<PAGE> 1
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United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR
------- 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the
quarterly period ended June 27, 1999
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
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CENTRAL NEWSPAPERS, INC.
(Exact name of registrant as specified in its charter)
INDIANA 35-0220660
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
200 E. VAN BUREN STREET, PHOENIX, ARIZONA 85004
(Address of principal executive office)
(602) 444-8000
(Registrant's telephone number)
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Indicate by check mark whether the registrant has (1) filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES x NO
--- ---
The number of shares of each class of common stock outstanding as of August 2,
1999:
CLASS A COMMON STOCK 35,423,947
CLASS B COMMON STOCK 55,376,010
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Central Newspapers, Inc.
Index to Form 10-Q
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I - FINANCIAL INFORMATION
Item 1 - Financial Statements:
Consolidated Statement of Financial Position 3-4
Consolidated Statement of Income 5
Consolidated Statement of Shareholders' Equity 6
Consolidated Statement of Cash Flows 7
Notes to Consolidated Financial Statements 8
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-13
Part II - OTHER INFORMATION 14-16
</TABLE>
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PART I.
Item 1. Financial Statements
CENTRAL NEWSPAPERS, INC.
Consolidated Statement of Financial Position
<TABLE>
<CAPTION>
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June 27, December 27,
ASSETS 1999 1998
(In thousands) (Unaudited)
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<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $33,248 $24,774
Marketable securities 12,636
Accounts receivable (net of allowances of $3,110 and $2,602) 86,382 90,858
Inventories 10,519 11,841
Deferred income tax benefits 8,509 8,430
Other current assets 8,530 11,253
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Total current assets 147,188 159,792
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PROPERTY, PLANT AND EQUIPMENT:
Land 18,985 18,985
Buildings and improvements 136,623 135,725
Leasehold improvements 665 687
Machinery and equipment 416,580 407,211
Construction in progress 9,087 8,237
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581,940 570,845
Less accumulated depreciation 307,509 287,136
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274,431 283,709
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OTHER ASSETS:
Land held for development 5,229 5,229
Goodwill and other intangibles 140,929 127,349
Investment in Affiliate 9,732 9,848
Other 47,329 43,432
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203,219 185,858
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TOTAL ASSETS $624,838 $629,359
==============================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
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CENTRAL NEWSPAPERS, INC.
Consolidated Statement of Financial Position
<TABLE>
<CAPTION>
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June 27, December 27,
LIABILITIES AND SHAREHOLDERS' EQUITY 1999 1998
(In thousands, except share data) (Unaudited)
- --------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $23,670 $23,088
Short-term bank debt 7,055 52,072
Accrued compensation 17,539 19,305
Dividends payable 4,911 5,217
Accrued expenses and other liabilities 18,473 18,208
Federal and state income taxes 3,241
Deferred revenue 29,102 28,789
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Total current liabilities 103,991 146,679
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DEFERRED INCOME TAXES 27,257 26,703
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LONG-TERM DEBT 200,025 200,025
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POSTRETIREMENT AND OTHER NONCURRENT LIABILITIES 92,802 91,001
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MINORITY INTEREST IN SUBSIDIARIES 12 2,868
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REDEEMABLE PREFERRED STOCK ISSUED BY SUBSIDIARY 18,920 18,920
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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--35,383,830 and 34,446,180 shares 36,438 30,937
Class B common stock--without par value:
Authorized--130,000,000 shares
Issued and outstanding--55,376,010 and 62,691,000 shares 56 63
Retained earnings 147,480 112,104
Unamortized value of restricted stock (3,604) (1,407)
Accumulated other comprehensive income 1,461 1,466
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181,831 143,163
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $624,838 $629,359
============================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
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CENTRAL NEWSPAPERS, INC.
