<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 25, 1999.
REGISTRATION NO. 333-67077
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CENTRAL NEWSPAPERS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
<TABLE>
<S> <C> <C>
INDIANA 2711 35-0220660
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
</TABLE>
-------------------------
200 EAST VAN BUREN STREET, PHOENIX, ARIZONA 85004
602-444-1122
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ERIC S. TOOKER, ESQ.
VICE PRESIDENT, GENERAL COUNSEL
AND CORPORATE SECRETARY
CENTRAL NEWSPAPERS, INC.
200 EAST VAN BUREN STREET
PHOENIX, ARIZONA 85004
602-444-1100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES OF ALL COMMUNICATIONS TO:
<TABLE>
<S> <C>
O. WAYNE DAVIS, ESQ. WINTHROP B. CONRAD, JR., ESQ.
HENDERSON, DAILY, WITHROW & DEVOE DAVIS POLK & WARDWELL
2600 ONE INDIANA SQUARE 450 LEXINGTON AVENUE
INDIANAPOLIS, INDIANA 46204 NEW YORK, NEW YORK 10017
TELEPHONE: 317-639-4121 TELEPHONE: 212-450-4890
</TABLE>
-------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
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<PAGE> 2
THE INFORMATION IN THE PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT
SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL
THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION. DATED FEBRUARY 25, 1999.
2,324,956 Shares
[CNI LOGO]
Class A Common Stock
-------------------------
All of the shares of Common Stock in the offering are being sold by the
Nina Mason Pulliam Charitable Trust. Central Newspapers, Inc. will not receive
any of the proceeds from the sale of the shares being sold by the Charitable
Trust.
The Class A Common Stock is listed on the New York Stock Exchange under the
symbol "ECP." The last reported sale price of the Class A Common Stock was
$ per share.
See "Risk Factors" on page 7 to read about certain factors you should
consider before buying shares of the Class A Common Stock.
-------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
-------------------------
<TABLE>
<CAPTION>
Per Share Total
--------- --------
<S> <C> <C>
Public offering price....................................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to the Charitable Trust.......... $ $
</TABLE>
The underwriters may, under certain circumstances, purchase up to an
additional 348,743 shares from the Charitable Trust at the public offering price
less the underwriting discount.
-------------------------
The underwriters expect to deliver the shares against payment in New York,
New York on , 1999.
GOLDMAN, SACHS & CO. DONALDSON, LUFKIN & JENRETTE
-------------------------
Prospectus dated , 1999.
<PAGE> 3
AVAILABLE INFORMATION
We file annual, quarterly, and special reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
These reports, proxy statements and other information can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
following Regional Offices of the Commission: New York Regional Office, 7 World
Trade Center, Suite 1300, New York, New York 10048 and Chicago Regional Office,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material may be obtained at prescribed rates from the Public Reference Section
of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549. In addition, the Commission maintains a Website on the Internet
(http://www.sec.gov) that contains these reports, proxy statements and other
information. These reports, proxy statements and other information are also
available for inspection and copying at the offices of the New York Stock
Exchange, Inc., 20 Broad Street, New York, New York 10005, on which the Class A
Common Stock is listed.
We have filed with the Commission a Registration Statement on Form S-3 (of
which this prospectus is a part) under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the shares of Class A Common Stock
offered hereby. This prospectus does not contain all the information set forth
in the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission. Statements contained in this
prospectus as to the contents of any contract or any other document are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit or schedule to the Registration
Statement, each such statement being qualified in all respects by such reference
and the exhibits and schedules thereto. For further information with respect to
Central Newspapers, Inc. and the Class A Common Stock, you should read the
Registration Statement, including the exhibits filed as a part thereof. The
Registration Statement and the exhibits thereto may be inspected without charge
at the office of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549
and copies thereof may be obtained from the Commission at prescribed rates.
2
<PAGE> 4
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which we have previously filed (File No. 1-10333)
with the Commission pursuant to the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), are incorporated herein by reference and made a part
hereof:
1. Our Annual Report on Form 10-K for the fiscal year ended December 28,
1997, which incorporates by reference certain portions of (a) our 1997
Annual Report to Shareholders and (b) our proxy statement for the 1998
Annual Meeting of Shareholders;
2. Our Quarterly Report on Form 10-Q dated May 1, 1998;
3. Our Quarterly Report on Form 10-Q dated August 4, 1998;
4. Our Quarterly Report on Form 10-Q dated November 5, 1998; and
5. The Description of Capital Stock contained in our Registration Statement
on Form 10 filed September 13, 1989.
All documents we file with the Commission pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act after the date of this prospectus and prior to
the termination of the offering of the shares will be deemed to be incorporated
by reference herein and to be part hereof from the date of filing of such
documents. In the case of a conflict, statements in documents most recently
filed with the Commission should be relied upon.
We will provide to you, without charge, a copy of the documents which have
been or may be incorporated herein by reference (other than exhibits to such
documents unless such exhibits are specifically incorporated by reference into
such documents). Oral or written requests for such copies should be directed to
Central Newspapers, Inc., 200 East Van Buren Street, Phoenix, Arizona 85004,
Attention: Chief Financial Officer (telephone 602-444-1100).
3
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements appearing elsewhere, or
incorporated by reference, in this prospectus. In this prospectus, "CNI," "we,"
"us" and "our" refer to Central Newspapers, Inc. and its consolidated
subsidiaries. In addition, the "Charitable Trust" or the "selling shareholder"
refers to the Nina Mason Pulliam Charitable Trust. Except as otherwise
indicated, all information contained in this prospectus has been adjusted to
reflect a two-for-one split of our Class A and Class B Common Stock effected in
January 1999.
CNI
We publish the only major daily newspapers in the greater Phoenix
metropolitan area and central Indiana. Our flagship newspapers are The Arizona
Republic in Phoenix and The Indianapolis Star in Indianapolis. These newspapers
have been published for over a century. According to circulation statistics
compiled by the Newspaper Association of America, The Arizona Republic has been
one of the fastest growing major daily morning newspapers in the country over
the last three years. According to our internal records, circulation penetration
as of December 31, 1998 in homes and businesses was:
<TABLE>
<CAPTION>
DAILY SUNDAY
----- ------
<S> <C> <C>
- The Arizona Republic 40% 51%
- The Indianapolis Star
and the Indianapolis
News 42% 60%
</TABLE>
We have benefited from the continuing economic growth and development of
our key markets. With 2.9 million residents in the greater Phoenix metropolitan
area, Phoenix is the nation's seventh largest city. In the greater Phoenix
metropolitan area, growth across several diverse economic sectors, from
manufacturing and construction to trade and services, has outpaced the national
average over the past three years. In addition, Phoenix led the nation in job
growth for 1997 with a 6.0% increase, and preliminary data indicates that
Phoenix again led the nation in 1998 with a job growth rate of approximately
5.5%. The 1998 average annual unemployment rate of 2.6% in the greater Phoenix
Metropolitan area was below the national unemployment rate of 4.5%. Its
manufacturing base, a substantial portion of which comes from high technology,
is projected by the Greater Phoenix Economic Council to grow faster than the
national rate.
The greater Indianapolis metropolitan area, with 1.5 million residents, has
also experienced solid economic and population growth, and the preliminary 1998
average annual unemployment rate of 2.4% was well below the national average.
Its economy is anchored by a large and diverse industrial base, including such
major corporations as Eli Lilly and Company, Conseco, Inc., and Dow
AgroSciences. Large downtown development projects such as the Convention Center,
the RCA Dome and Circle Centre, a large retail shopping center, have also
bolstered the regional economy.
We also own and operate several smaller newspapers in Central Indiana and
Louisiana, as well as:
- Westech ExpoCorp., which organizes job fairs for the high tech industry;
- High Technology Careers, which publishes High Technology Careers
Magazine;
- Virtual Job Fair (http:/www.vjf.com), an internet-based resume posting
and research service;
- Homebuyer's Fair, Inc., which provides Internet services and information
for people who are moving and corporations that are relocating their
employees;
- Carantin & Co., Inc., which provides direct marketing support services
to its clients; and
- a commercial printer.
4
<PAGE> 6
We have consistently grown our revenues and net income over the last five
years. For the five fiscal years ended December 27, 1998, we recorded compound
annual growth in revenues of 10.0%. For the fiscal year ended December 27, 1998,
we generated revenues of $752.7 million and net income of $88.5 million. In
1998, we derived 75% of our revenue from advertising, 20% from circulation, and
5% from other sources. Key drivers of our financial success include the
expansion of advertising and circulation revenue in our existing markets, the
implementation of certain cost-cutting measures, the repurchase of our common
stock, and the development of product line extensions to meet the information
needs of the market we serve.
Our financial objective is to continue to build value for our shareholders
by focusing on the strengths inherent in our current markets while selectively
pursuing acquisitions. The principal elements of our strategy are as follows:
- ENHANCE ADVERTISING AND CIRCULATION REVENUE BASE. Controlling the only
major daily newspapers in our key markets affords us a competitive
advantage in attracting and maintaining advertising, especially compared
to other advertising vehicles such as radio and television broadcasting
stations, each of which individually reach a significantly smaller
audience. We continue to expand our advertising revenue base by
developing long-term relationships with key advertising accounts and
promoting cross-selling opportunities. We also recently reorganized the
sales and marketing departments at both The Arizona Republic and The
Indianapolis Star, incorporating more sales-based incentives into the
compensation structure, which we believe will produce greater
advertising revenue.
Our daily home-delivered subscription base represents more than 85% of
total circulation. The industry average is approximately 74%. This large
subscription base adds to the stability of our revenues, and we continue
to emphasize and improve the quality of daily home delivery.
- CONTINUE TO ACHIEVE COST EFFICIENCIES. We have recently identified
several areas for more efficient cost management and have begun to
pursue these opportunities. Initiatives in the recent past include:
- the closing of The Phoenix Gazette in January 1997;
- the consolidation of The Muncie Star and the Muncie Evening
Press into The Star Press in May 1996;
- the implementation of client server computer systems in Phoenix;
and
- the consolidation of the editorial function in Indianapolis.
We continue to pursue opportunities like these, with a particular focus
on increasing production automation, improving distribution and
enhancing workforce productivity.
- SELECTIVELY PURSUE BRAND-ENHANCING ACQUISITIONS AND NEW PRODUCT
DEVELOPMENTS. We pursue acquisitions where we believe we can add or
derive significant value from our operating expertise or line extension
opportunities. Recent acquisitions include:
- the purchase of the Alexandria Daily Town Talk newspaper in
March 1996;
- the purchase of Westech in February 1997;
- the purchase of Homebuyer's Fair in October 1997 and National
School Reporting Services, Inc. in September 1998; and
- the purchase of Carantin & Co., Inc. in December 1998.
Additional product developments include the development of web sites for
our major newspapers.
5
<PAGE> 7
Our corporate headquarters' address is 200 East Van Buren Street, Phoenix,
Arizona 85004 and our telephone number is (602) 444-1100.
SELLING SHAREHOLDER
The Nina Mason Pulliam Charitable Trust indirectly acquired 10,147,200
shares of Class A Common Stock and 7,465,000 shares of Class B Common Stock on a
split-adjusted basis from the estate of Nina Mason Pulliam, the widow of our
founder. On October 23, 1998, we repurchased 5,000,000 shares of Class A Common
Stock from the Charitable Trust at $30 per share. In addition, in November 1998,
we repurchased 3,000,000 shares of our Class A Common Stock from the Charitable
Trust at $33.50 per share, pursuant to the exercise of an option. We also have
an agreement with the Charitable Trust which provides that:
- We will register up to 2,673,700 shares of Class A Common Stock for sale
by the Charitable Trust under the federal securities laws. The offering
made by this prospectus is pursuant to this provision.
- The Charitable Trust may not otherwise sell any shares of Class A Common
Stock before September 21, 1999.
See "Selling Shareholder" on page 34 to read about the beneficial ownership of
shares of our Common Stock by the Charitable Trust. See "Description of Capital
Stock" on page 32 for additional information with respect to the terms of the
Class A and Class B Common Stock.
THE OFFERING
The following information assumes that the underwriters do not exercise the
option granted by the Charitable Trust to purchase additional shares in the
offering, which is more fully described in the section of this prospectus
entitled "Underwriting," and assumes that the Charitable Trust will convert
3,777,560 shares of Class B Common Stock into 377,756 shares of Class A Common
Stock in order to facilitate this offering.
<TABLE>
<S> <C>
Class A Common Stock offered by the Charitable
Trust....................................... 2,324,956
Common Stock outstanding as of February 23,
1999:
Class A Common Stock........................ 34,467,430
Class B Common Stock........................ 58,913,440
New York Stock Exchange symbol................ "ECP"
Use of Proceeds............................... We will not receive any of the
proceeds from this offering
</TABLE>
6
<PAGE> 8
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are not the
only ones facing our company. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial may also impair our business
operations.
If any of the following risks actually occur, our business, financial
condition or results of operations could be materially affected. As a result,
the trading price of our Class A Common Stock could decline, and you may lose
all or part of your investment.
This prospectus also contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including the risks faced by us described below and elsewhere in this
prospectus.
DEPENDENCE ON SUBSCRIPTION BASE
We derive a major source of revenue from our sale of newspapers through
subscriptions. Our daily home-delivered subscription base represents more than
85% of our total circulation, which exceeds the newspaper industry average of
approximately 74%. While our large subscription base adds relative stability to
our revenue base and we continue to improve the quality of daily home delivery,
our circulation is still largely dependent on such factors as our market
position, preferences of readers, and the development of new forms of
information dissemination (e.g. Internet). Any decline in circulation due to
such factors could have a material adverse effect on our financial condition and
results of operations.
DEPENDENCE ON LOCAL ECONOMIES
Our advertising revenues and, to a lesser extent, circulation revenues are
primarily dependent on the size and demographic characteristics of the local
population, the local economic conditions and the local weather conditions. If
any of these factors were to be adversely affected, our financial condition or
results of operations could be adversely affected.
NEWSPAPER INDUSTRY COMPETITION
Competition for advertising expenditures and newspaper sales comes from
alternative sources of news and information, like regional and national
newspapers, television, radio, magazines, direct mail and the Internet. A switch
to these alternative sources of news and information by advertisers or consumers
could materially impact our revenues and operating costs.
Competition for advertising expenditures is based largely upon advertiser
results, readership, advertising rates, demographics and circulation levels.
Competition for newspaper sales is based largely upon the content of the
newspaper, its price and the effectiveness of its distribution. Our control of
the only major daily newspapers in each of our key markets is of critical
importance in maintaining both sales and advertising. Thus, any direct
competition in our respective markets could impair our significant market
position and consequently have an adverse effect on our revenues and operating
costs.
COLLECTIVE BARGAINING AGREEMENTS
Approximately 35% of our employees are covered by a total of 23 collective
bargaining agreements. Given the large number of collective bargaining
agreements, we are frequently involved in labor negotiations. As of February 23,
1999, we were involved in ongoing negotiations with respect to three different
bargaining agreements, involving approximately 300 employees engaged in various
trades at our facilities. No assurance can be given as to the outcome of these
negotiations or as to the impact of such negotiations or agreements in the
future.
7
<PAGE> 9
DEPENDENCE ON NEWSPRINT
Significant increases in newsprint costs, or an insufficient supply could
have a material adverse effect on our financial condition or results of
operations. This is because newsprint is the basic raw material used in our
business. We consumed approximately 182,000 metric tons of newsprint in fiscal
year 1998, and our consumption is estimated to be approximately 191,000 tons in
1999. This increase is due primarily to anticipated linage and circulation gains
in 1999. We currently obtain our newsprint from a number of suppliers, both
foreign and domestic, a majority of which are under long-term contracts.
Newsprint costs are cyclical and vary widely from period to period. Price
changes are the major factor in these fluctuations. Likewise, our newsprint
costs are affected by our changing volume needs. Our volume increase of 1.5% for
1998 over the comparable 1997 period was related to increased advertising linage
and circulation gains. We anticipate that newsprint expense comparisons will be
about the same in 1999.
Given the fluctuations in newsprint costs, we cannot predict whether any
increase in costs of newsprint will occur or the amount or timing of any
increase.
FLUCTUATION OF QUARTERLY RESULTS
Generally, newspaper companies tend to follow a distinct and recurring
seasonal revenue pattern. The first quarter of the year (January-March) tends to
be the weakest quarter because advertising volume is then at its lowest level.
The fourth quarter (October-December) tends to be the strongest quarter, as it
includes heavy holiday season advertising. Our business reflects this
seasonality, with our peak revenues and profits generally occurring in the
second and fourth quarter of each year. We expect that seasonal fluctuations in
revenue will continue to affect our results of operations in future periods.
Therefore, results of operations in any period should not be considered
indicative of the results to be expected for any future periods.
RISKS IN GROWTH STRATEGY
Our growth strategy of strengthening our presence in our existing markets
presents risks inherent in assessing the value, strengths and weaknesses of
acquisition opportunities, in evaluating the costs of new growth opportunities
and in expanding into new products and improving our operating efficiency. We
are unable to predict the number or timing of future acquisition opportunities,
or whether any such opportunities will meet our acquisition criteria. Moreover,
if such acquisitions occur, we are unable to predict whether they will be a
success.
