UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 28, 1997 Commission file number 1-7553
KNIGHT-RIDDER, INC.
(Exact name of registrant as specified in its charter)
A Florida corporation NO. 38-0723657
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Herald Plaza Miami, Florida 33132
(Address of principal executive offices)
Registrant's telephone number, including area code (305) 376-3800
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $.02 1/12 Par Value New York Stock Exchange
Frankfurt Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
none
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 (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [ ]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. (The aggregate market value is computed by reference to the
price at which the stock was sold as of March 6, 1998: $4,480,605,092.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date: March 6, 1998 - 79,302,745 one
class Common Stock, $.02 1/12 Par Value
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of definitive Proxy Statement dated March 27, 1998, in connection
with the Annual Meeting of Shareholders to be held on April 28, 1998, are
incorporated into Part III.
(2) Portions of the Company's Form 10-K filed March 10, 1997 are incorporated
into Part IV.
(3) Portions of the Company's Form 10-K filed March 20, 1996 are incorporated
into Part IV.
(4) Portions of the Company's Form 10-K filed March 24, 1995 are incorporated
into Part IV.
(5) Portions of the Company's Form 10-K filed March 23, 1994 are incorporated
into Part IV.
(6) Rights Agreement filed July 9, 1996 on Form 8-A is incorporated into Part
IV.
(7) Registration Statement No. 33-28010 on Form S-3 is incorporated into Part
IV.
(8) Registration Statement No. 333-37603 on Form S-3 is incorporated into Part
IV.
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Table of Contents for 1997 Form 10-K
Page
PART I
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Item 1. Business ................................................................................. 3-8
Item 2. Properties ............................................................................... 8
Item 3. Legal Proceedings ........................................................................ 9
Item 4. Submission of Matters to a Vote of Security Holders ...................................... 9
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters ..................... 9-10
Item 6. Selected Financial Data .................................................................. 11-14
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations .... 15-26
Item 8. Financial Statements and Supplementary Data .............................................. 27-48
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ..... 49
PART III
Item 10. Directors and Executive Officers of the Registrant ....................................... 49-51
Item 11. Executive Compensation ................................................................... 52
Item 12. Security Ownership of Certain Beneficial Owners and Management ........................... 52
Item 13. Certain Relationships and Related Transactions ........................................... 52
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K .......................... 52-55
SIGNATURES ......................................................................................... 56-58
SCHEDULES .......................................................................................... 59
EXHIBITS ........................................................................................... 59
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PART I
Item 1. BUSINESS
THE COMPANY
Knight-Ridder, Inc., was formed in 1974 by a merger between Knight Newspapers,
Inc., and Ridder Publications, Inc.
In 1903, Charles Landon Knight purchased the Akron Beacon Journal. Knight
Newspapers was founded by John S. Knight, who inherited the Beacon Journal from
his father in 1933. Ridder Publications was founded in 1892 when Herman Ridder
acquired the German-language Staats-Zeitung in New York. Both groups flourished,
each taking its stock public in 1969. The merger created a company with
operations coast to coast.
Knight-Ridder, Inc., was incorporated in Florida in 1976, is headquartered in
Miami, Florida, and employs about 22,000 people.
Recent Developments
In 1997, Knight Ridder acquired four newspapers indirectly owned by The Walt
Disney Company, exchanged its newspaper in Boulder, Colo., for two newspapers in
California owned by the E.W. Scripps Co. and sold four of its newspapers. Also,
in 1997, Knight Ridder sold Knight-Ridder Information, Inc. (KRII) and in
December the company announced its intent to sell Technimetrics, Inc. The
company's announcement to divest KRII and Technimetrics resulted in the
reclassification of its former Business Information Services (BIS) segment as
discontinued operations.
NEWSPAPERS
Knight Ridder has 31 daily newspapers and 18 nondaily newspapers.
Operating revenue is derived primarily from the sale of newspaper advertising.
Due to seasonal factors such as heavier retail selling during the winter and
spring holiday seasons, advertising income fluctuates significantly throughout
the year. Consecutive quarterly results are not uniform or comparable and are
not indicative of the results over an entire year.
Each of Knight Ridder's newspapers is operated on a substantially autonomous
basis by local management appointed by corporate headquarters in Miami. Each
newspaper is free to manage its own news coverage, set its own editorial
policies and establish most business practices. Basic business policies,
however, are set by the corporate staff in Miami. Editorial services and quality
control also are provided by the corporate staff.
Each newspaper is served by the company-owned news bureau in Washington, D.C. A
supplemental news service provided by KRT Information Services, a partnership
between Knight Ridder and Tribune Co., distributes editorial material produced
by all Knight Ridder newspapers and by 16 foreign correspondents. The service
also distributes editorial computer graphics and deadline photos via the Knight
Ridder-owned PressLink Online.
All of the company's newspapers compete for advertising and readers' time and
attention with broadcast, satellite and cable television, the Internet and other
computer services, radio, magazines, nondaily suburban newspapers, free
shoppers, billboards and direct mail. In some cases, the newspapers also compete
with other newspapers published in nearby cities and towns-- particularly in
Miami, St. Paul and Fort Worth. In Detroit and Fort Wayne, Knight Ridder has
joint operating agreements with a second newspaper. The rest of Knight Ridder's
newspapers are the only daily and Sunday papers of general circulation published
in their communities.
The newspapers rely on local sales operations for local retail and classified
advertising. The larger papers are assisted by Newspapers First and by the
Newspaper National Network, a sales force created by a group of some 50 major
newspapers, in obtaining national or general advertising.
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Source of Knight Ridder Operating Revenue
The table below presents the relative percentage contributions by individual
papers to the company's overall operating revenue in 1997, 1996 and 1995. The
percentage contributions of each paper to operating revenue are not necessarily
indicative of contributions to operating profit.
1997 1996 1995
---- ---- ----
The Philadelphia Inquirer and
Philadelphia Daily News ............. 19.0% 21.3% 21.7%
The Miami Herald ...................... 11.4 13.3 14.3
San Jose Mercury News ................. 10.4 12.0 11.9
The Kansas City Star(1) ............... 6.1
Fort Worth Star-Telegram(1) ........... 4.9
Detroit Free Press(2) ................. 7.0 7.7 8.5
The Charlotte Observer ................ 6.2 6.9 6.8
Saint Paul Pioneer Press .............. 4.1 4.7 4.8
Contra Costa Newspapers(3) ............ 3.9 4.4 1.0
Akron Beacon Journal .................. 3.6 4.0 4.0
All other ............................. 23.4 25.7 27.0
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
(1) The Kansas City Star and Fort Worth Star-Telegram were acquired on May 9,
1997. This table presents their partial year contribution percentage.
(2) Knight Ridder portion of Detroit Newspapers.
(3) Contra Costa Newspapers was acquired on Oct. 31, 1995.
Newsprint
Knight Ridder consumed 752,000 metric tons of newsprint in 1997. Approximately
16.8% of the company's total operating expenses during the year was for
newsprint. Purchases are made under long-term agreements with 18 newsprint
producers. Knight Ridder purchases approximately 70% of its annual consumption
from mills in the United States with the remainder purchased from mills in
Canada and one in Korea. In the opinion of management, sources are adequate to
meet current demands.
Approximately 83% of the newsprint consumed by the company contained some
recycled content; the average content of these rolls was 47% recycled fiber.
This translates into an overall recycled newsprint average of 39%.
Knight Ridder is a one-third partner with Cox Newspapers, Inc., and Media
General, Inc., in Southeast Paper Manufacturing Co., a newsprint mill in Dublin,
Ga. The mill produced 456,000 metric tons in 1997, using more than 600,000 tons
of recycled newsprint as the principal raw material and coal as the primary
energy source. Knight Ridder also owns a 13.5% equity share of Ponderay
Newsprint Company in Usk, Wash., which produced more than 232,000 metric tons in
1997. Knight Ridder's purchases from these two mills reached 22.6% of our annual
consumption for 1997, proving an important hedge against price volatility.
Technology
Efforts to improve the quality of products continued during 1997. The company
completed the installation of new publishing systems in Duluth, Contra Costa,
Columbia and Grand Forks (made necessary by the flood). Systems installations
are under way in Akron, Biloxi, Macon, Myrtle Beach, Philadelphia and San Jose,
and have been approved for Charlotte.
The Charlotte Observer completed a full conversion to Flexographic printing, and
a press replacement project was completed in Duluth.
Major press replacement projects are well under way at The Miami Herald and in
Akron. New presses were approved for Fort Worth. Significant renovations are
continuing at the business and editorial offices in Detroit and Philadelphia.
General Advertising Sales
Knight Ridder newspapers depend most heavily on three agents for the sale of
general advertising.
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Newspapers First, a national advertising sales cooperative, is the primary sales
representative for the larger Knight Ridder newspapers, Detroit Newspapers and
several leading independents. It allows customers to place ads in a combination
of newspapers.
Newspaper National Network (NNN), Knight Ridder's second general sales agent,
was established in 1994 to focus on national selling on behalf of the newspaper
industry. It represents all the Knight Ridder newspapers, plus more than 500
others. Like Newspapers First, it makes the purchase of newspaper advertising a
"one-stop shopping," "one-order, one-bill" prospect.
Sawyer, Ferguson and Walker, Inc., a private company, sells sales-
representative services for Knight Ridder's medium to small markets and helps
with regional retail advertising sales.
Knight Ridder/Tribune
Knight Ridder/Tribune Information Services (KRT) is a joint venture of Knight
Ridder and Tribune Co. that offers news stories, graphics, illustrations and
photos for print and online publishers and animations for TV broadcasters. This
year, KRT added three new products: graphic packages and news animations for Web
publishers and a regional news service for the Southeast.
The daily interactive packages and graphics help Web publishers offer unique
content, complete with sound and motion. KRT also provides newspaper clients
with complementary stories, photos and graphics that they can use to promote the
online content. This lets them use print circulation to build traffic on their
Web sites.
For print customers, KRT expanded coverage of news, features, business and
sports in the Southeastern United States, creating a premium service called KRT
South.
The Philadelphia Inquirer and Philadelphia Daily News
1997 Revenue was $546.5 million. Philadelphia Newspapers, Inc. (PNI), publisher
of The Philadelphia Inquirer and Philadelphia Daily News reached an all-time
record profit level in 1997. PNI also reported year-over-year circulation gains
for the Sunday and daily Inquirer and the Daily News for the six-month period
ended Sept. 30, 1997.
The year's achievements include the launch of a New Business Development
Department for entrepreneurial projects, which resulted in the start-up or
acquisition of new revenue-producing enterprises; implementing a strategic
planning process; winning a Pulitzer Prize, The Inquirer's 18th, and publishing
two record-breaking recruitment advertising sections, in terms of volume and
revenue dollars. Also in 1997, both newspapers moved into new, technologically
advanced newsrooms, part of the $30 million renovation of PNI's Center City
Philadelphia location.
Advertising revenue was up 11.1% in 1997, with particularly strong performances
in classified and general, up 16.8% and 22.3%, respectively. Retail strengthened
in the last months of the year, and is expected to continue to perform well.
Opportunities to grow advertising in PNI's products within the nine-county
Philadelphia Metropolitan market remain attractive as the market features a
diverse economy, including the state's largest manufacturing center, more than
80 higher education institutions and an extensive hospital and health care
industry.
In 1996, Philadelphia had income per capita 15.2% above the U.S. average; by
2015 it is projected to be 9.1% above.
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The Miami Herald
1997 Revenue was $324.4 million. The Miami Herald, Florida's largest newspaper,
is sold primarily in Miami-Dade, Broward and Monroe counties. Its International
Satellite Edition is distributed in 29 countries in Latin America and the
Caribbean.
El Nuevo Herald, an award-winning Spanish-language newspaper (102,744 daily and
127,028 Sunday), is available to Herald subscribers for a 7-cent daily delivery
charge or through single-copy sales.
Retail expansion in 1997 was fueled by a wave of new entertainment retailing
projects like BeachPlace in Broward; more are planned for both Miami-Dade and
Broward.
Several retailers are expanding: Bloomingdale's opened a new store; Dillard's
will occupy 10 former Mervyn's locations; Nordstrom and OfficeMax each plan to
open several stores.
Advertising revenue was up 3.1% in 1997. Retail was significantly better for the
first time since the aftermath of Hurricane Andrew. Classified was up only
slightly, reflecting Miami's relatively high unemployment rate.
In 1997, The Herald launched three new online products: HomeHunter, CarHunter
and an entertainment guide, JustGo. On its 10th anniversary, el Nuevo Herald
extended solo distribution to more than 1,000 single-copy racks. The Herald
retooled its Sunday magazine, Tropic. It expanded partnerships with NBC 6 and
Channel 23 and agreed to produce a pilot program with Silver King Broadcasting
featuring the Herald newsroom. Attendance was strong at the first Americas
Conference. A partnership with the Florida Marlins contributed to the largest
single-copy sales day in Herald history when the team won the World Series.
Installation of state-of-the-art offset presses is ongoing.
The Miami/Fort Lauderdale DMA population is expected to grow 26.7% between 1996
and 2015, compared with 18.0% for the U.S.
The Miami/Fort Lauderdale market in 1996 had income per capita 0.7% above the
U.S. average; by 2015 it is projected to be 6.8% above.
San Jose Mercury News
1997 Revenue was $299.3 million. In 1997, Time magazine named the San Jose
Mercury News the "most tech-savvy" newspaper in America. The Mercury News serves
Silicon Valley, which encompasses San Jose, California's third-largest city, and
surrounding communities. The region became the national leader in exports and is
the world leader in high technology. Business Week reported: "In 1996, on
average, one Valley company went public every five days...More than 50,000 new
jobs were created, while wages grew five times the national average."
Sharing in Silicon Valley's economic boom, the Mercury News has introduced or
developed products in the past year to compensate for a retail market that
didn't grow as quickly as other segments.
Advertising revenue was up 5.0% in 1997. Classified was up just slightly after
the major gains of 1996 and 1995, and retail rebounded strongly after
year-earlier consolidations in the market. General, up 25%, has been the high
point, driven by high-tech products and services, telecommunications and
exports.
Mercury Center reflects the newspaper's innovative initiatives. The online
edition added Just Go/Bay Area, an online entertainment guide; HomeHunter, a
real estate site; and Bay Area Yellow Pages, an online directory. Existing
products expanded: the Talent Scout recruitment site, for example, introduced a
branded job fair.
Founded in 1993, Mercury Center (www.mercurycenter.com) averaged more than 1.2
million users per month in 1997. The site's stature as a news source was
demonstrated during October's market tremors, registering over 2 million hits in
a single day.
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Nuevo Mundo, serving the nation's fourth-largest Hispanic market, celebrated its
first anniversary. The Spanish-language free weekly ended the year with average
circulation of 56,900 copies.
The population of the San Jose Metropolitan Statistical Area (MSA), which
includes only Santa Clara County, is expected to grow 21.0% between 1996 and
2015; the U.S. average is 18.0%.
In 1996, San Jose had income per capita 33.7% above the U.S. average; by 2015 it
is projected to be 32.6% above.
The Kansas City Star
1997 Revenue was $265.4 million. The Kansas City Star serves the Kansas City
metro and outlying areas on both sides of the Kansas and Missouri state lines.
The Star's primary market area consists of 11 counties in the two states.
After a relatively slow period of economic growth, Kansas City became a boomtown
in 1996. Higher personal incomes, stronger economic output and increased
employment in retail and service industries have led to a tight job market.
Recruitment for the more than 19,000 new jobs created in 1997 brought an upsurge
in help-wanted advertising, with a nearly 20% increase in revenue.
Kansas City's retail landscape has also been changing with the addition of
several major retailers. Kohl's, Jacobson's, Target and Home Depot entered the
market in late 1996 and early 1997, with Nordstrom set to debut in early 1998.
Coupled with the addition of a major mall, retail advertising increased 9.5% in
1997.
Advertising revenue was up 10.1% in 1997 and is expected to increase about 7% in
1998. The profit margin was in the low 30s and is expected to remain steady.
The Star's online community site, kansascity.com, and online product,
kcstar.com, continue to grow and improve. The kansascity.com site won the 1997
Newspaper Association of America Digital Edge award for best use of classified
online. The site saw a 461% year-over-year increase in traffic for November.
StarDirect, a subsidiary offering turnkey database marketing solutions, saw a
108% increase in revenue. Additionally, revenue increased 44% for Grand
Communications, the event marketing subsidiary.
Kansas City in 1996 had income per capita 3.4% above the U.S. average; by 2015
it is projected to be 2.5% above.
Fort Worth Star-Telegram
1997 Revenue was $212.6 million. The Star-Telegram is located in the western
portion of the Dallas/Fort Worth market. The four-county Fort Worth/Arlington
PMSA metropolitan area ranks as the 32nd most populous in the U.S. and third
largest in Texas in 1997.
The number of jobs hit a historic high in 1997, with 2% growth projected for
1998. Unemployment is just over 3%. In far North Fort Worth, the Texas Motor
Speedway and a FedEx national distribution hub opened. Intel Corp. plans to open
a $1.3 billion manufacturing facility by the year 2000, and Nokia and Motorola
Fort Worth are expanding, making the area a new national technology center. The
area is home to such Fortune 500 companies as American Airlines, Tandy
Corporation and Burlington Northern Santa Fe Railroad.
The 1.8 million-square-foot Grapevine Mills opened and a major expansion of
North East Mall is under way, including new Nordstrom and JCPenney stores. The
Bass Performing Arts Hall will open in 1998. Renovation of historic buildings
and construction of new housing are driving development of Sundance Square and
downtown Fort Worth.
Ad revenue was up 6.5% in 1997, and we project about a 6% gain in 1998. Profit
margin was in the mid-20s.
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The Star-Telegram continues its intensely zoned approach to local news,
advertising and customer service. The Arlington Star-Telegram set new
circulation and advertising records in the face of aggressive competition in
1997. In 1998, Northeast Tarrant County will be served by four distinct editions
of the successful weekly Hometown Star. Star-Telegram Online Services, under the
banner Star-Telegram.com, is undergoing a major strategic repositioning and
expansion of advertising opportunities. La Estrella, with its two distinct
bilingual and Spanish-predominant weekly editions, continues to develop.
Fort Worth/Arlington's population has grown 57% since 1980, and is expected to
grow 39.9% between 1996 and 2015, compared with 18.0% for the U.S.
Detroit Free Press
1997 Revenue (Knight Ridder's share) was $201.7 million. The Detroit Free Press
is the largest newspaper in Michigan. The combined Sunday edition, The Detroit
News and Free Press, ranks sixth in circulation in the nation.
The two newspapers are published by Detroit Newspapers (DN), an agency combining
the business operations of the two newspapers. This joint operating agency (JOA)
was formed in 1989. The profits (or losses) are split equally between the two
partners, Knight Ridder and Gannett Co. The Free Press is an a.m. paper and The
News is a p.m. paper. On weekends, they publish combined editions.
On July 13, 1995, six of DN's 11 unions struck over proposed changes in work
rules. In February 1997, the unions made an unconditional offer to return to
work.
In normal times, Detroit will generate approximately $450 million in revenue
from its two newspapers. Total advertising at the end of 1997 was at about 90%
of prestrike levels.
Retail advertising was at nearly 80%; general was about the same, and classified
was slightly improved from prestrike levels.
Circulation continued to improve; as of the ABC Publisher's Statement for the
six months ended Sept. 30, 1997, it was at approximately 71.6% of its prestrike
level for the daily Free Press and 74.4% for the combined Sunday paper. DN
continues to rebound in both advertising and circulation. The company returned
to profitability in the fourth quarter of 1996.
Detroit in 1996 had income per capita 15.3% above the U.S. average; in 2015 it
is projected to be 9.1% above.
The Charlotte Observer
1997 Revenue was $171.9 million. The Charlotte Observer, the largest-circulation
daily in North and South Carolina, is sold primarily in a 15-county region
across the two states. The Observer enjoyed strong advertising growth in 1997,
with retail revenue up 8.7%, general up 2.2% and classified up 13.3% over last
year. Continued growth is expected in 1998.
Population in the Charlotte Metropolitan Statistical Area (MSA) is expected to
grow 26.9% between 1996 and 2015, compared with the U.S. average of 18.0%.
Item 2. PROPERTIES
The company has daily newspaper facilities in 28 markets located in 18 states.
These facilities vary in size from 7,300 square feet at the Florida Keys
Keynoter operation in Marathon, Fla., to 2.8 million square feet in
Philadelphia. In total, they occupy about 10.5 million square feet.
Approximately 2.1 million of the total square footage is leased from others.
Virtually all the owned property is owned in fee. The company owns substantially
all of its production equipment, although certain office equipment is leased.
The company also owns land for future expansion in Columbus and Macon, Ga.,
Detroit and San Jose.
Knight Ridder properties are maintained in excellent operating condition and are
suitable for present and foreseeable operations. During the three years ended
Dec. 28, 1997, the company spent approximately $311.6 million for capital
additions and improvements to its properties, excluding discontinued BIS
operations.
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Item 3. LEGAL PROCEEDINGS
On July 13, 1995, six unions struck the Detroit Free Press, The Detroit News and
the Detroit Newspaper Agency, which operates both newspapers. Subsequently, the
unions filed numerous unfair labor practice charges against the newspapers and
the Agency. In June 1997, after a lengthy trial, a National Labor Relations
Board (NLRB) administrative law judge ruled that the strike was caused by the
unfair labor practices of the Agency and The Detroit News and recommended that
the Agency and the newspapers reinstate all strikers, displacing permanent
replacements if necessary. The Agency and the newspapers have appealed the
decision, which is pending before the NLRB.
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 all legal proceedings, including
Detroit, will not be material to its financial position or results of
operations.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the vote of security holders of Knight-Ridder,
Inc., during the quarter ended December 28, 1997.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
KRI Stock
Knight Ridder common stock is listed on the New York Stock Exchange and the
Frankfurt Stock Exchange under the symbol KRI.
The stock is also traded in exchanges in Philadelphia, Chicago, Boston, San
Francisco, Los Angeles and Cincinnati, and through the Intermarket Trading
System. Options are traded on the Philadelphia Exchange.
Knight Ridder stock split two-for-one in 1996. The company's 81.6 million shares
outstanding at December 28, 1997, were held in all 50 states by 11,723
shareholders of record.
Market Price of Common Stock
The last closing price of the company's common stock prior to the preparation of
this report was $55.06 on Jan. 30, 1998.
The average stock trading volume per day for the years 1997, 1996, and 1995 was
271,016, 181,805, and 132,300, respectively. The following table presents the
company's common stock market data:
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1997 1996 1995
------------------- ---------------- --------------------
Quarter High Low High Low High Low
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1st ........... 42 3/8 37 3/8 36 1/16 29 7/8 28 1/16 25 1/8
2nd ........... 49 35 3/4 38 7/16 32 11/16 28 7/8 26 3/16
3rd ........... 55 13/16 48 3/4 38 32 7/16 29 3/16 27 5/8
4th ........... 57 1/8 49 1/8 42 35 3/8 33 5/16 28 1/8
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Treasury Stock Purchases
The table below is a summary of treasury stock purchases since 1987:
Shares Cost
Purchased (000s)
---------- ----------
1997 ...................... 13,824,300 $ 643,375
1996 ...................... 6,219,100 221,768
1995 ...................... 11,508,600 319,363
1994 ...................... 5,044,600 136,977
1993 ...................... 1,500,000 40,693
1992
1991
1990 ...................... 5,325,400 129,909
1989 ...................... 5,522,200 131,885
1988 ...................... 9,099,200 198,279
1987 ...................... 2,000,000 38,728
Dividends
Common stock dividend history and policy appears in Item 6. "11 Year Financial
Highlights", Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations", Quarterly Operations, and Item 8.
"Financial Statements and Supplementary Data", Note E, incorporated herein by
reference.
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Item 6. SELECTED FINANCIAL DATA
11-YEAR FINANCIAL HIGHLIGHTS
The following data was compiled from the consolidated financial statements of Knight Ridder and subsidiaries. The consolidated
financial statements and related notes and discussions for the year ended Dec. 28, 1997 (Items 7 and 8) should be read in order to
obtain a better understanding of this data.
- ------------------------------------------------------------------------------------------------------------------------------------
Compound
Growth Rate
(In thousands, except per share ---------------- Dec. 28 Dec. 29 Dec. 31
data and ratios) 5-Year 10-Year 1997 1996 1995
------ ------- ----------- ----------- -----------
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SUMMARY OF OPERATIONS
Operating Revenue
Advertising ........................ 8.8% 4.2% $ 2,202,251 $ 1,793,424 $ 1,672,970
Circulation ........................ 4.3 4.7 567,757 501,826 495,315
Other .............................. 21.7 8.6 106,777 78,974 81,897
----------- ----------- -----------
Total Operating Revenue .......... 8.2 4.4 2,876,785 2,374,224 2,250,182
----------- ----------- -----------
Operating Costs
Labor, newsprint and other
operating costs .................. 6.7 4.0 2,214,026 1,920,444 1,923,179
Depreciation and amortization ...... 11.8 7.1 156,731 120,647 98,741
----------- ----------- -----------
Total Operating Costs ............ 7.0 4.2 2,370,757 2,041,091 2,021,920
----------- ----------- -----------
Operating Income ..................... 14.6 5.5 506,028 333,133 228,262
Interest expense ................... 12.4 6.6 (102,662) (73,137) (59,512)
Other, net(1) ...................... 82.6 30.2 290,486 50,213 14,067
Income taxes, net .................. 29.2 9.7 (297,348) (124,829) (72,861)
----------- ----------- -----------
Income from continuing operations(1).. 24.0 10.3 396,504 185,380 109,956
Discontinued BIS operations(2) ....... 16,511 82,493 57,426
Discontinued broadcast operations(2)
Cumulative effect of changes in
accounting principles(3) ........... (7,320)
----------- ----------- -----------
Net Income(1) ........................ 58.8 10.3 $ 413,015 $ 267,873 $ 160,062
=========== =========== ===========
Operating income percentage (profit
margin) ............................ 17.6% 14.0% 10.1%
- -----------------------------------------------------------------------------------------------------------------------
SHARE DATA(4)
Basic weighted-average number of
shares ............................. 88,475 96,021 99,451
Diluted weighted-average number of
shares ............................. 101,314 97,420 100,196
Earnings per share
Basic:
Continuing operations(1).............. 29.3 13.2 $ 4.48 $ 1.93 $ 1.11
Discontinued BIS operations(2) ....... 0.19 0.86 0.57
Discontinued broadcast operations(2)
Cumulative effect of changes in
accounting principles(3) ........... (0.07)
Net income(1) ........................ 65.2 13.2 4.67 2.79 1.61
Diluted:
Continuing operations(1).............. 26.3 11.9 $ 3.91 $ 1.90 $1.10
Discontinued BIS operations(2) ....... 0.17 0.85 0.57
Discontinued broadcast operations(2)
Cumulative effect of changes in
accounting principles(3) ........... (0.07)
Net income(1) ........................ 61.6 11.9 4.08 2.75 1.60
Dividends declared per common
share(5) ........................... 2.7 4.5 0.80 0.58-1/2 0.74
Common stock price
High ............................... 57-1/8 42 33-5/16
Low ................................ 35-3/4 29-7/8 25-1/8
Close .............................. 50-3/16 39-1/4 31-1/4
Shareholders' equity per common
share .............................. 7.8 7.0 $ 15.65 $ 12.12 $ 11.43
Price/earnings ratio(6) .............. 21.8:1 21.6:1 28.4:1
- -----------------------------------------------------------------------------------------------------------------------
OTHER FINANCIAL DATA
Common stock acquired ................ $ 643,375 $ 221,768 $ 319,363
Payment of cash dividends ............ 78,335 74,262 74,377
Ratio of earnings to fixed
charges (7) ........................ 7.1:1 4.0:1 3.2:1
At Year End
Total assets ....................... $ 4,355,142 $ 2,860,907 $ 2,966,321
Long-term debt (excluding current
maturities) ...................... 1,599,133 771,335 1,000,721
Total debt ......................... 1,668,830 821,335 1,013,850
Shareholders' equity ............... 1,551,673 1,131,508 1,110,970
Return on average shareholders'
equity(8) ........................ 30.8% 23.9% 14.3%
Current ratio ...................... 1.2:1 1.0:1 1.1:1
Total debt/total capital ratio ..... 51.8% 42.1% 47.7%
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
(In thousands, except per share Dec. 25 Dec. 26 Dec. 27 Dec. 29
data and ratios) 1994 1993 1992 1991
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Operating Revenue
Advertising ..................... $ 1,583,373 $ 1,481,631 $ 1,444,144 $ 1,429,661
Circulation ..................... 484,581 474,420 460,014 439,029
Other ........................... 66,968 56,772 39,932 35,127
----------- ----------- ----------- -----------
Total Operating Revenue ....... 2,134,922 2,012,823 1,944,090 1,903,817
----------- ----------- ----------- -----------
Operating Costs
Labor, newsprint and other
operating costs ............... 1,730,158 1,655,138 1,597,983 1,593,847
Depreciation and amortization ... 96,613 96,233 89,665 86,896
----------- ----------- ----------- -----------
Total Operating Costs ......... 1,826,771 1,751,371 1,687,648 1,680,743
----------- ----------- ----------- -----------
Operating Income .................. 308,151 261,452 256,442 223,074
Interest expense ................ (44,216) (44,403) (52,358) (68,806)
Other, net(1) ................... 1,802 2,987 13,868 35,832
Income taxes, net ............... (106,493) (83,281) (82,496) (67,965)
----------- ----------- ----------- -----------
Income from continuing operations(1) 159,244 136,755 135,456 122,135
Discontinued BIS operations (2) ... 11,656 11,334 10,630 9,933
Discontinued broadcast operations (2)
Cumulative effect of changes in
accounting principles(3) ........ (105,200)
----------- ----------- ----------- -----------
Net Income(1) ..................... $ 170,900 $ 148,089 $ 40,886 $ 132,068
=========== =========== =========== ===========
Operating income percentage (profit
margin) ......................... 14.4% 13.0% 13.2% 11.7%
- -----------------------------------------------------------------------------------------------------------
SHARE DATA(4)
Basic weighted-average number
of shares ....................... 107,888 109,702 108,948 102,586
Diluted weighted-average number of
shares .......................... 108,551 110,663 110,356 103,594
Earnings per share
Basic:
Continuing operations(1)........... $ 1.48 $ 1.25 $ 1.24 $ 1.19
Discontinued BIS operations(2) .... 0.10 0.10 0.11 0.10
Discontinued broadcast operations(2)
Cumulative effect of changes in
accounting principles(3) ........ (0.97)
Net income(1) ..................... 1.58 1.35 0.38 1.29
Diluted:
Continuing operations(1)........... $ 1.47 $ 1.24 $ 1.22 $ 1.18
Discontinued BIS operations(2) 0.10 0.10 0.10 0.09
Discontinued broadcast operations(2)
Cumulative effect of changes in
accounting principles(3) ........ (0.95)
Net income(1) ..................... 1.57 1.34 0.37 1.27
Dividends declared per common
share(5) ........................ 0.73 0.70 0.70 0.70
Common stock price
High ............................ 30-1/2 32-1/2 32-1/16 28-3/4
Low ............................. 23-1/4 25-5/16 25-3/8 21-7/8
Close ........................... 25-7/16 29-11/16 29-1/16 25-3/8
Shareholders' equity per common
share ........................... $ 11.58 $ 11.33 $ 10.75 $ 10.72
Price/earnings ratio(6) ........... 17.3:1 23.9:1 23.8:1 21.5:1
- -----------------------------------------------------------------------------------------------------------
OTHER FINANCIAL DATA
Common stock acquired ............. $ 136,977 $ 40,693 $ -- $ --
Payment of cash dividends ......... 77,942 76,787 75,992 71,087
Ratio of earnings to fixed
charges(7) ...................... 5.2:1 4.4:1 3.8:1 2.8:1
At Year End
Total assets .................... $ 2,409,239 $ 2,399,067 $ 2,431,307 $ 2,305,731
Long-term debt (excluding current
maturities) ................... 411,504 410,388 495,941 556,797
Total debt ...................... 411,504 451,075 560,245 606,840
Shareholders' equity ............ 1,224,654 1,243,169 1,181,812 1,148,620
Return on average shareholders'
equity(8) ..................... 13.9% 12.2% 12.5% 12.9%
Current ratio ................... 1.0:1 1.0:1 1.1:1 1.1:1
Total debt/total capital ratio .. 25.2% 26.6% 32.2% 34.6%
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
(In thousands, except per share Dec. 30 Dec. 31 Dec. 31 Dec. 31
data and ratios) 1990 1989 1988 1987
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Operating Revenue
Advertising ..................... $ 1,556,932 $ 1,577,449 $1,523,030 $ 1,464,447
Circulation ..................... 403,188 385,214 370,898 357,553
Other ........................... 31,981 32,212 29,743 46,922
----------- ----------- ---------- -----------
Total Operating Revenue ....... 1,992,101 1,994,875 1,923,671 1,868,922
----------- ----------- ---------- -----------
Operating Costs
Labor, newsprint and other
operating costs ............... 1,617,138 1,593,186 1,571,525 1,494,003
Depreciation and amortization ... 91,553 91,780 84,657 78,807
----------- ----------- ---------- -----------
Total Operating Costs ......... 1,708,691 1,684,966 1,656,182 1,572,810
----------- ----------- ---------- -----------
Operating Income .................. 283,410 309,909 267,489 296,112
Interest expense ................ (71,784) (84,492) (62,456) (49,550)
Other, net(1) ................... 17,019 57,505 26,732 20,053
Income taxes, net ............... (88,076) (108,883) (86,484) (117,369)
----------- ----------- ---------- -----------
Income from continuing operations(1) 140,569 174,039 145,281 149,246
Discontinued BIS operations (2) ... 8,476 5,797 1,494 (512)
Discontinued broadcast operations (2) 67,366 9,608 6,429
Cumulative effect of changes in
accounting principles(3) ........
