SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
Date of Report: October 16, 2000
GANNETT CO., INC.
(Exact name of registrant as specified in its charter)
Delaware 1-6961 16-0442930
(State or other (Commission (IRS Employer
jurisdiction File Number) Identification No.)
of incorporation)
1100 Wilson Boulevard, Arlington, Virginia 22234
(Address of principal executive offices)(Zip Code)
(703) 284-6000
(Registrant's telephone number, including area code)
Amendment No. 1
The company's current report on Form 8-K dated August 1, 2000, is hereby
amended and supplemented as follows.
ITEM 7. FINANCIAL STATEMENTS AND PRO FORMA FINANCIAL INFORMATION
The following financial statements and pro forma financial information are
hereby filed as part of this report.
(a) Financial Statements of Businesses Acquired
(1) Audited consolidated statements of financial position of
Central Newspapers, Inc., as of December 26, 1999 and December 27, 1998,
and the related consolidated statements of income, consolidated
statements of shareholders' equity and comprehensive income, and
consolidated statements of cash flows for the 52 week periods
ended December 26, 1999, December 27, 1998, and December 28, 1997.
(2) Unaudited consolidated statements of financial position of
Central Newspapers, Inc., as of June 25, 2000, the related consolidated
statements of income for the 13 week and 26 week periods ended June 25,
2000, and June 27, 1999, and the consolidated statements of cash flows
for the 26 week periods ended June 25, 2000, and June 27, 1999.
(b) Pro Forma Financial Information
The following pro forma combining financial statements of Gannett Co., Inc.,
and Central Newspapers, Inc. are included in this report:
(1) Unaudited pro forma condensed combined balance sheet as of June 25,
2000, and the unaudited pro forma condensed combined statement of income for
the 26 weeks ended June 25, 2000.
(2) Unaudited pro forma condensed combined statement of income for
the 52 weeks ended December 26, 1999.
(c) Exhibits
See exhibit index for list of exhibits.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
GANNETT CO., INC.
Dated: October 16, 2000 By: /s/ George R. Gavagan
-------------------------
George R. Gavagan
Vice President and Controller
EXHIBIT INDEX
Exhibit
Number Title or Description
- ------- ----------------------
23-1 Consent of PricewaterhouseCoopers LLP
99-1 Audited consolidated statements of financial
position of Central Newspapers, Inc., as of
December 26, 1999 and December 27, 1998,
and the related consolidated statements of
income, consolidated statements of chareholders'
equity and comprehensive income, and
consolidated statements of cash flows for
the 52 week periods ended December 26, 1999,
December 27, 1998, and December 28, 1997
(pages 34 to 52 of Central Newspapers,
Inc.'s Annual Report for the 52 weeks
ended December 26, 1999).
99-2 Unaudited consolidated statement of financial
position of Central Newspapers, Inc., as of
June 25, 2000, the related consolidated
statements of income for the 13 week and
26 week periods ended June 25, 2000, and
June 27, 1999, and the consolidated statements
of cash flows for the 26 week periods ended
June 25, 2000, and June 27, 1999.
99-3 Unaudited pro forma condensed combined balance
sheet as of June 25, 2000, and the unaudited
pro forma condensed combined statements of
income for the 26 weeks ended June 25, 2000,
and for the 52 weeks ended December 26, 1999.
Exhibit 23-1
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We consent to the incorporation by reference in the Registration Statements
on Form S-3 (Nos. 33-63673, 33-58686 and 33-53159) and in the Registration
Statements on Form S-8 (Nos. 2-63038, 2-84088, 33-15319, 33-16790, 33-28413,
33-35305, 33-50813, 33-64959, 333-04459, 333-03941, 333-61859, and 333-66051)
of Gannett Co., Inc. of our report dated January 28, 2000, relating to the
financial statements of Central Newspapers, Inc., as of December 26, 1999,
and for the fifty-two weeks then ended, which appears in the Current Report
on Form 8-K/A of Gannett Co., Inc. dated October 16, 2000.
/s/PricewaterhouseCoopers LLP
- ---------------------------------
PricewaterhouseCoopers LLP
Phoenix, Arizona
October 13, 2000
Exhibit 99-1
PORTIONS OF CENTRAL NEWSPAPERS, INC. ANNUAL REPORT
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, of shareholders'
equity and comprehensive income and of cash flows present fairly, in all
material respects, the financial position of Central Newspapers, Inc. and its
subsidiaries at December 26, 1999 and December 27, 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended December 26, 1999 in conformity with accounting principles generally
accepted in the United States. 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 auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Phoenix, Arizona
January 28, 2000
34
CENTRAL NEWSPAPERS, INC.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
DECEMBER 26, DECEMBER 27,
1999 1998
------------ ------------
(IN THOUSANDS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 27,643 $ 24,774
Marketable securities..................................... 4,396 12,636
Accounts receivable (net of allowances of $3,305 and
$2,602)................................................ 100,221 90,858
Notes receivable.......................................... 34,341
Inventories............................................... 11,396 11,841
Deferred income taxes..................................... 6,533 8,430
Other current assets...................................... 7,215 11,253
-------- --------
Total current assets...................................... 191,745 159,792
-------- --------
PROPERTY, PLANT AND EQUIPMENT:
Land...................................................... 18,898 18,985
Buildings and improvements................................ 136,951 135,725
Leasehold improvements.................................... 1,636 687
Machinery and equipment................................... 427,668 407,211
Construction in progress.................................. 3,270 8,237
-------- --------
588,423 570,845
Less accumulated depreciation.......................... 322,838 287,136
-------- --------
265,585 283,709
-------- --------
OTHER ASSETS:
Land held for development................................. 5,229 5,229
Goodwill and other intangibles............................ 120,207 127,349
Investment in Affiliate................................... 9,802 9,848
Other..................................................... 55,698 43,432
-------- --------
190,936 185,858
-------- --------
TOTAL ASSETS................................................ $648,266 $629,359
-------- --------
See accompanying notes to consolidated financial statements.
35
CENTRAL NEWSPAPERS, INC.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
DECEMBER 26, DECEMBER 27,
1999 1998
------------ ------------
(IN THOUSANDS,
EXCEPT SHARE DATA)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 32,421 $ 23,088
Short-term bank debt and notes payable.................... 27,789 52,072
Accrued compensation...................................... 27,281 19,305
Dividends payable......................................... 5,360 5,217
Accrued expenses and other liabilities.................... 16,649 18,208
Federal and state income taxes............................ 12,803 0
Deferred revenue.......................................... 31,619 28,789
-------- --------
Total current liabilities.............................. 153,922 146,679
-------- --------
DEFERRED INCOME TAXES....................................... 29,626 24,354
-------- --------
LONG-TERM DEBT.............................................. 200,000 200,025
-------- --------
POSTRETIREMENT AND OTHER NONCURRENT LIABILITIES............. 97,097 93,350
-------- --------
MINORITY INTEREST IN SUBSIDIARIES........................... 2,868
-------- --------
REDEEMABLE PREFERRED STOCK ISSUED BY SUBSIDIARY............. 18,920 18,920
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 13).....................
-------- --------
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 -- 33,146,031 and 34,446,180
shares................................................ 38,953 30,937
Class B common stock -- without par value:
Authorized -- 130,000,000 shares
Issued and outstanding -- 55,356,010 and 62,691,000
shares................................................ 55 63
Retained earnings......................................... 110,250 112,104
Unamortized value of restricted stock..................... (3,018) (1,407)
Accumulated other comprehensive income.................... 2,461 1,466
-------- --------
148,701 143,163
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. $648,266 $629,359
-------- --------
See accompanying notes to consolidated financial statements.