Likewise, our growth strategy also depends on our ability to achieve cost
efficiencies through increasing production automation, improving distribution
and enhancing work force productivity. There can be no assurances that we will
be able to successfully implement this strategy in the future.
CONTROL BY EUGENE C. PULLIAM TRUST
Presently, a majority of our voting power is held by the Eugene C. Pulliam
Trust, which owns approximately 73% of our Class B Common Stock and
approximately 69% of our combined voting power. The concentration of voting
control by this trust affects decisions made on behalf of the Company. For
example, this trust has the ability to elect all of the members of the Board of
Directors and thus control the policies and operations of our businesses. Thus,
circumstances may occur in which the interest of this trust may be in conflict
with the interest of the holders of Class A Common Stock.
ANTI-TAKEOVER EFFECT OF THE
EUGENE C. PULLIAM TRUST
Under the terms of the Eugene C. Pulliam Trust, the trustees are directed
not to take or approve any action by us that would cause the trust to have less
voting power with respect to us or any corporation into which we are merged or
consolidated, than its proportion of the voting power at the time of the
execution of the trust (54%). Specifically, the trust's provisions prohibit it
from selling, exchanging, pledging or otherwise disposing
8
<PAGE> 10
of its stock, as well as approving any reorganization or recapitalization,
including mergers and consolidations, that would dilute the trust's voting
power. As a result, this may make it more difficult for a third party to acquire
a majority of our outstanding capital stock. In addition, such provisions could
also limit the price certain investors might be willing to pay in the future for
shares of our Common Stock. Likewise, certain provisions of Indiana law
applicable to us could also delay, deter or prevent a merger, tender offer, or
other takeover attempts.
INTEREST RATE EXPOSURE
On October 23, 1998, we repurchased 5,000,000 shares of Class A Common
Stock from the Nina Mason Pulliam Charitable Trust for $150.8 million, which
includes related interest cost. In addition, in November 1998, we repurchased
3,000,000 shares of our Class A Common Stock from the Charitable Trust for
$100.5 million. These repurchases were financed with a $300 million revolving
credit facility. As a result of this indebtedness, our earnings are more
susceptible to interest rate fluctuations than before.
POTENTIAL LITIGATION EXPOSURE
We are from time to time named as defendants in litigation in which the
plaintiffs claim significant damages. As a newspaper company, we are especially
susceptible to libel and invasion of privacy actions. As a result, there is a
risk that an adverse judgment may have a material adverse effect on our
financial condition or results of operations.
RISK OF YEAR 2000 NONCOMPLIANCE
We have developed a comprehensive program to identify, evaluate, test,
upgrade or replace each of our computer and non-computer based systems in
connection with Year 2000 readiness.
Despite these efforts, we could potentially experience a disruption in our
operations as a result of potential noncompliance 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.
9
<PAGE> 11
PRICE RANGE OF CLASS A COMMON STOCK AND DIVIDEND POLICY
The Class A Common Stock is listed on the New York Stock Exchange under the
symbol "ECP." The Class B Common Stock is not publicly traded. The following
table sets forth the high and low reported sale prices for the Class A Common
Stock for the periods indicated as reported on the New York Stock Exchange
Composite Tape and the dividends declared and subsequently paid with respect to
the Class A Common Stock and the Class B Common Stock for such periods:
<TABLE>
<CAPTION>
CLASS A COMMON
STOCK PRICE DIVIDENDS PER SHARE
------------------ --------------------
HIGH LOW CLASS A CLASS B
---- --- -------- --------
<S> <C> <C> <C> <C>
1996
First quarter.................................... $18 15/16 $15 3/8 $0.085 $0.0085
Second quarter................................... 19 3/16 17 1/16 0.085 0.0085
Third quarter.................................... 19 11/16 16 11/16 0.095 0.0095
Fourth quarter................................... 22 1/8 19 1/8 0.095 0.0095
------ -------
$0.360 $0.0360
====== =======
1997
First quarter.................................... $25 3/8 $21 11/16 $0.095 $0.0095
Second quarter................................... 35 13/16 23 15/16 0.095 0.0095
Third quarter.................................... 38 1/8 32 15/16 0.105 0.0105
Fourth quarter................................... 38 7/16 32 11/16 0.105 0.0105
------ -------
$0.400 $0.0400
====== =======
1998
First quarter.................................... 37 1/8 31 1/32 $0.105 $0.0105
Second quarter................................... 37 15/32 30 13/16 0.105 0.0105
Third quarter.................................... 35 1/16 28 1/2 0.120 0.0120
Fourth quarter................................... 35 27 19/32 0.120 0.0120
------ -------
$0.450 $0.0450
====== =======
</TABLE>
On February [ ], 1999, the reported last sale price for the Class A Common
Stock was $[ ] per share on the New York Stock Exchange.
While future dividends will be subject to the discretion of our Board of
Directors, the Board of Directors currently intends to continue the policy of
paying cash dividends on a quarterly basis. However, future dividends will
depend upon our results of operations, financial condition, capital expenditure
program and other factors, some of which are beyond our control. There can be no
assurance as to whether or when our Board of Directors will change the current
policy regarding dividends.
USE OF PROCEEDS
All of the shares of Class A Common Stock being offered hereby are being
sold by the selling shareholder. We will not receive any proceeds from the
offering.
10
<PAGE> 12
CAPITALIZATION
The following table sets forth our capitalization as of December 27, 1998,
and reflects our repurchases of an aggregate of 8,000,000 shares of Class A
Common Stock from the Charitable Trust. Funding for these repurchases came from
borrowings under a $300 million revolving credit facility.
<TABLE>
<CAPTION>
DECEMBER 27, 1998
-----------------
(IN THOUSANDS)
<S> <C>
Cash and cash equivalents................................... $ 24,774
========
Short-term borrowings....................................... $ 52,072
Long-term debt.............................................. 200,025
Redeemable preferred stock issued by subsidiary............. 18,920
Shareholders' equity:
Preferred Stock, issuable in series:
Authorized -- 25,000,000 shares
Issued -- none......................................... --
Class A Common Stock -- without par value:
Authorized -- 150,000,000 shares
Issued -- 34,446,180 shares............................ 30,937
Class B Common Stock -- without par value:
Authorized -- 130,000,000 shares
Issued -- 62,691,000................................... 63
Retained earnings......................................... 112,104
Unamortized value of restricted stock..................... (1,407)
Net unrealized gain on available-for-sale securities...... 1,466
--------
Total shareholders' equity........................ 143,163
--------
Total capitalization........................................ $414,180
========
</TABLE>
11
<PAGE> 13
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data in the following table for each of
the five fiscal years in the period ended December 27, 1998 have been derived
from our consolidated financial statements which, for the fiscal year ended
December 28, 1997 and December 27, 1998, have been audited by
PricewaterhouseCoopers LLP and, with respect to the other fiscal years, have
been audited by Olive LLP, independent auditors. The selected consolidated
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements and notes thereto appearing elsewhere in this prospectus
and the other documents incorporated herein by reference.
12
<PAGE> 14
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------------------------------------------
DECEMBER 25, DECEMBER 31, DECEMBER 29, DECEMBER 28, DECEMBER 27,
1994 1995(1) 1996 1997 1998
------------ ------------ ------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues:
Advertising........................................ $395,450 $446,693 $479,474 $541,311 $562,408
Circulation........................................ 121,823 129,537 134,133 143,153 150,446
Other.............................................. 2,429 3,671 6,708 31,673 39,836
-------- -------- -------- -------- --------
519,702 579,901 620,315 716,137 752,690
-------- -------- -------- -------- --------
Operating expenses:
Compensation....................................... 217,078 222,748 228,316 239,783 243,637
Newsprint and ink.................................. 76,247 110,085 113,171 105,467 112,937
Other operating costs.............................. 116,944 129,362 137,875 177,829 196,746
Depreciation and amortization...................... 26,639 28,487 35,528 42,022 45,418
Asset impairment cost.............................. -- -- 4,226 -- 525
Work force reduction cost.......................... 7,064 3,328 1,340 9,999 854
-------- -------- -------- -------- --------
443,972 494,010 520,456 575,100 600,117
-------- -------- -------- -------- --------
Operating income..................................... 75,730 85,891 99,859 141,037 152,573
Other income-net................................... 4,965 8,154 4,009 2,152 428
-------- -------- -------- -------- --------
Income before income taxes......................... 80,695 94,045 103,868 143,189 153,001
Provision for income taxes......................... 32,847 38,048 42,431 58,797 63,125
-------- -------- -------- -------- --------
Income before minority interest and equity in
affiliate........................................ 47,848 55,997 61,437 84,392 89,876
Minority interest in subsidiaries.................. (2,977) (1,409) (1,629) (2,566) (2,326)
Equity in affiliate, net of tax.................... (3,550) (590) 1,726 (331) 992
Net income......................................... $ 41,321 $ 53,998 $ 61,534 $ 81,495 $ 88,542
======== ======== ======== ======== ========
Net income per common share:
Basic............................................ $ 0.78 $ 1.01 $ 1.16 $ 1.58 $ 1.83
Diluted.......................................... $ 0.77 $ 1.00 $ 1.14 $ 1.54 $ 1.78
======== ======== ======== ======== ========
Average common shares outstanding:
Basic............................................ 53,242 53,302 53,238 51,464 48,498
Diluted.......................................... 53,650 53,738 54,076 52,946 49,880
STATEMENT OF CASH FLOWS DATA:
Net cash provided by operating activities............ $ 41,897 $ 62,283 $122,015 $153,823 $133,494
Net cash used by investing activities................ (27,530) (42,463) (73,037) (70,706) (54,638)
Net cash used by financing activities................ (14,405) (15,783) (38,971) (82,342) (91,006)
OTHER DATA:
EBITDA(2)............................................ $109,433 $117,706 $140,953 $193,058 $199,370
EBITDA margin........................................ 21.1% 20.3% 22.7% 27.0% 26.5%
Capital expenditures................................. $ 23,256 $ 58,676 $ 46,530 $ 25,135 $ 34,809
Net cash provided by operating activities, excluding
the
effect of trading securities....................... 87,579 79,913 81,344 142,192 134,949
BALANCE SHEET DATA:
Cash and cash equivalents............................ $ 22,105 $ 26,142 $ 36,149 $ 36,924 $ 24,774
Total assets......................................... 500,444 547,204 586,972 614,311 629,359
Working capital...................................... 132,907 137,818 92,323 64,739 13,113
Long-term debt....................................... 2,678 2,678 2,678 -- 200,025
Shareholders' equity................................. 319,762 358,741 387,550 382,279 143,163
</TABLE>
- -------------------------
(1) 53-week year.
(2) Earnings before non-operating income and interest expense (other
income-net), taxes, depreciation, amortization and costs associated with
asset impairments and workforce reductions "special charges" ("EBITDA"). We
believe that EBITDA is a valuable indicator of pre-tax profitability and
also is used commonly by the financial and investment community to analyze
communications and media companies. However, EBITDA is not derived pursuant
to generally accepted accounting principles ("GAAP") and therefore should
not be construed as an alternative to operating income or as a measure of
liquidity. EBITDA as defined herein may not be comparable to other similar
measurements, as entities define these non-GAAP measurements in different
ways.
13
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This document contains material that is forward-looking in nature. From
time to time, we may provide forward-looking statements relating to such matters
as anticipated financial performance, business prospects, and similar matters.
We may identify these forward-looking statements by the use of words such as
"anticipate," "believe," "expect," "plan," "foresee," or derivations thereof.
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for
these statements. We want to ensure that these statements are accompanied by
meaningful cautionary language to comply with the safe harbor under the Act. We
assume no obligation to update any forward-looking statements. A variety of
factors could cause our actual results to differ materially from the
expectations expressed in the forward-looking statements, including, but not
limited to, the following:
- declines in circulation due to changing reader preferences and/or new
forms of information dissemination;
- economic weakness in geographic markets;
- weakness in advertising categories due to factors including retail
consolidations, declines in the advertising budgets of major customers,
and increased competition from print and non-print products and new
competitors emerging in our markets;
- the negative impact of issues related to labor agreements;
- unexpected fluctuations in the price of newsprint;
- an increase in distribution and/or production costs over anticipated
levels; and
- an increase in actual interest rates over expected rates.
GENERAL
Our principal line of business is newspaper publishing. We derive revenues
primarily from advertising and newspaper sales in the Phoenix, Arizona and
Indianapolis, Indiana metropolitan areas. We also own:
- an 80% interest in the Westech group of companies, which is predominantly
in the jobs fair business;
- a 13.5% interest in Ponderay Newsprint Company, a partnership that owns a
newsprint mill in the State of Washington;
- an 89% interest in Homebuyer's Fair, Inc., which provides internet-based
services and information for people who are moving and for corporations
that are relocating employees, as well as information regarding schools
across the nation; and
- a 100% interest in Carantin & Co., Inc., which provides direct marketing
support services to its clients.
You should read the following information with our fiscal 1998 consolidated
financial statements, including the accompanying notes.
Our business tends to be seasonal, with peak revenues and profits generally
occurring in the second and fourth quarters of each year. The results for 1996,
1997 and 1998 reflect these seasonal patterns.
RECENT EVENTS
On January 22, 1999, Dan Quayle resigned from our Board of Directors to
concentrate on his campaign for the Republican United States Presidential
nomination.
On January 20, 1999, Eugene S. Pulliam, publisher of The Star and The News
in Indianapolis, and executive vice president and director of CNI, died at the
age of 84.
On December 16, 1998, we acquired 100% of Carantin & Co., Inc., a Phoenix-
14
<PAGE> 16
based company that provides direct marketing support services to its clients.
On December 8, 1998, our board of directors declared a two-for-one split of
the Class A and Class B Common Stock. The board also declared a dividend of
$0.12 per share of its Class A Common Stock and $0.012 on its Class B Common
Stock. The stock split and cash dividend were distributed on January 8, 1999 to
holders of record of Class A and Class B Common Stock as of the close of
business on December 18, 1998. We have restated all shares and per share amounts
in this prospectus to reflect the stock split.
In addition, on December 8, 1998, it was announced that Frank E. Russell
would retire as chairman of CNI at the end of the year. The board elected
current president and chief executive officer Louis A. Weil as chairman of the
Company effective December 31, 1998.
On October 23, 1998, we repurchased 5,000,000 shares of Class A Common
Stock from the Nina Mason Pulliam Charitable Trust at $30 per share (plus
interest from September 16, 1998), or a total of $150.8 million. In addition, in
November 1998, we repurchased 3,000,000 shares of Class A Common Stock from the
Charitable Trust at $33.50 per share, or a total of $100.5 million. We financed
these repurchases with a $300 million revolving credit facility consisting of a
$200 million five-year facility and a $100 million 365-day revolving credit
facility. We may use the credit facility for general corporate purposes,
including the repurchase of Common Stock.
In December 1997, the Board of Directors authorized additional repurchases
of up to $100 million of our Class A Common Stock over a three-year period. We
may purchase the shares on the open market or in privately negotiated
transactions. We have repurchased a total of 2,039,660 shares under this
authorization through December 27, 1998 at a total cost of about $65.5 million.
These numbers do not include the stock repurchase described in the previous
paragraph.
In October 1997, we acquired an 80% interest in Homebuyer's Fair, Inc.,
which provides internet-based services and information for people who are moving
and for corporations that are relocating employees. In September 1998,
Homebuyer's Fair acquired 100% of National School Reporting Services, Inc.,
which provides internet-based information regarding schools across the nation.
As a result of the transaction, we now own 89% of the combined entity, with an
option to purchase the remaining 11% on or after December 31, 2001.
See Note 3 of the Notes to Consolidated Financial Statements for additional
information regarding Common Stock repurchases and acquisitions.
RESULTS OF OPERATIONS
We achieved our fifth consecutive year of record revenues and profits in
1998. The following table summarizes our operating income, net income, and
earnings per share for 1996, 1997 and 1998:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED(1) EXCLUDING SPECIAL CHARGES
(IN MILLIONS, ------------------------ ---------------------------
EXCEPT SHARE DATA) 1996 1997 1998 1996 1997 1998
- ------------------ ------ ------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Operating Income....................... $ 99.9 $141.0 $152.6 $105.4 $151.0 $154.0
Net Income............................. 61.5 81.5 88.5 64.8 87.4 89.4
Basic EPS.............................. 1.16 1.58 1.83 1.22 1.70 1.84
Diluted EPS............................ 1.14 1.54 1.78 1.20 1.65 1.79
</TABLE>
- -------------------------
(1) All three years included work force reduction and/or asset impairment costs
("special charges") that decreased earnings.
15
<PAGE> 17
Net income in 1998 (excluding special charges) increased 2.3% over 1997
primarily due to:
- a 3.9% increase in advertising revenue;
- other revenue growth of 25.8% from increased online, direct marketing,
job fairs, and specialty publication revenue;
- effective cost controls which resulted in only a 1.6% increase in
compensation expense and a 1.5% increase in newsprint consumption;
- our average newsprint cost per ton increasing only 5.6%; and
- other operating costs increasing only 10.6% as detailed below under
operating expenses.
