UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED: June 28, 1997
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COMMISSION FILE NUMBER: 1-7553
KNIGHT-RIDDER, INC.
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(Exact name of registrant as specified in its charter)
FLORIDA 38-0723657
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(State of Incorporation) (I.R.S. Employer Identification No.)
ONE HERALD PLAZA, MIAMI, FLORIDA 33132
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(Address of principal executive offices)
(305) 376-3800
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date. Common Stock, $.02 1/12 Par Value
78,827,487 shares as of August 3, 1998.
1
<PAGE>
Table of Contents for Form 10-Q
Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Statement of Income 3
Consolidated Balance Sheet 4-5
Consolidated Statement of Cash Flows 6
Notes to Consolidated Financial Statements 7-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURE 14
EXHIBIT 15
2
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED, IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Quarter Ended Two Quarters Ended Four Quarters Ended
-------------------------- -------------------------- ------------------------
June 28, June 29, June 28, June 29, June 28, June 29,
1998 1997 1998 1997 1998 1997
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUE
Advertising
Retail $ 267,382 $ 239,982 $ 507,927 $ 433,349 $ 1,083,314 $ 872,415
General 65,353 61,410 129,037 112,908 262,225 214,368
Classified 263,122 245,211 523,877 453,727 1,017,569 833,333
----------- ----------- ----------- ----------- ----------- -----------
Total 595,857 546,603 1,160,841 999,984 2,363,108 1,920,116
Circulation 147,647 139,616 296,244 266,471 597,530 515,606
Other 35,788 25,437 66,090 46,031 126,836 84,650
----------- ----------- ----------- ----------- ----------- -----------
Total Operating Revenue 779,292 711,656 1,523,175 1,312,486 3,087,474 2,520,372
OPERATING COSTS
Labor and employee benefits 302,582 279,260 594,499 528,588 1,198,138 1,010,203
Newsprint, ink and supplements 133,973 110,109 264,607 203,573 527,363 421,617
Other operating costs 168,910 146,058 331,278 275,766 670,982 516,972
Depreciation and amortization 46,702 39,252 92,479 69,413 179,797 131,587
----------- ----------- ----------- ----------- ----------- -----------
Total Operating Costs 652,167 574,679 1,282,863 1,077,340 2,576,280 2,080,379
----------- ----------- ----------- ----------- ----------- -----------
OPERATING INCOME 127,125 136,977 240,312 235,146 511,194 439,993
----------- ----------- ----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)
Interest expense (26,875) (23,751) (54,836) (38,657) (118,841) (73,129)
Interest expense capitalized 1,251 1,356 2,401 3,149 4,628 6,967
Interest income 1,265 248 2,883 685 5,602 2,924
Equity in earnings of unconsolidated
companies and joint ventures 8,496 2,905 12,835 3,773 19,862 17,071
Minority interests in earnings of
consolidated subsidiaries (2,549) (2,738) (5,030) (5,397) (11,136) (10,605)
Other, net 4,407 (2,565) 86,160 216,555 152,014 232,429
----------- ----------- ----------- ----------- ----------- -----------
Total (14,005) (24,545) 44,413 180,108 52,129 175,657
----------- ----------- ----------- ----------- ----------- -----------
Income before income taxes 113,120 112,432 284,725 415,254 563,323 615,650
Income taxes 46,195 51,482 116,363 178,846 234,865 258,337
----------- ----------- ----------- ----------- ----------- -----------
Income from continuing operations 66,925 60,950 168,362 236,408 328,458 357,313
Gains on sales of discontinued
BIS operations, net of applicable
income taxes of $43,752 for the
quarter and two quarters ended 1998
and applicable income taxes of $52,117 and
$69,631 for the four quarters
ended 1998 and 1997. 60,042 60,042 75,303 86,255
Income/(loss) from discontinued
BIS operations, net of applicable
income taxes/(benefits) of $295 for
the quarter ended 1997; $133 and $(231) for
the two quarters ended 1998 and 1997
and $1,483 and $3,102 for the four
quarters ended 1998 and 1997. 350 184 (376) 1,810 (5,533)