----------- ----------- ---------- -----------
Net Income(1) ..................... $ 149,045 $ 247,202 $ 156,383 $ 155,163
=========== =========== ========== ===========
Operating income percentage (profit
margin) ......................... 14.2% 15.5% 13.9% 15.8%
- -------------------------------------------------------------------------------------------------------
SHARE DATA(4)
Basic weighted-average number
of shares ....................... 100,098 103,110 111,842 114,794
Diluted weighted-average number of
shares .......................... 101,366 104,878 113,406 117,292
Earnings per share
Basic:
Continuing operations(1)........... $ 1.40 $ 1.69 $ 1.30 $ 1.30
Discontinued BIS operations(2) .... 0.09 0.06 0.01 (0.01)
Discontinued broadcast operations(2) 0.65 0.09 0.06
Cumulative effect of changes in
accounting principles(3) ........
Net income(1)...................... 1.49 2.40 1.40 1.35
Diluted:
Continuing operations(1)........... $ 1.39 $ 1.66 $ 1.28 $ 1.27
Discontinued BIS operations(2)..... 0.08 0.06 0.01
Discontinued broadcast operations(2) 0.64 0.09 0.05
Cumulative effect of changes in
accounting principles(3) ........
Net income(1) ..................... 1.47 2.36 1.38 1.32
Dividends declared per common
share(5) ........................ 0.67 0.62-1/4 0.57-1/4 0.51-1/2
Common stock price
High ............................ 29 29-3/16 23-7/8 30-5/8
Low ............................. 18-1/2 21-7/16 17-7/8 16-5/8
Close ........................... 22-15/16 29-3/16 22-11/16 20-1/16
Shareholders' equity per common
share ........................... $ 9.05 $ 8.92 $ 7.74 $ 7.93
Price/earnings ratio(6) ........... 16.5:1 21.2:1 17.7:1 15.8:1
- -------------------------------------------------------------------------------------------------------
OTHER FINANCIAL DATA
Common stock acquired ............. $ 129,909 $ 131,885 $ 198,279 $ 38,728
Payment of cash dividends ......... 66,422 63,260 62,990 57,426
Ratio of earnings to fixed
charges(7) ...................... 3.3:1 3.6:1 3.8:1 5.3:1
At Year End
Total assets .................... $ 2,244,919 $ 2,112,184 $2,340,576 $ 1,904,117
Long-term debt (excluding current
maturities) ................... 803,914 660,900 727,043 508,203
Total debt ...................... 823,958 712,940 1,037,075 553,235
Shareholders' equity ............ 894,913 917,145 821,625 901,498
Return on average shareholders'
equity(8) ..................... 16.5% 28.4% 18.2% 18.1%
Current ratio ................... 1.2:1 1.2:1 1.1:1 1.2:1
Total debt/total capital ratio .. 47.9% 43.7% 55.8% 38.0%
</TABLE>
13
<PAGE>
(1) Other, net, Income from Continuing Operations and Net Income include: the
gains from the sales of TKR Cable and our newspapers in Long Beach, Calif.,
Boca Raton, Fla., Milledgeville, Ga., and Newberry, S.C., as well as the
gain on the Boulder, Colo., exchange in 1997; the gain on Netscape in 1996;
and the gain from the sale of Pasadena Star-News in 1989. Net income also
includes the gains on the sales of KRII in 1997, KRF in 1996, and the JoC in
1995.
(2) All years have been restated to present the Business Information Services
Division (BIS) as discontinued operations. Results of operations of the
company's BIS Division (discontinued in 1997), and Broadcast Division
(discontinued in 1989) and the gains on the sales of BIS and broadcast
assets are presented as "discontinued BIS operations" and "discontinued
broadcast operations," respectively.
(3) For 1995, the cumulative effect of change in accounting principle represents
an adjustment from the implementation of FAS 116--Accounting for
Contributions Received and Contributions Made. For 1992, the cumulative
effect of change in accounting principle represents adjustments from the
implementation of FAS 109--Accounting for Income Taxes and FAS
106--Accounting for Postretirement Benefits Other than Pensions.
(4) All share data is restated for a stock split in 1996.
(5) The Board of Directors declared a $0.20 per share dividend on Jan. 28, 1997.
The quarterly dividend previously paid in January was paid in February.
(6) Price/earnings ratio is computed by dividing closing market price by diluted
earnings per share from continuing operations. 1995 and 1992 earnings
exclude the effects of changes in accounting principles. Earnings also
exclude the gains from the sales of TKR Cable, our four newspapers in Long
Beach, Calif., Boca Raton, Fla., Milledgeville, Ga., and Newberry, S.C., as
well as the gain on the Boulder exchange in 1997; the gain on Netscape in
1996; and the gain from the sale of the Pasadena Star-News in 1989.
(7) The ratio of earnings to fixed charges is computed by dividing earnings (as
adjusted for fixed charges and undistributed equity income from
unconsolidated subsidiaries) by fixed charges for the period. Fixed charges
include the interest on debt (before capitalized interest), the interest
component of rental expense, and the proportionate share of interest expense
on guaranteed debt of certain equity-method investees and on debt of
50%-owned companies.
(8) Return on average shareholders' equity is computed by dividing net income
before the cumulative effect of changes in accounting principles in 1995 and
1992, including the results of discontinued operations in 1987 through 1997,
by average shareholders' equity. Average shareholders' equity is the average
of shareholders' equity on the first day and the last day of the fiscal
year.
14
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Glossary of Newspaper Advertising Terms
The following definitions may be helpful when reading Management's Discussion
and Analysis of Operations.
RETAIL. Display advertising from local merchants, such as department and grocery
stores, selling goods and services to the public.
GENERAL. Display advertising by national advertisers that promotes products or
brand names on a nationwide basis.
CLASSIFIED. Small, locally placed ads listed together and organized by category,
such as real estate sales, employment opportunities or automobile sales, and
display-type advertisements in these categories.
FULL-RUN. Advertising appearing in all editions of a newspaper.
PART-RUN. Advertising appearing in select editions or zones of a newspaper's
market. Part-run advertising is translated into full-run equivalent linage
(referred to as factored) based on the ratio of the circulation in a particular
zone to the total circulation of a newspaper.
RUN-OF-PRESS (ROP). All advertising printed on Knight Ridder presses and
appearing within a newspaper.
PREPRINT. Advertising supplements prepared by advertisers and inserted into a
newspaper.
Knight Ridder is the nation's second-largest newspaper publisher in terms of
revenue and circulation, with products in print and online. The company
publishes 31 daily newspapers in 28 U.S. markets, reaching 9.0 million readers
daily and 12.6 million on Sunday. It maintains 34 associated Web sites.
In 1997, the gross revenue from these businesses was about $2.9 billion. The
company is also involved in other newspaper businesses and newsprint
manufacturing through business arrangements, including joint ventures and
partnerships.
Newspaper revenue is derived principally from advertising and newspaper copy
sales. Newspaper advertising currently accounts for about 77% of consolidated
revenue. This revenue comes from the three basic categories of advertising --
retail, general and classified discussed herein.
Newspaper advertising volume is categorized as either run-of-press (ROP) or
preprint. Volume for ROP advertising is measured in terms of either full-run or
part-run advertising linage and reported in six-column inches. A six-column inch
consists of one inch of advertising in one column of a newspaper page when that
page is divided into six columns of equal size. By using part-run advertising,
advertisers can direct their messages to selected market segments.
Circulation revenue results from the sale of newspapers. Circulation of daily
and Sunday newspapers currently accounts for about 20% of consolidated revenue.
It is reported at the net wholesale price for newspapers delivered or sold by
independent contractors and at the retail price for newspapers delivered or sold
by employees.
Other newspaper revenue comes from commercial job printing, alternate delivery
services, niche publications, online services, newsprint waste sales, book
publishing, newspaper trucking services, audiotext and other miscellaneous
sources.
15
<PAGE>
On April 4, 1997, the company announced that it would divest Knight-Ridder
Information, Inc. (KRII). On Dec. 11, 1997, the company announced that it would
sell Technimetrics, Inc., its global diversified information subsidiary. These
announcements resulted in the reclassification of the former Business
Information Services (BIS) segment as discontinued operations. KRII was sold to
M.A.I.D plc on Nov. 14, 1997, for $420 million plus a working capital purchase
price adjustment of approximately $15 million. Prior to July 1996, the BIS
segment included Knight-Ridder Financial (KRF). KRF was sold on July 26, 1996,
to Global Financial Information Corporation for $275 million. Prior to April
1995, the BIS segment included the Journal of Commerce (JoC). The JoC was sold
on April 3, 1995, to the Economist Group of London for $115 million.
Results of Operations
SUMMARY OF OPERATIONS. A summary of the company's operations, certain share data
and other financial data for the past 11 years is provided in Item 6. Compound
growth rates for the past five- and 10-year periods are also included, if
applicable. A review of this summary and of the supplemental information in Item
6 will provide a better understanding of the following discussion and analysis
of operating results and of the financial statements as a whole. The
supplemental information contains financial data for the company's largest
newspapers and information regarding the company's properties, technology and
the raw materials used in operations.
RESULTS OF OPERATIONS: 1997 VS. 1996
Diluted earnings per share from continuing operations was $3.91, up $2.01 from
the $1.90 reported in 1996. The $3.91 includes three one-time gains on sales: a
$1.27 gain on the sale of TKR Cable, a $.24 gain on the exchange of the Daily
Camera in Boulder, Colo., and a $.10 gain on the sale of four newspapers. The
$1.90 includes an $.08 gain on the sale of our Netscape Communications
Corporation (Netscape), investment, net of adjustments in the carrying value of
certain investments. Excluding the one-time gains from 1997 and 1996, diluted
EPS for 1997 was $2.30, which was up $.48, or 26.4%, from the $1.82 earned in
1996.
Operating income in 1997 was $506.0 million, up $172.9 million, or 51.9%, from
1996. The results include operations from four newspapers acquired from The Walt
Disney Company in May and from two newspapers received in exchange from E.W.
Scripps Co. for the Boulder, Colo. newspaper in August. They exclude results
from the Boulder Daily Camera after August and for the Long Beach (Calif.)
Press-Telegram, the Boca Raton (Fla.) News, The (Milledgeville, Ga.)
Union-Recorder and the Suburban Newberry (S.C.) Observer after their date of
sale in December 1997. On a pro forma basis for the former Disney and Scripps
newspapers (that is, including full-year results in 1997 and 1996) and excluding
the sold newspapers from both 1997 and 1996 (comparable basis), operating income
was up $122.9 million, or 30.2%, from 1996. The increase was due to an 8.0%
increase in total advertising revenue offset in part by a 2.7% increase in
operating costs.
OPERATING REVENUE. Total company revenue of $2.9 billion was up 21.2% from 1996.
On a comparable basis, total operating revenue was up 6.7%.
Newspaper advertising revenue increased by $408.8 million, or 22.8%, in 1997 on
a full-run ROP linage increase of 18.0%. On a comparable basis, total
advertising revenue improved by 8.0% from 1996 on a full-run ROP linage increase
of 6.7%. The following table summarizes the percentage change in revenue and
full-run ROP linage from 1996 as reported in our financial statements, as well
as results on a comparable basis.
Pro Forma But Excluding
Divested Newspapers*
-------------------------
% Change % Change
% Change in Full-Run % Change in Full-Run
Advertising Category in Revenue ROP Linage in Revenue ROP Linage
---------- ----------- ---------- -----------
Retail ................. 22.8 19.0 5.7 5.6
General ................ 23.8 16.7 11.8 8.4
Classified ............. 22.6 17.3 9.6 7.6
Total ................ 22.8 18.0 8.0 6.7
* Including full-year results in 1997 and 1996 for the former Disney and Scripps
newspapers and excluding the sold newspapers from both 1997 and 1996.
16
<PAGE>
Retail advertising revenue improved by $187.0 million, or 22.8%, from 1996 on a
19.0% increase in full-run ROP linage. On a comparable basis, retail advertising
revenue increased 5.7% from 1996, with increases seen at almost all of our
newspapers.
General advertising revenue was up $47.3 million, or 23.8%, from 1996 on a 16.7%
increase in full-run ROP linage. On a comparable basis, general advertising
revenue was up 11.8%.
Classified advertising revenue was up $174.6 million, or 22.6%, from 1996 on a
17.3% increase in full-run ROP linage. On a comparable basis, classified
advertising revenue was up 9.6%. The increase was due primarily to help wanted.
Circulation revenue improved by $65.9 million, or 13.1%. On a comparable basis,
circulation revenue increased 0.5% on an average daily circulation increase of
16,912 copies, or 0.4%, and an average Sunday circulation decrease of 27,719
copies, or 0.5%.
Other revenue increased $27.8 million, or 35.2%, during 1997 due to increases in
commercial print and augmentation revenue.
OPERATING EXPENSES. Labor and employee benefits costs were up $165.2 million, or
17.1%. On a comparable basis, labor and employee benefits costs were up $67.7
million, or 6.2%, on a 2.9% increase in the work force and an average wage rate
increase of 4.2%.
Newsprint, ink and supplements costs decreased by $5.9 million, or 1.2%, due to
a 20.7% decrease in the average cost per ton of newsprint, offset in part by
increased newsprint consumption of 129,000 tons for the year, due to
acquisitions, greater ad volume and some increased newshole.
Depreciation and amortization increased $36.1 million, or 29.9%, due to
amortization expense associated with the acquisition of the former Disney
newspapers.
Other operating expenses increased by $134.3 million, or 27.9%. On a comparable
basis, other operating expenses were up $71.6 million, or 12.6%. Expenditures
for circulation promotion accounted for a large part of the increase.
NON-OPERATING ITEMS. Net interest expense increased $33.6 million, or 55.8%,
from 1996, due to higher debt levels associated with the Disney acquisition. The
average debt balance for the year increased $150.8 million from 1996, due to the
debt assumed with the former Disney newspaper acquisition.
Equity in earnings of unconsolidated companies and joint ventures decreased by
$19.1 million, or 63.8%, due to the absence of earnings from the cable
investment (sold in January 1997) and lower income from our newsprint mill
investments.
The "Other, net" line of the non-operating section increased $265.7 million over
1996, due to the gain on TKR Cable, the Boulder exchange and the four newspapers
sold in December. The 1996 results included the gain on the sale of our
investment in Netscape, net of the reduction in the carrying value of certain
other investments.
INCOME TAXES. The effective income tax rate on a continuing operations basis for
1997 was 42.9%, up from 40.2% in 1996. The rate increase was due to additional
nondeductible goodwill amortization from the Disney acquisition.
OTHER. Net income in 1997 includes an after-tax gain on the sale of Knight-
Ridder Information, Inc., of $15.3 million, or $.15 per share (diluted), and
income from discontinued BIS operations, net of applicable taxes, of $1.3
million, or $.02 per share (diluted).
RESULTS OF OPERATIONS: 1996 VS. 1995
Diluted earnings per share from continuing operations were $1.90, up $.80 from
the $1.10 reported in 1995. The $1.90 includes an $.08 gain on the sale of our
Netscape investment, net of adjustments in the carrying value of certain
investments. Excluding this gain, diluted EPS for 1996 was $1.82, which was up
$.72 from $1.10 earned in 1995.
17
<PAGE>
Operating income in 1996 was $333.1 million, up $104.9 million, or 45.9%, from
1995. The results include Detroit, which was rebuilding throughout the year from
a strike that began on July 13, 1995. They also include a full year of
operations for Contra Costa Newspapers (CCN), which was purchased on Oct. 31,
1995. And, finally, they reflect a 52-week year for 1996 as opposed to a 53-week
year for 1995, an anomaly of our fiscal-year reporting convention. On a pro
forma basis for CCN (that is, full-year results for 1995, including the period
in which the company did not own CCN), but excluding Detroit from both years and
the 53rd week from 1995 (comparable basis), operating income was up $72.8
million, or 27.0%, from 1995. The increase was due to a 5.2% increase in total
advertising revenue and improvement in operating profit in Philadelphia and
other large markets.
OPERATING REVENUE. Total company revenue of $2.4 billion was up 5.5% from 1995.
On a comparable basis, total operating revenue was up 4.0%.
Advertising revenue increased by $120.5 million, or 7.2%, in 1996 on a full- run
ROP linage increase of 10.0%. On a comparable basis, total advertising revenue
improved by 5.2% from 1995. The following table summarizes the percentage change
in revenue and full-run ROP linage from 1995 as reported in our financial
statements, as well as results on a pro forma basis for CCN, but excluding
Detroit:
Pro Forma
Contra Costa Newspapers
But Excluding Detroit
-------------------------
% Change % Change
% Change in Full-Run % Change in Full-Run
Advertising Category in Revenue ROP Linage in Revenue* ROP Linage
---------- ----------- ----------- -----------
Retail ............... 1.7 4.7 (0.3) (4.6)
General .............. 8.9 21.5 7.5 5.0
Classified ........... 13.2 14.3 10.9 4.3
Total .............. 7.2 10.0 5.2 0.1
* Excludes the 53rd week from 1995 results.
Retail advertising revenue improved by $14.0 million, or 1.7%, from 1995 on a
4.7% increase in full-run ROP linage. On a comparable basis, retail advertising
revenue decreased 0.3% from 1995, primarily as a result of department store
consolidations in Philadelphia and Northern California. Excluding these markets
and Detroit, retail was up 1.9% in the rest of the markets on a 52-week basis.
General advertising revenue was up $16.3 million, or 8.9%, from the prior year,
with an increase in full-run ROP linage of 21.5%. On a comparable basis, general
advertising revenue was up 7.5%.
Classified revenue improved by $90.2 million, or 13.2%, on a 14.3% increase in
full-run ROP volume from 1995. Employment advertising revenue, up 22.8% for the
year, was the strength of our classified revenue performance. On a comparable
basis, classified advertising revenue was up 10.9%. Philadelphia and San Jose
contributed more than half of the classified revenue improvement.
Circulation revenue improved by $6.5 million, or 1.3%, on an average daily
circulation decrease of 217,957 copies, or 5.9%, and an average Sunday
circulation decrease of 307,088 copies, or 6.0%. The circulation copy decline
reflects the impact of the Detroit strike.
Other revenue decreased $2.9 million, or 3.6%, during 1996, partly due to the
decline of newsprint waste sales and one less week in the fiscal year.
OPERATING EXPENSES. Labor and employee benefits costs were down $2.4 million, or
0.2%, with a 4.3% decrease in the work force, excluding Detroit. The decrease in
labor and employee benefits costs was due primarily to the reduction in the work
force, the fourth quarter 1995 charge for buyouts and separation costs and the
impact of the 53rd week. These reductions were partly offset by an increase in
the average wage per employee of 3.8%, (excluding Detroit and CCN).
18
<PAGE>
Newsprint, ink and supplements costs increased by $25.4 million, or 5.7%, due to
an 11.5% increase in the average cost per ton of newsprint offset by a 4.0%
decrease in newsprint consumption from the prior year.
Depreciation and amortization increased $21.9 million, or 22.2%, due mostly to
the acquisition of CCN.
Other operating costs decreased 5.1% from 1995. On a pro forma basis for CCN,
but excluding Detroit and the impact of the 53rd week, other operating costs
were down 1.6% from the prior year.
NON-OPERATING ITEMS. Net interest expense increased $11.2 million, or 22.8%,
from 1995, due primarily to higher debt levels. The average debt balance for the
year increased $325.2 million from 1995, due largely to the $221.8 million
repurchase of 6.2 million shares in 1996 and the $360 million acquisition of CCN
in the fourth quarter of 1995.
Equity in earnings of unconsolidated companies and joint ventures increased by
$9.2 million during 1996 due to earnings improvements from our newsprint mill
investments, which benefited from the rise in newsprint prices.
The "Other, net" line of the non-operating section increased $25.0 million over
1995, mostly as a result of the 1996 gain on the sale of our investment in
Netscape, net of the reduction in the carrying values of certain other
investments.
INCOME TAXES. The effective income tax rate on a continuing operations basis for
1996 was 40.2%, up from 39.9% in 1995. The increase was due to a change in the
distribution of income to states with higher income tax rates.
OTHER. Net income in 1996 includes a one-time after-tax gain on the sale of
Knight-Ridder Financial of $86.3 million, or $.89 per share (diluted), and a
loss from discontinued BIS operations, net of applicable taxes, of $3.8 million,
or $.04 per share (diluted).
RESULTS OF OPERATIONS: 1995 VS. 1994
Diluted earnings per share from continuing operations was $1.10, down $.37, or
25.2%, from $1.47 per share in 1994. The decline in earnings per share from 1994
was due to the impact of the Detroit strike, the increase in the cost of
newsprint from 1994 and fourth quarter charges related to buyout and separation
expenses.
Operating income in 1995 was $228.3 million, down from $308.2 million in 1994 on
a $115.3 million, or 5.4%, increase in revenue. Operating income as a percentage
of revenue was 10.1%, compared with 14.4% in 1994. The decline in operating
income from 1994 was due primarily to:
- A $72.7 million decline from Detroit's prior year operating profit as a
result of the strike that began on July 13, 1995.
- A nearly 40% increase in the cost of newsprint from 1994, which resulted in
a $105.9 million expense increase.
- Charges related to buyout and separation expenses of about $16 million, of
which $15.3 million was charged in the fourth quarter of 1995.
Excluding the Detroit operations and buyout and separation charges from both
years, operating income would have been up 1.8% from 1994.
OPERATING REVENUE. Total operating revenue of $2.3 billion was up $115.3
million, or 5.4%, from 1994.
19
<PAGE>
Advertising revenue increased by $89.6 million, or 5.7%, in 1995 on a full- run
ROP linage increase of 2.8%. The 1995 results reflect: reduction in revenue due
to the Detroit strike, two months of revenue recorded for Contra Costa
Newspapers (CCN), acquired on Oct. 31, 1995, and an additional week of revenue
(53 weeks vs. 52 weeks) in 1995. Excluding the impact of these items from 1995
results, advertising revenue would have increased by 5.8%. The following table
summarizes the percentage change in revenue and full-run ROP linage from 1994 as
reported in our financial statements, as well as results excluding Detroit and
CCN:
Excluding Detroit and
Contra Costa Newspapers
-------------------------
% Change % Change
% Change in Full-Run % Change in Full-Run
Advertising Category in Revenue ROP Linage in Revenue ROP Linage
---------- ----------- ---------- -----------
Retail ................ 1.9 (0.6) 3.8 (2.4)
General ............... (1.1) 2.9 0.6 1.3
Classified ............ 12.6 6.7 14.3 5.4
Total ............... 5.7 2.8 7.5 1.3
Retail advertising revenue improved $15.3 million, or 1.9%, from 1994 on a 0.6%
decrease in full-run ROP linage. The increase in average rates and preprint
revenue offset the decrease in full-run ROP linage.
General advertising revenue was $182.5 million, down from the $184.5 million
reported in 1994, with an increase in full-run ROP linage of 2.9%.
Classified revenue improved by $76.3 million, or 12.6%, on a 6.7% increase in
full-run ROP volume. San Jose contributed nearly half of the classified revenue
improvement. Employment advertising revenue, up 24.6% for the year, was the
strength of our classified revenue performance.
Circulation revenue improved by $10.7 million, or 2.2%, on an average daily
circulation increase of 52,866 copies, or 1.5%, and an average Sunday
circulation increase of 10,754 copies, or 0.2%. Circulation copies reflect the
impact of the Detroit strike, offset by additional circulation from CCN.
Other revenue increased $14.9 million, or 22.3%, during 1995, due primarily to
increased revenue from newsprint waste sales, commercial printing and other
lines of business developed to augment the revenue of our core newspaper
business.
OPERATING EXPENSES. Labor and employee benefits costs were up $41.8 million, or
4.5%, with a 4.5% increase in the work force. The increase in the work force was
due to the CCN acquisition. The increase in labor and employee benefits costs
was due primarily to a fourth quarter charge for buyouts and separation costs,
the impact of the 53rd week and the addition of CCN. This was partly offset by a
decrease in labor costs as a result of the Detroit strike. The average wage per
employee, excluding severance, Detroit and CCN, increased 2.9% from 1994.
Newsprint, ink and supplements costs increased by $110.9 million, or 33.0%, due
to a nearly 40% increase in the average cost of newsprint, offset by a 0.2%
decrease in newsprint consumption from the prior year.
Depreciation and amortization increased $2.1 million, or 2.2%, due mostly to the
acquisition of CCN.
Other operating costs increased 8.6% from 1994, due primarily to strike-related
costs in Detroit.
NON-OPERATING ITEMS. Net interest expense increased $11.0 million, or 29.0%,
from 1994, due primarily to higher debt levels. The average debt balance for the
year increased $146.0 million from 1994, due largely to the $319.4 million
repurchase of 11.5 million shares in 1995 and the $360 million acquisition of
CCN in the fourth quarter of 1995.
Equity in earnings of unconsolidated companies and joint ventures increased by
$13.0 million during 1995 due to earnings improvements from our newsprint mill
investments, which benefited from the rise in newsprint prices.
The "Other, net" line of the non-operating section decreased $6.6 million from
1994, due to the reduction in the carrying value of certain investments.
INCOME TAXES. The effective income tax rate from continuing operations for 1995
was 39.9%, down slightly from 40.1% in 1994.
20
<PAGE>
OTHER. Net income in 1995 includes a one-time after-tax gain on the sale of the
Journal of Commerce (JoC) of $53.8 million, or $.54 per share (diluted), and
income from discontinued BIS operations, net of applicable taxes, of $3.7
million, or $.03 per share (diluted).
In the first quarter of 1995, the company adopted Financial Accounting Standard
(FAS) 116 -- Accounting for Contributions Received and Contributions Made. Under
this standard, unconditional promises, including multiyear promises, are
recognized in the period in which 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
(diluted), and was recorded as a cumulative effect adjustment.
A Look Ahead
As we look ahead, we expect another strong year in 1998. Advertising revenue on
a pro forma basis will likely increase in the mid-single digits and newspaper
profits will continue to grow, most notably in Detroit, where all the momentum
is positive.
The average price of newsprint for 1998 is expected to increase in the mid teens
compared to 1997. This will be offset, in part, by improved earnings from our
newsprint mill investments.
The company expects to buy back close to 4 million common shares in the first
part of 1998. After those purchases are completed, we plan to use our
substantial free cash flow to reduce our debt level.
IMPACT OF YEAR 2000. The Year 2000 issue results from computer programs using
two digits rather than four to define the applicable year. Company computer
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a system failure,
disruption of operations, and/or a temporary inability to conduct normal
business activities. Based on a recent assessment, the company currently
believes that with modifications to existing software and conversions to new
software, the Year 2000 issue will not pose significant operational problems. If
such modifications and conversions are not made, or are not completed in a
timely way, the Year 2000 issue could have a material impact on operations. In
addition, formal communications with all significant suppliers and customers
have been initiated to determine the extent to which related interfaces with
company systems are vulnerable if these third parties fail to remediate their
own Year 2000 issues. There can be no assurance that these third-party systems
will be converted on a timely basis and that they will not adversely affect the
company's systems.
The company will utilize both internal and external resources to complete and
test Year 2000 modifications and expects to substantially complete this process
no later than mid-1999. The total estimated cost of this project is in a range
of $70 million to $80 million, funded through operating cash flows.
Approximately 50% of the total will relate to purchased hardware and software,
which will be capitalized. The remainder will be expensed as incurred. Through
1997, related costs incurred were not material. In certain cases, an expedited
system replacement schedule will also bring enhanced functionality and should
serve to reduce future capital requirements.
Certain statements contained herein and in other sections of this report are
forward-looking statements. These are based on management's current knowledge of
factors affecting Knight Ridder's business. Actual results could differ
materially from those currently anticipated. Investors are cautioned that such
forward-looking statements involve risk and uncertainty, including, but not
limited to, the effects of national and local economies on revenue, negotiations
and relations with labor unions, unforeseen changes to newsprint prices, the
effects of acquisitions and the evolution of the Internet.
Significant Acquisitions and Divestitures
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 system, in Kentucky, accounts for
a small portion of the original investment. That sale is expected to close
later. The after-tax gain on the sale of TKR Cable was $128.3 million. The sale
yielded net after-tax proceeds of $270 million.
21
<PAGE>
On May 9, 1997, the company completed the acquisition of four newspapers
indirectly owned by The Walt Disney Company for $1.65 billion. The acquisition
was accomplished through the merger of a wholly owned subsidiary with and into
Cypress Media, Inc., formerly known as ABC Media, Inc., the owner of the four
newspapers. The newspapers are: The Kansas City Star, the Fort Worth Star-
Telegram, the Belleville (Ill.) News-Democrat and The Times Leader in Wilkes-
Barre, Pa. The four newspapers have combined daily and Sunday circulation of
635,000 and 898,000, respectively.
On Aug. 24, 1997, the company exchanged its newspaper in Boulder, Colo., the
Daily Camera, for two newspapers in California owned by the E.W. Scripps Co.
On Nov. 14, 1997, the company completed the sale of Knight-Ridder Information,
Inc., (KRII) to M.A.I.D plc for $420 million. The after-tax gain on the sale of
KRII was $15.3 million.
In December 1997, the company closed on the sale of four newspapers, the Long
Beach Press-Telegram, the Boca Raton News, The (Milledgeville) Union-Recorder
and the suburban Newberry (S.C.) Observer. The sale of these four newspapers
resulted in an after-tax gain of $10.3 million. The sale of the Boca Raton,
Milledgeville and Newberry newspapers to Community Newspaper Holdings, Inc.,
also included the transfer to the company of The Daily Sun and the Buyer's
Guide, a shopper, in Warner Robins, Ga., and the Byron (Ga.) Gazette, a weekly
newspaper, all of which are located in fast-growing suburbs in our Macon
newspapers' market. The sale of a fifth newspaper, the Post-Tribune in Gary,
Ind., to Hollinger International, Inc., closed on Feb. 2, 1998.
