-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OYbiFYD3VWc6MTBMKusQYPn6TiIBaZFJh+Q2EJqCdS2sUEX/3yTwjOapv17QAKpp 9e/qn3iNiqYxffPTffdxJg== 0000950155-95-000039.txt : 19951220 0000950155-95-000039.hdr.sgml : 19951220 ACCESSION NUMBER: 0000950155-95-000039 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19951031 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19951219 SROS: BSE SROS: CSE SROS: CSX SROS: NYSE SROS: PHLX FILER: COMPANY DATA: COMPANY CONFORMED NAME: KNIGHT RIDDER INC CENTRAL INDEX KEY: 0000205520 STANDARD INDUSTRIAL CLASSIFICATION: NEWSPAPERS: PUBLISHING OR PUBLISHING & PRINTING [2711] IRS NUMBER: 380723657 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-07553 FILM NUMBER: 95602551 BUSINESS ADDRESS: STREET 1: ONE HERALD PLZ CITY: MIAMI STATE: FL ZIP: 33132 BUSINESS PHONE: 3053763800 MAIL ADDRESS: STREET 1: ONE HERALD PLZ CITY: MIAMI STATE: FL ZIP: 33132 FORMER COMPANY: FORMER CONFORMED NAME: KNIGHT RIDDER NEWSPAPERS INC /FL/ DATE OF NAME CHANGE: 19860707 8-K/A 1 FORM 8-K/A SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------------------- FORM 8-K/A#1 CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported) October 31, 1995 KNIGHT-RIDDER, INC. - ------------------------------------------------------------------------------ (Exact name of registrant as specified in its charter) FLORIDA 1-7553 No. 38-0723657 - ------------------------------------------------------------------------------ (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification No.) ONE HERALD PLAZA, MIAMI, FLORIDA 33132 - ------------------------------------------------------------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (305) 376-3800 -------------- NOT APPLICABLE - ------------------------------------------------------------------------------ (Former name or former address, if changed since last report.) Item 7. Financial Statements and Exhibits. --------------------------------- (a) Financial Statements of Business Acquired. The following financial statements of Lesher Communications, Inc., now known as Contra Costa Newspapers, Inc. ("Lesher") are filed herewith on the pages subsequent hereto: (i) Independent Auditors Report; Balance Sheet at December 25, 1994; Statement of Income for the year ended December 25, 1994; Statement of Changes in Stockholders' Investment for the year ended December 25, 1994; Statement of Cash Flows for the year ended December 25, 1994; and Notes to Financial Statements at and for the year ended December 25, 1994. (ii) Independent Accountants' Review Report; Balance Sheet at October 1, 1995; Statements of Income for the three months and nine months ended October 1, 1995; Statement of Cash Flows for the nine months ended October 1, 1995; and Notes to Financial Statements at and for the nine months ended October 1, 1995. (b) Pro forma Financial Information. The following pro forma financial information (unaudited) filed herewith on the pages subsequent hereto gives effect to the acquisition of Lesher by Knight-Ridder, Inc. on October 31, 1995: Pro Forma Condensed Consolidated Balance Sheet as of September 24, 1995 and Notes thereto; and Pro Forma Condensed Consolidated Statements of Income for the twelve month and nine month periods ended December 25, 1994 and September 24, 1995 and Notes thereto. SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized. KNIGHT-RIDDER, INC. ------------------------------ (Registrant) Dated: December 18, 1995 By: /s/ Ross Jones ------------------------------ Ross Jones Senior Vice President and Chief Financial Officer BLANDING BOYER & ROCKWELL Certified Public Accountants INDEPENDENT AUDITORS' REPORT ----------------------------- To the Stockholders Lesher Communications, Inc. We have audited the accompanying balance sheet of Lesher Communications, Inc. as of December 25, 1994, and the related statements of income, changes in stockholders' investment, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Lesher Communications, Inc. at December 25, 1994 and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. As a consequence of the sale of business more fully described in Note 10, certain reclassifications and disclosure modifications have been applied to the previously issued 1994 financial statements to conform with the financial reporting requirements of the buyer. Blanding, Boyer & Rockwell Blanding, Boyer & Rockwell Walnut Creek, California March 5, 1995 (except for Notes 8, 10 and 11, as to which the date is November 1, 1995). LESHER COMMUNICATIONS, INC. --------------------------- FINANCIAL STATEMENTS --------------------- FOR THE YEAR ENDED DECEMBER 25, 1994 ------------------------------------ BLANDING BOYER & ROCKWELL Certified Public Accountants
LESHER COMMUNICATIONS, INC. --------------------------- BALANCE SHEET ------------- DECEMBER 25, 1994 ----------------- ASSETS (Note 5) --------------- (See independent auditors' report.) CURRENT ASSETS: Cash and equivalents (Note 1) $ 1,008,296 Accounts receivable (Note 1): Trade, net of allowance for bad debts of $392,584 11,328,840 Other 203,985 Advances to stockholders (Note 3) 14,075 Inventories (Note 1) 1,200,512 Refundable income taxes 188,014 Prepaid pension (Note 7) 2,386,403 Prepaid insurance 231,148 Unamortized loan fees (Notes 1 and 10) 1,063,690 Prepaid expenses 299,298 ----------- Total current assets 17,924,261 ----------- PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation (Notes 1 and 4) 61,479,065 ----------- OTHER ASSETS: Notes receivable 220,955 Goodwill (Notes 1 and 2) 1,281,179 Deposits and other (Note 3) 498,556 ------------ Total other assets 2,000,690 ------------ $ 81,404,016 ============
See notes to financial statements.
LESHER COMMUNICATIONS, INC. --------------------------- BALANCE SHEET ------------- DECEMBER 25, 1994 ----------------- LIABILITIES AND STOCKHOLDERS' INVESTMENT ---------------------------------------- (See independent auditors' report.) CURRENT LIABILITIES: Current portion of long-term debt (Note 5) $ 5,278,812 Accounts payable 2,662,653 Accrued payroll and related liabilities 3,848,490 Other accrued expenses 977,245 Unearned income, principally subscriptions paid in advance 3,037,635 ------------ Total current liabilities 15,804,835 ------------ LONG-TERM DEBT, net of current portion shown above (Note 5) 50,528,812 ------------ DEFERRED INCOME TAXES (Note 1) 227,500 ------------ COMMITMENTS AND CONTINGENCIES (Notes 3 and 6) STOCKHOLDERS' INVESTMENT: Capital stock Authorized - 50,000 shares Issued - 20,000 shares Outstanding - 18,127 shares (Notes 2 and 10) 9,896,456 Retained earnings - unappropriated (Notes 1 and 2) 4,946,413 ------------ Total stockholders' investment 14,842,869 ------------ $ 81,404,016 ------------
See notes to financial statements.
