<PAGE> 1
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) May 9, 1997
KNIGHT-RIDDER, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in 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 1 of 29 Pages
<PAGE> 2
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired. The following financial
statements of ABC Media, Inc., now known as Cypress Media, Inc.
("Media") are filed herewith on the pages subsequent hereto:
(i) Report of Independent Certified Public Accountants;
Combined Balance Sheets at December 29, 1996 and December 31,
1995;
Combined Statements of Income and Retained Earnings (Deficit)
for the eleven months ended December 29, 1996, the one month
ended January 28, 1996 and the years ended December 31, 1995
and 1994;
Combined Statements of Cash Flows for the eleven months ended
December 29, 1996, the one month ended January 28, 1996 and
the years ended December 31, 1995 and 1994;
Notes to Combined Financial Statements at and for the three
years ended December 29, 1996, December 31, 1995 and
December 31, 1994.
(ii) Interim Financial Statements (Unaudited);
Interim Combined Balance Sheet at March 30, 1997;
Interim Combined Statements of Income and Retained Earnings
(Deficit) for the three months ended March 30, 1997, the two
months ended March 31, 1996 and one month ended January 28,
1996;
Interim Combined Statements of Cash Flows for the three months
ended March 30, 1997, the two months ended March 31, 1996 and
the one month ended January 28, 1996;
Notes to Interim Combined Financial Statements at and for the
three months ended March 30, 1997 and March 31, 1996.
(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 Media by Knight-Ridder,
Inc. on May 9, 1997:
Pro Forma Condensed Consolidated Balance Sheet as of March
30, 1997 and Notes thereto; and
Pro Forma Condensed Consolidated Statements of Income for the
quarter ended March 30, 1997 and the year ended December 29,
1996 and Notes thereto.
Page 2 of 29 Pages
<PAGE> 3
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
KNIGHT-RIDDER, INC.
(Registrant)
Date: July 22, 1997 By: /s/ Ross Jones
---------------------
Ross Jones
Senior Vice
President/Finance and
Chief Financial
Officer
Page 3 of 29 Pages
<PAGE> 4
Report of Independent Certified Public Accountants
Stockholders
ABC Media, Inc.
We have audited the accompanying combined balance sheet of ABC Media, Inc. as of
December 29, 1996 and the related combined statements of income and retained
earnings (deficit) and cash flows for the one month period ended January 28,
1996 and the eleven month period ended December 29, 1996. We have also audited
the accompanying combined balance sheet of ABC Media, Inc. as of December 31,
1995, and the related combined statements of income and retained earnings
(deficit) and cash flows for the years ended December 31, 1995 and 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the Company
at December 29, 1996, and the combined results of its operations and its cash
flows for the one month period ended January 28, 1996 and the eleven month
period ended December 29, 1996, as well as the combined financial position of
the Company at December 31, 1995, and the combined results of its operations and
its cash flows for the years ended December 31, 1995 and 1994, in conformity
with generally accepted accounting principles.
Miami, Florida
June 30, 1997 /S/ Ernst & Young LLP
Page 4 of 29 Pages
<PAGE> 5
ABC Media, Inc.
Combined Balance Sheets
(In thousands of dollars)
<TABLE>
<CAPTION>
DECEMBER 29 DECEMBER 31
1996 1995
------------ ----------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 2,008 $ 629
Accounts receivable, net of allowances of
$2,142 in 1996 and $2,026 in 1995 58,610 50,555
Inventories 5,683 4,335
Prepaid expenses 1,412 5,485
Other current assets 1,221 1,627
---------- ----------
Total current assets 68,934 62,631
---------- ----------
Intercompany and other assets:
Due from parent company 32,499 --
Other assets 4,023 4,053
---------- ----------
Total intercompany and other assets 36,522 4,053
---------- ----------
Property, plant and equipment:
Land and improvements 9,611 11,112
Buildings and improvements 26,062 57,278
Equipment 49,947 143,124
Construction in progress 16,253 8,683
---------- ----------
101,873 220,197
Less accumulated depreciation 4,436 124,564
---------- ----------
Net property, plant and equipment 97,437 95,633
---------- ----------
Excess of cost over net assets acquired, less
accumulated amortization of $34,083 in 1996
and $52,075 in 1995 1,453,161 57,580
========== ==========
$1,656,054 $ 219,897
========== ==========
</TABLE>
See notes to combined financial statements.
Page 5 of 29 Pages
<PAGE> 6
ABC Media, Inc.
Combined Balance Sheets (continued)
(In thousands of dollars)
<TABLE>
<CAPTION>
DECEMBER 29 DECEMBER 31
1996 1995
----------- -----------
<S> <C> <C>
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 13,185 $ 13,870
Accrued expenses and other liabilities 16,278 13,812
Accrued compensation and related withholdings 10,700 8,810
----------- -----------
Total current liabilities 40,163 36,492
----------- -----------
Noncurrent liabilities:
Due to affiliate 85,300 85,300
Deferred income taxes 24,907 24,186
Postretirement benefits other than pensions 7,467 7,268
Due to parent company -- 51,571
----------- -----------
Total noncurrent liabilities 117,674 168,325
----------- -----------
Commitments and contingencies
Equity:
Additional capital 1,500,000 37,864
Retained deficit (1,783) (22,784)
----------- -----------
Total equity 1,498,217 15,080
----------- -----------
Total liabilities and equity $ 1,656,054 $ 219,897
=========== ===========
</TABLE>
See notes to combined financial statements.
Page 6 of 29 Pages
<PAGE> 7
ABC Media, Inc.