OPERATING REVENUE
Our major sources of operating revenue are derived principally from
advertising and newspaper copy sales. Advertising currently accounts for about
75% of our consolidated revenue. Circulation revenue from the sale of newspaper
copies accounts for approximately 20%. The remaining 5% is derived from other
revenue sources such as online, database marketing, job fair revenue and special
publications. The following table summarizes our operating revenue for the 1996,
1997 and 1998 fiscal years:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------ 1996-1997 1997-1998
(IN MILLIONS) 1996 1997 1998 % CHANGE % CHANGE
- ------------- ------ ------ ------ --------- ---------
<S> <C> <C> <C> <C> <C>
Advertising............................... $479.5 $541.3 $562.4 12.9 3.9
Circulation............................... 134.1 143.1 150.4 6.7 5.1
Other..................................... 6.7 31.7 39.8 372.2 25.8
------ ------ ------ ----- ----
TOTAL OPERATING REVENUE......... $620.3 $716.1 $752.6 15.4 5.1
====== ====== ====== ===== ====
</TABLE>
Gains in advertising revenue primarily resulted from increases in
advertising linage (column inches of printed material that has appeared in the
newspaper) and rates. Advertising rates were adjusted at varying times
throughout the year and in varying amounts based on local market conditions for
each type of advertising category. Our major market linage was as follows:
<TABLE>
<CAPTION>
FULL RUN LINAGE IN SIX COLUMN
INCHES(1)
------------------------------ 1996-1997 1997-1998
(IN THOUSANDS) 1996 1997 1998 % CHANGE % CHANGE
- -------------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
BY CATEGORY:
Retail.................................. 2,507.2 2,679.8 2,776.6 6.9 3.6
National................................ 325.4 460.2 469.9 41.4 2.1
Classified.............................. 2,817.6 3,110.8 3,134.0 10.4 0.8
------- ------- ------- ---- ---
TOTAL......................... 5,650.2 6,250.8 6,380.5 10.6 2.1
======= ======= ======= ==== ===
</TABLE>
16
<PAGE> 18
<TABLE>
<CAPTION>
FULL RUN LINAGE IN SIX COLUMN
INCHES(1)
------------------------------ 1996-1997 1997-1998
(IN THOUSANDS) 1996 1997 1998 % CHANGE % CHANGE
- -------------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
BY MAJOR MARKET:
Phoenix................................. 2,668.6 2,828.9 2,904.4 6.0 2.7
Indianapolis............................ 2,981.6 3,421.9 3,476.1 14.8 1.6
------- ------- ------- ---- ---
TOTAL......................... 5,650.2 6,250.8 6,380.5 10.6 2.1
======= ======= ======= ==== ===
</TABLE>
- -------------------------
(1) For comparability, linage statistics for 1996, 1997, and 1998 exclude linage
of The Phoenix Gazette, which ceased publication in January 1997.
Advertising revenue in 1998 improved by $21.1 million, or 3.9%, from 1997
on a 2.1% increase in full-run run-of-paper linage. Advertising revenue in 1997
increased 12.9% from 1996 on a 10.6% increase in full-run run-of-paper linage.
The 1998 advertising revenue increase primarily resulted from gains in
classified recruitment in both major markets and retail gains in the Phoenix
market.
Circulation revenue for 1996, 1997 and 1998 was $134.1 million, $143.1
million and $150.4 million, respectively, for increases of 6.7% for the 1997
period and 5.1% for the 1998 period. The increase in 1997 and 1998 resulted
primarily from a circulation distribution system change in Indianapolis, which
began in 1997 (resulting in a revenue increase of $10.7 million in 1997 and $4.3
million in 1998). A March 1998 increase in the home-delivered price of The
Arizona Republic and a new tiered pricing structure based on subscription term
launched in Indianapolis in February 1998 also contributed to the revenue gain.
The closure of The Phoenix Gazette in January 1997 did not have a significant
impact on revenues because The Arizona Republic gains in daily circulation were
greater than Gazette losses. The combined average daily and Sunday circulation
for Phoenix and Indianapolis were:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------- 1996-1997 1997-1998
1996 1997 1998 % CHANGE % CHANGE
------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
COMBINED AVERAGE DAILY CIRCULATION:
Phoenix............................... 455,131 460,184 467,276 1.1 1.5
Indianapolis.......................... 285,355 271,712 267,985 (4.8) (1.4)
------- ------- ------- ---- ----
SUNDAY AVERAGE CIRCULATION:
Phoenix............................... 583,162 583,288 585,890 -- 0.5
Indianapolis.......................... 402,884 391,727 390,479 (2.8) (0.3)
------- ------- ------- ---- ----
</TABLE>
Other revenue increased $8.2 million in 1998, or 25.8%, due to revenue
gains from online, direct marketing, job fairs, and specialty publications.
OPERATING EXPENSES
Our operating expenses fall into four main categories. Compensation
expense, which includes fringe benefits, currently accounts for about 41% of our
total costs. Newsprint and ink account for about 19% and other operating costs
about 33% of total costs. Depreciation and amortization account for the
remainder, which is about 7.0%. The following table summarizes our costs
17
<PAGE> 19
(excluding special charges) for the 1996, 1997 and 1998 fiscal years:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------ 1996-1997 1997-1998
(IN MILLIONS) 1996 1997 1998 % CHANGE % CHANGE
- ------------- ------ ------ ------ --------- ---------
<S> <C> <C> <C> <C> <C>
Compensation.............................. $228.3 $239.8 $243.6 5.0 1.6
Newsprint and Ink......................... 113.2 105.5 112.9 (6.8) 7.1
Other Operating Costs..................... 137.9 177.8 196.8 29.0 10.6
Depreciation and Amortization............. 35.5 42.0 45.4 18.3 8.1
------ ------ ------ ---- ----
TOTAL COSTS (excluding special
charges)...................... $514.9 $565.1 $598.7 9.8 6.0
====== ====== ====== ==== ====
</TABLE>
Compensation costs, which include payroll and fringe benefits, increased
5.0% to $239.8 million in 1997 and 1.6% to $243.6 million in 1998. The
Indianapolis circulation distribution system change and the closure of The
Phoenix Gazette in January 1997 accounted for a 3.7% reduction in headcount in
1997 compared to 1996. Headcount for 1998 compared with 1997 decreased
approximately 2.1% primarily because the Indianapolis circulation distribution
system changed from a carrier-based distribution arrangement to an agency-based
work force. Increases in compensation costs in 1998 resulted from merit
increases and an increase in employee benefits primarily related to a rise in
health care costs.
Newsprint and ink expense decreased 6.8% to $105.5 million in 1997 and
increased 7.1% to $112.9 million in 1998. The 1997 newsprint expense reduction
from 1996 primarily resulted from decreasing prices. The 1998 increase in
newsprint expense was due to a 1.5% increase in newsprint consumption and a 5.6%
increase in the average cost per ton of newsprint consumed. Increases in
newsprint consumption primarily resulted from higher advertising linage in both
major markets and product enhancements in Indianapolis.
Other operating costs for 1996, 1997 and 1998 were $137.9 million, $177.8
million and $196.8 million, respectively, representing a 1997 increase of 29.0%
and a 1998 increase of 10.6%. Major items contributing to the 1998 increase
included:
- a change in the circulation delivery system in Indianapolis which began
in 1997 and increased 1998 expense by $6.3 million and 1997 expense by
$11.0 million;
- costs associated with outside printing of inserts and special
publications;
- promotional/marketing programs in both major markets;
- higher Arizona Republic delivery costs;
- increased bad debt expense; and
- expenses related to the Westech job fair business.
In addition to the increase resulting from the change in the circulation
delivery system in 1997, other items contributing to the 1997 versus 1996
increase included operating expenses associated with computer system design
enhancements, increased delivery cost of the Arizona Republic, and a new
promotional program in Phoenix.
Depreciation and amortization expense was $35.5 million, $42.0 million, and
$45.4 million for 1996, 1997 and 1998, respectively. The 1997 increase resulted
from a new office building and client server computer system in Phoenix, new
distribution centers and inserting equipment at both major locations, and
amortization of goodwill associated with the acquisitions. The 1998 increase was
primarily due to information technology projects in Phoenix and pagination and
remodeling projects in Indianapolis.
18
<PAGE> 20
In 1996, we recognized asset impairment costs for a Phoenix office building
held for sale and a charge for the premature retirement of a Phoenix conveyor
system. These losses were recorded using the provisions of SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of." During 1998, we recognized asset impairment costs of $0.5
million representing the cost of exiting buildings in Muncie, Indiana, including
site demolition and asset write-offs.
We recorded work force reduction costs in all three years. The 1996 amount
relates primarily to voluntary early retirement programs in Indianapolis and
work force reduction costs related to the consolidation of the Muncie, Indiana
subsidiary's morning and evening newspapers. In 1997, $10.0 million in work
force reduction costs were recorded. Approximately $4.2 million of these costs
resulted from the closure of The Phoenix Gazette where approximately 85
positions were eliminated. The balance of the costs related to composing room
and transportation work force reductions of 40 individuals and the conversion
from the carrier-based work force to an agent-based circulation arrangement,
both in Indianapolis. In 1998, $0.8 million in costs primarily related to
transportation and state circulation work force reductions of 20 individuals in
Indianapolis were recorded.
NON-OPERATING ITEMS
Other non-operating income, (primarily investment income), was $5.5
million, $4.3 million and $4.5 million for 1996, 1997 and 1998, respectively.
This income is primarily interest and dividends on available investable cash.
Reductions from the 1996 level resulted from increased cash requirements for
acquisitions and repurchases of Common Stock in 1997 and 1998. Other
non-operating expenses were $1.5 million, $2.2 million and $4.1 million for
1996, 1997 and 1998, respectively. The 1998 increase of $2.0 million primarily
resulted from an increase in interest expense related to higher debt levels
associated with the purchase of Class A Common Stock from the Nina Mason Pulliam
Charitable Trust in the last quarter of 1998, as described more fully in the
"Recent Events" section above.
Income tax expense for 1996, 1997 and 1998 was $42.4 million, $58.8 million
and $63.1 million, respectively, reflecting effective tax rates of 40.8%, 41.1%
and 41.3%, respectively. The increase in the effective tax rates was the result
of non-tax deductible goodwill associated with acquisitions offset, in part, by
tax benefits from filing a consolidated state income tax return in Arizona.
EQUITY IN AFFILIATE
Our investment in Ponderay is accounted for using the equity method, which
reflects our share of Ponderay's net income or loss. Ponderay's operating
results include interest expense on its long-term debt. Equity income (loss)
from Affiliate, net of tax, was $1.7 million, $(0.3) million and $1.0 million in
1996, 1997 and 1998, respectively. These changes were mostly attributable to
fluctuations in newsprint prices realized by Ponderay over the respective
periods. We do not anticipate making additional cash investments in Ponderay
during 1999. For further discussion see Note 8 to the 1998 Consolidated
Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities is our primary source of
liquidity. Net cash provided by operating activities for 1996, 1997 and 1998 was
$122.0 million, $153.8 million and $133.5 million, respectively. Net cash
provided by operating activities, excluding the effects of net proceeds from (or
purchases of) trading securities for 1996, 1997 and 1998 was $81.3 million,
$142.2 million and $134.9 million, respectively. Changes between all years were
primarily attributable to increases in earnings and/or changes in working
capital. The principal uses of cash in 1997 and 1998 were the repurchases of
Class A Common Stock, capital expenditures, acquisitions, the payment of
dividends, and repayment of short-term debt. As of December 27, 1998, our
available cash and cash equivalents and investments totaled $37.4 million, down
$11.0 million from the end of 1997. Working
19
<PAGE> 21
capital for the same period was $13.1 million, down $51.6 million from $64.7
million at December 28, 1997 due primarily to the use of the credit facility for
the repurchase of Class A Common Stock.
Total capital expenditures for 1998 were $34.8 million compared with $25.1
million for the comparable 1997 period. We plan approximately $32 million of
capital expenditures in 1999. As of December 27, 1998, we had no significant
formal commitments related to future capital expenditures.
See "Recent Events" above for information regarding Common Stock purchases
and acquisitions.
The Board of Directors declared dividends of $0.45 per share on the Class A
Common Stock and $0.045 on the Class B Common Stock during 1998. Total Class A
and B dividends paid during 1998 were $21.8 million.
We have demonstrated a consistent ability to generate net cash flow from
operations. Management believes that existing cash and investments, net cash
flows from operations and currently available bank credit resources are
sufficient to enable us to maintain our current level of operations. We expect
financing for future investing opportunities to come from a combination of
existing cash, new debt facilities, and/or the use of equity.
INFLATION AND CHANGING PRICES
Over the past several years, the impact of inflation on our operations has
become less significant because of lower overall inflation rates. However, we
and the newspaper industry as a whole have experienced wide fluctuations in
newsprint pricing. Variations in newsprint pricing can have a significant impact
on earnings for any given year. We have attempted to offset newsprint price
increases through the conservation of newsprint and through increased
advertising and circulation rates.
NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share," which established new standards in reporting earnings
per share. This standard is effective for reporting periods ending after
December 15, 1997, including interim periods, and therefore has been adopted in
this prospectus by us. Earnings per share amounts for all prior periods have
been restated.
YEAR 2000
Our Year 2000 project is on schedule to meet its objectives. We have
developed a comprehensive program to identify, evaluate, test, upgrade, or
replace each of our computer and non-computer based systems in connection with
Year 2000 readiness. We have devoted significant resources to the program,
including the development of a Year 2000 project team, which reports to senior
management on a regular basis, and the construction of a test environment
dedicated to the Year 2000 testing process. The Chief Information Officer
reports progress at every regularly scheduled Board of Directors meeting and on
a weekly basis to our Operating Committee.
We have been actively implementing new systems and technology since 1995
for reasons unrelated to Year 2000, and these actions have resulted in a number
of our major information technology systems becoming Year 2000 compliant.
The discovery phase of our program has been completed and we have performed
several review audits to ensure that all susceptible systems have been
identified, including client server, desktop, and all systems with embedded
computer chips. All desktop systems, application software, and servers have been
updated to a compliant level and all database modules are in the process of
being upgraded. We completed the remediation and testing phase for the embedded
computer chip systems in December 1998. The testing phase of the project is
proceeding and we have completed testing of all significant systems.
20
<PAGE> 22
We have requested letters of compliance from each of our vendors and,
wherever possible, we have worked with our vendors to determine an appropriate
testing and compliance process. This process was completed in December 1998.
During early 1999, we anticipate using a third party auditor to review the
project. In addition, certain employees have attended a number of Year 2000
training programs and outside consultants have been hired when necessary.
Total costs associated with our Year 2000 project are estimated to be
approximately $8.5 million, of which approximately $6.5 million was incurred in
1998 with the remainder to be incurred in 1999.
Despite the efforts described above, we could potentially experience a
disruption in our operations as a result of potential non-compliance of certain
vendors, financial institutions, governmental agencies or other third parties or
external systems. This disruption could potentially affect various aspects of
our business operations including the timeliness and content of certain
newspapers or online products. At this time, we are unable to determine whether
the consequences of Year 2000 failures would have a material impact on our
results of operations, liquidity or financial condition.
In an effort to minimize any disruption, we are in the process of creating
a comprehensive contingency plan to address potential Year 2000 scenarios. Such
plans include maintaining an inventory of critical supplies such as newsprint,
ink, and other consumables for at least a 30-45 day production cycle as well as
creating a smaller newspaper product designed to maximize advertising content.
21
<PAGE> 23
BUSINESS
CNI
We publish the following newspapers which had average circulation as set
forth below for the fiscal year ended December 27, 1998:
- The Arizona Republic, average daily circulation of 467,276.
- The Indianapolis Star, average daily circulation of 232,266.
- The Indianapolis News, a daily afternoon newspaper, average daily
circulation of 35,719.
- The Alexandria Daily Town Talk, serving Rapides Parish, Louisiana and
its outlying areas, average circulation of 37,742 daily and 44,131 Sunday.
- The Star Press, in Muncie, Indiana, average circulation of 36,058 daily
and 39,958 Sunday.
- The Vincennes Sun-Commercial, in Vincennes, Indiana, average circulation
of 12,323 daily and 14,286 Sunday.
- The Daily Ledger, average daily circulation of 11,800.
- nine controlled circulation newspapers which are home-delivered and free
to readers serving the northern suburbs of Indianapolis, average weekly
circulation of 107,000.
We own an 80% interest in the Santa Clara, California-based Westech
companies which consist of:
- Westech ExpoCorp., an organizer of job fairs for the high tech industry;
- High Technology Careers, publisher of High Technology Careers Magazine;
- Virtual Job Fair (http://www.vjf.com), an internet-based resume posting
and research service; and
- JobsAmerica, an organizer of job fairs for service industry positions.
We also own an 89% interest in Homebuyer's Fair, Inc., which provides
Internet services and information for people who are moving and corporations
that are relocating their employees, as well as information regarding schools
across the nation. We also own 100% of Carantin & Co., Inc., a direct marketing
service company, a minority interest in a newsprint mill in the State of
Washington and a commercial printer.