LESHER COMMUNICATIONS, INC. --------------------------- STATEMENT OF INCOME ------------------- FOR THE YEAR ENDED DECEMBER 25, 1994 ------------------------------------ (See independent auditors' report.) REVENUES: Advertising $ 64,405,247 Circulation 12,141,952 Preprints 13,362,118 Commercial printing 4,942,544 Other 810,409 ------------- Total revenues 95,662,270 ------------- COST AND EXPENSES: Administration 21,139,315 Advertising 8,412,616 Circulation 14,034,085 Editorial 12,255,172 Mechanical and other 24,394,406 ------------- Total costs and expenses 80,235,594 ------------- INCOME FROM OPERATIONS 15,426,676 ------------- OTHER INCOME (EXPENSE): Interest income 93,067 Gain (loss) on disposition of property and equipment (293,950) Interest expense (Note 5) (3,284,414) Litigation settlement (25,000) Other 19,688 ------------- Total other income (expense) (3,490,609) ------------- INCOME BEFORE INCOME TAXES 11,936,067 ------------- PROVISION FOR INCOME TAXES (Note 1) Current 165,109 Deferred (benefit) (68,000) ------------- 97,109 ------------- NET INCOME $ 11,838,958 ============= EARNINGS PER SHARE, based upon average shares outstanding of 17,402 $ 680.32 =============
See notes to financial statements.
LESHER COMMUNICATIONS, INC. --------------------------- STATEMENT OF CHANGES IN STOCKHOLDERS' INVESTMENT ------------------------------------------------ FOR THE YEAR ENDED DECEMBER 25, 1994 ------------------------------------ (See independent auditors' report.) Capital Stock Total ------------- Retained Stockholders Shares Amount Earnings Investment ------ ------- -------- ------------ Balance, December 26, 1993 17,922 $1,000,000 $ 33,166,739 $ 34,166,739 Shares redeemed for cash (Note 10) (1,847) - (24,235,837) (24,235,837) Merger with affiliates (Notes 2 and 10) 2,052 $8,896,456 (5,474,429) 3,422,027 Net income - - 11,838,958 11,838,958 Dividends paid in cash $547.47 per share (Note 10) - - (9,527,134) (9,527,134) Dividends paid in property $47.23 per share - - (821,884) (821,884) ------- ---------- ------------ ------------ Balance, December 25, 1994 18,127 $9,896,456 $ 4,946,413 $ 14,842,869 ======= ========== ============ ============
See notes to financial statements.
LESHER COMMUNICATIONS, INC. --------------------------- STATEMENT OF CASH FLOWS ----------------------- FOR THE YEAR ENDED DECEMBER 25, 1994 ------------------------------------ (See independent auditors' report.) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 11,838,958 Items not using (providing) cash: Deferred income taxes (Note 1) (68,000) Depreciation (Note 1) 5,068,995 Amortization (Note 1) 12,726 Bad debts 70,883 Loss (gain) on disposition of property and equipment 293,950 Changes in operating assets and liabilities (Note 9) 765,009 ------------- Net cash flows from operating activities 17,982,521 ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from disposition of property and equipment 6,752 Collections on notes receivable 705 Capital expenditures (10,045,866) Merger with affiliates (Note 2) 1,481,813 ------------- Net cash flows from investing activities (8,556,596) ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term debt 66,750,000 Long-term debt repayments (42,931,537) Redemption of capital stock (24,235,837) Dividends paid in cash (9,527,134) ------------- Net cash flows from financing activities (9,944,508) ------------- NET (DECREASE) IN CASH (518,583) CASH AND EQUIVALENTS Beginning of year 1,526,879 ------------- End of year $ 1,008,296 =============
See notes to financial statements. LESHER COMMUNICATIONS, INC. --------------------------- NOTES TO FINANCIAL STATEMENTS ----------------------------- DECEMBER 25, 1994 ----------------- (See independent auditors' report.) NOTE 1 - OPERATIONS, SIGNIFICANT ACCOUNTING POLICIES AND CONCENTRATIONS OF RISK: - ----------------------------------------------------------------------- Lesher Communications, Inc. publishes daily and weekly newspapers in Northern California. The Company uses a 52-53 week year, with its year ending on the last Sunday in December. Financial instruments which potentially subject the Company to concentrations of risk consist principally of temporary cash investments and trade receivables. The Company places its temporary cash investments with high credit quality financial institutions. Such investments exceed the FDIC insurance limit throughout the year. Concentrations of credit risk with respect to trade receivables are limited due to the Company's large customer base representing many industries. The Company's significant accounting policies include the following: Cash and equivalents - Temporary investments in highly liquid money market instruments with maturities of three months or less are presented as cash equivalents. Inventories - Inventories, principally newsprint, are stated at the lower of cost or market with cost determined using the last-in, first-out (LIFO) method. If inventories had been valued at the lower of first-in, first-out (FIFO) cost or market method, inventories at December 25, 1994 would have been approximately $1,324,000. NOTE 1 - OPERATIONS, SIGNIFICANT ACCOUNTING POLICIES AND CONCENTRATIONS OF RISK: Continued - ----------------------------------------------------------------------- Property, plant and equipment - Additions and improvements are capitalized. Replacements, maintenance or repairs which do not improve or extend the life of the respective assets are expensed as incurred. When assets are retired or disposed of, the related cost and accumulated depreciation are removed from the respective accounts. The gain or loss on items traded is applied to the property accounts and that of items disposed of is reflected in income. Depreciation is provided using straight line and accelerated methods for financial reporting and accelerated methods for income tax purposes. The Company capitalizes interest expense as part of the cost of major construction projects. The California franchise tax basis of these assets as of December 25, 1994 was $45,127,325. Loan fees - The loan fees incurred during the negotiation of a term loan with the bank in July 1994 were capitalized and being amortized over the life of the loan. The accumulated amortization as of December 25, 1994 was $125,519. Goodwill - The Company has classified as goodwill the cost in excess of fair value of the net assets of companies acquired in purchase transactions. Goodwill which arose from the acquisition of companies before 1971, is not being amortized because in the opinion of management, there has been no diminution in value. Goodwill arising from subsequent acquisitions is amortized on the straight line basis over forty years. The accumulated amortization as of December 25, 1994 is $125,519. The Company evaluates the recoverability of goodwill based on nondiscounted cash flows and operating income for the acquired companies. Income taxes - Since electing S corporation status in 1987, income taxes are the responsibility of the corporate shareholders. Substantially all retained earnings are related to accumulations prior to