Principal Financial and Accounting Officer
Vice President and Chief Financial Officer
- ---------------------------------------------------
Thomas K. MacGillivray
(3) Board of Directors
Director
- ---------------------------------------------------
William A. Franke
Director
- ---------------------------------------------------
L. Ben Lytle
Director
- ---------------------------------------------------
Kathryn L. Munro
Director
- ---------------------------------------------------
Myrta J. Pulliam
Director
- ---------------------------------------------------
Frank E. Russell
Director
- ---------------------------------------------------
Richard Snell
</TABLE>
16
<PAGE> 17
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of Central Newspapers, Inc.
Our audit of the consolidated financial statements referred to in our
report dated January 29, 1999 appearing in the 1998 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 years ended
December 27, 1998 and December 28, 1997 included in the Financial Statement
Schedule listed in Item 14(a)(2) 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 years ended December 27, 1998 and December 28,
1997 set forth therein when read in conjunction with the related consolidated
financial statements.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Phoenix, Arizona
January 29, 1999
17
<PAGE> 18
INDEPENDENT AUDITOR'S REPORT ON FINANCIAL SCHEDULE
Board of Directors and Shareholders
Central Newspapers, Inc.
We have audited the consolidated financial statements of Central
Newspapers, Inc. and Subsidiaries for fiscal year ended December 29, 1996 and
have issued our report dated February 3, 1997. Such financial statements and
report are included in the 1998 Annual Report to Shareholders and are
incorporated herein by reference.
Our audit 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 audit. 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.
Olive LLP
/s/ Olive LLP
Indianapolis, Indiana
February 3, 1997
18
<PAGE> 19
SCHEDULE II (IN THOUSANDS)
CENTRAL NEWSPAPERS, INC. AND SUBSIDIARIES
VALUATION ACCOUNTS
<TABLE>
<CAPTION>
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 EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
- ----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 27, 1998 (52
weeks):
Provision for doubtful accounts and
advertising refunds............... $2,959 $8,157 $(8,514) $2,602
Year Ended December 28, 1997 (52
weeks):
Provision for doubtful accounts and
advertising refunds............... $1,639 $8,193 $(6,873) $2,959
Year Ended December 28, 1996 (52
weeks):
Provision for doubtful accounts and
advertising refunds............... $1,067 $7,156 $53 $(6,637) $1,639
</TABLE>
19
<PAGE> 20
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<S> <C>
13.1 Portions of the 1998 Annual Report to Shareholders of
Central Newspapers, Inc. incorporated by reference into the
1998 Annual Report on Form 10-K
13.2 Independent Auditor's Report of Olive LLP on the financial
statements for the fiscal year ended December 29, 1996
21 Subsidiaries of the Registrant
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Olive LLP
27 Financial Data Schedule
</TABLE>
<PAGE> 1
Exhibit 13.1
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FORWARD-LOOKING STATEMENTS
The information below and elsewhere in this Annual Report contains
material that is forward-looking in nature. From time to time, we may provide
forward-looking statements relating to such matters as anticipated financial
performance, business prospects, and similar matters. We may identify these
forward-looking statements by the use of words such as "anticipate," "believe,"
"expect," "plan," "foresee," or derivations thereof. The Private Securities
Litigation Reform Act of 1995 provides a safe harbor for these statements. We
want to ensure that these statements are accompanied by meaningful cautionary
language to comply with the safe harbor under the Act. We assume no obligation
to update any forward-looking statements. A variety of factors could cause our
actual results to differ materially from the expectations expressed in the
forward-looking statements, including, but not limited to, the following:
- - declines in circulation due to changing reader preferences and/or new
forms of information dissemination;
- - economic weakness in geographic markets;
- - weakness in advertising categories due to factors including retail
consolidations, declines in the advertising budgets of major customers,
and increased competition from print and non-print products and new
competitors emerging in our markets;
- - the negative impact of issues related to labor agreements;
- - unexpected fluctuations in the price of newsprint;
- - an increase in distribution and/or production costs over anticipated
levels; and
- - an increase in actual interest rates over expected rates.
GENERAL
Our principal line of business is newspaper publishing. We derive revenues
primarily from advertising and newspaper sales in the Phoenix, Arizona and
Indianapolis, Indiana metropolitan areas. We also own:
- - an 80% interest in the Westech group of companies, which is predominantly
in the jobs fair business;
- - a 13.5% interest in Ponderay newsprint company, a partnership that owns a
newsprint mill in the State of Washington;
- - an 89% interest in Homebuyer's Fair, Inc., which provides internet-based
services and information for people who are moving and for corporations
that are relocating employees, as well as information regarding schools
across the nation; and
- - a 100% interest in Carantin & Co. Inc., which provides direct marketing
support services to its clients.
You should read the following information with our fiscal 1998
consolidated financial statements, including the accompanying notes.
Our business tends to be seasonal, with peak revenues and profits
generally occurring in the second and fourth quarters of each year. The results
for 1998, 1997 and 1996 reflect these seasonal patterns.
RECENT EVENTS
On March 9, 1999, the Board of Directors elected Kathryn L. Munro and
Myrta J. Pulliam as new directors.
On January 22, 1999, Dan Quayle resigned from our Board of Directors to
concentrate on his campaign for the Republican United States Presidential
nomination.
On January 20, 1999, Eugene S. Pulliam, Publisher of The Star and The News
in Indianapolis, and executive vice president and director of CNI, died at the
age of 84.
On December 16, 1998, we acquired 100% of Carantin & Co. Inc, a
Phoenix-based company that provides direct marketing support services to its
clients.
On December 8, 1998, our Board of Directors declared a two-for-one split
of the Class A and Class B Common Stock. The Board also declared a dividend of
$0.12 per share of its Class A Common Stock and $0.012 of its Class B Common
Stock. The stock split and cash dividend were distributed on January 8, 1999 to
shareholders of record as of the close of business on December 18, 1998. We have
restated all shares and per share amounts in this Annual Report to reflect the
impact of the stock split.
In addition, on December 8, 1998, it was announced that Frank E. Russell
would retire as Chairman of CNI at the end of the year. The board elected
current President and Chief Executive Officer Louis A. Weil as chairman of the
Company effective December 31, 1998.
On October 23, 1998, we repurchased 5,000,000 shares of Class A Common
Stock from the Nina Mason Pulliam Charitable Trust at $30 per share (plus
interest from September 16, 1998), or a total of $150.8 million. In addition, in
November 1998, we repurchased 3,000,000 shares of Class A Common Stock from the
Charitable Trust at $33.50 per share, or a total of $100.5 million. We financed
these repurchases with a $300 million revolving credit facility consisting of a
$200 million five-year facility and a $100 million 365-day revolving credit
facility. We may use the credit facility for general corporate purposes,
including the repurchase of Common Stock.
In December 1997, the Board of Directors authorized additional repurchases
of up to $100 million of our Class A Common Stock over a three-year period. We
may purchase the shares on the open market or in privately negotiated
transactions. We have repurchased a total of 2,039,660 shares under this
authorization through December 27, 1998 at a total cost of about $65.5 million.
These numbers do not include the stock repurchase described in the previous
paragraph.
In October 1997, we acquired an 80% interest in Homebuyer's Fair, Inc.,
which provides internet-based services and information for people who are moving
and for corporations that are relocating employees. In September 1998,
Homebuyer's Fair acquired 100% of National School Reporting Services, Inc.,
which provides internet-based information regarding schools across the nation.
As a result of the transaction, we now own 89% of the combined entity, with an
option to purchase the remaining 11% on or after December 31, 2001.
See Note 3 of the Notes to Consolidated Financial Statements for
additional information regarding Common Stock repurchases and acquisitions.
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- (Continued)
RESULTS OF OPERATIONS
We achieved our fifth consecutive year of record revenues and profits in
1998. The following table summarizes our operating income, net income, and
earnings per share for 1998, 1997, and 1996:
<TABLE>
<CAPTION>
(In millions, except share data) Fiscal Year Ended (1) Excluding Special Charges
------------------------------------- --------------------------------------
1998 1997 1996 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating Income $ 152.6 $ 141.0 $ 99.9 $ 154.0 $ 151.0 $ 105.4
- -------------------------------------------------------------------------------------------------------------------
Net Income 88.5 81.5 61.5 89.4 87.4 64.8
- -------------------------------------------------------------------------------------------------------------------
Basic EPS 1.83 1.58 1.16 1.84 1.70 1.22
- -------------------------------------------------------------------------------------------------------------------
Diluted EPS 1.78 1.54 1.14 1.79 1.65 1.20
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) All three years included work force reduction and/or asset impairment costs
("special charges") that decreased earnings.
Net income in 1998 (excluding special charges) increased 2.3% over 1997
primarily due to:
- - a 3.9% increase in advertising revenue;
- - other revenue growth of 25.8% from increased online, direct marketing, job
fairs, and specialty publication revenue;
- - effective cost control which resulted in only a 1.6% increase in
compensation expense and a 1.5% increase in newsprint consumption;
- - our average newsprint cost per ton increasing only 5.6%; and
- - other operating costs increasing 10.6% as detailed below under operating
expenses.