We seek to maintain our position as both the primary source of news and
information for our readers as well as the most effective way for advertisers to
reach their target markets. To this end, we manage our newspapers with a
commitment to the highest standards of product quality and journalistic
excellence. For example, The Arizona Republic was the first major daily
newspaper in the country to have its pages fully composed by computer
generation, enabling us to deliver higher quality products. Since 1990, our
newspapers have won Pulitzer prizes for investigative reporting and political
cartooning, as well as numerous other awards from industry organizations such as
the American Association of Sunday and Feature Editors, the Society for
Newspaper Design and the National Press Photographers' Association, among
others.
The following is a list of Internet addresses for CNI and its subsidiaries:
- Alexandria Newspapers, Inc., which includes Alexandria Daily Town Talk,
McCormick Graphics and Press Works: http://www.thetowntalk.com.
- Carantin & Co., Inc.: http://www.carantin.com.
- Career Services, Inc., which includes Westech ExpoCorp., JobsAmerica and
High Technology Careers Magazine: http://www.vjf.com.
- Central Newspapers, Inc.: http://www.centralnews.com.
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<PAGE> 24
- Homebuyer's Fair, Inc.: http://www.homefair.com and
http://www.theschoolreport.com.
- Indianapolis Newspapers, Inc., which includes The Indianapolis Star and
The Indianapolis News: http://www.starnews.com.
- Muncie Newspapers, Inc., which includes The Muncie Star Press and The
Advertiser Group: http://www.thestarpress.com.
- Phoenix Newspapers, Inc., which includes The Arizona Republic and The
Arizona Business Gazette: http://www.azcentral.com.
THE ARIZONA REPUBLIC
In Phoenix, we currently publish The Arizona Republic, one of the fastest
growing major daily morning newspapers in the United States, together with the
Arizona Business Gazette, a weekly newspaper. We originally acquired a 30%
interest in The Arizona Republic and The Phoenix Gazette in 1946. We have owned
100% of these newspapers since 1977. On January 18, 1997, we stopped publishing
The Phoenix Gazette. We were able to convert approximately 85% of the
subscribers of The Phoenix Gazette to The Arizona Republic.
CIRCULATION
Approximately 87% of the daily and 73% of the Sunday circulation of The
Arizona Republic was home delivered as of December 27, 1998, with the remainder
being single copy sales. The circulation level of The Arizona Republic is
seasonal due to the large number of part-year residents in the Phoenix area.
Typically, circulation for The Arizona Republic achieves its highest levels in
February and March and decreases during the late spring and summer months.
During 1997, the seasonal variation was approximately 100,475 daily and 103,434
Sunday. The following table shows the average paid daily circulation for The
Arizona Republic and The Phoenix Gazette for the periods shown. The figures for
fiscal years ended 1996 and 1997 are based upon reports issued by the ABC, an
independent agency that audits the circulation of daily and Sunday newspapers,
and include circulation outside the Phoenix metropolitan statistical area
("MSA"). The figures for the fiscal year ended December 27, 1998 are based upon
our records. Net circulation revenue for the periods shown is based upon our
records.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------------
DECEMBER 29, DECEMBER 28, DECEMBER 27,
1996 1997(1) 1998
------------ ------------ ------------
<S> <C> <C> <C>
The Arizona Republic (Sunday)..................... 583,162 583,068 585,890
The Arizona Republic (Daily)...................... 406,725 460,406 467,276
The Phoenix Gazette (Daily)....................... 48,406 -- --
Net circulation revenue (in thousands)............ $87,790 $86,800 $90,170
</TABLE>
- -------------------------
(1) Combined daily circulation includes The Arizona Republic and The Phoenix
Gazette, and net circulation revenue includes The Phoenix Gazette, through
January 18, 1997, the last day of its publication.
The Arizona Business Gazette contains business news and legal notices
relating to the Phoenix metropolitan area. The average paid circulation of the
Arizona Business Gazette was 10,491, 10,561 and 7,348 for 1996, 1997 and 1998,
respectively.
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<PAGE> 25
The home-delivered pricing structure for seven day subscriptions is based
on length of subscription. The home-delivered price for The Arizona
Republic(seven days) in the Phoenix MSA, ranges from $3.25 per week for a
fifty-two week subscription to $3.80 per week for an eight-week subscription.
There is also a four-week direct bank debit option of $3.25 per week. The
home-delivered price for The Arizona Republic (six days) is $2.50 per week for
all subscription terms. A weekend package comprising the Sunday paper and the
Friday and Saturday edition is offered at $3.00 per week. The single copy price
of the morning paper is $0.50 and $2.00 for the Sunday paper.
ADVERTISING
The newspapers generate revenue from two primary types of advertisements,
"run-of-paper," which are printed in the body of the newspaper, and
"preprinted," which are furnished by the advertiser and inserted into the
newspaper. We derive the majority of our advertising revenue for our Arizona
newspapers from run-of-paper advertisements. However, like other major
newspapers, The Arizona Republic has experienced an increase in advertisers' use
of preprinted advertisements in recent years. Because preprinted advertisements
are furnished by the advertisers and can be distributed by alternate means,
revenues and profits from preprinted advertisements are generally lower than
those from run-of-paper advertisements. To encourage use of run-of-paper
advertisements, we structure our advertising rates to provide more favorable
rates to high volume and frequent run-of-paper advertisers.
We also structure our advertising format to accommodate the numerous
communities that comprise the Phoenix metropolitan area. The Arizona Republic
publishes "Community" sections that are inserted in up to twelve zoned editions
on certain days of the week. Zoned editions, which include news stories and
advertisements targeted to specific communities or geographic areas, provide an
important means of competing with news coverage of local newspapers and thereby
promote circulation. Other part-run sections are also provided to accommodate
the needs of advertisers for more targeted distribution.
The combined run-of-paper advertising linage for our Arizona newspapers for
the periods shown and the combined advertising revenues of the newspapers for
such periods are set forth in the following table:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED(1)
------------------------------------------
DECEMBER 29, DECEMBER 28, DECEMBER 27,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Advertising linage --
run-of-paper (in thousands of six column
inches):
Full-run........................................ 2,669 2,829 2,904
Part-run........................................ 1,091 1,182 1,322
Weekly.......................................... 243 242 185
Net advertising revenue........................... $302,294 $333,583 $351,681
</TABLE>
- -------------------------
(1) Linage statistics for 1996, 1997 and 1998 excludes linage of The Phoenix
Gazette, which ceased publication in January 1997. Net advertising revenue
includes The Phoenix Gazette.
DISTRIBUTION
We distribute The Arizona Republic primarily by home delivery through a
network of independent contractors. We have implemented a centralized billing
system that removes the responsibility for billing and collection from the
independent contractors. Newspapers are distributed to the independent
contractor network by an outside
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<PAGE> 26
company which has been under contract for over forty years.
PRODUCTION
The Arizona Republic's editing and composing functions are performed
primarily at its facility in downtown Phoenix. The Arizona Republic was the
first major daily newspaper in the country to have its pages fully composed by
computer generation, enabling us to produce a higher quality product. Electronic
pagination allows entire pages of the newspaper to be formatted at a computer
terminal. Composed pages are electronically transmitted from the newspaper's
downtown facility to its two satellite production facilities.
The Arizona Republic's two satellite production facilities are located in
Deer Valley, which is north of downtown Phoenix, and in Mesa, Arizona. The Deer
Valley facility includes four offset presses and related production equipment,
as well as circulation, advertising and editorial-offices. This facility began
production during the first quarter of 1992 with full operation commencing in
the third quarter of 1992. The Mesa facility began operation in 1982 and has
been subsequently expanded and upgraded. It has three offset presses and related
production equipment. We own an additional undeveloped site in western Maricopa
County for a possible satellite production facility to meet future growth.
INDIANAPOLIS NEWSPAPERS, INC.
In Indianapolis, our primary newspapers are The Indianapolis Star (mornings
and Sunday) and The Indianapolis News (evenings). We formed Indianapolis
Newspapers, Inc. ("INI") in 1948, through which we currently publish The
Indianapolis Star and The Indianapolis News. At the end of 1996, we owned 90.2%
of the voting equity of INI and had the right to elect INI's Board of Directors.
On January 3, 1997, we acquired the remaining voting equity of INI through the
issuance of nonvoting preferred stock of INI with an aggregate liquidation value
of $18,920,000, entitling the holders to aggregate annual dividends of
$1,324,000. The preferred stock is callable in five years by INI and is
redeemable at any time by the holders at the stated value plus any accrued but
unpaid dividends.
CIRCULATION
Approximately 81% of the daily and 78% of the Sunday circulation of The
Indianapolis Star and 78% of the daily circulation of The Indianapolis News was
home-delivered as of December 27, 1998, with the remainder being single copy
sales.
The following table shows the average paid daily circulation for The
Indianapolis Star and The Indianapolis News for the last three fiscal years. The
figures for 1996 and 1997 are based upon reports issued by the ABC and include
circulation outside the Indianapolis metropolitan statistical area. The figures
for the fiscal year ended December 27, 1998 are based upon our records. Net
circulation revenue is based upon our records.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------------
DECEMBER 29, DECEMBER 28, DECEMBER 27,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
The Indianapolis Star (Sunday).................... 402,884 391,820 390,479
The Indianapolis Star (Daily)..................... 230,932 228,421 232,266
The Indianapolis News (Daily)..................... 54,423 41,165 35,719
Net circulation revenue (In thousands)............ $37,205 $46,444 $ 50,020
</TABLE>
- -------------------------
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<PAGE> 27
The home-delivered price for The Indianapolis Star (seven days) in the
Indianapolis metropolitan statistical area ranges from $3.60 to $3.80 per week
based on the subscription term and type. The home-delivered price for The
Indianapolis News (six days) ranges from $1.80 to $1.98 per week. The single
copy price is $0.50 for each daily paper. The home-delivered price of the Sunday
newspaper is $1.80, and the single copy price is $1.75.
ADVERTISING
As is the case for the Arizona newspapers, our Indianapolis newspapers
derive the majority of their advertising revenues from run-of-paper
advertisements. The Indianapolis Star and The Indianapolis News have also
experienced an increase in advertisers' use of preprinted advertisements in
recent years. To encourage use of run-of-paper advertisements, we structure our
advertising rates to provide more favorable rates to high volume and frequent
run-of-paper advertisers. The combined run-of-paper advertising linage for The
Indianapolis Star and The Indianapolis News for the past three fiscal years and
the combined advertising revenue of the newspapers for such periods are set
forth in the following table:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------------
DECEMBER 29, DECEMBER 28, DECEMBER 27,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Advertising linage -- run-of-paper
(in thousands of
six column inches):
Full-run.......................................... 2,982 3,422 3,476
Net advertising revenue........................... $149,658 $167,212 $170,946
</TABLE>
- -------------------------
DISTRIBUTION
Through 1996, we distributed The Indianapolis Star and The Indianapolis
News primarily by home delivery through a network of approximately 3,200
carriers. Carriers are independent contractors who purchase newspapers from us
and resell them at a markup to their customers.
In 1997, our Indianapolis newspapers converted from a carrier-based
delivery system to an agency-based distribution system for the Indianapolis
metropolitan area and its eight surrounding counties. We replaced approximately
1,350 carriers with 79 independent delivery agents, who are paid on a commission
basis.
In 1998, we converted the home-delivered system in the State area of
Indiana to an agency-based distribution system. We replaced approximately 250
carriers with 14 delivery agents, who are paid on a commission basis. We believe
the conversions have:
- allowed for uniform pricing;
- resulted in higher levels of customer satisfaction; and
- helped facilitate the creation of customer data bases.
PRODUCTION
The Indianapolis Star and The Indianapolis News merged their editorial news
staffs in 1995 and share production and distribution facilities. All editorial
and production functions are handled from our facility in downtown Indianapolis,
which is equipped with six offset presses and related production and
distribution equipment.
The Indianapolis Star and The Indianapolis News have recently implemented
several formatting changes to promote greater standardization and customization.
The weather,
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<PAGE> 28
editorial and obituary sections are now anchored daily on the same pages, and
there are weekday stand-alone classified and automotive sections, as well as a
four-page daily "Metro" section with local coverage for each of the major
metropolitan distribution areas.
SMALLER NEWSPAPERS
In March 1996, we purchased 100% of the outstanding common stock of
McCormick & Company, Inc., now Alexandria Newspapers, Inc., the parent company
of the Alexandria Daily Town Talk newspaper and McCormick Graphics, Inc., a
commercial printing subsidiary. The Alexandria Daily Town Talk serves Rapides
Parish in Central Louisiana and the outlying areas within a 50 mile radius, with
a population base of approximately 282,000. For the fiscal year ended December
27, 1998, the average paid circulation of the Alexandria Daily Town Talk was
37,742 daily and 44,131 Sunday.
We also publish The Star Press (mornings and Sundays) in Muncie,
Indiana -- we formerly published two newspapers in the Muncie market, The Muncie
Star and the Muncie Evening Press, but merged the two newspapers into The Star
Press in May 1996 in order to improve product quality and cost efficiency. The
Star Press serves Muncie and east central Indiana, which has a population base
of just over 370,000. For the fiscal year ended December 27, 1998, the average
paid circulation of The Star Press was 36,058 daily and 39,958 Sunday.
We publish The Daily Ledger (which for 1998 had an average daily
circulation of 11,800) and nine controlled circulation newspapers (which for
1998 had an average weekly circulation of 107,000) that serve the northern
suburbs of Indianapolis, the fastest growing area of metropolitan Indianapolis.
We publish the Vincennes Sun-Commercial, a daily newspaper that serves the
city of Vincennes, Indiana, with a population of approximately 24,700. For the
fiscal year ended December 27, 1998, the average paid circulation of the
Vincennes Sun-Commercial was 12,323 (five days) and 14,286 Sunday.
The revenues earned by these smaller publications represented approximately
7.0%, 6.0% and 6.0% in 1996, 1997 and 1998, respectively, of our total revenues.
WESTECH
In February 1997, we acquired an 80% interest in the Santa Clara,
California-based Westech companies. Westech consists of Westech ExpoCorp, which
organizes job fairs for the high tech industry; High Technology Careers, which
publishes High Technology Careers Magazine and Virtual Job Fair
(http://www.vjf.com), an internet-based resume posting and research service; and
JobsAmerica, which organizes job fairs for service industry positions.
Westech has enjoyed rapid growth in recent years and had approximately
$32.2 million of revenue in 1998. Operating margins in this business have
historically been higher than those associated with the newspaper publishing
industry.
We believe that the acquisition of Westech is a strategic extension of our
business of matching employers and employees. A substantial portion of our
revenues are derived from recruitment advertising and, historically, recruitment
advertising has been the most important means for employers to find qualified
employees and for job seekers to find employment. We believe that:
- recruitment classified advertising will continue to be an important
avenue for job placement in the future;
- an increasing number of placements will be made using the Internet and
job fairs; and
- the acquisition of Westech should ensure that we are well positioned to
provide career services information to employers and employees through a
variety of cost-effective channels.
Westech operates predominantly in the western half of the United States.
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<PAGE> 29
HOMEBUYER'S FAIR
In October, 1997, we purchased an 80% interest in Homebuyer's Fair, Inc.
Homebuyer's Fair is a Phoenix-based Internet company, which provides services
and information for people who are moving and for corporations that are
relocating their employees. We considered this acquisition to be a strategic
extension of our print classified advertising business. In September, 1998, we
enhanced this line extension by acquiring National School Reporting Services,
Inc., a leading provider of information about schools and school systems across
the nation. This school information is important to a large percentage of people
going through the relocation process.
CARANTIN & CO., INC.
In December, 1998, we acquired Carantin & Co., Inc., a Phoenix-based
company that provides direct mail and other direct marketing support services to
its clients. This acquisition will enhance the direct marketing and database
marketing capabilities of CNI.
CLASSIFIED VENTURES
We own a 3% interest in Classified Ventures, an independent company owned
by a consortium of newspaper companies whose mission is to be the preeminent
online national classified service in the automotive, apartments and new homes
classified categories. Classified Ventures utilizes both national sales
personnel and sales representatives from our newspapers to sell advertising and
services. Investment in this business fits with our strategy of new business
development and protection of our classified business.
RAW MATERIALS -- PONDERAY NEWSPRINT COMPANY
We consumed approximately 182,000 metric tons of newsprint in fiscal year
1998 and expect that consumption will increase in 1999 due primarily to
anticipated linage gains. We currently obtain newsprint from a number of
suppliers, both foreign and domestic, under long-term contracts, standard in the
industry, which offer dependable sources of newsprint at current market rates.
To provide us with an additional source of newsprint for a portion of our
needs, we joined with four other newspaper publishing companies and a major
newsprint manufacturer in forming a general partnership, Ponderay Newsprint
Company ("Ponderay"), to own and operate a newsprint mill in Usk, Washington.
The mill began operations in December 1989. We are required to purchase on an
annual basis the lesser of 13.5% of Ponderay's newsprint production or 28,400
metric tons on a "take if tendered" basis until the related debt recorded by
Ponderay is repaid.