Combined Statements of Income
and Retained Earnings (Deficit)
(In thousands of dollars)
<TABLE>
<CAPTION>
POST ACQUISITION PREACQUISITION
---------------- -------------------------------------------------
ELEVEN MONTHS ONE MONTH
ENDED ENDED YEAR ENDED YEAR ENDED
DECEMBER 29 JANUARY 28 DECEMBER 31 DECEMBER 31
1996 1996 1995 1994
------------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Operating revenue
Advertising:
Retail $ 190,541 $ 12,168 $ 192,058 $ 181,526
General 30,009 2,517 28,728 30,427
Classified 133,926 9,361 127,998 114,700
--------- --------- --------- ---------
Total 354,476 24,046 348,784 326,653
Circulation 92,121 8,135 101,678 93,946
Other 19,759 1,185 12,975 10,411
--------- --------- --------- ---------
Total operating revenue 466,356 33,366 463,437 431,010
--------- --------- --------- ---------
Operating costs
Labor and employee benefits 146,795 11,997 147,119 141,115
Newsprint, ink and supplements 96,533 8,011 102,889 76,209
Other operating costs 97,293 7,199 104,768 99,677
Depreciation and amortization 43,841 1,053 13,119 13,091
--------- --------- --------- ---------
Total operating costs 384,462 28,260 367,895 330,092
--------- --------- --------- ---------
Operating income 81,894 5,106 95,542 100,918
--------- --------- --------- ---------
Other expense
Interest expense, net 8,147 739 8,880 8,909
Other, net -- 8,057 576 74
--------- --------- --------- ---------
Total other expense 8,147 8,796 9,456 8,983
--------- --------- --------- ---------
Income (loss) before income taxes 73,747 (3,690) 86,086 91,935
Income taxes (benefit) 43,357 (1,366) 35,750 38,089
--------- --------- --------- ---------
Net income (loss) 30,390 (2,324) 50,336 53,846
--------- --------- --------- ---------
Retained earnings (deficit) at
beginning of year -- (22,784) (15,138) 23,063
Dividend to parent company (32,173) -- (57,982) (92,047)
--------- --------- --------- ---------
Retained deficit at end of year $ (1,783) $ (25,108) $ (22,784) $ (15,138)
========= ========= ========= =========
</TABLE>
See notes to combined financial statements.
Page 7 of 29 Pages
<PAGE> 8
ABC Media, Inc.
Combined Statements of Cash Flows
(In thousands of dollars)
<TABLE>
<CAPTION>
POST ACQUISITION PREACQUISITION
---------------- -------------------------------------
ELEVEN MONTHS ONE MONTH
ENDED ENDED YEAR ENDED YEAR ENDED
DECEMBER 29 JANUARY 28 DECEMBER 31 DECEMBER 31
1996 1996 1995 1994
------------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
CASH PROVIDED BY (REQUIRED FOR)
OPERATING ACTIVITIES
Net income (loss) $ 30,390 $ (2,324) $ 50,336 $ 53,846
Noncash items deducted from
(included in) income:
Depreciation 9,649 826 10,352 10,324
Amortization 34,192 227 2,767 2,767
Provision for deferred taxes 646 59 (685) (2,582)
Change in current assets and liabilities:
Accounts receivable (10,695) 2,640 (5,992) (4,830)
Inventories 3,846 (5,194) 985 2,020
Other current assets (520) 4,999 (4,875) (106)
Accounts payable (2,303) 1,618 4,427 33
Other liabilities 1,669 2,687 (889) 2,716
-------- -------- -------- --------
Net cash provided by operating
activities 66,874 5,538 56,426 64,188
-------- -------- -------- --------
CASH PROVIDED BY (REQUIRED FOR)
INVESTING ACTIVITIES
Additions to property, plant and
equipment (12,228) (136) (15,116) (6,961)
Other items, net 132 (17) (119) (37)
-------- -------- -------- --------
Net cash required for investing
activities (12,096) (153) (15,235) (6,998)
CASH REQUIRED FOR FINANCING
ACTIVITIES
Intercompany, net (54,828) (3,956) (45,555) (57,880)
-------- -------- -------- --------
Net cash required for financing
activities (54,828) (3,956) (45,555) (57,880)
-------- -------- -------- --------
Net (decrease) increase in cash (50) 1,429 (4,364) (690)
Cash at beginning of the period 2,058 629 4,993 5,683
-------- -------- -------- --------
Cash at end of the period $ 2,008 $ 2,058 $ 629 $ 4,993
======== ======== ======== ========
</TABLE>
See notes to combined financial statements.
Page 8 of 29 Pages
<PAGE> 9
ABC Media, Inc.
Notes to Combined Financial Statements
Three Years Ended December 29, 1996,
December 31, 1995 and December 31, 1994
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
NATURE OF BUSINESS
In February 1997, ABC, Inc., which is indirectly owned by The Walt Disney
Company (Disney), consolidated the newspaper publishing and related operations
of The Kansas City Star, in Kansas City, Missouri, The Fort Worth Star-Telegram,
in Ft. Worth, Texas, The Belleville News-Democrat, in Belleville, Illinois and
The Times Leader in Wilkes-Barre, Pennsylvania into ABC Media, Inc. (Media).
These four newspapers have combined daily and Sunday circulation of 630,000 and
898,000, respectively.
BASIS OF PRESENTATION
For the years ended December 29, 1996, December 31, 1995 and December 31, 1994
the accounts of the four newspapers above were included in the publishing group
of ABC, Inc. and were not presented on a combined basis as those of a separate
reporting entity. Accordingly, the accounts included in the accompanying
financial statements were carved out of the ABC, Inc. historical accounting
records. For all years presented, the financial statements of Media include the
accounts of the above newspapers.