the dates on which the S-election became effective. The Company is responsible for California franchise taxes currently payable based on taxable income. Cash payment for such taxes aggregated $215,000 in 1994. In 1993, the Company adopted Statement of Financial Accounting Standards (SFAS) 109 "Accounting for Income Taxes." This asset and liability method requires the recognition of deferred taxes for the expected future tax consequences of temporary differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end. The deferred tax liability of $227,500 arises principally from the accumulated difference between tax and book depreciation. NOTE 2 - MERGER WITH AFFILIATES: - ------------------------------- During 1994, the Company merged with three affiliated newspaper publishing companies, California Delta Newspapers, Inc., Northern California Publications, Inc. and Telegraph News Publications, Inc. Shareholders of the affiliated companies received shares of Company capital stock based on the independently appraised values of the companies at the merger dates. This combination of affiliates has been accounted for, as proscribed by generally accepted accounting principles, using historical carrying values for assets and liabilities. Although this method of accounting is similar to the pooling of interests method, the pooling method is not applicable to this transaction since the Company merged with affiliated companies under common control. The net assets received in the business combination are summarized as follows. Cash and equivalents $1,481,813 Other assets and liabilities - net 1,940,214 ---------- $3,422,027 ========== Revenues and operating results include $7,443,928 and $905,503, respectively, for the combined affiliates from their dates of combination through December 25, 1994. NOTE 3 - RELATED PARTY TRANSACTIONS: - ----------------------------------- Advances -------- The Company advances funds from time to time to its major shareholders for certain personal expenses. The Company expects repayment of outstanding advances during 1995. No interest is being accrued on these advances. Commitments ----------- The Company's facilities in Walnut Creek, California are leased from its principal stockholder under lease agreements which expire in 2014. Rentals under the agreements were $1,249,200. The Company is required to pay property taxes and insurance in addition to its minimum rent payments, which are as follows: 1995 $1,249,200 1996 1,249,200 1997 1,249,200 1998 1,249,200 1999 1,249,200 Thereafter 18,595,700 Also, the Company leases facilities from unrelated entities. These leases are more fully described in Note 6. Deposits -------- The Company has paid rental security deposits, totaling $391,900, to the principal stockholder for leased facilities. NOTE 4 - PROPERTY, PLANT AND EQUIPMENT: - -------------------------------------- Property, plant and equipment at December 25, 1994 includes the following: Machinery and equipment $ 66,275,518 Land and buildings 36,615,634 Leasehold improvements 1,799,563 Office equipment 1,813,755 Furniture and fixtures 3,199,970 Automotive equipment 756,752 Progress payments on equipment and building under construction 1,180,194 ------------ 111,641,386 Less - accumulated depreciation 50,162,321 ------------ $ 61,479,065 ============ NOTE 5 - LINE OF CREDIT NOTE AND LONG-TERM DEBT: - ----------------------------------------------- A line of credit note with Wells Fargo Bank for $12,500,000 was negotiated during July 1994. Interest is payable monthly and the note is due May 31, 1997. Management intends to refinance the line of credit when due in 1997. The unused line of credit as of December 25, 1994 was $5,750,000. The Company also negotiated a $50,000,000 term loan during July 1994, repaying its then outstanding bank borrowings. Interest is payable monthly, and principal payments are due quarterly, with all unpaid principal and interest due on June 30, 2001. Interest accrues on advances from the line of credit note and the term loan at the Company's choice of a fluctuating rate to be determined by the bank based on the prime rate or at a fixed rate to be determined by the bank based on the London Interbank rate. The agreements require the Company to meet certain financial ratios and other restrictive covenants. The bank has security interests of first priority in all of the Company's assets. Further, the shareholders have pledged all outstanding shares of the Company capital stock to the bank. The Company's long-term debt at December 25, 1994 is comprised of the following: Term note - Wells Fargo Bank, due in increasing quarterly installments through March 2001, and final payment of unpaid principal and interest on June 30, 2001, plus interest payable monthly. $48,750,000 Line of credit - Wells Fargo Bank, $12,500,000 line, interest payable monthly, and principal due on May 31, 1997. 6,750,000 NOTE 5 - LINE OF CREDIT NOTE AND LONG-TERM DEBT: (continued) - ----------------------------------------------- Note payable assumed from Telegraph News Publications, Inc., payments of $76,906 plus interest at prime rate, due semiannually through 1996. 307,624 ----------- 55,807,624 Less - current portion 5,278,812 ----------- $50,528,812 =========== Cash payments for interest aggregated $2,796,167 during fiscal 1994. No interest was capitalized, all interest incurred was charged to expense during the year. Repayments of long-term debt for the following five years are as follows: 1995 $ 5,278,812 1996 5,653,812 1997 12,250,000 1998 5,500,000 1999 5,625,000 Thereafter 21,500,000 NOTE 6 - COMMITMENTS AND CONTINGENCIES: - -------------------------------------- The Company leases certain facilities under noncancellable operating leases extending through 1998. Rentals under these leases were $182,004 for the year ended December 25, 1994. Certain leases obligate the Company to pay property taxes and insurance in addition to its minimum rent payments, which are as follows: 1995 $122,023 1996 57,972 1997 25,200 1998 18,900 During 1993, the Company entered into a five year operating lease for the rental of copier equipment. Under the terms of the lease, quarterly payments of $21,250 plus applicable sales tax are due through December 1997. During 1994, the Company entered into an operating lease for the rental of trucks. Under the lease, annual rental payments of approximately $143,000 are due through 2000. The Company also has future lease commitments due to a related party. These leases are more fully described in Note 3. NOTE 7 - RETIREMENT PLANS: - ------------------------- The Company has a defined benefit pension plan covering substantially all its full-time employees. Pension benefits are based on years of service and five consecutive years credited out of last ten years that produced the highest average. Company policy is to make the required quarterly installments and fund annually the remaining contribution recommended by the independent actuary based on economic and actuarial assumptions designed to attain adequate funding of projected benefit obligations at the