Also in December 1997, the company announced the intended sale of Technimetrics,
Inc., its global diversified information subsidiary. The results of
Technimetrics have been reclassified as Discontinued BIS Operations, along with
the rest of the former BIS segment.
In July 1996, the company sold Knight-Ridder Financial (KRF) to Global Financial
Information Corporation for $275 million. The after-tax gain on the sale of KRF
was $86.3 million.
In October 1995, the company acquired 100% of the outstanding shares of Lesher
Communications, Inc. (Lesher), for $360 million. Lesher, 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.
In April 1995, the company sold the JoC to the Economist Group of London for
$115 million. The after-tax gain on the sale of the JoC was $53.8 million.
Capital Spending Program
The company's capital spending program includes normal replacements,
productivity improvements, capacity increases, building construction and
expansion and printing press equipment. Over the past three years, capital
expenditures have totaled $311.6 million for additions and improvements to
properties, excluding the discontinued BIS operations.
A large portion of the 1997 expenditures was for the Miami press project that
began in 1995. The $108.0 million press expansion is expected to be completed in
1998. Another large component of 1997 expenditures was the $32.0 million
renovation of the Philadelphia Broad Street facility that began in 1995 and the
$27.2 million replacement of three presses at Akron. Both of these projects are
expected to be completed in 1998.
Also included in capital expenditures is an $11.5 million project (before
insurance recoveries) for the replacement of the Grand Forks production plant
and building that were destroyed by a flood in April 1997.
22
<PAGE>
Quarterly Operations
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
---------------------------------------------------------------------------------
Description First Second Third Fourth
------------ ----------- ------------- ------------
<S> <C> <C> <C> <C>
1997
Operating revenue ......................... $ 600,830 $ 711,598 $ 748,747 $ 815,610
Operating income .......................... 98,169 136,977 107,936 162,946
Income from continuing operations ......... 175,458(a) 60,950 73,467(b) 86,629(c)
Net gain on sale of BIS operations 15,261(d)
Income (loss) from BIS operations, net .... (726) 350 545 1,081
Net income ................................ 174,732 61,300 74,012 102,971
Earnings per share(1)
Basic:
Income from continuing operations ......... 1.88(a) 0.67 0.85(b) 1.04(c)
Net gain on sale of BIS operations 0.18(d)
Income from BIS operations, net 0.01
Net income ................................ 1.88 0.67 0.85 1.23
Diluted:
Income from continuing operations ......... 1.85(a) 0.60 0.69(b) 0.84(c)
Net gain on sale of BIS operations 0.15(d)
Income from BIS operations, net 0.01
Net income ................................ 1.85 0.60 0.69 1.00
Dividends declared per common share ....... 0.20 0.20 0.20 0.20
1996
Operating revenue ......................... $ 570,756 $ 595,582 $ 576,887 $ 630,999
Operating income .......................... 49,639 78,647 73,948 130,899
Income from continuing operations ......... 22,994 41,481 39,340 81,565(f)
Net gain (adjustment) on sale of BIS
operations 90,901(e) (4,646)(e)
Income (loss) from BIS operations, net .... 523 872 (3,984) (1,173)
Net income ................................ 23,517 42,353 126,257 75,746
Earnings per share(1)
Basic:
Income from continuing operations ......... 0.23 0.42 0.41 0.87(f)
Net gain (adjustment) on sale of BIS
operations 0.96(e) (0.05)(e)
Income (loss) from BIS operations, net .... 0.01 0.01 (0.04) (0.01)
Net income ................................ 0.24 0.43 1.33 0.81
Diluted:
Income from continuing operations ......... 0.23 0.42 0.41 0.86(f)
Net gain (adjustment) on sale of BIS
operations .............................. 0.94(e) (0.05)(e)
Income (loss) from BIS operations, net .... 0.01 0.01 (0.04) (0.02)
Net income ................................ 0.24 0.43 1.31 0.79
Dividends declared per common share ....... 0.18-1/2 0.20 0.20 (g)
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
Quarterly Operations (Continued)
QUARTER
---------------------------------------------------------------------------------
Description First Second Third Fourth
------------ ----------- ------------- ------------
<S> <C> <C> <C> <C>
1995
Operating revenue ......................... $ 537,133 $ 565,726 $ 515,975 $ 631,348
Operating income .......................... 64,323 81,642 15,438 66,859
Income from continuing operations ......... 29,356 42,278 3,793 34,529
Net gain on sale of BIS operations ........ 53,765(h)
Income (loss) from BIS operations, net .... 6,317 (1,923) 2,797 (3,530)
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
Earnings per share(1)
Basic:
Income from continuing operations ......... 0.28 0.43 0.04 0.36
Net gain on sale of BIS operations ........ 0.54(h)
Income (loss) from BIS operations, net .... 0.06 (0.02) 0.03 (0.04)
Income before cumulative effect of
change in accounting principle .......... 0.34 0.95 0.07 0.32
Cumulative effect of change in
accounting principle for
contributions ........................... (0.07)
Net income ................................ 0.27 0.95 0.07 0.32
Diluted:
Income from continuing operations ......... 0.28 0.42 0.04 0.35
Net gain on sale of BIS operations ........ 0.54(h)
Income (loss) from BIS operations, net .... 0.06 (0.02) 0.03 (0.03)
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 ....... 0.18-1/2 0.18-1/2 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
(basic) and average outstanding and equivalent shares (diluted) during the
periods.
(a) Includes the after-tax gain of $128.3 million on the sale of TKR Cable
($1.38 per share, basic; $1.36 per share, diluted).
(b) Includes the after-tax gain of $24.5 million on the Boulder, Colo.,
exchange ($.28 per share, basic; $.23 per share, diluted).
(c) Includes the after-tax gain of $10.3 million on the sale of four newspapers
($.12 per share, basic; $.10 per share, diluted).
(d) Gain on the sale of KRII.
(e) Gain (adjustment) on the sale of KRF.
(f) Includes the after-tax gain of $8.1 million on the sale of Netscape, net of
adjustments in the carrying value of certain investments ($.09 per share,
basic and diluted).
(g) The Board of Directors declared a $.20 per share dividend on Jan. 28, 1997.
The quarterly dividend previously paid in January was paid on Feb. 24,
1997, to shareholders of record as of the close of business on Feb. 12,
1997.
(h) Gain on the sale of the Journal of Commerce.
24
<PAGE>
Financial Position and Liquidity
1997 VS. 1996. The principal change in the company's financial position during
1997 was the acquisition of four newspapers indirectly owned by The Walt Disney
Company for $1.65 billion. The transaction was financed through the issuance of
$660 million of the company's convertible preferred stock and the assumption of
$990 million of pre-existing debt.
Also during 1997, the company authorized a common stock buyback program to
repurchase in the open market a minimum of 15 million shares over 12 months. In
1997, 13.8 million shares were bought back.
The company utilized proceeds from the sale of its cable investment in January
1997, its subsidiary Knight-Ridder Information, Inc., in November 1997 and four
of its newspapers in December 1997 to fund the stock buyback program and pay
down debt. In November 1997, the company issued $100 million of notes payable
that mature in 2007 and $100 million of debentures maturing in 2027. The new
debt was used to reduce commercial paper borrowings. The total-debt-
to-total-capital ratio increased to 51.8%, from 42.1% in 1996. Standard & Poor's
and Moody's downgraded the company's commercial paper and long-term bonds during
the year. The downgrades resulted from the increased leverage associated with
the Disney newspaper acquisition combined with the company's common stock
repurchase program. Standard & Poor's and Moody's commercial paper rating went
from A1+ and P1 to A1 and P2, respectively. Standard & Poor's and Moody's
long-term bond ratings went from AA- and A to A and A3, respectively. During
1997, Duff & Phelps Credit Rating Co. began rating the company's commercial
paper and long-term bonds. The commercial paper and long-term bonds were rated
D1 and A, respectively.
Average outstanding commercial paper during the year was $286.7 million, with a
weighted-average interest rate of 5.6%. At year-end 1997, commercial paper
outstanding was $30.0 million and aggregate unused credit lines were $612.3
million.
During 1997, net cash provided by operating activities increased $5.2 million to
$231.7 million. The increase was attributed to higher earnings, operating
profits from the former Disney newspapers, and other changes in working capital.
Cash and short-term investments were $160.3 million at the end of 1997, a $137.4
million increase from last year. The increased cash level will be used for stock
repurchases in the first quarter of 1998. The ratio of current assets to current
liabilities was 1.2:1 at year end vs. 1.0:1 at the end of 1996.
The company's operations have historically generated strong positive cash flow,
which, along with the company's commercial paper program, revolving credit lines
and ability to issue public debt, has provided adequate liquidity to meet the
company's short-term and long-term cash requirements, including requirements for
acquisitions.
1996 VS. 1995. The principal change in the company's financial position during
1996 was the application of some KRF after-tax sale proceeds toward the
repurchase of 6.2 million shares for $221.8 million and the reduction of debt by
$193 million. The total-debt-to-total-capital ratio decreased to 42.1%, from
47.7% in 1995.
Average outstanding commercial paper during the year was $495.0 million, with a
weighted-average interest rate of 5.5%. During 1996, the company's revolving
credit and term loan agreement, which backed up the commercial paper program,
decreased from $800 million to $650 million. At year-end 1996, commercial paper
outstanding was $366.5 million and aggregate unused credit lines were $283.5
million.
During 1996, net cash provided by operating activities increased $114.0 million,
to $226.5 million. The increase was attributed to higher earnings, reflecting
the improvements in Detroit's and Philadelphia's operations and other changes in
working capital.
Cash and short-term investments were $22.9 million at the end of 1996, a $3.1
million decrease from 1995. The ratio of current assets to current liabilities
was 1.0:1 at year end vs. 1.1:1 at the end of 1995.
1995 VS. 1994. The principal changes in the company's financial position during
1995 were an increase of $602.3 million of debt in connection with the $360
million CCN acquisition and the $319.4 million repurchase of 11.5 million shares
of the company's common stock. In early 1995, the company sold the JoC for $115
million. The after-tax proceeds offset other debt increases. The
total-debt-to-total-capital ratio increased to 47.7% in 1995, up from 25.2% in
1994.
Average outstanding commercial paper during the year was $263.8 million, with a
weighted-average interest rate of 5.9%. During 1995, the company's revolving
credit and term loan agreement, which backs up the commercial paper program, was
increased from $500 million to $800 million. At year-end 1995, commercial paper
outstanding was $563.2 million and aggregate unused credit lines were $236.8
million.
25
<PAGE>
In December 1995, the company issued $100 million principal amount of 6.3%
senior notes due Dec. 15, 2005.
During 1995, net cash provided by operating activities decreased $201.6 million
to $112.6 million. After excluding the gain on the sale of JoC, the decrease was
attributed to lower earnings as a result of the Detroit strike, newsprint price
increases, severance costs and other changes in working capital.
Cash and short-term investments were $26.0 million at the end of 1995, a $16.8
million increase from 1994. The ratio of current assets to current liabilities
was 1.1:1 at year end vs. 1.0:1 at the end of 1994.
Shareholders' equity reflected unrealized gains on investments, net of tax, of
$42.9 million. This represents the unrealized gains on investments available for
sale that are carried on the balance sheet at fair market value, with the
unrealized gains (net of tax) reported as a separate component of shareholders'
equity.
Effect of Changing Prices
The Consumer Price Index, a widely used measure of the impact of changing
prices, has increased only moderately in recent years, up between 2% and 6% each
year since 1990. Historically, when inflation was at higher levels, the impact
on the company's operations was not significant.
The principal effect of inflation on the company's operating results is to
increase reported costs. Subject to normal competitive conditions, the company
generally has demonstrated the ability to raise sales prices to offset these
cost increases.
26
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Quarterly Operations in Item 7 and Schedule II, Valuation and Qualifying
Accounts
CONSOLIDATED BALANCE SHEET
(In thousands of dollars, Dec. 28 Dec. 29 Dec. 31
except share data) 1997 1996 1995
----------- ----------- -----------
ASSETS
Current Assets
Cash, including short-term
cash investments of
$140,210 in 1997, $50 in
1996 and 1995 ................ $ 160,291 $ 22,880 $ 26,012
Accounts receivable, net of
allowances of $14,963 in
1997, $12,685 in 1996 and
$14,348 in 1995 .............. 374,746 356,079 339,264
Inventories .................... 50,332 42,941 73,349
Prepaid expense ................ 15,844 90,314 21,543
Other current assets ........... 39,902 53,513 42,754
----------- ----------- -----------
Total Current Assets ..... 641,115 565,727 502,922
----------- ----------- -----------
Investments and Other Assets
Equity in unconsolidated
companies and joint
ventures ..................... 197,585 330,267 321,658
Net assets of discontinued
BIS operations ............... 24,673 352,102 453,189
Other .......................... 172,859 132,425 222,593
----------- ----------- -----------
Total Investments and
Other Assets ........... 395,117 814,794 997,440
----------- ----------- -----------
Property, Plant and Equipment
Land and improvements .......... 89,375 77,526 77,617
Buildings and improvements ..... 444,952 387,509 384,314
Equipment ...................... 1,127,875 994,455 991,263
Construction and equipment
installations in progress .... 111,883 110,590 55,845
----------- ----------- -----------
1,774,085 1,570,080 1,509,039
Less accumulated depreciation .. (727,571) (701,232) (667,210)
----------- ----------- -----------
Net Property, Plant and
Equipment .............. 1,046,514 868,848 841,829
----------- ----------- -----------
Excess of Cost Over Net Assets
Acquired and Other Intangibles
Less accumulated amortization
of $197,966 in 1997,
$150,491 in 1996 and
$131,992 in 1995 ............. 2,272,396 611,538 624,130
----------- ----------- -----------
Total .................... $ 4,355,142 $ 2,860,907 $ 2,966,321
=========== =========== ===========
See "Notes to Consolidated Financial Statements."
27
<PAGE>
CONSOLIDATED BALANCE SHEET (Continued)
(In thousands of dollars, Dec. 28 Dec. 29 Dec. 31
except share data) 1997 1996 1995
----------- ----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable ................... $ 172,021 $ 223,962 $ 127,532
Accrued expenses and other
liabilities ...................... 131,491 103,730 105,317
Accrued compensation and
amounts withheld from
employees ........................ 119,036 96,426 101,357
Federal and state income
taxes ............................ 33,920 195
Deferred revenue ................... 72,491 70,452 72,134
Dividends payable .................. 17,978
Short-term borrowings and
current portion of long-
term debt ........................ 69,697 50,000 13,129
---------- ---------- ----------
Total Current
Liabilities ................ 598,656 544,570 437,642
---------- ---------- ----------
Noncurrent Liabilities
Long-term debt ..................... 1,599,133 771,335 1,000,721
Deferred federal and state
income taxes ..................... 282,695 142,727 134,460
Postretirement benefits other
than pensions .................... 150,485 158,811 169,057
Employment benefits and other
noncurrent liabilities ........... 171,225 109,909 112,713
---------- ---------- ----------
Total Noncurrent
Liabilities ................ 2,203,538 1,182,782 1,416,951
---------- ---------- ----------
Minority Interests in
Consolidated Subsidiaries ............ 1,275 2,047 758
---------- ---------- ----------
Commitments and Contingencies (Note I)
Shareholders' Equity
Preferred stock, $1.00 par
value; shares authorized --
2,000,000; shares issued --
1,754,930 in 1997, and 0 in
1996 and 1995 .................... 1,755
Common stock, $.02-1/12
par value; shares
authorized -- 250,000,000;
shares issued -- 81,597,631
in 1997, 93,340,652 in 1996
and 97,196,308 in 1995 ........... 1,700 1,945 2,025
Additional capital ................. 911,572 308,320 295,360
Retained earnings .................. 636,646 819,572 770,643
Unrealized gains on
investments ...................... 1,671 42,942
---------- ---------- ----------
Total Shareholders'
Equity ..................... 1,551,673 1,131,508 1,110,970
---------- ---------- ----------
Total ........................ $4,355,142 $2,860,907 $2,966,321
========== ========== ==========
28
<PAGE>
CONSOLIDATED STATEMENT OF INCOME
Year Ended
-----------------------------------------
(In thousands of dollars, Dec. 28 Dec. 29 Dec. 31
except per share data) 1997 1996 1995
----------- ----------- -----------
Operating Revenue
Advertising
Retail ....................... $ 1,008,736 $ 821,768 $ 807,758
General ...................... 246,096 198,797 182,516
Classified ................... 947,419 772,859 682,696
----------- ----------- -----------
Total .................... 2,202,251 1,793,424 1,672,970
Circulation .................. 567,757 501,826 495,315
Other ........................ 106,777 78,974 81,897
----------- ----------- -----------
Total Operating Revenue .. 2,876,785 2,374,224 2,250,182
----------- ----------- -----------
Operating Costs
Labor and employee benefits .... 1,132,227 967,069 969,476
Newsprint, ink and
supplements .................. 466,329 472,207 446,841
Other operating costs .......... 615,470 481,168 506,862
Depreciation and amortization .. 156,731 120,647 98,741
----------- ----------- -----------
Total Operating Costs .... 2,370,757 2,041,091 2,021,920
----------- ----------- -----------
Operating Income ................. 506,028 333,133 228,262
----------- ----------- -----------
Other Income (Expense)
Interest expense ............... (102,662) (73,137) (59,512)
Interest expense capitalized ... 5,376 6,397 1,889
Interest income ................ 3,404 6,488 8,576
Equity in earnings of
unconsolidated companies
and joint ventures ........... 10,800 29,868 20,661
Minority interests in
earnings of consolidated
subsidiaries ................. (11,503) (9,293) (8,809)
Other, net (Note G) ............ 282,409 16,753 (8,250)
----------- ----------- -----------
Total .................... 187,824 (22,924) (45,445)
----------- ----------- -----------
Income before income taxes ....... 693,852 310,209 182,817
Income taxes ..................... 297,348 124,829 72,861
----------- ----------- -----------
Income From Continuing
Operations ....................... 396,504 185,380 109,956
Net gain on sale of
discontinued BIS operations,
net of applicable income
taxes of $8,365 in 1997,
$69,631 in 1996 and $38,933
in 1995 (Notes B and G) ........ 15,261 86,255 53,765
Income/(loss) from discontinued
BIS operations, net of
applicable income taxes of
$1,119 in 1997, $4,305 in
1996 and $8,608 in 1995 (Note G) 1,250 (3,762) 3,661
----------- ----------- -----------
Income Before Cumulative Effect
of Change in Accounting
Principle ........................ 413,015 267,873 167,382
Cumulative effect of change in
accounting principle for
contributions .................. (7,320)
----------- ----------- -----------
Net Income ............... $ 413,015 $ 267,873 $ 160,062
=========== =========== ===========
29
<PAGE>
CONSOLIDATED STATEMENT OF INCOME (Continued)
Year Ended
----------------------------------------
Dec. 28 Dec. 29 Dec. 31
1997 1996 1995
----------- ----------- -----------
Earnings Per Share
Basic:
Income from continuing
operations ................ $ 4.48 $ 1.93 $ 1.11
Net gain on sale of
discontinued BIS
operations (Notes B
and G) .................... .17 .90 .54
Income/(loss) from
discontinued BIS
operations, net (Note G) .. .02 (.04) .03
----------- ----------- -----------
Income before cumulative
effect of change in
accounting principle ...... 4.67 2.79 1.68
Cumulative effect of change
in accounting principle
for contributions ......... (.07)
----------- ----------- -----------
Net Income .............. $ 4.67 $ 2.79 $ 1.61
=========== =========== ===========
Diluted:
Income from continuing
operations ................ $ 3.91 $ 1.90 $ 1.10
Net gain on sale of
discontinued BIS
operations (Notes B
and G) .................... .15 .89 .54
Income/(loss) from
discontinued BIS
operations, net (Note G) .. .02 (.04) .03
----------- ----------- -----------
Income before cumulative
effect of change in
accounting principle ...... 4.08 2.75 1.67
Cumulative effect of change
in accounting principle
for contributions ......... (.07)
----------- ----------- -----------
Net Income .............. $ 4.08 $ 2.75 $ 1.60
=========== =========== ===========
Average Shares Outstanding
(000s)
Basic ......................... 88,475 96,021 99,451
=========== =========== ===========
Diluted ....................... 101,314 97,420 100,196
=========== =========== ===========
See "Notes to Consolidated Financial Statements."
30
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended
--------------------------------------
Dec. 28 Dec. 29 Dec. 31
(In thousands of dollars) 1997 1996 1995
---------- ---------- ----------
Cash Provided by (Required for)
Operating Activities
Net income ......................... $ 413,015 $ 267,873 $ 160,062
Noncash items deducted from
(included in) income:
Cumulative effect of
change in accounting
principle .................... 7,320
Gains on sales/exchanges
of investee/
subsidiaries (Note G) ........ (283,126)
Net gain on sale of
discontinued BIS
operations ................... (15,261) (86,255) (53,765)
Depreciation ................... 94,138 86,976 75,197
Amortization of excess of
cost over net assets
acquired ..................... 47,475 18,500 11,504
Amortization of other
assets ....................... 15,118 15,171 12,040
Provision (benefit) for deferred
taxes ........................ (14,750) 40,647 (7,367)
Earnings of investees in
excess of distributions ...... (14,658) (21,293) (16,250)
Minority interests in
earnings of
consolidated
subsidiaries ................. 11,503 9,293 8,809
Other items, net ............... 38,656 (9,648) 34,996
Change in certain assets and
liabilities:
Accounts receivable .............. (33,853) (42,908) (18,620)
Inventories ...................... (326) 30,474 (32,292)
Other current assets ............. 380 (159,718) 2,227
Accounts payable ................. (83,969) 86,251 (19,235)
Federal and state income
taxes .......................... 9,623 972 (55,078)
Other liabilities ................ 47,724 (9,826) 3,006
--------- --------- ---------
Net Cash Provided by
Operating Activities ........ 231,689 226,509 112,554
--------- --------- ---------
Cash Provided by (Required for)
Investing Activities
Proceeds from sale of
investee, net (Note G) ........... 130,654
Proceeds from sale of
subsidiaries, net (Note G) ....... 50,491
Proceeds from sale of
discontinued BIS
operations, net (Note G) ......... 416,983 271,859 114,907
Change in net noncurrent
assets of discontinued BIS
operations ....................... 1,996 4,249 4,523
Acquisition of Contra Costa
Newspapers, Inc. (Note G) ........ (335,755)
Proceeds from sales of
securities available for
sale ............................. 241,894
Additions to property, plant
and equipment .................... (106,614) (112,896) (92,086)
Other items, net ................... (8,165) 45,142 (46,081)
--------- --------- ---------
Net Cash Provided by
(Required for)
Investing Activities ........ 727,239 208,354 (354,492)
--------- --------- ---------
31
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
Year Ended
----------------------------------------
Dec. 28 Dec. 29 Dec. 31
(In thousands of dollars) 1997 1996 1995
---------- ---------- ----------
Cash Provided by (Required for)
Financing Activities
Proceeds from sale of
commercial paper, notes
payable and senior notes
payable ....................... 833,600 601,010 1,092,620
Reduction of total debt ......... (976,611) (793,525) (490,274)
---------- ---------- ----------
Net Change in Total Debt ... (143,011) (192,515) 602,346
Payment of cash dividends ....... (78,335) (74,262) (74,377)
Sale of common stock to
employees ..................... 70,531 72,202 75,437
Purchase of treasury stock ...... (643,375) (221,768) (319,363)
Other items, net ................ (27,327) (21,652) (25,346)
---------- ---------- ----------
Net Cash Provided by
(Required for)
Financing Activities ..... (821,517) (437,995) 258,697
---------- ---------- ----------
Net Increase
(Decrease) in Cash ..... 137,411 (3,132) 16,759
Cash and short-term cash
investments at beginning of
the year ........................ 22,880 26,012 9,253
---------- ---------- ----------
Cash and short-term cash
investments at end of the
year ............................ $ 160,291 $ 22,880 $ 26,012
========== ========== ==========
Supplemental Cash Flow
Information
Noncash investing activities
(Note G)
Securities received as
proceeds on the sale of
investee .................... $ 229,163
Noncash financing activities
(Note G)
Issuance of preferred stock
for the acquisition of
the Disney newspapers
Preferred stock ........... 1,755
Additional capital ........ 658,245
Long-term debt assumed on
the acquisition of the
Disney newspapers ........... 990,000
See "Notes to Consolidated Financial Statements."
32
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Preferred Common
(In thousands of dollars, except Shares Shares Preferred Common Additional Retained Treasury
share data) Outstanding Outstanding Stock Stock Capital Earnings Stock
----------- ----------- --------- ------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at Dec. 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 plan ... 599,558 (2,407) (16,925)
Purchase of treasury shares ... (11,508,600) 319,363
Retirement of 8,741,282
treasury shares.............. (181) (26,830) (212,715) (239,726)
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 ....................... (72,762)
--------- ---------- --------- ------- --------- --------- ---------
Balance at Dec. 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(1) ................ (56,283)
--------- ---------- --------- ------- --------- --------- ---------
Balance at Dec. 29, 1996 ........ -- 93,340,652 $ -- $ 1,945 $ 308,320 $ 821,243 $ --
Issuance of common shares
under stock option plans .... 89,318 2 2,395
Issuance of treasury shares
under stock option plans .... 1,604,447 (28,149) (70,785)
Issuance of treasury shares
under stock purchase plan ... 387,514 (2,222) (17,218)
Issuance of convertible
preferred shares ............ 1,754,930 1,755 658,245
Purchase of treasury shares ... (13,824,300) 643,375
Retirement of 11,832,339
treasury shares ............. (247) (37,519) (517,606) (555,372)
Tax benefits arising from
employee stock plans ........ 10,502
Reductions in unrealized gains
on investments .............. (1,671)
Net income .................... 413,015
Cash dividends declared on
common stock -- $.80 per
share ....................... (78,335)
--------- ---------- --------- ------- --------- --------- ---------
Balance at Dec. 28, 1997 ........ 1,754,930 81,597,631 $ 1,755 $ 1,700 $ 911,572 $ 636,646 $ --
========= ========== ========= ======= ========= ========= =========
(1) The Board of Directors declared a $.20 per share dividend on Jan. 28, 1997. The quarterly dividend previously paid in January
was paid on Feb. 24, 1997, to shareholders of record as of the close of business on Feb. 12, 1997.
See "Notes to Consolidated Financial Statements."
33
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Knight Ridder is the nation's second-largest newspaper publisher in terms of
circulation and revenue, with products in print and online. The company
publishes 31 daily newspapers in 28 U.S. markets, reaching 9.0 million readers
daily and 12.6 million on Sunday. It maintains 34 associated Web sites and has
investments in two newsprint mills.
The company reports on a fiscal year, ending the last Sunday in the calendar
year. Results for 1997 and 1996 are for the 52 weeks ended Dec. 28 and Dec. 29,
respectively, and results for 1995 are for the 53 weeks ended Dec. 31.
The BASIS OF CONSOLIDATION is to include in the consolidated financial
statements all the accounts of Knight Ridder 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, 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. Under the joint operating agreement that expires
in the year 2089, as of Dec. 26, 1994, profits are split equally between the
partners. 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 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 servicing 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 (all but one of the cable companies jointly owned with
TeleCommunications, Inc. (TCI), were sold in January 1997); InfiNet, a joint
venture that allows newspapers to offer Internet access to subscribers;
Destination Florida, a company that provided online travel information services
(ceased operation in 1997); and Interealty (formerly known as PRC Realty
Systems, Inc.), a software system producer for the real estate industry.
The company owns 49-1/2% of the voting common stock and 65% of the nonvoting
common stock of the SEATTLE TIMES COMPANY, owns 32% of the voting stock of
NEWSPAPERS FIRST, is a one-third partner in the SOUTHEAST PAPER MANUFACTURING
CO., and owns a 13-1/2% equity share of PONDERAY NEWSPRINT COMPANY. The company
is a one-third partner in INFINET and owns a 25% interest in INTEREALTY.
The investment in unconsolidated companies and joint ventures at Dec. 28, 1997,
includes $171.0 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 $10.8 million in 1997, $29.9 million in 1996 and $20.7 million in 1995
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 $3.1 million in 1997, $18.6 million in 1996 and $3.2
million in 1995 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 Company 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."
34
<PAGE>
"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 Dec. 28, 1997, Dec.
29, 1996, and Dec. 31, 1995, 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.
"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
less than a 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. Unrealized gains (net of tax) were
zero at Dec. 28, 1997, $1.7 million at Dec. 29, 1996, and $42.9 million at Dec.
31, 1995. 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 AND OTHER INTANGIBLES" includes the
unamortized excess of cost over the fair market value on the purchase of at
least a 50% interest in a company's net tangible and intangible assets arising
from these acquisitions. The excess of cost over net assets acquired and
intangible assets from acquisitions accounted for as purchases and occurring
subsequent to Oct. 31, 1970, totaled, at Dec. 28, 1997, approximately $2.5
billion, including $390.9 million of intangible assets. The excess of cost over
net assets acquired is being amortized over a 40-year period on a straight-line
basis, unless management concludes a shorter term is more appropriate. Other
intangibles acquired through acquisitions, consist of trademarks, subscriber and
advertiser lists and mastheads which are being amortized on a straight-line
basis over periods ranging from 5 to 40 years, with a weighted-average life of
26.5 years. 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 AND CURRENT PORTION OF LONG TERM DEBT" includes the
carrying amounts of commercial paper and other short-term borrowings with
original maturities of less than one year, and the portion of long-term debt
payable within twelve months. The carrying amounts of short-term borrowings
approximate fair value. "LONG-TERM DEBT" represents the carrying amounts of
debentures, notes payable and other indebtedness with maturities longer than one
year. 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.
In the first quarter of 1995, the company adopted FAS 116 -- ACCOUNTING FOR
CONTRIBUTIONS RECEIVED AND CONTRIBUTIONS MADE. Under FAS 116, unconditional
promises, including multiyear 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.
35
<PAGE>
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 (see Note E).
In 1997, the company adopted FAS 128 -- EARNINGS PER SHARE (EPS). FAS 128
replaced the calculation of primary and fully diluted EPS with basic and diluted
EPS. Unlike primary EPS, basic EPS will typically be higher than primary EPS due
to the exclusion of any dilutive effects of options, warrants and convertible
securities from the calculation. Diluted EPS is very similar to the previously
reported fully diluted EPS. All EPS amounts for all periods presented have been
restated where appropriate, to conform to the FAS 128 requirements.
"BASIC EARNINGS PER SHARE" is computed by dividing net income by the
weighted-average number of common shares outstanding. "DILUTED 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.
In 1997, the company also adopted FAS 129 -- DISCLOSURE OF INFORMATION ABOUT
CAPITAL STRUCTURE. FAS 129 establishes standards for disclosing information
about an entity's capital structure. The adoption of this statement did not
result in additional required disclosures. FAS 130 -- REPORTING COMPREHENSIVE
INCOME and FAS 131 -- DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION are effective beginning in 1998. FAS 130 establishes standards for
reporting and displaying comprehensive income, while FAS 131 abandons the
"industry segment approach" in favor of the "management approach" for disclosure
purposes. Adoption of FAS 130 is not expected to result in a significant change
from the current required disclosures and the adoption of FAS 131 is not
expected to result in additional disclosures.
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 1996 and 1995 have been reclassified to conform to the 1997
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.
