<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------
FORM 8-K
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 8, 1997
KNIGHT-RIDDER, INC.
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(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
Florida 1-7553 38-0723657
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<S> <C> <C>
(State or other jurisdiction of (Commission (I.R.S. Employer Identification No.)
incorporation) File Number)
</TABLE>
One Herald Plaza, Miami, Florida 33132
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (305) 376-3800
----------------------
Not Applicable
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(Former name or former address, if changed since last report)
Page 1 of 38
<PAGE> 2
Item 5. Other Events
On April 4, 1997, Knight-Ridder, Inc. (KRI) announced that it will divest
Knight-Ridder Information, Inc. (KRII). This announcement resulted in its former
Business Information Service (BIS) segment (excluding one business called
Technimetrics, the ownership of which will continue and the operations of which
are not material) being reclassified as discontinued operations in the quarter
ended June 29, 1997. On October 2, 1997, KRI announced it had entered into an
agreement to sell KRII to M.A.I.D. plc for $420 million. The sale is expected
to close before the end of 1997 and is expected to result in a gain. This
reclassification has been reflected in the accompanying consolidated balance
sheets of KRI as of December 29, 1996, December 31, 1995, and December 25,
1994, and the related consolidated statements of income , cash flows and
shareholders' equity for the years then ended.
On May 9, 1997, KRI completed the acquisition of ABC, Media Inc. (Media) through
the merger of a wholly owned subsidiary (Cypress Media, Inc.) with and into
Media. Media which was indirectly owned by The Walt Disney Company, owns four
newspapers in Kansas City, Missouri, Fort Worth, Texas, Wilkes-Barre,
Pennsylvania, and Belleville, Illinois. The purchase price was $1.65 billion. On
May 22,1997, KRI filed Form 8-K relating to the acquisition of Media excluding
related financial statements and pro forma information. On July 22, 1997, KRI
filed Form 8-K/A#1 including the required financial statements and pro forma
financial information. The effects of discontinuing the BIS segment are also
reflected in the accompanying 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 38
<PAGE> 3
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereto duly authorized.
Dated: October 8, 1997
KNIGHT-RIDDER, INC.
(Registrant)
By: /s/ Gary R. Effren
---------------------------------
Gary R. Effren
Vice President/Controller
(Chief Accounting Officer and
Duly Authorized Officer of Registrant)
Page 3 of 38
<PAGE> 4
Report of Independent Certified Public Accountants
Shareholders
Knight-Ridder, Inc.
We have audited the accompanying consolidated balance sheet of Knight-Ridder,
Inc., and subsidiaries as of December 29, 1996, December 31, 1995 and December
25, 1994, and the related consolidated statements of income, cash flows and
shareholders' equity for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Knight-Ridder,
Inc., and subsidiaries at December 29, 1996, December 31, 1995 and December 25,
1994, and the consolidated results of their operations and their cash flows for
the years then ended in conformity with generally accepted accounting
principles.
As discussed in Note A to the financial statements, in 1995 the Company changed
its method of accounting for contributions.
Miami, Florida
January 29, 1997, except for Note K
as to which the date is
October 8, 1997
/s/ Ernst & Young LLP
Page 4 of 38
<PAGE> 5
Consolidated Balance Sheet
(In thousands of dollars, except share data)
<TABLE>
<CAPTION>
DECEMBER 29 DECEMBER 31 DECEMBER 25
1996 1995 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash, including short-term cash investments of
$50 in 1996, $50 in 1995 and $150 in 1994 $ 22,880 $ 26,012 9,253
Accounts receivable, net of allowances of $12,685
in 1996, $14,348 in 1995 and $13,728 in 1994 356,079 339,264 317,687
Inventories 42,941 73,349 39,555
Prepaid expense 90,314 21,543 20,354
Other current assets 53,513 42,754 35,955
---------- ---------- ----------
Total Current Assets 565,727 502,922 422,804
---------- ---------- ----------
INVESTMENTS AND OTHER ASSETS
Equity in unconsolidated companies and joint ventures 330,267 321,658 293,205
Net assets of discontinued BIS operations 325,319 427,290 431,416
Other 135,409 225,385 143,506
---------- ---------- ----------
Total Investments and Other Assets 790,995 974,333 868,127
---------- ---------- ----------
PROPERTY, PLANT AND EQUIPMENT
Land and improvements 77,526 77,617 63,800
Buildings and improvements 387,509 384,314 362,209
Equipment 996,703 992,604 974,744
Construction and equipment installations in progress 110,590 56,598 15,180
---------- ---------- ----------
1,572,328 1,511,133 1,415,933
Less accumulated depreciation 702,141 667,735 678,962
---------- ---------- ----------
Net Property, Plant and Equipment 870,187 843,398 736,971
---------- ---------- ----------
EXCESS OF COST OVER NET ASSETS ACQUIRED
Less accumulated amortization of
$153,530 in 1996, $133,924 in 1995
and $121,453 in 1994 636,882 646,345 386,618
---------- ---------- ----------
Total $2,863,791 $2,966,998 $2,414,520
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 223,962 $ 127,532 $ 136,817
Accrued expenses and other liabilities 103,730 105,317 98,993
Accrued compensation and amounts withheld from employees 96,426 101,357 96,917
Federal and state income taxes -- 195 1,368
Deferred revenue 70,452 72,134 66,953
Dividends payable -- 17,978 19,593
Short-term borrowings and current portion of long-term debt 50,000 13,129 --
---------- ---------- ----------
Total Current Liabilities 544,570 437,642 420,641
---------- ---------- ----------
NONCURRENT LIABILITIES
Long-term debt 771,335 1,000,721 411,504
Deferred federal and state income taxes 142,727 134,460 108,616
Postretirement benefits other than pensions 158,820 169,059 165,833
Employment benefits and other noncurrent liabilities 112,784 113,388 82,155
---------- ---------- ----------
Total Noncurrent Liabilities 1,185,666 1,417,628 768,108
---------- ---------- ----------
MINORITY INTEREST IN
CONSOLIDATED SUBSIDIARIES 2,047 758 1,117
---------- ---------- ----------
COMMITMENTS AND CONTINGENCIES (NOTE I)
SHAREHOLDERS' EQUITY
Common stock, $.02 1/12 par value; shares authorized--
250,000,000; share issued--93,340,652 in 1996,
97,196,308 in 1995 and 105,785,440 in 1994 1,945 2,025 2,204
Additional capital 308,320 295,360 326,392
Retained earnings 819,572 770,643 896,058
Unrealized gains on investments 1,671 42,942 --
---------- ---------- ----------
Total Shareholders' Equity 1,131,508 1,110,970 1,224,654
---------- ---------- ----------
Total $2,863,791 $2,966,998 $2,414,520
========== ========== ==========
</TABLE>
See "Notes to Consolidated Financial Statements."