OPERATING REVENUE
Our major sources of operating revenue are derived principally from
advertising and newspaper copy sales. Advertising currently accounts for about
75% of our consolidated revenue. Circulation revenue from the sale of newspaper
copies accounts for approximately 20%. The remaining 5% is derived from other
revenue sources such as online, database marketing, job fair revenue and special
publications. The following table summarizes our operating revenue for the 1998,
1997, and 1996 fiscal years:
<TABLE>
<CAPTION>
(In millions) Fiscal Year Ended 1998-1997 1997-1996
------------------------------------- --------- ---------
1998 1997 1996 % change % change
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Advertising $562.4 $541.3 $479.5 3.9 12.9
- -----------------------------------------------------------------------------------------------
Circulation 150.4 143.1 134.1 5.1 6.7
- -----------------------------------------------------------------------------------------------
Other 39.8 31.7 6.7 25.8 372.2
- -----------------------------------------------------------------------------------------------
TOTAL OPERATING
REVENUE $752.6 $716.1 $620.3 5.1 15.4
- -----------------------------------------------------------------------------------------------
</TABLE>
Gains in advertising revenue primarily resulted from increases in
advertising linage (column inches of printed material that has appeared in the
newspaper) and rates. Advertising rates were adjusted at varying times
throughout the year and in varying amounts based on local market conditions for
each type of advertising category. Our major market linage was as follows:
<TABLE>
<CAPTION>
(In thousands) Full run linage in six column inches (1) 1998-1997 1997-1996
---------------------------------------- --------- ---------
1998 1997 1996 % change % change
- --------------------------------------------------------------------------------------------
BY CATEGORY:
<S> <C> <C> <C> <C> <C>
Retail 2,776.6 2,679.8 2,507.2 3.6 6.9
- --------------------------------------------------------------------------------------------
National 469.9 460.2 325.4 2.1 41.4
- --------------------------------------------------------------------------------------------
Classified 3,134.0 3,110.8 2,817.6 0.8 10.4
- --------------------------------------------------------------------------------------------
TOTAL 6,380.5 6,250.8 5,650.2 2.1 10.6
- --------------------------------------------------------------------------------------------
BY MAJOR MARKET:
Phoenix 2,904.4 2,828.9 2,668.6 2.7 6.0
- --------------------------------------------------------------------------------------------
Indianapolis 3,476.1 3,421.9 2,981.6 1.6 14.8
- --------------------------------------------------------------------------------------------
TOTAL 6,380.5 6,250.8 5,650.2 2.1 10.6
- --------------------------------------------------------------------------------------------
</TABLE>
(1) For comparability, linage statistics for 1998, 1997 and 1996 exclude linage
of The Phoenix Gazette, which ceased publication in January 1997.
Advertising revenue in 1998 improved by $21.1 million, or 3.9%, from 1997
on a 2.1% increase in full-run run-of-paper ("ROP") linage. Advertising revenue
in 1997 increased 12.9% from 1996 on a 10.6% increase in full-run ROP linage.
The 1998 advertising revenue increase primarily resulted from gains in
classified recruitment in both major markets and retail gains in the Phoenix
market.
Circulation revenue for 1998, 1997 and 1996 was $150.4 million, $143.1
million and $134.1 million, respectively, for increases of 5.1% for the 1998
period and 6.7% for the 1997 period. The increase in 1998 and 1997 resulted
primarily from a circulation distribution system change in Indianapolis, which
began in 1997 (resulting in a revenue increase of $4.3 million in 1998 and $10.7
million in 1997). A March 1998 increase in the home-delivered price of The
Arizona Republic and a new tiered pricing structure based on subscription term
launched in Indianapolis in February 1998 also contributed to the revenue gain.
The closure of The Phoenix Gazette in January 1997 did not have a significant
impact on revenues because The Arizona Republic gains in daily circulation were
greater than Gazette losses. The combined average daily and Sunday circulation
for Phoenix and Indianapolis were:
<TABLE>
<CAPTION>
Fiscal Year Ended 1998-1997 1997-1996
----------------- --------- ---------
1998 1997 1996 % change % change
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COMBINED AVERAGE DAILY CIRCULATION:
Phoenix 467,276 460,184 455,131 1.5 1.1
- ------------------------------------------------------------------------------------------------------------
Indianapolis 267,985 271,712 285,355 (1.4) (4.8)
- ------------------------------------------------------------------------------------------------------------
SUNDAY AVERAGE CIRCULATION:
Phoenix 585,890 583,288 583,162 0.5 --
- ------------------------------------------------------------------------------------------------------------
Indianapolis 390,479 391,727 402,884 (.3) (2.8)
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Other revenue increased $8.2 million in 1998, or 25.8%, due to revenue
gains from online, direct marketing, job fairs and specialty publications.
<PAGE> 3
OPERATING EXPENSES
Our operating expenses fall into four main categories. Compensation
expense, which includes fringe benefits, currently accounts for about 41% of our
total costs. Newsprint and ink account for about 19% and other operating costs
about 33% of total costs. Depreciation and amortization account for the
remainder, which is about 7%. The following table summarizes our costs
(excluding special charges) for the 1998, 1997, and 1996 fiscal years:
<TABLE>
<CAPTION>
(In millions) Fiscal year Ended 1998-1997 1997-1996
---------------------------------- --------- ---------
1998 1997 1996 % change % change
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Compensation $ 243.6 $ 239.8 $ 228.3 1.6 5.0
- -----------------------------------------------------------------------------------------------------
Newsprint and Ink 112.9 105.5 113.2 7.1 (6.8)
- -----------------------------------------------------------------------------------------------------
Other Operating Costs 196.8 177.8 137.9 10.6 29.0
- -----------------------------------------------------------------------------------------------------
Depreciation and
Amortization 45.4 42.0 35.5 8.1 18.3
- -----------------------------------------------------------------------------------------------------
TOTAL COSTS $ 598.7 $ 565.1 $ 514.9 6.0 9.8
=====================================================================================================
</TABLE>
(excluding special charges)
Compensation costs, which include payroll and fringe benefits, increased
1.6% to $243.6 million in 1998 and 5.0% to $239.8 million in 1997. Headcount for
1998 compared with 1997 decreased approximately 2.1% primarily because the
Indianapolis circulation distribution system changed from a carrier-based
distribution arrangement to an agency-based work force. Increases in
compensation costs resulted from merit increases and an increase in employee
benefits primarily related to a rise in health care costs. The Indianapolis
circulation distribution system change and the closure of The Phoenix Gazette in
January 1997 accounted for a 3.7% reduction in headcount in 1997 compared to
1996.
Newsprint and ink expense increased 7.1% to $112.9 million in 1998 and
decreased 6.8% to $105.5 million in 1997. The 1998 increase in newsprint expense
was due to a 1.5% increase in newsprint consumption and a 5.6% increase in the
average cost per ton of newsprint consumed. Increases in newsprint consumption
primarily resulted from higher advertising linage in both major markets and
product enhancements in Indianapolis. The 1997 newsprint expense reduction from
1996 primarily resulted from decreasing prices.
Other operating costs for 1998, 1997, and 1996 were $196.8 million, $177.8
million and $137.9 million, respectively, representing a 1998 increase of 10.6%
and a 1997 increase of 29.0%. Major items contributing to the 1998 increase
included:
- - a change in the circulation delivery system in Indianapolis which began in
1997 and increased 1998 expense by $6.3 million and 1997 expense by $11.0
million;
- - costs associated with outside printing of inserts and special
publications;
- - promotional/marketing programs in both major markets;
- - higher Arizona Republic delivery costs;
- - increased bad debt expense; and
- - expenses related to the Westech job fair business.
In addition to the increase resulting from the change in the circulation
delivery system in 1997, other items contributing to the 1997 versus 1996
increase included operating expenses associated with computer system design
enhancements, increased delivery cost of The Arizona Republic, and a new
promotional program in Phoenix.
Depreciation and amortization expense was $45.4 million, $42.0 million,
and $35.5 million for 1998, 1997, and 1996, respectively. The 1998 increase was
primarily due to information technology projects in Phoenix and pagination and
remodeling projects in Indianapolis. The 1997 increase resulted from a new
office building and client server computer system in Phoenix, new distribution
centers and inserting equipment at both major locations, and amortization of
goodwill associated with the acquisitions.
During 1998, we recognized asset impairment costs of $0.5 million
representing the cost of exiting buildings in Muncie, Indiana, including site
demolition and asset write-offs. In 1996, we 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."
We recorded work force reduction costs in all three years. In 1998, $0.8
million in costs primarily related to transportation and state circulation work
force reductions of 20 individuals in Indianapolis were recorded. In 1997, $10.0
million in work force reduction costs were recorded. Approximately $4.2 million
of these costs resulted from the closure of The Phoenix Gazette where
approximately 85 positions were eliminated. The balance of the costs related 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. The 1996 amount relates primarily to
voluntary early retirement programs in Indianapolis and work force reduction
costs related to the consolidation of the Muncie, Indiana subsidiary's morning
and evening newspapers.
NON-OPERATING ITEMS
Other non-operating income (primarily investment income) was $4.5 million,
$4.3 million, and $5.5 million for 1998, 1997, and 1996, respectively. This
income is primarily interest and dividends on available investable cash.
Reductions from the 1996 level result from increased cash requirements for
acquisitions and repurchases of common stock in 1998 and 1997. Other
non-operating expenses were $4.1 million, $2.2 million, and $1.5 million for
1998, 1997, and 1996, respectively. The 1998 increase of $2.0 million primarily
resulted from an increase in interest expense related to higher debt levels
associated with the purchase of Class A Common Stock from the Nina Mason Pulliam
Charitable Trust in the last quarter of 1998, as described more fully in the
"Recent Events" section above.
Income tax expense for 1998, 1997 and 1996 was $63.1 million, $58.8
million and $42.4 million, respectively, reflecting effective tax rates of
41.3%, 41.1% and 40.8%, respectively. The increase in the effective tax rates
was the result of non-tax deductible goodwill associated with acquisitions
offset, in part, by tax benefits from filing a consolidated state income tax
return in Arizona.
EQUITY IN AFFILIATE
Our investment in Ponderay is accounted for using the equity method, which
reflects our share of Ponderay's net income or loss. Ponderay's operating
results include interest expense on its long-term debt. Equity income (loss)
from Affiliate, net of tax, was $1.0 million, $(0.3) million and $1.7 million in
1998, 1997, and 1996, respectively. These changes were mostly attributable to
fluctuations in newsprint prices realized by Ponderay over the respective
periods. We do not anticipate making additional cash investments in Ponderay
during 1999. For further discussion see Note 8 to the 1998 Consolidated
Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities is our primary source of
liquidity. Net cash provided by operating activities for 1998, 1997, and 1996
was $133.5 million, $153.8 million and $122.0 million, respectively. Net cash
provided by operating activities, excluding the effects of net proceeds from (or
purchases of) trading securities for 1998, 1997, and 1996 was $134.9 million,
$142.2 million and $81.3 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 1998 and 1997 were the repurchases of
Class A Common Stock, capital expenditures, acquisitions, the payment of
dividends, and repayment of short-term debt. As of December 27, 1998, our
available cash and cash equivalents and investments totaled $37.4 million, down
$11.0 million from the end of 1997. Working capital for the same period was
$13.1 million, down $51.6 million from $64.7 million at December 28, 1997 due
primarily to the use of the credit facility for the repurchase of Class A Common
Stock.
