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: MARCH 29, 1998
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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
- - 78,465,446 shares as of May 5, 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 10-13
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURE 16
EXHIBITS 17
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED, IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Quarter Ended Four Quarters Ended
---------------------- -------------------------
March 29 March 30 March 29 March 30
1998 1997 1998 1997
-------- -------- ---------- ---------
<S> <C> <C> <C> <C>
OPERATING REVENUE
Advertising
Retail $ 240,545 $ 193,367 $1,055,914 $ 833,084
General 63,684 51,498 258,282 204,059
Classified 260,755 208,516 999,658 785,809
--------- --------- ---------- ---------
Total 564,984 453,381 2,313,854 1,822,952
Circulation 148,597 126,855 589,499 501,827
Other 30,302 20,594 116,485 79,519
--------- --------- ---------- ---------
Total Operating Revenue 743,883 600,830 3,019,838 2,404,298
--------- --------- ---------- ---------
OPERATING COSTS
Labor and employee benefits 291,917 249,328 1,174,816 972,496
Newsprint, ink and supplements 130,634 93,464 503,499 439,151
Other operating costs 162,368 129,708 648,130 489,393
Depreciation and amortization 45,777 30,161 172,347 121,595
--------- --------- ---------- ---------
Total Operating Costs 630,696 502,661 2,498,792 2,022,635
--------- --------- ---------- ---------
OPERATING INCOME 113,187 98,169 521,046 381,663
--------- --------- ---------- ---------
OTHER INCOME (EXPENSE)
Interest expense (27,961) (14,906) (115,717) (68,512)
Interest expense capitalized 1,150 1,793 4,733 6,995
Interest income 1,618 437 4,585 4,569
Equity in earnings of unconsolidated
companies and joint ventures 4,339 868 14,271 22,981
Minority interests in earnings of
consolidated subsidiaries (2,481) (2,659) (11,325) (10,378)
Other, net 81,753 219,120 145,042 235,775
--------- --------- ---------- ---------
Total 58,418 204,653 41,589 191,430
--------- --------- ---------- ---------
Income before income taxes 171,605 302,822 562,635 573,093
Income taxes 70,168 127,364 240,152 235,250
--------- --------- ---------- ---------
Income from continuing operations 101,437 175,458 322,483 337,843
Gains on sales of discontinued BIS operations,
net of applicable income taxes of $8,365 and $69,631 for
the four quarters ended 1998 and 1997. 15,261 86,255
Income/(loss) from discontinued BIS operations, net of applicable
income taxes/(benefits) of $133 and $(526) for the quarters
ended 1998 and 1997 and $1,778 and $3,404 for the four
quarters ended 1998 and 1997. 184 (726) 2,160 (5,011)
--------- --------- ---------- ---------
Net income $ 101,621 $ 174,732 $ 339,904 $ 419,087
========= ========= ========== =========
EARNINGS PER SHARE
Basic:
- -----
Income from continuing operations $ 1.27 $ 1.88 $ 3.79 $ 3.56
Gains on sales of discontinued
BIS operations, net 0.18 0.91
Income/(loss) from discontinued BIS operations, net 0.02 (0.05)
--------- --------- ---------- ---------
Net income $ 1.27 $ 1.88 $ 3.99 $ 4.42
========= ========= ========== =========
Diluted:
- -------
Income from continuing operations $ 1.02 $ 1.85 $ 3.15 $ 3.51
Gains on sales of discontinued
BIS operations, net 0.15 0.90
Income/(loss) from discontinued BIS operations, net 0.02 (0.06)
--------- --------- ---------- ---------
Net income $ 1.02 $ 1.85 $ 3.32 $ 4.35
========= ========= ========== =========
DIVIDENDS DECLARED PER COMMON SHARE $ 0.20 $ 0.20 $ 0.80 $ .60 (1)
========= ========= ========== =========
AVERAGE SHARES OUTSTANDING (000s)
Basic 79,950 93,124 85,182 94,882
========= ========= ========== =========
Diluted 99,560 94,683 102,533 96,354
========= ========= ========== =========
</TABLE>
(1) The Board of Directors declared a $.20 per share dividend on January 28,
1997. The quarterly dividend, usually paid in January, was paid on February
24, 1997, to shareholders of record as of the close of business on February
12, 1997.