Page 5 of 38
<PAGE> 6
Consolidated Statement of Income
(In thousands of dollars, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------
DECEMBER 29 DECEMBER 31 DECEMBER 25
1996 1995 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
OPERATING REVENUE
Advertising
Retail $ 821,768 $ 807,758 $ 792,476
General 198,797 182,516 184,469
Classified 772,859 682,696 606,428
---------- ---------- ----------
Total 1,793,424 1,672,970 1,583,373
Circulation 501,826 495,315 484,581
Other 97,839 97,053 80,530
---------- ---------- ----------
Total Operating Revenue 2,393,089 2,265,338 2,148,484
---------- ---------- ----------
OPERATING COSTS
Labor and employee benefits 976,142 977,121 934,420
Newsprint, ink and supplements 472,207 446,841 335,902
Other operating costs 486,491 510,767 470,069
Depreciation and amortization 123,597 100,950 98,703
---------- ---------- ----------
Total Operating Costs 2,058,437 2,035,679 1,839,094
---------- ---------- ----------
OPERATING INCOME 334,652 229,659 309,390
---------- ---------- ----------
OTHER INCOME (EXPENSE)
Interest expense (73,137) (59,513) (44,216)
Interest expense capitalized 6,397 1,889 474
Interest income 6,490 8,577 5,732
Equity in earnings of unconsolidated companies and
joint venture 29,868 20,661 7,612
Minority interests in earnings of consolidated subsidiaries (9,293) (8,809) (10,323)
Other, net 16,701 (8,394) (1,865)
---------- ---------- ----------
Total (22,974) (45,589) (42,586)
---------- ---------- ----------
Income before income taxes 311,678 184,070 266,804
Income taxes 125,402 73,360 106,921
---------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS 186,276 110,710 159,883
Net gain on sale of discontinued BIS operations, net of
applicable income taxes of $69,631 in 1996 and
$38,933 in 1995 (Note G and K) 86,255 53,765 --
Income/(Loss) from discontinued BIS operations, net of
applicable income taxes of $3,702 in 1996, $8,121
in 1995 and $12,249 in 1994, (Note K) (4,658) 2,907 11,017
---------- ---------- ----------
INCOME BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE 267,873 167,382 170,900
Cumulative effect of change in accounting principle for
contributions -- (7,320) --
---------- ---------- ----------
Net income $ 267,873 $ 160,062 $ 170,900
========== ========== ==========
EARNINGS PER COMMON AND COMMON EQUIVALENT
SHARES
Income from continuing operations $ 1.91 $ 1.10 $ 1.47
Net gain on sale of discontinued BIS operations (Note G and K) 0.89 0.54 --
Income/(Loss) from discontinued BIS operations (Note K) (0.05) 0.03 0.10
---------- ---------- ----------
Income before cumulative effect of change in accounting
principle 2.75 1.67 1.57
Cumulative effect of change in accounting principle for
contributions -- (0.07) --
---------- ---------- ----------
Net income $ 2.75 $ 1.60 $ 1.57
========== ========== ==========
AVERAGE COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING (IN 000S) 97,420 100,196 108,551
========== ========== ==========
</TABLE>
See "Notes to Consolidated Financial Statements."
Page 6 of 38
<PAGE> 7
Consolidated Statement of Cash Flows
(In thousands of dollars)
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------
DECEMBER 29 DECEMBER 31 DECEMBER 25
1996 1995 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
CASH PROVIDED BY (REQUIRED FOR) OPERATING
ACTIVITIES
Net income $ 267,873 $ 160,062 $ 170,900
Noncash items deducted from (included in) income:
Cumulative effect of change in accounting principle -- 7,320 --
Net gain on sale of discontinued BIS operations (86,255) (53,765) --
Depreciation 87,518 75,492 74,211
Amortization of excess of cost over net assets acquired 19,607 12,470 11,011
Amortization of other assets 16,472 12,988 13,481
Provision for noncurrent deferred taxes (30,852) 4,391 2,522
Earnings of investees in excess of distributions (21,293) (16,250) (7,737)
Other items, net (355) 43,805 42,772
Change in certain assets and liabilities:
Accounts receivable (42,908) (18,620) (41,135)
Inventories 30,474 (32,292) 1,867
Other current assets (88,219) (9,531) 2,104
Accounts payable 86,251 (19,235) 11,099
Federal and state income taxes 972 (55,078) 1,358
Other liabilities (9,826) 3,006 33,803
---------- ---------- ----------
Net Cash Provided by Operating Activities 229,459 114,763 316,256
---------- ---------- ----------
CASH PROVIDED BY (REQUIRED FOR) INVESTING
ACTIVITIES
Proceeds from sale of discontinued BIS operations 271,859 114,907 --
Change in net noncurrent assets of discontinued BIS operations 1,299 2,314 211
Acquisition of Contra Costa Newspapers, Inc. -- (335,755) --
Additions to property, plant and equipment (112,896) (92,086) (33,945)
Other items, net 45,142 (46,081) (43,856)
---------- ---------- ----------
Net Cash Provided by (Required for) Investing Activities 205,404 (356,701) (77,590)
---------- ---------- ----------
CASH PROVIDED BY (REQUIRED FOR) FINANCING
ACTIVITIES
Proceeds from sale of commercial paper and senior notes payable 601,010 1,092,620 375,308
Reduction of total debt (793,525) (490,274) (414,879)
---------- ---------- ----------
Net Change in Total Debt (192,515) 602,346 (39,571)
Payment of cash dividends (74,262) (74,377) (77,942)
Sale of common stock to employees 72,202 75,437 25,897
Purchase of treasury stock (221,768) (319,363) (136,977)
Other items, net (21,652) (25,346) (23,832)
---------- ---------- ----------
Net Cash Provided by (Required for) Financing Activities (437,995) 258,697 (252,425)
---------- ---------- ----------
Net Increase (Decrease) in Cash (3,132) 16,759 (13,759)
Cash and short-term cash investments at beginning of the year 26,012 9,253 23,012
---------- ---------- ----------
Cash and short-term cash investments at end of the year $ 22,880 $ 26,012 $ 9,253
========== ========== ==========
Working capital at end of the year $ 21,157 $ 65,280 $ 2,163
========== ========== ==========
</TABLE>
See "Notes to Consolidated Financial Statements."
Page 7 of 38
<PAGE> 8
Consolidated Statement of Shareholders' Equity
(In thousands of dollars, except share data)
<TABLE>
<CAPTION>
COMMON SHARES COMMON ADDITIONAL RETAINED TREASURY
OUTSTANDING (1) STOCK (1) CAPITAL EARNINGS (1) STOCK
---------------- -------------- --------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 26, 1993 109,694,972 $ 2,285 $ 342,201 $ 898,683 $ --
Issuance of common shares
under stock option plans 59,200 -- 1,104 -- --
Issuance of treasury shares
under stock option plans 455,622 -- (3,562) -- (12,571)
Issuance of treasury shares
under stock purchase plan 620,246 -- (2,767) -- (16,835)
Purchase of treasury shares (5,044,600) -- -- -- 136,977
Retirement of 3,968,732
treasury shares (1) -- (81) (12,300) (95,189) (107,571)
Tax benefits arising from
employee stock plans -- -- 1,716 -- --
Net income -- -- -- 170,900 --
Cash dividends declared on
common stock--$.73 per share (1) -- -- -- (78,336) --
------------ ------- --------- --------- ---------
BALANCE AT DECEMBER 25, 1994 105,785,440 $ 2,204 $ 326,392 $ 896,058 $ --
Issuance of common shares
under stock option plans 152,150 2 3,429 -- --
Issuance of treasury shares
under stock option plans 2,167,760 -- (9,712) -- (62,712)
Issuance of treasury shares
under stock purchase plans 599,558 -- (2,407) -- (16,926)
Purchase of treasury shares (11,508,600) -- -- -- 319,363
Retirement of 8,741,282
treasury shares (1) -- (181) (26,830) (212,715) (239,725)
Tax benefits arising from
employee stock plans -- -- 4,488 -- --
Unrealized gains on
investments -- -- -- 42,942 --
Net income -- -- -- 160,062 --
Cash dividends declared on
common stock--$.74 per share (1) -- -- -- (72,762) --
------------ ------- --------- --------- ---------
BALANCE AT DECEMBER 31, 1995 97,196,308 $ 2,025 $ 295,360 $ 813,585 $ --
Issuance of common shares
under stock option plans 1,040,938 22 26,589 (11) --
Issuance of common shares
under stock purchase plan 126,808 3 3,724 (1) --
Issuance of treasury shares
under stock option plans 868,752 -- (7,661) -- (30,783)
Issuance of treasury shares
under stock purchase plan 326,946 -- (1,278) -- (11,645)
Purchase of treasury shares (6,219,100) -- -- -- 221,768
Retirement of 5,023,402
treasury shares -- (105) (16,586) (162,649) (179,340)
Expenses related to capital
transactions -- -- (203) -- --
Tax benefits arising from
employee stock plans -- -- 8,375 -- --
Reductions in unrealized gains
on investments -- -- -- (41,271) --
Net income -- -- -- 267,873 --
Cash dividends declared on
common stock--$.58 1/2 per
share (2) -- -- -- (56,283) --
------------ ------- --------- --------- ---------
BALANCE AT DECEMBER 29, 1996 93,340,652 $ 1,945 $ 308,320 $ 821,243 $ --
============ ======= ========= ========= =========
</TABLE>
(1) Number of shares and related amounts have been restated to reflect a
two-for-one stock split in the form of a 100% stock dividend, effective
July 31, 1996.
(2) The Board of Directors declared a $.20 per share dividend on January 28,
1997. The quarterly dividend, usually paid in January, was paid on February
24,1997, to shareholders of record as of the close of business on February
12, 1997.
