-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UeB3bEChyww8+hI00fU7uZMPJ6zyF5m/5RMkTSKCltAaD9kEGw/lgk2v/UyIEd82 t2pRNeGnNRK6qTf5cnvIdA== 0000950144-97-002238.txt : 19970311 0000950144-97-002238.hdr.sgml : 19970311 ACCESSION NUMBER: 0000950144-97-002238 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19961229 FILED AS OF DATE: 19970310 SROS: BSE SROS: CSE SROS: CSX SROS: NYSE SROS: PHLX FILER: COMPANY DATA: COMPANY CONFORMED NAME: KNIGHT RIDDER INC CENTRAL INDEX KEY: 0000205520 STANDARD INDUSTRIAL CLASSIFICATION: NEWSPAPERS: PUBLISHING OR PUBLISHING & PRINTING [2711] IRS NUMBER: 380723657 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-07553 FILM NUMBER: 97554074 BUSINESS ADDRESS: STREET 1: ONE HERALD PLZ CITY: MIAMI STATE: FL ZIP: 33132 BUSINESS PHONE: 3053763800 MAIL ADDRESS: STREET 1: ONE HERALD PLZ CITY: MIAMI STATE: FL ZIP: 33132 FORMER COMPANY: FORMER CONFORMED NAME: KNIGHT RIDDER NEWSPAPERS INC /FL/ DATE OF NAME CHANGE: 19860707 10-K 1 KNIGHT-RIDDER, INC. FORM 10-K 12-29-96 1 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 29, 1996 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 2, 1997:$3,696,014,903. Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date: March 2, 1997 - 92,981,507 one class Common Stock, $.02 1/12 Par Value DOCUMENTS INCORPORATED BY REFERENCE (1) Portions of definitive Proxy Statement dated March 6, 1997, in connection with the Annual Meeting of Shareholders to be held on April 15, 1997, are incorporated into Part III. (2) Portions of the Company's Form 10-K filed March 20, 1996 are incorporated into Part IV. (3) Portions of the Company's Form 10-K filed March 24, 1995 are incorporated into Part IV. (4) Portions of the Company's Form 10-K filed March 23, 1994 are incorporated into Part IV. (5) Portions of the Company's Form 10-K filed in March 1981 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. 1 2 Table of Contents for 1996 Form 10-K
Page PART I ---- Item 1. Business 3-9 Item 2. Properties 3-9 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 Equity and Related Stockholder Matters 10-11 Item 6. Selected Financial Data 12-14 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 15-22 Item 8. Financial Statements and Supplementary Data 23-38 Item 9. Changes in and Disagreements with Accountants on Accounting 39 and Financial Disclosure PART III Item 10. Directors and Executive Officers of the Registrant 39-41 Item 11. Executive Compensation 41 Item 12. Security Ownership of Certain Beneficial Owners and Management 41 Item 13. Certain Relationships and Related Transactions 41 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 41-42 SIGNATURES 43-45 SCHEDULES 47 EXHIBITS 48-53
2 3 PART I ITEM 1. AND 2. BUSINESS/PROPERTIES 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 Information, Inc., (formerly Dialog Information Services, Inc.), was acquired in 1988. Technimetrics was acquired in 1994. Knight-Ridder, Inc., was incorporated in Ohio in 1974. Headquartered in Miami, the company was reincorporated in Florida in 1976. CORPORATE HEADQUARTERS/EMPLOYEES The company is headquartered in Miami, Fla., and employs nearly 24,000 people worldwide. BUSINESS SEGMENT INFORMATION
(In thousands of dollars) 1996 1995 1994 ----------- ----------- ----------- OPERATING REVENUE Newspapers ............................................... $ 2,374,224 $ 2,250,182 $ 2,134,922 Business Information Services ............................ 400,619 501,652 514,039 ----------- ----------- ----------- $ 2,774,843 $ 2,751,834 $ 2,648,961 =========== =========== =========== OPERATING INCOME Newspapers ............................................... $ 379,585 $ 281,146 $ 350,856 Business Information Services ............................ 1,785 12,022 23,110 Corporate ................................................ (46,452) (52,884) (42,705) ----------- ----------- ----------- $ 334,918 $ 240,284 $ 331,261 =========== =========== =========== OPERATING PROFIT MARGIN Newspapers ............................................... 16.0% 12.5% 16.4% Business Information Services ............................ .4% 2.4% 4.5% DEPRECIATION AND AMORTIZATION Newspapers ............................................... $ 117,612 $ 96,051 $ 94,927 Business Information Services ............................ 45,404 52,871 52,714 Corporate ................................................ 3,035 2,690 1,686 ----------- ----------- ----------- $ 166,051 $ 151,612 $ 149,327 =========== =========== =========== IDENTIFIABLE ASSETS Newspapers ............................................... $ 1,951,771 $ 1,948,894 $ 1,553,160 Business Information Services ............................ 472,389 600,040 589,147 Corporate ................................................ 476,150 456,776 304,882 ----------- ----------- ----------- $ 2,900,310 $ 3,005,710 $ 2,447,189 =========== =========== =========== CAPITAL EXPENDITURES Newspapers ............................................... $ 108,253 $ 73,560 $ 32,896 Business Information Services ............................ 14,109 29,577 33,470 Corporate ................................................ 4,224 17,888 744 ----------- ----------- ----------- $ 126,586 $ 121,025 $ 67,110 =========== =========== =========== FULL-TIME EQUIVALENT EMPLOYEES (FTES)(1) Newspapers (2) ........................................... 18,395 19,242 18,441 Business Information Services ............................ 1,682 2,312 2,568 Corporate ................................................ 186 215 190 ----------- ----------- ----------- 20,263 21,769 21,199 =========== =========== ===========
(1) Previously reported FTEs have been restated to be consistent with measurement guidelines currently in use. (2) FTEs for 1995 and 1996 include 1,133 and 1,130, respectively, for Contra Costa newspapers, acquired Oct. 31, 1995. 3 4 Source of Knight-Ridder Operating Revenue
1996 1995 1994 --- --- --- The Philadelphia Inquirer and Philadelphia Daily News ............................. 18% 18% 17% The Miami Herald ...................................... 11 12 12 San Jose Mercury News ................................. 10 10 9 Detroit Free Press (1) ................................ 7 7 9 The Charlotte Observer ................................ 6 5 5 Saint Paul Pioneer Press .............................. 4 4 4 Contra Costa Newspapers (2) ........................... 4 1 Akron Beacon Journal .................................. 3 3 3 All other newspapers .................................. 23 22 22 Business Information Services ......................... 14 18 19 --- --- --- 100% 100% 100% === === ===
(1) Knight-Ridder portion of Detroit Newspapers (2) Contra Costa Newspapers was acquired on Oct. 31, 1995. NEWSPAPERS Knight-Ridder's Newspaper Division had 31 daily newspapers and 10 nondaily newspapers at the end of 1996. Newspaper 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 18 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, online and other computer services, radio, magazines, nondaily suburban newspapers, free shoppers, billboards and direct mail. In many cases, the newspapers also compete with other newspapers published in nearby cities and towns. With the exception of papers published in Detroit, Fort Wayne and St. Paul, company-owned 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. The table above presents the relative percentage contributions by individual papers to the company's overall operating revenue in 1996, 1995 and 1994. The percentage contributions of each paper to operating revenue are not necessarily indicative of contributions to operating profit. Newsprint Newsprint is the primary raw material used in publishing newspapers, and in 1996 Knight-Ridder was one of the largest consumers in the United States. Approximately 17.1% of the company's total operating expenses during the year were for newsprint. Purchases are made under long-term agreements with a number of newsprint producers. Knight-Ridder purchases approximately 70% of its annual consumption from United States mills, with the remainder purchased from Canada. In the opinion of management, sources are adequate to meet current demands. 4 5 Approximately 84% of the newsprint consumed by the company contained some recycled content; the average content was 47% recycled fiber. Global newsprint supply and demand issues will continue to contribute to pricing volatility for the foreseeable future. Newsprint prices in 1997 are expected to increase in the spring with another price increase late this year being considered. 