Federal, state and local income taxes consist of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------------------------ ------------------------ -------------------------
Current Deferred Current Deferred Current Deferred
--------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Federal income taxes ................... $ 286,645 $ (33,176) $ 127,610 $ 28,075 $ 100,568 $(10,128)
State and local income taxes ........... 64,519 (11,156) 29,913 13,167 26,721 3,241
--------- --------- --------- -------- --------- ---------
Total ................................ $ 351,164 $ (44,332) $ 157,523 $ 41,242 $ 127,289 $ (6,887)
========= ========= ========= ======== ========= ========
Provision for:
Continuing operations ................ $ 312,098 $ (14,750) $ 84,182 $ 40,647 $ 80,228 $ (7,367)
Discontinued operations .............. 39,066 (29,582) 73,341 595 47,061 480
--------- --------- --------- -------- --------- ---------
Total .............................. $ 351,164 $ (44,332) $ 157,523 $ 41,242 $ 127,289 $ (6,887)
========= ========= ========= ======== ========= ========
</TABLE>
36
<PAGE>
Cash payments of income taxes for the years 1997, 1996 and 1995 were $278.5
million, $147.2 million and $130.1 million, respectively. Payments in 1997, 1996
and 1995 include the tax impact resulting from one-time gains. The 1997 payment
included the tax impact from the sale of our cable investment, Knight- Ridder
Information, Inc., and our newspaper in Long Beach, Calif., as well as the
Boulder exchange. Payments in 1996 and 1995 included the tax impact from the
sale of Knight-Ridder Financial and the Journal of Commerce, respectively.
Effective Income Tax Rates
The differences between income tax expense for continuing operations shown in
the financial statements and the amounts determined by applying the federal
statutory rate of 35% in each year are as follows (in thousands):
1997 1996 1995
--------- --------- --------
Federal statutory income tax ......... $ 242,848 $ 108,573 $ 63,986
State and local income taxes, net of
federal benefit .................... 34,300 13,612 11,421
Statutory rate applied to
nondeductible amortization of the
excess of cost over net assets
acquired ........................... 13,482 2,781 2,712
Other items, net ..................... 6,718 (137) (5,258)
--------- --------- ---------
Total .............................. $ 297,348 $ 124,829 $ 72,861
========= ========= =========
The deferred tax asset and liability at the fiscal year end consist of the
following components (in thousands):
1997 1996 1995
--------- --------- ---------
Deferred Tax Assets
Postretirement benefits other than
pensions (including amounts relating
to partnerships in which the company
participates) ...................... $ 88,016 $ 95,764 $ 85,789
Compensation and benefit accruals .... (15,855) (6,802) 21,768
Accrued interest ..................... 8,165 10,576 8,073
Other nondeductible accruals ......... 51,651 43,594 30,068
--------- --------- ---------
Gross deferred tax assets .......... $ 131,977 $ 143,132 $ 145,698
========= ========= =========
Deferred Tax Liability
Depreciation and amortization ........ $ 341,872 $ 196,116 $ 154,242
Equity in partnerships and investees . 46,845 73,499 52,708
Unrealized appreciation in equity
securities ......................... 1,210 33,478
Research and experimental expenditures 10,964 12,232
Other ................................ 4,010 11,066 31,924
--------- --------- ---------
Gross deferred tax liability ....... $ 392,727 $ 292,855 $ 284,584
--------- --------- ---------
Net deferred tax liability ......... $ 260,750 $ 149,723 $ 138,886
========= ========= =========
The components of deferred taxes included in the Consolidated Balance Sheet are
as follows (in thousands):
1997 1996 1995
--------- --------- ---------
Current asset ........................ $ 23,445 $ 24,296 $ 26,160
Noncurrent liability ................. 282,695 142,727 134,460
Discontinued BIS operations - net
liability .......................... 1,500 31,292 30,586
--------- --------- ---------
Net deferred tax liability ......... $ 260,750 $ 149,723 $ 138,886
========= ========= =========
37
<PAGE>
C. DEBT
Debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
Dec. 28 Dec. 29 Dec. 31
1997 1996 1995
----------- --------- -----------
<S> <C> <C> <C>
Commercial paper due at various dates
through March 25, 1998, at an
effective interest rate of 5.6% as
of Dec. 28, 1997. Amounts are net of
unamortized discounts of $207 in 1997,
$1,683 in 1996 and $5,502 in 1995(a) ....... $ 29,793 $ 364,817 $ 557,698
Senior secured bank debt due on Sept.
15, 1999, advanced under a $1.2
billion credit agreement with a variable
interest rate indexed to
LIBOR plus 27 1/2 basis points(b) ......... 990,000
Debentures due on April 15, 2009,
bearing interest at 9.875%, net of
unamortized discount of $1,867 in
1997, $2,032 in 1996 and $2,211 in
1995 ....................................... 198,133 197,968 197,789
Debentures due on Nov. 1, 2027,
bearing interest at 7.15%, net of
unamortized discount of $5,739 in
1997 ....................................... 94,261
Notes payable, bearing interest at
8.5%, subject to mandatory pro rata
amortization of 25% annually
commencing Sept. 1, 1998, through
maturity on Sept. 1, 2001, net of
unamortized discount of $383 in
1997, $555 in 1996 and $726 in 1995 ........ 159,617 159,445 159,274
Notes payable due on Nov. 1, 2007,
bearing interest at 6.625%, net of
unamortized discount of $2,179 in
1997 ....................................... 97,821
Senior notes payable due on Dec. 15,
2005, bearing interest at 6.3%, net
of unamortized discount of $795 in
1997, $895 in 1996 and $911 in 1995 ........ 99,205 99,105 99,089
----------- --------- -----------
1,668,830 821,335 1,013,850
Less amounts payable in one year(c) .......... 69,697 50,000 13,129
----------- --------- -----------
Total long-term debt ..................... $ 1,599,133 $ 771,335 $ 1,000,721
=========== ========= ===========
</TABLE>
(a) Commercial paper is supported by $642.3 million of revolving credit and
term loan agreements, $400 million of which matures on Oct. 25, 2001, and
$242.3 million of which matures on Oct. 23, 1998.
(b) Senior secured bank debt is collateralized by all personal property assets
and four recorded first mortgages of Cypress Media, Inc., a wholly owned
subsidiary.
(c) In 1997, this represents $39.9 million for the 8.5% note payable due on
Sept. 1, 1998, and $29.8 million of commercial paper due within the next 12
months and which management does not intend to refinance.
Interest payments during 1997, 1996 and 1995 were $87.2 million, $70.9 million
and $45.4 million, respectively.
38
<PAGE>
The following table presents the approximate annual maturities of debt for the
years after 1997 (in thousands):
1998 ..................................... $ 69,697
1999 ..................................... 1,029,904
2000 ..................................... 39,904
2001 ..................................... 39,904
2002
2003 and thereafter ...................... 489,421
-----------
Total .................................. $ 1,668,830
===========
The carrying amounts and fair values of debt as of Dec. 28, 1997, are as follows
(in thousands):
Carrying Fair
Amount Value
----------- -----------
Commercial paper ..................... $ 29,793 $ 29,793
Senior secured bank debt ............. 990,000 990,000
9.875% Debentures .................... 198,133 249,878
7.15% Debentures ..................... 94,261 102,234
8.5% Notes payable ................... 159,617 171,775
6.625% Notes payable ................. 97,821 100,598
6.3% Senior notes payable ............ 99,205 99,013
----------- -----------
Total .............................. $ 1,668,830 $ 1,743,291
=========== ===========
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>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Current assets ................................ $ 212,939 $ 258,037 $ 274,815
Property, plant and equipment and
other assets ................................ 1,158,224 4,076,604 3,671,364
Current liabilities ........................... 143,683 287,782 323,199
Long-term debt and other noncurrent
liabilities ................................. 394,253 2,893,716 2,572,060
Net sales ..................................... 806,587 1,417,668 1,248,694
Gross profit .................................. 124,650 449,383 376,545
Net income .................................... 24,428 55,104 6,517
Company's share of:
Net assets .................................. 197,585 330,267 321,658
Net income .................................. 10,800 29,868 20,661
</TABLE>
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 Dec. 28, 1997, Dec. 29, 1996, and Dec. 31, 1995, 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.
In January 1997, the company and Tele-Communications, Inc. closed on the sale of
the company's interest in all but one of their jointly owned cable investments.
See Note G.
E. CAPITAL STOCK
In 1991, shareholders authorized 2 million shares of Series B preferred stock
for future issuance (which is convertible into 20 million shares of common
stock).
39
<PAGE>
In 1997, the Board of Directors authorized 1,758,242 of Series B preferred
stock, $1.00 par value per share, for issuance in connection with the
acquisition of four newspapers that were indirectly owned by The Walt Disney
Company on May 9, 1997. The Series B preferred stock is convertible into 10
shares of common stock. If and when dividends and other distributions are
declared by the Board of Directors, holders of the Series B preferred stock
shall be entitled to receive the dividends or other distribution paid on the
number of shares of the corporation's common stock into which such share of this
series is convertible. Each holder of this series is entitled to vote with
respect to all matters upon which holders of the corporation's common stock are
entitled to vote.
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.
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 387,514 shares in 1997, 453,754 shares in 1996 and 599,558 shares in
1995. The purchase price of shares issued in 1997 under this plan ranged between
$34.00 and $43.46, and the market value on the purchase dates of such shares
ranged from $40.00 to $51.13.
The Employee Stock Option Plans provide 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.
40
<PAGE>
Transactions under the Employee Stock Option Plans are summarized as follows:
Weighted-
Average
Number of Exercise Price
Shares Per Share
----------- ---------------
Outstanding
Dec. 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
Dec. 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
Dec. 29, 1996 ....................... 6,904,845 29.89
Exercised ......................... (1,693,765) 26.54
Expired ........................... (340,341) 29.00
Forfeited ......................... (25,873) 32.55
Granted ........................... 1,412,668 51.65
Outstanding
Dec. 28, 1997 ....................... 6,257,534 35.74
In 1997, the company established a long-term incentive plan. The plan rewards
participants whose leadership helps the company reach levels of total
shareholder return, as defined. The plan covers a single three year performance
period from Jan. 1, 1997 through Dec. 31, 1999. Participants received an initial
grant of 252,406 shares of restricted Knight Ridder common stock. The initial
grant of common stock was restricted as the vesting of these shares is triggered
upon the occurrence of certain performance goals.
In 1997, the company established a compensation plan for nonemployee directors.
The purpose of the plan is to attract and retain the services of qualified
individuals who are not employees of the company to serve as members of the
Board of Directors. Part of the compensation plan includes the issuance of stock
options. Options vest in three equal installments over a three-year period and
expire no later than 10 years from the date of grant. In 1997, 26,000 options
were granted.
At Dec. 28, 1997, shares of the company's authorized but unissued common stock
were reserved for issuance as follows:
Shares
---------
Employee Stock Option Plans ................ 2,176,761
Employees Stock Purchase Plan .............. 1,421,106
Nonemployee Directors Stock Option
Plan ..................................... 174,000
---------
Total .................................... 3,771,867
=========
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 1997, 1996 and
1995, respectively: risk-free rates of 5.7%, 6.1% and 5.5%; dividend yields of
1.6%, 2.0% and 2.5%; volatility factors of the expected market price of the
company's common stock of 0.14, 0.16 and 0.17; and a weighted-average expected
life of the option of 6.4, 6.5 and 6.5 years. The weighted-average fair values
of the stock options for 1997, 1996 and 1995 were $12.44, $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.
41
<PAGE>
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 1997, 1996 and 1995
pro forma information follows (in thousands, except for earnings per share
information):
1997 1996 1995
--------- --------- ---------
Net income .......................... $ 407,274 $ 264,600 $ 158,461
Basic earnings per share ............ 4.60 2.76 1.59
Diluted earnings per share .......... 4.02 2.72 1.58
The 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.
The exercise price of options outstanding at Dec. 28, 1997, ranged between
$22.66 and $52.78. The weighted-average remaining contractual life of those
options for 1997, 1996 and 1995 is 6.4, 7.3 and 7.1 years, respectively.
3,643,950, 4,305,845 and 5,323,930 options were exercisable at the end of 1997,
1996 and 1995, respectively.
In 1997, the company adopted FAS 128 -- EARNINGS PER SHARE (EPS). EPS amounts
for all periods presented have been restated as appropriate to conform to the
FAS 128 requirements. In 1997, the Series B preferred stock, which is
convertible into 10 shares of common stock, and stock options are included in
the diluted EPS calculation, but excluded from the basic EPS calculation. The
1997 diluted EPS calculation includes 10,931,741 weighted-average shares of
Series B preferred stock and 1,906,912 weighted-average stock options. In 1996
and earlier, the only difference between the basic and diluted EPS calculations
is the dilutive impact of options that are included in the diluted EPS
calculation.
F. RETIREMENT PLANS
The company and its subsidiaries maintain several company-administered
noncontributory defined benefit plans covering most nonunion employees. Benefits
are based on years of service and compensation or stated amounts for each year
of service. The company's funding policy for defined benefit plans is to
contribute annually not less than the ERISA minimum funding standards nor more
than the maximum amount which can be deducted for federal income tax purposes.
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):
1997 1996 1995
--------- --------- ---------
Defined benefit plans:
Service cost ....................... $ 30,116 $ 28,562 $ 21,550
Interest cost ...................... 61,458 56,698 51,725
Actual return on plan assets ....... (173,445) (106,651) (137,554)
Net amortization and deferral ...... 99,825 43,681 84,042
--------- --------- ---------
Net .............................. 17,954 22,290 19,763
Multi-employer union plans ........... 11,125 9,157 9,484
Defined contribution plans ........... 10,742 9,022 8,389
Other ................................ 1,968 1,412 1,808
--------- --------- ---------
Net periodic pension cost .......... $ 41,789 $ 41,881 $ 39,444
========= ========= =========
42
<PAGE>
Assumptions used each year in accounting for defined benefit plans were:
1997 1996 1995
----- ----- -----
Discount rate as of year end ............ 7.0% 7.5% 7.25%
Expected long-term rate of return on
assets assumed in determining
pension expense ....................... 8.5 8.5 8.5
Rate of increase in compensation
levels as of year end ................. 4.5 4.5 4.5
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>
Dec. 28, 1997 Dec. 29, 1996 Dec. 31, 1995
----------------------------- ---------------------------- ----------------------------
Plans Whose Plans Whose Plans Whose Plans Whose Plans Whose Plans Whose
Assets Exceed Accumulated Assets Exceed Accumulated Assets Exceed Accumulated
Accumulated Benefits Accumulated Benefits Accumulated Benefits
Benefits Exceed Assets Benefits Exceed Assets Benefits Exceed Assets
(20 plans) (7 plans) (16 plans) (9 plans) (17 plans) (11 plans)
----------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefit obligations ........... $ 767,330 $ 31,543 $ 601,284 $ 74,766 $ 564,319 $ 83,275
========== ======== ========= ======== ========= =========
Accumulated benefit obligations ...... $ 781,678 $ 32,484 $ 612,444 $ 77,021 $ 574,642 $ 85,581
========== ======== ========= ======== ========= =========
Projected benefit obligation ........... $ 911,835 $ 43,497 $ 709,412 $ 87,467 $ 672,691 $ 100,273
Plan assets at fair value .............. 1,056,230 2,529 810,102 49,809 717,475 55,019
---------- -------- --------- -------- --------- ---------
Projected benefit obligation less
than (in excess of) plan assets ...... 144,395 (40,968) 100,690 (37,658) 44,784 (45,254)
Unrecognized net (gain) loss ........... (138,206) 11,438 (96,564) 11,704 (15,441) 15,032
Prior service cost not yet
recognized in net periodic pension
cost ................................. 38,940 3,971 33,135 11,283 24,865 12,522
Unrecognized net (asset) obligation
at the date FAS 87 was adopted,
net of amortization .................. (13,441) 865 (18,592) 1,738 (23,689) 2,190
Adjustment required to recognize
minimum liability .................... (5,922) (14,279) (18,071)
---------- -------- --------- -------- --------- ---------
Net pension asset (liability)
recognized in the Consolidated
Balance Sheet ........................ $ 31,688 $(30,616) $ 18,669 $(27,212) $ 30,519 $ (33,581)
========== ======== ========= ======== ========= =========
</TABLE>
Of the seven plans whose accumulated benefits exceed assets, one is a qualified
pension plan. This qualified plan has vested benefits of $2.4 million and assets
of $2.5 million.
Net pension assets are included in "Other" noncurrent assets and net pension
liabilities are included in "Employment benefits and other noncurrent
liabilities." In 1995 and 1996, net pension liabilities related to discontinued
operations were included in "Net assets of discontinued BIS operations." These
net pension liabilities were assumed by corporate in 1997. Substantially all of
the assets of the company-administered plans are invested in listed stocks and
bonds.
G. ACQUISITIONS AND DISPOSITIONS
Acquisitions
On May 9, 1997, the company completed the acquisition of four newspapers,
indirectly owned by The Walt Disney Company, for $1.65 billion. The acquisition
was accomplished through the merger of a wholly owned subsidiary with and into
Cypress Media, Inc. ("Media"), formerly known as ABC Media, Inc., the owner of
the four newspapers. Media owns newspapers in Kansas City, Mo., Fort Worth,
Texas, Belleville, Ill., and Wilkes-Barre, Pa. The company intends to continue
to manage and operate Media as a newspaper company. The four newspapers have
combined daily and Sunday circulation of 635,000 and 898,000, respectively.
43
<PAGE>
The acquisition was accounted for under the purchase method. The purchase price
was allocated based on the estimated fair market value of net tangible and
intangible assets acquired. The fair market value of the net tangible and
intangible assets of Media was approximately $317.3 million at date of purchase,
including $351.6 million of intangible assets, which are being amortized on a
straight-line basis over periods ranging from 10 years to 40 years. The excess
of purchase price over these net assets, of approximately $1.33 billion, has
been recorded as goodwill and is being amortized on a straight-line basis over
40 years.
Pursuant to the merger, the company issued 1,754,930 shares of its Series B
convertible preferred stock. Each share of preferred stock is convertible into
10 shares of common stock. At the effective time of the merger, Media had $990
million of bank debt, which was assumed by the company. The company's results of
operations include Media from May 9, 1997.
The pro forma unaudited results of operations, as though the former Media
newspapers acquisition had occurred at the beginning of the fiscal year in which
the acquisition took place as well as for the comparable preceding year, were as
follows (in thousands of dollars, except share data):
1997 1996
----------- -----------
Operating revenue ................... $ 3,058,791 $ 2,873,946
Income before income taxes .......... 695,466 313,038
Net income .......................... 413,932 255,602
Earnings per share
Basic ............................. $ 4.68 $ 2.66
Diluted ........................... 4.09 2.22
On Aug. 24, 1997, the company exchanged its newspaper in Boulder, Colo., for two
newspapers in California owned by the E.W. Scripps Co. The Monterey County
Herald has circulation of 34,000 daily and 38,000 Sunday, and the San Luis
Obispo Telegram-Tribune has circulation of 36,000 Monday through Saturday.
The exchange was accounted for under the purchase method. The fair market value
of the two newspapers received in the exchange was approximately $56.6 million,
and that value was allocated to the net tangible and intangible assets of these
newspapers. The fair market value of the identified tangible and intangible
assets was approximately $51.5 million at date of exchange, including $16.7
million of intangible assets, which are being amortized on a straight-line basis
over periods ranging from 10 years to 40 years. The excess of the fair value of
these newspapers over their net assets, of approximately $5.1 million, has been
recorded as goodwill and is being amortized on a straight-line basis over 40
years. The company's results of operations include Boulder through Aug. 24, and
Monterey and San Luis Obispo from that same date through the end of the fiscal
year.
On Oct. 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., published four daily newspapers in contiguous
Contra Costa and eastern Alameda County markets in the East Bay area of Northern
California. Lesher, renamed Contra Costa Newspapers, Inc., (CCN) in November
1995, continues to publish four newspapers.
The acquisition was accounted for under the purchase method. The purchase price
was allocated, based on the estimated fair market value of the net tangible and
intangible assets of CCN. The fair market value of the tangible and intangible
assets was approximately $106.2 million at date of purchase, including $22.6
million of intangible assets, which are being amortized on a straight-line basis
over periods ranging from 15 to 40 years. The excess of purchase price over
these net assets, of approximately $253.8 million, has been recorded as goodwill
and is being amortized on a straight-line basis over 40 years. The company's
results of operations include CCN from Oct. 31, 1995, forward.
The pro forma unaudited results of operations, as though the former CCN
newspapers acquisition had occurred at the beginning of the 1995 fiscal year
were: (1) revenues, $2.4 billion; (2) net income, $161.7 million and (3) basic
earnings per share, $1.63, and diluted earnings per share, $1.61.
44
<PAGE>
Dispositions
Related to Continuing Operations:
In July 1997, the company announced that it would sell its newspapers in Boca
Raton, Fla., Gary, Ind., Long Beach, Calif., Milledgeville, Ga. and Newberry,
S.C. Combined daily and Sunday circulation for the Boca Raton, Gary and Long
Beach newspapers is 188,448 and 213,487, respectively. The Milledgeville
newspaper has circulation of 8,153 (five days a week) and the Newberry newspaper
has circulation of 6,500 (three days a week).
In December 1997, the company sold all of these newspapers except the one in
Gary. The sale of the Boca Raton, Newberry and Milledgeville newspapers to
Community Newspaper Holdings, Inc., also included the transfer to the company of
The Daily Sun and the Buyer's Guide, a shopper, in Warner Robins, Ga., and the
Byron (Ga.) Gazette, a weekly newspaper. The Long Beach newspaper was sold to
Garden State Newspapers, an affiliate of Media News Group. On Feb. 2, 1998, the
company closed on the sale of the Gary newspaper to Hollinger International,
Inc.
The proceeds from the sale of the four newspapers were $50.7 million. The pretax
and after-tax gains from their sale were $18.1 million and $10.3 million,
respectively.
On Aug. 24, 1997, the company exchanged its newspaper in Boulder, Colo., for two
newspapers in California owned by the E.W. Scripps Co. The exchange resulted in
a pretax and an after-tax gain of $43.2 million and $24.5 million, respectively.
In January 1997, the company and Tele-Communications, Inc., closed on the sale
of the company's interest in all but one of their jointly owned cable
investments. The total sales price was $377.6 million and resulted in a pretax
and an after-tax gain of $221.8 million and $128.3 million, respectively. The
remaining system, in Kentucky, accounts for a small portion of the original
investment. That sale is expected to close later.
In November 1996, the company sold its investment in Netscape Communications
Corporation, resulting in an after-tax gain of $8.1 million, net of adjustments
in the carrying value of certain other investments.
Related to Discontinued Operations:
On April 4, 1997, the company announced that it would sell Knight-Ridder
Information, Inc. (KRII). The announcement resulted in its former Business
Information Services (BIS) segment (excluding one business called Technimetrics)
being reclassified as discontinued operations in the quarter ended June 29,
1997. On Dec. 11, 1997, the company announced that it would also sell
Technimetrics. Since this business was previously included in the BIS segment,
it was similarly reclassified and included in discontinued operations.
On Nov. 14, 1997, the company sold KRII to M.A.I.D plc for $420 million plus a
working capital purchase price adjustment of approximately $15 million. The sale
resulted in a pretax gain of $23.6 million and an after-tax gain of $15.3
million.
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 pretax and after-tax gains from
the sale of the JoC were $92.7 million and $53.8 million, respectively.
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.
45
<PAGE>
The company valued the accumulated postretirement benefit obligation using the
following assumptions:
1997 1996 1995
----- ----- -----
Discount rate at the end of the
year .................................... 7.0% 7.5% 7.25%
Return on plan assets ..................... 8.5 8.5 8.5
Annual rate of increase in
salaries ................................ 4.5 4.5 4.5
Medical trend rate:
Projected ............................... 8.0 9.0 10.0
Reducing to this percentage in
2001 and thereafter ................... 5.5 5.5 5.5
The following tables present the funded status of the company's benefit plans
(excluding liabilities of the DNA that are reported in the Consolidated Balance
Sheet under the caption "Equity in unconsolidated companies and joint ventures")
and the components of 1997, 1996 and 1995 periodic expense (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------------------------ ------------------------ ------------------------
Life Life Life
Insurance Insurance Insurance
Medical and Medical and Medical and
Plans Other Plans Plans Other Plans Plans Other Plans
--------- ----------- --------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Accumulated postretirement benefit
obligation:
Retirees ............................. $ 60,845 $ 13,873 $ 58,225 $ 13,519 $ 69,180 $ 13,313
Fully eligible active plan
participants ....................... 13,054 5,931 12,369 5,157 16,778 5,440
Other active plan participants ....... 18,706 20,209 17,650 14,568 21,617 16,243
--------- -------- --------- -------- --------- --------
Accumulated benefit obligation in
excess of plan assets ................ 92,605 40,013 88,244 33,244 107,575 34,996
Fair value of assets 12,386
Unfunded status ........................ 92,605 27,627 88,244 33,244 107,575 34,996
Unrecognized net reduction
(increase) in prior service costs .... 23,664 (135) 27,693 (158) 31,723 (180)
Unrecognized net gain (loss) ........... 2,746 3,978 1,493 8,295 (10,633) 5,576
--------- -------- --------- -------- --------- --------
Accrued liability recognized in the
balance sheet ........................ $ 119,015 $ 31,470 $ 117,430 $ 41,381 $ 128,665 $ 40,392
========= ======== ========= ======== ========= ========
Net periodic postretirement benefit
cost includes the following components:
Service cost ......................... $ 3,524 $ 3,769 $ 4,414
Interest cost ........................ 10,988 11,229 11,742
Amortization ......................... (4,812) (4,600) (5,095)
Actual return on plan assets ......... (773)
--------- --------- --------
Net periodic postretirement
benefit cost ....................... $ 8,927 $ 10,398 $ 11,061
========= ========= ========
Impact of 1% increase in medical trend rate:
Aggregate impact on 1997 service
cost and interest cost ............. $ 945
=========
Increase in Dec. 28, 1997, accumulated
postretirement benefit obligation .. $ 5,843
=========
</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.
46
<PAGE>
I. COMMITMENTS AND CONTINGENCIES
At Dec. 28, 1997, the company had lease commitments currently estimated to
aggregate approximately $54.9 million that expire from 1998 through 2051 as
follows (in thousands):
1998 ....................................... $ 13,908
1999 ....................................... 11,615
2000 ....................................... 9,208
2001 ....................................... 6,610
2002 ....................................... 4,330
2003 and thereafter ........................ 9,211
--------
Total .................................... $ 54,882
========
Payments under the lease contracts were $15.6 million in 1997, $14.2 million in
1996 and $12.7 million in 1995.
In connection with the company's insurance program, letters of credit are
required to support certain projected worker compensation obligations. At Dec.
28, 1997, the company had approximately $40.3 million of undrawn letters of
credit outstanding.
On July 13, 1995, six unions struck the Detroit Free Press, The Detroit News and
the Detroit Newspaper Agency, which operates both newspapers. Subsequently, the
unions filed numerous unfair labor practice charges against the newspapers and
the Agency. In June 1997, after a lengthy trial, a National Labor Relations
Board (NLRB) administrative law judge ruled that the strike was caused by the
unfair labor practices of the Agency and The Detroit News and recommended that
the Agency and the newspapers reinstate all strikers, displacing permanent
replacements if necessary. The Agency and the newspapers have appealed the
decision, which is pending before the NLRB.
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 all legal proceedings, including
Detroit, will not be material to its financial position or results of
operations.
47
<PAGE>
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 Dec. 28, 1997, Dec. 29, 1996, and Dec. 31, 1995,
and the related consolidated statements of income, cash flows and shareholders'
equity for the years then ended. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These financial statements
and schedule are the responsibility of the company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and schedule 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 Dec. 28, 1997, Dec. 29, 1996, and Dec. 31, 1995, and
the consolidated results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles. Also, in
our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
As discussed in Note A to the financial statements, in 1995 the company changed
its method of accounting for contributions.
/s/ Ernst & Young LLP
---------------------
Miami, Florida
Jan. 26, 1998
48
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
1997 Proxy Statement page 2, "Election of Directors"; page 3, "Nominees for
Election as Directors for Terms Ending 2001; pages 3 through 5, "Continuing
Directors"; page 7, "Compensation Committee Interlocks and Insider
Participation"; page 16, "Certain Relationships"; and page 16, "Section 16(a)
Beneficial Ownership Reporting Compliance".
KNIGHT RIDDER EXECUTIVE COMMITTEE
Alvah H. Chapman Jr., 76
- --------------------------------------------------------------------------------
Served as chairman of the Executive Committee 1984 to 1995; chairman of the
board 1982 to 1989; chief executive officer 1976 to 1988; president 1973 to
1982; executive vice president 1967 to 1973; vice president 1966 to 1967; The
Miami Herald general manager 1962 to 1969. B.S., business administration, The
Citadel, 1942.
Mary Jean Connors, 45
- --------------------------------------------------------------------------------
Senior vice president/human resources since 1996; vice president/human resources
1989 to 1996. Served as Philadelphia Newspapers, Inc., vice president/human
resources 1988 to 1989; assistant to the senior vice president/news for Knight
Ridder 1988; The Miami Herald assistant managing editor/personnel 1985 to 1988;
held various editing positions at The Miami Herald 1980 to 1985. B.A., English,
Miami University in Oxford, Ohio, 1973.
John C. Fontaine, 66
- --------------------------------------------------------------------------------
Retired president and a partner in the law firm of Hughes Hubbard & Reed. Served
as executive vice president 1994 to 1995; senior vice president 1987 to 1993;
general counsel 1980 to 1993. Prior to that, a partner with Hughes Hubbard &
Reed. LL.B., Harvard Law School, 1956; B.A., political science, University of
Michigan, 1953.
Ross Jones, 55
- --------------------------------------------------------------------------------
Senior vice president and chief financial officer since 1993. Served as vice
president/finance in 1993; vice president and treasurer of Reader's Digest
Association, Inc., 1985 to 1993 and in other positions there 1977 to 1985.
Served as manager at Brown Brothers Harriman & Co. 1970 to 1977. Advanced
Management Program, Harvard Business School, 1988; M.B.A., finance, Columbia
University Business School, 1970; B.A., classics, Brown University, 1965.
Frank McComas, 52
- --------------------------------------------------------------------------------
Senior vice president/operations since 1996; vice president/operations 1995 to
1996. Served as publisher, The (Columbia) State, 1988 to 1995; publisher,
Bradenton Herald, 1980 to 1988; held various positions at The Miami Herald and
The Charlotte Observer, 1970 to 1980. Advanced Management Program, Harvard
Business School, 1994; B.B.A. in business administration, Kent State University,
1968.
Bernard H. Ridder Jr., 81
- --------------------------------------------------------------------------------
Former chairman of the board 1979 to 1982; former chairman of the Executive
Committee 1976 to 1984; former vice chairman of the board 1974 to 1979. Served
as president and chief executive officer of Ridder Publications, Inc., 1969 to
1974. B.A., history, Princeton University, 1938.
49
<PAGE>
P. Anthony Ridder, 57
- --------------------------------------------------------------------------------
Chairman of the Executive Committee since 1995; Knight Ridder chairman and CEO
since 1995. Served as president 1989 to 1995; president of the Newspaper
Division 1986 to 1995; chairman of the Operating Committee since 1985. Served as
publisher of the San Jose Mercury News 1977 to 1986; general manager 1975 to
1977; business manager 1969 to 1975. B.A., economics, University of Michigan,
1962.
KNIGHT RIDDER OFFICERS
Marty Claus, 49
- --------------------------------------------------------------------------------
Vice president/news since 1993. Served as Detroit Free Press managing editor/
business and features from 1987 to 1992; held various editing positions at the
Free Press 1977 to 1987. Held various writing and editing positions at the San
Bernardino (Calif.) Sun-Telegram 1970 to 1977. B.A., journalism, Michigan State
University Honors College, 1970.
Gary R. Effren, 41
- --------------------------------------------------------------------------------
Vice president/controller since 1995. Served as assistant vice president/
assistant treasurer 1993 to 1995; assistant to the vice president/finance and
treasurer 1989 to 1993; director of corporate accounting 1986 to 1989; business
manager of Viewdata Corp. of America 1984 to 1986; manager of financial
reporting 1983 to 1984. M.B.A., University of Miami, 1989; B.S., accounting,
Rider College, 1978; CPA.
