<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED: September 29, 1996
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COMMISSION FILE NUMBER: 1-7553
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KNIGHT-RIDDER, INC.
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(Exact name of registrant as specified in its charter)
FLORIDA 38-0723657
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(State of Incorporation) (I.R.S. Employer Identification No.)
ONE HERALD PLAZA, MIAMI, FLORIDA 33132
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(Address of principal executive offices)
(305) 376-3800
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Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date. Common Stock, $.02 1/12 Par
Value -93,808,505 shares as of November 3, 1996.
-1-
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Table of Contents for Form 10-Q
<TABLE>
<CAPTION>
Page
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Statement of Income 3
Consolidated Balance Sheet 4
Consolidated Statement of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURE
Exhibit 27 Financial Data Schedule 12
Exhibit 99 Additional Exhibits 13
</TABLE>
2
<PAGE> 3
PART I- FINANCIAL INFORMATION
ITEM 1- FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED, IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
QUARTER ENDED THREE QUARTERS ENDED FOUR QUARTERS ENDED
--------------------- ------------------------ ----------------------
SEPT. 29 SEPT. 24 SEPT. 29 SEPT. 24 SEPT. 29 SEPT. 24
1996 1995 1996 1995 1996 1995
-------- -------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUE
Newspapers
Advertising
Retail ............................. $188,534 $172,606 $ 571,236 $ 554,482 $ 824,512 $ 795,872
General ............................. 46,920 37,729 144,257 132,051 194,722 183,649
Classified ......................... 197,217 167,433 590,470 509,922 763,244 659,756
-------- -------- --------- --------- --------- ---------
Total ............................. 432,671 377,768 1,305,963 1,196,455 1,782,478 1,639,277
Circulation ........................... 123,722 117,549 376,413 363,187 508,541 484,978
Other ................................. 20,495 20,658 60,849 59,192 83,554 78,968
-------- -------- --------- --------- --------- ---------
Total Newspapers ................. 576,888 515,975 1,743,225 1,618,834 2,374,573 2,203,223
Business Information Services ........... 76,908 122,019 325,214 381,214 445,652 510,760
-------- -------- --------- --------- --------- ---------
Total Operating Revenue ........... 653,796 637,994 2,068,439 2,000,048 2,820,225 2,713,983
-------- -------- --------- --------- --------- ---------
OPERATING COSTS
Labor and employee benefits ............. 258,878 269,529 821,152 823,608 1,125,523 1,107,078
Newsprint, ink and supplements ......... 114,486 111,295 368,649 314,077 501,413 408,866
Other operating costs ................... 168,828 200,771 550,268 575,483 759,903 777,733
Depreciation and amortization ........... 39,990 37,318 125,694 112,078 165,228 149,616
-------- -------- --------- --------- --------- ---------
Total Operating Costs ............. 582,182 618,913 1,865,763 1,825,246 2,552,067 2,443,293
-------- -------- --------- --------- --------- ---------
OPERATING INCOME ......................... 71,614 19,081 202,676 174,802 268,158 270,690
-------- -------- --------- --------- --------- ---------
OTHER INCOME (EXPENSE)
Interest expense ....................... (17,650) (12,791) (56,452) (37,804) (78,220) (48,811)
Interest expense capitalized ........... 1,819 496 4,398 1,107 5,180 1,269
Interest income ......................... 750 2,252 5,425 6,655 7,912 8,600
Equity in earnings of unconsolidated
companies and joint ventures ......... 5,621 5,592 22,191 13,936 28,916 20,423
Minority interests in earnings of
consolidated subsidiaries ............. (1,993) (2,007) (6,143) (5,990) (8,501) (8,245)
Other, net ............................. 161,271 (528) 161,517 83,576 161,681 82,416
-------- -------- --------- --------- --------- ---------
Total ............................. 149,818 (6,986) 130,936 61,480 116,968 55,652
-------- -------- --------- --------- --------- ---------
Income before income taxes ............... 221,432 12,095 333,612 236,282 385,126 326,342
Income taxes ............................. 95,175 5,505 141,485 99,899 162,000 136,795
-------- -------- --------- --------- --------- ---------