The accompanying financial statements include costs allocated by ABC, Inc. for
certain functions and services they performed centrally. All allocations and
estimates were based on assumptions ABC, Inc.'s management believed were
reasonable in the circumstances. These allocations and estimates are not
necessarily indicative of the costs and expenses that would have resulted if
Media had been operated as a separate entity.
The financial statement captions which include allocated amounts, along with a
description of the function or service and the amount allocated are summarized
in Note 3.
On February 9, 1996, Disney completed its acquisition of ABC, Inc. (formerly
known as Capital Cities/ABC, Inc.) which indirectly owned Media. The acquisition
was accounted for as a purchase and the total purchase price allocated to Media
was approximately $1.5 billion based on the estimated fair value of Media's net
assets. The excess of the purchase price over Media's net tangible assets, was
approximately $1.5 billion. This amount is amortized on a straight line basis
over forty years.
Page 9 of 29 Pages
<PAGE> 10
ABC Media, Inc.
Notes to Combined Financial Statements
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION (CONTINUED)
This change in ownership occurred as of an interim date. In the accompanying
statements of income and retained earnings (deficit) and cash flows the periods
captioned as "Preacquisition" include those when Media was owned by ABC, Inc.,
while the period identified as Post Acquisition represents Media after it was
acquired by Disney.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF COMBINATION
The combined financial statements include the accounts of the four newspapers
outlined in Note 1. Significant intercompany accounts and transactions have been
eliminated.
CONCENTRATIONS OF CREDIT RISK IN ACCOUNTS RECEIVABLE
The majority of Media's accounts receivable were from advertisers and newspaper
subscribers. Credit is extended based on the evaluation of the customer's
financial condition, and generally collateral is not required. Credit losses are
provided for in the combined financial statements and consistently have been
within management's expectations.
INVENTORIES
Inventories, consisting of newsprint, ink and other supplies, are stated at the
lower of cost (last-in, first-out (LIFO) method), or market. If inventories had
been stated under the lower of cost (first in first out (FIFO) method) or
market, inventories would have been higher by $1.5 million and $3.7 million, at
December 29, 1996 and December 31, 1995, respectively.
PROPERTY, PLANT AND EQUIPMENT
These assets are stated on the basis of cost and the provision for depreciation
was computed principally by the straight-line method over the following
estimated useful lives of the assets: building and improvements--10 to 40 years
and equipment--3 to 10 years.
EXCESS OF COST OVER NET ASSETS ACQUIRED
This asset arises from the acquisition of the newspaper businesses for a
purchase price higher than the fair market value of the net tangible assets
acquired. It is amortized on a straight-line basis over forty years. If, in the
opinion of management, an impairment in value occurs, based on
Page 10 of 29 Pages
<PAGE> 11
ABC Media, Inc.
Notes to Combined Financial Statements
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the undiscounted cash flow method, any necessary additional write-downs will be
charged to expense.
IMPAIRMENT OF LONG LIVED ASSETS
Applying FAS 121, Accounting for the Impairment of Long-Lived Assets requires
impairment losses to be recorded on these assets when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. Applying FAS 121 in 1996 did
not materially impact the combined financial statements.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the combined financial statements and
accompanying notes. Actual results could differ from those estimates.
3. RELATED PARTY TRANSACTIONS
The combined financial statements include significant allocations from ABC, Inc.
for the cost of functions and services it performed centrally. A description of
the function or service, the amount allocated and the effected combined
financial statement captions are summarized below:
Labor and employee benefits expenses--Included in this caption are allocated
costs for workers' compensation, health, disability and life insurance costs.
Media employees also participate in certain ABC, Inc. sponsored profit sharing,
pension and other savings plans. Total allocated costs amounted to approximately
$6.5 million, $600,000, $8.6 million, and $9.0 million for the eleven month
period ended December 29, 1996, the one month period ended January 28, 1996, and
the years ended December 31, 1995 and 1994, respectively. See Notes 4 and 5 for
additional information relating to pension, post retirement benefit and other
savings plans.
Other operating expenses--Included in this caption are allocated costs for
executive management, strategic planning and marketing, treasury services,
information systems management, accounting, tax and legal services, property and
liability insurance. Total allocated costs amounted to approximately $6.8
million, $622,000, $10.6 million, and $9.8 million for the
Page 11 of 29 Pages
<PAGE> 12
ABC Media, Inc.
Notes to Combined Financial Statements
3. RELATED PARTY TRANSACTIONS (CONTINUED)
eleven month period ended December 29, 1996, the one month period ended January
28, 1996, and the years ended December 31, 1995 and 1994, respectively.
Income tax expense--See Note 6.
4. RETIREMENT PLANS
Substantially all employees of Media were covered under various defined benefit
plans. The funding policy for these plans is to contribute amounts as are
necessary on an actuarial basis to provide for pension benefits in accordance
with the requirements of ERISA. Benefits are generally based on years of service
and compensation. Separate actuarial valuations were not available.
ABC, Inc. pension expense allocation to Media was approximately $1.4 million,
$131,000, $1.7 million and $1.3 million for the eleven month period ended
December 29, 1996, the one month period ended January 28, 1996, and the years
ended December 31, 1995 and 1994, respectively.
Media employees also participated in a savings and investment plan which allowed
eligible employees to allocate up to 10% of their salary through payroll
deduction, among a diversified portfolio of investments. ABC, Inc. matched 50%
of the employee's contribution, up to 5% of salary. The cost of the plan,
recorded by Media was approximately $1.3 million, $115,000, $1.5 million and
$1.4 million for the eleven month period ended December 29, 1996, the one month
period ended January 28, 1996, and the years ended December 31, 1995 and 1994,
respectively.
5. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Media has defined postretirement benefit plans that provide medical and life
insurance benefits for retirees and eligible dependents. The related expense is
determined under the provisions of FAS 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions. This statement requires the cost of
these benefits, which are primarily for health care and life insurance, to be
recognized in the financial statements throughout the employees' active working
careers.
Page 12 of 29 Pages
<PAGE> 13
ABC Media, Inc.
Notes to Combined Financial Statements
5. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (CONTINUED)
Media valued the accumulated postretirement benefit obligation using the
following assumptions:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Discount rate at the end of
the year 8.25% 8.25% 8.25%
Annual rate of increase in salaries 4.5% 4.5% 4.5%
Medical trend rate:
Projected 9% 10% 11%
Reducing to this percentage in 2001
and thereafter 5.5% 5.5% 5.5%
</TABLE>
The following table sets forth the plans' amounts recognized in the combined
balance sheets at December 29, 1996 and December 31, 1995 (in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ 3,514 $ 3,489
Fully eligible active plan participants 4,077 3,950
------- -------
Total accumulated postretirement benefit
obligation 7,591 7,439
Unrecognized net gain (124) (171)
------- -------
Accrued postretirement benefit liability $ 7,467 $ 7,268
======= =======
</TABLE>
Page 13 of 29 Pages
<PAGE> 14
ABC Media, Inc.
Notes to Combined Financial Statements
5. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (CONTINUED)
Related costs for the eleven month period ended December 29, 1996, the one month
period ended January 28, 1996, and the years ended December 31, 1995 and 1994,
respectively, consisted of the following (in thousands):
<TABLE>
<CAPTION>
Eleven months One month
ended ended
December 29 January 28 December 31 December 31
1996 1996 1995 1994
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Service cost $135 $ 15 $139 $128
Interest cost 543 60 589 574
---- ---- ---- ----
Net postretirement benefit cost $678 $ 75 $728 $702
==== ==== ==== ====
</TABLE>
An increase in the assumed health care cost trend rate by 1% in each year would
increase the accumulated postretirement benefit obligation as of December 29,
1996 by approximately $528,000 and the aggregate of the service and interest
cost components of net postretirement benefit cost for the same period by
approximately $81,000.
6. INCOME TAXES
The results of Media's operations are included in the consolidated federal
income tax returns filed by Disney for taxable years ending after February 9,
1996 and ABC, Inc. for taxable years ending on or before February 9, 1996.
The income tax amounts have been computed on a separate return basis.
Media accounts for income taxes under FASB Statement No. 109, Accounting for
Income Taxes. Deferred income tax assets and liabilities are determined based
upon differences between the financial reporting and the tax basis of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
Page 14 of 29 Pages
<PAGE> 15
ABC Media, Inc.
Notes to Combined Financial Statements
6. INCOME TAXES (CONTINUED)
The components of the income tax provision (benefit) are as follows (in
thousands):
<TABLE>
<CAPTION>
Eleven months One month
ended ended
December 29 January 28 December 31 December 31
1996 1996 1995 1994
------------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Current $ 42,711 $ (1,425) $ 36,435 $ 40,671
Deferred 646 59 (685) (2,582)
-------- -------- -------- --------
Total $ 43,357 $ (1,366) $ 35,750 $ 38,089
======== ======== ======== ========
</TABLE>
The reconciliation of income tax computed at the U.S. federal statutory rate to
income tax expense is as follows:
<TABLE>
<CAPTION>
Eleven months One month
ended ended
December 29 January 28 December 31 December 31
1996 1996 1995 1994
------------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Income tax (benefit) at U.S. statutory
rate 35.0% (35.0)% 35.0% 35.0%
State taxes, net of federal benefit 7.6 (4.6) 5.2 5.2
Goodwill amortization 16.0 2.1 1.1 1.0
Non-deductible items .2 .5 .2 .2
---- ----- ---- ----
Total 58.8% (37.0)% 41.5% 41.4%
==== ===== ==== ====
</TABLE>
Page 15 of 29 Pages
<PAGE> 16
ABC Media, Inc.
Notes to Combined Financial Statements
6. INCOME TAXES (CONTINUED)
Significant components of Media's net deferred income taxes are as follows (in
thousands):
<TABLE>
<CAPTION>
December 29 December 31
1996 1995
----------- ----------
<S> <C> <C>
Deferred tax assets:
Postretirement benefits other than pension $ 2,720 $ 2,720
Compensation and benefit accruals 948 906
Allowance for bad debt 663 651
Intangibles 511 565
Other nondeductible accruals 49 33
------- -------
Gross deferred tax assets $ 4,891 $ 4,875
======= =======
Deferred tax liability:
Depreciation and amortization 24,907 24,186
------- -------
Gross deferred tax liability 24,907 24,186
------- -------
Net deferred tax liability $20,016 $19,311
======= =======
</TABLE>
7. DUE TO AFFILIATE
Media has two notes payable totaling $85.3 million to an affiliate. One is for
$34.0 million, bears interest at 8.0% and is due by agreement after 1997. The
other is for $51.3 million, bears interest at 12.0% and is due by agreement
after 1997. All interest is payable annually in November. Interest expense
related to these notes amounted to approximately $8.1 million, $740,000 and $8.9
million for the eleven month period ended December 29, 1996, the one month
period ended January 28, 1996, and both years ended December 31, 1995 and 1994,
respectively. Additionally accrued interest amounting to approximately $1
million is included in accrued expenses at December 29, 1996 and December 31,
1995.
Both notes payable and related accrued interest were transferred to and assumed
by a Disney affiliate immediately prior to completion of the acquisition dated
May 9, 1997. (See Note 10).