Virginia Dodge Fielder, 49
- --------------------------------------------------------------------------------
Vice president/research since 1989. Served as vice president/news and
circulation research 1986 to 1989. Served as director/news and circulation
research 1981 to 1985; editorial research manager, Chicago Sun-Times 1979 to
1981; held various positions at Lexington Herald-Leader 1976 to 1979. Ph.D.,
mass communications, Indiana University, 1976; M.A., journalism, Indiana
University, 1974; B.A., psychology, Transylvania University, 1970.
Douglas C. Harris, 58
- --------------------------------------------------------------------------------
Vice president and secretary since 1986. Served as vice president/personnel 1977
to 1985; director/personnel 1972 to 1977. Formerly with Peat, Marwick, Mitchell
and Co. as director of college and special recruiting. Advanced Management
Program, Harvard Business School, 1987; Ed.D., counseling and guidance, Indiana
University, 1968; M.S., student personnel, Indiana University, 1964; B.S.,
business administration, Murray State University, 1961.
Clark Hoyt, 55
- --------------------------------------------------------------------------------
Vice president/news since 1993. Served as chief of the Knight Ridder Washington
Bureau 1987 to 1993; news editor 1985 to 1987; managing editor, The Wichita
Eagle 1981 to 1985; various editing positions, Detroit Free Press 1977 to 1981;
various reporting positions, Detroit Free Press and Washington Bureau. B.A.,
English literature, Columbia College, 1964.
Robert D. Ingle, 58
- --------------------------------------------------------------------------------
Vice president/new media since 1995. Served as president and executive editor of
the San Jose Mercury News 1981 to 1995; managing editor, The Miami Herald 1977
to 1981; various editing positions, The Miami Herald 1962 to 1977. B.A.,
journalism and political science, University of Iowa, 1962.
Mindi Keirnan, 42
- --------------------------------------------------------------------------------
Vice president/operations since 1996; assistant vice president/assistant to the
chairman and CEO 1995 to 1996. Served as assistant to the president 1994 to
1995; managing editor/news, Saint Paul Pioneer Press 1991 to 1994; various
editing positions at Gannett News Service, Crain's Chicago Business, the Detroit
Free Press and the Tallahassee Democrat 1977 to 1991. B.S., political science,
Florida State University, 1984.
50
<PAGE>
Polk Laffoon IV, 52
- --------------------------------------------------------------------------------
Vice president/corporate relations since 1994. Served as assistant to the
president 1992 to 1994; assistant circulation director/distribution, The Miami
Herald 1991 to 1992; executive assistant to the vice president/marketing 1989 to
1991; Living Today editor, 1987 to 1989. Served as director and vice
president/investor relations, Taft Broadcasting Co. 1982 to 1987. M.B.A.,
marketing, Wharton School, 1970; B.A., English, Yale, 1967.
Tally C. Liu, 47
- --------------------------------------------------------------------------------
Vice president/finance and administration since 1994. Served as vice
president/finance and controller 1993 to 1994; vice president and controller
1990 to 1993. Served as San Jose Mercury News vice president and chief financial
officer 1987 to 1990 and in various roles 1983 to 1987; held various finance
positions, Boca Raton News, 1978 to 1983. M.B.A., Florida Atlantic University,
1977; B.S., business administration, National Chen-Chi University, 1973; CPA.
Larry D. Marbert, 44
- --------------------------------------------------------------------------------
Vice president/technology since 1994. Served as Philadelphia Newspapers, Inc.,
senior vice president/operations 1991 to 1994; vice president/operations
research and planning 1988 to 1991; vice president/production 1986 to 1988;
Knight Ridder director of production/Newspaper Division 1981 to 1986; various
production positions, The Miami Herald 1977 to 1981. M.S., management science,
Auburn University, 1977; B.S., University of North Carolina, business
administration, 1976.
Cristina Lagueruela Mendoza, 51
- --------------------------------------------------------------------------------
Vice president/general counsel since 1993; vice president/associate general
counsel 1992 to 1993; associate general counsel 1990 to 1992. Served as a
partner in Murai, Wald, Biondo, Moreno & Mendoza, P.A., 1988 to 1990; associate
1984 to 1988. J.D., University of Miami Law School, 1982; M.A., political
science, University of Miami, 1967; B.A., political science, Chatham College,
1966.
Alan G. Silverglat, 51
- --------------------------------------------------------------------------------
Vice president/treasurer since 1995. Served as senior vice president/finance and
planning for Business Information Services Division 1983 to 1995; other BIS
positions 1980 to 1983. Formerly with Ernst & Young. B.S., business
administration, University of Missouri, 1968; CPA.
Jerome S. Tilis, 55
- --------------------------------------------------------------------------------
Vice president/marketing since 1987. Served as president of the Detroit Free
Press 1985 to 1989; senior vice president of Philadelphia Newspapers, Inc., 1980
to 1985; vice president of advertising sales and marketing 1979 to 1980;
advertising director 1977 to 1979. Advanced Management Program, Harvard Business
School, 1984; B.S., chemistry, Hunter College, 1964.
Robert Woodworth, 50
- --------------------------------------------------------------------------------
Vice president since June. Served as president and publisher of The Kansas City
Star Company 1993 to 1997; president and general manager 1988 to 1993; and
executive vice president and general manager of the Fort Worth Star- Telegram,
1986 to 1988. M.B.A., Darden School of Business, University of Virginia; B.A.,
economics, Allegheny College.
51
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
1997 Proxy Statement, pages 7 and 8, "Compensation Committee Interlocks and
Insider Participation"; page 8, "Executive Compensation"; pages 8 through 10,
"Compensation Committee Report"; page 11, "Senior Executive Compensation"; page
12, "Stock Options Granted"; pages 12 and 13, "Stock Options Exercised"; pages
13 and 14, "Long-Term Incentive Plan"; page 14, "Pension Benefits"; page 15,
"Performance of the Company's Stock"; and page 16, "Compensation of Directors"
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
1997 Proxy Statement, page 1, "Common Stock Outstanding and Principal Holders"
and page 6, "Security Ownership of Management"
See Note E in Item 8.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
1997 Proxy Statement, page 16, "Certain Relationships"; page 3, "Nominees for
Election as Directors for Terms Ending 2001"; pages 3 through 5, "Continuing
Directors"; pages 7 and 8, "Compensation Committee Interlocks and Insider
Participation"; and page 1, "Common Stock Outstanding and Principal Holders"
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)
1. The following consolidated financial statements of Knight-Ridder,
Inc. and subsidiaries, included in the annual report of the
registrant to its shareholders for the year ended December 28, 1997,
are included in Item 8:
Consolidated Balance Sheet - December 28, 1997, December 29, 1996,
and December 31, 1995
Consolidated Statement of Income - Years ended December 28, 1997,
December 29, 1996, and December 31, 1995
Consolidated Statement of Cash Flows - Years ended December 28,
1997, December 29, 1996, and December 31, 1995
Consolidated Statement of Shareholders' Equity - Years ended
December 28, 1997, December 29, 1996, and December 31, 1995
Notes to consolidated financial statements
2. The following consolidated financial statement schedule of
Knight-Ridder, Inc. and subsidiaries is included in Item 14(d):
Schedule II - Valuation and qualifying accounts
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are
not required under the related instructions, or are inapplicable, or
have been shown in the consolidated financial statements or notes
thereto, and therefore have been omitted from this section.
52
<PAGE>
3. Exhibits
No. 2 - Acquisition Agreement, dated as of April 4, 1997, is
incorporated by reference to the Company's Form 10-Q
filed May 9, 1997.
- Acquisition and Plan of Merger, dated as of May 9,
1997, is incorporated by reference to the Company's
Form 8-K filed May 22, 1997.
No. 3(i) - Amended and Restated Articles of Incorporation of
Knight-Ridder, Inc. (totally amended and restated as of
February, 1998) are filed herein.
(ii) - Bylaws of Knight-Ridder, Inc. (As Amended Through
January 28, 1997), are incorporated by reference to the
Company's Form 10-Q filed May 9, 1997.
No. 4 - Indenture, dated as of April 6, 1989, is incorporated
by reference to the Company's Registration Statement on
Form S-3, effective April 7, 1989. (No. 33-28010)
- Rights Agreement, dated as of June 21, 1996, is
incorporated by reference to the Company's Form 8-A
filed July 9, 1996.
- Indenture, dated as of October 9, 1997, is Incorporated
by reference to the Company's Registration Statement on
Form S-3, effective October 10, 1997 (No. 333-37603).
53
<PAGE>
No. 10 - Knight-Ridder, Inc. Compensation Plan for Nonemployee
Directors dated July 1, 1997 is filed herein.
- Stock Purchase Agreement between Knight-Ridder Business
Information Services, Inc. and M.A.I.D plc, dated as
of October 1, 1997 is incorporated by reference to the
Company's Form 10-Q filed November 12, 1997.
- Consulting Agreement is incorporated by reference to
the Company's Form 10-Q filed on August 14, 1997.
- Knight-Ridder, Inc. Long-Term Incentive Plan is
incorporated by reference to the Company's Form 10-Q
filed on May 9, 1997.
- Knight-Ridder Annual Incentive Plan is incorporated by
reference to the Company's Form 10-K filed on March 24,
1995.
- Amendment to the Employee Stock Option Plan is
incorporated by reference to the Company's Form 10-K
filed on March 23, 1994.
- Executive Officer's Retirement Agreement dated July 19,
1993 is incorporated by reference to the Company's Form
10-K filed on March 23, 1994.
- Executive Officer's Retirement Agreement dated December
19, 1991 is incorporated by reference to the Company's
Form 10-K filed on March 23, 1994.
- Executive Officer's Consulting/Retirement Agreement
dated September 20, 1989 is incorporated by reference
to the Company's Form 10-K filed on March 24, 1995.
- Knight-Ridder Local Incentive Plan description is
incorporated by reference to the Company's Form 10-K
filed on March 20, 1996.
No. 11 - Statement re Computation of Per Share Earnings is filed
herein.
No. 12 - Statement re Computation of Earnings to Fixed Charges
Ratio From Continuing Operations is filed herein.
No. 21 - Subsidiaries of the Registrant is filed herein.
No. 23 - "Consent of Independent Certified Public Accountants"
is filed herein.
No. 24 - "Power of Attorney" for M. Kenneth Oshman is
incorporated by reference to the Company's Form 10-K
filed on March 10, 1997. "Power of Attorney" for James
I. Cash, Jr. is incorporated by reference to the
Company's Form 10-K filed on March 20, 1996. "Powers of
Attorney" for all other members of the Board of
Directors are incorporated by reference to the
Company's Form 10-K filed on March 24, 1995.
No. 27 - "Financial Data Schedule" is filed herein.
54
<PAGE>
(b) Reports on Form 8-K filed during the fourth quarter of 1997:
Form 8-K dated and filed October 8, 1997
Item 5. Other Events; Financial statements restated for the
reclassification of the company's discontinued Business
Information Services segment (excluding one business called
Technimetrics) for the years ended December 29, 1996, December
31, 1995 and December 25, 1994. Pro forma financial statements
of the company's acquisition of ABC Media, Inc., which was
indirectly owned by The Walt Disney Company, restated for the
reclassification of the company's discontinued Business
Information Services segment for the quarter ended March 30,
1997 and the year ended December 29, 1996.
Form 8-K dated November 14, 1997, filed November 26, 1997
Item 2. Disposition of Assets
Item 7. Financial Statements and Exhibits; pro forma financial
statements filed.
(c) Exhibits
The response to this portion of Item 14 is submitted as a separate
section of this report.
(d) Financial Statement Schedules
The response to this portion of Item 14 is submitted as a separate
section of this report.
55
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
/s/ P. Anthony Ridder
Dated March 13, 1998 ---------------------------------------------
By P. Anthony Ridder
Chairman and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
/s/ P. Anthony Ridder
Dated March 13, 1998 ---------------------------------------------
P. Anthony Ridder
Chairman and
Chief Executive Officer
/s/ Ross Jones
Dated March 13, 1998 ---------------------------------------------
Ross Jones
Chief Financial Officer and
Senior Vice President/Finance
/s/ Gary R. Effren
Dated March 13, 1998 ---------------------------------------------
Gary R. Effren
Vice President/Controller
(Chief Accounting Officer)
56
<PAGE>
/s/ James I. Cash, Jr.*
---------------------------------------------
James I. Cash, Jr.
Director
/s/ Alvah H. Chapman, Jr.*
---------------------------------------------
Alvah H. Chapman, Jr.
Director
/s/ Joan Ridder Challinor *
---------------------------------------------
Joan Ridder Challinor
Director
/s/ John C. Fontaine*
---------------------------------------------
John C. Fontaine
Director
/s/ Peter C. Goldmark, Jr.*
---------------------------------------------
Peter C. Goldmark, Jr.
Director
/s/ Barbara Barnes Hauptfuhrer*
---------------------------------------------
Barbara Barnes Hauptfuhrer
Director
/s/ Jesse Hill, Jr.*
---------------------------------------------
Jesse Hill, Jr.
Director
/s/ C. Peter McColough*
---------------------------------------------
C. Peter McColough
Director
/s/ M. Kenneth Oshman*
---------------------------------------------
M. Kenneth Oshman
Director
/s/ Thomas L. Phillips*
---------------------------------------------
Thomas L. Phillips
Director
57
<PAGE>
/s/ P. Anthony Ridder*
---------------------------------------------
P. Anthony Ridder
Director
/s/ Randall L. Tobias*
---------------------------------------------
Randall L. Tobias
Director
/s/ Gonzalo F. Valdes-Fauli*
---------------------------------------------
Gonzalo F. Valdes-Fauli
Director
/s/ John L. Weinberg*
---------------------------------------------
John L. Weinberg
Director
Dated March 13, 1998 * By /s/ Ross Jones
---------------------------------------------
Ross Jones
Attorney-in-fact
58
<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEM 14 (a) (2), (c) and (d)
SUPPLEMENTARY DATA
CERTAIN EXHIBITS
YEAR ENDED DECEMBER 28, 1997
KNIGHT-RIDDER, INC. AND SUBSIDIARIES
MIAMI, FLORIDA
59
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
KNIGHT-RIDDER, INC. AND SUBSIDIARIES
(IN THOUSANDS OF DOLLARS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- --------- ------------ ---------- ---------- ----------
ADDITIONS
---------------------------
BALANCE AT CHARGED CHARGED
BEGINNING TO COSTS TO BALANCE
OF AND OTHER AT END
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
- ----------- ------------ ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 28, 1997:
RESERVES AND ALLOWANCES
DEDUCTED FROM ASSET ACCOUNT:
ACCOUNTS RECEIVABLE
ALLOWANCES ....................... $ 12,685 $ 23,332 $ 752 (1) $ 21,806 (2) $ 14,963
VALUATION ALLOWANCE FOR
DEFERRED TAXES ................... 1,357 1,357
---------- --------- ----- -------- -----------
$ 14,042 $ 23,332 $ 752 $ 21,806 $ 16,320
YEAR ENDED DECEMBER 29, 1996:
RESERVES AND ALLOWANCES
DEDUCTED FROM ASSET ACCOUNT:
ACCOUNTS RECEIVABLE
ALLOWANCES ....................... $ $14,348 $ 19,315 $ 2,097 (1) $ 23,075 (2) $ 12,685
VALUATION ALLOWANCE FOR
DEFERRED TAXES ................... 1,357 1,357
---------- --------- ----- -------- ----------
$ 15,705 $ 19,315 $ 2,097 $ 23,075 $ 14,042
YEAR ENDED DECEMBER 31, 1995:
RESERVES AND ALLOWANCES
DEDUCTED FROM ASSET ACCOUNT:
ACCOUNTS RECEIVABLE
ALLOWANCES ....................... $ 13,728 $ 17,211 $ 2,918 (1) $ 19,509 (2) $ 14,348
VALUATION ALLOWANCE FOR
DEFERRED TAXES ................... 3,985 2,628 (3) 1,357
---------- --------- ----- -------- ----------
$ 17,713 $ 17,211 $ 2,918 $ 22,137 $ 15,705
</TABLE>
(1) Represents amounts for the former BIS division included in "Income (loss)
from discontinued BIS operations" in the Consolidated Statement of Income.
(2) Represents uncollectible accounts written-off, net of recoveries, and
dispositions of subsidiaries' balances.
(3) Represents net reduction in valuation allowance which was determined to be
no longer required.
EXHIBIT 3(i)
Totally Amended and Restated as of 2/98
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
KNIGHT-RIDDER, INC.
(ORIGINALLY INCORPORATED AS
KRN, INC. ON MARCH 12, 1976)
FIRST: The name of the corporation is KNIGHT-RIDDER, INC. (the
"Corporation").
SECOND: The purposes of the corporation are as follows:
Printing, editing, publishing and distributing daily, Sunday and weekly
newspapers, or any or all of them. Also conducting a general business in the
distribution and reception of news and general information through the various
means of transmission now or hereafter discovered; also conducting a general
business of job printing of every kind and nature, including pamphlets,
bulletins and periodicals, and the distribution of the same; also engaging in
the business of engraving, die casting, stereotyping, lithographing and
electrotyping or in any process now or hereafter discovered which is useful to
or used in the newspaper business; also preparing, producing, manufacturing,
buying, selling and dealing in equipment, tools, supplies and other materials
used in the production of a newspaper and the conduct of a printing and
publishing business; and the doing of all things necessary and incident to any
or all of the foregoing purposes.
To collect, formulate, transmit and dispose of news by telegraph, cable,
telephone, radio and ether agencies in and for the United States and her
dependencies and foreign countries; to buy and sell news; to own, lease, manage,
buy and sell news agencies; to acquire press franchises and to become a member
of and hold stock in associations and corporations for such purposes.
To carry on the business of receiving and transmitting communications, messages,
news, news reports, news service, news features, visual representations and
pictures by radio and to acquire, construct, lease, own, maintain and operate
stations and facilities for such purpose.
To buy from and furnish and sell to newspapers, publishers, the press, radio
stations, broadcast stations and the public generally, news, news reports, news
services, news features, visual representations and pictures.
<PAGE>
To do any and all things necessary, incidental or convenient to carry out any of
the foregoing purposes and the powers herein set forth.
The foregoing statement of specific powers shall not be held to limit or
restrict the powers of the corporation, and are in furtherance of and in
addition to, and not in limitation of, the powers conferred by the Florida
General Corporation Act; provided, however, that the corporation will not act as
a banking, safe deposit, trust, insurance, surety, express, railroad, canal,
telegraph, telephone or cemetery company, a building and loan association,
mutual fire insurance association, cooperative association, fraternal benefit
society, state fair or exposition.
THIRD: The maximum number of shares which the Corporation is authorized
to issue is Two Hundred Seventy Million (270,000,000) which shall be classified
as follows:
(a) Two Hundred Fifty Million (250,000,000) of said shares shall be
Common Stock with a par value of Two and One-Twelfth cents (2 1/12(cent)) per
share ("Common Stock"); and
(b) Twenty Million (20,000,000) of said shares shall be Preferred Stock
with a par value of One Dollar ($1.00) per share ("Preferred Stock or Preference
Stock").
Preferred Stock shall be entitled to preference over Common Stock in
the distribution of dividends or assets, in such manner and to such extent if
any as may be determined, from time to time by the Board of Directors. The
shares of Preferred Stock may be divided into or issued in series. The Board of
Directors is expressly vested with and shall have authority to establish from
time to time the number of shares to be included in each series and, within the
limitations of law and the provisions of these Amended and Restated Articles of
Incorporation, to fix and determine the designation and the relative powers,
preferences and rights of the shares of any series so established, and the
qualifications, limitations or restrictions thereof. All shares of a series
shall have preferences, limitations and relative rights identical with those of
other shares of the same series and, except to the extent otherwise provided in
the description of the series, with those of the other series of Preferred
Stock.
The authority of the Board of Directors with respect to each series
shall include, but not be limited to, determination of the following:
(i) The number of shares constituting such series and the distinctive
designation of such series;
(ii) The preferences and relative, participating, optional or other
special rights, if any, and the qualifications, limitations or restrictions
thereof, if any, with respect to any series;
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(iii) The dividend rate on the shares of each series, the dates at
which dividends, if declared, shall be payable, the conditions upon which such
dividends are payable, whether dividends shall be cumulative, noncumulative, or
partially cumulative and, if cumulative or partially cumulative, from which date
or dates, and the relative rights of priority, if any, of payment of dividends
on shares of such series;
(iv) Whether the shares of such series shall have voting rights in
addition to any voting rights and/or class voting rights that may be provided by
law and, if so, the terms and duration of such voting rights, including the
number of votes per share in any such series, which number may be more or less
than one vote per share, as the Board of Directors may determine;
(v) Whether the shares of such series shall have conversion or exchange
privileges, and, if so, the terms and conditions of such conversion or exchange,
including the amount and type of consideration per share payable in case of
conversion or exchange, the conversion price or prices or ratio or ratios or the
rate or rates at which such conversion or exchange may be effected, and
provision for adjustments of the conversion rate in such events as the Board of
Directors shall determine;
(vi) Whether or not the shares of such series shall be redeemable, and,
if so, the terms and conditions of redemption, including the date or dates upon
or after which the shares of such series shall be redeemable and the amount and
type of consideration per share payable in case of redemption, which amount may
vary under different conditions and at different redemption dates;
(vii) Whether the shares of such series shall be subject to the
operation of retirement or sinking funds to be applied to the redemption or
purchase of shares of that series for retirement, and if such retirement or
sinking fund or funds be established, the amount thereof and the terms and
provisions relative to the operation thereof;
(viii) The rights of the shares of such series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
corporation, and the relative rights of priority, if any, of payment of shares
of such series;
(ix) Such other special rights and protective provisions with respect
to any series as the Board of Directors may deem advisable; and
(x) Any other relative rights, preferences and limitations of such
series.
The shares of each series of the Preferred Stock may vary from the
shares of any other series thereof in any or all of the foregoing respects. The
Board of Directors may increase the number of shares of Preferred Stock
designated for any existing series by a resolution adding to such series
authorized and unissued shares of the Preferred Stock not designated for any
other series. The Board of Directors may decrease the number of shares of the
Preferred Stock designated for any existing series by a resolution, subtracting
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from such series unissued shares of the Preferred Stock designated for such
series, and the shares so subtracted shall become authorized, unissued and
undesignated shares of the Preferred Stock.
A series of Preferred Stock has been established to which the following
provisions shall be applicable.
Series A Junior Participating Preferred Stock
1. DESIGNATION.
The series shall be designated as "Series A Junior Participating Preferred
Stock" (hereinafter "this Series").
2. NUMBER.
The number of shares of this Series authorized to be issued is 1,500,000. Such
number may be increased or decreased by resolution of the Board of Directors;
PROVIDED, HOWEVER, that no decrease shall reduce the number of shares of this
Series to a number less than that of the shares then outstanding.
3. DIVIDENDS AND DISTRIBUTIONS.
(A) Subject to the prior and superior rights of the holders of any
shares of any series of Preferred Stock ranking prior and superior to this
Series with respect to dividends, the holders of shares of this Series shall be
entitled to receive, when, as and if declared by the Board of Directors out of
funds legally available therefor, quarterly dividends payable in cash on the
15th day of January, April, July and October in each year (each such date being
referred to herein as a "Quarterly Dividend Payment Date") commencing on the
first Quarterly Dividend Payment Date after the first issuance of a share or
fraction of a share of this Series, in an amount per share (rounded to the
nearest cent) equal to the greater of (a) S 1.00 or (b) subject to the provision
for adjustment hereinafter set forth, 100 times the aggregate per share amount
of all cash dividends, and 100 times the aggregate per share amount (payable in
kind) of all non-cash dividends or other distributions (other than a dividend
payable in shares of Common Stock or a subdivision of the outstanding shares of
Common Stock by reclassification or otherwise), declared on the Common Stock,
par value 2-1/12(cent) per share, of the Corporation (the "Common Stock") since
the immediately preceding Quarterly Dividend Payment Date or, with respect to
the first Quarterly Dividend Payment Date, since the first issuance of any share
or fraction of a share of this Series. In the event the Corporation shall at any
time after July 10, 1996 declare or pay any dividend on the Common Stock payable
in shares of Common Stock, or effect a subdivision or combination of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock (other than the stock split effected in the form of a
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stock dividend on the Common Stock approved by the Board of Directors on June
21, 1996 (the "1996 Stock Split")), then in each such case the amount to which
holders of shares of this Series were entitled immediately prior to such event
under clause (b) of the preceding sentence shall be adjusted by multiplying such
amount by a fraction the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.
(B) The Corporation shall declare a dividend or distribution on this
Series as provided in paragraph (A) of this Section immediately after it
declares a dividend or distribution on the Common Stock (other than a dividend
payable in shares of Common Stock); PROVIDED, HOWEVER, that in the event no
dividend or distribution shall have been DECLARED on the Common Stock during the
period between any Quarterly Dividend Payment Date and the next subsequent
Quarterly Dividend Payment Date, a dividend of $1.00 per share on this Series
shall nevertheless be payable on such subsequent Quarterly Dividend Payment
Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of this Series from the Quarterly Dividend Payment Date next preceding
the date of issue of such shares of this Series, unless the date of issue of
such shares is prior to the record date for the first Quarterly Dividend Payment
Date, in which case dividends on such shares shall begin to accrue from the date
of issue of such shares, or unless the date of issue is a Quarterly Dividend
Payment Date or is a date after the record date for the determination of holders
of shares of this Series entitled to receive a quarterly dividend and before
such Quarterly Dividend Payment Date, in either of which events such dividends
shall begin to accrue and be cumulative from such Quarterly Dividend Payment
Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on
the shares of this Series in an amount less than the total amount of such
dividends at the time accrued and payable on such shares shall be allocated pro
rata on a share-by-share basis among all such shares at the time outstanding.
The Board of Directors may fix a record date for the determination of holders of
shares of this Series entitled to receive payment of a dividend or distribution
declared thereon, which record date shall be no more than 60 days prior to the
date fixed for the payment thereof.
4. LIQUIDATION, DISSOLUTION OR WINDING UP.
In the event of any voluntary or involuntary liquidation, dissolution or winding
up of the Corporation (a "Liquidation"), no distribution shall be made (x) to
the holders of Common Stock or any other shares of stock ranking junior (either
as to dividends or upon Liquidation) to this Series unless, prior thereto, the
holders of shares of this Series shall have received an amount per share equal
to the greater of (i) $100, plus an amount equal to accrued and unpaid dividends
and distributions thereon, whether or not declared, to the date of such payment,
or (ii) subject to the provision for adjustment hereinafter set forth, l00 times
the aggregate amount to be distributed per share to holders of Common Stock, or
(y) to the holders of stock ranking on a parity (either as to dividends or upon
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<PAGE>
Liquidation) with this Series, except distributions made ratably on this Series
and all other such parity stock in proportion to the total amounts to which the
holders of all such shares are entitled upon such Liquidation. In the event the
Corporation shall at any time after July 10, 1996 declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a subdivision or
combination of the outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock (other than the 1996 Stock
Split), then in each such case the aggregate amount to which holders of shares
of this Series were entitled immediately prior to such event under clause (ii)
of clause (x) of the preceding sentence shall be adjusted by multiplying such
amount by a fraction the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.
For purposes of this Certificate, the voluntary sale, lease, exchange or
transfer (for cash, shares of stock, securities or other consideration) of all
or substantially all of the property or assets of the Corporation to, or a
consolidation or merger of the Corporation with, one or more corporations shall
not be deemed to be a Liquidation.
5. REDEMPTION.
The shares of this Series shall not be redeemable.
6. VOTING RIGHTS.
The holders of shares of this Series shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth, each
share of this Series shall entitle the holder thereof to 100 votes on all
matters submitted to a vote of the Common stockholders of the Corporation. In
the event the Corporation shall at any time after July 10, 1996 declare or pay
any dividend on the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock (other than the
1996 Stock Split), then in each such case the number of votes per share to which
holders of shares of this Series were entitled immediately prior to such event
shall be adjusted by multiplying such number by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
(B) Except as otherwise provided herein, in the Articles of
Incorporation of the Corporation or by law, the holders of shares of this Series
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<PAGE>
and the holders of shares of Common Stock shall vote together as one class on
all matters submitted to a vote of Common stockholders of the Corporation.
(C) (i) If at any time dividends on any shares of this Series shall be
in arrears in an amount equal to six full quarterly dividends thereon, the
holders of this Series and all other series of Preferred Stock (in each case to
the extent then entitled pursuant to the terms of such series), voting together
as one class, shall have the exclusive and special right to elect two directors
of the Corporation, and the number of directors constituting the Board of
Directors of the Corporation shall be increased by two (if not previously
increased in connection with the right of other series of Preferred Stock
entitled to vote together with this Series to elect directors of the
Corporation) for such purpose.
(ii) Whenever any such right of the holders of this Series shall have
vested, such right may be exercised initially either at a special meeting of the
holders of this Series and all other series so entitled to vote, if any, called
as hereinafter provided, or at any annual meeting of stockholders, and
thereafter at annual meetings of stockholders. The right of the holders of this
Series voting separately as a class with such other series to elect members of
the Board of Directors of the Corporation as aforesaid shall continue until such
time as all dividends accrued on all shares of this Series shall have been paid
in full, or declared and set apart for payment, at which time the special right
of the holders of this Series so to vote separately as a class with such other
series for the election of directors shall terminate, subject to revesting in
the event of each and every subsequent occurrence of an arrearage specified in
subparagraph (C)(i) above.
(iii) At any time when such special voting power shall have vested in
the holders of this Series as provided in the preceding subparagraph (C)(i), the
proper officer of the Corporation shall, upon the written request of the holders
of record of at least 10% of the then outstanding voting power of shares of this
Series and all other series entitled to vote in the election of such directors
addressed to the Secretary of the Corporation, call a special meeting of the
holders of this Series for the purpose of electing directors pursuant to this
paragraph (C). Such meeting shall be held at the earliest practicable date. If
such meeting shall not be called by the proper officer of the Corporation within
twenty days after personal service of such written request upon the Secretary of
the Corporation, or within twenty days after mailing the same within the United
States of America, by registered mail addressed to the Secretary of the
Corporation at its principal office, then the holders of record of at least 10%
of the then outstanding voting power of shares of this Series and all other
series entitled to vote in the election of such directors may designate in
writing one of their number to call such meeting at the expense of the
Corporation, and such meeting may be called by such person so designated by
giving the notice required for annual meetings of stockholders. Any holder of
this Series so designated shall have access to the stock books of the
Corporation for the purpose of causing meetings of stockholders to be called
pursuant to these provisions. Notwithstanding the provisions of this
subparagraph (C)(iii), no such special meeting shall be called during the period
within ninety days immediately preceding the date fixed for the next annual
meeting of stockholders.
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(iv) At any meeting held for the purpose of electing directors at which
the holders of this Series and any other series of Preferred Stock shall have
the special right to elect directors as provided in this paragraph (C), the
presence, in person or by proxy, of the holders of 50% of the voting power of
the then outstanding aggregate number of shares of this Series and such other
series shall be required to constitute a quorum for the election of any director
by the holders of such series. At any such meeting or adjournment thereof, (a)
the absence of a quorum shall not prevent the election of directors other than
those to be elected by all such series of Preferred Stock voting separately as a
class, and the absence of a quorum for the election of such other directors
shall not prevent the election of the directors to be elected by this Series and
any other series of Preferred Stock that may be voting with it separately as a
class, and (b) in the absence of either or both such quorums, the holders of a
majority of the voting power of the shares present in person or by proxy of the
stock or stocks which lack a quorum shall have power to adjourn the meeting for
the election of directors who they are entitled to elect from time to time
without notice other than announcement at the meeting until a quorum shall be
present.