----------- ----------- ----------- ----------- ----------- -----------
Net income $ 126,967 $ 61,300 $ 228,588 $ 236,032 $ 405,571 $ 438,035
=========== =========== =========== =========== =========== ===========
EARNINGS PER SHARE
BASIC:
Income from continuing operations $ 0.85 $ 0.67 $ 2.12 $ 2.58 $ 3.99 $ 3.84
Gains on sale of discontinued
BIS operations, net 0.76 0.76 0.92 0.93
Income/(loss) from discontinued
BIS operations, net 0.01 (0.01) 0.02 (0.06)
----------- ----------- ----------- ----------- ----------- -----------
Net income $ 1.61 $ 0.68 $ 2.88 $ 2.57 $ 4.93 $ 4.71
=========== =========== =========== =========== =========== ===========
DILUTED:
Income from continuing operations $ 0.68 $ 0.60 $ 1.70 $ 2.42 $ 3.22 $ 3.69
Gains on sale of discontinued
BIS operations, net 0.61 0.61 0.74 0.89
Income/(loss) from discontinued
BIS operations, net 0.01 (0.01) 0.02 (0.05)
----------- ----------- ----------- ----------- ----------- -----------
Net income $ 1.29 $ 0.61 $ 2.31 $ 2.41 $ 3.98 $ 4.53
=========== =========== =========== =========== =========== ===========
DIVIDENDS DECLARED PER COMMON SHARE $ 0.20 $ 0.20 $ 0.40 $ 0.40 $ 0.80 $ 0.60(1)
=========== =========== =========== =========== =========== ===========
AVERAGE SHARES OUTSTANDING (000s)
Basic 78,600 90,316 79,275 91,720 82,253 93,076
=========== =========== =========== =========== =========== ===========
Diluted 98,159 100,777 98,859 97,730 101,879 96,795
=========== =========== =========== =========== =========== ===========
(1) The Board of Directors declared a $.20 per share dividend on Jan. 28, 1997. The quarterly dividend usually 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".
</TABLE>
3
<PAGE>
CONSOLIDATED BALANCE SHEET
(UNAUDITED, IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
June 28, December 28, June 29,
1998 1997 1997
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Current Assets
Cash, including short-term cash investments of $75,237 in
1998, $140,210 in December 1997, and $50 in June 1997 $ 96,554 $ 160,291 $ 28,558
Accounts receivable, net of allowances of $16,124 in 1998,
$14,963 in December 1997, and $16,868 in June 1997 340,210 374,746 410,451
Inventories 62,725 50,332 62,080
Prepaid expense 7,829 15,844 25,497
Other current assets 36,959 39,902 45,446
----------- ----------- -----------
Total Current Assets 544,277 641,115 572,032
----------- ----------- -----------
Investments and Other Assets
Equity in unconsolidated companies and joint ventures 195,058 197,585 189,630
Net assets of discontinued BIS operations 24,673 347,403
Other 226,071 172,859 288,557
----------- ----------- -----------
Total Investments and Other Assets 421,129 395,117 825,590
----------- ----------- -----------
Property, Plant and Equipment
Land and improvements 93,762 89,375 88,635
Buildings and improvements 439,657 444,952 453,170
Equipment 1,153,546 1,127,875 1,200,616
Construction and equipment installations in progress 136,534 111,883 151,891
----------- ----------- -----------
1,823,499 1,774,085 1,894,312
Less accumulated depreciation (756,242) (727,571) (869,825)
----------- ----------- -----------
Net Property, Plant and Equipment 1,067,257 1,046,514 1,024,487
Excess of Cost Over Net Assets Acquired and Other Intangibles
Less accumulated amortization of $230,487 in 1998,
$197,966 in December 1997 and $166,976 in June 1997 2,238,822 2,272,396 2,288,861
----------- ----------- -----------
Total $ 4,271,485 $ 4,355,142 $ 4,710,970
=========== =========== ===========
</TABLE>
4
<PAGE>
CONSOLIDATED BALANCE SHEET
(UNAUDITED, IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
June 28, December 28, June 29,
1998 1997 1997
----------- ----------- -----------
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 194,021 $ 172,021 $ 156,212
Accrued expenses and other liabilities 111,328 131,491 106,302
Accrued compensation and amounts withheld from employees 97,069 119,036 105,056
Federal and state income taxes 75,486 33,920 66,011
Deferred revenue 67,021 72,491 86,867
Short-term borrowings and current portion of long-term debt 289,429 69,697
----------- ----------- -----------
Total Current Liabilities 834,354 598,656 520,448