36
CENTRAL NEWSPAPERS, INC.
CONSOLIDATED STATEMENT OF INCOME
DECEMBER 26, DECEMBER 27, DECEMBER 28,
1999 1998 1997
------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
OPERATING REVENUES:
Advertising........................................... $599,087 $562,408 $541,311
Circulation........................................... 153,451 150,446 143,153
Other................................................. 51,552 39,836 31,673
-------- -------- --------
804,090 752,690 716,137
-------- -------- --------
OPERATING EXPENSES:
Compensation.......................................... 258,644 243,637 239,783
Newsprint and ink..................................... 101,542 112,937 105,467
Other operating costs................................. 218,214 196,746 177,829
Depreciation and amortization......................... 51,170 45,418 42,022
Work force reduction cost............................. 3,792 854 9,999
Asset impairment cost................................. 525
Gain on sale of subsidiary............................ (32,718)
-------- -------- --------
600,644 600,117 575,100
-------- -------- --------
OPERATING INCOME........................................ 203,446 152,573 141,037
OTHER INCOME (principally investment income)............ 8,062 4,545 4,318
OTHER EXPENSES (principally interest expense)........... (15,312) (4,117) (2,166)
-------- -------- --------
INCOME BEFORE INCOME TAXES.............................. 196,196 153,001 143,189
PROVISION FOR INCOME TAXES.............................. 78,478 63,125 58,797
-------- -------- --------
INCOME BEFORE MINORITY INTEREST AND EQUITY IN
AFFILIATE............................................. 117,718 89,876 84,392
MINORITY INTEREST IN SUBSIDIARIES....................... (1,519) (2,326) (2,566)
EQUITY IN NET EARNINGS (LOSS) OF AFFILIATE.............. (556) 992 (331)
-------- -------- --------
NET INCOME.............................................. $115,643 $ 88,542 $ 81,495
-------- -------- --------
NET INCOME PER COMMON SHARE:
Basic................................................. $ 2.89 $ 1.83 $ 1.58
Diluted............................................... 2.79 1.78 1.54
AVERAGE COMMON SHARES OUTSTANDING:
(combined Class A and equivalent Class B shares)
Basic................................................. 40,079 48,498 51,464
Diluted............................................... 41,506 49,880 52,946
See accompanying notes to consolidated financial statements.
37
CENTRAL NEWSPAPERS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
COMMON STOCK COMMON STOCK UNAMORTIZED ACCUMULATED
CLASS A CLASS B VALUE OF OTHER
--------------------- ------------------- RETAINED RESTRICTED COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT EARNINGS STOCK INCOME TOTAL
----------- ------- ---------- ------ --------- ----------- ------------- ---------
BALANCE AT DECEMBER 29,
1996........................ 46,475,422 $24,259 63,106,000 $63 $ 363,365 $(1,627) $1,490 $ 387,550
Net income (52 weeks)....... 81,495 81,495
Change in net unrealized
gain on available-for-sale
securities, net of tax.... 185 185
---------
Comprehensive Income........ $ 81,680
---------
Dividends declared:
Class A common stock...... (17,866) (17,866)
Class B common stock...... (2,512) (2,512)
Exercise of stock options... 348,864 6,144 6,144
Repurchase of Class A common
stock..................... (2,864,534) (1,600) (71,852) (73,452)
Repurchase of Class B common
stock..................... (35,000) (99) (99)
Issuance of restricted
stock, net of
cancellations............. 37,500 1,131 (1,131)
Amortization of restricted
stock..................... 834 834
Common stock conversion..... 38,000 (380,000)
----------- ------- ---------- --- --------- ------- ------ ---------
BALANCE AT DECEMBER 28,
1997........................ 44,035,252 29,934 62,691,000 63 352,531 (1,924) 1,675 382,279
Net income (52 weeks)....... 88,542 88,542
Change in net unrealized
gain on available-for-sale
securities, net of tax.... (209) (209)
---------
Comprehensive Income........ $ 88,333
---------
Dividends declared:
Class A common stock...... (18,543) (18,543)
Class B common stock...... (2,821) (2,821)
Exercise of stock options... 431,088 8,913 8,913
Repurchase of Class A common
stock..................... (10,039,660) (8,552) (307,605) (316,157)
Issuance of restricted
stock, net of
cancellations............. 19,500 642 (642)
Amortization of restricted
stock..................... 1,159 1,159
----------- ------- ---------- --- --------- ------- ------ ---------
BALANCE AT DECEMBER 27,
1998........................ 34,446,180 30,937 62,691,000 63 112,104 (1,407) 1,466 143,163
Net income (52 weeks)....... 115,643 115,643
Change in net unrealized
gain on available-for-sale
securities, net of tax.... 995 995
---------
Comprehensive Income........ $ 116,638
---------
Dividends declared:
Class A common stock...... (17,034) (17,034)
Class B common stock...... (2,856) (2,856)
Exercise of stock options... 317,102 7,141 7,141
Repurchase of Class A common
stock..................... (2,435,000) (2,217) (97,607) (99,824)
Common stock conversion..... 733,499 8 (7,334,990) (8)
Issuance of restricted
stock, net of
cancellations............. 84,250 3,084 (3,084)
Amortization of restricted
stock..................... 1,473 1,473
----------- ------- ---------- --- --------- ------- ------ ---------
BALANCE AT DECEMBER 26,
1999........................ 33,146,031 $38,953 55,356,010 $55 $ 110,250 $(3,018) $2,461 $ 148,701
----------- ------- ---------- --- --------- ------- ------ ---------
See accompanying notes to consolidated financial statements.
38
CENTRAL NEWSPAPERS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
DECEMBER 26, DECEMBER 27, DECEMBER 28,
1999 1998 1997
------------ ------------ ------------
(IN THOUSANDS)
OPERATING ACTIVITIES:
Net income................................................ $ 115,643 $ 88,542 $ 81,495
Items which did not use (provide) cash:
Depreciation and amortization........................... 51,170 45,418 42,022
Postretirement and pension benefits..................... 6,385 (589) 6,593
Loss (gain) on disposition of assets.................... (1,742) 119 96
Minority interest in earnings of subsidiaries........... 1,519 2,326 2,566
Equity loss (earnings) in Affiliate..................... 556 (992) 331
Deferred income taxes................................... 5,946 (2,323) (583)
Amortization of restricted stock awards................. 1,473 1,159 834
Gain on sale of subsidiary.............................. (32,718)
Other................................................... (1,611) 264 1,465
Change in current assets and liabilities:
Net proceeds from (purchases of) trading securities..... 12,690 (1,454) 11,631
Accounts receivable..................................... (8,809) 9,331 2,985
Inventories............................................. 445 (1,521) (1,409)
Other current assets.................................... 152 (6,116) (1,826)
Accounts payable........................................ 12,110 (2,142) 1,606
Accrued compensation.................................... 7,976 (756) 2,935
Accrued expenses and other liabilities.................. (1,559) 3,668 949
Federal and state income taxes.......................... 12,803 (543) (1,905)
Deferred revenue........................................ 2,830 1,759 4,038
--------- --------- --------
Net cash provided by operating activities............ 185,259 137,236 153,823
--------- --------- --------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment................ (30,731) (34,809) (25,135)
Purchase of land held for development..................... (2,113)
Proceeds from disposition of assets....................... 7,797 177 407
Proceeds from available for sale securities............... 2,710 283 2,057
Proceeds from sale of subsidiary.......................... 23,500
Purchase of cost basis investments........................ (16,253) (6,724) (2,211)
Acquisitions.............................................. (17,681) (9,244) (44,219)
Other..................................................... (1,829) (2,208) (1,605)
--------- --------- --------
Net cash used in investing activities................ (32,487) (54,638) (70,706)
--------- --------- --------
FINANCING ACTIVITIES:
Cash dividends paid....................................... (19,747) (21,760) (20,111)
Dividends paid to minority interest....................... (2,722) (1,324) (1,159)
Proceeds from exercise of stock options................... 4,463 5,171 3,279
(Repayments) borrowings of short-term debt................ (32,073) 42,000 10,000
(Repayments) borrowings of long-term debt................. 197,322 (800)
Repurchase of common stock................................ (99,824) (316,157) (73,551)
--------- --------- --------
Net cash used in financing activities................ (149,903) (94,748) (82,342)
--------- --------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ 2,869 (12,150) 775
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR................ 24,774 36,924 36,149
--------- --------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR...................... $ 27,643 $ 24,774 $ 36,924
--------- --------- --------
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......................................... $ 55,799 $ 63,965 62,172
Interest paid............................................. 15,249 1,717 1,706
Notes receivable.......................................... 33,770
Notes payable............................................. 7,770
Common stock received on sale of subsidiary............... 2,400
Issuance of restricted stock.............................. 3,084 642 1,131
See accompanying notes to consolidated financial statements.