<PAGE> 4
LIQUIDITY AND CAPITAL RESOURCES -- (continued)
Total capital expenditures for 1998 were $34.8 million compared with
$25.1 million for the comparable 1997 period. We plan approximately $32 million
of capital expenditures in 1999. As of December 27, 1998, we had no significant
formal commitments related to future capital expenditures.
See "Recent Events" above for information regarding Common Stock purchases
and acquisitions.
The Board of Directors declared dividends of $0.45 per share on the Class
A Common Stock and $0.045 on the Class B Common Stock during 1998. Total Class A
and B dividends paid during 1998 were $21.8 million.
We have demonstrated a consistent ability to generate net cash flow from
operations. Management believes that existing cash and investments, net cash
flows from operations and currently available bank credit resources are
sufficient to enable us to maintain our current level of operations. We expect
financing for future investing opportunities to come from a combination of
existing cash, new debt facilities, and/or the use of equity.
INFLATION AND CHANGING PRICES
Over the past several years, the impact of inflation on our operations has
become less significant because of lower overall inflation rates. However, we
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. We have attempted to offset newsprint price
increases through the conservation of newsprint and through increased
advertising and circulation rates.
NEW ACCOUNTING STANDARDS
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 us. Earnings per share amounts for all prior periods have been
restated.
YEAR 2000
Our Year 2000 project is on schedule to meet its objectives. We have
developed a comprehensive program to identify, evaluate, test, upgrade, or
replace each of our computer and non-computer based systems in connection with
Year 2000 readiness. We have devoted significant resources to the program,
including the development of a Year 2000 project team, which reports to senior
management on a regular basis, and the construction of a test environment
dedicated to the Year 2000 testing process. The Chief Information Officer
reports progress at every regularly scheduled Board of Directors meeting and on
a weekly basis to our Operating Committee.
We have been actively implementing new systems and technology since 1995
for reasons unrelated to Year 2000, and these actions have resulted in a number
of our major information technology systems becoming Year 2000 compliant.
The discovery phase of our program has been completed and we have
performed several review audits to ensure that all susceptible systems have been
identified, including client server, desktop, and all systems with embedded
computer chips. All desktop systems, application software, and servers have been
updated to a compliant level and all database modules are in the process of
being upgraded. We completed the remediation and testing phase for the embedded
computer chip systems in December 1998. The testing phase of the project is
proceeding and we have completed testing of all significant systems.
We have requested letters of compliance from each of our vendors and,
wherever possible, we have worked with our vendors to determine an appropriate
testing and compliance process. This process was completed in December 1998.
During early 1999, we anticipate using a third party auditor to review the
project. In addition, certain employees have attended a number of Year 2000
training programs and outside consultants have been hired when necessary.
Total costs associated with our Year 2000 project are estimated to be
approximately $8.5 million, of which approximately $6.5 million was incurred in
1998 with the remainder to be incurred in 1999.
Despite the efforts described above, we could potentially experience a
disruption in our operations as a result of potential non-compliance of certain
vendors, financial institutions, governmental agencies or other third parties or
external systems. This disruption could potentially affect various aspects of
our business operations including the timeliness and content of certain
newspapers or online products. At this time, we are unable to determine whether
the consequences of Year 2000 failures would have a material impact on our
results of operations, liquidity or financial condition.
In an effort to minimize any disruption, we are in the process of creating
a comprehensive contingency plan to address potential Year 2000 scenarios. Such
plans include maintaining an inventory of critical supplies such as newsprint,
ink, and other consumables for at least a 30-45 day production cycle as well as
creating a smaller newspaper product designed to maximize advertising content.
OUTLOOK FOR 1999
As we look ahead, we foresee continued growth in advertising revenue in
1999, with likely increases in the low to mid-single digits. Factoring in the
Indianapolis circulation system change in 1998 and circulation gains anticipated
in Phoenix in 1999, we expect circulation revenue to increase at a low single
digit rate as well. We expect the cost of newsprint, the second largest expense
item, to be about the same as 1998. We expect non-newsprint operating expenses
to increase at a rate comparable with revenue growth. As a result, we expect
diluted earnings per share to increase in 1999. We plan to use our substantial
free cash flow to reduce our debt while continuing to consider additional share
repurchases and other investment opportunities in 1999.
<PAGE> 5
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. This system is supported by written policies
and guidelines and the selection and training of qualified personnel.
PricewaterhouseCoopers LLP, independent accountants, 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. Their report appears below.
The Audit Committee of our Board of Directors is comprised of three
outside directors. The Audit Committee meets periodically with management and
the independent accountants to discuss accounting, financial reporting, auditing
and internal control matters. The Audit Committee reviews the Company's
financial reports and accounting practices to confirm they are appropriate in
the circumstances. The independent accountants 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 Vice President and
Chief Executive Officer Chief Financial Officer
- --------------------------------------------------------------------------------
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 cash flows present fairly, in all material respects, the financial position
of Central Newspapers, Inc. and its subsidiaries at December 27, 1998 and
December 28, 1997, and the results of their operations and their cash flows for
the years then ended 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 audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audits 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 audits provide a reasonable basis
for the opinion expressed above. The financial statements of Central Newspapers,
Inc. for the year 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 1996 earnings per
share. In our opinion, such adjustments are appropriate and have been properly
applied to the 1996 financial statements.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Phoenix, Arizona
January 29, 1999
<PAGE> 6
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
DEC. 27 Dec. 28
(In thousands) 1998 1997
- -------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 24,774 $ 36,924
- -------------------------------------------------------------------------------------------
Marketable securities 12,636 11,524
- -------------------------------------------------------------------------------------------
Accounts receivable
- -------------------------------------------------------------------------------------------
(net of allowances of $2,602 and $2,959) 90,858 89,707
- -------------------------------------------------------------------------------------------
Inventories 11,841 10,320
- -------------------------------------------------------------------------------------------
Deferred income taxes 8,430 7,919
- -------------------------------------------------------------------------------------------
Other current assets 11,253 5,712
- -------------------------------------------------------------------------------------------
Total current assets 159,792 162,106
==========================================================================================
PROPERTY, PLANT AND EQUIPMENT:
Land 18,985 18,616
- -------------------------------------------------------------------------------------------
Buildings and improvements 135,725 122,409
- -------------------------------------------------------------------------------------------
Leasehold improvements 687 4,412
- -------------------------------------------------------------------------------------------
Machinery and equipment 407,211 383,626
- -------------------------------------------------------------------------------------------
Construction in progress 8,237 8,071
- -------------------------------------------------------------------------------------------
570,845 537,134
Less accumulated depreciation 287,136 250,451
- -------------------------------------------------------------------------------------------
283,709 286,683
==========================================================================================
OTHER ASSETS:
Land held for development 5,229 3,116
- -------------------------------------------------------------------------------------------
Goodwill and other intangibles 127,349 122,729
- -------------------------------------------------------------------------------------------
Investment in Affiliate 9,848 8,321
- -------------------------------------------------------------------------------------------
Other 43,432 31,356
- -------------------------------------------------------------------------------------------
185,858 165,522
- -------------------------------------------------------------------------------------------
TOTAL ASSETS $629,359 $614,311
==========================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 7
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
DEC. 27 Dec. 28
(In thousands, except share data) 1998 1997
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
- -------------------------------------------------------------------------------------------------------
Accounts payable $ 23,088 $ 19,672
- -------------------------------------------------------------------------------------------------------
Short-term bank debt 52,072 10,000
- -------------------------------------------------------------------------------------------------------
Accrued compensation 19,305 20,061
- -------------------------------------------------------------------------------------------------------
Dividends payable 5,217 5,613
- -------------------------------------------------------------------------------------------------------
Accrued expenses and other liabilities 18,208 16,825
- -------------------------------------------------------------------------------------------------------
Federal and state income taxes 1,578
- -------------------------------------------------------------------------------------------------------
Deferred revenue 28,789 23,618
- -------------------------------------------------------------------------------------------------------
Total current liabilities 146,679 97,367
- -------------------------------------------------------------------------------------------------------
DEFERRED INCOME TAXES 26,703 26,882
- -------------------------------------------------------------------------------------------------------
LONG-TERM DEBT 200,025
- -------------------------------------------------------------------------------------------------------
POSTRETIREMENT AND OTHER NONCURRENT LIABILITIES 91,001 86,997
- -------------------------------------------------------------------------------------------------------
MINORITY INTERESTS IN SUBSIDIARIES 2,868 1,866
- -------------------------------------------------------------------------------------------------------
REDEEMABLE PREFERRED STOCK ISSUED BY SUBSIDIARY 18,920 18,920
- -------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY:
Preferred stock -- issuable in series:
Authorized -- 25,000,000 shares Issued -- none
Class A Common Stock -- without par value:
Authorized -- 150,000,000 shares
Issued and outstanding -- 34,446,180 and 44,035,252 shares 30,937 29,934
- -------------------------------------------------------------------------------------------------------
Class B Common Stock -- without par value:
Authorized -- 130,000,000 shares
Issued and outstanding -- 62,691,000 shares 63 63
- -------------------------------------------------------------------------------------------------------
Retained earnings 112,104 352,531
- -------------------------------------------------------------------------------------------------------
Unamortized value of restricted stock (1,407) (1,924)
- -------------------------------------------------------------------------------------------------------
Unrealized gain on available-for-sale securities 1,466 1,675
- -------------------------------------------------------------------------------------------------------
143,163 382,279
- -------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 629,359 $ 614,311
======================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 8
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
For the Year Ended: DEC. 27 Dec. 28 Dec. 29
(In thousands, except per share data) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING REVENUES:
Advertising $ 562,408 $ 541,311 $ 479,474
- ---------------------------------------------------------------------------------------------------------
Circulation 150,446 143,153 134,133
- ---------------------------------------------------------------------------------------------------------
Other 39,836 31,673 6,708
- ---------------------------------------------------------------------------------------------------------
752,690 716,137 620,315
- ---------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Compensation 243,637 239,783 228,316
- ---------------------------------------------------------------------------------------------------------
Newsprint and ink 112,937 105,467 113,171
- ---------------------------------------------------------------------------------------------------------
Other operating costs 196,746 177,829 137,875