INCOME BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE ......... 126,257 6,590 192,127 136,383 223,126 189,547
Cumulative effect of change in accounting
principle for contributions ........... (7,320) (7,320)
-------- -------- --------- --------- --------- ---------
Net income ....................... $126,257 $ 6,590 $ 192,127 $ 129,063 $ 223,126 $ 182,227
======== ======== ========= ========= ========= =========
EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE
Income before cumulative effect of
change in accounting principle (1) ... $ 1.31 $ 0.07 $ 1.96 $ 1.35 $ 2.27 $ 1.85
Cumulative effect of change
in accounting principle (1) ........... (0.07) (0.07)
-------- -------- --------- --------- --------- ---------
Net income (1) ................... $ 1.31 $ 0.07 $ 1.96 $ 1.28 $ 2.27 $ 1.78
======== ======== ========= ========= ========= =========
DIVIDENDS DECLARED PER COMMON SHARE(1) ... $ 0.20 $ 0.18 1/2 $ 0.58 1/2 $ 0.55 1/2 $ 0.77 $ 0.74
======== ======== ========= ========= ========= =========
AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING (OOOs)(1) ... 96,385 98,827 98,115 100,906 98,104 102,427
======== ======== ========= ========= ========= =========
</TABLE>
(1) Amounts have been restated to reflect a two-for-one stock split in the form
of a 100% common stock dividend, effected July 31, 1996.
See "Notes to Consolidated Financial Statements" on page 6.
3
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CONSOLIDATED BALANCE SHEET
(UNAUDITED, IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Sept. 29 Dec. 31 Sept. 24
1996 1995 1995
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<S> <C> <C> <C>
ASSETS
- ------
CURRENT ASSETS
Cash, including short-term cash investments of
$50 in 1996, $50 in December
1995, and $150 in September 1995 ................................. $ 22,160 $ 26,012 $ 17,653
Accounts receivable, net of allowances
of $13,013 in 1996, $14,348 in December 1995
and $14,053 in September 1995 ................................... 326,924 339,264 310,470
Inventories ......................................................... 52,607 73,349 63,357
Other current assets ............................................... 59,567 64,297 87,541
---------- ---------- ----------
Total Current Assets ............................................. 461,258 502,922 479,021
---------- ---------- ----------
INVESTMENTS AND OTHER ASSETS
Equity in unconsolidated companies and joint ventures ............... 330,490 321,658 307,258
Other ............................................................. 212,625 285,666 242,545
---------- ---------- ----------
Total Investments and Other Assets ........................... 543,115 607,324 549,803
---------- ---------- ----------
PROPERTY, PLANT AND EQUIPMENT
Land and improvements ............................................... 77,606 80,616 66,918
Buildings and improvements ......................................... 390,954 401,093 379,967
Equipment ........................................................... 1,088,313 1,223,838 1,183,398
Construction and equipment installations in progress ............... 113,111 57,644 45,236
---------- ---------- ----------
1,669,984 1,763,191 1,675,519
Less accumulated depreciation ....................................... 759,493 831,544 862,050
---------- ---------- ----------
Net Property, Plant and Equipment ........................... 910,491 931,647 813,469
---------- ---------- ----------
EXCESS OF COST OVER NET ASSETS ACQUIRED
Less accumulated amortization of
$215,739 in 1996, $205,608 in December
1995 and $198,514 in September 1995 ........................... 913,775 963,817 685,635
---------- ---------- ----------
Total ....................................................... $2,828,639 $3,005,710 $2,527,928
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES
Accounts payable ................................................... $ 128,374 $ 127,532 $ 146,830
Accrued expenses and other liabilities ............................. 103,399 105,317 109,271
Accrued compensation and amounts
withheld from employees ......................................... 89,720 101,357 87,244
Federal and state income taxes ..................................... 62,830 195 4
Deferred revenue ................................................... 71,294 72,134 66,494
Dividends payable ................................................... 18,814 17,978 18,000
Short-term borrowings and current
portion of long-term debt ....................................... 13,129