COMPETITION
We face competition for advertising revenue from television, radio, the
Internet and direct mail programs, as well as competition for advertising and
circulation from suburban neighborhood and national newspapers and other
publications. Competition for advertising is based upon:
- circulation levels;
- readership demographics;
- advertising rates; and
- advertiser results.
Competition for circulation is generally based upon:
- content;
- journalistic quality; and
- the price of the newspaper.
In Phoenix, several suburban newspapers owned by major media corporations
operate in cities that are part of the Phoenix metropolitan area and compete
with The Arizona Republic for advertising and circulation. The most significant
of these competitors is Thomson Corporation, which owns five daily newspapers in
the East Valley region. These newspapers had a combined paid daily circulation
of 93,407, compared to 186,003 for The Arizona Republic in this region in 1997,
the period for which the latest ABC audit figures are available. The Arizona
Republic recently
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<PAGE> 30
introduced four new "Community" sections in order to maintain its position as
the leading source of news and information in this region. In Indianapolis, our
newspapers do not experience significant direct competition from suburban
newspapers.
EMPLOYEES -- LABOR
As of December 27, 1998, we had approximately 4,984 employees (including
1,105 part-time employees), 35% of whom were covered by a total of 23 collective
bargaining agreements. Given the large number of collective bargaining
agreements, we are frequently involved in labor negotiations. As of February 23,
1999, we were involved in ongoing negotiations with respect to three different
bargaining agreements, involving approximately 300 employees engaged in various
trades at our facilities. No assurance can be given as to the outcome of these
negotiations or as to their impact on us. We have never had a significant strike
or work stoppage at our operations and we consider our labor relationships with
our employees to be satisfactory.
LEGAL PROCEEDINGS
We become involved from time to time in various claims and lawsuits in the
ordinary course of our business, including libel and invasion of privacy
actions, and we are involved from time to time in various governmental and
administrative proceedings. Our management believes that the outcome of any
pending claims or proceedings will not have a significant adverse effect on us.
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<PAGE> 31
MANAGEMENT
Our executive officers and directors are:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH CNI
---- --- -----------------
<S> <C> <C>
Louis A. Weil, III...................... 58 Chairman, President and Chief Executive
Officer of CNI
Thomas K. MacGillivray.................. 38 Vice President and Chief Financial
Officer
Eric S. Tooker.......................... 37 Vice President, General Counsel and
Secretary
Dale A. Duncan.......................... 44 Publisher, President and General Manager
of Indianapolis Newspapers
John F. Oppedahl........................ 54 Publisher and Chief Executive Officer of
Phoenix Newspapers, Inc.
William A. Franke....................... 62 Director
L. Ben Lytle............................ 52 Director
Frank E. Russell........................ 78 Director
Richard Snell........................... 68 Director
</TABLE>
LOUIS A. WEIL, III has been Chairman of CNI's Board of Directors since
December 31, 1998 and President and Chief Executive Officer since January 1996.
He served as Publisher and Chief Executive Officer of The Arizona Republic and
The Phoenix Gazette and Executive Vice President of Phoenix Newspapers, Inc.
between July 1991 and January 1996. Mr. Weil served as Publisher of Time from
May 1989 to July 1991 and President and Publisher of The Detroit News from May
1987 to May 1989. Mr. Weil serves as an independent director of Prudential's
Domestic Equity, Domestic Fixed Income, Global Fixed Income and Municipal Bond
mutual funds. He has been a Director of CNI since 1991.
THOMAS K. MACGILLIVRAY has been Vice President since April 1997 and Chief
Financial Officer since January 1996. Previously, he was Director of Investments
from April 1993 to December 1995. He was Vice President and Equity Portfolio
Manager for Sovran Capital Management from January 1989 to March 1993.
ERIC S. TOOKER has been Vice President since April 1997 and General Counsel
and Secretary since June 1996. From November 1989 through May 1996, he was
Associate General Counsel at Conseco, Inc.
DALE A. DUNCAN has been Publisher since January 1999, and President and
General Manager of Indianapolis Newspapers since January 1998. From 1995 until
assuming his current position, Mr. Duncan was Vice President, ABC Publishing
Group, where he directed the operations of the Oakland Press, Pontiac, MI; The
Belleville News-Democrat, Illinois; and the Times Leader, Wilkes-Barre, PA. Mr.
Duncan also served as President and Publisher of the Oakland Press from 1995 to
1997 and was the President and Publisher of the Times Leader from 1986 to 1994.
JOHN F. OPPEDAHL has been Publisher and Chief Executive Officer of Phoenix
Newspapers, Inc. since January 1996. Previously, he was Executive Editor of
Phoenix Newspapers, Inc. since 1993 and Managing Editor of The Arizona Republic
from 1989 to 1993.
WILLIAM A. FRANKE has been the Chairman and Chief Executive Officer of
America West Holdings Corporation, an aviation and travel service company, since
February 1997 and the Chairman of the Board of its principal subsidiary, America
West Airlines, Inc., an airline carrier. Mr. Franke was the subsidiary's Chief
Executive Officer from December 1993 until February 1997, and its President from
May 1996 until February 1997. He is a director of America West Holdings
Corporation, America West
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<PAGE> 32
Airlines, Inc., Phelps Dodge Corporation, Beringer Wine Estates, Mtel Latin
America, Inc. and AirTransport Association of America. He is a director and
Chairman of the Board of Airplanes Limited and a controlling trustee and
Chairman of Airplanes U.S. Trust, entities involved in aircraft financing and
leasing. He has been a director of CNI since 1990.
L. BEN LYTLE has been President and Chief Executive Officer of Anthem
Insurance Companies, Inc., an insurance holding company, since 1989 and
presently serves as Chairman of the Board of Directors of its major
subsidiaries. He is a director of Acordia, Inc., IPALCO, Inc., Duke REIT, and
Bank One, Indianapolis, N.A. He has been a Director of the Company since April
1997.
FRANK E. RUSSELL was Chairman of CNI's Board of Directors and Assistant
Secretary of CNI from January 1996 through December 1998. Mr. Russell served as
President and Chief Executive Officer of CNI from 1979 through 1995. He has been
a Director of CNI since 1974. Mr. Russell is one of three trustees of the
selling shareholder.
RICHARD SNELL has been Chairman of the Board and Chief Executive Officer of
Pinnacle West Capital Corporation, a utility holding company and Chairman of the
Board of Arizona Public Service Company since 1990. He is also a director of
Aztar Corporation and Bank One Arizona Corporation. He has been a Director of
CNI since September 1996.
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<PAGE> 33
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 150,000,000 shares of Class A
Common Stock, without par value (the "Class A Common Stock"), 130,000,000 shares
of Class B Common Stock, without par value (the "Class B Common Stock"), and
25,000,000 shares of Preferred Stock (the "Preferred Stock"). As of February 23,
1999, 34,467,430 shares of Class A Common Stock were issued and outstanding,
62,691,000 shares of Class B Common Stock, convertible into 6,269,100 shares of
Class A Common Stock, were issued and outstanding, and no shares of Preferred
Stock have been issued. As of February 23, 1999, the Class A Common Stock was
held by approximately 343 shareholders of record and the Class B Common Stock
was held by 24 shareholders of record. All outstanding shares are legally
issued, fully paid and nonassessable.
CLASS A COMMON STOCK AND
CLASS B COMMON STOCK
VOTING RIGHTS
Our Articles of Incorporation provide that each share of Class A Common
Stock entitles the holder thereof to one-tenth of a vote per share on all
matters on which shareholders are entitled to vote. Each share of Class B Common
Stock entitles the holder thereof to one vote per share on all matters on which
shareholders are entitled to vote.
In general, matters submitted to the vote of the shareholders, such as the
election of directors, are voted on by holders of the Class A Common Stock and
the Class B Common Stock voting together as a single class. Holders of Class A
Common Stock and Class B Common Stock are not entitled to vote cumulatively for
the election of directors. The holders of the Class B Common Stock hold
approximately 94% of the combined voting power of the outstanding Class A Common
Stock and Class B Common Stock. Under the Indiana Business Corporation Law,
however, holders of Class A Common Stock are also entitled to vote as a separate
class to approve amendments to our Articles of Incorporation that modify rights,
preferences and powers that affect the rights of the holders adversely, or to
increase the number of authorized shares of Class A Common Stock.
DIVIDEND AND LIQUIDATION RIGHTS
Each share of Class A Common Stock and Class B Common Stock is entitled to
receive dividends if and when declared by our Board of Directors. Our Articles
of Incorporation provide that dividends must be paid on both the Class A Common
Stock and the Class B Common Stock at any time that dividends are paid on
either. It is further provided that each share of Class B Common Stock is
entitled to receive only 10% of any dividend or other distribution in cash;
stock, other than Class A Common Stock or Class B Common Stock; or other
property, including any liquidating distribution, made with respect to each
share of Class A Common Stock. To the extent that a stock dividend is involved,
holders of Class A Common Stock are entitled to receive only Class A Common
Stock in respect of those shares and holders of Class B Common Stock are
entitled to receive only Class B Common Stock in respect of those shares.
Furthermore, the Articles of Incorporation provide that stock dividends on a
class of common stock may not be paid without a concomitant stock dividend for
the other class of common stock.
TRANSFERABILITY AND CONVERTIBILITY
The Class A Common stock is freely transferable, subject to applicable
securities laws. The Class B Common Stock is also freely transferable, subject
to applicable securities laws; however, the Class B Common Stock has not been
registered under the Securities Act of 1933, as amended, and we do not plan at
any time in the future to register such stock. No trading market currently
exists for the Class B Common Stock and it is not anticipated that such a market
will develop.
To allow holders of shares of Class B Common Stock to have access to
trading, our
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<PAGE> 34
Articles of Incorporation provide that each share of Class B Common Stock is
convertible at any time at the option of the holder into one-tenth of a share of
Class A Common Stock. A shareholder desiring to sell an equity interest
represented by Class B Common Stock could thereby convert and sell, consistent
with applicable securities laws, shares of Class A Common Stock.
PREFERRED STOCK
No shares of preferred stock have been issued. The Board of Directors,
without further shareholder action, is authorized to issue up to 25,000,000
shares of preferred stock and establish the:
- designations;
- dividend rights;
- dividend rate;
- conversion rights;
- voting rights;
- terms of redemption;
- liquidation preference; and
- all other preferences and rights of any series of preferred stock.
However, shares of preferred stock may not be given voting rights without
the prior approval of holders of a majority of the outstanding shares of Class B
Common Stock.
CERTAIN PROVISIONS OF INDIANA
CORPORATE LAW AND THE
EUGENE C. PULLIAM TRUST
Certain provisions of Indiana law applicable to us could delay, deter or
prevent a merger, tender offer or other takeover attempt of us. Such provisions
include those pertaining to "control shares," which only have voting rights to
the extent approved by disinterested shareholders and limitations upon business
combinations involving us and any "interested shareholder." Interested
shareholders are generally defined to include any holder of 10% or more of the
corporation's voting securities. The foregoing provisions have limited effect on
us in light of the provisions of the Eugene C. Pulliam Trust, which has voting
control of us.
Under the terms of this trust, the trustees are directed not to take or
approve any action by us that would cause the trust to have less voting power
with respect to us or any corporation into which we are merged or consolidated,
than its proportion of the voting power of us at the time of the execution of
the trust. At the time this trust was established it had stock representing 54%
of all outstanding voting common stock of us. The trust specifies that this
limitation shall last for the duration of the trust, except that this limitation
shall become void if the trustees (1) unanimously determine that a substantially
complete loss of the value of the property held in the trust is seriously
threatened and (2) obtain the written consent of two-thirds of the beneficiaries
of the trust (which consist of descendants of Eugene C. Pulliam). By its terms,
the trust will terminate twenty-one years after the death of the survivor of the
class consisting of the descendants of Eugene C. Pulliam living at the time of
the most recent amendment to the trust in May 1973. As of February 23, 1999, the
trust owned 22,907,500 shares of Class B Common Stock representing approximately
73% of the outstanding Class B Common Stock and approximately 69% of our
combined voting power.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Class A Common Stock and Class B
Common Stock is Norwest Bank Minnesota, NA.
33
<PAGE> 35
SELLING SHAREHOLDER
The table below sets forth the beneficial ownership of our Class A Common
Stock by the Charitable Trust as of February 23, 1999 and reflects the
repurchases of an aggregate of 8,000,000 shares by us from the Charitable Trust,
and the sale of the shares offered hereby. The Selling Shareholder is a
charitable trust which, indirectly, received all of its shares of Class A Common
Stock in a bequest from the Estate of Nina Mason Pulliam. Mr. Frank E. Russell,
one of the three trustees of the Charitable Trust, was the Chairman of the Board
of Directors of Central Newspapers, Inc. until his retirement effective December
31, 1998; however, he remains a member of the Board of Directors of CNI.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
SHARES BENEFICIALLY OWNED AFTER
OWNED PRIOR TO SHARES TO THE REPURCHASES
THE REPURCHASES SHARES BE SOLD IN THE AND THE
AND THE OFFERING(1) SOLD TO US OFFERING(2) OFFERING(3)(4)
-------------------- ------------- -------------- -------------------
NAME NUMBER PERCENT NUMBER PERCENT
- ---- ---------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Nina Mason Pulliam
Charitable Trust....... 10,893,700 26% 8,000,000 2,324,956 568,744 1.3%
</TABLE>
- -------------------------
(1) Includes 746,500 shares of Class A Common Stock attributable to 7,465,000
shares of Class B Common Stock.
(2) Includes 377,756 shares of Class A Common Stock attributable to 3,777,560
shares of Class B Common Stock.
(3) Includes 20,000 shares of Class A Common Stock attributable to 200,000
shares of Class B Common Stock.
(4) Assumes that the option granted the underwriter to purchase additional
shares is not exercised.
LEGAL MATTERS
Certain legal matters in connection with the Offering will be passed upon
for us by Henderson, Daily, Withrow & DeVoe, Indianapolis, Indiana, for the
Selling Shareholder by Barnes & Thornburg, Indianapolis, Indiana, and for the
Underwriters by Davis Polk & Wardwell, New York, New York.
EXPERTS
The consolidated financial statements of Central Newspapers, Inc. as of
December 27, 1998 and December 28, 1997 and for the fiscal years then ended,
included in this prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The consolidated financial statements of Central Newspapers, Inc. as of
December 29, 1996, set forth herein, have been included in reliance on the
report of Olive LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
34
<PAGE> 36
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Central Newspapers, Inc.
In our opinion, the accompanying consolidated statement of financial
position and the related consolidated statements of income, shareholders' equity
and cash flows present fairly, in all material respects, the financial position
of Central Newspapers, Inc. and its subsidiaries at December 27, 1998 and
December 28, 1997, and the results of their operations and their cash flows for
the years then ended in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above. The financial statements of Central Newspapers,
Inc. for the year ended December 29, 1996, prior to restatement of earnings per
share for the adoption of Statement of Financial Accounting Standard No. 128,
were audited by other independent accountants whose report dated February 3,
1997 expressed an unqualified opinion on those financial statements. We have
audited the adjustments that were applied to restate the 1996 earnings per
share. In our opinion, such adjustments are appropriate and have been properly
applied to the 1996 financial statements.
PRICEWATERHOUSECOOPERS LLP
Phoenix, Arizona
January 29, 1999
F-1
<PAGE> 37
CENTRAL NEWSPAPERS, INC.