39
CENTRAL NEWSPAPERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 -- NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations -- Central Newspapers and its subsidiaries (the
"Company") is a media and information company. Through its flagship newspapers,
The Arizona Republic and The Indianapolis Star, the Company publishes the only
major dailies in the greater Phoenix metropolitan area and central Indiana. The
Company owns and operates several smaller newspapers as well as other related
media and information businesses. The Company also owns 13.5% interest in
Ponderay Newsprint Company ("Affiliate"), a partnership formed to own a
newsprint mill in the State of Washington.
Fiscal Year -- The Company reports on a fiscal year, ending the last Sunday
of the calendar year. Results for 1999, 1998 and 1997 are for the 52 weeks ended
December 26, December 27 and December 28, respectively.
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.
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,
primarily equity, classified as available-for-sale are carried at fair value
totaling $6,600,000 and $2,558,000 at December 26, 1999 and December 27, 1998,
respectively, with unrealized gains and losses, net of taxes, reported as a
separate component of shareholders' equity and realized gains and losses, net of
taxes, reported in earnings (see Note 3). The amortized cost of
available-for-sale securities was $2,534,000 and $114,000 at December 26, 1999
and December 27, 1998, respectively. Securities classified as trading
securities, represented primarily by debt securities and preferred stock, are
carried at fair value, totaling $12,133,000 at December 27, 1998, with gains and
losses of $147,000, $658,000 and $762,000 in 1999, 1998 and 1997, respectively,
net of taxes reported in earnings. The cost of securities sold is based on the
specific identification method. 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
which approximates FIFO.
Property, Plant and Equipment -- Property, plant and equipment are carried
at cost less accumulated depreciation. 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. Capital
amounts include expenditures which materially extend the useful lives
40
CENTRAL NEWSPAPERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of existing property, plant and equipment. Expenditures for repairs and
maintenance which do not materially extend the useful lives of the related
assets are charged to expense as incurred. Depreciation expense for 1999,
1998 and 1997 was $44,746,000, $40,039,000 and $37,348,000, respectively.
Investment in Affiliate -- The Company uses the equity method of accounting
for its 13.5% partnership interest in Ponderay Newsprint Company as the Company
has an implied ability to exercise significant influence over this entity.
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 $6,425,000 in 1999, $5,379,000 in 1998 and $4,674,000 in
1997. Accumulated amortization was $18,016,000 and $11,184,000 at the end of
1999 and 1998, respectively.
Impairment of long-lived Assets -- The Company reviews the carrying value
of property, plant and equipment and 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. In 1998, the Company recognized asset impairment costs of
$0.5 million representing the cost of exiting buildings in Muncie, Indiana,
including site demolition and asset write-offs.
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 bases 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 ten shares of Class B common stock to one share of Class A
common stock.
Diluted EPS includes the effect of stock options granted under the
Company's 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.
Stock Compensation -- The Company measures compensation cost related to
employee stock options using the intrinsic value method of accounting prescribed
by Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock
Issued to Employees, and has included the proforma disclosures as required by
Statements of Financial Accounting Standards ("SFAS") No. 123, Accounting for
Stock-Based Compensation (Note 12).
Comprehensive Income -- SFAS 130, "Reporting Comprehensive Income," was
adopted during the first quarter of 1999. The standard establishes guidelines
for the reporting and display of comprehensive income and its components in
financial statements. Comprehensive income includes unrealized gains and losses
on equity securities classified as available-for-sale and included as a
component of shareholders' equity.
Fair Value of Financial Instruments -- The carrying amount of the Company's
cash and cash equivalents, receivables, short-term debt, accounts payable and
accrued expenses approximates fair value because of the short maturity of those
instruments. Cost basis investments totaling $32.3 million and $18.9 million at
December 26, 1999 and December 27, 1998, respectively, are reflected at their
carrying value and
approximates quoted market prices for similar securities. The fair value of the
Company's long-term debt approximates its carrying value as the stated interest
rate approximates current market rates.
Estimates -- 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.
Reclassifications -- Certain amounts in the financial statements have been
reclassified to conform to the 1999 presentation.
41
CENTRAL NEWSPAPERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2 -- BASIC AND DILUTED EARNINGS PER SHARE
The following is a reconciliation of the numerators and denominators of the
basic and diluted EPS computations as required by SFAS No. 128, "Earnings Per
Share" (in thousands, except per share data):
1999 1998 1997
-------- ------- -------
BASIC EPS COMPUTATION:
Numerator (Net income)............................... $115,643 $88,542 $81,495
Denominator:
Average Common Shares Outstanding.................... 40,079 48,498 51,464
Basic EPS............................................ $ 2.89 $ 1.83 $ 1.58
DILUTED EPS COMPUTATION:
Numerator (Net income)............................... $115,643 $88,542 $81,495
Denominator:
Average Common Shares Outstanding.................... 40,079 48,498 51,464
Stock Options........................................ 1,427 1,382 1,482
-------- ------- -------
TOTAL................................................ 41,506 49,880 52,946
-------- ------- -------
Diluted EPS.......................................... $ 2.79 $ 1.78 $ 1.54
3 -- COMPREHENSIVE INCOME
The following table presents the components of other comprehensive income
for 1999, 1998 and 1997 as shown in the consolidated statement of shareholders'
equity and comprehensive income (in thousands):
1999 1998 1997
------ ----- ----
Unrealized gains on securities available for sale:
Change in unrealized gains, net of taxes of $1,001 in 1999,
$91 in 1998 and $322 in 1997............................. $1,546 $ 122 $483
Less: reclassification adjustment for gains realized in net
income, net of taxes of $374 in 1999, $231 in 1998 and
$200 in 1997............................................. 551 331 298
------ ----- ----
$ 995 $(209) $185
------ ----- ----
42
4 -- ACQUISITIONS, REDEEMABLE PREFERRED STOCK AND STOCK REPURCHASES
Career Services, Inc.