----------- ----------- -----------
Noncurrent Liabilities
Long-term debt 1,247,559 1,599,133 1,829,280
Deferred federal and state income taxes 291,883 282,695 319,205
Postretirement benefits other than pensions 152,522 150,485 155,210
Employment benefits and other noncurrent liabilities 161,756 171,225 121,391
----------- ----------- -----------
Total Noncurrent Liabilities 1,853,720 2,203,538 2,425,086
----------- ----------- -----------
Minority Interests in Consolidated Subsidiaries 2,377 1,275 1,758
Commitments and Contingencies
Shareholders' Equity
Preferred stock, $1.00 par value; shares authorized - 2,000,000; shares
issued - 1,754,930 in 1998, December 1997, and June 1997 1,755 1,755 1,755
Common stock, $.02 1/12 par value; shares authorized -
250,000,000; shares issued - 78,843,842 in 1998,
81,597,631 in December 1997 and 88,007,596 in June 1997 1,643 1,700 1,833
Additional capital 911,251 911,572 942,800
Retained earnings 658,922 636,646 813,780
Treasury stock, at cost, 48,973 shares in 1998 and 0 in 1997 (2,748)
Accumulated other comprehensive income 10,211 3,510
----------- ----------- -----------
Total Shareholders' Equity 1,581,034 1,551,673 1,763,678
----------- ----------- -----------
Total $ 4,271,485 $ 4,355,142 $ 4,710,970
=========== =========== ===========
See "Notes to Consolidated Financial Statements".
5
</TABLE>
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED, IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Quarter Ended Two Quarters Ended Four Quarters Ended
---------------------- ----------------------- ---------------------
June 28, June 29, June 28, June 29, June 28, June 29,
1998 1997 1998 1997 1998 1997
--------- ----------- ----------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
CASH PROVIDED BY (REQUIRED FOR) OPERATING ACTIVITIES
Net income $ 126,967 $ 61,300 $ 228,588 $ 236,032 $ 405,571 $ 438,035
Noncash items deducted from (included in) income:
Gains on sales/exchanges of investee/subsidiaries (75,251) (221,801) (136,576) (221,801)
Net gain on sale of discontinued BIS operations (60,042) (60,042) (75,303) (86,255)
Depreciation 27,114 23,437 53,041 44,951 102,228 89,537
Amortization of excess of cost over
net assets acquired and other intangibles 16,157 11,891 32,521 16,485 63,512 25,892
Amortization of other assets 3,431 3,924 6,917 7,977 14,057 16,158
Provision (benefit) for deferred taxes (1,538) (265) (2,779) 414 (17,943) 43,960
Earnings from investees in excess of distributions (9,047) (1,770) (12,544) (4,149) (23,053) (12,000)
Minority interests in earnings of
consolidated subsidiaries 2,549 2,738 5,030 5,397 11,136 10,605
Other items, net 3,849 5,212 7,247 11,425 34,479 (7,227)
Change in certain assets and liabilities:
Accounts receivable (5,689) (20,921) 25,590 (3,425) (4,838) (41,601)
Inventories 2,731 (4,335) (12,974) (9,707) (3,593) 23,869
Other current assets 4,362 9,101 10,001 10,825 (444) (128,407)
Accounts payable 10,588 (4,560) 13,335 (92,563) 21,929 (12,837)
Federal and state income taxes (57,002) (47,638) 5,567 66,011 (50,821) 67,178
Other liabilities (6,271) 5,205 (35,486) (1,258) 13,495 (4,931)
--------- ----------- ----------- ---------- ----------- ---------
Net Cash Provided by Operating Activities 58,159 43,319 188,761 66,614 353,836 200,175
--------- ----------- ----------- ---------- ----------- ---------
CASH PROVIDED BY (REQUIRED FOR) INVESTING ACTIVITIES
Proceeds from sales of investee/subsidiaries, net 58,125 130,654 108,616 130,654
Proceeds from sale of discontinued BIS operations, net 125,000 125,000 541,983 271,859
Change in net noncurrent assets of
discontinued BIS operations 422 520 5,869 (3,353) 8,273
Proceeds from sales of securities available for sale 2,511 113,432 2,511 130,979 113,426 130,979
Additions to property, plant and equipment (46,839) (32,882) (77,533) (60,661) (123,486) (103,876)
Other items, net 789 1,446 (3,213) (2,867) (8,511) 13,540
--------- ----------- ----------- ---------- ----------- ---------
Net Cash Provided by Investing Activities 81,461 82,418 105,410 203,974 628,675 451,429
--------- ----------- ----------- ---------- ----------- ---------