expected retirement dates of the participants. Plan assets consist principally of investments in insurance contracts and in stock and bond mutual funds. The Company's share of net pension cost for the plan year ended December 31, 1994 included the following components. Such cost has been determined under the provisions of Financial Accounting Standard No. 87 (FAS 87), "Employer's Accounting for Pensions". Service cost benefits earned $665,953 Interest cost on projected benefit obligation 755,611 Expected return on plan assets (765,437) Net amortization and deferral amounts 224,680 -------- Net pension cost $880,807 ======== The principal economic and actuarial assumptions used in accounting for the pension plan were as follows: Discount rate for plan obligations 8.00% Rate of increase in compensation levels 3.50% Long-term rate of return on plan assets 9.00% NOTE 7 - RETIREMENT PLANS: (continued) - ------------------------- The funded status of the plan for the Company at December 31, 1994, was as follows: Actuarial present value of benefit obligations: Vested $(10,397,746) Non-vested (472,211) ------------ Accumulated benefit obligation (10,869,957) Additional obligation to reflect effect of expected future increases in compensation levels (1,106,798) ------------ Projected benefit obligation (11,976,755) Less plan assets at fair value 10,505,959 Excess of projected benefit obligation over plan assets (1,470,796) ------------ Prior service cost not yet recognized in pension cost 772,879 Unrecognized net loss 2,965,897 Remaining unrecognized net asset at date of transition to SFAS 87 (400,386) Prepaid pension cost $ 1,867,594 ============ In the past, the measurement date of plan assets and obligations as chosen by the Company's actuaries has not conformed with the date prescribed by SFAS 87 since the plan included the merged affiliates with different fiscal year ends. However, the financial effect of using a different pension measurement date has not been considered material in relation to the Company's financial statements taken as a whole. NOTE 7 - RETIREMENT PLANS: (continued) - ------------------------- The Company also has a defined contribution salary deferral and profit sharing (401(k)) plan for its full-time employees. Participants can contribute, by salary deferral, amounts based on compensation up to specified limits. The Company may elect to match participant contributions on a discretionary basis. Since January 1, 1994, the Company has matched 50 percent of the first 7 percent contributed by the participants. All plan contributions vest when funded. Company contributions are charged to operations currently and funded monthly. The Company's share of salary deferral and profit sharing plan expense for the year ended December 25, 1994 was $517,172. NOTE 8 - POSTRETIREMENT BENEFITS OTHER THAN PENSIONS: - ----------------------------------------------------- The Company has a defined postemployment benefit plan that provides medical insurance coverages for eligible retirees and dependents. Employees who are either 55 years old with twenty years of service or 65 years old and their spouses are eligible for participation. Effective December 26, 1994, the beginning of fiscal year 1995, the Company adopted the provisions of Statement of Financial Accounting Standards Number 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." This statement requires recognition of the estimated cost of postretirement benefits during the active working careers of the participants. Previously such benefits were expensed when paid. Under the provisions of SFAS 106, the projected future cost of providing postretirement benefits, such as health care insurance, must be recognized as an expense as employees render services prior to their retirement. The Company and its actuaries are accumulating the necessary data and expect to apply the new standard in the first quarter of fiscal 1995. Based on preliminary estimates, the cumulative effect of this accounting change is expected to be approximately $9,800,000, before related income tax effects. NOTE 9 - CASH FLOW INFORMATION: - ------------------------------ A summary of changes in operating assets and liabilities for the year ended December 25, 1994 is as follows: Accounts receivable - trade $ (411,737) Accounts receivable - other (167,491) Inter-company receivables (Note 2) 184,822 Advances to stockholders 1,855,616 Inventories (558,266) Refundable income taxes (49,891) Prepaid expenses (1,426,810) Deposits and other (44,310) Accounts payable 323,718 Accrued payroll and related liabilities 153,568 Other accrued expenses 205,538 Unearned subscriptions 700,252 ---------- Changes in operating assets and liabilities $ 765,009 ========== NOTE 10 - SUBSEQUENT EVENTS: - --------------------------- During the fiscal year ended December 25, 1994, the Company redeemed certain stock to pay for the estate taxes as provided by Section 303 of the Internal Revenue Code. The redemption price was initially based on an estimated stock value. Subsequent to the issuance of the 1994 financial statements, the Internal Revenue Service redetermined the fair market value of the stock. Consequently, this assessment resulted in a decrease in the actual number of shares of stock redeemed. In addition, approximately $4 million previously classified as cash dividend has been restated and presented as part of the stock as redemption in the accompanying financial statements. On October 31, 1995, the stockholders of the Company sold all of their stock to Knight-Ridder, Inc. for $360,000,000 cash, subject to certain agreed upon adjustments pursuant to a stock purchase agreement dated August 28, 1995. Since the bank loans were repaid concurrently with the sale, the related unamortized loan fees were charged to expense during 1995. A prepayment penalty of $871,000 was incurred in connection with the 1995 repayment. Also concurrent with the sale described above, the lease agreements with the related parties have been cancelled, and the leased facilities have been purchased by the Company for $15,500,000. During the fiscal year ended December 31, 1995, the Company has reasons to believe that certain real property held as of December 25, 1994 might have potential environmental exit costs. Under the purchase agreement described above, this property was transferred to the stockholders upon the sale of the Company's stock. Accordingly, the stockholders are to be responsible for such costs, if any. NOTE 11 - QUARTERLY OPERATIONS: - ------------------------------ The Company's largest source of revenue, retail advertising, is seasonal and tends to fluctuate with retail markets served. Historically, retail advertising is higher in the second and fourth quarters. General advertising, while, not as seasonal as retail, is lower during the summer months. Classified advertising revenue has in the past been a reflection of overall economy and has not been significantly affected by seasonal trends. The following table summarizes the Company's results of operations (in thousands, except, per share data).