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's full capacity is 445,000 metric tonnes, using 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 produces more than 220,000 metric tonnes annually. Knight-Ridder purchased approximately 129,000 metric tonnes from Southeast and about 56,000 metric tonnes from Ponderay in 1996. Properties The company has daily newspaper printing and publishing facilities in 30 cities located in 16 states. These production 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, the company's newspaper facilities occupy about 9.0 million square feet. Approximately 1.9 million of the total square feet 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 newspaper companies are maintained in excellent operating condition and are suitable for present and foreseeable publishing operations. During the three years ended Dec. 29, 1996, the company spent approximately $214.7 million for capital additions and improvements to its existing properties. Technology Efforts to improve the quality of products continued during 1996. The company installed new publishing systems in Duluth, Contra Costa, Columbia, Gary and Grand Forks. Systems installations are under way in San Jose, Akron and Philadelphia. Enhancements were made to Collier-Jackson circulation software. Conversion to the Cyborg Human Resources System was largely completed in 1996. The Charlotte Observer completed installation of its second new Flexographic press in 1996. Major press replacement projects have begun at The Miami Herald and in Akron. Significant renovations are under way at the business and editorial offices in Detroit and Philadelphia. New publishing systems have been approved for Boulder, Biloxi, Myrtle Beach, Macon and Milledgeville for installation in 1997. A $2.8 million press replacement project has been approved for Duluth for mid-1997. General Advertising Sales Knight-Ridder newspapers depend most heavily on three agents for the sale of general advertising. Newspapers First, an advertising sales cooperative, is the primary sales representative for the larger Knight-Ridder newspapers, Detroit Newspapers and several leading independents. It allows a customer to place an ad in a combination of newspapers. Newspaper National Network (NNN), Knight-Ridder's second general sales agent, was established in 1994 as a three-year experiment in focused national selling on behalf of the newspaper industry. Showing substantial success, it has been renewed for another three years. 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" 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. 5 6 The Philadelphia Inquirer and Philadelphia Daily News 1996 Revenue was $505.7 Million. Philadelphia Newspapers, Inc. (PNI), publisher of The Philadelphia Inquirer and Philadelphia Daily News, met its profitability goals for 1996 and finished the year well-positioned to address the challenges of 1997, despite significant changes in the retail market. May Department Stores Co., which in 1995 acquired the John Wanamaker stores, in 1996 acquired the family-owned Strawbridge & Clothier, one of the Philadelphia region's oldest, most-distinguished retail chains. The stores are being operated under the name Strawbridge. The nine-county Philadelphia Metropolitan market remains attractive, featuring a diverse economy, including the state's largest manufacturing center, more than 80 higher education institutions and an extensive hospital and health care industry. The Miami Herald 1996 Revenue was $314.9 Million. The Miami Herald, Florida's largest newspaper, is sold primarily in 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, (102,150 daily and 127,877 Sunday), is available to Herald subscribers for a 7-cent daily delivery charge or through single-copy sales. Retail development continued at a rapid pace in 1996, including the expansion of The Falls shopping center with more than 50 new stores, new retail development in South Beach featuring stores such as The Gap and Banana Republic, the opening of Pembroke Crossing in Broward and new retailers on Coral Gables' Miracle Mile. Retailers who opened new stores in South Florida include BrandsMart, Macy's and Target. In 1996, The Herald continued technological changes, including the installation of new presses, the introduction of online services in English and Spanish, satellite distribution of the International edition and a major database marketing initiative. The Herald also extended the reach of two of its Spanish-language publications, adding nonsubscriber distribution to "Viernes," el Nuevo Herald's Friday entertainment section, and to "Vida Social," a tabloid society magazine. The Miami-Fort Lauderdale population is expected to grow 32.1% between 1995 and 2015; U.S. average is 19.4%. San Jose Mercury News 1996 Revenue was $284.6 Million. The San Jose Mercury News serves California's fourth-largest metro area, better known as Silicon Valley. The area's robust economy has been fueled by the growth of technology companies, particularly computer software, hardware and Internet-related businesses. In large part because of the heavy recruitment needs of such companies, the Mercury News has enjoyed strong classified revenue, which increased 15.7% over last year, excluding the 53rd week in 1995. Mercury Center, the newspaper's pioneering online publication launched in 1993, added new features to its growing family of information services. Among them are Talent Scout, Good Morning Silicon Valley, Digital High and VoterLink. The acclaimed site (www.sjmercury.com) received a record number of visits in 1996, more than doubling readership during the year. Editor & Publisher named Mercury Center the best newspaper on the Web at the 1996 Interactive Newspaper Awards. In 1996, the Mercury News introduced "Nuevo Mundo," a publication for the area's Spanish-speaking audience; the region is the nation's fourth-largest Hispanic market. "Nuevo Mundo" has been well received, gaining advertisers such as JCPenney, Macy's and Montgomery Ward. The population of the San Jose Metropolitan Statistical Area (MSA), which includes only Santa Clara County, is expected to grow 22.9% between 1995 and 2015; the U.S. average is 19.4%. 6 7 Detroit Free Press 1996 Revenue was $182.1 Million(1). The Detroit Free Press is the largest newspaper in Michigan. The combined Sunday edition, The Detroit News and Free Press, ranks seventh 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, Inc., and Gannett Co., Inc. The Free Press is an a.m. paper, the News is p.m. On weekends, they publish combined editions. Detroit is the nation's sixth-largest market, and in normal times will generate approximately $450 million in revenue from its two newspapers. This past year and 1995 were not normal times. On July 13, 1995, several unions struck DN. The issue was "featherbedding," the unions' resistance to trimming redundant staff in distribution. Approximately 2,500 employees walked out. DN continued to publish. In February 1997, the six striking newspaper unions made an unconditional offer to return to work. Circulation, as of the unaudited Audit Bureau of Circulations report for the six months ended Sept. 30, 1996, was at approximately 67% of its pre-strike level for both daily and Sunday. Advertising revenue, which also has gained strength despite union intimidation of many advertisers, was at nearly 85% of the December 1994 level. The operating loss in Detroit narrowed in 1996 and the fourth quarter was profitable. The company expects to be profitable on a full-year basis in 1997. (1) Knight-Ridder portion of Detroit Newspapers. Under the joint operating agreement, Knight-Ridder reports 50% of total revenue for the Detroit Free Press and the Detriot News. The Charlotte Observer 1996 Revenue was $157.6 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 1996, with retail revenue up 8.0%, general up 19.0% and classified up 13.1% over last year, excluding the 53rd week in 1995. Population in the Charlotte Metropolitan Statistical Area (MSA) is expected to grow 27.2% between 1995 and 2015, compared with the U.S. average of 19.4%. The Observer in 1996 completed a $35 million press conversion to expand color capacity and provide 100% Flexographic printing. BUSINESS INFORMATION SERVICES Knight-Ridder Business Information Services (BIS) produces, distributes and facilitates the use of finance, general business, science, technology, transportation and other information by global business and professional users. BIS represented 14.4% of total Knight-Ridder operating revenue in 1996. At year-end 1996, BIS consisted of two operations: Knight-Ridder Information, Inc. (formerly Dialog Information Services, Inc.) Provides services to global business and professional information librarians and end-users interested in: BUSINESS AND FINANCE - CHEMICALS - ENERGY AND ENVIRONMENT - FOOD AND AGRICULTURE - GOVERNMENT AND REGULATIONS - INTELLECTUAL PROPERTY - MEDICINE - NEWS AND MEDIA - LEGAL - PHARMACEUTICALS - REFERENCE - SOCIAL SCIENCES - TECHNOLOGY 7 8 Knight-Ridder Information serves nearly 130,000 subscribers worldwide. Principal products are the DIALOG(R), DataStar(SM) and Infomart Dialog online services; the KR OnDisc(TM) CD-ROM product series; and KR SourceOne(SM), a full-service document delivery service. In addition, Knight-Ridder Information's end-user product line includes KR BusinessBase(R), KR ScienceBase(R), Custom Dialog(TM)/KR QuickStart(TM), Alerts and KR ProBase(TM). The DIALOG and DataStar