See "Notes to Consolidated Financial Statements."
Page 8 of 38
<PAGE> 9
Notes to Consolidated Financial Statements
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Knight-Ridder, Inc. is a communications company engaged in newspaper publishing
and news and information services, and now operates exclusively as one business
segment. See Note K.
The company reports on a fiscal year, ending the last Sunday in the calendar
year. Results for 1996 and 1994 are for the 52 weeks ended December 29 and
December 25, respectively, and results for 1995 are for the 53 weeks ended
December 31.
The BASIS OF CONSOLIDATION is to include in the consolidated financial
statements all the accounts of Knight-Ridder, Inc., and its more-than-50%-owned
subsidiaries. All significant intercompany transactions and account balances
have been eliminated in consolidation.
The company is a 50% partner in the DETROIT NEWSPAPER AGENCY (DNA), a joint
operating agency between Detroit Free Press, Inc., a wholly owned subsidiary of
Knight-Ridder, Inc., and The Detroit News, Inc., a wholly owned subsidiary of
Gannett Co., Inc. In 1989, business operations of the Free Press and The Detroit
News were transferred to the DNA. Knight-Ridder received 45% of any profit of
the agency through the first three years, with Gannett receiving 55%. In the
fourth year, Knight-Ridder received 47% of the DNA profit and beginning December
27, 1993, received 49%. As of December 26, 1994, profits are split equally
through the end of the 100-year Joint Operating Agreement (JOA). The
Consolidated Statement of Income includes, on a line-by-line basis, the
company's pro rata share of the revenue and expense generated by the operation
of the agency.
INVESTMENTS in companies in which Knight-Ridder, Inc., has an equity interest of
at least 20% but not more than 50% are accounted for under the equity method.
Under this method, the company records its share of earnings as income and
increases the investment by the equivalent amount. Dividends are recorded as a
reduction in the investment.
The investment caption "EQUITY IN UNCONSOLIDATED COMPANIES AND JOINT VENTURES"
in the Consolidated Balance Sheet represents the company's equity in the net
assets of DNA; the Seattle Times Company and subsidiaries; Newspapers First, a
company responsible for the sales and services of general, retail and classified
advertising accounts for a group of newspapers; Southeast Paper Manufacturing
Co. and Ponderay Newsprint Company, two newsprint mill partnerships; TKR Cable
Company and TKR Cable Partners, cable television joint ventures; InfiNet, a
joint venture that allows newspapers to offer Internet access to subscribers;
Destination Florida, a company that provides online travel information services;
and Interealty (formerly known as PRC Realty Systems, Inc., ) a software system
producer for the real estate industry.
Page 9 of 38
<PAGE> 10
Notes to Consolidated Financial Statements (continued)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The company owns 49-1/2% of the voting common stock and 65% of the nonvoting
common stock of the SEATTLE TIMES COMPANY, owns 48% of the voting stock of
NEWSPAPERS FIRST, is a one-third partner in the SOUTHEAST PAPER MANUFACTURING
CO., owns a 13-1/2% equity share of PONDERAY NEWSPRINT COMPANY, and owns 50% of
the stock of TKR CABLE COMPANY and is a 50% partner in TKR CABLE PARTNERS. The
company has a 15% interest in TCI/TKR Limited partnership through TKR Cable
Partners. The company is a one-third partner in InfiNet and a 50% partner in
DESTINATION FLORIDA and owns a 25% interest in INTEREALTY.
The investment in unconsolidated companies and joint ventures at December 29,
1996, includes $300.3 million representing the company's share of undistributed
earnings (excluding the DNA) accumulated since the investment dates. The
company's share of the earnings of the unconsolidated companies (except for the
DNA) of $29.9 million in 1996, $20.7 million in 1995 and $7.6 million in 1994 is
included in the caption "EQUITY IN EARNINGS OF UNCONSOLIDATED COMPANIES AND
JOINT VENTURES" in the Consolidated Statement of Income. Dividends and cash
distributions received from the unconsolidated companies and joint ventures
(excluding the DNA) were $18.6 million in 1996, $3.2 million in 1995 and $3.1
million in 1994 and were offset against the investment account.
FORT WAYNE NEWSPAPERS, INC., is the only consolidated subsidiary that has a
minority ownership interest. The minority shareholders' interest in the net
income of this subsidiary has been reflected as an expense in the Consolidated
Statement of Income in the caption "MINORITY INTERESTS IN EARNINGS OF
CONSOLIDATED SUBSIDIARIES." Also included in this caption is a contractual
minority interest resulting from a JOA that runs through the year 2021 between
The Miami Herald Publishing Co. and Cox Newspapers, Inc., covering the
publication of The Herald and The Miami News, which ceased publication in 1988.
The company's liability to the minority interest shareholders is included in the
Consolidated Balance Sheet caption, "MINORITY INTERESTS IN CONSOLIDATED
SUBSIDIARIES."
"CASH AND SHORT-TERM CASH INVESTMENTS" includes currency and checks on hand,
demand deposits at commercial banks, overnight repurchase agreements of
government securities and investment-grade commercial paper with maturities of
90 days or less. Cash and short-term investments are recorded at cost. Due to
the short-term nature of marketable securities, cost approximates market value.
The majority of the company's "ACCOUNTS RECEIVABLE" as of December 29, 1996,
December 31, 1995, and December 25, 1994, are from advertisers, newspaper
subscribers and information users. 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 financial statements and consistently have
been within management's expectations.
Page 10 of 38
<PAGE> 11
Notes to Consolidated Financial Statements (continued)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
"INVENTORIES" are priced at the lower of cost (first-in, first-out FIFO method),
or market. Most of the inventory is newsprint, ink and other supplies used in
printing newspapers.
"OTHER ASSETS" includes investments in companies in which Knight-Ridder owns a
less than 20% interest. These investments are reviewed for appropriate
classification at the time of purchase and re-evaluated as of each balance sheet
date. Investments available for sale are carried on the balance sheet at fair
market value, with the unrealized gains/losses (net of tax) reported as a
separate component of shareholders' equity, which resulted in unrealized gains
(net of tax) of $1.7 million at December 29, 1996, $42.9 million at December 31,
1995, and zero at December 25, 1994. Upon the sale of an investment, the
gain/loss is calculated based on the original cost, less the proceeds from the
sale. Investments are classified as held-to-maturity when the company has the
positive intent and ability to hold the investment to maturity.
"PROPERTY, PLANT AND EQUIPMENT" is recorded at cost, and the provision for
depreciation for financial statement purposes is computed principally by the
straight-line method over the estimated useful lives of the assets.
"EXCESS OF COST OVER NET ASSETS ACQUIRED" arises from the purchase of at least a
50% interest in a company for a price higher than the fair market value of the
net tangible assets. Intangible assets of this type arising from acquisitions
accounted for as purchases and occurring subsequent to October 31, 1970, totaled
approximately $790 million at December 29, 1996. They are generally being
amortized over a 40-year period on a straight-line basis, unless management has
concluded a shorter term is more appropriate. If, in the opinion of management,
an impairment in value occurs, based on the undiscounted cash flow method, any
necessary additional write-downs will be charged to expense.
"DEFERRED REVENUE" arises as a normal part of business from advance subscription
payments for newspapers. Revenue is recognized in the period in which it is
earned.
"SHORT-TERM BORROWINGS" represent the carrying amounts of commercial paper and
other short-term borrowings that approximate fair value. "LONG-TERM DEBT"
represents the carrying amounts of debentures and notes payable. Fair values,
disclosed in Note C, are estimated using discounted cash flow analyses based on
the company's current incremental borrowing rates for similar types of borrowing
arrangements.