Consolidated Statement of Income
(Unaudited)
<TABLE>
<CAPTION>
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(In thousands, except per share data)
Thirteen Weeks Ended 26 Weeks Ended
June 27, June 28, June 27, June 28,
1999 1998 1999 1998
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<S> <C> <C> <C> <C>
OPERATING REVENUES:
Advertising $150,148 $140,344 $293,318 $276,495
Circulation 38,621 37,338 78,430 75,839
Other 13,359 10,936 23,415 21,388
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202,128 188,618 395,163 373,722
- ----------------------------------------------------------------------- --------------------
OPERATING EXPENSES:
Compensation 64,703 60,074 128,648 121,207
Newsprint and ink 26,009 28,632 55,394 58,759
Other operating costs 53,891 50,486 105,087 98,482
Depreciation and amortization 12,937 11,464 25,352 22,774
Work force reduction cost 292 77 292 77
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157,832 150,733 314,773 301,299
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OPERATING INCOME 44,296 37,885 80,390 72,423
OTHER INCOME 1,652 1,653 3,604 2,738
OTHER EXPENSES (3,308) (223) (7,164) (451)
- ----------------------------------------------------------------------- --------------------
INCOME BEFORE INCOME TAXES 42,640 39,315 76,830 74,710
PROVISION FOR INCOME TAXES 16,922 16,260 30,637 30,916
- ----------------------------------------------------------------------- --------------------
INCOME BEFORE MINORITY INTEREST AND
EQUITY IN AFFILIATE 25,718 23,055 46,193 43,794
MINORITY INTEREST IN SUBSIDIARIES (443) (1,120) (929) (1,435)
EQUITY IN NET EARNINGS (LOSS) OF AFFILIATE (182) 322 (75) 476
- ----------------------------------------------------------------------- --------------------
NET INCOME $25,093 $22,257 $45,189 $42,835
==============================================================================================
NET INCOME PER COMMON SHARE:
Basic $0.61 $0.44 $1.11 $0.85
Diluted 0.60 0.43 1.07 0.82
DIVIDENDS DECLARED PER CLASS A COMMON SHARE $0.12 $0.105 $0.24 $0.21
AVERAGE COMMON SHARES OUTSTANDING:
(combined Class A and equivalent Class B shares)
Basic 40,901 50,538 40,827 50,438
Diluted 42,171 51,968 42,173 51,930
</TABLE>
See accompanying notes to consolidated financial statements.
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CENTRAL NEWSPAPERS, INC.
Consolidated Statement of Shareholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
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(In thousands, except share data)
Unamortized Accumulated
Class A Class B Value of Other
Common Stock Common Stock Retained Restricted Comprehensive
Shares Amount Shares Amount Earnings Stock Income Total
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<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 28, 1997 44,035,252 $29,934 62,691,000 $63 $352,531 ($1,924) $1,675 $382,279
Net income (26 weeks) 42,835 42,835
Change in net unrealized
gain on available-for-sale
securities (245) (245)
---------
Comprehensive Income 42,590
=========
Dividends declared:
Class A common stock (9,295) (9,295)
Class B common stock (1,317) (1,317)
Exercise of stock options 313,826 6,445 6,445
Repurchase of Class A
common stock (59,600) (43) (1,961) (2,004)
Issuance of restricted stock 4,000 143 (143)
Amortization of restricted
stock 558 558
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BALANCE AT JUNE 28, 1998 44,293,478 $36,479 62,691,000 $63 $382,793 ($1,509) $1,430 $419,256
Net income (26 weeks) 45,707 45,707
Change in net unrealized
gain on available-for-sale
securities 36 36
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Comprehensive Income 45,743
=========
Dividends declared:
Class A common stock (9,248) (9,248)
Class B common stock (1,504) (1,504)
Exercise of stock options 117,262 2,468 2,468
Repurchase of Class A
common stock (9,980,060) (8,509) (305,644) (314,153)
Issuance of restricted stock 15,500 499 (499)
Amortization of restricted
stock 601 601
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BALANCE AT DECEMBER 27, 1998 34,446,180 $30,937 62,691,000 $63 $112,104 ($1,407) $1,466 $143,163
Net income (26 weeks) 45,189 45,189
Change in net unrealized
gain on available-for-sale
securities (5) (5)
---------
Comprehensive Income 45,184
=========
Dividends declared:
Class A common stock (8,396) (8,396)
Class B common stock (1,417) (1,417)
Exercise of stock options 121,151 2,438 2,438
Common stock conversion 731,499 7 (7,314,990) (7)
Issuance of restricted stock,
net of cancellations 85,000 3,056 (3,056)
Amortization of restricted
stock 859 859
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BALANCE AT JUNE 27, 1999 35,383,830 $36,438 55,376,010 $56 $147,480 ($3,604) $1,461 $181,831
===================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
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CENTRAL NEWSPAPERS, INC.
Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
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(In thousands)
26 Weeks Ended
June 27, June 28,
1999 1998
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<S> <C> <C>
OPERATING ACTIVITIES:
Net income $45,189 $42,835
Items which did not use (provide) cash:
Depreciation and amortization 25,352 22,774
Postretirement and pension benefits 3,911 394
Loss (gain) on disposition of assets (1,742) 51
Minority interest in earnings of subsidiaries 929 1,435
Equity loss (earnings) in Affiliate 75 (476)
Deferred income taxes 474 (353)
Amortization of restricted stock awards 859 558
Other (284) (842)
Net proceeds from (purchases of) trading securities 12,690 (1,292)
Net change in other current assets and liabilities 11,306 8,449
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Net cash provided by operating activities 98,759 73,533
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INVESTING ACTIVITIES:
Purchases of property, plant and equipment (14,510) (17,648)
Acquisitions (17,681)
Other (2,756) (4,693)
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Net cash used by investing activities (34,947) (22,341)
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FINANCING ACTIVITIES:
Cash dividends paid (9,789) (10,584)
Dividends paid to minority interest (2,060) (993)
Proceeds from exercise of stock options 1,528 3,396
(Repayments) borrowings of short-term debt (45,017) (10,000)
Repurchase of common stock (2,006)
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Net cash used by financing activities (55,338) (20,187)
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INCREASE IN CASH AND CASH EQUIVALENTS 8,474 31,005
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 24,774 36,924
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CASH AND CASH EQUIVALENTS, END OF PERIOD $33,248 $67,929
===============================================================================
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid $26,090 $37,800
Interest paid 7,343 277
</TABLE>
See accompanying notes to consolidated financial statements.
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CENTRAL NEWSPAPERS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
1. Central Newspapers, Inc. and its subsidiaries (the "Company") are primarily
engaged in the publishing and distribution of newspapers. Revenues are
principally derived from advertising and newspaper sales in the Phoenix, Arizona
and Indianapolis, Indiana metropolitan areas. The Company also owns 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 revenues and expenses
as of and for the period ending with the financial reporting date. Actual
results could differ from those estimates.
2. The accompanying unaudited consolidated financial statements do not include
all of the information and disclosures that are normally included in Form 10-K
and the annual report to shareholders. These financial statements should be read
in conjunction with the Company's audited consolidated financial statements and
related notes for the year ended December 27, 1998. The accompanying
consolidated financial statements have been prepared in accordance with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. The consolidated
statement of financial position at December 27, 1998, has been derived from
audited financial statements. In the opinion of the Company's management, the
unaudited consolidated financial statements reflect all adjustments which are
necessary to present fairly, the Company's financial position, results of
operations and cash flows for the interim periods presented. All adjustments are
of a normal recurring nature. Such statements are not necessarily indicative of
the results to be expected for the full year.
3. 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. 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.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
FORWARD-LOOKING STATEMENTS
The information in this 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
the 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,
increased competition from print and non-print products, including the
internet, and new competitors emerging in our markets;
- - the negative impact of issues related to labor agreements;
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<PAGE> 9
- - 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:
- - a 100% interest in Career Services, Inc., 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 80% interest in Homebuyer's Fair, Inc., ("HBF") 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;
- - an 80% interest in FAS Hotline, Inc. ("FAS") which provides complementary
services to those offered by HBF; and
- - a 100% interest in Carantin & Co. Inc., which provides direct marketing
support services to its clients.