online services and products provide access to more than 750 online databases and 80 CD-ROM products and the full text of more than 4,000 leading publications covering science and technology, general business (products and markets, people, company fundamentals), legal issues and news. Knight-Ridder Information subscribers are business and professional information specialists and end-users interested in scientific research, competitive intelligence, technology, industry and market developments and general business and financial information. Customers include business executives, research chemists, engineers, lawyers, physicians and educators. During 1996, more than 70 new databases were added to DIALOG and DataStar. The Knight-Ridder Information collection represents one of the largest combined database installations in the information industry, with a content totaling more than nine terabytes. The databases include information from other Knight-Ridder companies and 11 Knight-Ridder newspapers. Several companies compete with Knight-Ridder Information, including Reed-Elsevier's Lexis(R)-Nexis(R), Scientific and Technical Information Network (STN), offered by the American Chemical Society, and a number of niche services. Technimetrics Provides services to global corporate investor relations and marketing executives, investment banks and investment fund managers interested in: INSTITUTIONAL SHAREHOLDING INFORMATION - IDENTIFYING INVESTMENT EXECUTIVES BY AREA OF FOCUS - BUSINESS INFORMATION (COMPANY AND PEOPLE) This diversified information services company specializes in the creation and development of global financial and marketing research and related consulting services. Technimetrics focuses its attention on four core proprietary databases: INSTITUTIONAL INVESTORS DATABASE provides detailed intelligence on the people and firms that conduct business in the institutional marketplace. It includes information on the equity and fixed income influentials - portfolio managers, security analysts and research directors throughout the world. It focuses on their industry specialization, individual investment style and geographic area of expertise. SHAREHOLDER DATABASE tracks the ebb and flow of data involving share ownership of public companies. It is the complete resource for global shareholding data and includes information on more than 48,000 issues, 12,000 equity portfolios and holdings of more than 5,000 money management institutions around the world. Information is derived from proprietary Technimetrics research, public company proxies, SEC filings, global mutual fund portfolios, UK unit and investment trusts and overseas stock exchanges. FINEX DATABASE provides complete business profiles of more than 350,000 corporate executives in 60,000 public and private organizations worldwide by functional responsibility. It contains the most targeted and focused information available that is designed specifically for marketing and sales business-to-business applications. STOCKBROKER DATABASE provides information on more than 65,000 registered stockbrokers and branch managers at the leading brokerage firms in North America. Technimetrics specializes in supplying information that is customized to suit many different client requirements. Data are delivered through numerous distribution channels, including the Internet, a wide variety of electronic media and third-party vendors. Technimetrics continues to enhance its proprietary investor relations software application, which set the industry standard when it was introduced in 1986. 8 9 The company also offers highly sophisticated consulting programs, including international investor relations, stock surveillance and communications management services, to more than 1,500 clients in corporations and brokerage firms around the world. This was a banner year for Technimetrics. It greatly enhanced its position in all its target markets through developing alternative delivery channels via the Internet; acquiring Grabill-Bloom, the premier stock surveillance firm in the United States; developing alliances with PR Newswire and DataStar to broaden the reach and scope of its information; and creating new products and services within its investor relations unit that allow greater access to key shareholding information. Properties BIS maintains production and sales facilities throughout the world. The 343,786 square feet of office and production capacity currently utilized is leased under operating leases that expire between 1997 and 2006. During the three years ended Dec. 29, 1996, BIS spent approximately $77.2 million for capital additions and improvements to its existing properties. The existing BIS facilities are adequate for present and future needs. Technology KNIGHT-RIDDER INFORMATION, INC.: During 1996, Knight-Ridder Information reinforced its commitment to information professionals by announcing Web interfaces to both its flagship DIALOG and DataStar online services. Scheduled for launch in early 1997, DIALOG(R) Web will provide searchers with the extensive content, power, precision, and full functionality of DIALOG in the environment of the World Wide Web. DataStar(SM) Web, already released in Europe, is also scheduled to be unveiled in the U.S. in 1997. Researchers will be able to access the Web versions of both services through their Internet browsers. A redesigned second generation of KR BusinessBase, Knight-Ridder Information's Windows(R)-based application for business professionals, was also launched successfully in 1996. It provides instant access to vital business information on more than 13 million public and private companies worldwide by company, market, product or topic. This powerful business intelligence tool puts more than 60 databases and over 5,500 trade and professional journals at the users' fingertips. This year, Knight-Ridder Information received several accolades for its high technological standards. Its full-service document delivery arm, KR SourceOne, was honored for its state-of-the-art document image order management system with the first Internet & Electronic Commerce Award for Internet Infrastructure from InformationWeek magazine and the Gartner Group. In addition, Info World magazine acknowledged the sophistication of KR ScienceBase, naming Knight-Ridder Information No. 1 in its list of 100 companies that are most innovative in their use of client/server technology. TECHNIMETRICS: In 1996, a key advancement provided customer access via the Internet to download proprietary Technimetrics data to their Internet browsers. Technimetrics also developed networked client-server applications with daily online update capabilities to be available early in 1997. ITEM 3. LEGAL PROCEEDINGS In 1990, a verdict was rendered against the company's subsidiary, Philadelphia Newspapers, Inc. (PNI), publisher of The Philadelphia Inquirer and Philadelphia Daily News, in a libel action entitled Sprague v. Philadelphia Newspapers, Inc., for $2.5 million in compensatory damages and $31.5 million in punitive damages. On April 1, 1996, the libel action was settled. The settlement had no material impact on earnings. Various libel actions and environmental and other legal proceedings that have arisen in the ordinary course of business are pending against the company and its subsidiaries. In the opinion of management, the ultimate liability to the company and its subsidiaries as a result of these legal proceedings will not be material to the financial position or results of operations. 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 three months ended December 29, 1996. 9 10 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 also is traded on 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, 1983 and 1978. Knight Newspapers, Inc., stock split two-for-one in 1972. The company's 93.3 million shares are held in all 50 states by 11,066 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 $39.75 on March 2, 1997. The number of shareholders of record at Dec. 29, 1996, was 11,066. The average stock trading volume per day for the years 1996, 1995 and 1994 was 181,305, 132,300 and 126,900, respectively. The following table presents the company's common stock market data*:
1996 1995 1994 -------------------- ------------------- ------------------- Quarter High Low High Low High Low ------- -------- ------- ------- ------- ------- 1st ..................... 36 1/16 29 7/8 28 1/16 25 1/8 30 1/2 27 7/16 2nd ..................... 38 7/16 32 11/16 28 7/8 26 3/16 30 1/8 26 3rd ..................... 38 32 7/16 29 9/16 27 5/8 27 5/16 24 3/4 4th ..................... 42 35 3/8 33 5/16 28 1/8 26 1/4 23 1/4
* Amounts have been restated to reflect a two-for-one stock split in the form of a 100% common stock dividend, effected July 31, 1996. TREASURY STOCK PURCHASES The table below is a summary of treasury stock purchases since 1986:
Shares Cost Purchased* (000s) ---------- -------- 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 1986 .......................