Page 11 of 38
<PAGE> 12
Notes to Consolidated Financial Statements (continued)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In 1994, the company adopted FAS 112 - EMPLOYERS ACCOUNTING FOR POST EMPLOYMENT
BENEFITS. The adoption of FAS 112 did not materially impact the financial
statements. In the first quarter of 1995, the company adopted FAS 116 -
ACCOUNTING FOR CONTRIBUTIONS RECEIVED AND CONTRIBUTIONS MADE. Under FAS 116,
unconditional promises, including multi-year promises, are recognized in the
period the promise is made. The adoption of FAS 116 resulted in a $7.3 million
charge (net of tax) to operations, or $.07 per share, and was recorded as a
cumulative effect adjustment. In 1996, the company adopted FAS 121 - ACCOUNTING
FOR THE IMPAIRMENT OF LONG-LIVED ASSETS. FAS 121 requires impairment losses to
be recorded on long-lived 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. The adoption of FAS 121 did not materially
impact the financial statements. Also in 1996, the company implemented FAS 123
- - ACCOUNTING FOR STOCK-BASED COMPENSATION. Under this statement, the company
accounts for stock-based compensation plans under the provisions of APB 25 -
Accounting for Stock Issued to Employees, and discloses the general and pro
forma financial information required by FAS 123 (Note E).
"EARNINGS PER SHARE" is computed by dividing net income by the weighted average
number of common and common equivalent shares outstanding. Quarterly earnings
per share may not add to the total for the year, since each quarter and the year
are calculated separately based on average outstanding shares during the period.
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 financial statements and
accompanying notes. Actual results could differ from those estimates.
Certain amounts in 1995 and 1994 have been reclassified to conform to the 1996
presentation.
B. INCOME TAXES
The company's income tax expense is determined under the liability method, which
requires adjusting previously deferred taxes for changes in tax rates.
Substantially all of the company's earnings are subject to domestic taxation. No
material foreign income taxes have been imposed on reported earnings.
Page 12 of 38
<PAGE> 13
Notes to Consolidated Financial Statements (continued)
B. INCOME TAXES (CONTINUED)
Federal, state and local income taxes consist of the following (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---------------------- ------------------------ --------------------
CURRENT DEFERRED CURRENT DEFERRED CURRENT DEFERRED
-------- -------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Federal income taxes $127,610 $ 28,075 $ 100,568 $ (10,128) $ 97,824 $2,501
State and local income taxes 29,883 13,167 26,733 3,241 18,791 54
-------- -------- --------- --------- -------- ------
Total $157,493 $ 41,242 $ 127,301 $ (6,887) $116,615 $2,555
======== ======== ========= ========= ======== ======
Provision for:
Continuing operations $ 84,755 $ 40,647 $ 80,727 $ (7,367) $104,866 $2,055
Discontinued operations 72,738 595 46,574 480 11,749 500
-------- -------- --------- --------- -------- ------
$157,493 $ 41,242 $ 127,301 $ (6,887) $116,615 $2,555
======== ======== ========= ========= ======== ======
</TABLE>
Cash payments of income taxes for the years 1996, 1995 and 1994 were $147.2
million, $130.1 million and $104.5 million, respectively. Payments in 1996 and
1995 include the tax impact resulting from gains on the sale of Knight-Ridder
Financial and the Journal of Commerce, respectively.
The differences between income tax expense shown in the financial statements for
continuing operations and the amounts determined by applying the federal
statutory rate of 35% in each year are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Federal statutory income tax $109,087 $64,425 $ 93,381
State and local income taxes, net of federal benefit 13,671 11,481 11,029
Statutory rate applied to nondeductible amortization of the excess
of cost over net assets acquired 2,781 2,712 3,366
Other items, net (137) (5,258) (855)
-------- ------- ---------
Total $125,402 $73,360 $ 106,921
======== ======= =========
</TABLE>
Page 13 of 38
<PAGE> 14
Notes to Consolidated Financial Statements (continued)
B. INCOME TAXES (CONTINUED)
The deferred tax asset and liability at the fiscal year end is comprised of the
following components (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
Postretirement benefits other than pensions (including amounts
relating to partnerships in which the company participates) $ 95,764 $ 85,789 $ 84,833
Compensation and benefit accruals (6,802) 21,768 17,130
Accrued interest 10,576 8,073 5,135
Other nondeductible accruals 43,594 30,068 28,127
--------- -------- --------
Gross deferred tax assets $ 143,132 $145,698 $135,225
========= ======== ========
DEFERRED TAX LIABILITY
Depreciation and amortization $ 196,116 $154,242 $189,843
Equity in partnerships and investees 73,499 52,708 46,715
Unrealized appreciation in equity securities 1,210 33,478 --
Research and experimental expenditures 10,964 12,232 9,379
Other 11,066 31,924 5,412
--------- -------- --------
Gross deferred tax liability $ 292,855 $284,584 $251,349
========= ======== ========
Net deferred tax liability $ 149,723 $138,886 $116,124
========= ======== ========
</TABLE>
The components of deferred taxes included in the Consolidated Balance Sheet are
as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
Current asset $ 23,536 $ 25,511 $ 21,949
Noncurrent liability 142,727 134,460 108,616
Discontinued BIS operations (net liability) 30,532 29,937 29,457
--------- -------- --------
Net deferred tax liability $ 149,723 $138,886 $116,124
========= ======== ========
</TABLE>
Page 14 of 38
<PAGE> 15
Notes to Consolidated Financial Statements (continued)
C. DEBT
Debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 29 DECEMBER 31 DECEMBER 25
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Commercial paper due at various dates through
March 21, 1997, at an effective interest rate of
5.5% as of December 29, 1996. Amounts are net of
amortized discounts of $1,683 in 1996, $5,502 in
1995 and $136 in 1994 (a) $ 364,817 $ 557,698 $ 54,764
Debentures due in April 15, 2009, bearing interest
at 9.875%, net of unamortized discount at $2,032
in 1996, $2,211 in 1995 and $2,363 in 1994 197,968 197,789 197,637
Notes payable, bearing interest at 8.5%, subject to
mandatory pro rata amortization of 25% annually
commencing September 1, 1998, through maturity
on September 1, 2001, net of unamortized discount of
$555 in 1996, $726 in 1995 and $897 in 1994 159,445 159,274 159,103
Senior notes payable on December 15, 2005, bearing
interest at 6.3%,net of unamortized discount of
$895 in 1996 and $911 in 1995 99,105 99,089 --
--------- ---------- --------
821,335 1,013,850 411,504
Less amounts payable in one year (b) 50,000 13,129 --
--------- ---------- --------
Total long-term debt $ 771,335 $1,000,721 $411,504
========= ========== ========
</TABLE>
(a) Commercial paper is supported by $650 million of revolving credit and
term loan agreements, $400 million of which mature on October 25, 2001,
and $250 million of which mature on October 24, 1997.
(b) The $400 million revolving credit and term loan agreements maturing on
October 25, 2001, are long-term in that no principal payments are
required during the next 12 months. However, due to the company's
intent to reduce its outstanding commercial paper, $50 million has been
classified as current.
Interest payments during 1996, 1995 and 1994 were $70.9 million,
$45.4 million and $40.2 million, respectively.
Page 15 of 38
<PAGE> 16
Notes to Consolidated Financial Statements (continued)
C. DEBT (CONTINUED)
The following table presents the approximate annual maturities of debt for the
five years after 1996 (in thousands):
<TABLE>
<S> <C>
1997 $ 50,000
1998 39,861
1999 39,861
2000 39,861
2001 354,679
2002 and thereafter 297,073
---------
Total $ 821,335
=========
</TABLE>
The carrying amounts and fair values of debt as of December 29, 1996 are as
follows (in thousands):
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
----------- ----------
<S> <C> <C>
Commercial paper $364,817 $364,817
9.875% Debentures 197,968 235,526
8.5% Notes payable 159,445 173,408
6.3% Senior notes payable 99,105 97,728
----------- ----------
$821,335 $871,479
----------- ----------
</TABLE>
D. UNCONSOLIDATED COMPANIES AND JOINT VENTURES
Summary financial information for the company's unconsolidated companies and
joint ventures that are accounted for under the equity method is as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Current assets $ 258,037 $ 274,815 $ 228,864
Property, plant and equipment and other assets 4,076,604 3,671,364 3,498,335
Current liabilities 287,782 323,199 290,418
Long-term debt and other noncurrent liabilities 2,893,716 2,572,060 2,479,374
Net sales 1,417,668 1,248,694 1,021,198
Gross profit 449,383 376,545 313,221
Net income (loss) 55,104 6,517 (48,142)
Company's share of:
Net assets 330,267 321,658 293,205
Net income 29,868 20,661 7,612
</TABLE>
Page 16 of 38
<PAGE> 17
Notes to Consolidated Financial Statements (continued)
D. UNCONSOLIDATED COMPANIES AND JOINT VENTURES (CONTINUED)
In 1989, the Detroit Free Press and The Detroit News began operating under a
joint operating agreement as the Detroit Newspaper Agency (DNA). Balance sheet
amounts for the DNA at December 29, 1996, December 31, 1995, and December 25,
1994, are included above and the net assets contributed to the DNA are included
in "Equity in unconsolidated companies and joint ventures" in the Consolidated
Balance Sheet.