---------- ---------- ----------
Total Current Liabilities ................................... 474,431 437,642 427,843
---------- ---------- ----------
NONCURRENT LIABILITIES
Long-term debt ..................................................... 810,270 1,000,721 593,479
Deferred federal and state income taxes ............................. 147,559 165,045 149,816
Postretirement benefits other than pensions ......................... 171,562 169,672 165,536
Employment benefits and other
noncurrent liabilities ........................................... 113,120 120,817 101,670
---------- ---------- ----------
Total Noncurrent Liabilities ................................. 1,242,511 1,456,255 1,010,501
---------- ---------- ----------
MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES ....................... 2,200 843 859
---------- ---------- ----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, $.02 1/12 par value; shares
authorized - 250,000,000; shares issued -
94,092,701 in 1996, 97,196,308 in December
1995 and 97,466,498 in September 1995(1) ......................... 1,960 2,024 2,030
Additional capital ................................................. 310,150 295,360 297,674
Retained earnings ................................................... 772,192 770,644 766,797
Unrealized gains on investments ..................................... 25,195 42,942 22,224
---------- ---------- ----------
Total Shareholders' Equity ....................................... 1,109,497 1,110,970 1,088,725
---------- ---------- ----------
Total ....................................................... $2,828,639 $3,005,710 $2,527,928
========== ========== ==========
</TABLE>
(1) Amounts have been restated to reflect a two-for-one stock split in the
form of a 100% common stock dividend, effected July 31, 1996.
See "Notes to Consolidated Financial Statements" on page 6.
4
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CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED, IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
THREE FOUR
QUARTER ENDED QUARTERS ENDED QUARTERS ENDED
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SEPT. 29 SEPT. 24 SEPT. 29 SEPT. 24 SEPT. 29 SEPT. 24
1996 1995 1996 1995 1996 1995
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<S> <C> <C> <C> <C> <C> <C>
CASH PROVIDED BY (REQUIRED FOR) OPERATING ACTIVITIES
Net income ....................................................... $126,257 $ 6,590 $192,127 $129,063 $ 223,126 $182,227
Noncash items deducted from (included in) income:
Cumulative effect of change in accounting principle .............. 7,320 7,320
Depreciation ..................................................... 23,948 26,078 80,392 78,893 106,285 104,627
Amortization of excess of cost over net assets acquired ......... 7,456 5,521 22,927 16,614 30,021 22,132
Amortization of other assets ..................................... 8,586 5,719 22,375 16,571 28,922 22,857
Provision for noncurrent deferred taxes ......................... (1,791) (5) (4,635) (9) (122) (12,209)
Distributions from investees in excess of (less than) earnings ... 1,151 2,145 (12,291) 5,026 (33,567) (467)
Gain on sale of subsidiary ....................................... (160,886) (160,886) (92,698) (160,886) (92,698)
Other items, net ................................................. 9,226 6,048 22,710 25,800 42,874 43,373
Change in certain assets and liabilities:
Accounts receivable ............................................. (20,425) 1,333 (25,157) (3,216) (40,561) (35,129)
Inventories ..................................................... 23,911 (11,610) 20,809 (23,915) 12,432 (23,192)
Other current assets ............................................. 16,724 (9,719) (3,762) (34,470) 21,177 (22,893)
Accounts payable ................................................. 14,123 10,377 20,648 5,990 (4,577) 26,468
Federal and state income taxes.................................... 63,997 (37,829) 63,802 (1,364) 49,021 (12,717)
Other current liabilities ........................................ 10,487 25,040 4,334 3,408 3,932 12,675
-------- ------- -------- -------- --------- --------
Net cash provided by operating activities ................... 122,764 29,688 243,393 133,013 278,077 222,374
-------- ------- -------- -------- --------- --------
CASH PROVIDED BY(REQUIRED FOR) INVESTING ACTIVITIES
Acquisition of Contra Costa Newspapers, Inc. ..................... (335,755)