The analysis of the second quarter and six month period ended June 27, 1999
compared with comparable 1998 periods should be read in conjunction with the
fiscal 1998 consolidated financial statements and the accompanying notes to the
consolidated financial statements.
Our business tends to be seasonal, with peak revenues and profits generally
occurring in the second and fourth quarters of each year.
RECENT EVENTS
On July 13, 1999, we announced that Indianapolis Newspapers, a division of
Indiana Newspapers, Inc. would cease publication of the afternoon paper, The
Indianapolis News, effective October 1, 1999 and would realign the news
gathering structure of its morning newspaper, The Indianapolis Star. These
changes will result in recording a one-time pre-tax charge to earnings of
approximately $1.2 million in the third quarter of 1999 and are expected to
result in annual pre-tax savings of approximately $3.4 million. Approximately 32
positions will be eliminated as a result of these actions.
On April 30,1999, we purchased the remaining 20% of Career Services, Inc. for
approximately $14 million from the minority shareholders. This transaction is
not expected to have a material impact on future earnings.
In April 1999, we completed a registered secondary offering of 2,673,699 shares
of Class A common stock priced at $30.50 per share. The shares were sold by the
Nina Mason Pulliam Charitable Trust. To complete the sale, a total of 1,777,560
shares of Class B Common Stock were converted to 177,756 shares of Class A
Common Stock. No new shares were issued in this transaction and we did not
receive any proceeds from the sale.
On April 1, 1999, we acquired an 80% interest in FAS Hotline, Inc. ("FAS"),
which provides complementary services to those offered by Homebuyer's Fair, Inc.
("HBF"). On this date, we also swapped 9% of the capital stock of HBF owned by
the Company for 100% of the capital stock of Center for Mobility Resources, Inc.
("CMR"), making CMR a wholly-owned subsidiary of HBF. This acquisition provides
us with ownership of a database of information and statistics utilized by HBF
and related entities. As a result of this transaction, we now own 80% of HBF. We
have an option to purchase the remaining 20% of HBF and FAS on or after December
31, 2001 and March 31, 2002, respectively.
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QUARTERLY RESULTS OF OPERATIONS
Second quarter and year-to-date diluted earnings per share for 1999 were $.60
and $1.07 for increases of 39.5% and 30.5%, respectively. Operating income for
the second quarter and the first six months of 1999 was $44.3 million and $80.4
million, respectively, which represented an increase of 16.9% for the quarter
and 11.0% for the six months over comparable 1998 periods. The increase in
operating income for the six months between the periods was primarily due to a
7.0% increase in advertising revenue and savings achieved from reduced newsprint
prices.
Net income for the second quarter of 1999 was $25.1 million, an increase of
12.7% over the second quarter of 1998. For the six month period, net income for
1999 was $45.2 million, up 5.5% over the prior year. EBITDA (operating income
before depreciation, amortization and special charges) for the comparable
periods was $57.5 million for the second quarter of 1999 and $106.0 million
year-to-date, representing increases of 16.4% and 11.3%, respectively, versus
comparable 1998 amounts.
OPERATING REVENUES
Second quarter and six month revenues increased to $202.1 million and $395.2
million for increases of 7.2% and 5.7%, respectively, when compared with the
same 1998 periods.
Advertising revenue for the three and six month periods ended June 27, 1999 was
$150.1 million and $293.3 million for increases of 7.0% and 6.1%, respectively
over comparable periods in 1998. In the second quarter of 1999, national
advertising was strong in Phoenix and Indianapolis and we experienced increases
in classified advertising in Phoenix and retail advertising in Indianapolis. The
classified increase in Phoenix was primarily in local employment, real estate
and automotive categories. In Indianapolis, the most significant retail growth
occurred in the department store and home furnishings categories.