CASH PROVIDED BY (REQUIRED FOR) FINANCING ACTIVITIES
Proceeds from sale of commercial paper, notes payable
and senior notes payable 885,060 257,968 885,060 326,716 1,391,944 594,103
Reduction of total debt (989,947) (125,427) (1,017,325) (308,989) (1,684,947) (809,097)
--------- ----------- ----------- ---------- ----------- ---------
Net Change in Total Debt (104,887) 132,541 (132,265) 17,727 (293,003) (214,994)
Payment of cash dividends (19,204) (18,363) (38,718) (36,976) (80,077) (75,105)
Sale of common stock to employees 12,467 15,390 29,641 35,003 65,169 59,935
Purchase of treasury stock (7,904) (237,993) (207,529) (263,726) (587,178) (411,118)
Other items, net (3,792) (13,306) (9,037) (16,938) (19,426) (12,994)
--------- ----------- ----------- ---------- ----------- ---------
Net Cash Required for Financing Activities (123,320) (121,731) (357,908) (264,910) (914,515) (654,276)
--------- ----------- ----------- ---------- ----------- ---------
Net Increase (Decrease) in Cash 16,300 4,006 (63,737) 5,678 67,996 (2,672)
Cash and short-term cash
investments at beginning of the period 80,254 24,552 160,291 22,880 28,558 31,230
--------- ----------- ----------- ---------- ----------- ---------
Cash and short-term cash
investments at end of the period $ 96,554 $ 28,558 $ 96,554 $ 28,558 $ 96,554 $ 28,558
========= =========== =========== ========== =========== =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Non cash investing activities
Securities received as proceeds on the sale of investee $ 37,678 $ 229,163 $ 37,678 $ 229,163
Non cash financing activities
Issuance of preferred stock for the acquisition
of the Disney newspapers
Preferred Stock $ 1,755 1,755 1,755
Additional Capital 658,245 658,245 658,245
Long-term debt assumed on the acquisition of the Disney
newspapers 990,000 990,000 990,000
</TABLE>
See "Notes to Consolidated Financial Statements".
6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the quarter, two quarters and four quarters
ended June 28, 1998 are not necessarily indicative of the results that may be
expected for the year ending December 27, 1998. For further information, refer
to the consolidated financial statements and footnotes thereto included in the
Registrant Company and Subsidiaries' annual report on Form 10-K for the year
ended December 28, 1997.
In 1998, the company adopted FAS 130, REPORTING COMPREHENSIVE INCOME. See Note
3.
Certain amounts in 1997 have been reclassified to conform to the 1998
presentation.
NOTE 2 - DISPOSITIONS
Continuing Operations
On February 2, 1998, the company completed the sale of the Post-Tribune in Gary,
Indiana, to Hollinger International, Inc. On March 18, 1998, the company closed
on the sale of its remaining interest in a jointly owned cable investment with
Telecommunications, Inc. (TCI). The proceeds from the sale of the company's Gary
Post-Tribune newspaper and the sale of the remaining cable investment were $95.8
million, consisting of $58.1 million in cash and TCI stock with an aggregate
market value of $37.7 million. The pretax and after-tax gains on the sales were
$75.3 million and $45.0 million, respectively.
Discontinued Operations
On April 13, 1998, the company closed on the sale of Technimetrics, Inc. to an
operating unit of The Thomson Corporation. Technimetrics was a subsidiary which
sold global shareholding and business contact information. The proceeds from the
sale were $125.0 million and resulted in a pre-tax and after-tax gain of $103.8
million and $60.0 million, respectively.
NOTE 3 - COMPREHENSIVE INCOME
In 1998, the Company adopted FAS 130, REPORTING COMPREHENSIVE INCOME. FAS 130
establishes new rules for the reporting and display of comprehensive income and
its components. FAS 130 requires unrealized gains or losses on the company's
available-for-sale securities, which prior to its adoption were recorded
separately in shareholders' equity, to be included in "other comprehensive
income".
For the quarter and two quarters ended June 28, 1998, total comprehensive income
was $133.5 million and $238.8 million, respectively, and $80.6 million and
$237.9 million, respectively, for the comparable periods in 1997.