E. CAPITAL STOCK
In 1991, shareholders authorized 20 million shares of preferred stock for future
issuance.
On June 21, 1996, the Board of Directors declared a two-for-one stock split in
the form of a 100% common stock dividend that was payable on July 31, 1996, to
shareholders of record on July 10, 1996. The financial statements have been
restated to give retroactive recognition to the stock split in prior periods by
reclassifying from retained earnings to common stock, the par value of the
additional shares arising from the split. In addition, all references in the
financial statements to number of shares and per share amounts have been
restated.
Concurrent with the stock split, the company executed a rights agreement to
replace a similar agreement that expired on July 10, 1996. The agreement grants
each holder of a common share a right, under certain conditions, to purchase
from the company a unit consisting of one one-hundredth of a share of preferred
stock, at a price of $150, subject to adjustment. The rights provide that in the
event the company is a surviving corporation in a merger, each holder of a right
will be entitled to receive, upon exercise, common shares having a value equal
to two times the exercise price of the right. In the event the company engages
in a merger or other business combination transaction in which the company is
not the surviving corporation, the rights agreement provides that proper
provision shall be made so that each holder of a right will be entitled to
receive, upon the exercise thereof at the then-current exercise price of the
right, common stock of the acquiring company having a value equal to two times
the exercise price of the right. No rights certificates will be distributed
until 10 days following a public announcement that a person or group of
affiliated or associated persons has acquired, or obtained the right to acquire,
beneficial ownership of 20% or more of the company's outstanding common stock,
or 10 business days following the commencement of a tender offer or exchange
offer for 20% or more of the company's outstanding stock. Until such time, the
rights are evidenced by the common share certificates of the company. The rights
are not exercisable until distributed and will expire on July 10, 2006, unless
earlier redeemed or exchanged by the company.
Page 17 of 38
<PAGE> 18
Notes to Consolidated Financial Statements (continued)
E. CAPITAL STOCK (CONTINUED)
The company has the option to redeem the rights in whole, but not in part, at a
price of $.01 per right subject to adjustment. The company's Board of Directors
has reserved for issuance upon exercise of the rights 1,500,000 preferred
shares.
The Employees Stock Purchase Plan provides for the sale of common stock to
employees of the company and its subsidiaries at a price equal to 85% of the
market value at the end of each purchase period. Participants under the plan
received 453,754 shares in 1996, 599,558 shares in 1995 and 620,246 shares in
1994. The purchase price of shares issued in 1996 under this plan ranged between
$28.59 and $35.49, and the market value on the purchase dates of such shares
ranged from $33.63 to $41.75.
The Employee Stock Option Plan provides for the issuance of nonqualified stock
options and incentive stock options. Options are issued at prices not less than
market value at date of grant and until 1994 were exercisable at issue date.
Options granted after March 1994 are exercisable in three equal installments
vesting over a three-year period from the date of grant. There is no expiration
date for the granting of options, but options must expire no later than 10 years
from the date of grant. The option plan provides for the discretionary grant of
stock appreciation rights (SARs) in tandem with previously granted options,
which allow a holder to receive in cash, stock or combinations thereof the
difference between the exercise price and the fair market value of the stock at
date of exercise.
Proceeds from the issuance of shares under these plans are included in
shareholders' equity and do not affect income.
Page 18 of 38
<PAGE> 19
Notes to Consolidated Financial Statements (continued)
E. CAPITAL STOCK (CONTINUED)
Transactions under the Employee Stock Option Plans are summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
NUMBER OF PRICE
SHARES PER SHARE
-------------- ------------
<S> <C> <C>
Outstanding
December 26, 1993 7,732,846 $ 25.47
Exercised (514,822) 19.55
Expired
Forfeited (12,200) 27.79
Granted 1,440,900 24.62
Outstanding
December 25, 1994 8,646,724 25.68
Exercised (2,319,910) 24.21
Expired
Forfeited (24,800) 26.24
Granted 1,345,300 32.16
Outstanding
December 31, 1995 7,647,314 27.26
EXERCISED (1,909,690) 25.95
EXPIRED (8,650) 29.54
FORFEITED (148,579) 28.70
GRANTED 1,324,450 39.25
OUTSTANDING
DECEMBER 29, 1996 6,904,845 29.89
</TABLE>
At December 29, 1996, shares of the company's authorized but unissued common
stock were reserved for issuance as follows:
<TABLE>
<CAPTION>
SHARES
---------
<S> <C>
Employee stock option plans 3,223,215
Employees stock purchase plan 1,808,620
=========
Total 5,031,835
=========
</TABLE>
Page 19 of 38
<PAGE> 20
Notes to Consolidated Financial Statements (continued)
E. CAPITAL STOCK (CONTINUED)
As required by FAS 123, pro forma information regarding net income and earnings
per share has been determined as if the company had accounted for its employee
stock options under the fair value method of that statement. The fair value for
these options was estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted-average assumptions for 1996 and 1995,
respectively: risk-free rates of 6.1% and 5.5%; dividend yields of 2.0% and
2.5%; volatility factors of the expected market price of the company's common
stock of 0.16 and 0.17; and a weighted-average expected life of the option of
6.5 years for both. The weighted-average fair value of the stock options for the
years 1996 and 1995 were $9.65 and $6.94, respectively.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the company's employee stock options have characteristics significantly
different from those traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, the existing models,
in management's opinion, do not necessarily provide a reliable single measure of
the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. In addition, the 15%
discount in market value under the employees stock purchase plan is treated as
compensation expense for pro forma purposes. The company's 1996 and 1995 pro
forma information follows (in thousands, except for earnings per share
information):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Net earnings $264,506 $158,472
Earnings per common and common
equivalent share 2.72 1.58
</TABLE>
The 1996 pro forma effect on net income is not necessarily representative of the
effect in future years because it does not take into consideration pro forma
compensation expense related to grants made prior to 1995.
Page 20 of 38
<PAGE> 21
Notes to Consolidated Financial Statements (continued)
E. CAPITAL STOCK (CONTINUED)
The exercise price of options outstanding at December 29, 1996, ranged between
$20.13 and $39.31. The weighted-average remaining contractual life of those
options for 1996 and 1995, is 7.3 and 7.1 years, respectively. 4,305,845 and
5,323,930 options were exercisable at the end of 1996 and 1995, respectively.
F. RETIREMENT PLANS
The company and its subsidiaries have several company-administered
noncontributory defined benefit plans covering most non-union employees. These
plans provide benefits that are based on the employees' compensation during
various times before retirement. The funding policy for these plans is to
contribute annually an amount that is intended to provide the projected benefit
earned during the year for the covered employees. The company also contributes
to certain multi-employer union defined benefit plans, company-administered and
jointly administered negotiated plans covering union employees. The funding
policy for these plans is to make annual contributions in accordance with
applicable agreements.
The company also sponsors certain defined contribution plans established
pursuant to Section 401(k) of the Internal Revenue Code. Subject to certain
dollar limits, employees may contribute a percentage of their salaries to these
plans, and the company will match a portion of the employees' contributions.