* Amounts have been restated to reflect a two-for-one stock split in the form of a 100% common stock dividend, effected July 31, 1996. 10 11 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):
QUARTER ----------------------------------------------------- Description First Second Third Fourth -------- -------- --------- -------- 1996 Operating revenue ..................................... $697,661 $716,982 $653,796 $706,404 Operating income ...................................... 50,612 80,450 71,614 132,242 Net income ............................................ 23,518 42,352 126,257(a) 75,746(b) Net income per common and common equivalent share (1),(2) ..................... .24 .43 1.31(a) .79(b) Dividends declared per common share (2) ............... .18 1/2 .20 .20 (c) 1995 Operating revenue ..................................... $674,599 $687,455 $637,994 $751,786 Operating income ...................................... 71,007 84,714 19,081 65,482 Income before cumulative effect of change in accounting principle ............................. 35,673 94,120(d) 6,590 30,999 Cumulative effect of change in accounting principle for contributions ......................... (7,320) Net income ............................................ 28,353 94,120(d) 6,590 30,999 Net income per common and common equivalent share (2): Income before cumulative effect of change in accounting principle ......................... .34 .94(d) .07 .32 Cumulative effect of change in accounting principle for contributions ....... (.07) Net income ........................................ .27 .94(d) .07 .32 Dividends declared per common share (2) ............... .18 1/2 .18 1/2 .18 1/2 .18 1/2 1994 Operating revenue ..................................... $630,863 $661,550 $642,613 $713,935 Operating income ...................................... 64,810 95,286 75,277 95,888 Net income ............................................ 30,372 50,121 37,243 53,164 Net income per common and common equivalent share (1), (2) ........................... .27 .46 .35 .50 Dividends declared per common share (2) ............... .17 1/2 .18 1/2(e) .18 1/2 .18 1/2
(1) Amounts do not total to the annual earnings per share because each quarter and the year are calculated separately based on average outstanding shares during that period. (2) Amounts have been restated to reflect a two-for-one stock split in the form of a 100% common stock dividend, effected July 31, 1996. (a) Includes the gain on the sale of KRF. (b) Includes the after-tax gain on the sale of Netscape, net of adjustments to the carrying value of certain investments ($.07 per share). (c) The Board of Directors declared a $.20 per share dividend on 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. (d) Includes the after-tax $53.8 million ($.54 per share) gain on the sale of the JoC. (e) The second quarter ended June 26, 1994. These dividends were declared June 28, 1994, and recorded in the third quarter. 11 12 Item 6. SELECTED FINANCIAL DATA 11-YEAR FINANCIAL HIGHLIGHTS (In thousands, except per share data and ratios) The following data were compiled from the consolidated financial statements of Knight-Ridder, Inc., and subsidiaries. The consolidated financial statements and related notes and discussions for the year ended Dec. 29, 1996, (Items 7 and 8) should be read in order to obtain a better understanding of this data.
- ---------------------------------------------------------------------------------------------------------------------------- Compound Growth Rate ---------------- Dec. 29 Dec. 31 Dec. 25 Dec. 26 5-Year 10-Year 1996 1995 1994 1993 ------ ------- ---------- ---------- ---------- ---------- SUMMARY OF OPERATIONS Operating Revenue Newspapers Advertising.................................. 4.6% 3.0% $1,793,424 $1,672,970 $1,583,373 $1,481,631 Circulation.................................. 2.7 4.1 501,826 495,315 484,581 474,420 Other........................................ 17.6 12.0 78,974 81,897 66,968 56,772 ---------- ---------- ---------- ---------- Total Newspapers........................... 4.5 3.4 2,374,224 2,250,182 2,134,922 2,012,823 Business Information Services.................. 2.5 16.2 400,619 501,652 514,039 438,525 Other.......................................... ---------- ---------- ---------- ---------- Total Operating Revenue.................... 4.2 4.4 2,774,843 2,751,834 2,648,961 2,451,348 ---------- ---------- ---------- ---------- Operating Costs Labor, newsprint and other operating costs..... 3.8 4.5 2,273,874 2,359,938 2,168,373 2,024,733 Depreciation and amortization.................. 6.0 7.3 166,051 151,612 149,327 141,758 ---------- ---------- ---------- ---------- Total Operating Costs...................... 3.9 4.6 2,439,925 2,511,550 2,317,700 2,166,491 ---------- ---------- ---------- ---------- Operating Income................................. 6.6 2.6 334,918 240,284 331,261 284,857 Interest expense............................... 1.3 8.2 (73,296) (59,572) (44,585) (45,112) Other, net (1)................................. 41.7 26.1 204,986 107,084 3,394 3,656 Income taxes, net.............................. 20.5 5.8 (198,735) (120,414) (119,170) (95,312) ---------- ---------- ---------- ---------- Income from continuing operations................ 15.2 7.3 267,873 167,382 170,900 148,089 Discontinued broadcast operations (2)............ Cumulative effect of changes in accounting principles (3)................................. (7,320) ---------- ---------- ---------- ---------- Net Income (1)................................... 15.2 6.7 $ 267,873 $ 160,062 $ 170,900 $ 148,089 ========== ========== ========== ========== Operating income percentage (profit margin)...... 12.1% 8.7% 12.5% 11.6% - --------------------------------------------------------------------------------- -------------- --------------- ----------- SHARE DATA (4) Average number of common and common equivalent shares outstanding......... 97,420 100,196 108,551 110,663 Income per common and common equivalent share Continuing operations........................ 16.7 9.2 $ 2.75 $ 1.67 $ 1.57 $ 1.34 Discontinued broadcast operations (2) Cumulative effect of changes in accounting principles (3)............... (.07) Net income (1)............................... 16.7 8.6 2.75 1.60 1.57 1.34 Dividends declared per common share (5)........ (3.5) 2.5 .58 1/2 .74 .73 .70 Common stock price High......................................... 42 33 5/16 30 1/2 32 1/2 Low.......................................... 29 7/8 25 1/8 23 1/4 25 5/16 Close........................................ 39 1/4 31 1/4 25 7/16 29 11/16 Shareholders' equity per common share.......... 2.5 5.4 $ 12.12 $ 11.43 $ 11.58 $ 11.33 Price/earnings ratio (6)....................... 21.1:1 27.7:1 16.2:1 22.2:1 - --------------------------------------------------------------------------------------------------------------------------------- OTHER FINANCIAL DATA Common stock acquired.......................... $ 221,768 $ 319,363 $ 136,977 $ 40,693 Payment of cash dividends...................... 74,262 74,377 77,942 76,787 Ratio of earnings to fixed charges (7)......... 5.4:1 4.3:1 5.2:1 4.5:1 At Year End Total assets................................. 2,900,310 3,005,710 2,447,189 2,431,432 Long-term debt (excluding current maturities) 771,335 1,000,721 411,504 410,388 Total debt................................... 821,335 1,013,850 411,504 451,075 Shareholders' equity......................... 1,131,508 1,110,970 1,224,654 1,243,169 Return on average shareholders' equity (8)... 23.9 14.3 13.9 12.2 Current ratio................................ 1.0:1 1.1:1 1.0:1 1.0:1 Total debt/total capital ratio............... 42.1% 47.7% 25.2% 26.6%
12 13
- ------------------------------------------------------------------------------------------------------------------------------------ Dec. 27 Dec. 29 Dec. 30 Dec. 31 Dec. 31 1992 1991 1990 1989 1988 ---------- ---------- ---------- ---------- ---------- SUMMARY OF OPERATIONS Operating Revenue Newspapers Advertising................................... $1,444,144 $1,429,661 $1,556,932 $1,577,449 $1,523,030 Circulation................................... 460,014 439,029 403,188 385,214 370,898 Other......................................... 39,932 35,127 31,981 32,212 29,743 ---------- ---------- ---------- ---------- ---------- Total Newspapers............................ 1,944,090 1,903,817 1,992,101 1,994,875 1,923,671 Business Information Services................... 385,439 354,361 332,628 289,585 159,659 Other........................................... ---------- ---------- ---------- ---------- ---------- Total Operating Revenue..................... 2,329,529 2,258,178 2,324,729 2,284,460 2,083,330 ---------- ---------- ---------- ---------- ---------- Operating Costs Labor, newsprint and other operating costs...... 1,922,797 1,890,850 1,896,331 1,838,656 1,707,991 Depreciation and amortization................... 128,221 124,055 127,772 123,810 104,576 ---------- ---------- ---------- ---------- ---------- Total Operating Costs....................... 2,051,018 2,014,905 2,024,103 1,962,466 1,812,567 ---------- ---------- ---------- ---------- ---------- Operating Income.................................. 278,511 243,273 300,626 321,994 270,763 Interest expense................................ (52,375) (68,843) (71,803) (84,622) (62,465) Other, net (1).................................. 13,580 35,940 17,119 57,381 26,515 Income taxes, net............................... (93,630) (78,302) (96,897) (114,917) (88,038) ---------- ---------- ---------- ---------- ---------- Income from continuing operations................. 146,086 132,068 149,045 179,836 146,775 Discontinued broadcast operations (2)............. 