Page 16 of 29 Pages
<PAGE> 17
ABC Media, Inc.
Notes to Combined Financial Statements
8. UNAUDITED QUARTERLY RESULTS OF OPERATIONS
Media's largest source of revenue, retail advertising, is seasonal and tends to
fluctuate with retail sales in markets served. Historically, retail advertising
is higher in the second and fourth calendar 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 the overall economy and
has not been significantly affected by seasonal trends. The following table
summarizes Media's quarterly results of operations (in thousands):
<TABLE>
<CAPTION>
QUARTERS
-------------------------------------------------------------
FIRST SECOND THIRD FOURTH
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1996
Operating revenue $115,959 $124,864 $125,027 $133,872
Operating income 17,092 19,154 21,796 28,958
Net income 2,016 7,021 8,079 10,950
1995
Operating revenue 110,285 115,609 115,746 121,797
Operating income 23,395 23,796 23,392 24,959
Net income 12,337 12,571 12,335 13,093
1994
Operating revenue 102,340 106,375 108,863 113,432
Operating income 21,983 26,198 26,656 26,081
Net income 11,560 14,029 14,297 13,960
</TABLE>
Page 17 of 29 Pages
<PAGE> 18
ABC Media, Inc.
Notes to Combined Financial Statements
9. COMMITMENTS AND CONTINGENCIES
At December 29, 1996 Media had lease commitments currently estimated to
aggregate $6.6 million that expire from 1997 through 2006 as follows (in
thousands):
<TABLE>
<S> <C>
1997 $1,830
1998 1,293
1999 1,090
2000 820
2001 481
2002 and thereafter 1,110
------
$6,624
======
</TABLE>
Payments under the lease contracts were approximately $1.9 million, $176,000,
$2.1 million and $1.8 million for the eleven month period ended December 29,
1996, the one month period ended January 28, 1996, and the years ended December
31, 1995 and 1994, respectively.
Various libel actions and environmental and other legal proceedings which have
arisen in the ordinary course of business are pending against Media. In the
opinion of ABC, Inc.'s management, the ultimate liability, if any, resulting
from these proceedings will not be material to Media's financial position or
results of operations.
10. SUBSEQUENT EVENTS
On March 17,1997, Media entered into a credit agreement which allows borrowings
up to $1.2 billion. On April 9,1997, Media borrowed $1.2 billion under that
agreement.
On May 9, 1997, ABC, Inc. transferred ownership of Media to Knight-Ridder, Inc.
in a stock for stock transaction. Approximately $210 million of the borrowings
was retained by a Disney affiliate.
On May 15,1997, Knight-Ridder, Inc. agreed to unconditionally and irrevocably
guarantee the payment of the $990 million debt along with related interest.
Page 18 of 29 Pages
<PAGE> 19
ABC Media, Inc.
Interim Combined Balance Sheet (Unaudited)
(In thousands of dollars)
<TABLE>
<CAPTION>
MARCH 30
1997
-----------
<S> <C>
ASSETS
Current assets:
Cash $ 1,848
Accounts receivable, net 52,004
Inventories 6,049
Prepaid expenses 1,278
Other current assets 1,220
----------
Total current assets 62,399
----------
Other assets 4,074
Net property, plant and equipment 97,655
Excess of cost over net assets acquired, net 1,443,866
----------
Total assets $1,607,994
==========
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 11,959
Accrued expenses and other liabilities 32,695
Accrued compensation and amounts withheld from employees 9,527
----------
Total current liabilities 54,181
----------
Due to affiliate 85,300
Deferred income taxes 25,107
Postretirement benefits other than pensions 7,467
Due to parent company 1,207
----------
Total noncurrent liabilities 119,081
----------
Equity:
Additional capital 1,500,000
Retained deficit (65,268)
----------
Total equity 1,434,732
----------
Total liabilities and equity $1,607,994
==========
</TABLE>
See notes to interim combined financial statements.
Page 19 of 29 Pages
<PAGE> 20
ABC Media, Inc.
Interim Combined Statements of Income and
Retained Earnings (Deficit) (Unaudited)
(In thousands of dollars)
<TABLE>
<CAPTION>
PRE-
POST ACQUISITION ACQUISITION
-------------------------- ------------
THREE MONTHS TWO MONTHS ONE MONTH
ENDED ENDED ENDED
MARCH 30 MARCH 31 JANUARY 28
1997 1996 1996
------------ ----------- ------------
<S> <C> <C> <C>
Operating revenue
Advertising:
Retail $ 47,056 $ 31,275 $ 12,168
General 8,231 5,561 2,517
Classified 38,423 24,289 9,361
--------- --------- ---------
Total 93,710 61,125 24,046
Circulation 25,708 18,260 8,135
Other 5,373 3,208 1,185
--------- --------- ---------
Total operating revenue 124,791 82,593 33,366
--------- --------- ---------
Operating costs
Labor and employee benefits 40,803 26,113 11,997
Newsprint, ink and supplements 21,211 19,217 8,011
Other operating costs 28,451 17,147 7,199
Depreciation and amortization 11,875 8,130 1,053
--------- --------- ---------
Total operating costs 102,340 70,607 28,260
--------- --------- ---------
Operating income 22,451 11,986 5,106
--------- --------- ---------
Other expense
Interest expense, net 2,220 1,484 739
Other, net (210) (32) 8,057
--------- --------- ---------
Total other expense 2,010 1,452 8,796
--------- --------- ---------
Income (loss) before income taxes 20,441 10,534 (3,690)
Income taxes (benefit) 12,135 6,194 (1,366)
--------- --------- ---------
Net income (loss) 8,306 4,340 (2,324)
--------- --------- ---------
Retained deficit at beginning of period (1,783) -- (22,784)
Dividend to parent company (71,791) -- --
--------- --------- ---------
Retained (deficit) earnings at end of period $ (65,268) $ 4,340 $ (25,108)
========= ========= =========
</TABLE>
See notes to interim combined financial statements.