Quarter ---------------------------------------- First Second Third Fourth -------- ------- ------- -------- Operating revenue $20,102 $22,366 $24,088 $29,106 Operating income 2,086 3,870 3,369 6,102 Net income per Common share of stock 93.22 193.36 121.45 272.29 Dividends declared and paid per share in: Cash 28.21 97.69 388.13 33.44 Property - - 47.23 -
BLANDING BOYER & ROCKWELL Certified Public Accountants INDEPENDENT ACCOUNTANTS' REVIEW REPORT -------------------------------------- To the Stockholders Lesher Communications, Inc. We have reviewed the accompanying balance sheet of Lesher Communications, Inc. as of October 1, 1995, the statements of income for the three month and nine month periods then ended, and the statement of cash flows for the nine- month period then ended. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements for them to be in conformity with generally accepted accounting principles. As discussed in Note 3 to the financial statements, the Company changed its method of accounting for postretirement benefits other than pensions in 1995. Further, as described in Note 7, all of the Company stock was sold by the stockholders to Knight-Ridder, Inc. on October 31, 1995. Blanding, Boyer & Rockwell Blanding, Boyer & Rockwell Walnut Creek, California November 2, 1995 LESHER COMMUNICATIONS, INC. --------------------------- FINANCIAL STATEMENTS -------------------- UNAUDITED --------- FOR THE THREE AND NINE MONTHS ENDED OCTOBER 1, 1995 ---------------------------------------------------
LESHER COMMUNICATIONS, INC. --------------------------- BALANCE SHEET ------------- October 1, 1995 --------------- UNAUDITED --------- (See independent accountants' review report.) ASSETS - ------- CURRENT ASSETS: Cash and equivalents $ 2,748,650 Accounts receivable: Trade, net of allowance for bad debts of $247,739 9,847,714 Other 186,310 Current portion of notes receivable (Note 2) 805,047 Advances to stockholders 13,818 Inventories 765,417 Refundable income taxes (Note 6) 140,720 Prepaid pension (Note 4) 1,918,393 Prepaid insurance 256,349 Unamortized loan fees (Note 7) 940,957 Prepaid expenses 51,024 ------------ Total current assets 17,674,399 ------------ PROPERTY, PLANT AND EQUIPMENT 106,664,138 Less accumulated depreciation 50,454,194 ------------ 56,209,944 ------------ OTHER ASSETS: Notes receivable, net of current portion shown above (Note 2) 2,986,740 Goodwill 1,267,840 Deposits and other 527,789 ------------ Total other assets 4,782,369 ------------ $ 78,666,712 ============
See notes to financial statements.
LESHER COMMUNICATIONS, INC. --------------------------- BALANCE SHEET ------------- OCTOBER 1, 1995 --------------- UNAUDITED --------- (See independent accountants' review report.) LIABILITIES AND STOCKHOLDERS' INVESTMENT - ---------------------------------------- CURRENT LIABILITIES: Current portion of long-term debt $ 5,500,000 Accounts payable 2,134,560 Accrued payroll and related liabilities 3,315,837 Other accrued expenses 581,349 Unearned income, principally subscriptions paid in advance 3,144,255 ------------ Total current liabilities 14,676,001 ------------ LONG-TERM DEBT, net of current portion shown above (Note 7) 47,750,000 DEFERRED INCOME TAXES (Note 6) 108,200 POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (Note 3) 10,872,229 COMMITMENTS AND CONTINGENCIES (Note 7) STOCKHOLDERS' INVESTMENT (Note 7): Capital stock Authorized - 50,000 shares Issued - 20,000 shares Outstanding - 18,000 shares 9,896,456 Retained earnings (deficiency) (4,636,174) ------------ Total stockholders' investment 5,260,282 $ 78,666,712 ------------
See notes to financial statements.
LESHER COMMUNICATIONS, INC. --------------------------- STATEMENTS OF INCOME -------------------- (UNAUDITED) ----------- OCTOBER 1, 1995 --------------- (See independent accountants' review report.) THREE MONTHS NINE MONTHS ENDED ENDED ------------- ----------- REVENUES: Advertising $ 17,370,594 $ 52,686,747 Circulation 3,612,418 10,971,197 Preprints 3,393,082 10,695,199 Commercial printing 1,981,280 6,475,148 Other 335,755 919,594 ------------ ------------ Total revenues 26,693,129 81,747,885 ------------ ------------ COSTS AND EXPENSES: Administration 6,134,845 18,532,953 Advertising 2,191,626 6,633,392 Circulation 3,858,856 12,141,598 Editorial 3,945,171 11,597,863 Mechanical and other 8,086,669 24,130,116 ------------ ------------ Total costs and expenses 24,217,167 73,035,922 ------------ ------------ INCOME FROM OPERATIONS 2,475,962 8,711,963 ------------ ------------ OTHER INCOME (EXPENSE): Interest income 27,747 53,345 Gain on dispositions of property and equipment (Note 2) 2,507,127 2,491,274 Interest expense (1,227,178) (3,993,450) ------------ ------------ Total other income (expense) 1,307,696 (1,448,831) ------------ ------------ INCOME BEFORE INCOME TAXES 3,783,658 7,263,132 ------------ ------------ PROVISION FOR INCOME TAXES (Note 6) Current (benefit) (11,140) 68,198 Deferred 9,475 28,424 ------------ ------------ (1,665) 96,622 ------------ ------------ INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLES ($209.55 and $396.73 per share) 3,785,323 7,166,510 CUMULATIVE EFFECT OF ACCOUNTING CHANGE - Postretirement benefits other than pensions, less related deferred income tax benefits of $147,724 (Note 3) ($0 and ($537.01) per share) - (9,700,536) ------------ ------------ NET INCOME (LOSS) ($209.55 and ($140.28) per share) $ 3,785,323 $ (2,534,026) ============ ============
See notes to financial statements.