7
<PAGE>
<TABLE>
<CAPTION>
NOTE 4 - DEBT
(In Thousands of Dollars)
Effective Balance At
Interest -----------------------------------------------
Rate At
June 28, June 28, December 28, June 29,
1998 1998 1997 1997
--------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Commercial paper, net of discount 5.9% $ 887,667 $ 29,793 $ 382,543
Senior secured bank debt (a) 990,000 990,000
Debentures, net of discount (b) 10.0 198,216 198,133 198,051
Debentures, net of discount (c) 7.6 94,288 94,261
Notes payable, net of discount (d) 8.5 159,697 159,617 159,531
Notes payable, net of discount (e) 6.8 97,865 97,821
Senior notes, net of discount (f) 6.3 99,255 99,205 99,155
----------- ------------ -------------
Total Debt (g) 6.9 1,536,988 1,668,830 1,829,280
Less amounts classified as current 289,429 69,697
----------- ------------ -------------
Total long-term debt 7.0% $ 1,247,559 $ 1,599,133 $ 1,829,280
=========== ============ =============
</TABLE>
(a) Represents $990 million advance under a $1.2 billion credit agreement with a
variable interest rate indexed to Libor plus 27 1/2 basis points. Bank debt
was paid off on June 26, 1998 with proceeds from the sale of commercial
paper.
(b) Represents $200 million of a 20-year 9 7/8% debenture due in 2009.
(c) Represents $100 million of a 7.15% debenture due in 2027.
(d) Represents $160 million of 8 1/2% notes subject to mandatory pro rata
amortization of 25% annually commencing in 1998 through maturity in 2001.
(e) Represents $100 million of a 6.625% note due in 2007.
(f) Represents $100 million of 10 year 6.3% senior notes due in 2005.
(g) At June 28, 1998, and June 29, 1997, interest payments of $69.0 million and
$30.1 million had been made for the year-to-date, respectively.
8
<PAGE>
NOTE 5 - INCOME TAX PAYMENTS
Income tax payments for the two quarters ended June 28, 1998 and June 29, 1997,
were $112.6 million and $107.1 million, respectively.
NOTE 6 - EARNINGS PER SHARE
In 1997, the company adopted FAS 128 -- EARNINGS PER SHARE. The following table
sets forth the computation of basic and diluted earnings per share from
continuing operations (in thousands, except share data):
<TABLE>
<CAPTION>
Quarter Ended Two Quarters Ended
------------------- -------------------
June 28, June 29, June 28, June 29,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Income from continuing operations $ 66,925 $ 60,950 $168,362 $236,408
======== ======== ======== ========
Average shares outstanding (basic) 78,600 90,316 79,275 91,720
-------- -------- -------- --------
Effect of dilutive securities:
Convertible preferred stock 17,549 8,775 17,549 4,387
Stock options 2,010 1,686 2,035 1,623
-------- -------- -------- --------
Average shares outstanding (diluted) 98,159 100,777 98,859 97,730
-------- -------- -------- --------
Earnings per share from continuing operations (basic) $ 0.85 $ 0.67 $ 2.12 $ 2.58
======== ======== ======== ========
Earnings per share from continuing operations (diluted) $ 0.68 $ 0.60 $ 1.70 $ 2.42
======== ======== ======== ========
9
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE SECOND QUARTER
SECOND QUARTER 1998 COMPARED WITH SECOND QUARTER 1997
Diluted earnings per share was $1.29, up $.68, from the $.61 reported for the
second quarter of 1997. This includes a $.61 per share gain on the sale of
Technimetrics, the last piece of the discontinued Business Information Services
Division, which was sold on April 13, 1998.
Diluted earnings per share from continuing operations for the second quarter of
1998, excluding corporate relocation costs and other non-recurring items, was
$.73, up $.13 per share, or 21.7%, from the $.60 reported in 1997. Including the
corporate relocation costs and other non-recurring items, Knight Ridder earned
$.68 per diluted share from continuing operations, up $.08, or 13.3%, from the
$.60 earned in the same quarter of 1997. Net income from continuing operations
in the second quarter, excluding corporate relocation costs and other
non-recurring items, was $72.0 million, up 18.0%, from the $61.0 million
realized last year. On this same basis, total operating income was $138.7
million, up $1.8 million, or 1.3%, from the same period a year ago, reflecting a
13% increase in the price of newsprint.