A summary of the components of net periodic pension cost for the defined
benefit plans (both company-administered non-negotiated and single-employer
negotiated plans) is presented here, along with the total amounts charged to
pension expense for multi-employer union defined benefit plans, defined
contribution plans and other agreements (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---------- --------- --------
<S> <C> <C> <C>
Defined benefit plans:
Service cost $ 26,012 $ 18,144 $ 21,376
Interest cost 56,698 51,725 48,559
Actual return on
plan assets (106,651) (137,554) 20,553
Net amortization
and deferral 43,681 84,042 (78,037)
---------- --------- --------
Net 19,740 16,357 12,451
Multi-employer union plans 11,849 13,006 13,622
Defined contribution plans 8,880 8,273 7,755
Other 1,412 1,808 1,817
---------- --------- --------
Net periodic pension cost $ 41,881 $ 39,444 $ 35,645
========== ========= ========
</TABLE>
Page 21 of 38
<PAGE> 22
Notes to Consolidated Financial Statements (continued)
F. RETIREMENT PLANS (CONTINUED)
Assumptions used each year in accounting for defined benefit plans were:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------- ---------
<S> <C> <C> <C>
Discount rate as of year end 7.5% 7.25% 8.5%
Expected long-term rate of return on
assets assumed in determining
pension expense 8.5% 8.5% 8.0 - 8.5%
Rate of increase in compensation levels
as of year end 4.5% 4.5% 3.5 - 4.5%
</TABLE>
The following table sets forth the funded status and amounts recognized in the
Consolidated Balance Sheet for the defined benefit plans (in thousands):
<TABLE>
<CAPTION>
December 29, 1996 December 31, 1995 December 25, 1994
------------------------------- ---------------------------- ------------------------------
Plans Whose Plans Whose Plans Whose Plans Whose Plans Whose Plans Whose
Assets Accumulated Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed Accumulated Exceed
Benefits Assets Benefits Assets Benefits Assets
(16 plans) (9 plans) (17 plans) (11 plans) (19 plans) (8 plans)
--------------- --------------- --------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Actuarial present value of
benefit obligations:
Vested benefit obligations $ 601,284 $ 74,766 $ 564,319 $ 83,275 $ 459,237 $ 49,613
========= ======== ========= ========= ========= ========
Accumulated benefit obligations $ 612,444 $ 77,021 $ 574,642 $ 85,581 $ 468,205 $ 51,217
========= ======== ========= ========= ========= ========
Projected benefit obligation $ 709,412 $ 87,467 $ 672,691 $ 100,273 $ 539,832 $ 58,989
Plan assets at fair value 810,102 49,809 717,475 55,019 612,776 32,380
--------- -------- --------- --------- --------- --------
Projected benefit obligation
less than (in excess of) plan
assets 100,690 (37,658) 44,784 (45,254) 72,944 (26,609)
Unrecognized net (gain) loss (96,564) 11,704 (15,441) 15,032 (37,278) 1,220
Prior service cost not yet
recognized in net periodic
pension cost 33,135 11,283 24,865 12,522 28,408 13,685
Unrecognized net (asset)
obligation, at the date FAS 87
was adopted, net of amortization (18,592) 1,738 (23,689) 2,190 (29,122) 2,523
Adjustment required to
recognize minimum liability (14,279) (18,071) (10,199)
--------- -------- --------- --------- --------- --------
Net pension asset (liability)
recognized in the Consolidated
Balance Sheet $ 18,669 $(27,212) $ 30,519 $ (33,581) $ 34,952 $(19,380)
========= ======== ========= ========= ========= ========
</TABLE>
Page 22 of 38
<PAGE> 23
Notes to Consolidated Financial Statements (continued)
F. RETIREMENT PLANS (CONTINUED)
Of the nine plans whose accumulated benefits exceed assets, four are qualified
pension plans. These qualified plans have vested benefits of $50.5 million and
assets of $49.8 million.
Net pension assets are included in "Other" noncurrent assets and net pension
liabilities are included in "Employment benefits and other noncurrent
liabilities." Substantially all of the assets of the company-administered plans
are invested in listed stocks and bonds.
G. ACQUISITIONS AND DISPOSITIONS
ACQUISITIONS
On October 31, 1995, the company acquired 100% of the outstanding shares of
Lesher Communications, Inc., ("Lesher") for $360 million. The difference between
the purchase price of $360 million and the cash distribution of $335.8 million
was due to certain assumed liabilities. Lesher, a privately held newspaper
company based in Walnut Creek, Calif., publishes four daily newspapers in
contiguous Contra Costa and eastern Alameda County markets in the East Bay area
of Northern California. Lesher was renamed Contra Costa Newspapers, Inc., (CCN)
in November 1995.
The fair value of assets acquired, not including goodwill, was $99.0 million and
assumed liabilities totaled $107.7 million. Included in the assumed liabilities
was $68.1 million of liabilities paid at closing. Goodwill and other intangibles
of $276.4 million are being amortized over periods ranging from 15 to 40 years
on the straight-line basis.
The pro forma results listed below are unaudited and reflect purchase price
accounting adjustments assuming the acquisition occurred at the beginning of
each year presented (in thousands, except per share data).
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Net sales $2,368,427 $2,244,146
Operating earnings 233,129 314,599
Earnings before income taxes 163,952 251,741
Net earnings 161,700 161,765
Earnings per common and common
equivalent share 1.61 1.49
</TABLE>
Page 23 of 38
<PAGE> 24
Notes to Consolidated Financial Statements (continued)
G ACQUISITIONS AND DISPOSITIONS (CONTINUED)
Discontinued Operations (See Note K):
During October 1995, the company acquired 100% interest in The CARL Corporation,
a leading provider of library automation services. The company also acquired a
100% interest in The UnCover Company, a joint partnership of The CARL
Corporation and Blackwell Limited.
All acquisitions were accounted for as purchases and, accordingly, the
accompanying financial statements include the results of their operations from
the acquisition dates. The acquisition cost of CCN in 1995 is included in the
caption "Acquisition of Contra Costa Newspapers, Inc."
DISPOSITIONS
Discontinued operations (See Note K):
On July 26, 1996, the company sold Knight-Ridder Financial (KRF) to Global
Financial Information Corporation for $275 million. The pretax and after-tax
gains from the sale of KRF were $155.9 million and $86.3 million, respectively.
On April 3, 1995, the company sold the Journal of Commerce (JoC) to the
Economist Group of London for $115 million. The after-tax gain from the sale of
the JoC was $53.8 million.
Other: In November 1996, the company sold its investment in Netscape
Communications Corporation, resulting in an after tax gain of $7.3 million, net
of adjustments in the carrying value of certain other investments.
In January 1997, the company and Tele-Communications, Inc., closed on the
previously announced sale of the company's interest in all but one of their
jointly owned cable investments. The remaining systems, including Kentucky,
account for a small portion of the original investment. That sale is expected to
close later. The company expects to report an after-tax gain on the transaction
of between $130 million and $150 million. The company expects the total sale to
yield net after-tax proceeds of between $270 million and $280 million.
Page 24 of 38
<PAGE> 25
Notes to Consolidated Financial Statements (continued)
H. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The company and its subsidiaries have defined postretirement benefit plans that
provide medical and life insurance for retirees and eligible dependents. The
company's postretirement benefit expense is determined under the provisions of
FAS 106, Employers' Accounting for Postretirement Benefits Other Than Pensions.
This statement requires that the cost of these benefits, which are primarily for
health care and life insurance, be recognized in the financial statements
throughout the employees' active working careers.
The company 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 7.5% 7.25% 8.5%
Annual rate of increase in salaries 4.5 4.5 4.5
Medical trend rate:
Projected 9.0 10.0 11.0
Reduced to this percentage in 2001 and thereafter 5.5 5.5 5.5
</TABLE>
Page 25 of 38
<PAGE> 26
Notes to Consolidated Financial Statements (continued)
H. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (CONTINUED)
The following tables present the funded status of the company's benefit plan
(excluding liabilities of the DNA that are reported in the Consolidated Balance
Sheet under the investment caption "Equity in unconsolidated companies and joint
ventures") and the components of 1996, 1995 and 1994 periodic expense (in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
--------------------------- ------------------------ -----------------------
LIFE LIFE LIFE
INSURANCE INSURANCE INSURANCE
MEDICAL AND OTHER MEDICAL AND OTHER MEDICAL AND OTHER
PLANS PLANS PLANS PLANS PLANS PLANS
---------- ---------- --------- ----------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ 58,225 $ 13,519 $ 69,180 $ 13,313 $ 64,244 $ 11,194
Fully eligible active plan participants 12,369 5,157 16,778 5,440 11,435 4,390
Other active plan participants 17,650 14,568 21,617 16,243 13,277 15,188
-------- -------- --------- -------- -------- --------
Accumulated benefit obligation
in excess of plan assets 88,244 33,244 107,575 34,996 88,956 30,772
Unrecognized net reduction (increase)
in prior service costs 27,693 (158) 31,723 (180) 35,752 (222)
Unrecognized net gain (loss) 1,494 8,303 (10,632) 5,577 1,629 8,946
-------- -------- --------- -------- -------- --------
Accrued liability recognized in the balance
sheet $117,431 $ 41,389 $ 128,666 $ 40,393 $126,337 $ 39,496
======== ======== ========= ======== ======== ========
Net periodic postretirement benefit cost
includes the following components:
Service cost $ 3,769 $ 4,414 $ 2,996
Interest cost 11,229 11,742 10,893
Amortization (4,600) (5,095) (4,628)
-------- --------- --------
Net periodic postretirement benefit cost $ 10,398 $ 11,061 $ 9,261
======== ========= ========
Impact of 1% increase in medical trend rate:
Aggregate impact on 1996 service cost and
interest cost $ 1,058
========
Increase in December 29, 1996, accumulated
postretirement benefit obligation $ 6,160
========
</TABLE>
A pretax gain resulting from curtailments, settlements and special termination
benefits under these plans was $8.6 million in 1996, which related to
restructuring of plans.