LESHER COMMUNICATIONS, INC. --------------------------- STATEMENT OF CASH FLOWS ----------------------- UNAUDITED --------- FOR THE NINE MONTHS ENDED OCTOBER 1, 1995 ----------------------------------------- (See independent accountants' review report.) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (2,534,026) Items not using (providing) cash: Cumulative effect of change in accounting principles (Note 3) 9,700,536 Deferred income taxes 28,424 Depreciation 3,873,010 Amortization 13,339 Bad debts (33,143) Gain on dispositions of property and equipment (2,491,274) Postretirement benefits other than pensions (Note 3) 1,023,969 Changes in operating assets and liabilities (Note 5) 459,854 ----------- Net cash flows from operating activities 10,040,689 ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from dispositions of property and equipment 2,285,696 Collections on notes receivable 280,983 Capital expenditures (1,414,641) ----------- Net cash flows from investing activities 1,152,038 ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term debt 14,250,000 Long-term debt repayments (16,653,812) Redemption of capital stock (1,657,217) Dividends paid in cash ($298.46 per share) (5,391,344) ----------- Net cash flows from financing activities (9,452,373) ----------- NET INCREASE IN CASH AND EQUIVALENTS 1,740,354 CASH AND EQUIVALENTS Beginning of year 1,008,296 ----------- End of period $ 2,748,650 ===========
See notes to financial statements. LESHER COMMUNICATIONS, INC. --------------------------- NOTES TO INTERIM FINANCIAL STATEMENTS ------------------------------------- OCTOBER 1, 1995 --------------- UNAUDITED --------- NOTE 1 - BASIS OF PRESENTATION: - ------------------------------ The accompanying unaudited interim financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine month periods ended October 1, 1995 are not necessarily indicative of the results that may be expected for the year ending December 31, 1995. For further information, refer to the financial statements and footnotes thereto in the Company's annual audited financial statements for the year ended December 25, 1994. NOTE 2 - SALE OF AFFILIATES: - --------------------------- In the third quarter of fiscal year 1995, the Company sold two of their affiliated newspaper publishing companies, Northern California Publications and Telegraph News Publications, which were merged with the Company in 1994. Such sales increased notes receivable by approximately $3,572,000. Proceeds from these sales were distributed to the stockholders of the Company concurrent with the sale of all their stock to Knight-Ridder, Inc. as described in Note 7, which follows. NOTE 3 - POSTRETIREMENT BENEFITS OTHER THAN PENSIONS: - ---------------------------------------------------- The Company has a defined postretirement benefit plan that provides medical insurance coverage for eligible retirees and dependents. Employees who are either 55 years old with twenty years of service or 65 years old and their spouses are eligible for participation. Effective December 26, 1994, the beginning of the 1995 fiscal year, the Company adopted the provisions of Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." This new standard requires recognition of the estimated cost of postretirement benefits during the active working careers of the participants. Previously, such benefits were expensed as paid. The cumulative effect of this immediate recognition basis was to reduce retained earnings by $9,700,536 ($9,848,260 before related deferred income tax benefits of $147,724). This obligation was recognized in the Company's financial statements at the beginning of fiscal year 1995. Such obligation was based on the Company's existing plan actuarial assumptions. This obligation was calculated by Knight-Ridder, Inc., the buyer of the Company's stock as described in Note 7 which follows. The following tables set forth the plan's funded status at December 26, 1994, the first day of fiscal 1995. Accumulated postretirement benefit obligations: Retirees and beneficiaries $2,644,624 Other active participants 7,203,636 ---------- 9,848,260 Plans assets - ---------- Accumulated obligation in excess of plan assets 9,848,260 Unrecognized net gain (loss) - ---------- Accrued postretirement benefit cost $9,848,260 ========== NOTE 3 - POSTRETIREMENT BENEFITS OTHER THAN PENSIONS: - ---------------------------------------------------- The components of the net postretirement benefit expense for the nine months ended October 1, 1995, exclusive of the effect of the adjustment arising from the accounting change referred to above, is as follows: Service cost $ 436,761 Interest cost 656,603 Net amortization and deferral - ---------- Postretirement benefit cost $1,093,364 ========== The principal actuarial assumptions to calculate the accumulated postretirement benefit obligation were as follows: Discount rate 8.5% Return on plan assets 8.5% Annual rate of increase in salaries 4.5% Health care cost trend rate for participants: Projected 11.0% Reducing to this percentage in 2001 and thereafter 5.5% NOTE 4 - RETIREMENT PLAN: - ------------------------ The Company has a defined benefit pension plan covering substantially all of its full time employees. In connection with the sale of all the Company's stock to Knight-Ridder, Inc., as described in Note 7, certain actuarial assumptions were changed effective January 1, 1995, the plan anniversary date. The discount rate was increased to 8.5% from 8.0%. The expected compensation growth rate was increased to 5.0% from 3.5%. In addition, due to the sale of corporate affiliates, see Note 2, a remeasurement of plan liabilities is required according to Financial Accounting Standard No. 87. The plan liabilities were remeasured using a 7.5% discount rate. The effect of these changes resulted in an increase in the projected benefit obligation of $5,467,000. Such changes resulted in an increase of $410,800 in pension expense for the nine month period ended October 1, 1995. NOTE 5 - CASH FLOW INFORMATION: - ------------------------------ A summary of changes in operating assets and liabilities for the nine months ended October 1, 1995 is as follows: Accounts receivable - trade $ 735,911 Accounts receivable - other 15,383 Advances to stockholders 257 Inventories 274,117 Refundable income taxes 47,294 Prepaid expenses 805,348 Deposits and other (34,583) Accounts payable (697,694) Accrued payroll and related liabilities (535,616) Other accrued expenses (470,242) Unearned subscriptions 319,679 ----------- Changes in operating assets and liabilities $ 459,854 =========== NOTE 6 - INCOME TAXES: - ---------------------- Since electing S corporation status in 1987, income taxes are the responsibility of the corporate shareholders. The Company is responsible for California franchise taxes currently payable based on taxable income. Deferred state franchise taxes are provided for temporary differences between income reported in the Company's financial statements and in its California franchise tax returns. Cash payments for such taxes aggregated $125,000 for the nine months ended October 1, 1995. Upon the sale of the Company's stock, as described in Note 7, which follows, both parties to the agreement will make a tax election to have the transfer treated as a sale of assets. The effect of this election will be to trigger a deemed liquidation of all the assets to the Company's current shareholders. Although such shareholders will bear most of the income taxes related to the sale, the deemed liquidation will cause certain income taxes to be paid by the Company. These income taxes arise principally from the "built-in" C corporation gains related to a 1994 merger with its commonly controlled affiliates and are expected to aggregate approximately $15 million. Further, additional California franchise taxes will become