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.)
<PAGE>
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.
<PAGE>
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
<PAGE>
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).
<PAGE>
LESHER COMMUNICATIONS, INC.
---------------------------
FINANCIAL STATEMENTS
---------------------
FOR THE YEAR ENDED DECEMBER 25, 1994
------------------------------------
BLANDING BOYER & ROCKWELL
Certified Public Accountants
<PAGE>
<TABLE>
<CAPTION>
LESHER COMMUNICATIONS, INC.
---------------------------
BALANCE SHEET
-------------
DECEMBER 25, 1994
-----------------
ASSETS (Note 5)
---------------
(See independent auditors' report.)
<S> <C>
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
============
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
LESHER COMMUNICATIONS, INC.
---------------------------
BALANCE SHEET
-------------
DECEMBER 25, 1994
-----------------
LIABILITIES AND STOCKHOLDERS' INVESTMENT
----------------------------------------
(See independent auditors' report.)
<S> <C>
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
------------
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
LESHER COMMUNICATIONS, INC.
---------------------------
STATEMENT OF INCOME
-------------------
FOR THE YEAR ENDED DECEMBER 25, 1994
------------------------------------
(See independent auditors' report.)
<S> <C>
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
=============
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
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
------ ------- -------- ------------
<S> <C> <C> <C> <C>
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
======= ========== ============ ============
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
LESHER COMMUNICATIONS, INC.
---------------------------
STATEMENT OF CASH FLOWS
-----------------------
FOR THE YEAR ENDED DECEMBER 25, 1994
------------------------------------
(See independent auditors' report.)
<S> <C>
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
=============
</TABLE>
See notes to financial statements.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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
============
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<PAGE>
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%
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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
==========
<PAGE>
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.
<PAGE>
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).
<TABLE>
<CAPTION>
Quarter
----------------------------------------
First Second Third Fourth
-------- ------- ------- --------
<S> <C> <C> <C> <C>
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 -
</TABLE>
<PAGE>
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
<PAGE>
LESHER COMMUNICATIONS, INC.
---------------------------
FINANCIAL STATEMENTS
--------------------
UNAUDITED
---------
FOR THE THREE AND NINE MONTHS ENDED OCTOBER 1, 1995
---------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
LESHER COMMUNICATIONS, INC.
---------------------------
BALANCE SHEET
-------------
October 1, 1995
---------------
UNAUDITED
---------
(See independent accountants' review report.)
ASSETS
- -------
<S> <C>
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
============
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
LESHER COMMUNICATIONS, INC.
---------------------------
BALANCE SHEET
-------------
OCTOBER 1, 1995
---------------
UNAUDITED
---------
(See independent accountants' review report.)
LIABILITIES AND STOCKHOLDERS' INVESTMENT
- ----------------------------------------
<S> <C>
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
------------
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
LESHER COMMUNICATIONS, INC.
---------------------------
STATEMENTS OF INCOME
--------------------
(UNAUDITED)
-----------
OCTOBER 1, 1995
---------------
(See independent accountants' review report.)
THREE MONTHS NINE MONTHS
ENDED ENDED
------------- -----------
<S> <C> <C>
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)
============ ============
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
LESHER COMMUNICATIONS, INC.
---------------------------
STATEMENT OF CASH FLOWS
-----------------------
UNAUDITED
---------
FOR THE NINE MONTHS ENDED OCTOBER 1, 1995
-----------------------------------------
(See independent accountants' review report.)
<S> <C>
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
===========
</TABLE>
See notes to financial statements.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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
==========
<PAGE>
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%
<PAGE>
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.
<PAGE>
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
===========
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
<TABLE>
<CAPTION>
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
------------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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
------------ ------------ ----------- ----------
<S> <C> <C> <C> <C>
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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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
------------ ---------- ----------- ---------
<S> <C> <C> <C> <C>
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.
</TABLE>
<PAGE>
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.