67,366 9,608 Cumulative effect of changes in accounting principles (3).................................. (105,200) ---------- ---------- ---------- ---------- ---------- Net Income (1).................................... $ 40,886 $ 132,068 $ 149,045 $ 247,202 $ 156,383 ========== ========== ========== ========== ========== Operating income percentage (profit margin)....... 12.0% 10.8% 12.9% 14.1% 13.0% - ----------------------------------------------------------------------------------------------------------------------------------- SHARE DATA (4) Average number of common and common equivalent shares outstanding.......... 110,356 103,594 101,366 104,878 113,406 Income per common and common equivalent share Continuing operations......................... $ 1.32 $ 1.27 $ 1.47 $ 1.72 $ 1.29 Discontinued broadcast operations (2) .64 .09 Cumulative effect of changes in accounting principles (3)................ (.95) Net income (1)................................ .37 1.27 1.47 2.36 1.38 Dividends declared per common share (5)......... .70 .70 .67 .62 1/4 .57 1/4 Common stock price High.......................................... 32 1/16 28 3/4 29 29 3/16 23 7/8 Low........................................... 25 3/8 21 7/8 18 1/2 21 7/16 17 7/8 Close......................................... 29 1/16 25 3/8 22 15/16 29 3/16 22 11/16 Shareholders' equity per common share........... $ 10.75 $ 10.72 $ 9.05 $ 8.92 $ 7.74 Price/earnings ratio (6)........................ 21.9:1 19.9:1 15.6:1 20.4:1 17.5:1 - ----------------------------------------------------------------------------------------------------------------------------------- OTHER FINANCIAL DATA Common stock acquired........................... $ 129,909 $ 131,885 $ 198,279 Payment of cash dividends....................... $ 75,992 $ 71,087 66,422 63,260 62,990 Ratio of earnings to fixed charges (7).......... 3.9:1 2.9:1 3.4:1 3.6:1 3.7:1 At Year End Total assets.................................. 2,458,059 2,332,751 2,270,459 2,134,626 2,357,040 Long-term debt (excluding current maturities). 495,941 556,797 803,914 660,900 727,043 Total debt.................................... 560,245 606,840 823,958 712,940 1,037,075 Shareholders' equity.......................... 1,181,812 1,148,620 894,913 917,145 821,625 Return on average shareholders' equity (8).... 12.5 12.9 16.5 28.4 18.2 Current ratio................................. 1.1:1 1.1:1 1.2:1 1.2:1 1.1:1 Total debt/total capital ratio................ 32.2% 34.6% 47.9% 43.7% 55.8%
13 14
Dec. 31 Dec. 31 1987 1986 SUMMARY OF OPERATIONS ---------- ---------- Operating Revenue Newspapers Advertising........................................ $ 1,464,447 $1,332,820 Circulation........................................ 357,553 334,670 Other.............................................. 28,578 25,362 ----------- ---------- Total Newspapers................................. 1,850,578 1,692,852 Business Information Services........................ 99,260 88,904 Other................................................ 18,344 26,338 ----------- ---------- Total Operating Revenue.......................... 1,968,182 1,808,094 ----------- ---------- Operating Costs Labor, newsprint and other operating costs........... 1,580,664 1,467,543 Depreciation and amortization........................ 92,425 81,901 ----------- ---------- Total Operating Costs............................ 1,673,089 1,549,444 ----------- ---------- Operating Income....................................... 295,093 258,650 Interest expense..................................... (49,583) (33,248) Other, net (1)....................................... 20,061 20,172 Income taxes, net.................................... (116,837) (113,000) ----------- ---------- Income from continuing operations...................... 148,734 132,574 Discontinued broadcast operations (2) 6,429 7,465 Cumulative effect of changes in accounting principles (3) ..................................... ----------- ---------- Net Income (1)......................................... $ 155,163 $ 140,039 =========== ========== Operating income percentage (profit margin)............ 15.0% 14.3% SHARE DATA (4) Average number of common and common equivalent shares outstanding............... 117,292 116,404 Income per common and common equivalent share Continuing operations.............................. $ 1.27 $ 1.14 Discontinued broadcast operations (2).............. .05 .06 Cumulative effect of changes in accounting principles (3) Net income (1)..................................... 1.32 1.20 Dividends declared per common share (5).............. .51 1/2 .45 1/2 Common stock price High............................................... 30 5/8 28 15/16 Low................................................ 16 5/8 18 3/4 Close.............................................. 20 1/16 23 7/16 Shareholders' equity per common share................ $ 7.93 $ 7.14 Price/earnings ratio (6)............................. 15.1:1 19.5:1 OTHER FINANCIAL DATA Common stock acquired................................ $ 38,728 Payment of cash dividends............................ 57,426 $ 49,877 Ratio of earnings to fixed charges (7)............... 5.1:1 6.4:1 At Year End Total assets....................................... 1,919,875 1,906,459 Long-term debt (excluding current maturities)...... 508,203 620,389 Total debt......................................... 553,235 668,261 Shareholders' equity............................... 901,498 815,982 Return on average shareholders' equity (8)......... 18.1 18.5 Current ratio...................................... 1.2:1 1.2:1 Total debt/total capital ratio..................... 38.0% 45.0%
Notes: (1) Other, net and Net Income include the gain from the sale of Knight-Ridder Financial in 1996, the gain from the sale of the Journal of Commerce in 1995 and the gain from the sale of the Pasadena Star-News in 1989. (2) Results of operations of the company's Broadcast Division (sold in 1989) and the gain on the sale of broadcast assets are presented as "discontinued broadcast operations." (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 changes in accounting principles represents adjustments from the implementation of FAS 109 - Accounting for Income Taxes and FAS 106 - Accounting for Postretirement Benefits Other Than Pensions. (4) Amounts have been restated to reflect a two-for-one stock split in the form of a 100% stock dividend, effected July 31, 1996. (5) The Board of Directors declared a $0.20 per share dividend on Jan. 28, 1997. The quarterly dividend usually paid in January was paid in February. (6) Price/earnings ratio is computed by dividing closing market price by earnings from continuing operations for the trailing 12-month period. 1995 and 1992 earnings exclude the effects of changes in accounting principles. Earnings also exclude the gain from the sale of Knight-Ridder Financial in 1996, the gain from the sale of the Journal of Commerce in 1995 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, 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 years 1995 and 1992, including the results of discontinued operations in years 1986 through 1989, 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 15 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 promote 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 a communications company engaged in newspaper publishing, news and information services, electronic retrieval services and graphics and photo services. In 1996, the gross revenue from these businesses was about $2.8 billion. The company is also involved in other newspaper businesses, newsprint manufacturing and cable television (mostly sold in January 1997) 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 65% of consolidated revenue. This revenue comes from the three basic categories of advertising - retail, general and classified - discussed below. 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 18% 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 alternate delivery services, commercial job printing, niche publications, book publishing, audiotext, online services, newsprint waste sales, newspaper trucking services and other miscellaneous sources. BUSINESS INFORMATION SERVICES (BIS) revenue includes operations of Knight-Ridder Information, Inc. (KRII), and Technimetrics. Prior to July 1996, BIS revenue included Knight-Ridder Financial (KRF). KRF was sold on July 26, 1996, to Global Financial Information for $275 million. Prior to April 1995, BIS revenue included the Journal of Commerce (JoC). The JoC was sold on April 3, 1995, to the Economist Group of London for $115 million. KRII principal products include DIALOG(R), DataStar(SM) and Infomart/DIALOG online services; the KR OnDisc(TM) CD-ROM product series; and KR SourceOne(SM), a full-service document delivery service. In addition, KRII's end-user product line includes KRBusinessBase(R), KR ScienceBase(R), Custom DIALOG(TM)/KRQuickStart(TM), Alerts and KRProBase(TM). KRII serves customers in more than 150 countries and offers more than 750 online databases. Subscribers are charged according to the amount of time they spend online, information procured and which databases they access. Technimetrics is a leading publisher of investor information and global investment listings of business executives and professionals. Technimetrics' information is used by investor relations and marketing professionals in America's leading corporations for communication programs, audience targeting and direct marketing. 