(v) During any period when the holders of this Series have the right to
vote separately as a class for directors as provided in paragraph (C) hereof,
(1) the directors so elected by the holders of the one or more series of
Preferred Stock entitled to vote for such directors shall continue in office
until the next succeeding annual meeting or until their successors, if any, are
elected by such holders and qualify or, until termination of the right of the
holders of the one or more series of Preferred Stock entitled to vote for such
directors to vote separately as a class for directors as provided in paragraph
(C) hereof and (2) vacancies in the Board of Directors shall be filled only by
vote of a majority (even if that be only a single director) of the remaining
directors theretofore elected by the holders of the one or more series of
Preferred Stock which elected the directors whose office shall have become
vacant or if there be no such remaining director, directors to fill such
vacancies shall be elected by the holders of the one or more series of Preferred
Stock entitled to vote for such directors at a special meeting called pursuant
to the provisions of paragraph (C) hereof. Immediately upon any termination of
the right of the holders of this Series and any other series of Preferred Stock
to vote separately as a class for directors as provided in paragraph (C) hereof,
the term of office of the directors then in office so elected by the holders of
this Series and any such other series shall terminate. Whenever the term of
office of the directors so elected by the holders of this Series and any such
other series shall terminate and the special voting power vested in the holders
of this Series and any such other series as provided in paragraph (C) hereof
shall have terminated, the number of directors shall be such number as may be
provided for in the by-laws irrespective of any increase made pursuant to the
provisions of paragraph (C).
(D) So long as any shares of this Series are outstanding, the
Corporation shall not, without the consent of the holders of two-thirds of the
outstanding shares of this Series, given by such holders as one class, and given
by vote in person or by proxy at a meeting called for that purpose or given in
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writing, amend the Articles of Incorporation or adopt or amend any resolutions
of the Board of Directors to alter or change the powers, preferences or special
rights of this Series so as to affect them adversely.
(E) Except as provided herein, in the Articles of Incorporation of the
Corporation or by law, holders of shares of this Series shall have no special
voting rights and their consent shall not be required for taking any corporate
action.
7. CERTAIN RESTRICTIONS.
(A) Whenever quarterly dividends or other dividends or distributions
payable on this Series as provided in Section 3 are in arrears, thereafter and
until all accrued and unpaid dividends and distributions, whether or not
declared, on shares of this Series outstanding shall have been paid in full, the
Corporation shall not:
(i) declare or pay dividends on, make any other distributions on, or
redeem or purchase or otherwise acquire for consideration any Common Stock or
any other shares of stock ranking junior (either as to dividends or upon
Liquidation) to this Series;
(ii) declare or pay dividends on or make any other distributions on any
shares of stock ranking on a parity (either as to dividends or upon Liquidation)
with this Series, except dividends paid ratably on this Series and all such
parity stock on which dividends are payable or in arrears in proportion to the
total amounts to which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration shares
of any stock ranking on a parity (either as to dividends or upon Liquidation)
with this Series; PROVIDED, HOWEVER, that the Corporation may at any time
redeem, purchase or otherwise acquire shares of any such parity stock in
exchange for shares of any stock of the Corporation ranking junior (either as to
dividends or upon Liquidation) to this Series; or
(iv) purchase or otherwise acquire for consideration any shares of this
Series, or any shares of stock ranking on a parity (either as to dividends or
upon Liquidation) with this Series, except in accordance with a purchase offer
made in writing or by publication (as determined by the Board of Directors) to
all holders of such shares upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and other relative rights
and preferences of the respective series and classes, shall determine in good
faith will result in fair and equitable treatment among the respective series or
classes.
(B) The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this Section 7,
purchase or otherwise acquire such shares at such time and in such manner.
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8. CONSOLIDATION. MERGER. ETC.
In case the Corporation shall enter into any consolidation, merger, combination
or other transaction in which the shares of Common Stock are exchanged for or
changed into other stock or securities, cash and/or any other property, then in
any such case the shares of this Series shall at the same time be similarly
exchanged for or changed into an amount per share (subject to the provision for
adjustment hereinafter set forth) equal to 100 times the aggregate amount of
stock, securities, cash and/or any other property (payable in kind), as the case
may be, into which or for which each share of Common Stock is changed or
exchanged. In the event the Corporation shall at any time after July 10, 1996
declare or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination of the outstanding shares of
Common Stock (by reclassification or otherwise than by payment of a dividend in
shares of Common Stock) into a greater or lesser number of shares of Common
Stock (other than the 1996 Stock Split), then in each such case the amount set
forth in the preceding sentence with respect to the exchange or change of shares
of this Series shall be adjusted by multiplying such amount by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
9. RANKING.
This Series shall rank junior to all other series of the Corporation's Preferred
Stock as to the payment of dividends and the distribution of assets upon
Liquidation, unless the terms of any such series shall provide otherwise.
10. FRACTIONAL SHARES.
This Series may be issued in fractions of a share which shall entitle the
holder, in proportion to such holder's fractional shares, to exercise voting
rights, receive dividends, participate in distributions and to have the benefit
of all other rights of holders of this Series.
11. OTHER RIGHTS.
The holders of shares of this Series shall not have any other preferences or
special rights.
Series B Preferred Stock
1. DESIGNATION
The series shall be designated as "Series B Preferred Stock" ("this Series").
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2. NUMBER
The number of shares of this Series authorized to be issued is 1,758,242
3. DIVIDENDS
If and when dividends and other distributions, in cash, in property or in shares
of stock or other securities are declared by the Board of Directors on the
Corporation's Common Stock, the holders of this Series shall be entitled to
receive per share of this Series the dividends and other distributions, in cash,
in property or in shares of stock or other securities declared and paid on the
number of shares of the Corporation's Common Stock into which such share of this
Series is convertible on the record date of such dividend or other distribution,
and no more, when and as declared by the Board of Directors of the Corporation
out of funds legally available thereof, to be paid to holders of record on the
respective dates fixed for that purpose by the Board of Directors in advance of
payment of each dividend.
This Series shall rank junior as to dividends and distributions to all
other shares of Preferred Stock and any other class or series of stock of the
Corporation which are not by their terms expressly made junior or equal as to
dividends and distributions to this Series. This Series shall rank equally as to
dividends and distributions to the Corporation's Common Stock and all other
shares of Preferred Stock and any other class or series of stock of the
Corporation which are expressly made equal as to dividends and distributions to
all other shares of Preferred Stock and any other class or series of stock of
the Corporation which are by their terms expressly made junior as to dividends
and distributions to this Series.
4. LIQUIDATION RIGHTS
In the event of the voluntary or involuntary liquidation, dissolution or winding
up ("Liquidation") of the Corporation, each holder of shares of this Series
shall be entitled to have paid to him or it out of the assets of the
Corporation, before any distribution is made to or set apart for the holders of
any shares of any class or series of stock of the Corporation ranking junior to
this Series in respect to distribution of assets upon Liquidation, per share of
this Series held by such holder, an amount equal to (I) the liquidation
preference of $.01 per share PLUS (ii) the amount which would be paid to a
holder of the Common Stock Conversion Number (as defined below) of shares of
Common Stock. After payment to holders of this Series of the full preferential
amount as aforesaid, holders of this Series shall, as such, have no right or
claim to any of the remaining assets of the Corporation.
If upon any Liquidation of the Corporation the assets of the
Corporation or proceeds thereof distributable among the holders of shares of
this Series and of any class or series of stock ranking equally with this Series
as to distribution of assets upon Liquidation shall be insufficient to pay in
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full the preferential amounts payable to such holders, then such assets or the
proceeds thereof shall be distributed among such holders ratably in accordance
with the respective amounts that would be payable on such shares if all amounts
payable thereon were paid in full.
This Series shall rank junior as to distributions of assets upon
Liquidation to all other shares of Preferred Stock and any other class or series
of stock of the Corporation which are not by their terms expressly made junior
or equal as to distributions of assets upon Liquidation to this Series. This
Series shall rank equally as to distribution of assets upon Liquidation to the
Corporation's Common Stock and all other shares of Preferred Stock and any other
class or series of stock of the Corporation which are expressly made equal as to
distribution of assets upon Liquidation to all other shares of Preferred Stock
and any other class or series of stock of the Corporation which are by their
terms expressly made junior as to distribution of assets upon Liquidation to
this Series.
For purpose of this Certificate, the voluntary sale, lease, exchange or
transfer (for cash, shares of stock, securities or other consideration) of all
or substantially all of the property or assets of the Corporation to, or a
consolidation or merger of the Corporation with, one or more corporations shall
not be deemed to be a Liquidation.
5. TRANSFER
No Person holding shares of this Series of record may sell, assign, transfer,
pledge or otherwise dispose of, and the Corporation shall not register such
transfer, sale, assignment, pledge or other disposal of such shares of this
Series, whether by sale, assignment, gift, bequest, appointment or otherwise,
except to The Walt Disney Company or an Affiliate of The Walt Disney Company. As
used in this Section 5. "Affiliate" shall mean, with respect to a Person, any
other Person which directly or indirectly through one or more intermediaries
controls, or is controlled by or is under common control with, such Person.
6. CONVERSION RIGHTS
In the event a holder of shares of this Series sells, assigns, transfers,
pledges or otherwise disposes of such shares contrary to the provisions of
Section 5 hereof, such sale, assignment, transfer, pledge or other disposition
shall be deemed (I) an election by the holder thereof convert such shares of
this Series into shares of the Corporation's Common Stock and (ii) a sale,
assignment, transfer, pledge or other disposition of such shares of Common
Stock. Upon any such sale, assignment, transfer, pledge or other disposition,
each share of this Series so sold, assigned, transferred, pledged or other
disposed of shall automatically convert into the Common Stock Conversion Number
of fully paid and nonassessable whole shares of Common Stock of the Corporation
on the date of such sale, assignment, transfer, pledge or other disposition.
Upon presentation to the Corporation's Transfer Agent of the certificate or
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certificates representing the number of shares of Common Stock equal to the
number of shares of this Series so presented multiplied by the Common Stock
Conversion Number shall be issued in the name of the transferee or pledgee.
Upon any conversion of shares of this Series, the holders thereof shall
not be entitled to receive any accrued or unpaid dividends and distributions in
respect of the shares converted or the shares of Common Stock issued on
conversion thereof; PROVIDED, HOWEVER, that such holders shall be entitled to
receive any dividends and distributions on such shares of this Series paid or
declared prior to such conversion if such holder held such shares on the record
date for the payment of such dividend or distribution.
For all purposes, except the right to receive dividends and
distributions as provided in the foregoing paragraph, the rights of a converting
holder as a holder of shares of this Series shall cease, and the person or
persons in whose name or names the certificate or certificates for Common Stock
issuable upon such conversion are to be issued shall be deemed to have become
the record holder or holders of such Common Stock at the close of business on
that day (the "Date of Conversion") on which such shares are converted.
The issuance of certificates for shares of Common Stock upon conversion
of shares of this Series shall be made without charge for any stamp or other
similar tax in respect of such issuance. However, if any such certificate is to
be issued in a name other than that of the holder of the share or shares of this
Series converted, the person or persons requesting issuance thereof shall pay to
the Corporation the amount of any tax which may be payable in respect to any
transfer involved in such issuance or shall establish to the satisfaction of the
Corporation that such tax has been paid.
The Corporation shall not be required to issue fractional shares of
Common Stock upon conversion of shares of this Series. If more than one share of
this Series shall be converted at one time by the same holder, the number of
full shares of Common Stock issuable upon conversion thereof shall be computed
on the basis of the aggregate number of shares so converted. If any fractional
interest in a share of Common Stock would be deliverable upon the conversion of
any shares, the Corporation shall, in lieu of delivering the fractional share
thereof, make a cash adjustment in respect of such fraction in an amount equal
to the same fraction of the Current Market Price of one share of the Common
Stock of the Corporation on the last day business day before the Date of
Conversion. The "Current Market Price" on any given day shall be: (I) the
closing sale price regular way of the shares of Common Stock of the Corporation
on The New York Stock Exchange, or, in case no such sale takes place on such
day, the reported closing bid price regular way of the shares of Common Stock of
the Corporation on such day on The New York Stock Exchange, or if the Common
Stock of the Corporation is not listed or admitted to trading on The New York
Stock Exchange, the principal exchange on which such stock is traded or (ii) if
the Current Market Price on such day of the Common Stock of the Corporation is
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not available pursuant to one of the methods specified above, then the average
of the bid and asked prices for the Corporation's Common Stock on such day as
furnished by any New York Stock Exchange member firm selected from time to time
by the Board of Directors for that purpose.
At the option of the Corporation, by vote of the Board of Directors,
the Corporation may from time to time cause the holders of the shares of this
Series to convert their shares in accordance with this Section 6. In the event
that the Corporation causes fewer than all of the shares of this Series to be
converted at any one time, the shares so to be converted shall be selected by
lot or pro rata. The Corporation shall cause a notice to be mailed, first class
postage prepaid, at least 30 days, but not more than 90 days, prior to the Date
of Conversion, to each holder of record of shares of this Series. Such notice
shall be mailed to all record holders at their respective addresses as they
shall appear upon the books of the Corporation and shall set forth the date of
such conversion and the place for shares to be converted. In case the
Corporation causes fewer than all of the shares represented by any one
certificate to be converted, a new certificate representing the unredeemed
shares shall be issued to the converting holder at the expense of the
Corporation. Notwithstanding the foregoing, the Corporation may not cause the
conversion of shares of this Series in accordance with this paragraph if within
15 days after delivery of the conversion notice contemplated by this paragraph,
the holder of the shares of this Series which are the subject of the conversion
notice (I) advised the Corporation in writing that such holder's Federal
Communication Commission ("FCC") counsel has informed such holder that such FCC
counsel believes it is reasonably likely that the holder's conversion of shares
of this Series into shares of the Corporation's Common Stock would result in the
attribution of properties of the Corporation and its Affiliates to the Walt
Disney Company and its Affiliates under the multiple ownership rules, or would
cause The Walt Disney Company and its Affiliates to be in violation of the
cross-interest policy of, the FCC, or (ii) delivers written opinion of counsel
reasonably satisfactory to the Corporation to the effect that it is reasonably
likely that The Walt Disney Company's and its Affiliates' ownership of shares of
the Corporation's Common Stock would cause violation of any federal or state
law.
The initial Common Stock Conversion Number is 10.
(A) Adjustment of the Common Stock Conversion Number. The Common Stock
Conversion Number shall be subject to adjustment from time to time as follows.
In case the Corporation shall (I) subdivide or split the outstanding Common
Stock into a larger number of shares of Common Stock by reclassification or
otherwise or (ii) combine outstanding Common Stock into a smaller number of
shares of Common Stock by reclassification or otherwise, the Common Stock
Conversion Number in effect immediately prior thereto shall be adjusted
proportionately so that the holder of a share of this Series thereafter
converted shall be entitled to receive the number of shares of Common Stock that
her or it would have owned after the happening of either of such events had such
share of this Series been converted immediately prior to the happening of such
event. An adjustment made pursuant to this subparagraph (A) shall become
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effective immediately after the effective date of such subdivision, split or
combination or reclassification. This provision for adjustment of the Common
Stock Conversion Number shall apply in each successive instance in which an
adjustment is required thereby. No adjustment in the Common Stock Conversion
Number resulting from the application of this provision is to be given effect
unless, by making such adjustment, the Common Stock Conversion Number in effect
immediately prior to such adjustment would be changed by 1% or more, but any
adjustment which would change the Common Stock Conversion Number by less than 1%
is to be carried forward and given effect in making future adjustments. All
calculations under this Section 6 shall be made to the nearest one-hundredth
(1/100th) of a share of Common Stock of the Corporation.
(B) EFFECT OF A REORGANIZATION OR CONSOLIDATION. In case the
Corporation shall effect any capital reorganization or reclassification of its
Common Stock (except as provided in subparagraph (A) and other tan an change in
par value, or from par value to no par value, or from no par value to par value)
or shall consolidate or merge with or into any other Person (other than a merger
in which the Corporation is the surviving corporation which does not result in
any reclassification of , or change in, the outstanding shares of the
Corporation's Common Stock) or shall sell or transfer substantially al its
assets to any other Person, (i) as a condition of such reorganization,
reclassification, consolidation, merger, sale or transfer, lawful provision
shall be made whereby the holders of shares of this Series shall, if required to
convert such shares at any time after the consummation of such transaction,
receive upon conversion thereof in lieu of each share of Common Stock issuable
upon conversion of such shares prior to such consummation the same kind and
amount of stock (or other securities, cash or property, if any) as may be
issuable or distributable in connection with such transaction with respect to
each outstanding share of Common Stock subject to adjustments for subsequent
subdivision, splits or combination or reclassification of shares, capital
reorganization, consolidations or mergers as nearly equivalent as possible to
the adjustments provided for in this Section 6 or (ii) at the option of the
Corporation, by vote of the Board of Directors, the Corporation may cause the
holders of the shares of this Series to convert their share in accordance with
this Section 6; PROVIDED that such holders receive upon conversion their of
consideration equal to the amount which would be paid to the holder of the
Common Stock Conversion Number of shares of Common Stock for each share of this
Series held by such holder on the date of such reorganization or
reclassification, consolidation or merger or sale or transfer of all or
substantially all of the Corporation's assets; and PROVIDED FURTHER, that the
Corporation may not cause the conversion of shares of this Series in accordance
with clause (ii) of this paragraph if within 15 days after delivery of the
conversion notice contemplated by Section 6 hereof, the holder of the shares of
this Series which are the subject of the conversion notice advises the
Corporation in writing that such holder's FCC counsel has informed such holder
that such FCC counsel believes it is reasonably likely that the holder's
conversion of shares of this Series into shares of the Corporation's Common
Stock would result in the attribution of properties of the Corporation and its
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Affiliates to The Walt Disney Company and its Affiliates under the multiple
ownership rules, or would cause The Walt Disney Company and its Affiliates to be
in violation of the cross-interest policy of, the FCC.
Whenever the number of shares of Common Stock deliverable upon the
conversion of shares of this Series shall be adjusted pursuant to the provision
hereof, the Corporation shall forthwith file at its principal office and with
any Transfer Agent for this Series and for the Common Stock a statement, signed
by the President or one of the Vice-Presidents of the Corporation and by its
Treasurer or one of its Assistant Treasurers, stating the adjusted number of
shares of Common Stock deliverable per share of this Series and setting forth in
reasonable detail the method of calculation and the facts requiring such
adjustment and upon which such calculation is based, and shall give notice (I)
by certified or registered mail, postage prepaid, (ii) by a nationally known
overnight delivery service or (iii) by hand, of such adjustment to each holder
of record of this Series. Each adjustment shall remain in effect until a
subsequent adjustment hereunder is required.
In the event:
(a) of the occurrence of any of the events referred to in
subparagraphs (A) and (B) above whether or not they
would require an adjustment in the Common Stock
Conversion Number under any such subparagraph
(including an adjustment of less than 1%); or
(b) of the Liquidation of the Corporation;
then the Corporation shall cause to be given to any Transfer Agent for this
Series and to the holders of record of the outstanding shares of this Series
notice (I) by certified or registered mail, postage prepaid, (ii) by a
nationally known overnight delivery service or (iii) by hand at least twenty
days prior to the applicable date hereinafter specified, a notice describing the
event and stating the effect, if any, that such event will have upon the Common
Stock Conversion Number, and the date on which any such subdivision, split or
combination or reclassification or other capital reorganization or
consolidation, merger or sale of assets referred to in subparagraph (A) or (B)
of this Section 6 or such Liquidation is expected to become effective.
The Corporation covenants that it will at all times reserve and keep
available out of its authorized but unissued Common Stock, solely for the
purpose of issuance upon conversion of the outstanding shares of this Series,
such number of shares of Common Stock as shall be issuable upon the conversio0n
of all such outstanding share of this Series.
The Corporation will take all such action as may be necessary to assure
that all such shares of Common Stock may be so issued without violation of any
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applicable law or regulation, or of any requirement of any national securities
exchange upon which the Common Stock may be listed. The Corporation will not
take any action which results in any adjustment to the Common Stock Conversion
Number if the total number of shares of Common Stock issued and issuable after
such action upon conversion of the shares of this Series would exceed the total
number of shares of Common Stock then authorized by the Amended and Restated
Articles of Incorporation of the Corporation.
The shares of Common Stock issuable upon conversion of the shares of
this Series, when the same shall be issued in accordance with the terms of this
Series, are hereby declared to be in shall be fully paid shares of Common Stock
and not liable to any call, taxes or assessments thereon, and the holders
thereof shall not be liable for any further payments in respect thereof.
"Common Stock: when used in Section 6 with reference to the Common
Stock into which this Series in convertible shall mean only Common Stock as
authorized by the Amended and Restated Articles of Incorporation of the
Corporation to the date of this resolution, and any shares into which such
Common Stock may thereafter have been changed, and, when otherwise used
throughout this certificate, shall also include shares of the Corporation of any
other class or series, whether now or hereafter authorized that ranks or is
entitled to participation, as to payment of assets upon Liquidation and payment
of dividends, substantially on a parity with such Common Stock or other class of
shares into which such Common Stock may have changed.
"Person" when used in Section 5 with reference to a transfer of the
shares of this Series or Section 6 with reference to the consolidation or merger
of the Corporation or the sale or transfer of all or substantially all of the
Corporation's assets shall mean and include any individual, corporation, limited
liability company, partnership (limited or general), joint venture, joint stock
company, association, trust, any other unincorporated organization or entity and
a governmental entity or any department or agency thereto.
7. VOTING RIGHTS.
In addition to any voting rights provided by law, each holder of this Series
Shall be entitled to vote with respect to all matters upon which holders of the
Corporation's Common Stock are entitled to vote (except as otherwise provided by
law or by any other provision of the Amended and Restated Articles of
Incorporation or of this Section). In exercising such voting rights, each holder
of shares of this Series who holds such shares on the record date for such vote
in his or its name on the transfer books of the Corporation shall be entitled to
vote, in person or by proxy, 1/5 of the number of shares of this Series held by
such holder multiplied by the Common Stock Conversion Number. Except as
otherwise provided by law, the holders of Common Stock and shares of this Series
shall vote together as a single class on all matters.
At any time when shares of this Series are outstanding, the Corporation
shall not, without the approval of a majority of the holders of record of the
then outstanding shares of this Series, given in writing or by vote at a meeting
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consenting or voting (as the case may be) separately as a single class, amend,
alter, repeal or modify (I) any rights, preferences or privileges of this Series
as set forth in this Certificate of Designations or (ii) any other provisions of
the Amended and Restates Articles of Incorporation or this Certificate of
Designations, if such amendment, alteration, repeal or modification would have a
material adverse effect on the rights of the holders of the shares of this
Series.
8. OTHER RIGHTS.
The holders of this Series shall not have any other preferences or special
rights.
FOURTH: The name of the initial registered agent of the corporation is
Charles E. Clark and the street address of his initial registered office is One
Herald Plaza, Miami, Florida 33101.
FIFTH: (a) The number of directors of the corporation shall not be less
than ten nor more than twenty, the exact number to be fixed from time to time
solely by resolution of the Board of Directors, acting by not less than a
majority of the directors then in office.
(b) The Board of Directors shall be divided into three classes, with
the term of office of one class expiring each year. At the 1989 annual meeting
of shareholders, six directors of the first class shall be elected to hold
office for a term expiring at the 1990 annual meeting of shareholders, five
directors of the second class shall be elected to hold office for a term
expiring at the 1991 annual meeting of shareholders and five directors of the
third class shall be elected to hold office for a term expiring at the 1992
annual meeting of shareholders. Commencing with the 1990 annual meeting of
shareholders, each class of directors whose term shall then expire shall be
elected to hold office for a three year term. A director shall hold office until
the annual meeting for the year in which his term expires and until his
successor shall be elected and shall qualify, subject, however, to prior death,
resignation, retirement, disqualification, removal from office or other
termination of service. In case of any change in the number of directors, any
increase or decrease shall be apportioned among the classes so as to make all
classes as nearly equal in number as possible. No reduction in the number of
directors shall have the effect of shortening the term of an incumbent director.
(c) Any director or the entire Board of Directors of the corporation
may be removed only for cause. At any annual meeting of shareholders of the
corporation or at any special meeting of shareholders of the corporation the
notice of which shall state that the removal of a director or directors is among
the purposes of the meeting, the holders of 80 percent of the combined voting
power of the then outstanding shares of capital stock entitled to vote thereon,
present in person or by proxy, may remove such director or directors for cause.
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(d) Newly created directorships resulting from any increase in the
authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause shall be filled solely by the Board of Directors, acting
by not less than a majority of the directors then in office, even if less than a
quorum. Any director so chosen shall hold office only until the next election of
directors by the shareholders.
(e) Notwithstanding any provision of this Article FIFTH, whenever the
holders of any one or more series of Preference Stock issued by the corporation
shall have the right, voting separately by class or series, to elect directors
at an annual or special meeting of shareholders or any class or series, the
election, term of office, filling of vacancies and other features of such
directorships shall be governed by the terms of these Amended and Restated
Articles of Incorporation or the resolution or resolutions adopted by the Board
of Directors pursuant to Article THIRD hereof applicable thereto, and such
directors so elected shall not be divided into classes pursuant to this Article
FIFTH unless expressly provided by such terms.
(f) This Article FIFTH may not be repealed or amended in any respect,
and no provision inconsistent with this Article FIFTH may be adopted, unless
such action is approved by the affirmative vote of the holders of not less than
80 percent of the combined voting power of the then outstanding shares of
capital stock of the corporation entitled to vote generally in the election of
directors."
SIXTH: Except as otherwise provided herein or by law, the Restated
Articles of Incorporation of the corporation shall be amended only by the
affirmative vote of the holders of a majority of the shares entitled to vote on
such amendment, voting as a single class.
SEVENTH: Except as otherwise provided herein, the affirmative vote of
the holders of two-thirds of the outstanding shares of the Preference Stock and
the Common Stock of the corporation, voting as a single class, and two-thirds of
the outstanding shares of each class of shares, if any, entitled by law to a
class vote thereon, shall be required for:
(a) any consolidation of the corporation and another corporation into a
new corporation;
(b) any merger of the corporation and another corporation where the
corporation is not the surviving corporation;
(c) (i) any merger of the corporation and another corporation where the
corporation is the surviving corporation, (ii) any acquisition of all or
substantially all the assets of another corporation by the corporation or one or
more of its subsidiaries, or (iii) any acquisition by the corporation or one or
more of its subsidiaries of shares of a corporation entitling the holder thereof
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to exercise a majority of the voting power in the election of the directors of
such corporation without regard to voting power which may thereafter exist upon
a default, failure, or other contingency, provided that such merger, acquisition
of assets or acquisition of shares involves the issuance or transfer by the
corporation of such number of its shares as entitle the holders to exercise
one-sixth or more of the voting power of the corporation in the election of its
directors immediately after the consummation of such transaction; and
(d) any sale, lease, exchange, or other disposition of all, or
substantially all, the property and assets of the corporation.
EIGHTH: In addition to any affirmative vote required by law or these
Articles of Incorporation, the affirmative vote of the holders of not less than
80 percent of the outstanding shares of "Voting Stock" (as hereinafter defined)
of the corporation shall be required for the approval or authorization of any
"Business Combination" (as hereinafter defined) or of any series of transactions
which, if taken together, would constitute a Business Combination of the
corporation or any subsidiary with any "Related Person" (as hereinafter
defined); provided, however, that the 80 percent voting requirement shall not be
applicable if:
(a) The "Continuing Directors" of the corporation (as hereinafter
defined) by a majority vote (i) have expressly approved in advance the
acquisition of Voting Stock of the corporation that caused the Related Person to
become a Related Person, or (ii) have approved the Business Combination; or
(b) The Business Combination is a merger or consolidation and the cash
or fair market value of the property, securities or other consideration to be
received per share by holders of Common Stock of the corporation in the Business
Combination is not less than the highest per share price (with appropriate
adjustments for recapitalizations and for stock splits, stock dividends and like
distributions) paid by the Related Person in acquiring any of its holdings of
the corporation's Common Stock either in or subsequent to the transaction or
series of transactions in which the Related Person became a Related Person.
Such affirmative vote shall be required notwithstanding the fact that
no vote may be required, or that a lesser percentage may be specified, by law or
in any agreement with any national securities exchange or otherwise.
For the purposes of this Article EIGHTH:
(a) the term "Business Combination" shall mean (i) any merger or
consolidation of the corporation or a subsidiary with or into a Related Person,
(ii) any sale, lease, exchange, transfer or other disposition, including without
limitation a mortgage or any other security device, of all or any "Substantial
Part" (as hereinafter defined) of the assets either of the corporation
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(including without limitation any voting securities of a subsidiary) or of a
subsidiary, to a Related Person, (iii) any merger or consolidation of a Related
Person with or into the corporation or a subsidiary of the corporation, (iv) any
sale, lease, exchange, transfer or other disposition of all or any Substantial
Part of the assets of a Related Person to the corporation or a subsidiary of the
corporation, (v) the issuance or transfer of any securities of the corporation
or a subsidiary of the corporation to a Related Person, (vi) any
reclassification of securities (including a reverse stock split) or
recapitalization that would have the effect of increasing the voting power of a
Related Person, and (vii) the adoption of any plan or proposal for the
liquidation or dissolution of the corporation proposed by or on behalf of any
Related Person.
(b) The term "Related Person" shall mean and include any individual,
corporation, partnership or other person or entity which, together with its
"Affiliates" and "Associates" (as defined on December 20, 1984 in Rule 12b-2
under the Securities Exchange Act of 1934), "Beneficially Owns" (as defined on
December 20, 1984 in Rules 13d-3 and 13d-5 under the Securities Exchange Act of
1934) in the aggregate 15 percent or more of the outstanding Voting Stock of the
corporation, any Affiliate or Associate of any such individual, corporation,
partnership or other person or entity, and any assignee of any of the foregoing.
(c) The term "Substantial Part" shall mean more than 30 percent of the
fair market value of the total assets of the corporation in question, as of the
end of its most recent fiscal year ending prior to the time the determination is
being made.
(d) Without limitation, any shares of Voting Stock of the corporation
that any Related Person has the right to acquire pursuant to any agreement, or
upon exercise of conversion rights, warrants or options, or otherwise, shall be
deemed beneficially owned by the Related Person.
(e) For the purposes of subparagraph (b) of this Article EIGHTH, the
term "other consideration to be received" shall include, without limitation,
Common Stock of the corporation retained by its existing public stockholders in
the event of a Business Combination in which the corporation is the surviving
corporation.
(f) The term "Voting Stock" shall mean all outstanding shares of
capital stock of the corporation or another corporation entitled to vote
generally in the election of directors and each reference to a proportion of
shares of Voting Stock shall refer to such proportion of the votes entitled to
be cast by such shares.
(g) The term "Continuing Director" shall mean a director who either (i)
was a member of the Board of Directors of the corporation immediately prior to
the time that the Related Person involved in a Business Combination became a
Related Person or (ii) was designated (before his or her initial election as
director) as a Continuing Director by a majority of the then Continuing
Directors.
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This Article EIGHTH may not be repealed or amended in any respect, and
no provision inconsistent with this Article EIGHTH may be adopted, unless such
action is approved by the affirmative vote of the holders of not less than 80
percent of the outstanding shares of Voting Stock of the corporation.
NINTH: The power of the shareholders of the corporation to consent in
writing, without a vote at an annual or special meeting of shareholders of the
corporation, to the taking of any action is specifically denied. This Article
NINTH may not be repealed or amended in any respect, and no provision
inconsistent with this Article NINTH may be adopted, unless such action is
approved by the affirmative vote of the holders of not less than 80 percent of
the combined voting power of the then outstanding shares of capital stock of the
corporation entitled to vote generally in the election of directors."