Additions to property, plant and equipment ....................... (26,109) (24,793) (104,288) (62,126) (163,187) (81,919)
Other items, net ................................................. 259,391 (11,335) 270,898 60,999 257,302 49,876
-------- ------- -------- -------- --------- --------
Net cash provided by (required for) investing activities ... 233,282 (36,128) 166,610 (1,127) (241,640) (32,043)
-------- ------- -------- -------- --------- --------
CASH PROVIDED BY (REQUIRED FOR) FINANCING ACTIVITIES
Proceeds from sale of commercial paper and senior notes payable ... 103,356 156,200 436,979 515,779 1,013,820 618,567
Reduction of total debt ........................................... (347,142) (96,930) (640,559) (333,804) (797,029) (444,134)
-------- ------- -------- -------- --------- --------
Net change in total debt ................................... (243,786) 59,270 (203,580) 181,975 216,791 174,433
Payment of cash dividends ......................................... (19,316) (18,210) (55,449) (56,378) (73,448) (76,167)
Sale of common stock to employees ................................. 7,643 24,220 54,913 41,812 88,538 48,035
Purchase of treasury stock ....................................... (100,105) (59,101) (174,481) (274,243) (219,601) (311,599)
Other items, net ................................................. (9,552) (5,141) (35,258) (16,652) (44,210) (23,233)
-------- ------- -------- -------- --------- --------
Net cash provided by (required for) financing activities ... (365,116) 1,038 (413,855) (123,486) (31,930) (188,531)
-------- ------- -------- -------- --------- --------
Net Increase (Decrease) in Cash ............................. (9,070) (5,402) (3,852) 8,400 4,507 1,800
Cash and short-term cash investments at beginning of the period ..... 31,230 23,055 26,012 9,253 17,653 15,853
-------- ------- -------- -------- --------- --------
Cash and short-term cash investments at end of the period ........... $ 22,160 $17,653 $ 22,160 $ 17,653 $ 22,160 $ 17,653
======== ======= ======== ======== ========= ========
Working capital at end of the period ............................... $(13,173) $51,178 $(13,173) $ 51,178 $ (13,173) $ 51,178
======== ======= ======== ======== ========= ========
</TABLE>
See "Notes to Consolidated Financial Statements" on page 6.
5
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated 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 quarter,
three quarters and four quarters ended September 29, 1996 are not necessarily
indicative of the results that may be expected for the year ending December 29,
1996. For further information, refer to the consolidated financial statements
and footnotes thereto included in the Registrant Company and Subsidiaries'
annual report on Form 10-K for the year ended December 31, 1995.
NOTE 2 - DEBT
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Effective
Interest BALANCE AT
Rate at ---------------------------------------
Sept. 29 Sept. 29 Dec. 31 Sept. 24
1996 1996 1995 1995
--------- -------- ---------- --------
<S> <C> <C> <C> <C>
Commercial paper, net of discount ............... 5.5% $353,888 $ 557,698 $236,497
Notes payable, net of discount (a) ............. 8.5 159,402 159,274 159,231
Debentures, net of discount (b) ................. 10.0 197,902 197,789 197,751
Senior notes, net of discount (c) ............... 6.4 99,078 99,089
-------- ---------- --------
Total debt (d) ......................... 7.3 810,270 1,013,850 593,479
Less amounts classified as current ............. 13,129
-------- ---------- --------
Total long-term debt ................... 7.3% $810,270 $1,000,721 $593,479
======== ========== ========
</TABLE>
(a) Represents $160 million of 8 1/2% Notes subject to mandatory pro rata
amortization of 25% annually commencing 1998 through maturity in 2001.
(b) Represents $200 million of 20-year 9 7/8% debentures due in 2009.
(c) Represents $100 million of 10-year 6.3% senior notes due in 2005.
(d) At Sept. 29, 1996, and Sept. 24, 1995, interest payments of $53.3
million and $31.7 million had been made for the year-to-date,
respectively.
NOTE 3 - INCOME TAX PAYMENTS
Income tax payments for the three quarters ended Sept. 29, 1996, and Sept. 24,
1995, were $61.9 million and $110.9 million, respectively.
NOTE 4 - COMMON STOCK
On June 21, 1996, the Board of Directors of the company declared a two-for-one
stock split in the form of a 100% common stock dividend effected July 31, 1996.