15 16 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 1 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 operations by business segment and includes discussions of the company's largest newspapers and information regarding the company's properties, technology and the raw materials used in operations. RESULTS OF OPERATIONS: 1996 VS. 1995. Earnings per share were $2.75, up $1.08 from the $1.67 reported in 1995, prior to the $.07 cumulative effect adjustment recorded in 1995. The $2.75 includes an $.89 gain on the sale of Knight-Ridder Financial (KRF) and a $.07 gain on the sale of our Netscape investment, net of adjustments in the carrying value of certain investments. The $1.67 includes a $.54 gain on the sale of the Journal of Commerce (JoC) on April 3, 1995. Excluding these gains from their respective periods, EPS for 1996 was $1.79, which was up $.66 from $1.13 earned in 1995. These results were a record for Knight-Ridder. Operating income in 1996 was $334.9 million, up $94.6 million, or 39.4%, from 1995. The results include Detroit, which was rebuilding throughout the year from a strike that began on July 13, 1995. (In February 1997, the six striking newspaper unions in Detroit made an unconditional offer to return to work.) They also include full-year results 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, operating income was up $62.6 million, or 22.2%, from 1995. Total company revenue of $2.8 billion was up 0.8% from 1995 despite the absence of KRF. On a pro forma basis for CCN, but excluding Detroit, KRF and JoC results and the 53rd week from 1995, total operating revenue was up 4.2%. NEWSPAPERS. The Newspaper Division's operating income was $379.6 million, up $98.4 million, or 35.0%, from $281.1 million in 1995. The increase was due to a 7.2% increase in total advertising revenue from 1995 and improvement in operating profit in Philadelphia, Detroit and other large markets. For the year, on a pro forma basis for CCN, and including Detroit, the Newspaper Division operating profit margin was 16.0%, up from 12.5% in 1995. On a pro forma basis for CCN, but excluding Detroit and the 53rd week, operating income was up 20.8% from 1995. Newspaper advertising revenue increased by $120.5 million, or 7.2%, in 1996 on a full-run ROP linage increase of 10.0%. On a pro forma basis for CCN, but excluding Detroit and the 53rd week (comparable basis), total advertising revenue improved by 5.2% from 1995. The following table summarizes the percentage change in revenue and full-run ROP 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 ADVERTISING % CHANGE IN FULL-RUN %CHANGE IN FULL-RUN 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. If you were to calculate the increase excluding these markets and Detroit, and compare the rest of the markets on a 52-week basis, retail would have been up 1.9%. 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%. 16 17 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 over 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 newspaper 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. BUSINESS INFORMATION SERVICES. Operating revenue was $400.6 million in 1996, down from $501.7 million in 1995, reflecting the absence of revenue as a result of the KRF and JoC sales. Excluding KRF and JoC, operating revenue would have been up 5.4% from 1995, mostly due to acquisitions. Operating income was $1.8 million, down from $12.0 million in 1995. The decline in division operating income was due to the ongoing investment to put KRII products on the World Wide Web. EXPENSES. Labor and employee benefits costs were down $45.0 million, or 4.0%, with a 6.9% decrease in the work force. Excluding Detroit and KRF, the work force decreased by 4.1%. 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 3.4% (excluding Detroit, CCN and KRF). Newsprint, ink and supplements costs increased by $25.4 million, or 5.7%, due to an 11.5% increase in the average cost per tonne of newsprint offset by a 4.0% decrease in newsprint consumption from the prior year. Depreciation and amortization increased $14.4 million, or 9.5%, due mostly to the acquisition of CCN. Other operating costs decreased 8.5% from 1995. On a pro forma basis for CCN but excluding Detroit and KRF, other operating costs were up 0.3% from the prior year. NON-OPERATING ITEMS. Net interest expense increased $10.9 million, or 22.5%, 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 $86.9 million over 1995, mostly as a result of the 1996 $155.9 million pretax gain on the sale of KRF and the $12.5 million pretax 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 for 1996 was 42.6%, up from 41.8% in 1995. The increase was due to the sale of KRF, which was taxed in a high tax rate jurisdiction, as well as a change in the distribution of income to states with higher income tax rates. RESULTS OF OPERATIONS: 1995 VS. 1994 Earnings per share, prior to the $.07 cumulative effect adjustment related to the mandated change in accounting for charitable contributions, was $1.67, up $.10, or 6.4%, from $1.57 per share in 1994. The gain on the sale of the JoC of $.54 per share was recognized in the second quarter of 1995. Operating income in 1995 was $240.3 million, down from $331.3 million in 1994 on a $102.9 million, or 3.9%, increase in revenue. Operating income as a percentage of revenue was 8.7%, compared with 12.5% 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 $20 million, of which $17 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 down 1.2% from 1994. 17 18 NEWSPAPERS. The Newspaper Division's operating income was $281.1 million, down from $350.9 million in 1994 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. Excluding Detroit operations and buyout and separation charges, operating income would have been up 3.8% from 1994. Newspaper advertising revenue increased by $89.6 million, or 5.7%, in 1995 on a full-run ROP linage increase of 2.8%. 1995 results reflect: reduction in revenue due to the Detroit strike, two months of revenue recorded for Contra Costa Newspapers, Inc. (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, newspaper advertising revenue would have increased by 5.8%. The following table summarizes the percentage change in revenue and full-run ROP 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 the recently acquired CCN. Other newspaper 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. BUSINESS INFORMATION SERVICES. Operating revenue was $501.7 million in 1995, down from $514.0 million in 1994, as a result of the April 3 sale of the JoC. Excluding the impact of the JoC and acquisitions, operating revenue would have been up 5.3% from 1994. Operating income was $12.0 million, down from $23.1 million in 1994. The decline in division operating income was due to the absence of the JoC since March 1995 and buyout and separation charges recorded in 1995. Excluding the JoC, severance costs and acquisitions, operating income would have been down $2.4 million from 1994. EXPENSES. Labor and employee benefits costs were up $38.6 million, or 3.5%, with a 2.7% 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 3.0% 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 $2.3 million, or 1.5%, due mostly to the acquisition of CCN. 18 19 Other operating costs increased 5.7% from 1994, due primarily to strike-related costs in Detroit and volume-related increases in BIS royalties and exchange fees. NON-OPERATING ITEMS. Net interest expense increased $10.5 million, or 27.6%, 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 $13.2 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 increased $84.7 million over 1994, mostly as a result of the $92.7 million pretax gain on the sale of the JoC, which was partially offset by the reduction in the carrying values of certain investments. INCOME TAXES. The effective income tax rate for 1995 was 41.8%, up from 41.1% in 1994. The increase was due mostly to a change in the distribution of income to states with higher income tax rates. OTHER. In the first quarter of 1995, the company adopted Financial Accounting Standard (FAS) 116 Accounting for Contributions Received and Contributions Made. Under the new standard, unconditional promises, including multi-year 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, and was recorded as a cumulative effect adjustment. Shareholders' equity reflects 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 in accordance with FAS 115 - Accounting For Certain Investments in Debt and Equity Securities. Related amounts prior to 1995 were not material. RESULTS OF OPERATIONS: 1994 VS. 1993 Earnings per share were $1.57, up $.23, or 17.2%, from $1.34 per share in 1993. Operating income increased 16.3% on an 8.1% increase in revenue in 1994. Operating income as a percentage of revenue was 12.5%, compared with 11.6% in 1993. NEWSPAPERS. The Newspaper Division's operating income increased $52.1 million, or 17.4%, to $350.9 million. The increase resulted from a 6.1% revenue improvement that was partially offset by fourth quarter charges related to buyout and separation costs and nonrecurring charges for litigation and environmental matters. Overall, newspaper advertising revenue increased by $101.7 million, or 6.9%, in 1994 on a full-run ROP linage increase of 3.1%. Retail advertising revenue improved $26.4 million, or 3.4%. The improvement resulted from a 0.3% increase in full-run ROP linage, increases in full-run ROP average rates and preprint revenue. General advertising revenue increased by $15.7 million, or 9.3%, from 1993 on an 11.1% increase in full-run ROP general linage, partially offset by a decrease in preprint revenue. Classified revenue improved by $59.7 million, or 10.9%, on a 5.5% increase in full-run ROP volume and a 4.9% increase in full-run average rates. Most of the increase was due to the strength of employment advertising, which was up 23.4% for the year and 32.1% in the last quarter. Circulation revenue increased $10.2 million, or 2.1%, despite a decline in the average number of copies. Morning circulation declined 41,600 copies, or 1.3%, and afternoon circulation declined 10,900 copies, or 2.4%. Sunday circulation declined 45,300 copies, or 0.9%. Other newspaper revenue increased $10.2 million, or 18.0%, during 1994, due primarily to increased revenue from lines of business developed to augment the revenue of our core newspaper business. BUSINESS INFORMATION SERVICES. In 1994, BIS contributed 19.4% of consolidated revenue, compared with 17.9% in 1993. Excluding the impact of acquisitions, revenue would have been up almost 9%. Operating income was $23.1 million, down $295,000, or 1.3%, from 1993 on a 17.2% increase in revenue. The decline in divisional operating income resulted from a fourth quarter KRII separation charge. 