See "Notes to Consolidated Financial Statements".
3
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CONSOLIDATED BALANCE SHEET
(UNAUDITED, IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
March 29 December 28 March 30
1998 1997 1997
---------- ----------- ----------
<S> <C> <C> <C>
ASSETS
Current Assets
Cash, including short-term cash investments of $61,688 in
1998, $140,210 in December 1997, and $50 in March 1997 $ 80,254 $ 160,291 $ 24,552
Accounts receivable, net of allowances of $14,716 in 1998,
$14,963 in December 1997, and $13,714 in March 1997 341,352 374,746 338,760
Inventories 65,456 50,332 48,313
Prepaid expense 11,180 15,844 33,930
Other current assets 39,466 39,902 45,345
---------- ---------- ----------
Total Current Assets 537,708 641,115 490,900
---------- ---------- ----------
Investments and Other Assets
Equity in unconsolidated companies and joint ventures 188,620 197,585 197,926
Net assets of discontinued BIS operations 25,178 24,673 344,325
Other 217,498 172,859 356,532
---------- ---------- ----------
Total Investments and Other Assets 431,296 395,117 898,783
---------- ---------- ----------
Property, Plant and Equipment
Land and improvements 93,980 89,375 77,457
Buildings and improvements 441,450 444,952 387,078
Equipment 1,144,223 1,127,875 1,003,188
Construction and equipment installations in progress 105,276 111,883 131,503
---------- ---------- ----------
1,784,929 1,774,085 1,599,226
Less accumulated depreciation (736,106) (727,571) (719,203)
---------- ---------- ----------
Net Property, Plant and Equipment 1,048,823 1,046,514 880,023
Excess of Cost Over Net Assets Acquired and Other Intangibles
Less accumulated amortization of $214,330 in 1998,
$197,966 in December 1997 and $155,084 in March 1997 2,252,567 2,272,396 607,338
---------- ---------- ----------
Total $4,270,394 $4,355,142 $2,877,044
========== ========== ==========
</TABLE>
4
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CONSOLIDATED BALANCE SHEET
(UNAUDITED, IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
March 29 December 28 March 30
1998 1997 1997
----------- ----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C> <C>
Current Liabilities
Accounts payable $ 176,344 $ 172,021 $ 136,407
Accrued expenses and other liabilities 120,027 131,491 102,516
Accrued compensation and amounts withheld from employees 95,682 119,036 87,150
Federal and state income taxes 92,621 33,920 113,649
Deferred revenue 76,232 72,491 74,632
Short-term borrowings and current portion of long-term debt 42,434 69,697
----------- ----------- -----------
Total Current Liabilities 603,340 598,656 514,354
----------- ----------- -----------
Noncurrent Liabilities
Long-term debt 1,599,230 1,599,133 706,630
Deferred federal and state income taxes 287,814 282,695 130,759
Postretirement benefits other than pensions 152,117 150,485 147,420
Employment benefits and other noncurrent liabilities 166,697 171,225 112,792
----------- ----------- -----------
Total Noncurrent Liabilities 2,205,858 2,203,538 1,097,601
----------- ----------- -----------
Minority Interests in Consolidated Subsidiaries 2,348 1,275 1,047
Commitments and Contingencies
Shareholders' Equity
Preferred stock, $1.00 par value; shares authorized-
2,000,000; shares issued - 1,754,930 in 1998 and
December 1997, and 0 in March 1997 1,755 1,755
Common stock, $.02 1/12 par value; shares authorized -
250,000,000; shares issued - 78,540,546 in 1998,
81,597,631 in December 1997 and 93,330,962 in March 1997 1,636 1,700 1,944
Additional capital 900,647 911,572 303,753
Retained earnings 551,158 636,646 974,138
Accumulated other comprehensive income/(loss) 3,652 (15,793)
----------- ----------- -----------
Total Shareholders' Equity 1,458,848 1,551,673 1,264,042
----------- ----------- -----------
Total $ 4,270,394 $ 4,355,142 $ 2,877,044
=========== =========== ===========
</TABLE>
See "Notes to Consolidated Financial Statements".