Circulation revenue for the second quarter and year-to-date periods increased to
$38.6 million and $78.4 million, respectively, for an increase of 3.4% for both
periods when compared to 1998. The increase is primarily due to Indianapolis'
distribution system conversion to delivery agents in the state delivery area
(resulting in a revenue increase of $0.5 million in the second quarter of 1999
and $1.0 million for the six month period of 1999), a home delivered tiered
pricing structure in Indianapolis launched in February 1998 and an April 1999
Arizona Republic home delivered price increase.
Other revenues for the second quarter and year-to-date increased $2.4 million
and $2.0 million, respectively, due primarily to an increase in database
marketing, online and direct mail revenues.
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The following is a summary of major market linage and circulation statistics for
the second quarter and six month periods:
<TABLE>
<CAPTION>
(In thousands, except
circulation)
Second Quarter % Year-to-date %
1999 1998 Change 1999 1998 Change
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Full Run Linage in six
column inches:
Retail 773.1 711.9 8.6 1,476.2 1,372.3 7.6
National 136.7 111.6 22.5 267.3 223.0 19.9
Classified 872.8 819.4 6.5 1,677.5 1,616.8 3.8
------- ------- ----- -------- ------- -----
Total 1,782.6 1,642.9 8.5 3,421.0 3,212.1 6.5
======= ======= ===== ======== ======= =====
Full Run Linage by
Major Markets:
Phoenix 806.0 775.6 3.9 1,585.7 1,535.0 3.3
Indianapolis 976.6 867.3 12.6 1,835.3 1,677.1 9.4
----- ----- ----- -------- ------- ---
Total 1,782.6 1,642.9 8.5 3,421.0 3,212.1 6.5
======= ======= ===== ======== ======= =====
Net Advertising Revenue $150,148 $140,344 7.0 $293,318 $276,495 6.1
Combined Average Daily
Circulation:
Phoenix 437,303 438,682 (0.3) 485,378 487,700 (0.5)
Indianapolis a.m. 248,795 230,720 7.8 244,918 239,855 2.1
Indianapolis p.m. 32,260 35,864 (10.0) 32,567 37,238 (12.5)
Sunday Circulation:
Phoenix 553,585 550,137 0.6 604,450 601,214 0.5
Indianapolis 377,202 391,866 (3.7) 379,436 391,026 (3.0)
</TABLE>
OPERATING EXPENSES
Compensation costs, which include fringe benefits, increased 7.7% to $64.7
million in the second quarter and 6.1% to $128.6 million for the six month
period. The increase in expense was primarily attributable to merit increases,
volume related commission increases and performance based bonuses, partially
offset by a 1.1% decrease in headcount due mostly to 1998 buyouts of circulation
and transportation employees in Indianapolis.
Newsprint and ink expense of $26.0 million decreased 9.2% in the second quarter
of 1999 and 5.7% for the six month period. The decreases in newsprint expense
were primarily due to lower newsprint prices during both 1999 periods when
compared with 1998 and a volume increase of 4.9% for the second quarter and 2.3%
for the six month period over comparable 1998 periods related to increased
advertising linage and circulation gains.
Other operating costs increased 6.7% to $53.9 million in the second quarter and
6.7% to $105.1 million for the six month period. Significant items contributing
to these increases in both 1999 periods versus the same 1998 periods included:
- - costs associated with new database marketing projects and online services;
- - software maintenance costs related to new systems; and
- - distribution costs related to the conversion to circulation agents in the
state distribution area of Indianapolis.
Depreciation and amortization expense increased 12.8% to $12.9 million in the
second quarter and 11.3% to $25.4 million year-to-date. The expense increases
were primarily a result of new information technology projects in Phoenix and
Indianapolis.
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NON-OPERATING ITEMS AND EQUITY IN AFFILIATE
Other non-operating income (primarily investment income) in the second quarter
of 1999 was flat to the second quarter of 1998 and, for the six month period,
increased 31.6% over prior year-to-date primarily due to an increase in
investable cash from operations and gain on the sale of marketable securities.