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
52 WEEKS ENDED
--------------------------------------------
DECEMBER 29, DECEMBER 28, DECEMBER 27,
1996 1997 1998
------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Operating revenues:
Advertising................................. $479,474 $541,311 $562,408
Circulation................................. 134,133 143,153 150,446
Other....................................... 6,708 31,673 39,836
-------- -------- --------
620,315 716,137 752,690
-------- -------- --------
Operating expenses:
Compensation................................ 228,316 239,783 243,637
Newsprint and ink........................... 113,171 105,467 112,937
Other operating costs....................... 137,875 177,829 196,746
Depreciation and amortization............... 35,528 42,022 45,418
Work force reduction cost................... 1,340 9,999 854
Asset impairment cost....................... 4,226 525
-------- -------- --------
520,456 575,100 600,117
-------- -------- --------
Operating income.............................. 99,859 141,037 152,573
Other income (principally interest income).... 5,486 4,318 4,545
Other expenses................................ (1,477) (2,166) (4,117)
-------- -------- --------
Income before income taxes.................... 103,868 143,189 153,001
Provision for income taxes.................... 42,431 58,797 63,125
-------- -------- --------
Income before minority interest and equity in
affiliate................................... 61,437 84,392 89,876
Minority interest in subsidiaries............. (1,629) (2,566) (2,326)
Equity in net earnings (loss) of affiliate.... 1,726 (331) 992
-------- -------- --------
Net income.................................... $ 61,534 $ 81,495 $ 88,542
======== ======== ========
Net income per common share:
Basic....................................... $ 1.16 $ 1.58 $ 1.83
Diluted..................................... 1.14 1.54 1.78
Average common shares outstanding:
(combined Class A and equivalent Class B
shares)
Basic....................................... 53,238 51,464 48,498
Diluted..................................... 54,076 52,946 49,880
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 38
CENTRAL NEWSPAPERS, INC.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27,
1997 1998
------------ ------------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 36,924 $ 24,774
Marketable securities..................................... 11,524 12,636
Accounts receivable (net of allowances of $2,959 and
$2,602)................................................ 89,707 90,858
Inventories............................................... 10,320 11,841
Deferred income tax benefits.............................. 7,919 8,430
Other current assets...................................... 5,712 11,253
-------- --------
Total current assets.............................. 162,106 159,792
-------- --------
Property, plant and equipment:
Land...................................................... 18,616 18,985
Buildings and improvements................................ 122,409 135,725
Leasehold improvements.................................... 4,412 687
Machinery and equipment................................... 383,626 407,211
Construction in progress.................................. 8,071 8,237
-------- --------
537,134 570,845
Less accumulated depreciation.......................... 250,451 287,136
-------- --------
286,683 283,709
-------- --------
Other assets:
Land held for development................................. 3,116 5,229
Goodwill and other intangibles............................ 122,729 127,349
Investment in Affiliate................................... 8,321 9,848
Other..................................................... 31,356 43,432
-------- --------
165,522 185,858
-------- --------
TOTAL ASSETS................................................ $614,311 $629,359
======== ========
</TABLE>
F-3
<PAGE> 39
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27,
1997 1998
------------ ------------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 19,672 $ 23,088
Short-term bank debt...................................... 10,000 52,072
Accrued compensation...................................... 20,061 19,305
Dividends payable......................................... 5,613 5,217
Accrued expenses and other liabilities.................... 16,825 18,208
Federal and state income taxes............................ 1,578
Deferred revenue.......................................... 23,618 28,789
-------- --------
Total current liabilities......................... 97,367 146,679
-------- --------
Deferred income taxes....................................... 26,882 26,703
-------- --------
Long-term debt.............................................. 200,025
-------- --------
Postretirement and other noncurrent liabilities............. 86,997 91,001
-------- --------
Minority interest in subsidiaries........................... 1,866 2,868
-------- --------
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 -- 44,035,252 and 34,446,180
shares................................................. 29,934 30,937
Class B common stock -- without par value:
Authorized -- 130,000,000 shares
Issued and outstanding -- 62,691,000 shares............... 63 63
Retained earnings......................................... 352,531 112,104
Unamortized value of restricted stock..................... (1,924) (1,407)
Unrealized gain on available-for-sale securities.......... 1,675 1,466
-------- --------
382,279 143,163
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. $614,311 $629,359
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 40
CENTRAL NEWSPAPERS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED
CLASS A CLASS B UNAMORTIZED GAIN ON
COMMON STOCK COMMON STOCK VALUE OF AVAILABLE
--------------------- ------------------- RETAINED RESTRICTED FOR-SALE
SHARES AMOUNT SHARES AMOUNT EARNINGS STOCK SECURITIES
----------- ------- ---------- ------ -------- ----------- ----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995... 47,041,222 $18,967 63,106,000 $63 $338,436 $1,275
Net income (52 weeks).......... 61,534
Dividends declared:
Class A common stock......... (16,856)
Class B common stock......... (2,272)
Exercise of stock options...... 309,400 3,928
Repurchase of Class A common
stock........................ (980,200) (539) (17,477)
Issuance of restricted stock... 105,000 1,903 $(1,903)
Amortization of restricted
stock........................ 276
Change in net unrealized gain
on available-for-sale
securities................... 215
----------- ------- ---------- --- -------- ------- ------
BALANCE AT DECEMBER 29, 1996... 46,475,422 $24,259 63,106,000 $63 $363,365 $(1,627) $1,490
Net income (52 weeks).......... 81,495
Dividends declared:
Class A common stock......... (17,866)
Class B common stock......... (2,512)
Exercise of stock options...... 348,864 6,144
Repurchase of Class A common
stock........................ (2,864,534) (1,600) (71,852)
Repurchase of Class B common
stock........................ (35,000) (99)
Issuance of restricted stock,
net of cancellations......... 37,500 1,131 (1,131)
Amortization of restricted
stock........................ 834
Common stock conversion........ 38,000 (380,000)
Change in net unrealized gain
on available-for-sale
securities................... 185
----------- ------- ---------- --- -------- ------- ------
BALANCE AT DECEMBER 28, 1997... 44,035,252 $29,934 62,691,000 $63 $352,531 $(1,924) $1,675
</TABLE>
F-5
<PAGE> 41
<TABLE>
<CAPTION>
UNREALIZED
CLASS A CLASS B UNAMORTIZED GAIN ON
COMMON STOCK COMMON STOCK VALUE OF AVAILABLE
--------------------- ------------------- RETAINED RESTRICTED FOR-SALE
SHARES AMOUNT SHARES AMOUNT EARNINGS STOCK SECURITIES
----------- ------- ---------- ------ -------- ----------- ----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Net income (52 weeks).......... 88,542
Dividends declared:
Class A common stock......... (18,543)
Class B common stock......... (2,821)
Exercise of stock options...... 431,088 8,913
Repurchase of Class A common
stock........................ (10,039,660) (8,552) (307,605)
Repurchase of Class B common
stock........................
Issuance of restricted stock,
net of cancellations......... 19,500 642 (642)
Amortization of restricted
stock........................ 1,159
Change in net unrealized gain
on available-for-sale
securities................... (209)
----------- ------- ---------- --- -------- ------- ------
BALANCE AT DECEMBER 27, 1998... 34,446,180 $30,937 62,691,000 $63 $112,104 $(1,407) $1,466
=========== ======= ========== === ======== ======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 42
CENTRAL NEWSPAPERS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
52 WEEKS ENDED
--------------------------------------------
DECEMBER 29, DECEMBER 28, DECEMBER 27,
1996 1997 1998
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating activities:
Net income.................................. $ 61,534 $ 81,495 $ 88,542
Items which did not use (provide) cash:
Depreciation and amortization............ 35,528 42,022 45,418
Postretirement and pension benefits...... 2,050 6,593 (589)
Asset impairment cost.................... 4,226 525
Change in unrealized gain (loss) on
trading securities..................... 821 96 119
Minority interest in earnings of
subsidiaries........................... 1,629 2,566 2,326
Equity loss (earnings) in Affiliate...... (1,864) 331 (992)
Deferred income taxes.................... (1,543) (583) (2,323)
Amortization of restricted stock
awards................................. 834 1,159
Other.................................... 634 1,465 (261)
Change in current assets and liabilities net
of acquisitions:
Net proceeds from (purchases of) trading
securities............................. 40,671 11,631 (1,454)
Accounts receivable...................... (26,320) 2,985 9,331
Inventories.............................. 1,835 (1,409) (1,521)
Other current assets..................... 2,363 (1,826) (6,116)
Accounts payable......................... (1,041) 1,606 (2,142)
Accrued compensation..................... (317) 2,935 (756)
Accrued expenses and other liabilities... (1,617) 949 3,668
Federal and state income taxes........... 3,338 (1,905) (3,199)
Deferred revenue......................... 88 4,038 1,759
--------- -------- ---------
Net cash provided by operating
activities.......................... 122,015 153,823 133,494
--------- -------- ---------
Investing activities:
Purchases of property, plant and
equipment................................ $ (46,530) $(25,135) $ (34,809)
Purchase of land held for development....... (2,113)
Proceeds from disposition of assets......... 1,975 407 177
Purchases of available-for-sale
securities............................... (24,659)
Proceeds from available-for-sale
securities............................... 62,243 2,057 283
Acquisitions (net of cash acquired)......... (60,509) (44,219) (9,244)
Other....................................... (5,557) (3,816) (8,932)
--------- -------- ---------
Net cash used by investing
activities.......................... (73,037) (70,706) (54,638)
--------- -------- ---------
</TABLE>
F-7
<PAGE> 43
<TABLE>
<CAPTION>
52 WEEKS ENDED
--------------------------------------------
DECEMBER 29, DECEMBER 28, DECEMBER 27,
1996 1997 1998
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Financing activities:
Cash dividends paid......................... $ (18,647) $(20,111) $ (21,760)
Dividends paid to minority interest......... (989) (1,159) (1,324)
Proceeds from exercise of stock options..... 2,882 3,279 8,913
Borrowings of short-term debt............... 39,400 207,000
Repayments of short-term debt............... (29,400) (165,000)
Borrowings of long-term debt................ 200,000
Repayments of long-term debt................ (4,200) (800) (2,678)
Repurchase of common stock.................. (18,017) (73,551) (316,157)
--------- -------- ---------
Net cash used by financing
activities.......................... (38,971) (82,342) (91,006)
--------- -------- ---------
Increase (decrease) in cash and cash
equivalents................................. 10,007 775 (12,150)
Cash and cash equivalents, beginning of
period...................................... 26,142 36,149 36,924
--------- -------- ---------
Cash and cash equivalents, end of period...... $ 36,149 $ 36,924 $ 24,774
========= ======== =========
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........................... $ 40,798 62,172 $ 63,965
Interest paid............................... 615 1,706 1,717
Issuance of restricted stock................ 276 834 642
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 44
CENTRAL NEWSPAPERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 -- NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations -- Central Newspapers, Inc. and its subsidiaries (the
"Company") are primarily engaged in the publishing and distribution of
newspapers. Revenues are principally derived from advertising and newspaper
sales in the Phoenix, Arizona and Indianapolis, Indiana metropolitan areas. The
Company also has an 80% interest in the Westech group of companies which are
predominantly in the jobs fair business and a 13.5% interest in Ponderay
Newsprint Company ("Affiliate"), a partnership formed to own a newsprint mill in
the State of Washington.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Principles of Consolidation -- The consolidated financial statements
include the accounts of the Company and all wholly-owned and majority-owned
subsidiaries. Investments in companies in which the Company exercises
significant influence are accounted for using the equity method. All significant
intercompany accounts and transactions have been eliminated.
Fiscal Year -- The Company's fiscal year ends on the last Sunday of the calendar
year. The fiscal years 1996, 1997 and 1998 included 52 weeks.
Revenue Recognition -- Advertising revenue is recognized when the
advertisement appears in the newspaper. Deferred subscription revenue, which
primarily represents amounts received from customers in advance of newspaper
delivery, is included in revenue over the subscription term.
Cash Equivalents -- The Company considers highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.
Marketable Securities -- Management determines the classification of its
investments in debt and equity securities at the time of purchase. Securities
classified as available-for-sale are carried at fair value, with unrealized
gains and losses, net of tax, reported as a separate component of shareholders'
equity. Securities classified as trading securities are carried at fair value
with unrealized gains and losses reported in earnings. The cost of securities
sold is based on the specific identification method. All marketable debt
securities and preferred stock are classified as current assets. Certain
available-for-sale equity securities are classified as noncurrent assets.
Concentrations of Credit Risk -- Financial instruments which potentially
subject the Company to concentrations of credit risk consist primarily of cash
equivalents, trade accounts receivable and investments in marketable securities.
The Company places its temporary cash with financial institutions and limits the
amount of credit exposure to any one financial institution. Accounts receivable
are with customers located primarily in the immediate geographical area of each
city of publication. The Company reviews a customer's credit history before
extending credit and establishes an allowance for doubtful accounts based on
factors surrounding the credit risk of specific customers, historic trends and
other information. The Company, by policy, limits the type and amount of its
investments in marketable securities.
Inventories -- Newsprint is valued at the lower of cost or market on the
last-in, first-out (LIFO) method. Other inventories are valued at the lower of
cost or market using the first-in, first-out (FIFO) and moving average methods.
F-9
<PAGE> 45
CENTRAL NEWSPAPERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Property, Plant and Equipment -- Property, plant and equipment are carried
at cost. Depreciation is computed using primarily the straight-line method based
on the estimated useful lives of the assets. The principal estimated useful
lives range from three to 15 years for machinery and equipment and 10 to 40
years for buildings and leasehold improvements.
Investment in Affiliate -- The Company uses the equity method of accounting
for its 13.5% partnership interest in Ponderay Newsprint Company.
Goodwill and Other Intangibles -- Goodwill acquired before 1970 is not
being amortized. Goodwill and other intangibles acquired after 1970 are being
amortized on a straight-line basis over periods of 15 to 40 years. Amortization
expense amounted to $1,928,000 in 1996, $4,945,000 in 1997 and $5,507,000 in
1998. Accumulated amortization was $9,130,000 and 11,184,000 at the end of 1997
and 1998, respectively.
The Company reviews goodwill and other intangibles for impairment whenever
events or changes in circumstances indicate that the carrying value may not be
recoverable. If the undiscounted expected future cash flows from use of the
asset are less than its carrying value, an impairment loss would be recognized.
Income Taxes -- The Company provides for the determination of deferred tax
liabilities and assets at the end of each period based on the difference between
the financial statement and tax basis of assets and liabilities using tax rates
expected to be in effect when taxes are actually paid or recovered. The Company
files a consolidated federal income tax return with its wholly and
majority-owned subsidiaries.
Net income per common share -- Basic EPS is computed based upon the
weighted average number of common shares outstanding in each year. The Class B
common stock is included in the computation as if converted to Class A common
stock at a ratio of 10 shares of Class B common stock to one share of Class A
common stock.
Diluted EPS includes the effect of stock options granted under the
Company's Amended and Restated Stock Compensation Plan, calculated using the
treasury stock method.
On December 8, 1998, the Board of Directors declared a two-for-one split of
the Class A and Class B common stock which was distributed on January 8, 1999 to
shareholders of record as of the close of business on December 18, 1998. All
shares and per share amounts presented herein, have been retroactively restated
to reflect the impact of the split.
Asset Impairment -- The Company adopted Statement of Financial Accounting
Standard ("SFAS") No. 121, "Accounting for the impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of," in the first-quarter of 1996. The
statement establishes accounting standards for recognizing and measuring
impairment of long-lived assets, and requires reducing the carrying amount of
any impaired asset to fair value.
Reclassifications -- Certain amounts in the financial statements have been
reclassified to conform to the 1998 presentation.
2 -- BASIC AND DILUTED EARNINGS PER SHARE
The following is a reconciliation of the numerators and denominators of the
basic
F-10
<PAGE> 46
CENTRAL NEWSPAPERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and diluted EPS computations as required by SFAS No. 128, "Earnings Per Share":
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C>
Basic EPS Computation:
Numerator (Net income).................................... $61,534 $81,495 $88,542
Denominator:
Average Common Shares Outstanding......................... 53,238 51,464 48,498
Basic EPS................................................. $ 1.16 $ 1.58 $ 1.83
Diluted EPS Computation:
Numerator (Net income).................................... $61,534 $81,495 $88,542
Denominator:
Average Common Shares Outstanding......................... 53,238 51,464 48,498
Stock Options............................................. 838 1,482 1,382
TOTAL..................................................... 54,076 52,946 49,880
Diluted EPS............................................... $ 1.14 $ 1.54 $ 1.78
</TABLE>
3 -- ACQUISITIONS, REDEEMABLE PREFERRED STOCK AND STOCK REPURCHASES
On October 23, 1998, pursuant to a September 21, 1998 agreement, we
repurchased and retired 5,000,000 shares of Class A Common Stock from the Nina
Mason Pulliam Charitable Trust at $30 per share (plus interest from September
16, 1998) for a total consideration of $150.8 million. In addition, in November
1998, we repurchased and retired 3,000,000 shares of our Class A Common Stock,
pursuant to the exercise of an option from the Charitable Trust, at $33.50 per
share for a total consideration of $100.5 million. These repurchases were
financed with a $300 million revolving credit facility arranged by First Chicago
Capital Markets, Inc. (a subsidiary of Bank One Corporation), and syndicated to
a group of banks. This $300 million revolving credit facility, which closed on
November 10, 1998 consists of a $200 million five-year and a $100 million 365-
day revolving credit facility. The credit facility may be used for general
corporate purposes, including the repurchase of common stock. Under the credit
facility, we can choose among loans with interest rates based on either an
Alternative Base Rate (fixed rate), an Adjusted LIBOR (floating rate), or a
Competitive Bid (a floating rate loan based on bids solicited from the lenders)
as those terms are defined in the credit agreement. We must maintain compliance
with certain covenants under the terms of the credit facility.
At our annual meeting of shareholders on May 15, 1998, our shareholders
approved an increase in the number of authorized shares of Class A Common Stock
from 75,000,000 to 150,000,000 shares and Class B Common Stock from 50,000,000
to 130,000,000 shares.
In December 1997, the Board of Directors authorized additional repurchases
of up to $100.0 million of our Class A Common Stock. The shares may be purchased
within the subsequent three years on the open market or in privately negotiated
transactions. We have repurchased and retired a total of 2,039,660 shares under
this authorization through December 27, 1998 at a total cost of approximately
$65.5 million. This authorization replaces the March 19, 1996, repurchase
program under which we repurchased
F-11
<PAGE> 47
CENTRAL NEWSPAPERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1,490,000 shares of Class A Common Stock at a cost of approximately $33.2
million.