In February 1997, the Company acquired 80% of Career Services, Inc., the
Santa Clara, California based Westech group of companies for $34.8 million. The
transaction was recorded using purchase accounting. The group includes Westech
ExpoCorp., which organizes job fairs for the high-technology industry, High
Technology Careers, which publishes High Technology Careers Magazine, incpad by
Westech, an internet-based resume posting and research service, and JobsAmerica,
which organizes job fairs for service industry positions. The transaction
generated $32.4 million 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.
On April 30, 1999, the Company purchased the remaining 20% of Career
Services, Inc. for approximately $13.7 million from the minority shareholders.
Subsequent to year end, the Company announced its intention to sell Career
Services, Inc. by merging its wholly-owned subsidiary into BrassRing, Inc., a
venture of Kaplan, Inc. (a wholly-owned subsidiary of The Washington Post
company), Tribune company, and venture capital firm, Accel Partners, for 23.2%
of BrassRing, Inc. which will be accounted for using the equity method.
Homebuyer's Fair, Inc.
In October 1997, the Company 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. On
October 31, 1999, the Company completed the sale of our interest in Homebuyer's
Fair, Inc., its subsidiary National School Reporting Services, Inc. and FAS
Hotline to Homestore.com, Inc. The net proceeds from the sale were $51.9
million, consisting of $23.5 million in cash, $33.7 million in notes receivable,
$7.7 million in notes payable and 50,000 shares of Homestore.com, Inc. stock,
valued at $2.4 million based on quoted market prices at closing. The pretax gain
on the sale of $32.7 million has been recorded in the accompanying consolidated
statement of income for the year ended December 26, 1999. Subsequent to year
end, the notes receivable and notes payable plus accrued interest were repaid in
full.
Stock repurchases and related transactions
In May 1997, the Company 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 June 1997, the Company completed a registered
secondary offering of 4,709,466 shares of Class A common stock priced at
$32.0625 per share.
In December 1997, the Board of Directors authorized 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. The Company has repurchased and retired a total of 2,274,660
shares under this authorization through December 26, 1999 at a total cost of
approximately $75.1 million. This authorization replaces the March 19, 1996,
repurchase program under which the Company repurchased 1,490,000 shares of Class
A common stock at a cost of approximately $33.2 million.
43
On October 23, 1998, pursuant to a September 21, 1998 agreement, the
Company 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, the Company repurchased and retired 3,000,000 shares of its 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 which expire in November 2003 and
1999, respectively. In 1999, the 365-day facility was renewed with an expiration
date of November 2000. The credit facility may be used for general corporate
purposes, including the repurchase of common stock. Under the
credit facility, the Company 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. The Company must
maintain compliance with certain covenants under the terms of the credit
facility.
In April 1999, the Company 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 The Company did not receive any proceeds from the sale.
On August 12, 1999, the Board of Directors approved the repurchase and
retirement of 2,200,000 shares of Class A common stock from the Eugene S.
Pulliam Revocable Trust for a total consideration of approximately $90.2
million. This repurchase was financed through additional borrowings of $90.0
million from the $300 million revolving credit facility established in 1998.
Indianapolis Newspapers, a division of Indiana Newspapers, Inc.
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, which is being amortized over
its remaining life, and a reduction of the minority interest of $9,244,000.
5 -- 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.
44
CENTRAL NEWSPAPERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's pension benefits and other postretirement benefits consisted
of (in thousands):
OTHER POSTRETIREMENT
PENSION BENEFITS BENEFITS
--------------------- --------------------
1999 1998 1999 1998
--------- -------- -------- --------
Change in Benefit Obligation:
Net benefit obligation at beginning of year.... $ 258,378 $234,556 $ 87,084 $ 87,630
Service cost................................... 8,073 6,918 3,712 3,056
Interest cost.................................. 17,374 16,983 6,350 5,738
Plan participants' contributions............... 345 426 916 727
Plan amendments................................ (1,213)
Actuarial (gain) loss.......................... (32,314) 15,668 (4,752) (3,345)
Gross benefits paid............................ (17,002) (16,173) (6,373) (5,509)
--------- -------- -------- --------
Net benefit obligation at end of year.......... $ 234,854 $258,378 $ 86,937 $ 87,084
========= ======== ======== ========
Change in Plan Assets:
Fair value of plan assets at beginning of
year......................................... $ 315,060 $279,735
Actual return on plan assets................... 49,155 44,033
Employer contributions......................... 6 7,039 $ 5,457 $ 4,782
Plan participant's contributions............... 345 426 916 727
Gross benefits paid............................ (17,002) (16,173) (6,373) (5,509)
--------- -------- -------- --------
Fair value of plan assets at end of year....... $ 347,564 $315,060 $ -- $ --
========= ======== ======== ========
Funded status at end of year................... $ 112,710 $ 56,682 $(86,937) $(87,084)
Unrecognized net actuarial gain................ (106,082) (47,465) (7,242) (1,903)
Unrecognized prior service cost................ 1,904 2,348 (1,447) (1,867)
Unrecognized net transition asset.............. (2,415) (3,698)
--------- -------- -------- --------
Net amount recognized at end of year........... $ 6,117 $ 7,867 $(95,626) $(90,854)
========= ======== ======== ========
PENSION BENEFITS OTHER POSTRETIREMENT BENEFITS
-------------------- -----------------------------
1999 1998 1997 1999 1998 1997
---- ---- ---- ------- ------- -------
Weighted-average assumptions December 31
Discount rate.................................. 7.75% 6.75% 7.25% 7.75% 6.75% 7.25%
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%
For measurement purposes, a 6 percent 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.
Components of net periodic
benefit cost:
Service cost.................. $ 8,073 $ 6,918 $ 6,572 $3,712 $3,056 $ 3,185
Interest cost................. 17,374 16,983 16,437 6,350 5,738 6,092
Expected return on assets..... (22,858) (20,447) (18,587)
Amortization of:
Transition asset............ (1,283) (1,283) (1,283)
Prior service cost.......... 444 444 444 (420) (478) (1,947)
Actuarial (gain) loss....... (1) (12) (10) 49 (169) 38
-------- -------- -------- ------ ------ -------
Total net periodic benefit
cost........................ $ 1,749 $ 2,603 $ 3,573 $9,691 $8,147 $ 7,368
======== ======== ======== ====== ====== =======
45
CENTRAL NEWSPAPERS, INC.
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.
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 $4,662,000, $4,488,000 and $4,517,000 for 1999,
1998 and 1997, 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 (in
thousands):
ONE PERCENTAGE ONE PERCENTAGE
POINT INCREASE POINT DECREASE
-------------- --------------
Effect on total of service and interest cost components..... $1,430 $(1,164)
Effect on postretirement benefit obligation................. $9,405 $(7,910)
6 -- WORK FORCE REDUCTION
The Company has reduced its work force in response to closure of The
Indianapolis News and The Phoenix Gazette, 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 $3,792,200,
$854,000 and $9,999,000 for 1999, 1998 and 1997, respectively.