All share and per share data and dividends declared per common share have been
restated for the stock split.
6
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ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE THIRD QUARTER
THIRD QUARTER 1996 COMPARED WITH THIRD QUARTER 1995
Earnings per share for the third quarter of 1996 were $1.31, up $1.24 from the
$.07 per share earned in 1995, reflecting the $.94 gain on the sale of
Knight-Ridder Financial (KRF). Excluding the gain on the sale of KRF, earnings
per share for the third quarter were $.37, up $.30 from 1995. The improvement
from 1995 was due primarily to strong results in our major newspaper markets
and, particularly, Detroit Newspapers, where results of this year's third
quarter were dramatically better than the same period last year when the now
16-month-old strike against Detroit Newspapers began.
Earnings per share for year-to-date 1996 were $1.03, up $.22, or 27.2%, from
the $.81 earned in 1995, excluding the gain on the July 1996 sale of KRF and
the April 1995 sale of the Journal of Commerce (JoC) from their respective
periods. This was also prior to the cumulative effect of the 1995 change in
accounting principles.
Net income in the third quarter of 1996 was $35.4 million, up $28.8 million
from the same period last year, exclusive of the gain on the sale of KRF, on a
2.5% operating revenue increase from third quarter 1995. For the year to date,
net income was $101.2 million, up $18.6 million, or 22.5%, from 1995, exclusive
of the gain on the sale of KRF and the JoC from their respective periods, on an
operating revenue increase of 3.4%.
OPERATING REVENUE
Certain comparisons: (1) exclude Detroit from both years, due to the distortive
impact of the strike that began on July 13, 1995; (2) exclude KRF 1995 results
due to the July 26 sale; and (3) reflect Contra Costa Newspapers (acquired from
Lesher Communications on Oct. 31, 1995) as if it were owned during the same
period last year (pro forma basis).
On this basis, total operating revenue increased 4.0% from third quarter 1995
and 3.7% from year-to-date 1995.
Newspaper advertising revenue increased 14.5% over the third quarter last year,
on a full-run ROP linage increase of 17.1%. Excluding Detroit, but including
the operations of Contra Costa Newspapers (CCN) as if owned in the third
quarter of 1995, newspaper advertising revenue increased 6.1% from 1995 on a
full-run ROP linage increase of 3.5%. This was the strongest quarterly
comparison this year. Year to date, on this same basis, newspaper advertising
revenue increased 5.2% from 1995 on a full-run ROP linage increase of 0.8%.
Classified advertising revenue increased $29.8 million, or 17.8%, over third
quarter last year on a 20.5% full-run ROP linage increase. This is the 17th
consecutive quarter of year-over-year classified revenue growth. The employment
category showed the largest gain, posting a 25.7% revenue improvement, with
linage up 18.0% from 1995. Classified revenue growth remained strong, even
though it was compared to exceptional growth in the prior year. On a pro forma
basis for CCN, but excluding Detroit, classified advertising revenue increased
9.6% from the third quarter 1995. On this same basis, year-to-date classified
advertising revenue increased 11.7% from 1995.
For the quarter, retail advertising revenue improved by $16.0 million, or 9.2%,
over last year. On a pro forma basis for CCN, but excluding Detroit, retail
revenue was up 0.3% from the prior year, the best quarterly comparison of 1996.
On a pro forma basis for CCN, but excluding Detroit, year-to-date retail
revenue was down 1.4% from 1995.
7
<PAGE> 8
General advertising revenue was up $9.2 million, or 24.4%, from third quarter
1995. On a pro forma basis for CCN, but excluding Detroit, general advertising
revenue was up $6.1 million, or 16.4%, from 1995. General advertising revenue
growth for the quarter was the strongest to date and was strong in all
categories. On this same basis, for the first three quarters of 1996, general
advertising revenue was up 7.1% from the prior year.
Circulation revenue increased $6.2 million, or 5.3%, from third quarter 1995.