19 20 EXPENSES. Labor and employee benefits costs were up $65.2 million, or 6.4%, with a 1.4% increase in the work force resulting from expansion and acquisitions in the BIS Division, which was partly offset by work force reductions in the Newspaper Division. Other factors in the increase were a 4.4% increase in the average labor and employee benefits cost and a fourth quarter charge for buyouts and separation charges. Newsprint, ink and supplements costs increased by $859,000, or 0.3%, due to a 1.7% increase in consumption and a slight decrease in average newsprint prices from 1993. Depreciation and amortization expense increased 5.3%, or $7.6 million, due to BIS expansion and acquisitions. Other operating costs increased 11.7% from 1993 due partly to increases in volume-related BIS royalty and exchange fee expenses and other cost increases related to BIS expansion and acquisitions. A fourth quarter charge for environmental and litigation matters accounted for part of the increase. Non-Operating Items. Net interest expense decreased $1.2 million, or 3.2%, from 1993, due primarily to lower debt levels. Income Taxes. The effective income tax rate for 1994 was 41.1%, up from 39.2% in 1993. The increase was mostly due to 1993 favorable adjustments of tax reserves resulting from the resolution of federal and state tax issues for prior years. A Look Ahead We are optimistic about continued profit growth for the company's newspapers, with expected advertising increases in the low-single digits. In February 1997, the six striking newspaper unions in Detroit made an unconditional offer to return to work. Before that announcement, we were anticipating that it would be profitable on a full-year basis in 1997 and we continue in that belief. We believe Newspaper Division margins will continue to improve, most notably in Detroit and Philadelphia. The average price of newsprint for 1997 is expected to be about 15% lower than in 1996, even with the impact of a possible price increase in the spring. For BIS, we anticipate only slight profitability, as a result of the ongoing reinvestments we are making in KRII to make more of its products available on the World Wide Web. The company expects to continue its share repurchase program in 1997. There are approximately 5.4 million shares remaining under the current authorization for 6 million shares. 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 international, 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. Recent Acquisitions/Investment History/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 systems, including Kentucky, account for a small portion of the original investment. That sale is expected to close later. The company expects to report an after-tax gain on the transaction of between $130 million and $150 million. The company expects the total sale to yield, net after-tax proceeds, between $270 million and $280 million. 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 July 1996, Technimetrics, Inc., purchased Grabill-Bloom, Inc., a stock surveillance firm that helps companies track their shareholders on a real-time basis. Also during 1996, the company made strategic investments in PointCast, Inc., Zip2 Corp. and Frost & Sullivan. 20 21 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. Also in October 1995, the company acquired a 100% interest in The CARL Corporation, a leading provider of library automation services. The company also acquired a 100% interest in The UnCover Company, a partnership of The CARL Corporation and Blackwell Limited. In August 1995, the company acquired a minority investment in Teltech Resource Network Corporation, the leading independent provider of technical information research, analysis and consulting services to U.S. industry. In March 1995, Knight-Ridder, Inc., Tribune Co., Cox Newspapers, Inc., and Advance Publications, Inc., purchased PRC Realty Systems, Inc., currently operating under the name of Interealty. Each of the four purchasing companies owns an equal interest in Interealty, which produces software systems for the real estate industry. Also during 1995, the company made strategic investments in Netscape Communications Corporation (that investment was sold during 1996), New Century Network, InfiNet, Destination Florida and CareerPath. 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. In January 1994, the company acquired Technimetrics, a leading publisher of investor information and business executive and global investment professional listings. 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, expenditures have totaled $314.7 million for these items. A large portion of the 1996 expenditures is for the Miami press project that began in 1995. The $112.0 million press expansion is expected to be completed in 1998. Another large component of 1996 expenditures is the $27.2 million replacement of three existing presses at Akron with new equipment and refurbished Flexographic equipment. That project also is expected to be completed in 1998. Also included in capital expenditures is the Charlotte press project that began in 1994. The $35.0 million press expansion was completed during 1996, when the second of two new presses became operational. The $29.5 million renovation of the Philadelphia Broad Street facility began in 1995 and is expected to continue through 1998. Investment in our BIS Division during 1996 included mainframe computer equipment enhancements of $3.5 million at KRII. Financial Position and Liquidity 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. Standard & Poor's and Moody's continue to rate the company's commercial paper A1+ and P1 and long-term bonds AA- and A1, respectively. Average outstanding commercial paper during the year was $495.0 million, with an average effective interest rate of 5.5%. During 1996, the company's revolving credit and term loan agreement, which backs up the commercial paper program, was 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 $105.4 million to $273.1 million. The increase was attributed to higher earnings, reflecting the KRF gain and 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 last year. The ratio of current assets to current liabilities was 1.0:1 at year end vs. 1.1:1 at the end of 1995. 21 22 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. Various libel actions and environmental and other legal proceedings that have arisen in the ordinary course of business are pending against the company and its subsidiaries. In the opinion of management, the ultimate liability to the company and its subsidiaries as a result of these actions will not be material. 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 an average effective 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. In December 1995, the company issued $100 million principal amount of 6.30% senior notes due Dec. 15, 2005. During 1995, net cash provided by operating activities decreased $201.4 million to $167.7 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 last year. The ratio of current assets to current liabilities was 1.1:1 at year end vs. 1.0:1 at the end of 1994. 1994 VS. 1993 During 1994, net cash provided by operating activities increased $39.1 million, to $369.1 million. The increase was attributed to higher earnings and increased distributions from investees. The ratio of current assets to current liabilities was 1.0:1 at year end. Cash and short-term investments were $9.3 million at the end of 1994, a $13.8 million decrease from 1993. During 1994, the company repurchased 5.0 million of its shares for an aggregate price of $137.0 million. In January 1994, $40.0 million in 9.05% notes payable matured. Total debt at year-end 1994 was $39.6 million less than in 1993. As a result, the total-debt-to-total-capital ratio decreased from 26.6% in 1993 to 25.2% in 1994. Average outstanding commercial paper during the year was $101.0 million with an average effective interest rate of 4.0%. At year-end 1994, commercial paper outstanding was $54.9 million and aggregate unused credit lines were $445.1 million. 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. In both of its business segments, subject to normal competitive conditions, the company generally has demonstrated the ability to raise sales prices to offset these cost increases. 22 23 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See Quarterly Operations in Item 5 and Schedule II, Valuation and Qualifying Accounts CONSOLIDATED BALANCE SHEET