46
CENTRAL NEWSPAPERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7 -- INCOME TAXES
The provision for income taxes, exclusive of tax effects from equity in
earnings of Affiliate, consisted of:
1999 1998 1997
------- ------- -------
(IN THOUSANDS)
STATE:
Currently payable..................................... $10,454 $12,075 $10,903
Deferred.............................................. 1,186 (865) (60)
------- ------- -------
11,640 11,210 10,843
------- ------- -------
FEDERAL:
Currently payable..................................... 62,078 53,373 48,477
Deferred.............................................. 4,760 (1,458) (523)
------- ------- -------
66,838 51,915 47,954
------- ------- -------
Provision for income taxes............................ $78,478 $63,125 $58,797
======= ======= =======
Reconciliation of the U.S. federal statutory tax rate to the effective tax
rate is presented below:
1999 1998 1997
--------------- --------------- ---------------
(IN THOUSANDS)
Federal statutory tax rate...... $68,669 35.0% $53,550 35.0% $50,116 35.0%
State taxes net of federal tax
effect........................ 7,981 4.1 7,286 4.8 7,048 5.0
Goodwill and other.............. 1,828 .9 2,289 1.5 1,633 1.1
------- ---- ------- ---- ------- ----
Provision for income taxes...... $78,478 40.0% $63,125 41.3% $58,797 41.1%
======= ==== ======= ==== ======= ====
Components of net deferred income tax liability:
1999 1998
-------- --------
(IN THOUSANDS)
Depreciation................................................ $ 61,668 $ 56,666
Pension..................................................... 2,913 2,752
Other....................................................... 3,483 1,526
-------- --------
Gross deferred tax liability................................ 68,064 60,944
-------- --------
Postretirement benefits..................................... (38,750) (38,494)
Vacation.................................................... (3,589) (3,769)
Other....................................................... (2,632) (2,757)
-------- --------
Gross deferred tax asset.................................... (44,971) (45,020)
-------- --------
Net deferred income tax liability........................... $ 23,093 $ 15,924
======== ========
8 -- INVENTORIES
Newsprint inventory, valued at LIFO, amounted to $9,604,000 and $9,639,000
at the end of 1999 and 1998. If the FIFO inventory valuation method had been
exclusively used for newsprint, the value would have been $3,157,000 and
$5,627,000 higher, respectively. Other inventories, consisting primarily of
newspaper production supplies, amounted to $1,792,000 and $2,202,000 at the end
of 1999 and 1998.
47
CENTRAL NEWSPAPERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9 -- INVESTMENT IN AFFILIATE
The Company, through its subsidiaries, has a 13.5% partnership interest in
Ponderay Newsprint Company ("Ponderay"), which was formed to own a newsprint
mill in the State of Washington. Under the terms of the loan agreement, the
Company has guaranteed a pro rata share of the guaranteed term facility 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. During 1999, 1998 and 1997 newsprint
purchased from Ponderay amounted to $16,078,000, $19,042,000 and $23,735,000,
respectively.
Summarized financial data for Affiliate:
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
Results of operations:
Net sales................................................ $126,648 $144,776 $131,330
Income from operations................................... 3,770 24,047 10,412
Net income (loss)........................................ (6,338) 11,304 (4,040)
Financial position
Current assets........................................... $ 20,524 $ 22,872 $ 22,150
Property and equipment, at cost -- net................... 217,371 233,747 250,038
Other assets............................................. 1,158 1,844 2,433
-------- -------- --------
$239,053 $258,463 $274,621
-------- -------- --------
Current liabilities........................................ $166,171 $ 34,194 $ 29,018
-------- -------- --------
Long-term debt............................................. 295 151,343 183,982
Partners' capital.......................................... 72,587 72,926 61,621
-------- -------- --------
$239,053 $258,463 $274,621
======== ======== ========
Summary of the Company's investment in Affiliate:
1999 1998 1997
------ ------- ------
(IN THOUSANDS)
Investment, beginning of year............................... $9,848 $ 8,321 $8,867
Equity in partnership income (loss)......................... (856) 1,527 (546)
Additional investments...................................... 810
------ ------- ------
Investment, end of year..................................... $9,802 $ 9,848 $8,321
------ ------- ------
Equity in Affiliate:
Equity in partnership income (loss)......................... $ (856) $ 1,527 $ (546)
Current income tax expense.................................. (287) (1,087) (377)
Deferred tax benefit........................................ 587 552 592
------ ------- ------
Equity in net earnings (loss) of Affiliate.................. $ (556) $ 992 $ (331)
====== ======= ======
48
CENTRAL NEWSPAPERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10 -- 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 in 1998
and $90,000,000 in 1999 to fund the repurchase of stock. As of December 26,
1999, $20,000,000 remained outstanding on the 365 day revolving credit line,
and $200,000,000 remained outstanding on the five year facility both at annual
interest rates approximating 6.75%. In 1999, the 365-day facility was
renewed with an expiration date of November 2000. Compliance with certain
covenants under the terms of the credit facilities must be maintained. As of
December 26, 1999, the Company was in compliance with all such covenants.
Interest expense on these facilities and other debt amounted to $14,354,000
in 1999, $3,922,000 in 1998 and $1,710,000 in 1997. Such amounts are included in
other expenses in the accompanying consolidated statement of income.
11 -- RENTAL EXPENSE AND LEASE COMMITMENTS
Rental expense for 1999, 1998 and 1997 amounted to $6,472,000, $6,341,000
and $5,532,000, respectively. Future obligations for minimum annual rentals
under noncancelable long-term leases are not significant.
12 -- 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 26, 1999, the Company has
reserved 4,297,957 shares of Class A common stock for issuance under its Stock
Compensation Plan, 2,000,000 shares under its Long Term Incentive Plan,
1,000,000 shares for issuance under its 401(k) plan and 5,539,101 shares for
issuance upon conversion of Class B common stock.
Dividends declared per share:
1999 1998 1997
----- ----- -----
Class A common stock.................................... $ .50 $ .45 $ .40
Class B common stock.................................... .050 .045 .040
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 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. Board of Director member options are exercisable six months from the date
of grant.
49
CENTRAL NEWSPAPERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The fair value of options granted in 1999, 1998 and 1997 was estimated on
the grant date using the Black-Scholes option pricing model using the following
assumptions:
1999 1998 1997
----------- ------- -------
Risk-free interest rates............................ 5.1% - 5.3% 5.5% 6.2%
Dividend yields..................................... 1.3% 1.2% 1.2%
Expected volatility................................. 21% 20% 21%
Weighted average expected life of options........... 5 years 4 years 4 years
Fair market value per share option granted.......... $10.40 $9.47 $6.80
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:
1999 1998 1997
----------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net income:
As reported........................................ $115,643 $88,542 $81,495
Pro forma.......................................... 112,938 85,924 79,430
Earnings per share:
As reported Basic.................................... $ 2.89 $ 1.83 $ 1.58
Diluted.............................................. 2.79 1.78 1.54
Pro forma Basic...................................... $ 2.82 $ 1.77 $ 1.54
Diluted.............................................. 2.72 1.72 1.50
50
CENTRAL NEWSPAPERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of the status of the Company's Stock
Compensation Plan and Long Term Incentive Plan as of and for the three years
ended December 26, 1999:
SHARES
RESERVED SHARES UNDER WEIGHTED AVERAGE
FOR GRANTS OPTION EXERCISE PRICE
---------- ------------ ----------------
Outstanding, December 29, 1996.............. 5,398,800 2,967,800 $13.82
Granted................................... 247,950 24.23
Exercised................................. (353,226) (353,226) 10.77
Cancelled................................. 20,100 (20,100) 16.08
Restricted shares, -- net................. (37,500)
--------- --------- ------
Outstanding, December 28, 1997.............. 5,028,174 2,842,424 $15.09
Granted................................... 718,200 36.00
Exercised................................. (431,088) (431,088) 12.46
Cancelled................................. 34,504 (34,504) 23.22
Restricted shares, -- net................. (19,500)
--------- --------- ------
Outstanding, December 27, 1998.............. 4,612,090 3,095,032 $20.21
Additional shares reserved for grant...... 2,000,000
Granted................................... 469,800 34.67
Exercised................................. (317,102) (317,102) 14.54
Cancelled................................. 87,219 (87,219) 34.31
Restricted shares, -- net................. (84,250)
--------- --------- ------
Outstanding, December 26, 1999.............. 6,297,957 3,160,511 $22.54
========= ========= ======
The following table summarizes information about stock options outstanding
at December 26, 1999:
OUTSTANDING EXERCISABLE
-------------------------------- ---------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
AVERAGE EXERCISE EXERCISE
EXERCISE PRICE RANGE SHARES LIFE(A) PRICE SHARES PRICE
- -------------------- --------- ------- -------- --------- --------
$ 5.00 - $14.99................ 823,100 4.1 $11.96 823,100 $11.96
$15.00 - $24.99................ 1,230,877 6.4 18.06 1,168,643 17.79
$25.00 - $34.99................ 449,500 9.2 34.52 15,333 31.17
$35.00 - $44.99................ 657,034 8.2 35.99 228,789 35.98
--------- --- ------ --------- ------
3,160,511 6.6 $22.54 2,235,865 $17.60
========= === ====== ========= ======
At December 27, 1998 and December 28, 1997, the number of options
exercisable was 1,940,891 and 559,767, respectively, and the weighted average
exercise price of those options was $19.89 and $24.81, respectively.