5
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CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED, IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Quarter Ended Four Quarters Ended
---------------------- ----------------------
March 29 March 30 March 29 March 30
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
CASH PROVIDED BY (REQUIRED FOR) OPERATING ACTIVITIES
Net income $101,621 $174,732 $339,904 $419,087
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 (15,261) (86,255)
Depreciation 25,927 21,513 98,552 87,239
Amortization of excess of cost over
net assets acquired and other intangibles 16,364 4,594 59,245 18,559
Amortization of other assets 3,486 4,054 14,550 15,797
Provision (benefit) for deferred taxes (1,241) 679 (16,670) 41,527
Earnings from investees in excess of distributions (3,497) (2,379) (15,776) (19,617)
Minority interests in earnings of consolidated subsidiaries 2,481 2,659 11,325 10,378
Other items, net 3,398 6,213 35,841 (8,150)
Change in certain assets and liabilities:
Accounts receivable 31,279 17,496 (20,070) (28,119)
Inventories (15,705) (5,372) (10,659) 45,030
Other current assets 5,639 1,724 4,295 (163,126)
Accounts payable 2,747 (88,003) 6,781 6,723
Federal and state income taxes 62,569 113,649 (41,457) 114,816
Other liabilities (29,215) (6,463) 24,972 6,910
-------- -------- -------- --------
Net Cash Provided by Operating Activities 130,602 23,295 338,996 238,998
-------- -------- -------- --------
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 416,983 271,859
Change in net noncurrent assets of discontinued BIS operations 520 5,447 (2,931) 6,533
Proceeds from sales of securities available for sale 17,547 224,347 17,547
Additions to property, plant and equipment (30,694) (27,779) (109,529) (102,230)
Other items, net (4,002) (4,313) ( 7,854) 45,690
-------- -------- -------- --------
Net Cash Provided by Investing Activities 23,949 121,556 629,632 370,053
-------- -------- -------- --------
CASH PROVIDED BY (REQUIRED FOR) FINANCING ACTIVITIES
Proceeds from sale of commercial paper, notes payable and
senior notes payable 68,748 764,852 507,219
Reduction of total debt (27,378) (183,562) (820,427) (854,872)
-------- -------- -------- --------
Net Change in Total Debt (27,378) (114,814) (55,575) (347,653)
Payment of cash dividends (19,514) (18,613) (79,236) (74,897)
Sale of common stock to employees 17,174 19,613 68,092 58,580
Purchase of treasury stock (199,625) (25,733) (817,267) (240,434)
Other items, net (5,245) (3,632) (28,940) (19,170)
-------- -------- -------- --------
Net Cash Required for Financing Activities (234,588) (143,179) (912,926) (623,574)
-------- -------- -------- --------
Net Increase (Decrease) in Cash (80,037) 1,672 55,702 (14,523)
Cash and short-term cash investments at beginning of the period 160,291 22,880 24,552 39,075
-------- -------- -------- --------
Cash and short-term cash investments at end of the period $ 80,254 $ 24,552 $ 80,254 $ 24,552
======== ======== ======== ========
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
Additional Capital 658,245
Long-term debt assumed on the acquisition of the Disney newspapers 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 three month period and four quarters
ended March 29, 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.
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.
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
7
<PAGE>
separately in shareholders' equity, to be included in "other comprehensive
income".
For the quarter ended March 29, 1998 and March 30, 1997, total comprehensive
income was $105.3 million and $157.3 million, respectively.
NOTE 4 - DEBT
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Effective
Interest Balance At
Rate At -------------------------------------
March 29 March 29 December 28 March 30
1998 1998 1997 1997
--------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Commercial paper, net of discount 5.7% $ 2,494 $ 29,793 $ 250,002
Senior secured bank debt (a) 6.2 990,000 990,000
Debentures, net of discount (b) 10.0 198,175 198,133 198,010
Debentures, net of discount (c) 7.6 94,270 94,261
Notes payable, net of discount (d) 8.5 159,657 159,617 159,488
Notes payable, net of discount (e) 6.8 97,838 97,821
Senior notes, net of discount (f) 6.3 99,230 99,205 99,130
---------- ---------- ----------
Total Debt (g) 7.0 1,641,664 1,668,830 706,630
Less amounts classified as current 42,434 69,697
---------- ---------- ----------
Total long-term debt 6.9% $1,599,230 $1,599,133 $ 706,630
========== ========== ==========
</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 due in
1999.