Other non-operating expense increased $3.1 million in the second quarter and
$6.7 million year-to-date 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. Income tax expense
for the six months of 1999 and 1998 was $30.6 million and $30.9 million,
respectively, reflecting effective tax rates of 39.9% and 41.4%, respectively.
The rate decrease was largely a result of operational changes.
Equity in Affiliate recorded losses in the second quarter and the six month
period due to an decrease in newsprint selling prices by Ponderay Newsprint
Company.
LIQUIDITY AND CAPITAL RESOURCES FOR THE QUARTER ENDED JUNE 27, 1999
Net cash provided by operating activities is our primary source of liquidity.
Net cash provided by operating activities, excluding the effects of net proceeds
(or net purchases of) from trading securities for the first six months of 1999
and 1998, was $86.1 million and $74.8 million, respectively. Changes for both
years were primarily attributable to net income and working capital differences.
The principal uses of cash in the first six months of 1999 were repayment of
short term debt, acquisition of FAS and the remaining 20% of Career Services,
Inc., capital expenditures and payment of dividends. At the end of the six month
period, our available cash and investments totaled $33.2 million, a decrease of
$4.2 million from the balance at the end of 1998. Working capital for the same
period increased $30.1million to $43.2 million.
Total capital expenditures for the six months of 1999 were $14.5 million
compared to $17.6 million for the comparable 1998 period. As of June 27, 1999,
there were no significant formal commitments related to future capital
expenditures.
Dividends of $.12 per share on the Class A common stock and $.012 on the Class B
common stock were declared during the quarter and paid July 9, 1999. Total Class
A and B dividends paid during the six month period of 1999 were $9.8 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 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 use of equity.
YEAR 2000
Our Year 2000 project is on schedule to meet its objectives. In 1998, we
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 we constructed 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 was completed in 1998. We performed several
review audits that ensured that all susceptible systems had been identified,
including client server, desktop, and all systems with embedded computer chips.
All desktop systems, application software, and servers were updated to a
compliant level in 1998.
- 12 -
<PAGE> 13
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. We have completed testing of all mission critical systems and the
remediation and testing phase of all remaining systems. We will continue to
retest systems throughout the remainder of 1999 to ensure continued compliance.
In 1998, we requested letters of compliance from each of our vendors and,
wherever possible, we worked with our vendors to determine an appropriate
testing and compliance process. We continue to receive upgrades and patches from
our system, database and telecommunications vendors and we install and test
these as they are received. In addition, certain employees have attended a
number of Year 2000 training programs and outside consultants have been hired
when necessary. We have published a company wide employee Year 2000 awareness
bulletin with a second one scheduled to be published in October 1999.
Total costs associated with our Year 2000 project are being funded with
operating cash flows and are estimated to be approximately $8.5 million, of
which approximately $6.5 million was incurred in 1998 with the remainder to be
incurred this year.
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 have created a comprehensive
contingency plan for all sites to address potential Year 2000 scenarios. The
contingency plans outline alternative solutions in the event they are required.
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 THE REMAINDER OF 1999
As we look ahead, we anticipate continued growth in revenues in the mid-single
digits. Compensation expense is expected to be slightly lower than second
quarter but up over prior year due to a projected increase in performance based
incentives for non-contract employees resulting from performance that is
projected to be higher than our original operating plan for the year. We expect
newsprint expense, our second largest expense item, to continue to be down from
the prior year due to reduced newsprint prices. As a result, we expect an
increase in net income for the year and we expect a greater increase in diluted
earnings per share due to fewer outstanding shares. We plan to continue to use
our substantial free cash flow to pursue a combination of debt reduction,
additional share repurchases and other investment opportunities.
- 13 -
<PAGE> 14
PART II
CENTRAL NEWSPAPERS, INC.