- ---------------------------------------------------------------------------------------------------------
Depreciation and amortization 45,418 42,022 35,528
- ---------------------------------------------------------------------------------------------------------
Work force reduction cost 854 9,999 1,340
- ---------------------------------------------------------------------------------------------------------
Asset impairment cost 525 4,226
- ---------------------------------------------------------------------------------------------------------
600,117 575,100 520,456
- ---------------------------------------------------------------------------------------------------------
OPERATING INCOME 152,573 141,037 99,859
Other income (principally investment income) 4,545 4,318 5,486
- ---------------------------------------------------------------------------------------------------------
Other expenses (4,117) (2,166) (1,477)
- ---------------------------------------------------------------------------------------------------------
Income before income taxes 153,001 143,189 103,868
- ---------------------------------------------------------------------------------------------------------
Provision for income taxes 63,125 58,797 42,431
- ---------------------------------------------------------------------------------------------------------
Income before minority interest and Equity in Affiliate 89,876 84,392 61,437
- ---------------------------------------------------------------------------------------------------------
Minority interests in subsidiaries (2,326) (2,566) (1,629)
- ---------------------------------------------------------------------------------------------------------
Equity in net earnings (loss) of Affiliate 992 (331) 1,726
- ---------------------------------------------------------------------------------------------------------
Net income $ 88,542 $ 81,495 $ 61,534
=========================================================================================================
NET INCOME PER COMMON SHARE:
Basic $ 1.83 $ 1.58 $ 1.16
- ---------------------------------------------------------------------------------------------------------
Diluted 1.78 1.54 1.14
- ---------------------------------------------------------------------------------------------------------
AVERAGE COMMON SHARES OUTSTANDING:
(combined Class A and equivalent Class B shares)
Basic 48,498 51,464 53,238
- ---------------------------------------------------------------------------------------------------------
Diluted 49,880 52,946 54,076
- ---------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 9
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED
UNAMORTIZED GAIN ON
CLASS A CLASS B VALUE OF AVAILABLE
COMMON STOCK COMMON STOCK RETAINED RESTRICTED FOR-SALE
(In thousands, except share data) SHARES AMOUNT SHARES AMOUNT EARNINGS STOCK SECURITIES
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995 47,041,222 $18,967 63,106,000 $ 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 309,400 3,928
- ----------------------------------------------------------------------------------------------------------------------------------
Repurchase of Class A Common Stock (980,200) (539) (17,477)
- ----------------------------------------------------------------------------------------------------------------------------------
Issuance of restricted stock 105,000 1,903 $(1,903)
- ----------------------------------------------------------------------------------------------------------------------------------
Amortization of restricted stock 276
- ----------------------------------------------------------------------------------------------------------------------------------
Change in unrealized gain on
available-for-sale securities 215
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 29, 1996 46,475,422 $24,259 63,106,000 $ 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 348,864 6,144
- ----------------------------------------------------------------------------------------------------------------------------------
Repurchase of Class A Common Stock (2,864,534) (1,600) (71,852)
- ----------------------------------------------------------------------------------------------------------------------------------
Repurchase of Class B Common Stock (35,000) (99)
- ----------------------------------------------------------------------------------------------------------------------------------
Issuance of restricted stock 37,500 1,131 (1,131)
- ----------------------------------------------------------------------------------------------------------------------------------
Amortization of restricted stock 834
- ----------------------------------------------------------------------------------------------------------------------------------
Common stock conversion 38,000 (380,000)
- ----------------------------------------------------------------------------------------------------------------------------------
Change in net unrealized gain on
available-for-sale securities 185
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 28, 1997 44,035,252 $29,934 62,691,000 $ 63 $352,531 $ (1,924) $ 1,675
Net income (52 weeks) 88,542
- ----------------------------------------------------------------------------------------------------------------------------------
Dividends declared:
Class A Common Stock (18,543)
- ----------------------------------------------------------------------------------------------------------------------------------
Class B Common Stock (2,821)
- ----------------------------------------------------------------------------------------------------------------------------------
Exercise of stock options 431,088 8,913
- ----------------------------------------------------------------------------------------------------------------------------------
Repurchase of Class A Common Stock (10,039,660) (8,552) (307,605)
- ----------------------------------------------------------------------------------------------------------------------------------
Repurchase of Class B Common Stock
- ----------------------------------------------------------------------------------------------------------------------------------
Issuance of restricted stock,
net of cancellations 19,500 642 (642)
- ----------------------------------------------------------------------------------------------------------------------------------
Amortization of restricted stock 1,159
- ----------------------------------------------------------------------------------------------------------------------------------
Change in net unrealized gain on
available-for-sale securities (209)
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 27, 1998 34,446,180 $30,937 62,691,000 $ 63 $112,104 $ (1,407) $1,466
=================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 10
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
52 WEEKS ENDED DEC. 27 Dec. 28 Dec. 29
(In thousands) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 88,542 $ 81,495 $ 61,534
---------------------------------------------------------------------------------------------------------
Items which did not use (provide) cash:
Depreciation and amortization 45,418 42,022 35,528
---------------------------------------------------------------------------------------------------------
Postretirement and pension benefits (589) 6,593 2,050
---------------------------------------------------------------------------------------------------------
Asset impairment cost 525 4,226
---------------------------------------------------------------------------------------------------------
Change in unrealized gain (loss) on trading securities 119 96 821
---------------------------------------------------------------------------------------------------------
Minority interest in earnings of subsidiaries 2,326 2,566 1,629
---------------------------------------------------------------------------------------------------------
Equity loss (earnings) in Affiliate (992) 331 (1,864)
---------------------------------------------------------------------------------------------------------
Deferred income taxes (2,323) (583) (1,543)
---------------------------------------------------------------------------------------------------------
Amortization of restricted stock awards 1,159 834
---------------------------------------------------------------------------------------------------------
Other (261) 1,465 634
- ------------------------------------------------------------------------------------------------------------
Change in current assets and liabilities:
Net proceeds from (purchases of) trading securities (1,454) 11,631 40,671
---------------------------------------------------------------------------------------------------------
Accounts receivable 9,331 2,985 (26,320)
---------------------------------------------------------------------------------------------------------
Inventories (1,521) (1,409) 1,835
---------------------------------------------------------------------------------------------------------
Other current assets (6,116) (1,826) 2,363
---------------------------------------------------------------------------------------------------------
Accounts payable (2,142) 1,606 (1,041)
---------------------------------------------------------------------------------------------------------
Accrued compensation (756) 2,935 (317)
---------------------------------------------------------------------------------------------------------
Accrued expenses and other liabilities 3,668 949 (1,617)
---------------------------------------------------------------------------------------------------------
Federal and state income taxes (3,199) (1,905) 3,338
---------------------------------------------------------------------------------------------------------
Deferred revenue 1,759 4,038 88
---------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 133,494 153,823 122,015
===========================================================================================================
INVESTING ACTIVITIES:
Purchases of property plant and equipment (34,809) (25,135) (46,530)
---------------------------------------------------------------------------------------------------------
Purchase of land held for development (2,113)
---------------------------------------------------------------------------------------------------------
Proceeds from disposition of assets 177 407 1,975
---------------------------------------------------------------------------------------------------------
Purchases of available-for-sale securities (24,659)
---------------------------------------------------------------------------------------------------------
Proceeds from available-for-sale securities 283 2,057 62,243
---------------------------------------------------------------------------------------------------------
Acquisitions (net of cash acquired) (9,244) (44,219) (60,509)
---------------------------------------------------------------------------------------------------------
Other (8,932) (3,816) (5,557)
---------------------------------------------------------------------------------------------------------
Net cash used by investing activities (54,638) (70,706) (73,037)
============================================================================================================
FINANCING ACTIVITIES:
Cash dividends paid (21,760) (20,111) (18,647)
---------------------------------------------------------------------------------------------------------
Dividends paid to minority interest (1,324) (1,159) (989)
---------------------------------------------------------------------------------------------------------
Proceeds from exercise of stock options 8,913 3,279 2,882
---------------------------------------------------------------------------------------------------------
Borrowings of short-term debt 207,000 39,400
---------------------------------------------------------------------------------------------------------
Repayments of short-term debt (165,000) (29,400)
---------------------------------------------------------------------------------------------------------
Borrowings of long-term debt 200,000
---------------------------------------------------------------------------------------------------------
Repayments of long-term debt (2,678) (800) (4,200)
---------------------------------------------------------------------------------------------------------
Repurchase of common stock (316,157) (73,551) (18,017)
---------------------------------------------------------------------------------------------------------
Net cash used by financing activities (91,006) (82,342) (38,971)
============================================================================================================
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (12,150) 775 10,007
- ------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD 36,924 36,149 26,142
- ------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS END OF PERIOD $ 24,774 $ 36,924 $ 36,149
- ------------------------------------------------------------------------------------------------------------
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 $ 63,965 62,172 $ 40,798
---------------------------------------------------------------------------------------------------------
Interest paid 1,717 1,706 615
---------------------------------------------------------------------------------------------------------
Issuance of restricted stock 642 834 276
---------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 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 1998, 1997 and 1996 included 52 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.
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.
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 15 years for
machinery and equipment and 10 to 40 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 15 to 40
years. Amortization expense amounted to $5,507,000 in 1998, $4,945,000 in
1997 and $1,928,000 in 1996. Accumulated amortization was $11,184,000 and
$9,130,000 at the end of 1998 and 1997, 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 - Basic EPS is computed based upon the
weighted average number of common shares outstanding in each year. The
Class B common stock is included in the computation as if converted to
Class A common stock at a ratio of 10 shares of Class B common stock to
one share of Class A common stock.
Diluted EPS includes the effect of stock options granted under the
Company's Amended and Restated Stock Compensation Plan, calculated using
the treasury stock method.