In October 1997, we acquired an 80% interest in Homebuyer's Fair, Inc.
which provides internet-based services and information for people who are moving
and corporations that are relocating employees. In September 1998, Homebuyer's
Fair acquired 100% of National School Reporting Services, Inc. which provides
internet-based information related to schools across the nation. As a result of
the transaction, we now own 89% of the combined entity, with an option to
purchase the remaining 11% on or after December 31, 2000.
In May 1997, we repurchased and retired an aggregate of 2,354,734 shares of
Class A Common Stock from three non-profit organizations at a total cost of
$58.6 million.
In February 1997, the Company acquired 80% of the Santa Clara, California
based Westech group of companies for $34,800,000. The transaction was recorded
using purchase accounting. The group, which had 1997 sales of $32,200,000,
includes Westech ExpoCorp., which organizes job fairs for the high-technology
industry, High Technology Careers, which publishes High Technology Careers
Magazine and Virtual Job Fair, an internet-based resume posting and research
service, and JobsAmerica, which organizes job fairs for service industry
positions. The transaction generated $32,400,000 of goodwill which is being
amortized on a straight line basis over 15 years. In June 1997, Westech acquired
the assets of Target Career Fairs, a Boston-based company that organizes job
fairs for the high-technology industry in the eastern portion of the U.S.,
including the cities of Boston, Raleigh, Orlando, Philadelphia and St. Louis.
Target had 1996 revenues of approximately $3,000,000. The Company has an option
to purchase the remaining 20% of Westech.
In January 1997, the Company acquired the remaining 9.8% of Indianapolis
Newspapers, Inc. ("INI") common stock that it did not already own. This
transaction was accomplished by issuing to the minority shareholders an
aggregate of 1,892 shares of newly created, non-voting, INI preferred stock,
with an aggregate stated value of $18,920,000 in exchange for the shares of INI
common stock owned by them. The preferred stock provides for aggregate annual
dividends of $1,324,000 on a cumulative basis, is callable in five years by INI,
and is redeemable at any time by the shareholders of INI at the stated value
plus accrued but unpaid dividends. The total acquisition consideration of
$18,920,000 was accounted for using the purchase method of accounting. This
transaction resulted in goodwill of $8,468,000 and a reduction of the minority
interest of $9,244,000.
In March 1996, the Company acquired 100% of the outstanding common stock of
McCormick and Company, Inc. ("McCormick"), the parent company of the Alexandria
Daily Town Talk newspaper of Louisiana and McCormick Graphics, Inc., a
commercial printing subsidiary. The purchase price of approximately $62,000,000
was paid entirely with cash. The amount of the purchase price allocated to
goodwill was approximately $47,473,000 and is being amortized over forty years.
Historical pro-forma results have not been presented for the acquisitions
described above as the results are immaterial.
4 -- EMPLOYEE BENEFIT PLANS AND POSTRETIREMENT OBLIGATIONS
The Company has defined benefit plans to provide pension benefits to all
employees who have met certain eligibility requirements. Benefits are based
primarily on length of service, wages earned, age and the amount of optional
employee contributions. The Company's policy is to fund at least the minimum
amount required by ERISA. Assets of the plans consist primarily of stocks, bonds
and short-term investments.
The Company sponsors postretirement medical and life insurance plans which
are
F-12
<PAGE> 48
CENTRAL NEWSPAPERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
available to most of its employees. In order to be eligible for these plans,
employees must retire from the Company and have been covered under an active
plan. The level of benefits provided depends on the year of retirement and years
of service. The plans are contributory with periodic adjustments in the amount
of contributions by retirees. The Company's policy is to fund these benefits as
claims and premiums are paid.
The Company's pension benefits and other postretirement benefits consisted
of:
<TABLE>
<CAPTION>
OTHER POSTRETIREMENT
PENSION BENEFITS BENEFITS
---------------- --------------------
1997 1998 1997 1998
(IN THOUSANDS) ---- ---- ---- ----
<S> <C> <C> <C> <C>
Change in Benefit Obligation
Net benefit obligation at beginning of year....... $217,140 $234,556 $ 89,899 $ 87,630
Service cost...................................... 6,572 6,918 3,185 3,056
Interest cost..................................... 16,437 16,983 6,092 5,738
Plan participants' contributions.................. 543 426 630 727
Plan amendments................................... (121) (1,213)
Actuarial (gain) loss............................. 9,536 15,668 (6,887) (3,345)
Gross benefits paid............................... (15,672) (16,173) (5,168) (5,509)
-------- -------- -------- --------
Net benefit obligation at end of year............. $234,556 $258,378 $ 87,630 $ 87,084
======== ======== ======== ========
Change in Plan Assets
Fair value of plan assets at beginning of year.... $241,397 $279,735
Actual return on plan assets...................... 53,467 44,033
Employer contributions............................ 7,039 $ 4,538 $ 4,782
Plan participant's contributions.................. 543 426 630 727
Gross benefits paid............................... (15,672) (16,173) (5,168) (5,509)
-------- -------- -------- --------
Fair value of plan assets at end of year.......... $279,735 $315,060 $ -- $ --
======== ======== ======== ========
Funded status at end of year...................... $ 45,179 $ 56,682 $(87,630) $(87,084)
Unrecognized net actuarial (gain) loss............ (39,559) (47,465) 1,330 (1,903)
Unrecognized prior service cost................... 2,792 2,348 (1,189) (1,867)
Unrecognized net transition obligation (asset).... (4,981) (3,698)
-------- -------- -------- --------
Net amount recognized at end of year.............. $ 3,431 $ 7,867 $(87,489) $(90,854)
======== ======== ======== ========
</TABLE>
F-13
<PAGE> 49
CENTRAL NEWSPAPERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
OTHER POSTRETIREMENT
PENSION BENEFITS BENEFITS
---------------- --------------------
1996 1997 1998 1996 1997 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Weighted-average assumptions December 31
Discount rate................................. 7.50% 7.25% 6.75% 7.50% 7.25% 6.75%
Expected return on plan assets................ 9.00% 9.00% 9.00% N/A N/A N/A
Rate of compensation increase................. 4.00% 4.00% 4.00% 4.00% 4.00% 4.00%
</TABLE>
For measurement purposes, a 6% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 1999. The rate was assumed
to decrease gradually to 5 percent for 2000 and remain at that level thereafter.
Components of net periodic benefit cost
(In Thousands)
<TABLE>
<CAPTION>
OTHER POSTRETIREMENT
PENSION BENEFITS BENEFITS
---------------- --------------------
1996 1997 1998 1996 1997 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Service cost............................. $ 6,861 $ 6,572 $ 6,918 $ 2,859 $ 3,185 $3,056
Interest cost............................ 14,575 16,437 16,983 5,974 6,092 5,738
Expected return on assets................ (17,144) (18,587) (20,447)
Amortization of:
Transition obligation (asset)............ (1,283) (1,283) (1,283)
Prior service cost....................... 444 444 444 (1,927) (1,947) (478)
Actuarial (gain) loss.................... 39 128
(10) (12) 38 (169)
-------- -------- -------- ------- ------- ------
Total net periodic benefit cost.......... $ 3,492 $ 3,573 $ 2,603 $ 7,034 $ 7,368 $8,147
======== ======== ======== ======= ======= ======
</TABLE>
Other postretirement benefits include medical benefits for retirees and
their spouses, retiree life insurance, and executive life insurance. Phoenix
Newspapers, Inc. also provides dental and vision benefits for retirees and their
spouses. In 1997, Phoenix Newspapers, Inc. amended its postretirement benefit
plan to provide a Medicare Risk HMO option for their post-65 retirees.
The company has a wage deferral plan qualified under Section 401 (k) of the
Internal Revenue Code that covers all eligible employees. Company matching
contributions to this plan were $4,600,000, $4,517,000 and $4,488,000 for 1996,
1997 and 1998, 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
F-14
<PAGE> 50
CENTRAL NEWSPAPERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
ONE PERCENTAGE POINT ONE PERCENTAGE POINT
INCREASE DECREASE
-------------------- --------------------
<S> <C> <C>
Effect on total of service and interest cost
components.................................... $1,206,502 $ (909,578)
Effect on postretirement benefit obligation..... $9,372,676 $(7,166,507)
</TABLE>
5 -- WORK FORCE REDUCTION
The Company has reduced its work force in response to The Phoenix Gazette
closure, changes in distribution methods in Indianapolis, economic conditions,
increasing costs and changes in technology. Early retirement incentive programs
contributed to the staff reductions. Employees were offered early retirement
benefits through a non-qualified supplemental retirement plan and those
terminated due to job eliminations received severance payments. Work force
reduction costs include retirement benefits, severance payments, carrier
conversion incentives, agency signing bonuses and professional support. Work
force reduction costs were $1,340,000, $9,999,000 and $854,000 for 1996, 1997
and 1998, respectively.
6 -- INCOME TAXES
The provision for income taxes, exclusive of tax effects from equity in
earnings of Affiliate, consisted of:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
State:
Currently payable....................................... $ 8,007 $ 10,903 $ 12,075
Deferred................................................ (301) (60) (865)
-------- -------- --------
7,706 10,843 11,210
-------- -------- --------
Federal:
Currently payable....................................... 35,967 48,477 53,373
Deferred................................................ (1,242) (523) (1,458)
-------- -------- --------
34,725 47,954 51,915
-------- -------- --------
Provision for income taxes.............................. $ 42,431 $ 58,797 $ 63,125
======== ======== ========
</TABLE>
F-15
<PAGE> 51
CENTRAL NEWSPAPERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Components of net deferred income tax liability are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Depreciation............................................ $ 55,533 $ 57,796 $ 56,666
Pension................................................. 2,490 2,878 2,752
Other................................................... 1,647 1,933 1,526
-------- -------- --------
Gross deferred tax liability............................ 59,670 62,607 60,944
-------- -------- --------
Postretirement benefits................................. (33,938) (35,488) (38,494)
Vacation................................................ (3,995) (3,767) (3,769)
Other................................................... (2,398) (4,351) (2,757)
-------- -------- --------
Gross deferred tax asset................................ (40,331) (43,606) (45,020)
-------- -------- --------
Net deferred income tax liability....................... $ 19,339 $ 19,001 $ 15,924
======== ======== ========
</TABLE>
Reconciliation of the U.S. federal statutory tax rate to the effective tax
rate is presented below:
<TABLE>
<CAPTION>
1996 1997 1998
-------------- -------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Federal statutory tax rate.............. $36,354 35.0% $50,116 35.0% $53,550 35.0%
State taxes net of federal tax effect... 5,009 4.8 7,048 5.0 7,286 4.8
Goodwill and other...................... 1,068 1.0 1,633 1.1 2,289 1.5
------- ---- ------- ---- ------- ----
Provision for income taxes.............. $42,431 40.8% $58,797 41.1% $63,125 41.3%
======= ==== ======= ==== ======= ====
</TABLE>
7 -- INVENTORIES
Newsprint inventory, valued at LIFO, amounted to $7,710,000 and $9,639,000
at the end of 1997 and 1998. If the FIFO inventory valuation method had been
exclusively used for newsprint, the value would have been $5,139,000 and
$5,627,000 higher, respectively. Other inventories, consisting primarily of
newspaper production supplies, amounted to $2,610,000 and $2,202,000 at the end
of 1997 and 1998.
8 -- INVESTMENT IN AFFILIATE
The Company, through its subsidiaries, has a 13.5% partnership interest in
Ponderay Newsprint Company, which was formed to own a newsprint mill in the
State of Washington. Under the terms of a loan agreement, the Company has
guaranteed certain partnership bank debt in the amount of $16,875,000.
The Company has committed to purchase for use in Phoenix the lesser of
13.5% of annual newsprint production or 28,400 metric tons on a "take if
tendered" basis until the debt is repaid. Newsprint purchased from Ponderay
amounted to $23,735,000 during 1997 and $19,042,000 during 1998.
F-16
<PAGE> 52
CENTRAL NEWSPAPERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Summarized financial data for Affiliate:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Results of operations:
Net sales............................................. $160,979 $131,330 $144,776
Net income (loss)..................................... 22,399 (4,040) 11,304
Financial position
Current assets........................................ $ 17,934 $ 22,150 $ 22,872
Property and equipment, at cost -- net................ 263,013 250,038 233,747
Other assets.......................................... 3,098 2,433 1,844
-------- -------- --------
$284,045 $274,621 $258,463
======== ======== ========
Current liabilities................................... $ 18,336 $ 29,018 $ 34,194
Long-term debt ($125 million guaranteed by
partners).......................................... 200,048 183,982 151,343
Partners' capital..................................... 65,661 61,621 72,926
-------- -------- --------
$284,045 $274,621 $258,463
======== ======== ========
</TABLE>
Summary of the Company's investment in Affiliate:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Investment, beginning of year........................... $ 5,843 $ 8,867 $ 8,321
Equity in partnership income (loss)..................... 3,024 (546) 1,527
-------- -------- --------
Investment, end of year................................. $ 8,867 $ 8,321 $ 9,848
======== ======== ========
Equity in Affiliate:
Equity in partnership income (loss)..................... $ 3,024 $ (546) $ 1,527
Current income tax expense.............................. (1,425) (377) (1,087)
Deferred tax benefit.................................... 265 593 552
Other................................................... (138) (1) --
-------- -------- --------
Equity in net earnings (loss) of Affiliate.............. $ 1,726 $ (331) $ 992
======== ======== ========
</TABLE>
9 -- SHORT-TERM BORROWINGS AND LONG-TERM DEBT
In November 1998, the Company entered into a $100,000,000 unsecured,
committed, 365 day credit agreement and a $200,000,000 unsecured, committed,
five year credit agreement. Of such borrowings, $252,000,000 was drawn to fund
the repurchase of stock. As of December 27, 1998, $52,000,000 remained
outstanding on the 365 day revolving credit line, and all $200,000,000 remained
outstanding on the five year facility both at annual interest rates
approximating 5.5%. Compliance with certain covenants under the terms of the
credit facilities must be maintained. As of December 27, 1998, the
F-17
<PAGE> 53
CENTRAL NEWSPAPERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company is in compliance with all such
covenants.
Included in 1997 accrued expenses and other liabilities is $2,678,000
relating to the 50-year 4 1/2% debentures due and paid December 1, 1998.
Interest expense on these facilities and other debt amounted to $618,000 in
1996, $1,710,000 in 1997 and $3,922,000 in 1998. Such amounts are included in
other expense.
10 -- RENTAL EXPENSE AND LEASE COMMITMENTS
Rental expense for 1996, 1997 and 1998 amounted to, $5,000,000, $5,532,000
and $6,341,000, respectively. Future obligations for minimum annual rentals
under noncancelable long-term leases are not significant.
11 -- CAPITAL STOCK AND STOCK COMPENSATION PLAN
Class A common stock is entitled to 1/10 of a vote per share. The Class B
common stock has one vote per share while its dividend and liquidation
distributions are 1/10 of the amount of Class A common stock. Class B common
stock may be converted into Class A common stock at a ratio of ten shares of
Class B common stock for one share of Class A common stock. The Eugene C.
Pulliam Trust ("Trust") owns Class B common stock which provides the Trust the
majority voting control of the Company. At December 27, 1998, the Company has
reserved 4,350,486 shares of Class A common stock for issuance under its Stock
Compensation Plan, 1,000,000 shares for issuance under its 401(k) plan and
6,269,100 shares for issuance upon conversion of Class B common stock.
Dividends declared per share:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Class A common stock........................................ $ .36 $ .40 $ .45
Class B common stock........................................ .036 .040 .045
</TABLE>
The Company's Stock Compensation Plan provides for the granting of stock
options and the issuance of restricted stock grants to certain officers, key
employees and members of the Board of Directors. Options issued under this plan
are granted at prices determined by the Stock Option Committee of the Board of
Directors but not less than fair market value on the date of the grant. Options
granted may be incentive or non-qualified options with a term of 10 years.
Options granted before December 25, 1995, and Board of Director member options
are currently exercisable. Options granted in 1995 and prior to September 13,
1996, are exercisable three years from date of grant and options granted after
September 13, 1996, become exercisable ratably over a three year period
beginning on the first anniversary of the grant.
The Company has historically accounted for employee stock compensation in
accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees."