Item 1. Legal Proceedings - - None
Item 2. Changes in Securities - - None
Item 3. Default Upon Senior Securities - - None
Item 4. Submission of Matters to a Vote of Security Holders - At our Annual
Meeting of Shareholders on May 11, 1999, the shareholders elected the following
directors by the votes specified opposite each director's name:
<TABLE>
<CAPTION>
Broker
Director Vote For Votes Withheld Abstentions Non-Vote
- -------- -------- -------------- ----------- --------
<S> <C> <C> <C> <C>
William A. Franke 48,926,807 21,220 - -
L. Ben Lytle 48,947,411 616 - -
Kathryn L. Munro 48,947,627 400 - -
Myrta J. Pulliam 48,946,819 1,208 - -
Frank E. Russell 48,947,411 616 - -
Richard Snell 48,947,223 804 - -
Louis A. Weil III 48,947,627 400 - -
</TABLE>
The shareholders also approved the 1999 Long-Term Incentive Plan by the
following vote:
<TABLE>
<CAPTION>
Broker
Vote For Votes Withheld Abstentions Non-Vote
-------- -------------- ----------- --------
<S> <C> <C> <C> <C>
47,490,489 1,441,563 265 15,710
</TABLE>
No other matters were submitted for a vote of the shareholders during the
quarter.
Item 5. Other Information - - None
Item 6. Exhibits and Reports on Form 8-K
Exhibit 15 -- Independent Accountant's Report
Exhibit 27 -- Selected financial data
No reports on Form 8-K were filed during the quarter
- 14 -
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
CENTRAL NEWSPAPERS, INC.
Dated: August 3, 1999 By: /s/ Louis A. Weil, III
-----------------------
Louis A. Weil, III
Chairman, President and
Chief Executive Officer
By: /s/ Thomas K. MacGillivray
--------------------------
Thomas K. MacGillivray
Vice President and
Chief Financial Officer
- 15 -
<PAGE> 16
EXHIBIT INDEX
-------------
Exhibit
No. Description
- ------- -----------
15 Independent Accountant's Report
27 Selected financial data
<PAGE> 1
Exhibit 15
INDEPENDENT ACCOUNTANT'S REPORT
August 2, 1999
To the Board of Directors and Shareholders of
Central Newspapers, Inc.
We have reviewed the accompanying consolidated statement of financial position
of Central Newspapers, Inc. as of June 27, 1999 and the consolidated statements
of income, shareholders' equity and cash flows for the three-month and
six-month periods ended June 27, 1999 and June 28, 1998. These financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements referred to above for them to
be in conformity with generally accepted accounting principles.
We previously audited in accordance with generally accepted auditing standards,
the consolidated statement of financial position as of December 27, 1998, and
the related consolidated statements of income, shareholders' equity and cash
flows for the year then ended (not presented herein), and in our report dated
January 29, 1999 we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying consolidated statement of financial position as of December 27,
1998, is fairly stated in all material respects in relation to the
consolidated statement of financial position from which it has been derived.
/s/ PricewaterhouseCoopers LLP
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000854094
<NAME> CENTRAL NEWSPAPERS, INC.
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-26-1999
<PERIOD-START> DEC-28-1998
<PERIOD-END> JUN-27-1999
<EXCHANGE-RATE> 1
<CASH> 33,248
<SECURITIES> 0
<RECEIVABLES> 89,492
<ALLOWANCES> 3,110
<INVENTORY> 10,519
<CURRENT-ASSETS> 147,188
<PP&E> 581,940
<DEPRECIATION> 307,509
<TOTAL-ASSETS> 624,838
<CURRENT-LIABILITIES> 103,991
<BONDS> 0
18,920
0
<COMMON> 36,494
<OTHER-SE> 145,337
<TOTAL-LIABILITY-AND-EQUITY> 624,838
<SALES> 395,163
<TOTAL-REVENUES> 395,163
<CGS> 0
<TOTAL-COSTS> 314,773
<OTHER-EXPENSES> 7,164
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,649
<INCOME-PRETAX> 76,830
<INCOME-TAX> 30,637
<INCOME-CONTINUING> 45,189
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 45,189
<EPS-BASIC> 1.11
<EPS-DILUTED> 1.07
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