- ---------------
(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 99,250, 19,500 and
38,500 shares of stock in 1999, 1998 and 1997, respectively, whereby transfer
restrictions lapse at the end of five years from the award date or as early as
three years upon achieving certain performance goals. The restricted stock
grants have all the rights of shareholders, including the right to receive
dividends, except for conditions regarding transferability of shares or upon the
termination of employment. Upon issuance of the shares, unearned compensation
equivalent to the market value at the date of grant was recorded as unamortized
value of restricted stock and is being charged to earnings over the period
during which the restrictions lapse. During 1999, 1998, and 1997 compensation
expense in the amount of $1,473,000, $1,159,000 and $834,000 respectively, has
been recorded related to these restricted stock grants.
51
CENTRAL NEWSPAPERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
52
Exhibit 99-2
UNAUDITED INTERIM FINANCIAL STATEMENTS
CENTRAL NEWSPAPERS, INC.
UNAUDITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
JUNE 25, DECEMBER 26,
2000 1999
------------ ------------
(IN THOUSANDS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 20,538 $ 27,643
Marketable securities..................................... 1,374 4,396
Accounts receivable (net of allowances of $3,066 and
$3,305)................................................ 81,819 100,221
Notes receivable.......................................... 34,341
Inventories............................................... 9,525 11,396
Deferred income taxes..................................... 6,859 6,533
Other current assets...................................... 9,165 7,215
-------- --------
Total current assets...................................... 129,280 191,745
-------- --------
PROPERTY, PLANT AND EQUIPMENT:
Land...................................................... 18,835 18,898
Buildings and improvements................................ 138,068 136,951
Leasehold improvements.................................... 1,674 1,636
Machinery and equipment................................... 434,019 427,668
Construction in progress.................................. 21,695 3,270
-------- --------
614,291 588,423
Less accumulated depreciation.......................... 341,234 322,838
-------- --------
273,057 265,585
-------- --------
OTHER ASSETS:
Land held for development................................. 5,249 5,229
Goodwill and other intangibles............................ 79,401 120,207
Investment in affiliates.................................. 81,227 9,802
Other..................................................... 67,944 55,698
-------- --------
233,821 190,936
-------- --------
TOTAL ASSETS................................................ $636,158 $648,266
-------- --------
CENTRAL NEWSPAPERS, INC.
UNAUDITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
JUNE 25, DECEMBER 26,
2000 1999
------------ ------------
(IN THOUSANDS)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 27,169 $ 32,421
Short-term bank debt and notes payable.................... 209,233 27,789
Accrued compensation...................................... 22,226 27,281
Dividends payable......................................... 4,974 5,360
Accrued expenses and other liabilities.................... 18,435 16,649
Federal and state income taxes............................ 2,293 12,803
Deferred revenue.......................................... 23,259 31,619
-------- --------
Total current liabilities.............................. 307,589 153,922
-------- --------
DEFERRED INCOME TAXES....................................... 29,489 29,626
-------- --------
LONG-TERM DEBT.............................................. 200,000
-------- --------
POSTRETIREMENT AND OTHER NONCURRENT LIABILITIES............. 99,742 97,097
-------- --------
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 -- 32,729,690 and 33,146,031
shares................................................ 46,902 38,953
Class B common stock -- without par value:
Authorized -- 130,000,000 shares
Issued and outstanding -- 55,336,010 and 55,356,010
shares................................................ 55 55
Retained earnings......................................... 135,944 110,250
Unamortized value of restricted stock..................... (2,788) (3,018)
Accumulated other comprehensive income.................... 305 2,461
-------- --------
180,418 148,701
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. $636,158 $648,266
-------- --------
CENTRAL NEWSPAPERS, INC.
UNAUDITED CONSOLIDATED STATEMENT OF INCOME
13 Weeks Ended 26 Weeks Ended
June 25 June 27 June 25 June 27
2000 1999 2000 1999
------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
OPERATING REVENUES:
Advertising........................................... $150,646 $150,148 $294,334 $293,318
Circulation........................................... 37,857 38,621 77,784 78,430
Other................................................. 11,035 13,359 28,336 23,415
-------- -------- -------- --------
199,538 202,128 400,454 395,163
-------- -------- -------- --------
OPERATING EXPENSES:
Compensation.......................................... 64,587 64,975 132,076 130,113
Newsprint and ink..................................... 26,962 26,009 53,790 55,394
Other operating costs................................. 52,121 53,619 109,238 103,622
Depreciation and amortization......................... 12,635 12,937 25,969 25,352
Work force reduction cost............................. 1,242 292 1,242 292
Gain on sale of subsidiary............................ (34,154)
-------- -------- -------- --------
157,547 157,832 288,161 314,773
-------- -------- -------- --------
OPERATING INCOME........................................ 41,991 44,296 112,293 80,390
OTHER INCOME (principally investment income)............ 1,727 1,652 5,184 3,604
OTHER EXPENSES (principally interest expense)........... (4,102) (3,639) (8,260) (7,826)
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES.............................. 39,616 42,309 109,217 76,168
PROVISION FOR INCOME TAXES.............................. 14,895 16,922 42,225 30,637
-------- -------- -------- --------
INCOME BEFORE MINORITY INTEREST AND EQUITY IN
AFFILIATES .......................................... 24,721 25,387 66,992 45,531
MINORITY INTEREST IN SUBSIDIARIES....................... (112) (267)
EQUITY IN NET EARNINGS (LOSS) OF AFFILIATES............. (5,173) (182) (6,918) (75)
-------- -------- -------- --------
NET INCOME.............................................. $ 19,548 $ 25,093 $ 60,074 $ 45,189
-------- -------- -------- --------
NET INCOME PER COMMON SHARE:
Basic................................................. $ 0.51 $ 0.61 $ 1.56 $ 1.11
Diluted............................................... $ 0.50 $ 0.60 $ 1.52 $ 1.07
DIVIDENDS DECLARED PER CLASS A COMMON SHARE $ 0.13 $ 0.12 $ 0.26 $ 0.24
AVERAGE COMMON SHARES OUTSTANDING:
(combined Class A and equivalent Class B shares)
Basic................................................. 38,216 40,901 38,419 40,827
Diluted............................................... 39,262 42,171 39,472 42,173
CENTRAL NEWSPAPERS, INC.