Page 20 of 29 Pages
<PAGE> 21
ABC Media, Inc.
Interim Combined Statements of Cash Flows (Unaudited)
(In thousands of dollars)
<TABLE>
<CAPTION>
POST ACQUISITION PREACQUISITION
------------------------- --------------
THREE MONTHS TWO MONTHS ONE MONTH
ENDED ENDED ENDED
MARCH 30 MARCH 31 JANUARY 28
1997 1996 1996
------------ ---------- ----------
<S> <C> <C> <C>
CASH PROVIDED BY (REQUIRED FOR) OPERATING ACTIVITIES
Net income $ 8,306 $ 4,340 $ (2,324)
Noncash items deducted from (included in) income:
Depreciation 2,580 1,824 826
Amortization 9,295 6,306 227
Provision for deferred taxes 200 117 59
Change in current assets and liabilities:
Accounts receivable 6,606 323 2,640
Inventories (366) 1,457 (5,194)
Other current assets 135 (74) 4,999
Accounts payable (1,226) (2,607) 1,618
Other liabilities 15,244 11,296 2,687
-------- -------- --------
Net cash provided by operating activities 40,774 22,982 5,538
-------- -------- --------
CASH PROVIDED BY (REQUIRED FOR) INVESTING ACTIVITIES
Additions to property, plant and equipment (2,807) (4,823) (136)
Other items, net (41) 20 (17)
-------- -------- --------
Net cash required for investing activities (2,848) (4,803) (153)
CASH REQUIRED FOR FINANCING ACTIVITIES
Intercompany, net (38,086) (17,800) (3,956)
-------- -------- --------
Net cash required for financing activities (38,086) (17,800) (3,956)
-------- -------- --------
Net (decrease) increase in cash (160) 379 1,429
Cash at beginning of the period 2,008 2,058 629
-------- -------- --------
Cash at end of the period $ 1,848 $ 2,437 $ 2,058
======== ======== ========
</TABLE>
See notes to interim combined financial statements.
Page 21 of 29 Pages
<PAGE> 22
ABC Media, Inc.
Notes to Interim Combined Financial Statements (Unaudited)
Three Months Ended
March 30, 1997 and March 31, 1996
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
NATURE OF BUSINESS
In February 1997, ABC, Inc., which is indirectly owned by The Walt Disney
Company (Disney), consolidated the newspaper publishing and related operations
of The Kansas City Star, in Kansas City, Missouri, The Fort Worth Star-Telegram,
in Ft. Worth, Texas, The Belleville News-Democrat, in Belleville, Illinois and
The Times Leader in Wilkes-Barre, Pennsylvania into ABC Media, Inc. (Media).
These four newspapers have combined daily and Sunday circulation of 630,000 and
898,000, respectively.
BASIS OF PRESENTATION
For the three months ended March 30, 1997 and March 31, 1996 the accounts of the
four newspapers above were included in the publishing group of ABC, Inc. and
were not presented on a combined basis as those of a separate reporting entity.
Accordingly, the accounts included in the accompanying financial statements were
carved out of the ABC, Inc. historical accounting records. For all periods
presented, the financial statements of Media include the accounts of the above
newspapers.
The accompanying unaudited interim financial statements include costs allocated
by ABC, Inc. for certain functions and services they performed centrally. All
allocations and estimates were based on assumptions ABC, Inc.'s management
believed were reasonable in the circumstances. These allocations and estimates
are not necessarily indicative of the costs and expenses that would have
resulted if Media had been operated as a separate entity.
On February 9, 1996, Disney completed its acquisition of ABC, Inc. (formerly
known as Capital Cities/ABC, Inc.) which indirectly owned Media. The acquisition
was accounted for as a purchase and the total purchase price allocated to Media
was approximately $1.5 billion based on the estimated fair value of Media's net
assets. The excess of the purchase price over Media's net tangible assets, was
approximately $1.5 billion. This amount is amortized on a straight line basis
over forty years.
Page 22 of 29 Pages
<PAGE> 23
ABC Media, Inc.
Notes to Interim Combined Financial Statements (Unaudited)
Three Months Ended
March 30, 1997 and March 31, 1996
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION (CONTINUED)
This change in ownership occurred as of an interim date. In the accompanying
statements of income and retained earnings (deficit) and cash flows the period
captioned as "Preacquisition" represents Media when it was owned by ABC, Inc.,
while the periods identified as Post Acquisition represent Media after it was
acquired by Disney.
The accompanying unaudited combined 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 months ended March 30, 1997 are not
necessarily indicative of the results that may be expected for the full year.
2. SUBSEQUENT EVENTS
On March 17,1997, Media entered into a credit agreement which allows borrowings
up to $1.2 billion. On April 9,1997, Media borrowed $1.2 billion under that
agreement.
On May 9, 1997, ABC, Inc. transferred ownership of Media to Knight-Ridder, Inc.
in a stock for stock transaction. Approximately $210 million of the borrowings
was retained by a Disney affiliate.
On May 15, 1997, Knight-Ridder, Inc. agreed to unconditionally and irrevocably
guarantee the payment of the $990 million debt along with related interest.
Page 23 of 29 Pages
<PAGE> 24
KNIGHT-RIDDER, INC.