On a pro forma basis for CCN, but excluding Detroit, circulation revenue
increased by $1.8 million, or 1.6%, on an average daily circulation decrease of
4.3% and average Sunday circulation decrease of 3.5%, offset by a 5.9% increase
in the average rate. On a pro forma basis for CCN, but excluding Detroit,
circulation revenue was up 2.3% so far this year.
Other newspaper revenue decreased by $163,000, or 0.8%, from 1995 for the
quarter. On a pro forma basis for CCN, but excluding Detroit, other newspaper
revenue decreased by 5.4% in the third quarter and 4.9% for the year to date,
primarily due to reduced newsprint waste sale revenue caused by softening
newsprint prices.
BIS revenue in the third quarter of 1996 decreased $45.1 million, or 37.0%,
reflecting the absence of KRF results. Excluding KRF and the impact of
acquisitions, BIS revenue decreased 0.2% from 1995. The decrease was due to
slow revenue growth in Knight-Ridder Information's core business of selling to
information professionals. Technimetrics had a strong quarter. On a
year-to-date basis, BIS revenue decreased $56.0 million, or 14.7%, reflecting
the absence of KRF and the JoC. Excluding KRF, JoC and the impact of
acquisitions, BIS operating revenue increased 0.7% from last year.
OPERATING COSTS
Labor and employee benefit costs decreased $10.7 million, or 4.0%, from third
quarter 1995. On a pro forma basis for CCN, but excluding Detroit, labor and
employee benefits were $21.3 million, or 8.2%, below 1995. On this same basis,
year-to-date labor and employee benefits were $24.3 million, or 3.1%, below
1995. Excluding CCN and Detroit, the work force decreased 3.1% in the quarter
and 4.1% for the year to date, primarily as a result of last year's fourth
quarter work force reductions in a number of locations, including Miami and
Philadelphia.
Newsprint, ink and supplement costs increased $3.2 million, or 2.9% from third
quarter 1995, on a 2.6% increase in the average newsprint price and a 1.1%
increase in newsprint consumption. These costs were up $54.6 million, or 17.4%,
for the year to date on a 23.9% increase in the average newsprint price and a
2.9% decrease in consumption. Although there were no price increases in 1996,
the quarter and year continue to be impacted by the newsprint price increases
imposed in 1995. Comparisons to 1995 in the third quarter, however, were not as
severe as in the first two quarters as newsprint prices started to soften in
1996 compared to escalating prices in 1995.
Other operating costs decreased $31.9 million, or 15.9%, from third quarter
1995, reflecting an abatement of strike-related costs in Detroit and the
absence of KRF. On a pro forma basis for CCN, but excluding Detroit and KRF,
other operating costs were $6.8 million, or 4.6%, above third quarter 1995 and
flat on a year-to-date basis with 1995. The increase from 1995 during the
quarter was due primarily to volume-related costs, such as royalty expense and
cost of goods sold, and higher circulation promotion costs.
8
<PAGE> 9
Depreciation and amortization increased $2.7 million, or 7.2%, over third
quarter 1995 and $13.6 million, or 12.1%, for the year to date. The increase
was primarily due to the acquisition of CCN, the investment in new presses and
classified systems at several newspapers and certain write-offs associated with
Knight-Ridder Information's strategic decision to focus its product development
and marketing efforts on presenting information to end-users on the World Wide
Web.
NON-OPERATING ITEMS
Interest expense, net of interest income and interest expense capitalized,
increased $5.0 million over third quarter 1995 and $16.6 million for the year
to date, due to higher debt levels. The average debt balance increased $344.7
million from the third quarter of last year, due largely to the financing of
the CCN acquisition and the repurchase of 11.5 million shares in 1995 and 5.0
million shares in 1996.
Equity in earnings of unconsolidated companies and joint ventures increased by
$29,000 for the quarter and $8.3 million for the year to date, due to earnings
improvements from our newsprint mill investments, which benefited from
the rise in newsprint prices in 1995. The increase in the third quarter was
modest due to performances in our cable and other investments and softening in
the price of newsprint.
"Other, net" was $161.8 million above third quarter 1995 and $77.9 million
above year-to-date 1995 due to the gain on the sale of KRF recorded in the
third quarter of 1996. The year-to-date comparison reflects less of a favorable
variance due to the sale of the JoC in April 1995.