The results include operations from four newspapers acquired from The Walt
Disney Company in May 1997 and from two newspapers received in exchange from E.
W. Scripps Co. for the Boulder, Colorado newspaper in August 1997. They exclude
results from the Boulder Daily Camera after August 1997 and for five newspapers
(Boca Raton News, Gary Post-Tribune, Long Beach Press-Telegram, Newberry
Observer and Milledgeville Union Recorder) after their dates of sale in December
1997 and February 1998. Certain comparisons are provided on a pro forma basis
for the former Disney and Scripps newspapers (including their results as if
owned since January 1997 and excluding the sold newspapers from both years).
OPERATING REVENUE
Advertising revenue increased 9.0% over the second quarter last year. On a pro
forma basis excluding sold newspapers (comparable), newspaper advertising
revenue increased 3.9% from last year with growth in all advertising revenue
categories.
Retail advertising revenue improved by $27.4 million, or 11.4%, over last year.
On a pro forma basis excluding sold newspapers, retail advertising revenue
improved by $13.4 million, or 5.3%. Retail benefited from Detroit, up 12.9% for
the quarter, due to increased major accounts advertising, along with the
strongest part-run ROP showing since the strike began, and a major upsurge in
preprints.
Classified advertising revenue increased $17.9 million, or 7.3%, over the second
quarter last year. On a comparable basis, classified advertising revenue
increased 2.9%, with the employment category showing the largest gain,
reflecting a 5.4% revenue improvement.
10
<PAGE>
General advertising revenue was up $3.9 million, or 6.4%, from last year. On a
comparable basis, general advertising revenue was up $1.7 million, or 2.7%.
Telecommunications and airlines advertising in several large markets helped
boost performance.
Circulation revenue was up $8.0 million, or 5.8%, from 1997. On a comparable
basis, circulation revenue was flat with second quarter 1997, on a 0.6% increase
in the average seven-day circulation, offset in part by a 0.3% decline in
average rate.
Other revenue increased by $10.4 million, or 40.7%, from the prior year. On a
comparable basis, other newspaper revenue increased by $7.4 million, or 25.9%.
The increase was due to growth in commercial print, alternate distribution,
database marketing, event marketing and online revenue.
OPERATING COSTS
Labor and employee benefit costs increased $23.3 million, or 8.4%. On a pro
forma basis excluding sold newspapers and corporate relocation and severance
costs, labor and employee benefit costs increased $4.5 million, or 1.5%, on a
1.0% increase in the average wage rate and a 1.0% increase in the workforce
offset in part by a decline in employee benefits.
Newsprint, ink and supplement costs increased $23.9 million, or 21.7%. On a
comparable basis, these costs increased $17.3 million, or 14.8%, on a 13%
increase in the average newsprint price and a 2.0% increase in consumption. This
consumption increase was driven by circulation and advertising volume gains.
Other operating costs increased $22.9 million, or 15.6%, from second quarter
1997. On a comparable basis, these costs increased $13.1 million, or 8.4%,
mostly from circulation promotion costs and the change from non-employee
carriers to circulation agents in Detroit, which results in both greater revenue
and expense.
Depreciation and amortization increased $7.5 million, or 19.0%, from second
quarter 1997. On a comparable basis, depreciation and amortization increased
$2.3 million, or 5.2%, from 1997, primarily due to the Miami press project and
the Philadelphia renovation project.
NON-OPERATING ITEMS
Interest expense, net of interest income and interest expense capitalized,
increased $2.2 million from last year due to the increase in debt related to the
Disney newspaper acquisition and share repurchases. The average debt balance for
the quarter increased $195.4 million from the second quarter of last year.
Equity in earnings of unconsolidated companies and joint ventures increased by
$5.6 million, mostly due to our newsprint mill investments which were favorably
impacted by the increase in the price of newsprint compared to the prior year.
The "Other, net" line of the non-operating section reflects a $7.0 million
increase from 1997 due to the previously mentioned non-recurring items,
primarily final settlements on asset sales.
The effective tax rate was 40.8% in the quarter ended June 28, 1998 compared to
45.8% for the comparable quarter in 1997. The Disney newspapers acquisition was
completed in the quarter ended June 29, 1997. Certain effects of the related
preliminary purchase price allocation contributed to the increase in the
effective tax rate for that quarter as compared to the same quarter in 1998. The
final purchase price allocation was completed as of December 28, 1997.