TENTH:
(a) So long as newspapers account for a majority of the consolidated
operating revenue of the corporation, the affirmative vote of the holders of not
less than 80% of the "Voting Stock" (as hereinafter defined) of the corporation
other than Voting Stock of the corporation which is "beneficially owned" (as
hereinafter defined), directly or indirectly, by the "Other Party" (as
hereinafter defined) shall be required for the approval or authorization of:
(i) any "Business Combination" (as hereinafter defined) if,
immediately following the consummation of such Business Combination,
more than 20% of the Voting Stock of the corporation (or of the
surviving entity in the case of a merger or consolidation ) would be
beneficially owned, directly or indirectly, by (a) any individual who
is not a citizen of the United States, (b) any corporation, partnership
or other entity organized under laws other than the laws of the United
States or any state of the United States, (c) any foreign government,
(d) any "group" (as such term is used in Sections 13(d)(3) and 14(d)(2)
of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as in effect on January 1, 1989) which includes any individual
or entity referred to in this clause (i), or (e) any corporation,
partnership or other entity "controlled" (as hereinafter defined),
directly or indirectly, by any individual, entity or group referred to
in this clause (i); or
(ii) any other Business Combination unless the "Continuing
Directors" (as hereinafter defined) by majority vote, based upon
information known to them after reasonable inquiry and on their good
faith assessment of the character, reputation, experience and
intentions of the Other Party and its "affiliates" and "associates" (as
hereinafter defined), determine in the good faith exercise of their
business judgment that, following such Business Combination, newspapers
which accounted for at least 90% of the aggregate daily circulation of
all newspapers controlled, directly or indirectly, by the corporation
immediately prior to the "Initial Date" (as hereinafter defined) would
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continue to serve their respective communities and other constituencies
(including, without limitation, subscribers, readers, advertisers and
customers) with the same degree of journalistic excellence, integrity
and independence as existed prior to the Initial Date.
Such affirmative vote shall be required notwithstanding the
fact that no vote may be required, or that a lesser percentage may be
specified, by law, in these Articles of Incorporation or in any
agreement with any national securities exchange or otherwise.
(b) In evaluating any proposed Business Combination referred to in
clause (ii) of paragraph (a) of this Article TENTH, the Continuing Directors
shall give due consideration to (but shall not be bound by) the recommendation
of a panel of independent experts (the "Independent Panel") selected by the
Continuing Directors from individuals who are experts in the field of newspaper
journalism and who have no material relationship (through employment, stock
ownership or otherwise) with the corporation, the Other Party or any affiliate
or associate of the corporation or of the Other Party. The corporation and the
Other Party shall be given the opportunity to present information to the
Independent Panel in connection with the Independent Panel's deliberations. The
Continuing Directors are authorized, if and to the extent they deem such action
to be appropriate, to cause the corporation to enter into agreements with the
members of the Independent Panel pursuant to which the corporation shall pay
such members reasonable compensation for serving on the Independent Panel,
reimburse such members for their reasonable expenses incurred in connection
therewith and indemnify such panel members against liabilities incurred in
connection therewith.
(c) For the purposes of this Article TENTH: ,
(i) The terms "affiliate", "associate" and "control" shall
have the respective meanings ascribed to such terms on January 1, 1989
in Rule 12b-2 under the Exchange Act.
(ii) The term "Business Combination" shall mean (a) any merger
or consolidation (x) to which the corporation is a party in which the
corporation is not the continuing or surviving corporation, (y)
pursuant to which shares of Common Stock of the corporation are
converted into cash, securities or other property, or(z) as a result of
which the shareholders of the corporation immediately prior to such
consolidation or merger would not, immediately after such consolidation
or merger, beneficially own, directly or indirectly, a majority of the
Voting Stock of the surviving entity (or to its ultimate parent
corporation, if any), (b) any reclassification of securities (including
a reverse stock split), recapitalization, merger or reorganization of
the corporation or other transaction or series of transactions
involving the corporation that would have the effect, directly or
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indirectly, of increasing the proportion of the Voting Stock of the
corporation beneficially owned, directly or indirectly, by any "Person"
(as hereinafter defined) immediately following the consummation of such
reclassification, recapitalization, merger, reorganization or other
transaction or series of transactions to an amount equal to or greater
than 80% or (c) any sale, lease, exchange, transfer or other
disposition (including, without limitation, a mortgage or other
security device) (a "Disposition") of (x) all or substantially all of
the assets of the corporation (including, without limitation, any
Voting Stock of a subsidiary ) or (y) any assets of the corporation if
such Disposition is pursuant to a plan, arrangement or understanding by
any Person or Persons for the Disposition of all or substantially all
of the assets of the corporation.
(iii) A Person shall be deemed to "beneficially own", and
shall be deemed to be the "beneficial owner" of, any Voting Stock which
such Person or any of such Person's affiliates or associates
beneficially owns, directly or indirectly, within the meaning of Rule
13d-3 or Rule 13d-5 under the Exchange Act as in effect on January 1,
1989. Without limitation, any shares of Voting Stock of the corporation
that any Person has the right to acquire pursuant to any agreement,
arrangement or understanding, or upon exercise of conversion rights,
warrants or options, or otherwise, shall be deemed beneficially owned
by such Person.
(iv) The term "Continuing Director" shall mean (a) any member
of the Board of Directors of the corporation who is not an Other Party,
an affiliate or associate of an Other Party or a representative of an
Other Party or any such affiliate or associate and who was a member of
the Board of Directors of the corporation on January 1, 1989 and (b)
any successor of a Continuing Director who is not an Other Party, an
affiliate or associate of an Other Party or a representative of an
Other Party or any such affiliate or associate and who is recommended
to succeed a Continuing Director by a majority of Continuing Directors
then on the Board of Directors of the corporation.
(v) The term "Initial Date" shall mean the earlier of (a) the
first date on which any Person acquires control, directly or
indirectly, of the corporation or (b) the date on which a proposal for
a Business Combination referred to in clause (ii) of paragraph (a) of
this Article TENTH is first made known to the corporation or publicly
announced.
(vi) The term "Other Party" shall mean (x) in the case of a
merger or consolidation referred to in clause (a) of the definition of
Business Combination, any Person (other than the corporation) that is
or would be a party to such merger or consolidation, (y) in the case of
a transaction referred to in clause (b) of the definition of Business
Combination, any Person that would, immediately following the
consummation of such transaction or transactions, beneficially own,
directly or indirectly, 80% or more of the Voting Stock of the
corporation and (z) in the case of a transaction referred to in clause
(c) of the definition of Business Combination, any Person that is or
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would be acquiring assets pursuant to such transaction. In the event
there is more than one Other Party to a Business Combination, each
reference herein to the "Other Party" shall be deemed to refer to all
such Other Parties; and in the event a "group" (as such term is used in
the definition of Person) is an Other Party, each member of the group
shall be deemed to be an Other Party.
(vii) The term "Person" shall mean any individual,
corporation, partnership, other entity or "group" (as such term is used
in Sections 13(d) (3) and 14(d) (2) of the Exchange Act as in effect on
January 1, 1989).
(viii) The term "Voting Stock" shall mean all outstanding
shares of capital stock of the corporation or (if the context so
requires) another corporation entitled to vote generally in the
election of directors and each reference to a proportion of shares of
Voting Stock shall refer to such proportion of the votes entitled to be
cast by such shares.
(d) A majority of the Continuing Directors shall have the power and
duty to determine for the purposes of this Article TENTH, based upon information
known to them after reasonable inquiry, all facts relating to the applicability
of, and necessary to determine compliance with, this Article TENTH, including,
without limitation, (i) whether newspapers account for a majority of the
consolidated operating revenue of the corporation, (ii) whether a Business
Combination would have any of the effects specified in clause (i) of paragraph
(a) of this Article TENTH, (iii) whether a Person is an associate or affiliate
of another Person, (iv) whether any transaction or transactions referred to in
the definition of Business Combination would have any of the effects specified
therein, (v) whether the Initial Date has occurred and, if so, the date of such
occurrence, (vi) the amount, if any, of Voting Stock of the corporation which is
beneficially owned, directly or indirectly, by any Person, (vii) whether a
Person is an Other Party and (viii) such other matters with respect to which a
determination is required under this Article TENTH. The good faith determination
of a majority of the Continuing Directors on such matters, and the good faith
determination of a majority of the Continuing Directors on matters referred to
in clause (ii) of paragraph (a) of this Article TENTH, shall be conclusive and
binding for all purposes of this Article TENTH.
(e) This Article TENTH may not be repealed or amended in any respect,
and no provision inconsistent with this Article TENTH may be
adopted, unless such action is approved by the affirmative vote of
the holders of not less than 80% of the Voting Stock of the
corporation other than Voting Stock of the corporation which is
beneficially owned, directly or indirectly, by the Other Party."
ELEVENTH:
If the Corporation acquires its own shares, such shares shall belong to the
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Corporation and shall constitute treasury shares unless disposed of or canceled
by the Corporation.
Executed this 2nd day of February, 1998.
KNIGHT-RIDDER, INC.
By:
P. Anthony Ridder
Director
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EXHIBIT 10 (a)
KNIGHT-RIDDER, INC.
COMPENSATION PLAN FOR
NONEMPLOYEE DIRECTORS
EFFECTIVE JULY 1, 1997
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KNIGHT-RIDDER, INC.
COMPENSATION PLAN FOR NONEMPLOYEE DIRECTORS
TABLE OF CONTENTS
Page
ARTICLE I PURPOSE AND INTENT OF PLAN........................................1
ARTICLE II DEFINITIONS.......................................................1
ARTICLE III ANNUAL RETAINER FEE...............................................3
III.1 TIME AND FORM OF PAYMENT..........................................3
III.2 ELECTION TO RECEIVE STOCK.........................................3
III.3 DETERMINATION OF NUMBER OF SHARES OF STOCK........................3
III.4 REGISTRATION OF STOCK.............................................4
ARTICLE IV BOARD MEETING AND COMMITTEE FEES..................................4
IV.1 BOARD MEETING FEE.................................................4
IV.2 COMMITTEE MEETING FEE.............................................4
IV.3 COMMITTEE CHAIRPERSON FEE.........................................4
ARTICLE V ANNUAL OPTION GRANTS..............................................4
V.1 GRANT OF OPTIONS..................................................4
V.2 VESTING OF OPTIONS; EXPIRATION....................................5
V.3 EXERCISE OF OPTIONS FOLLOWING TERMINATION OF SERVICE..............5
V.4 TIME AND MANNER OF EXERCISE OF OPTIONS............................5
V.5 RESTRICTIONS ON TRANSFER..........................................7
ARTICLE VI SPECIAL PROVISIONS FOR OUTSIDE DIRECTORS..........................7
VI.1 OUTSIDE DIRECTORS ELIGIBLE FOR PHANTOM SHARE GRANT................7
VI.2 OUTSIDE DIRECTORS ELIGIBLE FOR RETIREMENT PLAN....................7
ARTICLE VII SHARES AVAILABLE UNDER PLAN.......................................7
ARTICLE VIII RECAPITALIZATION OR REORGANIZATION................................8
VIII.1 AUTHORITY OF THE COMPANY AND SHAREHOLDERS.........................8
VIII.2 CHANGE IN CAPITALIZATION..........................................8
ARTICLE IX TERMINATION AND AMENDMENT OF THE PLAN.............................9
IX.1 TERMINATION.......................................................9
IX.2 GENERAL POWER OF BOARD............................................9
IX.3 WHEN DIRECTOR CONSENT REQUIRED....................................9
ARTICLE X ADMINISTRATION OF PLAN............................................9
ARTICLE XI MISCELLANEOUS....................................................10
XI.1 TAX WITHHOLDING..................................................10
XI.2 NO RIGHT TO REELECTION...........................................10
XI.3 UNFUNDED PLAN....................................................10
XI.4 OTHER COMPENSATION ARRANGEMENTS..................................10
XI.5 SECURITIES LAW RESTRICTIONS......................................10
XI.6 COMPLIANCE WITH RULE 16B-3.......................................11
XI.7 EXPENSES.........................................................11
XI.8 GOVERNING LAW; VENUE.............................................11
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KNIGHT-RIDDER, INC.
COMPENSATION PLAN FOR NONEMPLOYEE DIRECTORS
The KNIGHT-RIDDER, INC. COMPENSATION PLAN FOR NONEMPLOYEE DIRECTORS is
hereby established by Knight-Ridder, Inc. effective July 1, 1997.
ARTICLE I
PURPOSE AND INTENT OF PLAN
The purpose of the Plan is to attract and retain the services of
qualified individuals who are not employees of the Company to serve as members
of the Board. This Plan sets forth the terms of compensation to be provided to
such Directors for their services as members of the Board of the Company.
Articles III, IV and V provide for different types of compensation
payable to all Directors. Article VI provides for grants of Phantom Share Units
to certain Outside Directors and for participation in the Company's Retirement
Plan for other Outside Directors. This Plan and the Retirement Plan reflect all
compensation programs in effect for Directors.
ARTICLE II
DEFINITIONS
As used in this Plan, the following terms shall have the meaning
hereinafter set forth:
II.1 "Annual Retainer Fee" means the annual fee payable to a Director
for service on the Board. The Annual Retainer Fee currently in effect is set
forth on Appendix One hereto, which the Board may amend from time to time. The
Annual Retainer Fee shall be pro-rated on a quarterly basis for a Board member
who serves less than an entire calendar year.
II.2 "Beneficiary" means the person designated by the Director to
receive benefits hereunder following the death of the Director or, if the
Director fails to so designate, the Director's estate.
II.3 "Board" means the Board of Directors of the Company.
II.4 "Code" means the Internal Revenue Code of 1986, as amended.
II.5 "Common Stock" means the Common Stock of the Company, par value
$.02 1/12 per share.
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II.6 "Company" means Knight-Ridder, Inc., a Florida corporation, or any
successor legal entity.
II.7 "Disability" means a Director's physical or mental condition which
is expected to render the Director unable to perform his or her usual duties or
any comparable duties for the Company. The determination of a Director's
Disability will be made by the Board in its sole discretion.
II.8 "Director" means a member of the Board who is not an employee of
the Company or any of its subsidiaries or affiliates.
II.9 "Effective Date" means July 1, 1997.
II.10 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
II.11 "Fair Market Value" means the mean between the highest and lowest
sales price of a share of Common Stock on the date in question as reported on
the composite tape for issues listed on the New York Stock Exchange. If no
transaction was reported on the composite tape in the Common Stock on such date,
the prices used shall be the prices reported on the nearest day preceding the
date in question. If the Common Stock is not then listed or admitted to trading
on such Exchange, "fair market value" shall be the mean between the closing bid
and asked prices on the date in question as furnished by any member firm of the
New York Stock Exchange selected from time to time for that purpose by the
Board.
II.12 "Option" means an option to purchase shares of Common Stock
awarded to a Director pursuant to the Plan, which option shall not be intended
to qualify, and shall not be treated, as an "incentive stock option" within the
meaning of Section 422 of the Code.
II.13 "Outside Director" means any Director who is not, and never was,
an employee of the Company or any of its subsidiaries or affiliates.
II.14 "Phantom Share Unit" means a bookkeeping unit representing one
share of Common Stock.
II.15 "Plan" means this Knight-Ridder, Inc. Compensation Plan for
Nonemployee Directors.
II.16 "Retirement" means the Termination of Service of a Director at or
after age sixty-five (65).
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II.17 "Retirement Plan" means the Knight-Ridder, Inc. Retirement Plan
for Outside Directors, a copy of which is attached hereto as Appendix Three.
II.18 "Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
II.19 "Termination of Service" shall mean cessation of service as a
Director of the Company.
ARTICLE III
ANNUAL RETAINER FEE
III.1 TIME AND FORM OF PAYMENT. The Annual Retainer Fee is payable in
equal quarterly payments on the date of the Board's regularly scheduled
quarterly meeting, except as provided in Section 3.3 concerning payment in
Common Stock. Through the date of first quarterly meeting in 1998, each Director
shall receive his or her quarterly payment of the Annual Retainer Fee entirely
in cash. Effective with the date of the second quarterly meeting in 1998,
one-half of the quarterly payment of the Annual Retainer Fee shall be paid in
Common Stock. The balance of the quarterly payment of the Annual Retainer Fee
shall be paid in cash or, if the Director elects, in the manner described below,
in Common Stock or a combination of cash and Common Stock.
III.2 ELECTION TO RECEIVE STOCK. On or before April 1, 1998, any
Director who desires to receive any portion of the balance of each quarterly
payment of the Annual Retainer Fee due for the remainder of 1998 in Common Stock
shall so indicate on a written election form filed with the Secretary of the
Company. On or before November 30, 1998 and November 30th of each succeeding
year, any Director who desires to receive any portion of the balance of the
Annual Retainer Fee due for the succeeding calendar year in Common Stock shall
so indicate on a written election form filed with the Secretary of the Company.
A newly elected Director may make such an election with respect to one-half of
his or her pro-rated Annual Retainer Fee for the remainder of the calendar year
within one month following his or her election to the Board.
III.3 DETERMINATION OF NUMBER OF SHARES OF STOCK. The number of shares
of Common Stock to be paid to each Director shall be determined by dividing the
amount of the Annual Retainer Fee to be paid in Common Stock by the Fair Market
Value of a share of Common Stock on the date of payment, described in the next
sentence. The date of payment of that portion of the Annual Retainer Fee to be
paid in Common Stock shall be the fifth business day before the date of the
regularly scheduled quarterly meeting of the Board.
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III.4 REGISTRATION OF STOCK. The appropriate number of shares of Common
Stock shall be registered in the name of the Director and shall be delivered to
the Director by paperless transfer effected through records maintained by the
Depository Trust Company (the "DTC"). Such registration shall occur as soon as
possible after the date for payment of such Common Stock, as provided above.
Upon registration, the Director shall have all the rights and privileges of a
stockholder as to such shares, including the right to receive dividends and the
right to vote such shares. The shares of Common Stock paid to the Director
hereunder are immediately vested upon payment, are not forfeitable to the
Company for any reason and shall not be subject to any restrictions on transfer
(other than those imposed under applicable law or under any trading policy of
the Company).
ARTICLE IV
BOARD MEETING AND COMMITTEE FEES
IV.1 BOARD OF MEETING FEE. Each Director also shall receive a fee for
attendance, either in person or by electronic medium, at each meeting of the
Board. The Board meeting fee currently in effect is set forth on Appendix One
hereto, which the Board may amend from time to time. The Board meeting fee shall
be paid in cash on the date of the Board meeting.
IV.2 COMMITTEE MEETING FEE. Each Director also shall receive a fee for
attendance, either in person or by electronic medium, at each meeting of a
committee of the Board on which the Director serves. The committee meeting fee
currently in effect is set forth on Appendix One hereto, which the Board may
amend from time to time. The committee meeting fee shall be paid in cash on the
date of the committee meeting.
IV.3 COMMITTEE CHAIRPERSON FEE. Each Director who serves as chairperson
of a committee of the Board shall receive an additional fee for such service.
The annual committee chairperson fee currently in effect is set forth on
Appendix One hereto, which the Board may amend from time to time. The committee
chairperson fee shall be paid in quarterly installments in cash on the date of
each regularly scheduled quarterly meeting of the Board. The committee
chairperson fee shall be pro-rated on a quarterly basis for service as
chairperson of a committee for less than a full year.
ARTICLE V
ANNUAL OPTION GRANTS
V.1 GRANT OF OPTIONS. Beginning with December 1997, an annual option
grant will be made to each Director to purchase such number of shares of
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Common Stock of the Company as may be established by the Board. The number of
options to be granted on an annual basis is set forth on Appendix One hereto,
which the Board may amend from time to time. Such Option shall have a per share
exercise price equal to the Fair Market Value of the Common Stock on the date of
grant and shall be subject to the vesting schedule provided in Section 5.2 and
to the other terms and conditions provided for herein.
V.2 VESTING OF OPTIONS; EXPIRATION. One-third of the Options granted in
any year shall vest and become exercisable on the first, second and third annual
anniversaries of the date of grant. Each Option granted hereunder shall expire
no later than ten (10) years after the date the Option is granted, but may
expire before such date as provided in Section 5.3.
V.3 EXERCISE OF OPTIONS FOLLOWING TERMINATION OF SERVICE
(a) EXERCISE FOLLOWING TERMINATION OF SERVICE DUE TO
DISABILITY OR RETIREMENT. If a Director ceases to be a member of the Board by
reason of Disability or Retirement, all Options granted to such Director may be
exercised by the Director at any time within five years after the date of
Termination of Service. Options not exercisable at the beginning of the
five-year period will become exercisable during such five-year period as if the
Director had not Terminated Service, in accordance with Section 5.2, above. At
the end of such five-year period, all Options not exercised shall expire.
(b) EXERCISE FOLLOWING TERMINATION OF SERVICE DUE TO DEATH. If
a Director ceases to be a member of the Board by reason of death, or if a former
Director dies during the five-year period following Termination of Service due
to Disability or Retirement, all Options granted to such Director may be
exercised by such Director's estate, personal representative or beneficiary, as
the case may be, at any time within the first to expire of the following
periods: (i) three years after the date of the Director's death or (ii) five
years after the date of the Director's Termination of Service. Options not
exercisable at the date of death will become exercisable during such
post-Termination period as if the Director had not died, in accordance with
Section 5.2, above. At the end of such period, all Options not exercised shall
expire.
(c) EXERCISE FOLLOWING OTHER TERMINATIONS OF SERVICE. If a
Director ceases to be a member of the Board for any reason other than
Disability, Retirement or Death, then (i) the Director shall have the right,
subject to the terms and conditions hereof, to exercise the Option, to the
extent it has vested as of the date of such Termination of Service, at any time
within three months after the date of such termination, and (ii) the unvested
portion of any Options awarded to the Director shall be forfeited as of the date
of Termination of Service.
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V.4 TIME AND MANNER OF EXERCISE OF OPTIONS.
(a) NOTICE OF EXERCISE. Subject to the other terms and
conditions hereof, a Director (or other person exercising such options) may
exercise any Options, to the extent such Options are vested, by giving written
notice of exercise to the Company; provided, however, that in no event shall an
Option be exercisable for a fractional share. The date of exercise of an Option
shall be the later of (i) the date on which the Company receives such written
notice or (ii) the date on which the conditions provided in Section 5.4(b) are
satisfied.
(b) PAYMENT. Payment for the shares of Common Stock to be
received upon the exercise of Options must be made at the date of exercise of
such Options and may be made in cash or by delivery to the Company of shares of
Common Stock already owned by the Director (or other person exercising such
Options) the Fair Market Value of which on the date of exercise is equal to the
total exercise price, or in a combination of cash and shares. Payment of the
exercise price in shares of Common Stock shall be made by (i) delivering to the
Company the share certificate(s) or other evidence of ownership representing the
required number of shares, with the Director (or other person exercising such
Options) signing his or her name on the back, (ii) attaching executed stock
powers to such share certificate(s) or (iii) paperless transfer of the required
number of shares effected through records maintained by the DTC. Such shares
shall be endorsed to the Company. The signature of the Director or other owner
must be guaranteed by a commercial bank or trust company or by a brokerage firm
having membership on the New York Stock Exchange. Exercise of any Options shall
comply with Rule 16b-3 of the Exchange Act.
(c) STOCKHOLDER RIGHTS. A Director shall have no rights as a
stockholder with respect to any shares of Common Stock issuable upon exercise of
an Option until the shares have been issued to the Director, by delivery of
stock certificates or by paperless transfer pursuant to Section 5.4(e), and no
adjustment shall be made for dividends or distributions or other rights in
respect of any share for which the record date is prior to the date upon which
the Director shall become the holder of record thereof.
(d) LIMITATION ON EXERCISE. No Option shall be exercisable
unless the Common Stock subject thereto has been registered under the Securities
Act and qualified under applicable state "blue sky" laws in connection with the
offer and sale thereof, or the Company has determined that an exemption from
registration under the Securities Act and from qualification under such state
"blue sky" laws is available.
(e) ISSUANCE OF SHARES. Subject to the foregoing conditions,
as soon as is reasonably practicable after its receipt of a proper notice of
exercise and payment of the exercise price of the Option for the number of
shares with respect to which the Option is exercised, the Company shall deliver
to the Director (or such other person who exercised the Option), at the
principal office of the Company or at such other location as may be acceptable
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to the Company and the Director (or such other person), one or more stock
certificates for the appropriate number of shares of Common Stock issued in
connection with such exercise. Alternatively, the Company may effect such
issuance of Shares by paperless transfer through records maintained by the DTC.
Such shares shall be fully paid and nonassessable and shall be issued in the
name of the Director (or such other person).
V.5 RESTRICTIONS ON TRANSFER. An Option may not be transferred,
pledged, assigned, or otherwise disposed of, except by will or by the laws of
descent and distribution provided, however, that the Board may, subject to such
terms and conditions as the Board shall specify, permit the transfer of an
Option to a Director's family members or to one or more trusts established
solely for the benefit of one or more of such family members. The Option shall
be exercisable, during the Director's lifetime, only by the Director or by the
person to whom the Option has been transferred in accordance with the previous
sentence. A transferee's rights under an Option shall be no greater than the
rights held by the Director under said Option. No assignment or transfer of the
Option, or of the rights represented thereby, whether voluntary or involuntary,
by operation of law or otherwise, except by will or the laws of descent and
distribution, or as permitted under this Section, shall vest in the assignee or
transferee any interest or right in the Option, but immediately upon any attempt
to assign or transfer the Option the same shall terminate and be of no force or
effect.
ARTICLE VI
SPECIAL PROVISIONS FOR OUTSIDE DIRECTORS
VI.1 OUTSIDE DIRECTORS ELIGIBLE FOR PHANTOM SHARE GRANT. Each Outside
Director shall receive grants of Phantom Share Units as described in Appendix
Two to this Plan provided that such Outside Director either (i) was a Board
member as of July 1, 1996 and was under age sixty-five on that date or (ii)
began service as a Director of the Company on or after July 1, 1996. The Outside
Directors who are eligible to receive grants of Phantom Share Units are referred
to in the Plan, including Appendix Two, as "Eligible Outside Directors."
VI.2 OUTSIDE DIRECTORS ELIGIBLE FOR RETIREMENT PLAN. An Outside
Director who was age sixty-five or over on July 1, 1996 is not eligible to
receive a grant of a Phantom Share Unit but is eligible to participate in the
Retirement Plan.
ARTICLE VII
SHARES AVAILABLE UNDER PLAN
Subject to the provisions of Article VIII of the Plan, the maximum
number of shares of Common Stock which may be issued under the Plan in payment
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of a Director's Annual Retainer Fee or upon exercise of Stock Options shall not
exceed 200,000 shares (the "Share Limit"). Either authorized and unissued shares
of Common Stock or treasury shares may be delivered pursuant to the Plan. For
purposes of determining the number of shares that remain available for issuance
under the Plan, the following rules shall apply:
(a) the number of shares granted under the Plan or subject to any
Option granted under the Plan shall be charged against the Share Limit; and
(b) the Share Limit (as reduced under clause (a)) shall be increased by:
(i) the number of shares subject to an Option which lapses,
expires or is otherwise terminated without the issuance of such shares,
(ii) the number of shares tendered to pay the exercise price
of an Option, and
(iii) the number of shares withheld to satisfy any tax
withholding obligations of a Director with respect to any shares or other
payments hereunder.
ARTICLE VIII
RECAPITALIZATION OR REORGANIZATION
VIII.1 AUTHORITY OF THE COMPANY AND SHAREHOLDERS. The existence of the
Plan shall not affect or restrict in any way the right or power of the Company
or the shareholders of the Company to make or authorize any adjustment,
recapitalization, reorganization or other change in the Company's capital
structure or its business, any merger or consolidation of the Company, any issue
of stock or of options, warrants or rights to purchase stock or of bonds,
debentures, preferred or prior preference stocks whose rights are superior to or
affect the Common Stock or the rights thereof or which are convertible into or
exchangeable for Common Stock, or the dissolution or liquidation of the Company,
or any sale or transfer of all or any part of its assets or business, or any
other corporate act or proceeding, whether of a similar character or otherwise.
VIII.2 CHANGE IN CAPITALIZATION. Notwithstanding any other provision of
the Plan, in the event of any change in the outstanding Common Stock by reason
of a stock dividend, recapitalization, reorganization, merger, consolidation,
stock split, combination or exchange of shares or any other significant
corporate event affecting the Common Stock, the Board in its discretion, may
make (i) such proportionate adjustments as it considers appropriate (in the form
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determined by the Board in its sole discretion) to prevent diminution or
enlargement of the rights of Directors under the Plan with respect to the
aggregate number of shares of Common Stock authorized for payment as Annual
Retainer Fee under the Plan, for grants of Options under the Plan, the number of
shares of Common Stock covered by each outstanding Option and the exercise
prices in respect thereof, the number of shares of Common Stock covered by
future Option grants and the number of Phantom Share Units credited to a
Director's Phantom Share Account and/or (ii) such other adjustments as it deems
appropriate. The Board's determination as to what, if any, adjustments shall be
made shall be final and binding on the Company and all Directors.
ARTICLE IX
TERMINATION AND AMENDMENT OF THE PLAN
IX.1 TERMINATION. The Plan shall terminate at such date as determined
by the Board in it sole discretion. Termination of the Plan will not result in
accelerated vesting of Options previously granted or payment of an Outside
Director's Phantom Share Account before the date provided for in Appendix Two.
Vesting of Options shall continue as described in Article V and payment of the
Phantom Share Account will occur as provided in Appendix Two.
IX.2 GENERAL POWER OF BOARD. Notwithstanding anything herein to the
contrary, the Board may at any time and from time to time terminate, modify,
suspend or amend the Plan in whole or in part; provided, however, that no such
termination, modification, suspension or amendment shall be effective without
shareholder approval if such approval is required to comply with any applicable
law or stock exchange rule.
IX.3 WHEN DIRECTOR CONSENT REQUIRED. The Board may not alter, amend,
suspend, or terminate the Plan without the consent of any Director to the extent
that such action would adversely affect his or her rights with respect to Common
Stock or Options that have previously been granted or with respect to the amount
then credited to the Outside Director's Phantom Share Account.
ARTICLE X
ADMINISTRATION OF PLAN
The Board will be responsible for administering the Plan. The Board
will have authority to adopt such rules as it may deem appropriate to carry out
the purposes of the Plan, and shall have authority to interpret and construe the
provisions of the Plan and any agreements and notices under the Plan and to make
determinations pursuant to any Plan provision. Each interpretation,
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determination or other action made or taken by the Board pursuant to the Plan
shall be final and binding on all persons.
ARTICLE XI
MISCELLANEOUS
XI.1 TAX WITHHOLDING. The Company or one of its subsidiaries shall have
the right to withhold from payments made to a Director or to cause a Director
(or such other person who exercises an Option) to make payment of any federal,
state, local or foreign taxes required to be withheld with respect to any
exercise of an Option. Subject to compliance with Rule 16b-3 of the Exchange Act
and such other procedures established by the Company for this purpose, a
Director (or such other person who exercises an Option) may irrevocably elect to
have the required withholding tax obligation or, if the Company determines, any
additional tax obligation with respect to any exercise of an Option satisfied by
(a) having the Company withhold shares otherwise deliverable to the Director (or
such other person) with respect to the exercise of the Option, or (b) delivering
back to the Company shares received upon the exercise of the Option or
delivering other shares of Common Stock; provided, however, that any such
election shall be made at least six months prior to the date income, if any, is
recognized with respect to the exercise of an Option.
XI.2 NO RIGHT TO REELECTION. Nothing in the Plan shall be deemed to
create any obligation on the part of the Board to nominate any of its members
for reelection by the Company's stockholders, nor confer upon any Director the
right to remain a member of the Board for any period of time, or at any
particular rate of compensation.
XI.3 UNFUNDED PLAN. This Plan is unfunded. Amounts payable under the
Plan will be satisfied solely out of the general assets of the Company subject
to the claims of the Company's creditors. No Director, Beneficiary or any other
person shall have any interest in any fund or in any specific asset of the
Company by reason of any amount credited to him hereunder, nor shall any
Director, Beneficiary or any other person have any right to receive any
distribution under the Plan except as, and to the extent, expressly provided in
the Plan.