OTHER
On July 26, 1996, the company completed the sale of Knight-Ridder Financial to
Global Financial Information for $275 million.
The Board of Directors of the company declared a two-for-one stock split in the
form of a 100% common stock dividend on June 21, 1996, payable on July 31,
1996, to shareholders of record as of the close of business on July 10, 1996.
The Board of Directors also approved an 8.1% increase in the company's
quarterly dividend from $.18 1/2 to $.20 per share (after giving effect to the
previously mentioned stock split).
On June 10, 1996, the company announced that Technimetrics, Inc., had entered
into an agreement to purchase Grabill-Bloom, Inc., a stock surveillance firm
that helps companies track their shareholders on a real-time basis. The
acquisition was completed on July 1, 1996.
9
<PAGE> 10
In March, the company announced that Tele-Communications, Inc. (TCI), had
agreed to purchase all of Knight-Ridder's interests in the jointly owned cable
properties for a price of $420 million in cash and TCI common stock. The two
companies are equal owners of TKR Cable Company, which operates systems in New
Jersey and New York. Knight-Ridder also has a 15% interest in another TCI Cable
venture that operates cable systems in five Southern states. The sale is
expected to close early next year.
During the third quarter of 1996, the company purchased approximately 2.9
million shares of Knight-Ridder common stock. The company had remaining
authorization to repurchase 7.0 million shares as of Sept. 29, including the
additional 6.0 million share repurchase authorized by the Knight-Ridder Board
of Directors on Sept. 19, 1996. A portion of the proceeds from the sale of KRF
was used to repurchase stock.
LIQUIDITY
Net cash provided by operating activities increased to $122.8 million from
$29.7 million in the third quarter of 1995. The increase was attributed to the
strong earnings growth in the third quarter and other changes in working
capital.
Cash and short-term cash investments were up $4.5 million from Sept. 24, 1995,
and down $3.9 million from year end. Total debt increased $216.8 million from
third quarter 1995 due to the CCN acquisition, the 11.5 million shares
repurchased in 1995 and the 5.0 million shares repurchased in 1996. Total debt
decreased $203.6 million from Dec. 31, 1995, due to the use of proceeds from
the sale of KRF in the third quarter to reduce debt.
The total-debt-to-total-capital ratio was 42.2%, down from 47.7% at year end
and up from 35.3% in September 1995. Approximately $445.1 million in aggregate
unused credit lines remained at the end of the quarter.
The ratio of current assets to current liabilities was 1.0:1 at Sept. 29, 1996,
and 1.1:1 at Sept. 24, 1995, and Dec. 31, 1995.
OUTLOOK FOR THE REMAINDER OF THE YEAR
As we look ahead to the fourth quarter, we continue to anticipate a year of
strong earnings growth. While we are concerned about the lackluster retail
performance, we still anticipate an excellent year. The continuing decline in
newsprint prices and the cycling through of the Detroit strike will positively
impact the fourth quarter. The newsprint increases that went into effect
throughout 1995 will still cause year-over-year increases of between 10% and
15% in 1996, but this is significantly less than initially anticipated.
10
<PAGE> 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
As reported on Part I, Item 2, of the Company's Form 10-Q for the quarter ended
March 31, 1996, on April 1, 1996 the Company announced that a libel suit filed
by Richard A. Spargue against the Philadelphia Inquirer in 1973 had been
settled.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
No. 27 - Financial Data Schedule (for SEC use only)
No. 99 - Additional Exhibits
(b) Reports on Form 8-K
No reports were filed on Form 8-K during the quarter ended
September 29, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KNIGHT-RIDDER, INC.