11
<PAGE>
OTHER
On April 13, 1998, the company completed the sale of Technimetrics, Inc., a
global shareholding and business contact information company, to an operating
unit of The Thomson Corporation for $125.0 million. The pre-tax and after-tax
gains on the sale of Technimetrics were $103.8 million and $60.0 million,
respectively.
On April 28, 1998, the company announced the reorganization and move of its
corporate headquarters to the Silicon Valley area of California from Miami,
Florida in early 1999. Costs related to the move are estimated to be around $25
million, of which $11.6 million was recognized in the second quarter. The
majority of the remaining costs will be recognized in the third quarter.
LIQUIDITY
Net cash provided by operating activities increased to $58.2 million from $43.3
million in the second quarter of 1997. The increase was attributed to higher
earnings, excluding non-recurring items, as well as changes in several working
capital components. Cash and short term cash investments were up $68.0 million
from June 29, 1997, but down $63.7 million from year end. Total debt decreased
$104.7 million during the quarter, due to the use of Technimetrics sale
proceeds. Debt decreased $292.3 million from June 29, 1997, due to the use of
proceeds from the remaining cable investment sale, the sale of Knight Ridder
Information, Inc. and five newspapers in December 1997 and February 1998, offset
in part by the share repurchase program.
Total-debt-to-total-capital ratio was 49.3% compared to 51.8% at year end and
50.9% in June 1997. Approximately $212.3 million in aggregate unused credit
lines remained at the end of the quarter. During the second quarter, existing
bank debt was refinanced with commercial paper supported by a $1.1 billion line
of credit. The ratio of current assets to current liabilities was 0.7:1 at June
28, 1998, 1.1:1 at December 28, 1997 and June 29, 1997.
OUTLOOK FOR THE REMAINDER OF THE YEAR
As we look ahead to the third quarter and the year, we anticipate advertising
growth will be moderately above the prior year. The outlook for newsprint
continues to be encouraging. The third quarter gives us our best comparisons of
the year, and the fourth quarter should align closely with it, provided the
Abitibi strike (a newspaper vendor) is settled soon.
We believe that we will be able to report record earnings for the year,
excluding non-recurring items.
Certain statements contained herein 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 and interest rates, the effects
of acquisitions and dispositions, and the evolution of the Internet.
12
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports of Form 8-K
(a) Exhibits Filed
No. 27 - Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended
June 28, 1998.
13
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KNIGHT-RIDDER, INC.
(Registrant)
Date: August 11, 1998
/s/ Gary R. Effren
---------------------------------
Gary R. Effren
Vice President/Controller
(Chief Accounting Officer and Duly
Authorized Officer of Registrant)
14
<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> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-27-1998
<PERIOD-START> DEC-29-1997
<PERIOD-END> JUN-28-1998
<EXCHANGE-RATE> 1
<CASH> 21,317
<SECURITIES> 75,237
<RECEIVABLES> 356,334
<ALLOWANCES> 16,124
<INVENTORY> 62,725
<CURRENT-ASSETS> 544,277
<PP&E> 1,823,499
<DEPRECIATION> 756,242
<TOTAL-ASSETS> 4,271,485
<CURRENT-LIABILITIES> 834,354
<BONDS> 649,321
0
1,755
<COMMON> 1,643
<OTHER-SE> 1,577,636
<TOTAL-LIABILITY-AND-EQUITY> 4,271,485
<SALES> 1,523,175
<TOTAL-REVENUES> 1,523,175
<CGS> 264,607 <F1>
<TOTAL-COSTS> 1,282,863
<OTHER-EXPENSES> (44,413) <F2>
<LOSS-PROVISION> 10,124
<INTEREST-EXPENSE> 54,836
<INCOME-PRETAX> 284,725
<INCOME-TAX> 116,363
<INCOME-CONTINUING> 168,362
<DISCONTINUED> 60,226
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 228,588
<EPS-PRIMARY> 2.88
<EPS-DILUTED> 2.31
<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, WHICH
INCLUDE PRETAX GAINS AGGREGATING $75.3 MILLION ON THE SALE OF A NEWSPAPER
AND A CABLE INVESTMENT. SEE PART I., NOTE 2.
</FN>
</TABLE>