PRO FORMA FINANCIAL DATA (unaudited)
The following pro forma unaudited condensed consolidated financial statements
present the pro forma financial position at March 30, 1997 for Knight-Ridder,
Inc. ("Knight-Ridder") and for ABC Media, Inc. ("Media"), and the pro forma
results of operations for the quarter then ended, along with the results of
operations for the year ended December 29, 1996. These pro forma financial
statements give effect to the acquisition as if such acquisition of Media by
Knight-Ridder 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.
The 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
considered appropriate under the circumstances. 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 29, 1996 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 March 30, 1997 along with Management's Discussion and
Analysis of Operations, which are included in Knight-Ridder's Form 10-Q covering
such period.
Page 24 of 29 Pages
<PAGE> 25
KNIGHT-RIDDER, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
ABC
Knight-Ridder Media,
Inc. Inc.
March 30, March 30, Pro Forma Adjusted
1997 1997 Adjustments Pro Forma
------------- --------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Cash & equivalents including short-term cash investments $ 24,552 $ 1,848 $ 26,400
Accounts receivable, net 338,760 52,004 390,764
Inventories 48,313 6,049 $ 1,534 A 55,896
Prepaid expenses 33,930 1,278 35,208
Other current assets 45,345 1,220 46,565
---------- ----------- ----------- ----------
Total Current Assets 490,900 62,399 1,534 554,833
---------- ----------- ----------- ----------
Investments and Other Assets 606,730 4,074 610,804
Property, Plant and Equipment, Net 914,183 97,655 33,257 A 1,045,095
Goodwill and other intangibles, net 910,538 1,443,866 350,000 A 2,616,041
1,355,503 C
(1,443,866)D
---------- ----------- ----------- ----------
Total $2,922,351 $ 1,607,994 $ 296,428 $4,826,773
========== =========== =========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 136,407 $ 11,959 $ 148,366
Accrued expenses and other liabilities 102,516 32,695 $ 14,900 A 150,111
Accrued compensation and amounts withheld from employees 87,150 9,527 96,677
Federal and state income taxes 113,649 113,649
Deferred revenue 74,632 74,632
---------- ----------- ----------- ----------
Total Current Liabilities 514,354 54,181 14,900 583,435
---------- ----------- ----------- ----------
Long-term debt 706,630 85,300 990,000 B 1,696,630
(85,300)D
Deferred federal and state income taxes 161,790 25,107 152,767 E 339,664
Postretirement benefits other than pensions 147,906 7,467 155,373
Employment benefits and other noncurrent liabilities 125,770 125,770
Due to parent company 1,207 (1,207)D
---------- ----------- ----------- ----------
Total Noncurrent Liabilities 1,142,096 119,081 1,056,260 2,317,437
---------- ----------- ----------- ----------
Minority interest in consolidated subsidiaries 1,859 1,859
---------- ----------
Commitments and Contingencies
Shareholders' equity
Common Stock 1,944 1,944
Preferred Stock 1,755 B 1,755
Additional capital 303,753 1,500,000 (1,500,000)F 961,998
658,245 B
Retained earnings (deficit) 974,138 (65,268) 65,268 F 974,138
Unrealized gains on investments (15,793) (15,793)
---------- ----------- ----------- ----------
Total Shareholders' Equity 1,264,042 1,434,732 (774,732) 1,924,042
---------- ----------- ----------- ----------
Total $2,922,351 $ 1,607,994 $ 296,428 $4,826,773
========== =========== =========== ==========
</TABLE>
Page 25 of 29 Pages
<PAGE> 26
KNIGHT-RIDDER, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ABC
Knight-Ridder Media,
Inc. Inc.
For The Quarter For The Quarter
Ended Ended
March 30 March 30 Pro Forma Adjusted
1997 1997 Adjustments Pro Forma
--------------- --------------- ----------- ---------
<S> <C> <C> <C> <C>
OPERATING REVENUE
Newspapers
Advertising
Retail $193,367 $ 47,056 $240,423
General 51,498 8,231 59,729
Classified 208,516 38,423 246,939
-------- -------- ---------
Total 453,381 93,710 547,091
Circulation 126,855 25,708 152,563
Other 20,594 5,373 25,967
-------- -------- ---------
Total Newspapers 600,830 124,791 725,621
Business Information Services 78,492 78,492
-------- -------- ---------
Total Operating Revenue 679,322 124,791 804,113
-------- -------- ---------
OPERATING COSTS
Labor and employee benefits 272,050 40,803 312,853
Newsprint, ink and supplements 93,464 21,211 $ 15 A 114,690
Other operating costs 178,400 28,451 206,851
Depreciation and amortization 37,908 11,875 529 B 52,333
2,021 C
-------- -------- -------- --------
Total Operating Costs 581,822 102,340 2,565 686,727
-------- -------- -------- --------
OPERATING INCOME 97,500 22,451 (2,565) 117,386
-------- -------- -------- --------
OTHER INCOME (EXPENSE)
Interest expense (14,935) (2,220) (13,125)D (30,280)
Interest expense capitalized 1,792 1,792
Interest income 675 675
Equity in earnings of unconsolidated
companies and joint ventures 868 868
Minority interests in earnings of
consolidated subsidiaries (2,744) (2,744)
Other, net 218,413 210 218,623
-------- -------- -------- --------
Total 204,069 (2,010) (13,125) 188,934
-------- -------- -------- --------
Income before income taxes 301,569 20,441 (15,690) 306,320
Income taxes 126,838 12,135 (6,276)E 132,697
-------- -------- -------- --------
Net income $174,731 $ 8,306 $ (9,414) $173,623
======== ======== ======== ========
EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE $ 1.85 $ 1.55
======== ========
AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 94,683 17,550 112,233