On December 8, 1998, the Board of Directors declared a two-for-one
split of the Class A and Class B common stock which was distributed on
January 8, 1999 to shareholders of record as of the close of business on
December 18, 1998. All shares and per share amounts presented herein, have
been retroactively restated to reflect the impact of the split.
Asset Impairment - The Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of," in the
first quarter of 1996. The statement establishes accounting standards for
recognizing and measuring impairment of long-lived assets, and requires
reducing the carrying amount of any impaired assets to fair value.
Reclassifications - Certain amounts in the financial statements have
been reclassified to conform to the 1998 presentation.
<PAGE> 12
NOTE 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":
<TABLE>
<CAPTION>
1998 1997 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
(In thousands, except per share data)
BASIC EPS COMPUTATION:
Numerator (Net income) $88,542 $81,495 $61,534
- -----------------------------------------------------------------------------------------
Denominator:
Average Common Shares Outstanding 48,498 51,464 53,238
- -----------------------------------------------------------------------------------------
Basic EPS $ 1.83 $ 1.58 $ 1.16
- -----------------------------------------------------------------------------------------
DILUTED EPS COMPUTATION:
Numerator (Net income) $88,542 $81,495 $61,534
- -----------------------------------------------------------------------------------------
Denominator:
Average Common Shares Outstanding 48,498 51,464 53,238
- -----------------------------------------------------------------------------------------
Stock Options 1,382 1,482 838
- -----------------------------------------------------------------------------------------
TOTAL 49,880 52,946 54,076
- -----------------------------------------------------------------------------------------
Diluted EPS $ 1.78 $ 1.54 $ 1.14
=========================================================================================
</TABLE>
NOTE 3 ACQUISITIONS, REDEEMABLE PREFERRED STOCK AND STOCK REPURCHASES
On October 23, 1998, pursuant to a September 21, 1998 agreement, we
repurchased and retired 5,000,000 shares of Class A Common Stock from the
Nina Mason Pulliam Charitable Trust at $30 per share (plus interest from
September 16, 1998) for a total consideration of $150.8 million. In
addition, in November 1998, we repurchased and retired 3,000,000 shares of
our Class A Common Stock, pursuant to the exercise of an option from the
Charitable Trust, at $33.50 per share for a total consideration of $100.5
million. These repurchases were financed with a $300 million revolving
credit facility arranged by First Chicago Capital Markets, Inc. (a
subsidiary of Bank One Corporation), and syndicated to a group of banks.
This $300 million revolving credit facility, which closed on November 10,
1998 consists of a $200 million five-year and a $100 million 365-day
revolving credit facility. The credit facility may be used for general
corporate purposes, including the repurchase of common stock. Under the
credit facility, we can choose among loans with interest rates based on
either an Alternative Base Rate (fixed rate), an Adjusted LIBOR (floating
rate), or a Competitive Bid (a floating rate loan based on bids solicited
from the lenders) as those terms are defined in the credit agreement. We
must maintain compliance with certain covenants under the terms of the
credit facility.
At our annual meeting of shareholders on May 15, 1998, our
shareholders approved an increase in the number of authorized shares of
Class A Common Stock from 75,000,000 to 150,000,000 shares and Class B
Common Stock from 50,000,000 to 130,000,000 shares.
In December 1997, the Board of Directors authorized additional
repurchases of up to $100.0 million of our Class A Common Stock. The
shares may be purchased within the subsequent three years on the open
market or in privately negotiated transactions. We have repurchased and
retired a total of 2,039,660 shares under this authorization through
December 27, 1998 at a total cost of approximately $65.5 million. This
authorization replaces the March 19, 1996, repurchase program under which
we repurchased 1,490,000 shares of Class A Common Stock at a cost of
approximately $33.2 million.
In October 1997, we acquired an 80% interest in Homebuyer's Fair,
Inc. which provides internet-based services and information for people who
are moving and corporations that are relocating employees. In September
1998, Homebuyer's Fair acquired 100% of National School Reporting
Services, Inc. which provides internet-based information related to
schools across the nation. As a result of the transaction, we now own 89%
of the combined entity, with an option to purchase the remaining 11% on or
after December 31, 2001.
In May 1997, we repurchased and retired an aggregate of 2,354,734
shares of Class A Common Stock from three non-profit organizations at a
total cost of $58.6 million.
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% of Westech.
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. Historical pro-forma results have not
been presented for the acquisitions described above, as the results are
immaterial.
<PAGE> 13
NOTE 4 EMPLOYEE BENEFIT PLANS AND POSTRETIREMENT OBLIGATIONS
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.
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 Company's pension benefits and other postretirement benefits consisted
of:
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER POSTRETIREMENT BENEFITS
-------------------------- -----------------------------
(In Thousands) 1998 1997 1998 1997
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Net benefit obligation at beginning of year $ 234,556 $ 217,140 $ 87,630 $ 89,899
------------------------------------------------------------------------------------------------------------------------
Service cost 6,918 6,572 3,056 3,185
------------------------------------------------------------------------------------------------------------------------
Interest cost 16,983 16,437 5,738 6,092
------------------------------------------------------------------------------------------------------------------------
Plan participants' contributions 426 543 727 630
------------------------------------------------------------------------------------------------------------------------
Plan amendments (1,213) (121)
------------------------------------------------------------------------------------------------------------------------
Actuarial (gain) loss 15,668 9,536 (3,345) (6,887)
------------------------------------------------------------------------------------------------------------------------
Gross benefits paid (16,173) (15,672) (5,509) (5,168)
------------------------------------------------------------------------------------------------------------------------
Net benefit obligation at end of year $ 258,378 $ 234,556 $ 87,084 $ 87,630
------------------------------------------------------------------------------------------------------------------------
CHANGE IN PLAN ASSETS
Fair value of plan assets
at beginning of year $ 279,735 $ 241,397
------------------------------------------------------------------------------------------------------------------------
Actual return on plan assets 44,033 53,467
------------------------------------------------------------------------------------------------------------------------
Employer contributions 7,039 $ 4,782 $ 4,538
------------------------------------------------------------------------------------------------------------------------
Plan participant's contributions 426 543 727 630
------------------------------------------------------------------------------------------------------------------------
Gross benefits paid (16,173) (15,672) (5,509) (5,168)
------------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year $ 315,060 $ 279,735 $ -- $ --
------------------------------------------------------------------------------------------------------------------------
Funded status at end of year $ 56,682 $ 45,179 $ (87,084) $ (87,630)
------------------------------------------------------------------------------------------------------------------------
Unrecognized net actuarial (gain) loss (47,465) (39,559) (1,903) 1,330
------------------------------------------------------------------------------------------------------------------------
Unrecognized prior service cost 2,348 2,792 (1,867) (1,189)
------------------------------------------------------------------------------------------------------------------------
Unrecognized net transition obligation (asset) (3,698) (4,981)
------------------------------------------------------------------------------------------------------------------------
Net amount recognized at end of year $ 7,867 $ 3,431 $ (90,854) $ (87,489)
========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER POSTRETIREMENT BENEFITS
------------------------------- ----------------------------------
1998 1997 1996 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------------
WEIGHTED-AVERAGE ASSUMPTIONS DECEMBER 31
<S> <C> <C> <C> <C> <C> <C>
Discount rate 6.75% 7.25% 7.50% 6.75% 7.25% 7.50%
Expected return on plan assets 9.00% 9.00% 9.00% N/A N/A N/A
Rate of compensation increase 4.00% 4.00% 4.00% 4.00% 4.00% 4.00%
</TABLE>
For measurement purposes, a 6% annual rate of increase in the per
capita cost of covered health care benefits was assumed for 1999. The rate
was assumed to decrease gradually to 5 percent for 2000 and remain at that
level thereafter.
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER POSTRETIREMENT BENEFITS
------------------------------------ ------------------------------------
(In Thousands) 1998 1997 1996 1998 1997 1996
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost $ 6,918 $ 6,572 $ 6,861 $ 3,056 $ 3,185 $ 2,859
--------------------------------------------------------------------------------------------------------------------------
Interest cost 16,983 16,437 14,575 5,738 6,092 5,974
--------------------------------------------------------------------------------------------------------------------------
Expected return on assets (20,447) (18,587) (17,144)
--------------------------------------------------------------------------------------------------------------------------
Amortization of:
Transition obligation (asset) (1,283) (1,283) (1,283)
--------------------------------------------------------------------------------------------------------------------------
Prior service cost 444 444 444 (478) (1,947) (1,927)
--------------------------------------------------------------------------------------------------------------------------
Actuarial (gain) loss (12) (10) 39 (169) 38 128
--------------------------------------------------------------------------------------------------------------------------
Total net periodic benefit cost $ 2,603 $ 3,573 $ 3,492 $ 8,147 $ 7,368 $ 7,034
==========================================================================================================================
</TABLE>
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Other postretirement benefits include medical benefits for retirees
and their spouses, retiree life insurance, and executive life insurance.
Phoenix Newspapers, Inc. also provides dental and vision benefits for
retirees and their spouses. In 1997, Phoenix Newspapers, Inc. amended its
postretirement benefit plan to provide a Medicare Risk HMO option for
their post-65 retirees.
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 $4,488,000, $4,517,000 and
$4,600,000 for 1998, 1997 and 1996, respectively.
Assumed health care cost trend rates have a significant effect on
the amounts reported for the health care plans. A one-percentage-point
change in assumed health care cost trend rates would have the following
effects:
<TABLE>
<CAPTION>
ONE PERCENTAGE POINT ONE PERCENTAGE POINT
INCREASE DECREASE
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Effect on total of service and
interest cost components $ 1,206,502 $ (909,578)
Effect on postretirement
benefit obligation $ 9,372,676 $(7,166,507)
</TABLE>
NOTES 5 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. Work force reduction costs were
$854,000, $9,999,000 and $1,340,000 for 1998, 1997 and 1996, respectively.