(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 1998 through maturity in 2001.
(e) Represents $100 million of a 6.625% note due in 2005.
(f) Represents $100 million of 10 year 6.3% senior notes due in 2005.
(g) Interest payments for the quarters ended March 29, 1998 and March 30, 1997
were $33.3 million and $12.1 million, respectively.
8
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NOTE 5 - INCOME TAX PAYMENTS
Income tax payments for the quarters ended March 29, 1998 and March 30, 1997,
were $8.8 million and $741,000, 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
---------------------------
March 29 March 30
1998 1997
-------- --------
<S> <C> <C>
Income from continuing operations $101,437 $175,458
======== ========
Average shares outstanding (basic) 79,950 93,124
-------- --------
Effect of dilutive securities:
Convertible preferred stock 17,549
Stock options 2,061 1,559
-------- --------
Average shares outstanding (dilutive) 99,560 94,683
-------- --------
Earnings per share from continuing operations (basic) $ 1.27 $ 1.88
======== ========
Earnings per share from continuing operations (diluted) $ 1.02 $ 1.85
======== ========
</TABLE>
9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FIRST QUARTER
FIRST QUARTER 1998 COMPARED WITH FIRST QUARTER 1997
Diluted earnings per share from continuing operations for the first quarter of
1998, excluding one-time gains, was $.57, up $.08, or 16.3%, from the $.49
reported in 1997. The $.08 per share improvement from 1997, excluding the
one-time gains, was due to: a 6.2% increase in advertising revenue (on a pro
forma basis excluding sold newspapers); operating margin improvement in Detroit
and Philadelphia; and non-operating gains, including an insurance settlement
related to last year's flood in Grand Forks. Including the $.45 gain on the sale
of the remainder of Knight Ridder's interest in the jointly owned cable
investments with TeleCommunications, Inc. (TCI) and the newspaper in Gary,
Indiana, diluted earnings per share from continuing operations for the first
quarter of 1998 was $1.02, down $.83 from the $1.85 earned in the same period
last year, including the $1.36 gain on the sale of most of our jointly owned
cable investment.
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 exclude the sold newspapers' results from both
years.
OPERATING REVENUE
Newspaper advertising revenue increased 24.6% over the first quarter last year.
On a pro forma basis excluding sold newspapers (comparable), newspaper
advertising revenue increased 6.2% from last year with growth in all advertising
revenue categories.
Classified advertising revenue increased $52.2 million, or 25.1%, over the first
quarter last year. On a comparable basis, classified advertising revenue
increased 8.1%, on a 5.0% full-run ROP linage increase. The employment category
showed the largest gain, posting a 13.2% revenue improvement. All other
classified revenue categories also reflected improvement.
Retail advertising revenue improved by $47.2 million, or 24.4%, over last year.
On a comparable basis, retail advertising revenue improved by $8.5 million, or
3.7%. Retail benefited from increased major accounts advertising in Philadelphia
and by increased preprint rate and volume in Detroit and Kansas City.
General advertising revenue was up $12.2 million, or 23.7%, from last year. On a
comparable basis, general advertising revenue was up $5.1 million, or 8.7%.
Telecommunications advertising in several large markets helped boost
performance.
10
<PAGE>
Circulation revenue was up $21.7 million, or 17.1%, from 1997. On a comparable
basis, circulation revenue was flat with first quarter 1997, on a 1.1% increase
in the seven-day circulation, offset by a 1.3% decline in average rate.
Other newspaper revenue increased by $9.7 million, or 47.1%, from the prior
year. On a comparable basis, other newspaper revenue increased by $4.5 million,
or 17.3%. The increase was due to growth in event marketing, commercial print
and online revenue.