payable because the deemed liquidation triggers gain recognition from the excess of the fair market value of the Company's assets over its tax basis in those assets. Thereafter, the Company will no longer be taxed as an S Corporation. Such income tax obligations have not been reflected in the accompanying interim financial statements. NOTE 7 - SUBSEQUENT EVENTS: - -------------------------- On October 31, 1995, the stockholders of the Company sold all of their stock to Knight-Ridder, Inc. for $360,000,000 cash, subject to certain agreed upon adjustments pursuant to a stock purchase agreement dated August 28, 1995. Since certain bank loans are to be repaid concurrently with the sale, the related unamortized loan fees will be charged to expense in the fourth quarter of 1995. A prepayment penalty of $871,000 will also be incurred. Also, concurrent with the sale described above, the lease agreements with the related parties will be cancelled and the leased facilities will be purchased by the Company for $15,500,000. During fiscal year 1995, the Company has reason to believe that certain real property held as of December 25, 1994 might have potential environmental exit costs. Under the purchase agreement described above, this property was transferred to the stockholders upon the sale of the Company's stock. Accordingly, the stockholders are to be responsible for such costs, if any. KNIGHT-RIDDER, INC. PRO FORMA FINANCIAL DATA (UNAUDITED) The following pro forma unaudited condensed consolidated financial statements present the pro forma financial position at September 24, 1995 for Knight- Ridder, Inc. ("Knight-Ridder") and at October 1, 1995 for Contra Costa Newspapers, Inc., formerly known as Lesher Communications, Inc. ("Lesher"), and the pro forma results of operations for the three quarters in the periods then ended, along with the results of operations for the year ended December 25, 1994. These pro forma financial statements give effect to the acquisition of Lesher by Knight-Ridder as if such acquisition had occurred at the beginning of each period for purposes of the condensed consolidated statements of income and as if such acquisition had occurred at the end of the period for purposes of the condensed consolidated balance sheets. These pro forma unaudited condensed consolidated financial statements do not purport to represent what Knight-Ridder's actual results of operations would have been had the acquisition occurred at the beginning of the periods and may not be indicative of Knight-Ridder's financial position or operating results for any future periods. The pro forma adjustments are based upon currently available information. The assumptions underlying the calculation of the pro forma adjustments are deemed appropriate under the circumstances. The Lesher acquisition agreement provides for a purchase price adjustment. The amount of such purchase price adjustment is yet to be determined. These pro forma financial statements do not reflect any such adjustments which Knight-Ridder believes could reduce the purchase price. These pro forma unaudited condensed consolidated financial statements should be read in conjunction with Knight-Ridder's Consolidated Financial Statements and the Notes thereto for the year ended December 25, 1994 along with Management's Discussion and Analysis of Operations, which are included in Knight-Ridder's Form 10-K covering such year and for the quarter ended September 24, 1995 along with Management's Discussion and Analysis of Operations, which are included in Knight-Ridder's Form 10-Q covering such period.
Knight-Ridder, Inc. Pro Forma Condensed Consolidated Balance Sheets (unaudited) (In Thousands of Dollars) Knight- Ridder Inc. Lesher September 24 October 1 Pro Forma Adjusted 1995 1995 Adjustments Pro Forma ------------- ----------- ----------- --------- ASSETS Cash & equivalents including short-term cash investments $ 17,653 $ 2,749 $ 20,402 Accounts receivable 310,470 9,848 320,318 Inventories 63,357 765 $ 622 A 64,744 Other current assets 87,541 4,313 (704) B (941) C (1,920) A 88,289 ---------- -------- --------- ---------- Total Current Assets 479,021 17,675 (2,943) 493,753 ---------- -------- --------- ---------- Investments and Other Assets 549,803 3,514 (2,987) B 550,330 Property, Plant and Equipment, Net 813,469 56,210 33,571 A (7,489) B 895,761 Goodwill and Other Intangible Assets 685,635 1,268 22,650 A 255,582 D 965,135 ---------- -------- -------- ---------- Total Assets $2,527,928 $ 78,667 $298,384 $2,904,979 ========== ======== ======== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Short-term borrowings & current portion of long-term debt 5,500 (5,500) C Other current liabilities 427,843 9,176 15,000 A 1,500 A 453,519 ---------- -------- -------- ---------- Total Current Liabilities 427,843 14,676 11,000 453,519 ---------- -------- -------- ---------- Long-term debt 593,479 47,750 (47,750) C 335,933 C 929,412 Other noncurrent liabilities 417,022 10,980 4,570 A (108) A 432,464 ---------- -------- -------- ---------- Total Noncurrent Liabilities 1,010,501 58,730 292,645 1,361,876 ---------- -------- -------- ---------- Minority interest in consolidated subsidiaries 859 859 SHAREHOLDERS' EQUITY Common Stock 1,015 9,896 (9,896) E 1,015 Additional capital 297,674 297,674 Retained earnings (deficit) 767,812 (4,635) 4,635 E 767,812 Unrealized gains on investments 22,224 22,224 ---------- -------- -------- ---------- Total Shareholders' Equity 1,088,725 5,261 (5,261) 1,088,725 ---------- -------- -------- ---------- Total $2,527,928 $ 78,667 $298,384 $2,904,979 ========== ======== ======== ========== See accompanying notes.
Knight-Ridder, Inc. Pro Forma Condensed Consolidated Statements of Income (unaudited) (In Thousands of Dollars, except Per Share Data) Knight- Ridder Inc. Lesher For the For the Three Three Quarters Quarters Ended Ended September 24 October 1 Pro Forma Adjusted 1995 1995 Adjustments Pro Forma ------------ ------------ ----------- ---------- OPERATING REVENUE Newspaper Division $1,618,834 $ 81,748 $1,700,582 Business Information Services 381,214 381,214 ---------- -------- -------- ---------- Total Operating Revenue 2,000,048 81,748 2,081,796 ---------- -------- -------- ---------- OPERATING COSTS Labor and employee benefits 823,608 37,346 860,954 Newsprint, ink and supplements 314,077 19,511 $ (390) A 333,198 Other operating costs 575,483 12,293 587,776 Depreciation and amortization 112,078 3,886 (120) A 2,520 B 4,790 C 1,130 C 124,284 ---------- -------- ------- ---------- Total Operating Costs 1,825,246 73,036 7,930 1,906,212 ---------- -------- ------- ---------- OPERATING INCOME 174,802 8,712 (7,930) 175,584 ---------- -------- ------- ---------- OTHER INCOME (EXPENSE) Interest expense (37,804) (3,993) (12,700) D (54,497) Interest expense capitalized 1,107 1,107 Interest income 6,655 53 6,708 Other, net 91,522 2,491 94,013 ---------- -------- ------- ---------- Total 61,480 (1,449) (12,700) 47,331 ---------- -------- ------- ---------- Income before income taxes 236,282 7,263 (20,630) 222,915 ---------- -------- ------- ---------- Income taxes 99,899 96 (5,347) E 94,648 ---------- -------- ------- ---------- INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 136,383 7,167 (15,283) 128,267 Cumulative effect of change in accounting principle (7,320) (9,701) (17,021) ---------- -------- -------- ---------- Net Income (loss) $ 129,063 ($2,534) ($15,283) $ 111,246 ========== ======== ======== ========== EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE Income before cumulative effect of change in account principle $2.71 $2.54 Cumulative effect of change in accounting principle (0.15) (0.34) ---------- ---------- Net Income $2.56 $2.20 ---------- ---------- AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 50,453 50,453 ========== ========== See accompanying notes.