Page 26 of 38
<PAGE> 27
Notes to Consolidated Financial Statements (continued)
I. COMMITMENTS AND CONTINGENCIES
At December 29, 1996, the company had lease commitments currently estimated to
aggregate approximately $47.6 million that expire from 1997 through 2051 as
follows (in thousands):
<TABLE>
<S> <C>
1997 $12,841
1998 9,357
1999 7,240
2000 5,936
2001 3,955
2002 and thereafter 8,289
-------
Total $47,618
=======
</TABLE>
Payments under the lease contracts were $15.2 million in 1996, $13.3 million in
1995, and $12.2 million in 1994. In connection with the company's insurance
program, letters of credit are required to support certain projected worker
compensation obligations. At December 29, 1996, the company had approximately
$40.3 million of undrawn letters of credit outstanding.
In 1990, a verdict was rendered against the company's subsidiary, Philadelphia
Newspapers, Inc. (PNI), publisher of The Philadelphia Inquirer and Philadelphia
Daily News, in a libel action entitled Sprague v. Philadelphia Newspapers, Inc.,
for $2.5 million in compensatory damages and $31.5 million in punitive damages.
On April 1, 1996, the libel action was settled. The settlement had no material
impact on earnings.
Various libel actions and environmental and other legal proceedings that have
arisen in the ordinary course of business are pending against the company and
its subsidiaries. In the opinion of management, the ultimate liability to the
company and its subsidiaries as a result of these legal proceedings will not be
material to the financial position or results of operations.
Page 27 of 38
<PAGE> 28
Notes to Consolidated Financial Statements (continued)
J. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The company'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 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 the company's quarterly results of operations (in thousands, except
per share data):
<TABLE>
<CAPTION>
QUARTER
-----------------------------------------------------------------
FIRST SECOND THIRD FOURTH
--------------- --------------- -------------- -----------------
<S> <C> <C> <C> <C>
1996
Reclassified for discontinued operations:
Operating revenue $ 574,815 $ 600,046 $ 581,864 $ 636,364
Operating income 49,506 79,105 74,524 131,517
Income from continuing operations 22,872 41,732 39,711 81,961
Net gain/(adjustment) on sale of discontinued BIS
operations 90,901 (4,646)
Income/(Loss) from discontinued BIS operations 645 621 (4,355) (1,569)
Net income 23,517 42,353 126,257 75,746 (b)
Net Income/(Loss) per common and
common Equivalent share (1),(2):
Continuing operations 0.23 0.42 0.41 0.86 (b)
Net gain (adjustment) on sale of discontinued
BIS operations - - 0.94 (.05)
Discontinued BIS operations 0.01 0.01 (.04) (.02)
Net income 0.24 0.43 1.31 0.79 (b)
Dividends declared per common share (2) 0.18 1/2 0.20 0.20 (c)
</TABLE>
Page 28 of 38
<PAGE> 29
Notes to Consolidated Financial Statements (continued)
J. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER
------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
--------------- --------------- --------------- ------------------
<S> <C> <C> <C> <C>
1996
As previously reported:
Operating revenue $ 697,661 $ 716,982 $ 653,796 $ 706,404
Operating income 50,612 80,450 71,614 132,242
Net income 23,518 42,352 126,257 (a) 75,746 (b)
Net income per common and
common equivalent share (1), (2) 0.24 0.43 1.31 (a) 0.79 (b)
Dividends declared per common share (2) 0.18 1/2 0.20 0.20 - (c)
1995
Reclassified for discontinued operations:
Operating revenue $ 540,653 $ 569,521 $ 519,839 $ 635,325
Operating income 64,497 82,063 15,757 67,342
Income from continuing operations 29,456 42,484 3,966 34,804
Net gain on sale of discontinued BIS operations 53,765
Income/(Loss) from discontinued BIS operations 6,217 (2,129) 2,624 (3,805)
Income before cumulative effect of change
in accounting principle 35,673 94,120 6,590 30,999
Cumulative effect of change in accounting
principle for contributions (7,320)
Net income 28,353 94,120 6,590 30,999
Net income/(loss) per common and
common equivalent share (1), (2):
Continuing operations 0.28 0.42 0.04 0.35
Net gain on sale of discontinued BIS operations - 0.54 - -
Discontinued operations 0.06 (.02) 0.03 (.03)
Income before cumulative effect of change in
accounting principle 0.34 0.94 0.07 0.32
Cumulative effect of change in
accounting principle for contributions (0.07) - - -
Net income 0.27 0.94 0.07 0.32
Dividends declared per common share (2) 0.18 1/2 0.18 1/2 0.18 1/2 0.18 1/2
</TABLE>
Page 29 of 38
<PAGE> 30
Notes to Consolidated Financial Statements (continued)
J. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER
---------------------------------------------------------------
FIRST SECOND THIRD FOURTH
--------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
1995
As previously reported:
Operating revenue $ 674,599 $ 687,455 $ 637,994 $ 751,786
Operating income 71,007 84,714 19,081 65,482
Income before cumulative effect of change
in accounting principle 35,673 94,120 (d) 6,590 30,999
Cumulative effect of change in accounting
principle for contributions (7,320)
Net income 28,353 94,120 (d) 6,590 30,999
Net income per common and
common equivalent share (2):
Income before cumulative effect of change
in accounting principle 0.34 0.94 (d) 0.07 0.32
Cumulative effect of change
in accounting principle for contributions (0.07) - - -
Net income 0.27 0.94 (d) 0.07 0.32
Dividends declared per common share (2) 0.18 1/2 0.18 1/2 0.18 1/2 0.18 1/2
1994
Reclassified for discontinued operations:
Operating revenue $ 505,204 $ 537,324 $ 517,905 $ 588,051
Operating income 57,905 90,204 69,162 92,119
Income from continuing operations 25,034 48,385 33,301 53,163
Income/(Loss) from discontinued BIS operations 5,338 1,736 3,942 1
Net income 30,372 50,121 37,243 53,164
Net income per common and
common Equivalent share (1), (2):
Continuing operations 0.23 0.44 0.31 0.50
Discontinued BIS operations 0.04 0.02 0.04 -
Net income 0.27 0.46 0.35 0.50
Dividends declared per common share (2) 0.17 1/2 0.18 1/2(e) 0.18 1/2 0.18 1/2
</TABLE>
Page 30 of 38
<PAGE> 31
Notes to Consolidated Financial Statements (continued)
J. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER
FIRST SECOND THIRD FOURTH
--------------- --------------- ------------- -----------
<S> <C> <C> <C> <C>
1994
As previously reported:
Operating revenue $ 630,863 $ 661,550 $ 642,613 $ 713,935
Operating income 64,810 95,286 75,277 95,888
Net income 30,372 50,121 37,243 53,164
Net income per common and
common equivalent share (1), (2) 0.27 0.46 0.35 0.50
Dividends declared per common share (2) 0.17 1/2 0.18 1/2(e) 0.18 1/2 0.18 1/2
</TABLE>
(1) Amounts do not total to the annual earnings per share because each
quarter and the year are calculated separately based on average
outstanding shares during that period.
(2) Amounts have been restated to reflect a two-for-one stock split in the
form of a 100% stock dividend, effective July 31, 1996.