OPERATING COSTS
Labor and employee benefit costs increased $42.6 million, or 17.1%. On a pro
forma basis excluding sold newspapers, labor and employee benefit costs
increased $10.6 million, or 3.8%, on a 2.5% increase in the average wage rate
and a 2.4% increase in the workforce.
Newsprint, ink and supplement costs increased $37.2 million, or 39.8%. On a
comparable basis, these costs increased $20.1 million, or 18.2%, on a 12.3%
increase in the average newsprint price and a 5.6% increase in consumption. This
consumption increase was driven by both advertising volume gains and circulation
growth.
Other operating costs increased $32.7 million, or 25.2%, from first quarter
1997. On a comparable basis, these costs increased $8.8 million, or 5.7%, 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 $15.6 million, or 51.8%, from first
quarter 1997. On a comparable basis, depreciation and amortization increased
$2.4 million, or 5.5%, 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 $12.5 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 $903.7 million from the first quarter of last year.
Equity in earnings of unconsolidated companies and joint ventures increased by
$3.5 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 $137.4 million
decrease from 1997. The first quarter 1998 includes a pre-tax gain of $75.3
million on the sale of Gary and the sale of the remaining cable investment,
while 1997 includes a pre-tax gain of $221.8 million on most of our cable
investment. Excluding one-time gains from both years, "other, net" improved by
$9.2 million, largely due to the Grand Forks insurance proceeds.
The effective tax rate was 40.9%, compared with 42.1% in the first quarter of
1997. Excluding one-time gains, the effective tax rate was 41.4%, compared with
41.8% in the prior year.
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.
In April 1998, the company announced the reorganization of its Miami-based
corporate staff and the move of certain key people to California's Silicon
Valley. Approximately 60 to 70 positions will be relocated and certain support
activities will be reorganized. Estimated related one time costs will
approximate $25 million. The majority of these costs will be expensed as
incurred. The planned relocation and reorganization will be completed sometime
in early 1999.
By the end of March 1998, the company purchased 3.7 million shares of Knight
Ridder common stock. This completed the buyback program defined in mid 1997. The
company has authorization to repurchase approximately 1.2 million additional
shares and will carefully consider market opportunities for additional share
repurchases.
LIQUIDITY
Net cash provided by operating activities increased to $130.6 million from $23.3
million in the first quarter of 1997. The increase was attributed to higher
earnings, excluding non-recurring items, as well as changes in several working
capital components. Net cash provided by investing activities decreased $97.6
million from the first quarter of 1997 due to the $130.7 million of cash
proceeds received from the sale of the majority of our cable investment in the
first quarter of 1997, offset by sale proceeds in the first quarter of 1998. The
company received $95.8 million on the sale of its Gary Post-Tribune newspaper
and the sale of its remaining cable investments in the first quarter of 1998,
consisting of $58.1 million in cash and TCI stock with an aggregate market value
of $37.7 million. The TCI securities are included on the balance sheet under
investments and other assets. Cash and short term cash investments were up $55.7
million from March 30, 1997, and down $80.0 million from year end. Total debt
decreased $27.2 million during the quarter, due to the use of a portion of the
Gary newspaper and cable sale proceeds. Debt increased $935.0 million from March
30, 1997, due to the debt assumed as part of the Disney acquisition and share
repurchases, offset by proceeds from the sales of Knight-Ridder Information,
Inc., five newspapers and the remaining cable investment.
Total-debt-to-total-capital ratio was 53.0% compared to 51.8% at year end and
35.9% in March 1997. Approximately $639.8 million in aggregate unused credit
lines remained at the end of the quarter. The ratio of current assets to current
liabilities was 0.9:1 at March 29, 1998, 1.1:1 at December 28, 1997, and 1.0:1
at March 30, 1997.
During the second quarter, the company intends to replace its current revolving
credit facility with a larger facility to meet general corporate needs.
OUTLOOK FOR THE REMAINDER OF THE YEAR
As we look ahead to the second quarter and the year, we anticipate advertising
growth will be moderately above the prior year. The cost of newsprint is more
encouraging than originally anticipated as the expected price increases look to
be smaller and later than previously thought.
We believe that we will be able to report record earnings for the year,
excluding non-recurring items.
12
<PAGE>
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.