Under APB No. 25, no compensation costs are recognized if options are granted at
an exercise price equal to the current market value of the stock. SFAS No. 123,
"Accounting for Stock-Based Compensation," was adopted by the Company on January
1, 1996. As permitted by SFAS No. 123, the Company has elected to continue
accounting for employee stock compensation under the APB No. 25 rules, but
disclose pro forma results using SFAS No. 123's alternative accounting
treatment, which calculates the total compensation expense to be recognized as
the fair value of the award at the date of grant. The fair value of options
granted in 1996, 1997 and 1998 was estimated on the grant date using the
F-18
<PAGE> 54
CENTRAL NEWSPAPERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Black-Scholes option pricing model using the
following assumptions:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Risk-free interest rates................................... 6.5-6.6% 6.2% 5.5%
Dividend yields............................................ 2.0% 1.2% 1.2%
Expected volatility........................................ 27.0% 29.0% 30%
Weighted average expected life of options.................. 4-6 years 4 years 4 years
Fair market value per share granted........................ $5.21 $7.12 $11.72
</TABLE>
Under SFAS No. 123, compensation cost is recognized in the amount of the
estimated fair value of the options and amortized to expense over the options'
vesting period. The pro forma effects on net income and earnings per share of
this statement are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C>
Net income:
As reported............................................... $61,534 $81,495 $88,542
Pro forma................................................. 60,316 79,656 85,817
Earnings per share:
As reported
Basic....................................................... $ 1.16 $ 1.58 $ 1.83
Diluted..................................................... 1.14 1.54 1.78
Pro forma Basic............................................. $ 1.14 $ 1.55 $ 1.77
Diluted..................................................... 1.12 1.51 1.72
</TABLE>
F-19
<PAGE> 55
CENTRAL NEWSPAPERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of the status of the Company's Stock
Compensation Plan as of and for the three years ended December 27, 1998:
<TABLE>
<CAPTION>
SHARES SHARES WEIGHTED AVERAGE
RESERVED UNDER EXERCISE
FOR GRANTS OPTION PRICE
---------- ------ ----------------
<S> <C> <C> <C>
Outstanding, December 31, 1995.................. 5,606,200 2,702,200 $12.09
Granted....................................... 678,000 18.68
Exercised..................................... (309,400) (309,400) 9.60
Cancelled..................................... (103,000) 13.29
Restricted Shares............................. (105,000)
--------- --------- ------
Outstanding, December 29, 1996.................. 5,191,800 2,967,800 $13.82
Granted....................................... 247,950 24.23
Exercised..................................... (353,226) (353,226) 10.77
Cancelled..................................... (20,100) 16.08
Restricted shares, -- net..................... (37,500)
--------- --------- ------
Outstanding, December 28, 1997.................. 4,801,074 2,842,424 $15.09
Granted....................................... 718,200 36.00
Exercised..................................... (431,088) (431,088) 12.46
Cancelled..................................... (34,504) 23.22
Restricted shares, -- net..................... (19,500)
--------- --------- ------
Outstanding, December 27, 1998.................. 4,350,486 3,095,032 $20.21
========= ========= ======
</TABLE>
The following table summarizes information about stock options outstanding
at December 27, 1998:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
------------------------------ --------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
AVERAGE EXERCISE EXERCISE
EXERCISE PRICE RANGE SHARES LIFE(A) PRICE SHARES PRICE
- -------------------- ------ ------- -------- ------ --------
<S> <C> <C> <C> <C> <C>
$ 5.00-$14.99 1,070,800 5.1 $11.97 1,070,800 $11.98
$15.00-$24.99 1,289,532 7.4 $18.11 861,514 $17.20
$25.00-$34.99 8,000 8.3 $25.88 2,667 $25.88
$35.00-$44.99 726,700 9.2 $36.00 6,000 $36.25
--------- ---------
3,095,032 7.0 $20.21 1,940,891 $19.89
========= =========
</TABLE>
- -------------------------
(a) Weighted average contractual life remaining in years
The Company issued restricted stock grants to certain key executives who
have a critical impact on the long-term performance of the Company. The
Compensation Committee of the Board of Directors awarded 105,000, 38,500 and
19,500 shares of stock in 1996, 1997 and 1998, respectively, whereby transfer
restrictions lapse at the end of five years from the award date or as early as
three years upon achieving certain perform-
F-20
<PAGE> 56
CENTRAL NEWSPAPERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ance goals. On February 23, 1999, transfer
restrictions lapsed on 76,000 shares of restricted stock granted in 1996. The
restricted stock grants have all the rights of shareholders, including the right
to receive dividends, except for conditions regarding transferability of shares
or upon the termination of employment. Upon issuance of the shares, unearned
compensation equivalent to the market value at the date of grant was recorded as
unamortized value of restricted stock and is being charged to earnings over the
period during which the restrictions lapse. During 1996, 1997, and 1998
compensation expense in the amount of $276,000, $834,000 and $642,000,
respectively, has been recorded related to these restricted stock grants.
12 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments approximate the
fair value. The Company has guaranteed $16,875,000 of Ponderay debt. The
carrying value approximates the guaranteed amount.
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.
F-21
<PAGE> 57
UNDERWRITING
The selling shareholder and the underwriters for the offering (the
"Underwriters") named below have entered into an underwriting agreement with
respect to the Class A Common Stock being offered. Subject to certain
conditions, each Underwriter has severally agreed to purchase the number of
shares indicated in the following table. Goldman, Sachs & Co. is the
representative of the Underwriters.
<TABLE>
<CAPTION>
Underwriters Number of Shares
------------ ----------------
<S> <C>
Goldman, Sachs & Co.........................................
Donaldson, Lufkin & Jenrette Securities Corporation.........
----------------
Total.....................................................
================
</TABLE>
-------------------------
If the Underwriters sell more shares than the total number set forth in the
table above, the Underwriters have an option to buy up to an additional 348,743
shares from the selling shareholder to cover such sales. They may exercise that
option for 30 days. If any shares are purchased pursuant to this option, the
Underwriters will severally purchase shares in approximately the same proportion
as set forth in the table above.
The following table shows the per share and the total underwriting
discounts and commissions to be paid to the Underwriters by the selling
shareholder. Such amounts are shown assuming both no exercise and full exercise
of the Underwriters' option to purchase additional shares.
<TABLE>
<CAPTION>
Paid by the Selling Shareholder
-------------------------------
No Full
Exercise Exercise
-------- --------
<S> <C> <C>
Per share............ $ $
Total................ $ $
</TABLE>
Shares sold by the Underwriters to the public will initially be offered at
the public offering price set forth on the cover of this prospectus. Any shares
sold by the Underwriters to securities dealers may be sold at a discount of up
to $ per share from the initial public offering price. Any such securities
dealers may resell any shares purchased from the Underwriters to certain other
brokers or dealers at a discount of up to $ per share from the initial
public offering price. If all the shares are not sold at the initial offering
price, the representatives may change the offering price and the other selling
terms.
CNI, the selling shareholder, the Eugene C. Pulliam Trust, as well as the
directors and other executive officers of CNI, have agreed that, during the
period beginning from the date of this prospectus and continuing and including
the date 90 days after the date of the prospectus, they will not offer, sell,
contract to sell or otherwise dispose of any shares of Class A Common Stock or
any security convertible into or exchangeable for shares of Class A Common Stock
without the prior written consent of Goldman, Sachs & Co., except as otherwise
provided in the Underwriting Agreement.
In connection with the offering, the Underwriters may purchase and sell
shares of Class A Common Stock in the open market. These transactions may
include short sales, stabilizing transactions and purchases to cover positions
created by short sales. Short sales involve the sale by the Underwriters of a
greater number of shares than they are required to purchase in the offerings.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the Class A
Common Stock while the offering is in progress.
The Underwriters also may impose a penalty bid. This occurs when a
particular Underwriter repays to the Underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of
U-1
<PAGE> 58
such Underwriter in stabilizing or short covering transactions.
These activities by the Underwriters may stabilize, maintain or otherwise
affect the market price of the Class A Common Stock. As a result, the price of
the Class A Common Stock may be higher than the price that otherwise might exist
in the open market. If these activities are commenced, they may be discontinued
by the Underwriters at any time. These transactions may be effected on the NYSE,
in the over-the-counter market or otherwise.
The selling shareholder estimates, that its share of the total expenses of
the offering, excluding underwriting discounts and commissions, will be
approximately $ .
CNI and the selling shareholder have agreed to indemnify several
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
U-2
<PAGE> 59
- ------------------------------------------------------------
- ------------------------------------------------------------
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You must
not rely on any unauthorized information or representations. This prospectus is
an offer to sell only the shares offered hereby, but only under circumstances
and in jurisdictions where it is lawful to do so. The information contained in
this prospectus is current only as of its date.
-------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information..................... 2
Incorporation of Certain Documents by
Reference............................... 3
Prospectus Summary........................ 4
Risk Factors.............................. 7
Price Range of Class A Common Stock and
Dividend Policy......................... 10
Use of Proceeds........................... 10
Capitalization............................ 11
Selected Consolidated Financial Data...... 12
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 14
Business.................................. 22
Management................................ 30
Description of Capital Stock.............. 32
Selling Shareholder....................... 34
Legal Matters............................. 34
Experts................................... 34
Report of Independent Accountants......... F-1
Underwriting.............................. U-1
</TABLE>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
2,324,956 Shares
CENTRAL NEWSPAPERS, INC.
Class A Common Stock
----------------------
[CNI LOGO]
----------------------
GOLDMAN, SACHS & CO.
DONALDSON, LUFKIN & JENRETTE
Representatives of the Underwriters
- ------------------------------------------------------------
- ------------------------------------------------------------
<PAGE> 60
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all fees and expenses payable in connection
with the issuance and distribution of the shares of Class A Common Stock, other
than underwriting discounts and commissions. All such fees and expenses will be
paid by the selling shareholder and CNI. All the amounts shown are estimates,
except for the Securities and Exchange Commission registration fee and the NASD
filing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 25,365
NASD filing fee............................................. 9,624
"Blue Sky" fees and expenses................................ --
Legal fees and expenses..................................... 18,000
Accounting fees and expenses................................ 80,000
Printing expenses........................................... 85,000
Miscellaneous............................................... 5,000
--------
Total............................................. $222,989
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Sections 23-1-37-1 -- 23-1-37-15 of the Indiana Business Corporation Law
permit a corporation to indemnify directors and officers against liability
incurred in certain proceedings if the individual's conduct was in good faith
and the individual reasonably believed, in the case of conduct in the
individual's official capacity, that such conduct was in the best interests of
the corporation and, in all other cases, believed such conduct was at least not
opposed to the best interests of the corporation. If the proceeding is criminal,
the individual must either have had no reasonable cause to believe that such
conduct was unlawful or had reasonable cause to believe that such conduct was
lawful. The statute requires a corporation to indemnify an individual who is
wholly successful in the defense of any such proceeding against reasonable
expenses incurred by such individual, unless the Articles of Incorporation
provide otherwise. The corporation may pay for or reimburse the reasonable
expenses incurred by a director or officer who is a party to a proceeding in
advance of final disposition of the proceeding if certain conditions are
satisfied. Unless otherwise provided in the Articles of Incorporation, a
director or officer may apply for court ordered indemnification, which will
include reasonable expenses incurred to obtain the indemnification order if the
court determines that the director is entitled to mandatory indemnification or
that the director is fairly and reasonably entitled to indemnification in view
of all the relevant circumstances. Except in the case of mandatory
indemnification, a corporation may indemnify a director of officer only after it
is determined that the individual meets the standard of conduct described above.
In addition, a corporation may also indemnify and advance expenses to an
officer, whether or not a director, to the extent, consistent with public
policy, that may be provided by its Articles of Incorporation, by-laws, general
or specific action of its board of directors or contract. Section 23-1-37-14 of
the Indiana Business Corporation Law empowers an Indiana corporation to purchase
and maintain insurance on behalf of any director or officer against any
liability asserted against, or incurred by, such individual in any such capacity
or arising out of his or her status as such, whether or not the corporation
would have had the power to indemnify against such liability.
II-1
<PAGE> 61
The Amended and Restated Articles of Incorporation of the Registrant permit
the Registrant to indemnify any person who is or was a director or officer of
the Registrant to the fullest extent allowed by law.
The Registrant also carries liability insurance covering officers and
directors.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.*
4.1 Amended and Restated Articles of Incorporation of Central
Newspapers, Inc.*
4.2 The Amended and Restated Code of By-Laws of Central
Newspapers, Inc.*
5.1 Opinion of Henderson, Daily, Withrow & DeVoe as to legality
of the shares.*
10.1 Stock Purchase Agreement by and between the Nina Mason
Pulliam Charitable Trust and Central Newspapers, Inc., dated
as of September 21, 1998 incorporated by reference to Form
10-Q dated November 5, 1998.
10.2 Standstill and Option Agreement by and between the Nina
Mason Pulliam Charitable Trust and Central Newspapers, Inc.
dated as of September 21, 1998 incorporated by reference to
Form 10-Q dated November 5, 1998.
10.3 Stock Purchase Agreement by and between the Nina Mason
Pulliam Charitable Trust and Central Newspapers, Inc., dated
as of November 13, 1998.*
10.4 Credit Agreement among Central Newspapers, Inc., The First
National Bank of Chicago, Bank of Montreal, and Norwest Bank
Minnesota dated as of November 10, 1998.*
10.5 First Amendment to Credit Agreement among Central
Newspapers, Inc., The First National Bank of Chicago, Bank
of Montreal, and Norwest Bank of Minnesota dated as of
November 16, 1998.*
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Olive LLP.
23.3 Consent of Henderson, Daily, Withrow & DeVoe (contained in
the opinion filed as Exhibit 5.1 to this Registration
Statement).
24.1 Powers of Attorney.*
</TABLE>
- ---------------
* Previously filed
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, each filing of the registrant's annual report pursuant to Section
13(a) or Section 15(d) of the Securities Exchange Act of 1934 that is
incorporated by reference in the registration statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at the time shall be deemed to be the
initial bona fide offering thereof.
(2) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant
II-2
<PAGE> 62
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be
deemed to be part of this registration statement as of the time it was declared
effective.
(3) For the purposes of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described under Item 15 above or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted against the registrant by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II-3
<PAGE> 63
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3, and has duly caused this Amendment No. 2 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in Phoenix, Arizona on the 25th day of February,
1999.
CENTRAL NEWSPAPERS, INC.
By: /s/ LOUIS A. WEIL, III
------------------------------------
Chairman, President & Chief
Executive Officer
Pursuant to the requirements of the Securities Act, this Amendment No. 2 to
the Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ LOUIS A. WEIL, III Chairman, President & Chief February 25, 1999
- --------------------------------------------------- Executive Officer
Louis A. Weil, III
/s/ THOMAS K. MACGILLIVRAY Vice President and Chief February 25, 1999
- --------------------------------------------------- Financial Officer (Principal
Thomas K. MacGillivray Financial and Accounting
Officer)
* Director February 25, 1999
- ---------------------------------------------------
William A. Franke
* Director February 25, 1999
- ---------------------------------------------------
L. Ben Lytle
/s/ FRANK E. RUSSELL Director February 25,1999
- ---------------------------------------------------
Frank E. Russell
* Director February 25, 1999
- ---------------------------------------------------
Richard Snell
*By: /s/ ERIC S. TOOKER February 25, 1999
- ---------------------------------------------------
Attorney-in-Fact
</TABLE>
II-4
<PAGE> 64
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.*
4.1 Amended and Restated Articles of Incorporation of Central
Newspapers, Inc.*
4.2 The Amended and Restated Code of By-Laws of Central
Newspapers, Inc.*
5.1 Opinion of Henderson, Daily, Withrow & DeVoe as to legality
of the shares.*
10.1 Stock Purchase Agreement by and between the Nina Mason
Pulliam Charitable Trust and Central Newspapers, Inc., dated
as of September 21, 1998 incorporated by reference to Form
10-Q dated November 5, 1998.
10.2 Standstill and Option Agreement by and between the Nina
Mason Pulliam Charitable Trust and Central Newspapers, Inc.
dated as of September 21, 1998 incorporated by reference to
Form 10-Q dated November 5, 1998.
10.3 Stock Purchase Agreement by and between the Nina Mason
Pulliam Charitable Trust and Central Newspapers, Inc., dated
as of November 13, 1998.*
10.4 Credit Agreement among Central Newspapers, Inc., The First
National Bank of Chicago, Bank of Montreal, and Norwest Bank
Minnesota dated as of November 10, 1998.*
10.5 First Amendment to Credit Agreement among Central
Newspapers, Inc., The First National Bank of Chicago, Bank
of Montreal, and Norwest Bank of Minnesota dated as of
November 16, 1998.*
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Olive LLP.
23.3 Consent of Henderson, Daily, Withrow & DeVoe (contained in
the opinion filed as Exhibit 5.1 to this Registration
Statement).
24.1 Powers of Attorney.*
</TABLE>
- ---------------
* Previously filed
II-5
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the prospectus constituting part of
Amendment No. 2 to this Registration Statement on Form S-3 of our report dated
January 29, 1999, which appears in such prospectus. We also consent to the
references to us under the headings "Experts" and "Selected Consolidated
Financial Data" in such prospectus. However, it should be noted that
PricewaterhouseCoopers LLP has not prepared or certified such "Selected
Consolidated Financial Data."
PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Phoenix, Arizona
February 25, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated February 3, 1997 on the
consolidated financial statements of Central Newspapers, Inc. and to the
reference to our Firm under the captions "Experts" and "Selected Consolidated
Financial Data" in this Amendment No. 2 to Registration Statement on Form S-3
(File No. 333-67077) and to the incorporation by reference therein of our report
dated February 3, 1997, with respect to the consolidated financial statements of
Central Newspapers, Inc. as of December 29, 1996 and for each of the two fiscal
years in the period ended December 29, 1996, included in its Annual Report on
Form 10-K for the fiscal year ended December 28, 1997.
/s/ Olive LLP
- ------------------------------
Olive LLP
Indianapolis, Indiana
February 24, 1999