(a) Includes the gain on the sale of KRF.
(b) Includes the after-tax gain on the sale of Netscape, net of adjustments
to the carrying value of certain investments ($.07 per share).
(c) The Board of Directors declared a $.20 per share dividend on January
28, 1997. The quarterly dividend usually paid in January was paid on
February 24, 1997, to shareholders of record as of the close of
business on February 12, 1997.
(d) Includes the after-tax $53.8 million ($.54 per share) gain on the sale
of JoC.
(e) The second quarter ended June 26, 1994. These dividends were declared
June 28, 1994, and recorded in the third quarter.
K. SUBSEQUENT EVENTS
On April 4, 1997, the company announced that it will divest Knight-Ridder
Information, Inc. (KRII). This announcement resulted in its former Business
Information Service (BIS) segment (excluding one business called Technimetrics,
the ownership of which will continue and the operations of which are not
material) being reclassified as discontinued operations in the quarter ended
June 29, 1997.
On October 2, 1997, KRI also announced it has entered into an agreement to sell
KRII to M.A.I.D. plc for $420 million. The sale is expected to close before the
end of 1997 and is expected to result in a gain.
Page 31 of 38
<PAGE> 32
Notes to Consolidated Financial Statements (continued)
K. SUBSEQUENT EVENTS (CONTINUED)
The accompanying consolidated financial statements and notes thereto, have been
reclassified to reflect the effects of the discontinued segment. In the
accompanying consolidated balance sheets as of December 29, 1996, December 31,
1995, and December 25, 1994 the non current assets and liabilities of the
discontinued segment have been reclassified and included in the balance sheet
caption, "Net assets of discontinued BIS operations." In the accompanying
consolidated statements of income and cash flows for the three years then ended,
results of operations and related cash flows of the discontinued segment have
been reclassified.
Page 32 of 38
<PAGE> 33
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 sheet.
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 33 of 38
<PAGE> 34
Pro Forma Condensed Consolidated Balance Sheet (Unaudited)
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Knight-Ridder ABC 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 expense 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
---------- ----------- ---------- -----------
Net assets of discontinued BIS operations 317,909 317,909
Investments and Other Assets 557,259 4,074 561,333
Property, Plant and Equipment, Net 881,444 97,655 33,257 A 1,012,356
Goodwill and other intangibles, net 632,370 1,443,866 350,000 A 2,337,873
1,355,503 C
(1,443,866)D
---------- ----------- ---------- -----------
Total $2,879,882 $ 1,607,994 $ 296,428 $ 4,784,304
========== =========== ========== ===========
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 130,759 25,107 152,767 E 308,633
Postretirement benefits other than pensions 147,431 7,467 154,898
Employment benefits and other noncurrent liabilities 115,619 115,619
Due to parent Company 1,207 (1,207)D
---------- ----------- ---------- -----------
Total Noncurrent Liabilities 1,100,439 119,081 1,056,260 2,275,780
---------- ----------- ---------- -----------
Minority interest in consolidated subsidiaries 1,047 1,047
---------- -----------
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 losses on investments (15,793) (15,793)
---------- ------------ ----------- -----------
Total Shareholders' Equity 1,264,042 1,434,732 (774,732) 1,924,042
---------- ------------ ----------- -----------
Total $2,879,882 $ 1,607,994 $296,428 $ 4,784,304
========== ============ =========== ===========
</TABLE>
Page 34 of 38
<PAGE> 35
Pro Forma Condensed Consolidated Statements of Income (Unaudited)
(In Thousands of Dollars, except Per Share Data)
<TABLE>
<CAPTION>
Knight-Ridder ABC 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
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 26,163 5,373 31,536
------------ ------------ ----------
Total Operating Revenue 606,399 124,791 731,190
------------ ------------ ----------
OPERATING COSTS
Labor and employee benefits 252,491 40,803 293,294
Newsprint, ink and supplements 93,464 21,211 $15 A 114,690
Other operating costs 131,314 28,451 159,765
Depreciation and amortization 30,946 11,875 529 B 45,371
2,021 C
------------ ------------ ----------- ----------
Total Operating Costs 508,215 102,340 2,565 613,120
------------ ------------ ----------- ----------
OPERATING INCOME 98,184 22,451 (2,565) 118,070
------------ ------------ ----------- ----------
OTHER INCOME (EXPENSE)
Interest expense (14,906) (2,220) (13,125)D (30,251)
Interest expense capitalized 1,792 1,792
Interest income 437 437
Equity in earnings of unconsolidated
companies and joint ventures 868 868
Minority interests in earnings of
consolidated subsidiaries (2,659) (2,659)
Other, net 219,127 210 219,337
------------ ------------ ----------- ----------
Total 204,659 (2,010) (13,125) 189,524
------------ ------------ ----------- ----------
Income before income taxes 302,843 20,441 (15,690) 307,594
Income taxes 127,374 12,135 (6,276)E 133,233
------------ ------------ ----------- ----------
INCOME FROM CONTINUING OPERATIONS 175,469 8,306 (9,414) 174,361
Income/(Loss) from discontinued operations (738) (738)
------------ ------------ ----------- ----------
Net Income $ 174,731 $ 8,306 $ (9,414) $ 173,623
============ ============ =========== ==========
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE
Income from continuing operations $ 1.85 $ 1.55
Income/(Loss) from discontinued BIS operations, net - -
------------ ----------
Net income $ 1.85 $ 1.55
============ ==========
AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING (IN 000s) 94,683 17,550 112,233
============ =========== ==========
</TABLE>
Page 35 of 38
<PAGE> 36
Pro Forma Condensed Consolidated Statements of Income
For the year ended December 29, 1996
(In Thousands of Dollars, except per share data)
<TABLE>
<CAPTION>
Knight-Ridder, ABC Media, Pro Forma Adjusted
Inc. Inc. Adjustments Pro Forma
-------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
OPERATING REVENUE
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 97,839 20,944 118,783
-------------- ------------- --------------
Total Operating Revenue 2,393,089 499,722 2,892,811
OPERATING COSTS
Labor and employee benefits 976,142 158,792 1,134,934
Newsprint, ink and supplements 472,207 104,544 $2,153 A 578,904
Other operating costs 486,491 104,492 590,983
Depreciation and amortization 123,597 44,894 2,118 B 181,072
10,463 C
-------------- ------------- ------------ --------------
Total Operating Costs 2,058,437 412,722 14,734 2,485,893
-------------- ------------- ------------ --------------
OPERATING INCOME 334,652 87,000 (14,734) 406,918
-------------- ------------- ------------ --------------
OTHER INCOME (EXPENSE)
Interest expense (73,137) (8,886) (52,494)D (134,517)
Interest expense capitalized 6,397 6,397
Interest income 6,490 6,490
Equity in earnings of unconsolidated
companies and joint ventures 29,868 29,868
Minority interests in earnings of
consolidated subsidiaries (9,293) (9,293)
Other, net 16,701 (8,057) 8,644
-------------- ------------- ------------ --------------
Total (22,974) (16,943) (52,494) (92,411)
-------------- ------------- ------------ --------------
Income before income taxes 311,678 70,057 (67,228) 314,507
Income taxes 125,402 41,991 (26,891)E 140,502
-------------- ------------- ------------ --------------
INCOME FROM CONTINUING OPERATIONS 186,276 28,066 (40,337) 174,005
Net gain on sale of discontinued BIS operations 86,255 86,255
Income/(Loss) from discontinued BIS operations (4,658) (4,658)
-------------- ------------- ------------ --------------
Net Income $267,873 $28,066 ($40,337) $255,602
============== ============= ============ ==============
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE
Income from continuing operations $ 1.91 $ 1.51
Net gain on sale of discontinued BIS operations 0.89 0.75
Income/(Loss) from discontinued BIS operations, net (0.05) (0.04)
-------------- --------------
Net income $ 2.75 $ 2.22
============== ==============
AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING (IN 000s) 97,420 17,550 114,970
============== ============ ==============
</TABLE>
Page 36 of 38
<PAGE> 37
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 $1.3
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 Knight-Ridder
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 sheet 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.
Page 37 of 38
<PAGE> 38
Notes to Pro Forma Financial Statements (Unaudited) (continued)
(In Thousands of Dollars)
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.
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
tax rates.
Page 38 of 38