13
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company's Annual Meeting of Shareholders was held on April 28,
1998. The results of the voting with respect to matters presented at
the Annual Meeting were as follows:
<TABLE>
<CAPTION>
Common Stock Voted
---------------------------------------------
For Against Withheld
--- ------- --------
<S> <C> <C> <C>
(b) Election of Directors
For a three- year term ending 2001:
Joan Ridder Challinor 74,184,783 0 970,827
Kathleen Foley Feldstein 73,593,243 0 1,562,367
Thomas P. Gerrity 73,591,964 0 1,563,646
Gonzalo F. Valdes-Fauli 74,197,904 0 957,706
Continuing Directors:
James I. Cash, Jr.
Alvah H. Chapman, Jr.
Peter C. Goldmark, Jr.
Barbara Barnes Hauptfuhrer
Jesse Hill, Jr.
M. Kenneth Oshman
Thomas L. Phillips
P. Anthony Ridder
Randall L. Tobias
John L. Weinberg
</TABLE>
(c) Ratify the appointment of Ernst & Young LLP as independent auditors of
the company for the year 1998.
Common Stock Voted
---------------------------------------------------------------
For Against Abstained Broker Non-Votes
--- ------- --------- ----------------
74,848,753 191,496 115,361 None
Vote on shareholder proposal seeking redemption of the rights issued
pursuant to the company's Shareholder Rights Plan.
Common Stock Voted
---------------------------------------------------------------
For Against Abstained Broker Non-Votes
--- ------- --------- ----------------
27,776,301 44,425,129 379,165 2,575,015
14
<PAGE>
Vote on shareholder proposal to provide for the annual election of all
directors.
Common Stock Voted
---------------------------------------------------------------
For Against Abstained Broker Non-Votes
--- ------- --------- ----------------
27,633,669 44,620,303 326,623 2,575,015
Vote on shareholder proposal seeking adoption of an executive
compensation policy dealing primarily with the company's newspapers'
content.
Common Stock Voted
---------------------------------------------------------------
For Against Abstained Broker Non-Votes
--- ------- --------- ----------------
1,726,546 70,218,280 478,135 2,732,649
Item 6. Exhibits and Reports of Form 8-K
(a) Exhibits Filed
No. 11 - Statement re Computation of Per Share Earnings
Refer to Part I., Note 6, incorporated herein by
reference.
No. 27 - Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K dated March 18, 1998
Item 2. Disposition of Assets
Item 7. Financial Statements and Exhibits.
15
<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: May 13, 1998 /s/ Gary R. Effren
----------------------------------
Gary R. Effren
Vice President/Controller
(Chief Accounting Officer and Duly
Authorized Officer of Registrant)
16
<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> 3-MOS
<FISCAL-YEAR-END> DEC-27-1998
<PERIOD-START> DEC-29-1997
<PERIOD-END> MAR-29-1998
<EXCHANGE-RATE> 1
<CASH> 80,254
<SECURITIES> 0
<RECEIVABLES> 341,352
<ALLOWANCES> 14,716
<INVENTORY> 65,456
<CURRENT-ASSETS> 537,708
<PP&E> 1,784,929
<DEPRECIATION> 736,106
<TOTAL-ASSETS> 4,270,394
<CURRENT-LIABILITIES> 603,340
<BONDS> 1,639,171
0
1,755
<COMMON> 1,636
<OTHER-SE> 1,455,457
<TOTAL-LIABILITY-AND-EQUITY> 4,270,394
<SALES> 743,883
<TOTAL-REVENUES> 743,883
<CGS> 130,634 <F1>
<TOTAL-COSTS> 630,696
<OTHER-EXPENSES> (58,418) <F2>
<LOSS-PROVISION> 5,219
<INTEREST-EXPENSE> 27,961
<INCOME-PRETAX> 171,605
<INCOME-TAX> 70,168
<INCOME-CONTINUING> 101,437
<DISCONTINUED> 184
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 101,621
<EPS-PRIMARY> 1.27
<EPS-DILUTED> 1.02
<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 REMAINING CABLE INVESTMENT. SEE PART I., NOTE 2.
</FN>
</TABLE>