NOTE 6 INCOME TAXES
The provision for income taxes, exclusive of tax effects from equity in
earnings of Affiliate, consisted of:
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
------------------------------------------------------------------------------------
<S> <C> <C> <C>
STATE:
Currently payable $ 12,075 $ 10,903 $ 8,007
------------------------------------------------------------------------------------
Deferred (865) (60) (301)
------------------------------------------------------------------------------------
11,210 10,843 7,706
FEDERAL:
Currently payable 53,373 48,477 35,967
------------------------------------------------------------------------------------
Deferred (1,458) (523) (1,242)
------------------------------------------------------------------------------------
51,915 47,954 34,725
Provision for income taxes $ 63,125 $ 58,797 $ 42,431
====================================================================================
</TABLE>
COMPONENTS OF NET DEFERRED INCOME TAX LIABILITY:
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
------------------------------------------------------------------------------------
<S> <C> <C> <C>
Depreciation $ 56,666 $ 57,796 $ 55,533
------------------------------------------------------------------------------------
Pension 2,752 2,878 2,490
------------------------------------------------------------------------------------
Other 1,526 1,933 1,647
------------------------------------------------------------------------------------
Gross deferred tax liability 60,944 62,607 59,670
------------------------------------------------------------------------------------
Post-retirement benefits (38,494) (35,488) (33,938)
------------------------------------------------------------------------------------
Vacation (3,769) (3,767) (3,995)
------------------------------------------------------------------------------------
Other (2,757) (4,351) (2,398)
------------------------------------------------------------------------------------
Gross deferred tax asset (45,020) (43,606) (40,331)
------------------------------------------------------------------------------------
Net deferred income tax liability $ 15,924 $ 19,001 $ 19,339
===================================================================================
</TABLE>
RECONCILIATION OF THE U.S. FEDERAL STATUTORY TAX RATE TO THE EFFECTIVE TAX
RATE:
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Federal statutory tax rate $53,550 35.0% $50,116 35.0% $36,354 35.0%
--------------------------------------------------------------------------------------------------------------
State taxes net of federal tax effect 7,286 4.8 7,048 5.0 5,009 4.8
--------------------------------------------------------------------------------------------------------------
Goodwill and other 2,289 1.5 1,633 1.1 1,068 1.0
--------------------------------------------------------------------------------------------------------------
Provision for income taxes $63,125 41.3% $58,797 41.1% $42,431 40.8%
==============================================================================================================
</TABLE>
<PAGE> 15
NOTE 7 INVENTORIES
Newsprint inventory, valued at LIFO, amounted to $9,639,000 and
$7,710,000 at the end of 1998 and 1997. If the FIFO inventory valuation
method had been exclusively used for newsprint, the value would have been
$5,627,000 and $5,139,000 higher, respectively. Other inventories,
consisting primarily of newspaper production supplies, amounted to
$2,202,000 and $2,610,000 at the end of 1998 and 1997.
NOTE 8 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.
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 $19,042,000 during 1998 and $23,735,000 during 1997.
SUMMARIZED FINANCIAL DATA FOR AFFILIATE:
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
RESULTS OF OPERATIONS:
Net sales $ 144,776 $ 131,330 $ 160,979
------------------------------------------------------------------------------------------------------
Net income (loss) 11,304 (4,040) 22,399
------------------------------------------------------------------------------------------------------
FINANCIAL POSITION:
Current assets $ 22,872 $ 22,150 $ 17,934
------------------------------------------------------------------------------------------------------
Property and equipment, at cost -- net 233,747 250,038 263,013
------------------------------------------------------------------------------------------------------
Other assets 1,844 2,433 3,098
------------------------------------------------------------------------------------------------------
$ 258,463 $ 274,621 $ 284,045
======================================================================================================
Current liabilities $ 34,194 $ 29,018 $ 18,336
------------------------------------------------------------------------------------------------------
Long-term debt
($125 million guaranteed by partners) 151,343 183,982 200,048
------------------------------------------------------------------------------------------------------
Partners' capital 72,926 61,621 65,661
------------------------------------------------------------------------------------------------------
$ 258,463 $ 274,621 $ 284,045
------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SUMMARY OF THE COMPANY'S INVESTMENT IN AFFILIATE:
(In thousands) 1998 1997 1996
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment, beginning of year $ 8,321 $ 8,867 $ 5,843
------------------------------------------------------------------------------------------------------
Equity in partnership income (loss) 1,527 (546) 3,024
------------------------------------------------------------------------------------------------------
Investment, end of year $ 9,848 $ 8,321 $ 8,867
------------------------------------------------------------------------------------------------------
EQUITY IN AFFILIATE:
Equity in partnership income (loss) $ 1,527 $ (546) $ 3,024
------------------------------------------------------------------------------------------------------
Current income tax expense (1,087) (377) (1,425)
------------------------------------------------------------------------------------------------------
Deferred tax benefit 552 593 265
------------------------------------------------------------------------------------------------------
Other (1) (138)
------------------------------------------------------------------------------------------------------
Equity in net earnings (loss) of Affiliate $ 992 $ (331) $ 1,726
------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 9 SHORT-TERM BORROWINGS AND LONG-TERM DEBT
In November 1998, the Company entered into a $100,000,000 unsecured,
committed, 365 day credit agreement and a $200,000,000 unsecured,
committed, five year credit agreement. Of such borrowings, $252,000,000
was drawn to fund the repurchase of stock. As of December 27, 1998,
$52,000,000 remained outstanding on the 365 day revolving credit line, and
all $200,000,000 remained outstanding on the five year facility both at
annual interest rates approximating 5.5%. Compliance with certain
covenants under the terms of the credit facilities must be maintained. As
of December 27, 1998, the Company is in compliance with all such
covenants.
Included in 1997 accrued expenses and other liabilities is
$2,678,000 relating to the 50-year 4.5% debentures due and paid December
1, 1998.
Interest expense on these facilities and other debt amounted to
$3,922,000 in 1998, $1,710,000 in 1997 and $618,000 in 1996. Such amounts
are included in other expense.
<PAGE> 16
NOTE 10 RENTAL EXPENSE AND LEASE COMMITMENTS
Rental expense for 1998, 1997 and 1996 amounted to, $6,341,000,
$5,532,000 and $5,000,000, respectively. Future obligations for minimum
annual rentals under noncancelable long-term leases are not significant.
NOTE 11 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 27, 1998, the Company has reserved 4,350,486 shares of Class A
common stock for issuance under its Stock Compensation Plan, 1,000,000
shares for issuance under its 401(k) plan and 6,269,100 shares for
issuance upon conversion of Class B common stock.
<TABLE>
<CAPTION>
DIVIDENDS DECLARED PER SHARE: 1998 1997 1996
---------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A common stock $ .45 $ .40 $ .36
---------------------------------------------------------------------------------
Class B common stock .045 .040 .036
---------------------------------------------------------------------------------
</TABLE>
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 10 years. Options granted before
December 25, 1995, 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 1998, 1997 and 1996 was estimated on the grant
date using the Black-Scholes option pricing model using the following
assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Risk-free interest rates 5.5% 6.2% 6.5 - 6.6%
----------------------------------------------------------------------------------------------
Dividend yields 1.2% 1.2% 2.0%
----------------------------------------------------------------------------------------------
Expected volatility 30% 29.0% 27.0%
----------------------------------------------------------------------------------------------
Weighted average expected life of options 4 YEARS 4 years 4 - 6 years
----------------------------------------------------------------------------------------------
Fair market value per share granted $ 11.72 $ 7.12 $ 5.21
----------------------------------------------------------------------------------------------
</TABLE>
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:
<TABLE>
<CAPTION>
(In thousands, except per share data) 1998 1997 1996
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET INCOME:
-------------------------------------------------------------------------------------------
As reported $ 88,542 $ 81,495 $ 61,534
-------------------------------------------------------------------------------------------
Pro forma 85,817 79,656 60,316
-------------------------------------------------------------------------------------------
EARNINGS PER SHARE:
As reported
Basic $ 1.83 $ 1.58 $ 1.16
-------------------------------------------------------------------------------------------
Diluted 1.78 1.54 1.14
-------------------------------------------------------------------------------------------
Pro forma
-------------------------------------------------------------------------------------------
Basic $ 1.77 $ 1.55 $ 1.14
-------------------------------------------------------------------------------------------
Diluted 1.72 1.51 1.12
-------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 17
THE FOLLOWING IS A SUMMARY OF THE STATUS OF THE COMPANY'S STOCK COMPENSATION
PLAN AS OF AND FOR THE THREE YEARS ENDED DECEMBER 27, 1998:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES RESERVED FOR GRANTS SHARES UNDER OPTION EXERCISE PRICE
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OUTSTANDING, DECEMBER 31, 1995 5,606,200 2,702,200 $12.09
------------------------------------------------------------------------------------------------------------------
Granted 678,000 18.68
------------------------------------------------------------------------------------------------------------------
Exercised (309,400) (309,400) 9.60
------------------------------------------------------------------------------------------------------------------
Cancelled (103,000) 13.29
------------------------------------------------------------------------------------------------------------------
Restricted Shares (105,000)
------------------------------------------------------------------------------------------------------------------
OUTSTANDING, DECEMBER 29, 1996 5,191,800 2,967,800 $13.82
------------------------------------------------------------------------------------------------------------------
Granted 247,950 24.23
------------------------------------------------------------------------------------------------------------------
Exercised (353,226) (353,226) 10.77
------------------------------------------------------------------------------------------------------------------
Cancelled (20,100) 16.08
------------------------------------------------------------------------------------------------------------------
Restricted shares,-net (37,500)
OUTSTANDING, DECEMBER 28, 1997 4,801,074 2,842,424 $15.09
Granted 718,200 36.00
Exercised (431,088) (431,088) 12.46
Cancelled (34,504) 23.22
Restricted shares,-net (19,500)
------------------------------------------------------------------------------------------------------------------
OUTSTANDING, DECEMBER 27, 1998 4,350,486 3,095,032 $20.21
------------------------------------------------------------------------------------------------------------------
</TABLE>
THE FOLLOWING TABLE SUMMARIZES INFORMATION ABOUT STOCK OPTIONS OUTSTANDING
AT DECEMBER 27, 1998:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
----------------------------------------- -----------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
AVERAGE EXERCISE EXERCISE
EXERCISE PRICE RANGE SHARES LIFE (A) PRICE SHARES PRICE
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 5.00 - $ 14.99 1,070,800 5.1 $ 11.97 1,070,800 $ 11.98
$ 15.00 - $ 24.99 1,289,532 7.4 $ 18.11 861,514 $ 17.20
$ 25.00 - $ 34.99 8,000 8.3 $ 25.88 2,667 $ 25.88
$ 35.00 - $ 44.99 726,700 9.2 $ 36.00 6,000 $ 36.25
--------- ---------
3,095,032 7.0 $ 20.21 1,940,891 $ 19.89
=====================================================================================================
</TABLE>
(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 19,500,
38,500 and 105,000 shares of stock in 1998, 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. On February 23, 1999, transfer restrictions lapsed on 76,000 shares
of restricted stock granted in 1996. 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 1998,
1997 and 1996 compensation expense in the amount of $642,000, $834,000 and
$276,00 respectively, has been recorded related to these restricted stock
grants.