XI.4 OTHER COMPENSATION ARRANGEMENTS. Payments received by a Director
under any grant made pursuant to the provisions of the Plan shall not be
included in, nor have any effect on, the determination of benefits under any
other arrangement provided by the Company, including the Retirement Plan.
XI.5 SECURITIES LAW RESTRICTIONS. The Company may require each Director
purchasing or acquiring shares of Common Stock pursuant to the Plan to agree
with the Company in writing that such Director is acquiring the shares for
investment and not with a view to the distribution thereof. All certificates for
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shares of Common Stock delivered under the Plan shall be subject to such
stock-transfer orders and other restrictions as the Company may deem advisable
under the rules, regulations, and other requirements of the Securities and
Exchange Commission or any exchange upon which the Common Stock is then listed,
and any applicable federal or state securities law, and the Company may cause a
legend or legends to be put on any such certificates to make appropriate
reference to such restrictions. No shares of Common Stock shall be issued
hereunder unless the Company shall have determined that such issuance is in
compliance with, or pursuant to an exemption from, all applicable federal and
state securities laws.
XI.6 COMPLIANCE WITH RULE 16b-3. The Plan is intended to comply with
Rule 16b-3 under the Exchange Act and the Company shall interpret and administer
the provisions of the Plan in a manner consistent therewith.
XI.7 EXPENSES. The costs and expenses of administering the Plan shall
be borne by the Company.
XI.8 GOVERNING LAW; VENUE. The Plan shall be construed in accordance
with the laws of the State of Florida. Any legal action or proceeding hereunder
may be initiated only in Miami-Dade County, Florida.
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KNIGHT-RIDDER, INC.
COMPENSATION PLAN FOR NONEMPLOYEE DIRECTORS
APPENDIX ONE
AMOUNTS OF COMPENSATION AS OF JULY 1, 1997
PLAN SECTION NUMBER FORM OF COMPENSATION AMOUNT
- ------------------- -------------------- ------
2.1 Annual Retainer Fee $ 30,000
4.1 Board Meeting Fee $ 1,500
4.2 Committee Meeting Fee $ 1,000
4.3 Committee Chairperson Annual Fee $ 5,000
5.1 Annual Option Grant 2,000 Options
Appendix Two, Annual Phantom Share Grant,
Section C Outside Directors 600 Share Units
12
<PAGE>
KNIGHT-RIDDER, INC.
COMPENSATION PLAN FOR NONEMPLOYEE DIRECTORS
APPENDIX TWO
PHANTOM SHARE UNITS FOR ELIGIBLE OUTSIDE DIRECTORS
A. ESTABLISHMENT OF PHANTOM SHARE ACCOUNTS. There shall be established
on the records of the Company for each Eligible Outside Director a Phantom Share
Account to which shall be credited that number of Phantom Share Units as
provided herein. The crediting of Phantom Share Units to an Eligible Outside
Director shall not confer on the Eligible Outside Director any rights as a
shareholder of the Company.
B. CREDITING OF PHANTOM SHARE UNITS; STATEMENTS. As of the date of the
Board's regularly scheduled quarterly meeting for the last quarter of 1997, the
Phantom Share Account of each Eligible Outside Director who also was a Director
on July 1, 1996 will be credited with nine hundred (900) Phantom Share Units.
The Phantom Share Account of each Eligible Outside Director who became a
Director after July 1, 1996 will be credited with seven hundred fifty (750)
Phantom Share Units. As of the date of each regularly scheduled quarterly
meeting of the Board thereafter, the Phantom Share Account of each Eligible
Outside Director shall be credited with one-quarter of the number of annual
Phantom Share Units to be credited to Eligible Outside Directors, as established
by the Board. The number of annual Phantom Share Units currently in effect is
set forth on Appendix One to the Plan, which the Board may amend from to time.
The Company will, on a quarterly basis, furnish each Eligible Outside Director
with a statement setting forth the number of Phantom Share Units then credited
to such Eligible Outside Director's Phantom Share Account and the value of such
account as of the end of the preceding calendar quarter and all credits made to
the Phantom Share Account during such quarter.
C. DIVIDEND EQUIVALENTS ON PHANTOM SHARE UNITS. In the event that the
Company pays any cash or other dividend or makes any other distribution in
respect of the Common Stock, the Phantom Share Account of each Eligible Outside
Director will be credited with an additional number of Phantom Share Units
(including fractions thereof) determined by multiplying the number of Phantom
Share Units then credited to such Account by the result obtained by dividing (i)
the amount of cash, or the value (as determined by the Board) of any securities
or other property, paid or distributed in respect of one outstanding share of
Common Stock by (ii) the Fair Market Value of a share of Common Stock on the
date of such payment or distribution. Such credit shall be made effective as of
the date of payment of the dividend or other distribution in respect of the
Common Stock. In addition, as of the date of the Board's regularly scheduled
quarterly meeting for the last quarter of 1997, the Phantom Share Account of
each Eligible Outside Director will be credited with an additional number of
Phantom Share Units determined as if (a) the Eligible Outside Director's Phantom
Share Account were established as of the later of July 1, 1996 or the date the
Eligible Outside Director became a Director of the Company, (b) there had been
credited to such Account 150 Phantom Share Units on July 1, 1996 and on the date
<PAGE>
APPENDIX TWO TO KNIGHT-RIDDER, INC.
COMPENSATION PLAN FOR NONEMPLOYEE DIRECTORS
of each quarterly meeting of the Board thereafter through September 30, 1997
during all of which quarter the Eligible Outside Director served as a Director
of the Company and (c) dividend equivalents as described in this Section had
been credited on the date of each dividend on Common Stock beginning July 1,
1996 and through September 30, 1997.
D. PAYMENT OF PHANTOM SHARE ACCOUNT. The value of an Eligible Outside
Director's Phantom Share Account shall be paid in a lump sum in cash to the
Eligible Outside Director as soon as practicable (but in no event more than 60
days) after the Eligible Outside Director's Termination of Service. The value of
the Eligible Outside Director's Phantom Share Account shall be the product of
the number of Phantom Share Units credited to the Eligible Outside Director's
Phantom Share Account on the date of payment multiplied by the Fair Market Value
of the Common Stock on such date.
1. DEATH. In the event of the death of an Eligible Outside
Director before payment of his or her Phantom Share Account, the value of the
Eligible Outside Director's Phantom Share Account, determined as provided above,
will be distributed in a lump sum in cash to the Eligible Outside Director's
Beneficiary or Beneficiaries (or, in the absence of any Beneficiary, to the
Eligible Outside Director's estate).
2. DESIGNATION OF BENEFICIARY. Each Eligible Outside Director
may designate a Beneficiary to receive the Phantom Share Account due under the
Plan upon the Eligible Outside Director's death by executing a Beneficiary
designation form. An Eligible Outside Director may change an earlier Beneficiary
designation by executing a later Beneficiary designation form. A Beneficiary
designation is not binding on the Company until the Company receives the
Beneficiary designation form. If no designation is made or no designated
Beneficiary is alive (or in the case of an entity designated as a Beneficiary,
in existence) at the time of the death of the Eligible Outside Director, payment
due under the Plan will be made to the Eligible Outside Director's estate.
E. RESTRICTIONS ON TRANSFER. The Company shall pay the value of the
Phantom Share Account only to the Eligible Outside Director or his or her estate
or the Beneficiary designated under the Plan to receive such amount. Neither an
Eligible Outside Director nor his or her Beneficiary shall have any right to
anticipate, alienate, sell, transfer, assign, pledge, encumber or change any
benefits to which he or she may become entitled under the Plan, and any attempt
to do so shall be void. The value of the Eligible Outside Director's Phantom
Share Account shall not be subject to attachment, execution by levy, garnishment
or other legal or equitable process for an Eligible Outside Director's or
Beneficiary's debts or other obligations.
2
<PAGE>
KNIGHT-RIDDER, INC.
COMPENSATION PLAN FOR NONEMPLOYEE DIRECTORS
APPENDIX THREE
(SEE ATTACHMENT)
<PAGE>
================================================================================
KNIGHT-RIDDER, INC.
RETIREMENT PLAN FOR OUTSIDE DIRECTORS'
RESTATED EFFECTIVE JULY 1, 1996
================================================================================
<PAGE>
<TABLE>
<CAPTION>
KNIGHT-RIDDER, INC.
RETIREMENT PLAN FOR OUTSIDE DIRECTORS
TABLE OF CONTENTS
Page
<S> <C> <C>
ARTICLE I PURPOSE AND INTENT OF PLAN......................................................1
ARTICLE II ORIGINAL EFFECTIVE DATE OF THE PLAN; PARTICIPATION..............................1
ARTICLE III DEFINITIONS.....................................................................1
ARTICLE IV ELIGIBILITY FOR BENEFITS........................................................2
IV.1 RETIREMENT BENEFIT..............................................................2
IV.2 DISABILITY BENEFIT..............................................................2
IV.3 LIMITATION ON RECEIPT OF BENEFIT................................................3
ARTICLE V AMOUNT OF BENEFIT...............................................................3
V.1 RETIREMENT BENEFIT..............................................................3
V.2 DISABILITY BENEFIT..............................................................3
ARTICLE VI FORM, MANNER AND DURATION OF PAYMENT OF BENEFIT.................................4
ARTICLE VII ADMINISTRATION..................................................................4
VII.1 ADMINISTRATIVE COMMITTEE........................................................4
VII.2 ACTION BY COMMITTEE; RESIGNATION; VACANCIES; COMPENSATION.......................4
VII.3 DELEGATION OF AUTHORITY; LEGAL, ACCOUNTING, CLERICAL AND OTHER SERVICES.........4
VII.4 INTERPRETATION OF PROVISIONS....................................................5
VII.5 LIABILITY OF COMMITTEE..........................................................5
ARTICLE VIII TERMINATION AND AMENDMENT OF THE PLAN...........................................5
VIII.1 AMENDMENT OF THE PLAN...........................................................5
VIII.2 TERMINATION.....................................................................5
VIII.3 EFFECT OF AMENDMENT OR TERMINATION..............................................5
ARTICLE IX MISCELLANEOUS...................................................................5
IX.1 NO RIGHT TO REELECTION..........................................................5
IX.2 UNFUNDED PLAN...................................................................6
IX.3 OTHER COMPENSATION ARRANGEMENTS.................................................6
IX.4 EXPENSES........................................................................6
IX.5 GOVERNING LAW; VENUE............................................................6
</TABLE>
-i-
<PAGE>
APPENDIX THREE TO KNIGHT-RIDDER, INC.
COMPENSATION PLAN FOR NONEMPLOYEE DIRECTORS
KNIGHT-RIDDER, INC.
RETIREMENT PLAN FOR OUTSIDE DIRECTORS
The KNIGHT-RIDDER, INC. RETIREMENT PLAN FOR OUTSIDE DIRECTORS is
restated by Knight-Ridder, Inc. effective July 1, 1996.
ARTICLE I
PURPOSE AND INTENT OF PLAN
This plan shall be known as the Knight-Ridder, Inc. Retirement Plan for
Outside Directors (the "Plan"). The Plan is intended to advance the best
interests of Knight-Ridder, Inc. by providing retirement income to outside
directors of Knight-Ridder, Inc. who have satisfied certain age and service
requirements.
ARTICLE II
ORIGINAL EFFECTIVE DATE OF THE PLAN; PARTICIPATION
The Plan was effective as of January 1, 1994. All Outside Directors
were eligible to participate in the Plan beginning January 1, 1994 and through
June 30, 1996. Effective July 1, 1996, however, only those Outside Directors who
were age 65 or older on that date will be eligible to participate in the Plan.
ARTICLE III
DEFINITIONS
As used in this Plan, the following terms shall have the meaning
hereinafter set forth:
III.1 "Annual Retainer Fee" means the annual fee payable to an Outside
Director for service on the Board as in effect on the date of an Outside
Director's Retirement.
III.2 "Board" means the Board of Directors of the Company.
III.3 "Code" means the Internal Revenue Code of 1986, as amended.
III.4 "Company" means Knight-Ridder, Inc., a Florida corporation, or
any successor legal entity.
-1-
<PAGE>
APPENDIX THREE TO KNIGHT-RIDDER, INC.
COMPENSATION PLAN FOR NONEMPLOYEE DIRECTORS
III.5 "Disability" means a Director's physical or mental condition
which is expected to render the Director unable to perform his or her usual
duties or any comparable duties for the Company. The determination of a
Director's Disability will be made by the Board in its sole discretion.
III.6 "Director" means a member of the Board.
III.7 "Effective Date" means January 1, 1994.
III.8 "Outside Director" means any member of the Board who is not, and
never was, an employee of the Company or any of its subsidiaries or affiliates
and, effective July 1, 1996, who is at least age 65 on that date.
III.9 "Plan" means this Knight-Ridder, Inc. Retirement Plan for Outside
Directors.
III.10 "Retirement" means the Termination of Service of an Outside
Director at or after age sixty-five (65).
III.11 "Termination of Service" means cessation of service as a
Director of the Company.
III.12 "Year of Service" means each 12-month period of service as a
Director, whether beginning before or after the Effective Date. If a Director
Terminates Service and then returns to service, all months of service will be
aggregated to determine the Director's Years of Service for purposes of
eligibility to receive, and the amount of, any retirement benefit under the
Plan.
ARTICLE IV
ELIGIBILITY FOR BENEFITS
IV.1 RETIREMENT BENEFIT. An Outside Director will be entitled to
receive the annual retirement benefit described in Section 5.1 upon Retirement
if he or she retires after reaching age 65 and completing five full years of
Service.
IV.2 DISABILITY BENEFIT. An Outside Director will be entitled to
receive the annual disability benefit described in Section 5.2 if he or she
incurs a Termination of Service as the result of Disability after completing at
least two full years of Service.
-2-
<PAGE>
APPENDIX THREE TO KNIGHT-RIDDER, INC.
COMPENSATION PLAN FOR NONEMPLOYEE DIRECTORS
IV.3 LIMITATION ON RECEIPT OF BENEFIT. Notwithstanding the foregoing,
an Outside Director will not be entitled to benefits under the Plan if (a) such
Outside Director is removed from the Board of Directors for cause (which means
only dishonesty, conviction of a felony, or wilful unauthorized disclosure of
confidential information, whether involving the Company or otherwise), or (b)
the Retirement or Disability of such Outside Director occurs before January 1,
1994.
ARTICLE V
AMOUNT OF BENEFIT
V.1 RETIREMENT BENEFIT. The retirement benefit payable, to an Outside
Director under the Plan shall be an annual amount, payable in accordance with
Article VI, determined as follows:
Completed
Years of Service Annual Benefit
---------------- --------------
less than 5 years No benefit
5 50% of Annual Retainer Fee
6 60% of Annual Retainer Fee
7 70% of Annual Retainer Fee
8 80% of Annual Retainer Fee
9 90% of Annual Retainer Fee
10 or more 100% of Annual Retainer Fee
V.2 DISABILITY BENEFIT. The disability benefit payable to an Outside
Director who incurs a Termination of Service as the result of Disability shall
be an annual amount, payable in accordance with Article VI, determined as
follows:
Completed
Years of Service Annual Benefit
---------------- --------------
less than 2 years No benefit
2-5 years 50% of Annual Retainer Fee
6 60% of Annual Retainer Fee
7 70% of Annual Retainer Fee
8 80% of Annual Retainer Fee
9 90% of Annual Retainer Fee
10 or more 100% of Annual Retainer Fee
-3-
<PAGE>
APPENDIX THREE TO KNIGHT-RIDDER, INC.
COMPENSATION PLAN FOR NONEMPLOYEE DIRECTORS
ARTICLE VI
FORM, MANNER AND DURATION OF PAYMENT OF BENEFIT
The annual Retirement or Disability Benefit determined under Article V
shall be paid for the life of the Outside Director. Payments shall be made on
the first business day of each calendar quarter, beginning with the quarter next
following the date of the Outside Director's Retirement. No benefits shall be
payable under the Plan after the death of a Outside Director either before or
after Retirement.
ARTICLE VII
ADMINISTRATION
VII.1 ADMINISTRATIVE COMMITTEE. The Plan shall be administered by an
Administrative Committee appointed by the Board, which may be the same committee
as serves the Company with respect to other retirement and benefit plans. The
Administrative Committee shall adopt such rules for the conduct of its business
and the administration of the Plan as it considers to be necessary or desirable,
provided that such rules do not conflict with the provisions of the Plan.
VII. ACTION BY COMMITTEE; RESIGNATION; VACANCIES; COMPENSATION. The
Administrative Committee shall act by a majority (or by all members if there be
only one or two members) of the number of members constituting the
Administrative Committee at the time of such action, and such action may be
taken either by vote at a meeting or in writing without a meeting. Any member of
the Administrative Committee may resign upon giving written notice to the Board.
Each member of the Administrative Committee shall hold office at the pleasure of
the Board. Vacancies arising in the Administrative Committee from death,
resignation, removal or otherwise, shall be filled by the Board, but the
Administrative Committee may act notwithstanding the existence of vacancies so
long as there is at least one member of the Administrative Committee. The
members of the Administrative Committee shall serve without compensation for
their services as such, but shall be reimbursed by the Company for all necessary
expenses incurred in the discharge of their duties.
VII.3 DELEGATION OF AUTHORITY; LEGAL, ACCOUNTING, CLERICAL AND OTHER
SERVICES. The Administrative Committee may authorize one or more of its members
or any agent to act on its behalf and may contract for legal, accounting,
clerical and other services to carry out the purposes of the Plan. All expenses
of the Administrative Committee shall be paid by the Company.
-4-
<PAGE>
APPENDIX THREE TO KNIGHT-RIDDER, INC.
COMPENSATION PLAN FOR NONEMPLOYEE DIRECTORS
VII.4 INTERPRETATION OF PROVISIONS. The Administrative Committee shall
have the full power and discretion to interpret the provisions of the Plan and
decide all questions arising in its administration. The decisions and
interpretations of the Administrative Committee shall be final and binding on
the Company and all other persons.
VII.5 LIABILITY OF COMMITTEE. No member of the Administrative Committee
shall be liable for any action taken in good faith or for the exercise of any
power given the Administrative Committee, or for the actions of other members of
the Administrative Committee. To the extent permitted by law, the Company shall
indemnify and hold harmless each member of the Administrative Committee against
any and all liability or reasonably expense resulting from or arising out of his
or her responsibilities in connection with the Plan, provided such person acted
in good faith, in what he or she reasonably believed was the proper discharge of
his or her duties.
ARTICLE VIII
TERMINATION AND AMENDMENT OF THE PLAN
VIII.1 AMENDMENT OF THE PLAN. The Plan may be amended from time to time
by action of the Board of Directors.
VIII.2 TERMINATION. The Company intends to continue the Plan
indefinitely but reserves the right to terminate it at any time by action of the
Board of Directors.
VIII.3 EFFECT OF AMENDMENT OR TERMINATION. No amendment or termination
of the Plan may adversely affect the benefit which would be payable to any
Outside Director receiving benefits under the Plan prior to the effective date
of the amendment or termination, or which would be payable to any Outside
Director who, prior to the effective date of such amendment or termination, was
eligible to retire with an immediate benefit under the Plan.
ARTICLE IX
MISCELLANEOUS
IX.1 NO RIGHT TO REELECTION. Nothing in the Plan shall be deemed to
create any obligation on the part of the Board to nominate any of its members
for reelection by the Company's stockholders, nor confer upon any Outside
Director the right to remain a member of the Board for any period of time, or at
any particular rate of compensation.
-5-
<PAGE>
APPENDIX THREE TO KNIGHT-RIDDER, INC.
COMPENSATION PLAN FOR NONEMPLOYEE DIRECTORS
IX.2 UNFUNDED PLAN. This Plan is unfunded. Amounts payable under the
Plan will be satisfied solely out of the general assets of the Company subject
to the claims of the Company's creditors. No Outside Director or any other
person shall have any interest in any fund or in any specific asset of the
Company by reason of any amount credited to him hereunder, nor shall any Outside
Director or any other person have any right to receive any distribution under
the Plan except as, and to the extent, expressly provided in the Plan.
IX.3 OTHER COMPENSATION ARRANGEMENTS. Payments received by an Outside
Director under the Plan shall not have any effect on the determination of
benefits under any other arrangement provided by the Company.
IV.4 EXPENSES. The costs and expenses of administering the Plan shall
be borne by the Company and no contributions from Outside Directors shall be
required or permitted.
IX.5 GOVERNING LAW; VENUE. The Plan shall be construed in accordance
with the laws of the State of Florida. Any legal action or proceeding hereunder
may be initiated only in Dade County, Florida.
-6-
<TABLE>
<CAPTION>
EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Year Ended
----------------------------------
Dec. 28, Dec. 29, Dec. 31,
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
BASIC
Average shares outstanding ............................... 88,475 96,021 99,451
========= ========= =========
Income before cumulative effect
of change in accounting principle ...................... $ 413,015 $ 267,873 $ 167,382
Cumulative effect of change in
accounting principle for contributions ................. (7,320)
--------- --------- ---------
NET INCOME ...................... $ 413,015 $ 267,873 $ 160,062
========= ========= =========
Earnings per share
Income before cumulative effect of
change in accounting principle ....................... $ 4.67 $ 2.79 $ 1.68
Cumulative effect of change in
accounting principle for contributions ................. (0.07)
--------- --------- ---------
BASIC EARNINGS PER SHARE ........ $ 4.67 $ 2.79 $ 1.61
========= ========= =========
DILUTED
Average shares outstanding ............................... 88,475 96,021 99,451
Effect of dilutive securities:
based upon Treasury Stock method using
the average market price
Convertible preferred stock........................... 10,932
Stock options ........................................ 1,907 1,399 745
--------- --------- ---------
TOTAL ........................... 101,314 97,420 100,196
========= ========= =========
Income before cumulative effect of
change in accounting principle ......................... $ 413,015 $ 267,873 $ 167,382
Cumulative effect of change in
accounting principle for contributions ................. (7,320)
--------- --------- ---------
NET INCOME ...................... $ 413,015 $ 267,873 $ 160,062
========= ========= =========
Earnings per share
Income before cumulative effect of change in
accounting principle ................................... $ 4.08 $ 2.75 $ 1.67
Cumulative effect of change in
accounting principle for contributions ................. (0.07)
--------- --------- ---------
DILUTED EARNINGS PER SHARE ...... $ 4.08 $ 2.75 $ 1.60
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT 12
COMPUTATION OF EARNINGS TO FIXED CHARGES RATIO
FROM CONTINUING OPERATIONS
(IN THOUSANDS OF DOLLARS, EXCEPT RATIO DATA)
YEAR ENDED
---------------------------------------------------------------------------
December 28, December 29, December 31, December 25, December 26,
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
FIXED CHARGES COMPUTATION
INTEREST EXPENSE:
NET INTEREST EXPENSE ...................... $ 97,286 $ 66,740 $ 57,623 $ 43,742 $ 44,283
PLUS CAPITALIZED INTEREST ................. 5,376 6,397 1,889 474 120
----------- ---------- ---------- ----------- ----------
GROSS INTEREST EXPENSE ............... 102,662 73,137 59,512 44,216 44,403
PROPORTIONATE SHARE OF INTEREST
EXPENSE OF 50% OWNED PERSONS .............. 1,948 17,941 13,824 12,351 13,608
INTEREST COMPONENT OF
RENT EXPENSE .............................. 6,671 5,787 5,781 5,303 4,946
----------- ---------- ---------- ----------- ----------
TOTAL FIXED CHARGES .................. $ 111,281 $ 96,865 $ 79,117 $ 61,870 $ 62,957
=========== ========== ========== =========== ==========
EARNINGS COMPUTATION
PRETAX EARNINGS ................................ $ 693,852 $ 310,209 $ 182,817 $ 265,737 $ 220,036
ADD: FIXED CHARGES ....................... 111,281 96,865 79,117 61,870 62,957
LESS: CAPITALIZED INTEREST... (5,376) (6,397) (1,889) (474) (120)
LESS: DISTRIBUTIONS IN EXCESS
OF (LESS THAN)
EARNINGS OF INVESTEES ....... (7,675) (12,962) (9,285) (4,487) (4,407)
----------- ---------- ---------- ----------- ----------
TOTAL EARNINGS AS ADJUSTED ........... $ 792,082 $ 387,715 $ 250,760 $ 322,646 $ 278,466
=========== ========== ========== =========== ==========
RATIO OF EARNINGS
TO FIXED CHARGES ................... 7.1:1 4.0:1 3.2:1 5.2:1 4.4:1
=========== ========== ========== =========== ==========
</TABLE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
State/Country
Company Name of Incorporation
- ------------ ----------------
<S> <C>
Knight-Ridder, Inc. Florida
Aberdeen News Company Delaware
The Beacon Journal Publishing Company Ohio
The Bradenton Herald, Inc. Florida
Circom Corporation Pennsylvania
Contra Costa Newspapers, Inc. California
Cypress Media, Inc. New York
Cypress Media, LLC (1) Delaware
Belleville News-Democrat *
Kansas City Star *
Wilkes-Barre Times Leader *
Quad County Publishing, Inc. (1) Illinois
Star-Telegram Operating, Ltd. (1) Texas
Ft. Worth Star-Telegram *
Detroit Free Press, Incorporated Michigan
Detroit Newspaper Agency Michigan (partnership)
Drinnon, Inc. Georgia
Grand Forks Herald, Incorporated Delaware
Gulf Publishing Company, Inc. Mississippi
KR Net Ventures, Inc. Delaware
InfiNet Company Virginia (partnership)
KR Newsprint Company Florida
Southeast Paper Manufacturing Co. Georgia (partnership)
KRI Property, Inc. Florida
KR Publication Services, Inc. Delaware
KR Video, Inc. Delaware
Keynoter Publishing Company, Inc. Florida
Knight News Services, Inc. Michigan
Knight-Ridder Tribune Information Services District of Columbia (partnership)
The Knight Publishing Co. Delaware
Knight-Ridder Business Information Services, Inc. Delaware
Knight-Ridder Financial/Japan, Inc. Delaware
Technimetrics, Inc. Delaware
Grabill-Bloom, Inc. Illinois
Technimetrics Asia, Ltd. Delaware
Knight-Ridder Cablevision, Inc. Florida
KRC-NJFT, Inc. Delaware
KRC-SNJ, Inc. Delaware
TKR Cable Partners Colorado (partnership)
TCI-TKR L.P. Colorado (partnership)
Knight-Ridder International, Inc. Delaware
KR U.S.A., Inc. Delaware
Knight-Ridder Investment Company Delaware
Knight-Ridder Leasing Company Florida
Seattle Times Company Delaware
</TABLE>
(1) Star-Telegram Operating, Ltd. is owned 90% by Quad County Publishing, Inc.
and 10% by Cypress Media, LLC
* Indicates that the company name listed is a division, not a legal entity.
<PAGE>
<TABLE>
<CAPTION>
State/Country
Company Name of Incorporation
- ------------ ----------------
<S> <C>
Knight-Ridder New Media, Inc. Delaware
Knight-Ridder Shared Services, Inc. Florida
Lexington Herald-Leader Co. Kentucky
MHPC International, Inc. Florida
The Macon Telegraph Publishing Company Georgia
MediaStream, Inc. Delaware
The Miami Herald Publishing Company *
Monterey Newspapers, Inc. Colorado
The Monterey County Herald *
San Luis Obispo Telegram-Tribune *
News Publishing Company Indiana
Fort Wayne Newspapers, Inc. Indiana
Fort Wayne Newspapers Agency Indiana (partnership)
Nittany Printing and Publishing Company Pennsylvania
Northwest Publications, Inc. Delaware
Duluth News-Tribune & Herald *
Saint Paul Pioneer Press *
The Observer Transportation Company North Carolina
Philadelphia Newspapers, Inc. Pennsylvania
Apartment Solutions, Inc. Pennsylvania
Marketplace Advertising, Inc. Pennsylvania
Philadelphia Online, Inc. Delaware
Post Tribune Publishing, Inc. Indiana
Press-Telegram Publications, Inc. California
The R.W. Page Corporation Georgia
Ridder Publications, Inc. Delaware
KR Land Holding Corporation Delaware
San Jose Mercury News, Inc. California
The State-Record Company, Inc. South Carolina
Newberry Publishing Company, Inc. South Carolina
Sun Publishing Company, Inc. South Carolina
Tallahassee Democrat, Inc. Florida
Tribune Newsprint Company Utah
Ponderay Newsprint Company Washington (partnership)
Twin Cities Newspaper Services, Inc. Minnesota
Wichita Eagle and Beacon Publishing Company, Inc. Kansas
</TABLE>
* Indicates that the company name listed is a division, not a legal entity.
EXHIBIT 23
Consent of Independent Certified Public Accountants
We consent to the incorporation by reference in Registration Statement No.
33-11021 on Form S-3 dated December 22, 1986, in Registration Statement No.
33-28010 on Form S-3 dated April 7, 1989, in Registration Statement No. 33-31747
on Form S-8 dated October 30, 1989, in Registration Statement No. 33-69206 on
Form S-8 dated May 18, 1993, in Registration Statement No. 333-37603 on Form S-3
dated October 9, 1997 of Knight-Ridder, Inc. and in the related Prospectuses, of
our report dated January 26, 1998, with respect to the consolidated financial
statements and schedule of Knight-Ridder, Inc. incorporated by reference and
included in this Annual Report (Form 10-K) for the year ended December 28, 1997.
/s/ Ernst & Young LLP
---------------------
Miami, Florida
March 13, 1998
<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 THE CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000205520
<NAME> KNIGHT-RIDDER, INC.
<MULTIPLIER> 1,000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> DEC-28-1997
<EXCHANGE-RATE> 1
<CASH> 160,291
<SECURITIES> 0
<RECEIVABLES> 374,746
<ALLOWANCES> 14,963
<INVENTORY> 50,332
<CURRENT-ASSETS> 641,115
<PP&E> 1,774,085
<DEPRECIATION> 727,571
<TOTAL-ASSETS> 4,355,142
<CURRENT-LIABILITIES> 598,656
<BONDS> 1,639,037
0
1,755
<COMMON> 1,700
<OTHER-SE> 1,548,218
<TOTAL-LIABILITY-AND-EQUITY> 4,355,142
<SALES> 2,876,785
<TOTAL-REVENUES> 2,876,785
<CGS> 466,329 <F1>
<TOTAL-COSTS> 2,370,757
<OTHER-EXPENSES> (187,824) <F2>
<LOSS-PROVISION> 23,332
<INTEREST-EXPENSE> 102,662
<INCOME-PRETAX> 693,852
<INCOME-TAX> 297,348
<INCOME-CONTINUING> 396,504
<DISCONTINUED> 16,511 <F3>
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 413,015
<EPS-PRIMARY> 4.67
<EPS-DILUTED> 4.08
<FN>
<F1> COST OF GOODS SOLD CONSISTS OF NEWSPRINT, INK, AND SUPPLEMENTS.
<F2> OTHER EXPENSES CONSISTS OF ALL NON-OPERATING INCOME AND COSTS, NET,
EXCLUDING INCOME TAXES. AMOUNT INCLUDES INTEREST EXPENSE, NET OF INTEREST
INCOME AND OTHER NON-OPERATING COSTS, NET OF NON-OPERATING INCOME THAT
INCLUDES PRETAX GAINS AGGREGATING $283.1 MILLION ON THE SALES OF TKR CABLE
AND FOUR NEWSPAPERS, AND THE GAIN ON THE BOULDER NEWSPAPER EXCHANGE. SEE
ITEM 8, NOTE G.
<F3> INCLUDES $15.3 MILLION NET GAIN ON THE SALE OF KRII. SEE ITEM 8, NOTE G.
</FN>
</TABLE>