(Registrant)
Date: November 12, 1996
Gary R. Effren
Vice President/Controller
(Principal Financial Officer and Duly
Authorized Officer of Registrant)
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF INCOME, THE CONSOLIDATED BALANCE SHEET, AND THE NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-29-1996
<CASH> 22,160
<SECURITIES> 0
<RECEIVABLES> 339,937
<ALLOWANCES> 13,013
<INVENTORY> 52,607
<CURRENT-ASSETS> 461,258
<PP&E> 1,669,984
<DEPRECIATION> 759,493
<TOTAL-ASSETS> 2,828,639
<CURRENT-LIABILITIES> 474,431
<BONDS> 456,382
0
0
<COMMON> 1,960
<OTHER-SE> 1,107,537
<TOTAL-LIABILITY-AND-EQUITY> 2,828,639
<SALES> 2,068,439
<TOTAL-REVENUES> 2,068,439
<CGS> 368,649<F1>
<TOTAL-COSTS> 1,865,763
<OTHER-EXPENSES> (130,936)<F2>
<LOSS-PROVISION> 15,087
<INTEREST-EXPENSE> 56,452
<INCOME-PRETAX> 333,612
<INCOME-TAX> 141,485
<INCOME-CONTINUING> 192,127
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 192,127
<EPS-PRIMARY> 1.96
<EPS-DILUTED> 1.96
<FN>
<F1>COST OF GOODS SOLD CONSIST OF NEWSPRINT, INK, & SUPPLEMENTS.
<F2>OTHER EXPENSES CONSIST OF ALL NON-OPERATING COSTS NET, EXCLUDING INCOME
TAXES. AMOUNT INCLUDES INTEREST EXPENSE, NET OF INTEREST INCOME AND OTHER
NON-OPERATING COSTS, NET OF NON-OPERATING INCOME. ALSO INCLUDES A $160.9
MILLION PRETAX GAIN ON THE SALE OF KNIGHT-RIDDER FINANCIAL RECORDED IN THE
THIRD QUARTER.
12
</FN>
</TABLE>
<PAGE> 1
EXHIBIT 99
OTHER FINANCIAL INFORMATION - EXHIBIT 99
(UNAUDITED)
BUSINESS SEGMENT INFORMATION
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
QUARTER ENDED THREE QUARTERS ENDED FOUR QUARTERS ENDED
--------------------- -------------------- ---------------------
SEPT. 29 SEPT. 24 SEPT. 29 SEPT. 24 SEPT. 29 SEPT. 24
1996 1995 1996 1995 1996 1995
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUE
Newspapers ................................. $576,888 $515,975 $1,743,225 $1,618,834 $2,374,573 $2,203,223
Business Information Services ............. 76,908 122,019 325,214 381,214 445,652 510,760
-------- -------- ---------- ---------- ---------- ----------
$653,796 $637,994 $2,068,439 $2,000,048 $2,820,225 $2,713,983
======== ======== ========== ========== ========== ==========
OPERATING INCOME
Newspapers ................................. $ 85,871 $ 29,309 $ 236,614 $ 201,774 $ 315,986 $ 303,256
Business Information Services ............. (2,334) 3,643 442 13,399 (935) 17,547
Corporate ................................. (11,923) (13,871) (34,380) (40,371) (46,893) (50,113)
-------- -------- ---------- ---------- ---------- ----------
$ 71,614 $ 19,081 $ 202,676 $ 174,802 $ 268,158 $ 270,690
======== ======== ========== ========== ========== ==========
DEPRECIATION AND AMORTIZATION
Newspapers ................................. $ 28,454 $ 23,331 $ 85,021 $ 70,805 $ 110,267 $ 94,509
Business Information Services ............. 10,397 13,351 37,628 39,551 50,948 53,018
Corporate ................................. 1,139 636 3,045 1,722 4,013 2,089
-------- -------- ---------- ---------- ---------- ----------
$ 39,990 $ 37,318 $ 125,694 $ 112,078 $ 165,228 $ 149,616
======== ======== ========== ========== ========== ==========
</TABLE>
KNIGHT-RIDDER SHARE TRADING*
<TABLE>
<CAPTION>
1996 Third Quarter 1995 Third Quarter
Volume Per Day High Low Close Volume Per Day High Low Close
<S> <C> <C> <C> <C> <C> <C> <C>
178,075 38 32 7/16 36 1/2 79,938 29 9/16 27 5/8 29 1/4
</TABLE>
*Restated to reflect 2-for-1 stock split effected July 31, 1996.
13