NOTE 12 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.
NOTE 13 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.
END OF SECTION
<PAGE> 18
TEN-YEAR FINANCIAL HIGHLIGHTS
Data excludes special charges (a)
<TABLE>
<CAPTION>
Growth Rates
Compounded Annual DEC. 27 Dec. 28
10-Year 5-Year 1-Year 1998 1997
(In thousands, except share data) 1988-98 1993-98 1997-98 52 WEEKS 52 Weeks
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Operating revenues 6.1% 10.0% 5.1% $ 752,690 $ 716,137
----------------------------------
Operating expenses 5.1% 8.4% 6.0% 598,738 565,101
----------------------------------
Operating income 11.3% 18.1% 1.9% 153,952 151,036
----------------------------------
Other income - net 428 2,152
----------------------------------
Income before income taxes 10.1% 17.3% 0.8% $ 154,380 $ 153,188
----------------------------------
Income before minority interest
and equity in Affiliate 9.3% 17.2% 0.4% $ 90,685 $ 90,281
----------------------------------
Income before cumulative effect
of accounting change 10.1% 22.0% 2.3% $ 89,351 $ 87,384
----------------------------------
Cumulative effect of accounting change
Net income (loss) 10.1% 22.0% 2.3% $ 89,351 $ 87,384
----------------------------------
CASH FLOW DATA (B)
Provided by operating activities (e) 10.4% 12.5% (15.9%) $ 134,304 $ 159,712
----------------------------------
Effect of trading securities 1,454 (11,631)
----------------------------------
Capital spending 4.0% 18.1% 46.9% (36,922) (25,135)
----------------------------------
Operating free cash flow 14.9% 11.0% (19.6%) $ 98,836 $ 122,946
----------------------------------
Dividends paid 10.0% 12.7% 8.2% $ 21,760 $ 20,111
----------------------------------
Earnings before interest, income taxes,
depreciation and amortization
("EBITDA") (c) 11.5% 16.5% 3.3% $ 199,370 $ 193,058
----------------------------------
CLASS A SHARE DATA AND OTHER SHARE INFORMATION:
Basic income per share before
cumulative effect of
accounting changes 11.2% 24.3% 8.2% $ 1.84 $ 1.70
----------------------------------
Cumulative effect of accounting changes
Basic income (loss) per share 11.2% 24.3% 8.2% $ 1.84 $ 1.70
----------------------------------
Diluted income per share before
Cumulative effect of accounting changes 10.9% 23.7% 8.5% $ 1.79 $ 1.65
----------------------------------
Cumulative effect of accounting changes
Diluted income (loss) per share 10.9% 23.7% 8.5% $ 1.79 $ 1.65
----------------------------------
Dividends declared 11.4% 15.9% 12.5% $ 0.45 $ 0.40
----------------------------------
Book value per share at year-end (2.1%) (8.4%) (53.7%) $ 3.52 $ 7.60
----------------------------------
Market price per share at year-end 19.9% (2.1%) $ 34.281 $ 35.032
----------------------------------
Class A common equivalent
shares at year-end 40,715,280 50,304,352
----------------------------------
Average shares outstanding used to
calculate basic income (loss) per share (f) 48,498,158 51,463,474
----------------------------------
Average shares outstanding used to
calculate diluted income (loss) per share (f) 49,880,164 52,945,848
----------------------------------
BALANCE SHEET DATA:
Total assets 6.9% 6.3% 2.4% $ 629,359 $ 614,311
----------------------------------
Working capital (19.6%) (36.6%) (79.7%) 13,113 64,739
Long-term debt 200,025 0
Shareholders' equity (4.6%) (13.2%) (62.6%) 143,163 382,279
RATIOS:
Return on average
shareholders' equity (d) 34.01% 22.70%
----------------------------------
EBITDA as a percentage of
operating revenues (c) 26.49% 26.96%
----------------------------------
</TABLE>
<TABLE>
<CAPTION>
Dec. 29 Dec. 31 Dec. 25
1996 1995 1994
(In thousands, except share data) 52 Weeks 53 Weeks 52 Weeks
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SUMMARY OF OPERATIONS:
Operating revenues $ 620,315 $ 579,901 $ 519,702
--------------------------------------------------
Operating expenses 514,890 490,682 436,908
--------------------------------------------------
Operating income 105,425 89,219 82,794
--------------------------------------------------
Other income - net 4,009 8,154 4,965
--------------------------------------------------
Income before income taxes $ 109,434 $ 97,373 $ 87,759
--------------------------------------------------
Income before minority interest
and equity in Affiliate $ 64,732 $ 57,977 $ 52,037
--------------------------------------------------
Income before cumulative effect
of accounting change $ 64,829 $ 55,978 $ 45,510
--------------------------------------------------
Cumulative effect of accounting change
Net income (loss) $ 64,829 $ 55,978 $ 45,510
--------------------------------------------------
CASH FLOW DATA (B)
Provided by operating activities (e) $ 125,310 $ 64,263 $ 46,086
--------------------------------------------------
Effect of trading securities (40,671) 17,630 45,682
--------------------------------------------------
Capital spending (46,530) (58,676) (23,256)
--------------------------------------------------
Operating free cash flow $ 38,109 $ 23,217 $ 68,512
--------------------------------------------------
Dividends paid $ 18,647 $ 15,724 $ 13,308
--------------------------------------------------
Earnings before interest, income taxes,
depreciation and amortization
("EBITDA") (c) $ 140,953 $ 117,706 $ 109,433
--------------------------------------------------
CLASS A SHARE DATA AND OTHER SHARE INFORMATION:
Basic income per share before
cumulative effect of
accounting changes $ 1.22 $ 1.05 $ 0.85
--------------------------------------------------
Cumulative effect of accounting changes
Basic income (loss) per share $ 1.22 $ 1.05 $ 0.85
--------------------------------------------------
Diluted income per share before
Cumulative effect of accounting changes $ 1.20 $ 1.04 $ 0.85
--------------------------------------------------
Cumulative effect of accounting changes
Diluted income (loss) per share $ 1.20 $ 1.04 $ 0.85
--------------------------------------------------
Dividends declared $ 0.36 $ 0.31 $ 0.26
--------------------------------------------------
Book value per share at year-end $ 7.34 $ 6.72 $ 6.00
--------------------------------------------------
Market price per share at year-end $ 21.438 $ 15.688 $ 13.563
--------------------------------------------------
Class A common equivalent
shares at year-end 52,786,022 53,351,822 53,276,600
--------------------------------------------------
Average shares outstanding used to
calculate basic income (loss) per share (f) 53,238,272 53,302,014 53,242,266
--------------------------------------------------
Average shares outstanding used to
calculate diluted income (loss) per share (f) 54,075,428 53,737,944 53,649,978
--------------------------------------------------
BALANCE SHEET DATA:
Total assets $ 586,972 $ 547,204 $ 500,444
--------------------------------------------------
Working capital 92,323 137,818 132,907
Long-term debt 2,678 2,678 2,678
Shareholders' equity 387,550 358,741 319,762
RATIOS:
Return on average
shareholders' equity (d) 17.37% 16.50% 14.91%
--------------------------------------------------
EBITDA as a percentage of
operating revenues (c) 22.72% 20.30% 21.06%
--------------------------------------------------
</TABLE>
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 27, 1998 should be
read in order to obtain a better understanding of this data.
(a) The data excludes special charges which are costs associated with
workforce reductions and asset impairments. Special charges were $1,379 in
1998, $9,999 in 1997, $5,566 in 1996, $3,328 in 1995, $7,064 in 1994,
$1,491 in 1993, $3,572 in 1992, $3,281 in 1991 and $2,082 in 1990.
(b) Cash flows from investing and financing activities, which are not
presented, are an integral part of total cash activities.
(c) 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.
(d) The return on average shareholders' equity is calculated using income
before cumulative effect of accounting changes.
(e) Amounts for 1998, 1997, 1996, 1995 and 1994 include the effects of trading
securities on cash flows provided by operating activities.
(f) See Note #1 for discussion on computation of number of shares used in
computing earnings per share.