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
26 Weeks Ended
JUNE 25, JUNE 27,
2000 1999
------------ ------------
(IN THOUSANDS)
OPERATING ACTIVITIES:
Net income................................................ $ 60,074 $ 45,189
Items which did not use (provide) cash:
Depreciation and amortization........................... 25,969 25,352
Postretirement and pension benefits..................... 984 3,911
Gain on disposition of assets........................... (1,742)
Minority interest in earnings of subsidiaries........... 662 267
Equity loss in Affiliate................................ 6,918 75
Deferred income taxes................................... (2,341) 474
Amortization of restricted stock awards................. 855 859
Other................................................... (38,122) 378
Net proceeds from trading securities.................... 12,690
Net change in other current assets and liabilities...... 16,101 11,306
--------- ---------
Net cash provided by operating activities............ 71,100 98,759
--------- ---------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment................ (33,651) (14,510)
Acquisitions.............................................. (17,681)
Other..................................................... (5,922) (2,756)
--------- ---------
Net cash used in investing activities................ (39,573) (34,947)
--------- ---------
FINANCING ACTIVITIES:
Cash dividends paid....................................... (9,964) (9,789)
Dividends paid to minority interest....................... (993) (2,060)
Proceeds from exercise of stock options................... 5,469 1,528
Repayments of debt........................................ (7,830) (45,017)
Repurchase of common stock................................ (25,314)
--------- ---------
Net cash used in financing activities................ (38,632) (55,338)
--------- ---------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS............ (7,105) 8,474
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD................ 27,643 24,774
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 20,538 $ 33,248
--------- ---------
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid......................................... $ 58,426 $ 26,090
Interest paid............................................. 7,795 7,343
Issuance of restricted stock, net......................... 625 3,056
CENTRAL NEWSPAPERS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
1. Central Newspapers, Inc. and its subsidiaries ("Central") is a
media and information company. Through its flagship newspapers, The Arizona
Republic and The Indianapolis Star, Central publishes the only major dailies
in the greater Phoenix metropolitan area and central Indiana, and also operates
those markets' leading local Internet portals, azcentral.com in Arizona and
indy.com in Indianapolis. Central also owns and operates several smaller
newspapers as well as other related media and information businesses.
In a Form 8-K filing dated June 29, 2000, Central reported that it had entered
into an agreement and plan of merger to be acquired by Gannett Co., Inc.
("Gannett"). On August 1, 2000, Gannett announced that it had completed its
cash tender offer for the outstanding Class A Common Stock and Class B Common
Stock of Central and had assumed control of Central's operations.
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 Central's audited consolidated financial
statements and related notes for the year ended December 26, 1999. 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 26, 1999, has been
derived from audited financial statements. In the opinion of Central's
management, the unaudited consolidated financial statements reflect all
adjustments which are necessary to present fairly, Central'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 Central's Stock Compensation Plan
and Long Term Incentive Plan.
4. Certain amounts in the financial statements have been reclassified to
conform with the 2000 presentation.
Exhibit 99-3
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
Gannett Co., Inc. ("Gannett") previously reported in its Form 8-K
dated July 3, 2000, that it had entered into an agreement and plan of
merger to acquire Central Newspapers, Inc. ("Central"). On August 1,
2000, Gannett announced that it had completed its cash tender offer for
the outstanding Class A Common Stock and Class B Common Stock of Central
and had assumed control of Central's operations.
The accompanying unaudited pro forma condensed combined balance sheet
presents the financial position of Gannett and Central as of
June 25, 2000, assuming that the acquisition of Central occurred as of
that date. Such pro forma information is based on the historical balance
sheets of Gannett and Central at June 25, 2000.
As required by Rule 11-02 of Regulation S-X, the unaudited pro forma
condensed combined statements of income have been prepared assuming that the
proposed merger occurred as of the beginning of the period presented. The
unaudited condensed combined statements of income reflect the historical
results of operations for Gannett and Central for their 52 week periods
ended December 26, 1999, and 26 week periods ended June 25, 2000.
The unaudited pro forma condensed combined financial statements give
effect to certain pro forma adjustments which are described in the notes to
these statements. The unaudited pro forma condensed combined financial
statements do not reflect any operating synergies anticipated by Gannett as
a result of the acquisition.
The unaudited pro forma condensed combined results are presented for
informational purposes only and are not necessarily indicative of the results
of operations or financial position which would have been achieved had the
transaction been completed as of the beginning of the period presented, nor is
it necessarily indicative of Gannett's future results of operations or
financial position.
The purchase method of accounting has been used in the preparation of the
unaudited pro forma financial information and the purchase price allocation is
preliminary. The final allocation will be based on a complete evaluation of
the assets acquired and liabilities assumed. Accordingly, the information
presented herein may differ from the final purchase price allocation.
The unaudited pro forma condensed combined financial statements should be
read in conjunction with the historical financial statements of Gannett and
Central, including the related notes thereto.
EXHIBIT 99-3
Gannett Co., Inc.
Unaudited Pro Forma Condensed Combined Balance Sheet
June 25, 2000
(in thousands of dollars)
Central Pro forma Pro forma
Gannett Co., Inc. Newspapers, Inc. adjustments combined
ASSETS
Current assets
Cash and marketable securities $ 317,655 $ 21,912 $ 339,567
Accounts receivable, net 779,393 81,819 861,212
Inventories 102,325 9,525 111,850
Prepaid expenses and other
current assets 84,316 16,024 100,340
----------- ----------- ----------- -----------
Total current assets 1,283,689 129,280 1,412,969
Property, plant and equipment, net 2,029,106 278,306 2,307,412
Excess of acquisition cost over the
value of assets acquired, net,
and other assets 5,611,373 228,572 $ 2,595,118 (1) 8,435,063
----------- ----------- ----------- -----------
Total assets $ 8,924,168 $ 636,158 $ 2,595,118 $12,155,444
=========== =========== =========== ===========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities
Short-term bank debt and notes payable $ 209,233 $ (209,233)(2)
Accounts payable and current portion of
film contracts payable $ 390,125 27,169 $ 417,294
Accrued expenses and other current
liabilities 364,753 63,920 72,927 (3) 506,574
4,974 (4)
Dividends payable 55,560 4,974 (4,974)(4) 55,560
Income taxes 178,796 2,293 (20,747)(5) 160,342
----------- ----------- ----------- -----------
Total current liabilities 989,234 307,589 (157,053) 1,139,770
Deferred income taxes 326,932 29,489 356,421
Long-term debt 2,350,107 2,932,589 (6) 5,282,696
Postretirement and other long-term
liabilities 558,465 99,742 658,207
Redeemable preferred stock issued by
subsidiary 18,920 18,920
Total shareholders' equity 4,699,430 180,418 (180,418)(7) 4,699,430
----------- ----------- ----------- -----------
Total liabilities and shareholders'
equity $ 8,924,168 $ 636,158 $ 2,595,118 $12,155,444
=========== =========== =========== ===========
For comparability, Central Newspaper, Inc.'s results have been reclassified to conform with
Gannett's presentation.
See accompanying notes to Unaudited Pro Forma Condensed Combined Financial Statements.
Gannett Co., Inc.