======== ======== ========
</TABLE>
Page 26 of 29 Pages
<PAGE> 27
KNIGHT-RIDDER, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 29, 1996
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ABC
Knight-Ridder, Media, Pro Forma Adjusted
Inc. Inc. Adjustments Pro Forma
------------- ------ ----------- ---------
<S> <C> <C> <C> <C>
OPERATING REVENUE
Newspapers
Advertising
Retail $ 821,768 $202,709 $1,024,477
General 198,797 32,526 231,323
Classified 772,859 143,287 916,146
---------- -------- ----------
Total 1,793,424 378,522 2,171,946
Circulation 501,826 100,256 602,082
Other 78,974 20,944 99,918
---------- -------- ----------
Total Newspapers 2,374,224 499,722 2,873,946
Business Information Services 400,619 - 400,619
---------- -------- ----------
Total Operating Revenue 2,774,843 499,722 3,274,565
---------- -------- ----------
OPERATING COSTS
Labor and employee benefits 1,083,026 158,792 1,241,818
Newsprint, ink and supplements 472,207 104,544 $ 2,153 A 578,904
Other operating costs 718,641 104,492 823,133
Depreciation and amortization 166,051 44,894 2,118 B
10,463 C 223,526
---------- -------- ------- ----------
Total Operating Costs 2,439,925 412,722 14,734 2,867,381
---------- -------- ------- ----------
OPERATING INCOME 334,918 87,000 (14,734) 407,184
---------- -------- ------- ----------
OTHER INCOME (EXPENSE)
Interest expense (73,296) (8,886) (52,494)D (134,676)
Interest expense capitalized 6,397 6,397
Interest income 7,459 7,459
Equity in earnings of unconsolidated
companies and joint ventures 29,868 29,868
Minority interests in earnings of
consolidated subsidiaries (9,419) (9,419)
Other, net 170,681 (8,057) 162,624
---------- -------- -------- ----------
Total 131,690 (16,943) (52,494) 62,253
---------- -------- -------- ----------
Income before income taxes 466,608 70,057 (67,228) 469,437
Income taxes 198,735 41,991 (26,891)E 213,835
---------- -------- -------- ----------
NET INCOME $ 267,873 $ 28,066 $(40,337) $ 255,602
========== ======== ======== ==========
EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE $ 2.75 $ 2.22
========== ==========
AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 97,420 17,550 114,970
========== ========= ==========
</TABLE>
Page 27 of 29 Pages
<PAGE> 28
Knight-Ridder, Inc.
Notes to Pro Forma Financial Statements (unaudited)
(In Thousands of Dollars)
NOTE A - PRO FORMA ADJUSTMENTS
On May 9, 1997, Knight-Ridder completed the acquisition of Media through the
merger of a wholly owned subsidiary of Knight-Ridder with and into Media. Media
owns four newspapers located in Belleville, Illinois, Kansas City, Missouri,
Wilkes-Barre, Pennsylvania and Fort-Worth, Texas. Knight-Ridder intends to
continue to manage and operate Media as a newspaper company. The four newspapers
have combined daily and Sunday circulation of 630,000 and 898,000, respectively.
The acquisition was accounted for under the purchase method. The purchase price
of $1.65 billion was allocated, based on preliminary allocations, to the
estimated fair market value of tangible and intangible net assets of Media. The
excess of purchase price over these net assets of Media of approximately $1.36
billion, has been recorded as goodwill and will be amortized on a straight-line
basis over 40 years.
Pursuant to the merger, Knight-Ridder issued 1,754,930 shares of its Series B
convertible preferred stock. At the effective time of the merger, Media had $990
million of bank debt, the payment of which was subsequently guaranteed by
Knight-Ridder.
The pro forma condensed consolidated balance sheets at March 30, 1997 and the
related pro forma condensed consolidated statements of income for the quarter
then ended, as well as the pro forma condensed consolidated statements of income
for the year ended December 29, 1996 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 SHEET AS OF MARCH 30, 1997
A. To adjust the net assets of Media to their estimated fair value based on a
preliminary allocation of the purchase price and to record estimated
acquisition costs of $14.9 million.
B. To reflect the issuance of 1,754,930 shares of Knight-Ridder Series B
convertible preferred stock valued at $660 million and the $990 million
of bank debt owed by Media.
C. To record a preliminary allocation of the excess purchase price over the
fair value of the net assets acquired.
D. To eliminate assets and liabilities retained by the seller.
E. To record the tax effects of pro forma adjustments related to the increase
in fair value of net assets acquired.
F. To eliminate Media's equity accounts.
Page 28 of 29 Pages
<PAGE> 29
Knight-Ridder, Inc.
Notes to Pro Forma Financial Statements (unaudited)
(In Thousands of Dollars)
CONDENSED CONSOLIDATED STATEMENTS OF INCOME - QUARTER ENDED MARCH 30, 1997 AND
THE YEAR ENDED DECEMBER 29, 1996
A. To eliminate the effects of cost calculated under the LIFO inventory
method ($15,000 for the quarter ended March 30, 1997 and $2.2 million
for the year ended December 29, 1996).
B. To record depreciation ($529,000 for the quarter ended March 30, 1997 and
$2.1 million for the year ended December 29, 1996) from preliminary
recording of property at its estimated fair value.
C. To recognize incremental amortization of intangibles from a preliminary
allocation of purchase price.
D. To record interest expense ($13.1 million for the quarter ended
March 30, 1997 and $52.5 million for the year ended December 29, 1996) on
the bank debt to fund the acquisition.
E. To record the tax effects of the pro forma adjustments at the statutory
rates.
Page 29 of 29 Pages