<PAGE> 19
<TABLE>
<CAPTION>
Dec. 26 Dec. 27 Dec. 29 Dec. 30 Dec. 31
1993 1992 1991 1990 1989
52 Weeks 52 Weeks 52 Weeks 52 Weeks 53 Weeks
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 466,567 $ 433,600 $ 420,351 $ 431,659 $ 436,228
- -------------------------------------------------------------------------------------------------
399,454 378,365 369,328 376,812 376,300
- -------------------------------------------------------------------------------------------------
67,113 55,235 51,023 54,847 59,928
- -------------------------------------------------------------------------------------------------
2,417 1,111 3,735 8,963 8,389
- -------------------------------------------------------------------------------------------------
$ 69,530 $ 56,346 $ 54,758 $ 63,810 $ 68,317
- -------------------------------------------------------------------------------------------------
$ 40,969 $ 33,401 $ 32,640 $ 37,127 $ 40,569
- -------------------------------------------------------------------------------------------------
$ 33,006 $ 25,476 $ 27,858 $ 29,495 $ 38,467
- -------------------------------------------------------------------------------------------------
(34,212)
$ 33,006 $ (8,736) $ 27,858 $ 29,495 $ 38,467
- -------------------------------------------------------------------------------------------------
$ 74,610 $ 69,752 $ 57,742 $ 60,177 $ 65,924
- -------------------------------------------------------------------------------------------------
(16,049) (26,175) (82,067) (50,178) (27,208)
- -------------------------------------------------------------------------------------------------
$ 58,561 $ 43,577 $ (24,325) $ 9,999 $ 38,716
- -------------------------------------------------------------------------------------------------
$ 11,956 $ 10,870 $ 10,598 $ 10,267 $ 12,678
- -------------------------------------------------------------------------------------------------
$ 92,923 $ 76,884 $ 68,357 $ 70,749 $ 74,836
- -------------------------------------------------------------------------------------------------
$ 0.62 $ 0.48 $ 0.53 $ 0.56 $ 0.73
- -------------------------------------------------------------------------------------------------
$ (0.65)
- -------------------------------------------------------------------------------------------------
$ 0.62 $ (0.16) $ 0.53 $ 0.56 $ 0.73
- -------------------------------------------------------------------------------------------------
$ 0.62 $ 0.48 $ 0.53 $ 0.56 $ 0.73
- -------------------------------------------------------------------------------------------------
$ (0.65)
- -------------------------------------------------------------------------------------------------
$ 0.62 $ (0.17) $ 0.53 $ 0.56 $ 0.73
- -------------------------------------------------------------------------------------------------
$ 0.23 $ 0.21 $ 0.20 $ 0.20 $ 0.163
- -------------------------------------------------------------------------------------------------
$ 5.47 $ 5.08 $ 5.49 $ 5.20 $ 4.87
- -------------------------------------------------------------------------------------------------
$ 13.813 $ 11.125 $ 9.438 $ 8.438 $ 11.375
- -------------------------------------------------------------------------------------------------
53,178,500 53,099,500 52,994,500 52,988,500 52,988,500
- -------------------------------------------------------------------------------------------------
53,141,946 53,029,500 52,991,922 52,988,500 53,035,600
- -------------------------------------------------------------------------------------------------
53,412,958 53,199,294 53,041,484 52,991,462 53,035,600
- -------------------------------------------------------------------------------------------------
$ 464,688 $ 432,872 $ 403,627 $ 383,758 $ 356,103
- -------------------------------------------------------------------------------------------------
127,999 90,488 70,217 122,710 134,755
- -------------------------------------------------------------------------------------------------
2,678 2,678 2,678 2,678 2,678
- -------------------------------------------------------------------------------------------------
290,693 269,997 290,982 275,623 257,938
- -------------------------------------------------------------------------------------------------
11.77% 9.08% 9.83% 11.06% 15.76%
- -------------------------------------------------------------------------------------------------
19.92% 17.73% 16.26% 16.39% 17.16%
- -------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 20
QUARTERLY FINANCIAL INFORMATION
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:
<TABLE>
<CAPTION>
(In thousands, except share data) 1ST 2ND 3RD 4TH
1998 (52 WEEKS) QUARTER QUARTER QUARTER QUARTER TOTAL
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenues $ 185,104 $ 188,618 $ 181,326 $ 197,642 $ 752,690
- ---------------------------------------------------------------------------------------------------------------------------------
Operating expenses 150,566 150,733 144,900 153,918 600,117
- ---------------------------------------------------------------------------------------------------------------------------------
Operating income 34,538 37,885 36,426 43,724 152,573
- ---------------------------------------------------------------------------------------------------------------------------------
Other income--net 857 1,430 521 (2,380) 428
- ---------------------------------------------------------------------------------------------------------------------------------
Provision for income taxes (14,656) (16,260) (15,315) (16,894) (63,125)
- ---------------------------------------------------------------------------------------------------------------------------------
Minority interest (315) (1,120) (502) (389) (2,326)
- ---------------------------------------------------------------------------------------------------------------------------------
Equity in Affiliate--net 154 322 327 189 992
- ---------------------------------------------------------------------------------------------------------------------------------
Net income $ 20,578 $ 22,257 $ 21,457 $ 24,250 $ 88,542
=================================================================================================================================
</TABLE>
NET INCOME PER COMMON SHARE:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Basic 0.41 0.44 0.44 0.54 1.83
- ----------------------------------------------------------------------------------------------------------------------------------
Diluted 0.40 0.43 0.43 0.52 1.78
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1997 (52 WEEKS)
<S> <C> <C> <C> <C> <C>
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
==================================================================================================================================
</TABLE>
NET INCOME PER COMMON SHARE:
<TABLE>
<S> <C> <C> <C> <C> <C>
Basic 0.34 0.43 0.35 0.46 1.58
- ----------------------------------------------------------------------------------------------------------------------------------
Diluted 0.33 0.42 0.34 0.45 1.54
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1996 (52 WEEKS)
<S> <C> <C> <C> <C> <C>
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
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NET INCOME PER COMMON SHARE:
<S> <C> <C> <C> <C> <C>
Basic 0.19 0.25 0.29 0.45 1.16
- ----------------------------------------------------------------------------------------------------------------------------------
Diluted 0.18 0.24 0.28 0.44 1.14
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 21
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 10 B shares for one A share. At February 23, 1999, there were
approximately 343 shareholders of record of Class A Common Stock and 24
shareholders of record of Class B Common Stock.
DIVIDENDS
DIVIDENDS DECLARED PER SHARE:
<TABLE>
<CAPTION>
1998 CLASS A CLASS B
-----------------------------------------------------------------------------
<S> <C> <C> <C>
1st Quarter $ 0.105 $ 0.0105
2nd Quarter $ 0.105 $ 0.0105
3rd Quarter $ 0.120 $ 0.0120
4th Quarter $ 0.120 $ 0.0120
-----------------------------------------------------------------------------
$ 0.450 $ 0.0450
</TABLE>
<TABLE>
<CAPTION>
1997 Class A Class B
-----------------------------------------------------------------------------
<S> <C> <C> <C>
1st Quarter $ 0.095 $ 0.0095
2nd Quarter $ 0.095 $ 0.0095
3rd Quarter $ 0.105 $ 0.0105
4th Quarter $ 0.105 $ 0.0105
-----------------------------------------------------------------------------
$ 0.400 $ 0.0400
</TABLE>
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 10 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)
<TABLE>
<CAPTION>
1998 1997 1996
-----------------------------------------------------------------------
<S> <C> <C> <C>
48,498 51,464 53,238
</TABLE>
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, Mail Code CN10, Phoenix, AZ 85004.
<TABLE>
<CAPTION>
STOCK PRICES
Calendar Quarter 1ST 2ND 3RD 4TH
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998 HIGH $ 37 1/8 $ 37 15/32 $ 35 1/16 $ 35
----------------------------------------------------------------------------------------------------------
LOW 31 1/32 30 13/16 28 1/2 27 19/32
1997 High $ 25 3/8 $ 35 13/16 $ 38 1/8 $ 38 7/16
----------------------------------------------------------------------------------------------------------
Low 21 11/16 23 15/16 32 15/16 32 11/16
</TABLE>
ANNUAL MEETING
The Annual Meeting of Shareholders will be held at The Arizona Republic,
200 E. Van Buren Street, Phoenix, Arizona on May 11, 1999, 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
ECP
LIST
NYSE
THE NEW YORK STOCK EXCHANGE
<PAGE> 1
Exhibit 13.2
Independent Auditor's Report
Board of Directors and Shareholders
Central Newspapers, Inc.
We have audited the consolidated statements of income, shareholders' equity,
and cash flows of Central Newspapers, Inc. and Subsidiaries for the fiscal year
ending 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 audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated results of operations and
cash flows of Central Newspapers, Inc. and Subsidiaries for the fiscal year
ended December 29, 1996 in conformity with generally accepted accounting
principles.
Olive LLP
/s/ Olive LLP
- ----------------
Indianapolis, Indiana
February 3, 1997
<PAGE> 1
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 March 1, 1999.
Name State of Incorporation
Phoenix Newspapers, Inc. Arizona
Indiana Newspapers, Inc. Indiana
Alexandria Newspapers, Inc. Louisiana
McCormick Graphics, Inc. Louisiana
Career Services, Inc. Arizona
Westech ExpoCorporation California
Home Buyer's Fair Arizona
National School Reporting Services, Inc. Delaware
Carantin & Co., Inc. Arizona
CNE Corp Arizona
CNF Corp Arizona
CNT Corp Arizona
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No's. 33-37566, 33-40776, 33-61397, and 33-33026) of
Central Newspapers, Inc. of our report dated January 29, 1999 appearing on
page 27 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.
PricewaterhouseCoopers LLP
Phoenix, Arizona
March 17, 1999
<PAGE> 1
Exhibit 23.2
CONSENT OF OLIVE LLP
We consent to the incorporation by reference into this Annual Report of 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 in 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 in Form S-8 (File Number 33-33026) and related Prospectus
pertaining to the Central Newspapers, Inc. Savings Plus Plan.
Olive LLP
/s/ Olive LLP
-------------------
Indianapolis, Indiana
March 15, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-27-1998
<PERIOD-START> DEC-29-1997
<PERIOD-END> DEC-27-1998
<EXCHANGE-RATE> 1
<CASH> 24,774
<SECURITIES> 12,636
<RECEIVABLES> 93,460
<ALLOWANCES> 2,602
<INVENTORY> 11,841
<CURRENT-ASSETS> 159,792
<PP&E> 570,845
<DEPRECIATION> 287,136
<TOTAL-ASSETS> 629,359
<CURRENT-LIABILITIES> 146,679
<BONDS> 0
18,920
0
<COMMON> 31,000
<OTHER-SE> 112,163
<TOTAL-LIABILITY-AND-EQUITY> 629,359
<SALES> 752,690
<TOTAL-REVENUES> 752,690
<CGS> 0
<TOTAL-COSTS> 600,117
<OTHER-EXPENSES> 4,117
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,173
<INCOME-PRETAX> 153,001
<INCOME-TAX> 63,125
<INCOME-CONTINUING> 88,542
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 88,542
<EPS-PRIMARY> 1.83
<EPS-DILUTED> 1.78
</TABLE>