Unaudited Pro Forma Condensed Combined Statement of Income
Twenty-six weeks ended June 25, 2000
(in thousands of dollars, except per share data)
Central Pro forma Pro forma
Gannett Co., Inc. Newspapers, Inc. adjustments combined
Revenues
Newspapers advertising $ 1,830,684 $ 294,334 $ 2,125,018
Newspaper circulation 531,227 77,784 609,011
Television 372,202 372,202
All other 120,530 28,336 148,866
------------- ------------- ------------ ------------
Total revenues 2,854,643 400,454 3,255,097
Operating expenses
Cost of sales and operating expenses,
exclusive of depreciation 1,416,351 237,077 1,653,428
Selling, general and administrative
expenses, exclusive of depreciation 463,270 59,269 522,539
Depreciation 93,678 22,925 116,603
Amortization of intangible assets 69,145 3,044 $ 30,387 (1) 102,576
Gain on sale of subsidiary (34,154) (34,154)
------------- ------------- ------------ ------------
Total operating expenses 2,042,444 288,161 30,387 2,360,992
------------- ------------- ------------ ------------
Operating income 812,199 112,293 (30,387) 894,105
Non-operating income (expense)
Interest (expense), net of
interest income (42,841) (8,260) 8,260 (2) (130,744)
(87,903)(3)
Other 6,621 (6,094) 527
------------- ------------- ------------ ------------
Total (36,220) (14,354) (79,643) (130,217)
------------- ------------- ------------ ------------
Income before income taxes 775,979 97,939 (110,030) 763,888
Provision for income taxes 307,200 37,865 (31,061)(4) 314,004
------------- ------------- ------------ ------------
Income from continuing operations $ 468,779 $ 60,074 $ (78,969) $ 449,884
============= ============= ============ ============
Income from continuing
operations per share - basic $1.74 $1.67
===== =====
Income from continuing
operations per share - diluted $1.73 $1.66
===== =====
For comparability, Central Newspapers, Inc.'s results have been reclassified to conform with
Gannett's presentation.
See accompanying notes to Unaudited Pro Forma Condensed Combined Financial Statements.
Gannett Co., Inc.
Unaudited Pro Forma Condensed Combined Statement of Income
Year ended December 26, 1999
(in thousands of dollars, except per share data)
Central Pro forma Pro forma
Gannett Co., Inc. Newspapers, Inc. adjustments combined
Revenues
Newspapers advertising $ 3,292,894 $ 599,087 $ 3,891,981
Newspaper circulation 1,022,520 153,451 1,175,971
Television 728,642 728,642
All other 216,134 51,552 267,686
------------- ------------- ------------- --------------
Total revenues 5,260,190 804,090 6,064,280
Operating expenses
Cost of sales and operating expenses,
exclusive of depreciation 2,608,469 465,754 3,074,223
Selling, general and administrative
expenses, exclusive of depreciation 808,529 116,438 924,967
Depreciation 169,460 44,746 214,206
Amortization of intangible assets 110,631 6,424 $ 60,439 (1) 177,494
Gain on sale of subsidiary (32,718) (32,718)
------------- ------------- ------------- --------------
Total operating expenses 3,697,089 600,644 60,439 4,358,172
------------- ------------- ------------- --------------
Operating income 1,563,101 203,446 (60,439) 1,706,108
------------- ------------- ------------- --------------
Non-operating income (expense)
Interest (expense), net of
interest income (88,880) (15,312) 15,312 (2) (239,128)
(150,248)(3)
Other 52,966 4,604 57,570
------------- ------------- ------------ --------------
Total (35,914) (10,708) (134,936) (181,558)
------------- ------------- ------------ --------------
Income before income taxes 1,527,187 192,738 (195,375) 1,524,550
Provision for income taxes 607,800 77,095 (52,625)(4) 632,270
------------- ------------- ------------ --------------
Income from continuing operations $ 919,387 $ 115,643 $ (142,750) $ 892,280
============= ============= ============ ==============
Income from continuing
operations per share - basic $3.29 $3.20
===== =====
Income from continuing
operations per share - diluted $3.26 $3.17
===== =====
For comparability, Central Newspapers, Inc.'s results have been reclassified to conform
with Gannett's presentation.
See accompanying notes to Unaudited Pro Forma Condensed Combined Financial Statements.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS
Note 1 - Basis of Presentation
The unaudited pro forma condensed combined balance sheet has been prepared to
reflect the acquisition of Central for an aggregate price of approximately
$2.6 billion plus the assumption of approximately $394 million of liabilities
and transaction-related costs, including $206 million of Central's long-term
debt.
The unaudited pro forma condensed combined balance sheet presents the financial
position of Gannett and Central as of June 25, 2000, assuming that the
transaction occurred as of that date. Such pro forma information is based
on the historical balance sheets of Gannett and Central as of June 25, 2000.
As required by Rule 11-02 of Regulation S-X, the unaudited pro forma condensed
combined statements of income assumes that the transaction occurred as of the
beginning of the period presented. The unaudited pro forma condensed combined
statements of income reflects Gannett and Central's historical results of
operations for the 52 weeks ended December 26, 1999, and the 26 weeks ended
June 25, 2000.
The company believes that the assumptions used in preparing the unaudited pro
forma condensed combined financial statements provide a reasonable basis for
presenting all of the significant effects of the acquisition (other than any
operating synergies anticipated by Gannett) and that the pro forma adjustments
give effect to those assumptions in the unaudited pro forma condensed combined
financial statements.
Note 2 - Pro Forma Adjustments
A. Pro forma adjustments to the unaudited condensed combined balance sheet
at June 25, 2000, are made to reflect the following:
(1) Adjustment to record the excess of acquisition cost over the fair value
of net assets acquired (goodwill). For purposes of the unaudited pro
forma condensed combined statement of income, goodwill is being amortized
over forty years.
(2) The refinancing of Central's current debt with long-term debt by Gannett.
(3) The accrual of estimated acquisition-related expenses incurred by Gannett
and Central.
(4) The reclassification of Central's dividends payable to accrued expenses.
(5) Income tax adjustments in respect of transaction related costs (see #3
above) that are tax-deductible.
(6) The issuance of commercial paper by Gannett to finance the purchase price,
including the refinancing of Central's current debt (see #2 above).
(7) The elimination of the shareholders' equity accounts of Central.
B. Pro forma adjustments to the December 26, 1999, unaudited condensed
combined income statement are made to reflect the following:
(1) Amortization expense on the estimated excess of acquisition cost over fair
value of assets, assuming a useful life of forty years.
(2) The elimination of Central's interest expense (see #3 below).
(3) Gannett's pro forma interest expense on amount assumed borrowed for
consideration paid ($2.70 billion) and Central average 1999 debt
($0.24 billion). The rate used to calculate interest expense, 5.2%,
is based on the weighted average rate paid by Gannett for commercial
paper in 1999.
(4) To adjust consolidated tax provisions for tax effects of the acquisition,
taking into account non-deductible goodwill amortization.
C. Pro forma adjustments to the June 25, 2000, unaudited condensed
combined income statement are made to reflect the following:
(1) Amortization expense on the estimated excess of acquisition cost over fair
value of assets, assuming a useful life of forty years.
(2) The elimination of Central's interest expense (see #3 below).
(3) Gannett's pro forma interest expense on amount assumed borrowed for
consideration paid ($2.70 billion) and Central average 2000 debt ($0.22
billion). The rate used to calculate interest expense, 6.13%, is based
on the weighted average rate paid by Gannett for commercial paper in the
twenty-six week period ended June 25, 2000.
(4) To adjust consolidated tax provisions for tax effects of the acquisition,
taking into account the non-deductible goodwill amortization.