Knight-Ridder, Inc. Pro Forma Condensed Consolidated Statements of Income (unaudited) For the year ended December 25, 1994 (In Thousands of Dollars, except Per Share Data) Knight- Pro Forma Adjusted Ridder Inc. Lesher Adjustments Pro Forma ------------ ---------- ----------- --------- OPERATING REVENUE Newspaper Division $2,134,922 $ 95,662 $2,230,584 Business Information Services 514,039 514,039 ---------- -------- -------- ---------- Total Operating Revenue 2,648,961 95,662 2,744,623 ---------- -------- -------- ---------- OPERATING COSTS Labor and employee benefits 1,089,417 41,337 1,130,754 Newsprint, ink and supplements 335,902 17,877 $ (230) A 353,549 Other operating costs 743,054 15,939 758,993 Depreciation and amortization 149,327 5,082 3,360 B 6,390 C 1,510 C 165,669 ---------- -------- -------- ---------- Total Operating Costs 2,317,700 80,235 11,030 2,408,965 ---------- -------- -------- ---------- OPERATING INCOME 331,261 15,427 (11,030) 335,658 ---------- -------- -------- ---------- OTHER INCOME (EXPENSE) Interest expense (44,585) (3,284) (16,800) D (64,669) Interest expense capitalized 474 474 Interest income 6,070 93 6,163 Others, net (3,150) (299) (3,449) ---------- -------- -------- ---------- Total (41,191) (3,490) (16,800) (61,481) ---------- -------- -------- ---------- Income (loss) before income taxes 290,070 11,937 (27,830) $274,177 Income taxes 119,170 97 (6,357) E 112,910 ---------- -------- -------- ---------- NET INCOME (LOSS) $170,900 $11,840 $(21,473) $161,267 ========== ======== ======== ========== EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE Net Income $3.15 $2.97 ========== ========== AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 54,275 54,275 ========== ========== See accompanying notes.
Knight-Ridder, Inc. Notes to Pro Forma Financial Statements (Unaudited) (In Thousands of Dollars) Note A-Pro Forma Adjustments - ---------------------------- On October 31, 1995, Knight-Ridder completed the acquisition of Lesher. Lesher publishes four daily newspapers in contiguous Contra Costa and eastern Alameda County markets in the East Bay area of Northern California: the Contra Costa Times, West County Times, Ledger Dispatch and Valley Times. The four have combined daily and Sunday circulation of 190,000 and 206,000, respectively, Lesher also publishes several weeklies and inserts and offers commercial printing services. The acquisition was accounted for under the purchase method. The purchase price of approximately $360,000 was allocated, based on preliminary allocations, to the estimated fair market value of tangible and intangible net assets of Lesher. The excess of the purchase price over the net assets of Lesher of approximately $255,582, has been recorded as goodwill and will be amortized on a straight line basis over forty years. This acquisition was financed through the issuance of commercial paper with interest rates ranging from 5.64% to 5.75% and with maturities to May 3, 1996. Knight-Ridder intends to reduce these borrowings by up to $140,000 through the issuance of debt securities. These debt securities are to be issued under an indenture dated as of February 15, 1986, as subsequently supplemented, are expected to bear interest at approximately 6.25% and are expected to mature in the year 2005. A 1/8% increase in commercial paper interest rates would result in increased annual interest costs of $425. The pro forma condensed consolidated balance sheets at September 24, 1995 (Knight-Ridder) and October 1, 1995 (Lesher) and the related pro forma condensed consolidated statements of income for the three quarters in the periods then ended, as well as the pro forma condensed consolidated statements of income for the year ended December 25, 1994 reflect the acquisition as if it had occurred at the beginning of the period for purposes of the condensed consolidated statements of income and as if such acquisition had occurred at the end of the period for purposes of the condensed consolidated balance sheets. The pro forma adjustments are described below: CONDENSED CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 24, 1995 A. To adjust the net assets of Lesher to their estimated fair value based on a preliminary allocation of the purchase price, to record estimated acquisition costs of $1,500 and to record an incremental pension obligation of $4,750. B. To eliminate assets retained by the stockholders of Lesher. C. To reflect total borrowings of $335,933 by Knight-Ridder to fund the transaction, of which $53,250 was used to pay off existing bank debt of Lesher. Also to eliminate $941 of deferred financing costs. D. To record a preliminary allocation of excess of purchase price over the fair value of the net assets of Lesher. E. To eliminate Lesher's shareholders' equity accounts. CONDENSED CONSOLIDATED STATEMENTS OF INCOME - THREE QUARTERS ENDED SEPTEMBER 24, 1995 AND THE YEAR ENDED DECEMBER 25, 1994 A. To eliminate the effects of costs calculated under the LIFO inventory method ($390 for the three quarters ended September 24, 1995 and $230 for the year ended December 25, 1994) and to eliminate $120 of amortization of deferred finance costs for the three quarters ended September 24, 1995. B. To record increased depreciation from preliminary recording of property at its estimated fair value. C. To record increased amortization of intangibles ($1,130 for the three quarters ended September 24, 1995 and $1,510 for the year ended December 25, 1994) and goodwill ($4,790 for the three quarters ended September 24, 1995 and $6,390 for the year ended December 25, 1994) from a preliminary allocation of the purchase price. D. To record increased interest expense on the incremental borrowings to fund the acquisition at 6% per annum. E. To record the combined estimated income tax effects of: (1) converting Lesher from an S Corporation tax status to a C Corporation tax status; and (2) to record the tax effects of the pro forma adjustments at the statutory rates. -----END PRIVACY-ENHANCED MESSAGE-----