Dec. 29 Dec. 31 Dec. 25 (In thousands of dollars, except share data) 1996 1995 1994 ---------- ---------- ----------- ASSETS CURRENT ASSETS Cash, including short-term cash investments of $50 in 1996, $50 in 1995 and $150 in 1994 ................................ $ 22,880 $ 26,012 $ 9,253 Accounts receivable, net of allowances of $12,685 in 1996, $14,348 in 1995 and $13,728 in 1994 ......................... 356,079 339,264 317,687 Inventories ........................................................... 42,941 73,349 39,555 Prepaid expense ....................................................... 90,314 21,543 20,354 Other current assets .................................................. 53,513 42,754 35,955 ---------- ---------- ---------- Total Current Assets ............................................ 565,727 502,922 422,804 ---------- ---------- ---------- INVESTMENTS AND OTHER ASSETS Equity in unconsolidated companies and joint ventures ................. 330,267 321,658 293,205 Other ................................................................. 184,413 285,666 190,515 ---------- ---------- ---------- Total Investments and Other Assets .............................. 514,680 607,324 483,720 ---------- ---------- ---------- PROPERTY, PLANT AND EQUIPMENT Land and improvements ................................................. 77,526 80,616 66,950 Buildings and improvements ............................................ 392,477 401,093 383,696 Equipment ............................................................. 1,079,593 1,223,838 1,209,360 Construction and equipment installations in progress .................. 110,590 57,644 17,099 ---------- ---------- ---------- 1,660,186 1,763,191 1,677,105 Less accumulated depreciation ......................................... 757,722 831,544 844,593 ---------- ---------- ---------- Net Property, Plant and Equipment ............................... 902,464 931,647 832,512 ---------- ---------- ---------- EXCESS OF COST OVER NET ASSETS ACQUIRED Less accumulated amortization of $223,200 in 1996, $205,608 in 1995 and $182,402 in 1994 ............................... 917,439 963,817 708,153 ---------- ---------- ---------- Total ........................................................... $2,900,310 $3,005,710 $2,447,189 ========== ========== ==========
See "Notes to Consolidated Financial Statements." 23 24
Dec. 29 Dec. 31 Dec. 25 (In thousands of dollars, except share data) 1996 1995 1994 ---------- ---------- ---------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable ........................................................ $ 223,962 $ 127,532 $ 136,817 Accrued expenses and other liabilities .................................. 103,730 105,317 98,993 Accrued compensation and amounts withheld from employees ................ 96,426 101,357 96,917 Federal and state income taxes .......................................... 195 1,368 Deferred revenue ........................................................ 70,452 72,134 66,953 Dividends payable ....................................................... 17,978 19,593 Short-term borrowings and current portion of long-term debt ............. 50,000 13,129 ---------- ---------- ---------- Total Current Liabilities ......................................... 544,570 437,642 420,641 ---------- ---------- ---------- NONCURRENT LIABILITIES Long-term debt .......................................................... 771,335 1,000,721 411,504 Deferred federal and state income taxes ................................. 174,019 165,045 138,611 Postretirement benefits other than pensions ............................. 159,267 169,672 166,682 Employment benefits and other noncurrent liabilities .................... 117,353 120,817 84,264 ---------- ---------- ---------- Total Noncurrent Liabilities ...................................... 1,221,974 1,456,255 801,061 ---------- ---------- ---------- MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES ............................................... 2,258 843 833 ---------- ---------- ---------- COMMITMENTS AND CONTINGENCIES (Note J) SHAREHOLDERS' EQUITY Common stock, $.02 1/12 par value; shares authorized - 250,000,000; shares issued - 93,340,652 in 1996, 97,196,308 in 1995 and 105,785,440 in 1994 .............................................................. 1,945 2,025 2,204 Additional capital ...................................................... 308,320 295,360 326,392 Retained earnings ....................................................... 819,572 770,643 896,058 Unrealized gains on investments ......................................... 1,671 42,942 ---------- ---------- ---------- Total Shareholders' Equity ........................................ 1,131,508 1,110,970 1,224,654 ---------- ---------- ---------- Total ............................................................. $2,900,310 $3,005,710 $2,447,189 ========== ========== ==========
24 25 CONSOLIDATED STATEMENT OF INCOME
Year Ended ----------------------------------------- Dec. 29 Dec. 31 Dec. 25 (In thousands of dollars, except per share data) 1996 1995 1994 ----------- ----------- ---------- OPERATING REVENUE Newspapers Advertising Retail ........................................................... $ 821,768 $ 807,758 $ 792,476 General .......................................................... 198,797 182,516 184,469 Classified ....................................................... 772,859 682,696 606,428 ----------- ----------- ----------- Total .......................................................... 1,793,424 1,672,970 1,583,373 Circulation ........................................................ 501,826 495,315 484,581 Other .............................................................. 78,974 81,897 66,968 ----------- ----------- ----------- Total Newspapers ............................................... 2,374,224 2,250,182 2,134,922 Business Information Services ........................................ 400,619 501,652 514,039 ----------- ----------- ----------- Total Operating Revenue ........................................ 2,774,843 2,751,834 2,648,961 ----------- ----------- ----------- OPERATING COSTS Labor and employee benefits .......................................... 1,083,026 1,127,979 1,089,417 Newsprint, ink and supplements ....................................... 472,207 446,841 335,902 Other operating costs ................................................ 718,641 785,118 743,054 Depreciation and amortization ........................................ 166,051 151,612 149,327 ----------- ----------- ----------- Total Operating Costs .......................................... 2,439,925 2,511,550 2,317,700 ----------- ----------- ----------- OPERATING INCOME ....................................................... 334,918 240,284 331,261 ----------- ----------- ----------- OTHER INCOME (EXPENSE) Interest expense ..................................................... (73,296) (59,572) (44,585) Interest expense capitalized ......................................... 6,397 1,889 474 Interest income ...................................................... 7,459 9,142 6,070 Equity in earnings of unconsolidated companies and joint ventures .... 29,868 20,661 7,412 Minority interests in earnings of consolidated subsidiaries .......... (9,419) (8,348) (9,650) Other, net (Note H) .................................................. 170,681 83,740 (912) ----------- ----------- ----------- Total .......................................................... 131,690 47,512 (41,191) ----------- ----------- ----------- Income before income taxes ............................................. 466,608 287,796 290,070 Income taxes ........................................................... 198,735 120,414 119,170 ----------- ----------- ----------- INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE ....................................... 267,873 167,382 170,900 Cumulative effect of change in accounting principle for contributions .. (7,320) ----------- ----------- ----------- Net Income ..................................................... $ 267,873 $ 160,062 $ 170,900 =========== =========== =========== EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE Income before cumulative effect of change in accounting principle .... $ 2.75 $ 1.67 $ 1.57 Cumulative effect of change in accounting principle for contributions. (.07) ---------- ---------- ---------- Net Income ..................................................... $ 2.75 $ 1.60 $ 1.57 =========== =========== =========== AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING (IN OOOS) ................................................ 97,420 100,196 108,551 =========== =========== ===========
See "Notes to Consolidated Financial Statements." 25 26 CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended ------------------------------------- Dec. 29 Dec. 31 Dec. 25 (In thousands of dollars) 1996 1995 1994 --------- ----------- --------- CASH PROVIDED BY (REQUIRED FOR) OPERATING ACTIVITIES Net income ............................................................. $ 267,873 $ 160,062 $ 170,900 Noncash items deducted from (included in) income: Cumulative effect of change in accounting principle ................. 7,320 Depreciation ........................................................ 107,116 104,786 105,776 Amortization of excess of cost over net assets acquired ............. 30,388 23,708 21,857 Amortization of other assets ........................................ 28,547 23,118 21,694 Provision for noncurrent deferred taxes ............................. 38,860 4,504 2,632 Earnings of investees in excess of distributions .................... (21,293) (16,250) (7,538) Gains on sales of subsidiaries (Note H) ............................. (155,886) (92,698) Other items, net .................................................... 777 45,964 44,697 Change in certain assets and liabilities: Accounts receivable ................................................. (42,908) (18,620) (41,135) Inventories ......................................................... 30,474 (32,292) 1,867 Other current assets ................................................ (88,219) (9,531) 2,104 Accounts payable .................................................... 86,251 (19,235) 11,099 Federal and state income taxes ...................................... 972 (16,145) 1,358 Other liabilities ................................................... (9,826) 3,006 33,803 --------- ----------- --------- Net Cash Provided by Operating Activities ....................... 273,126 167,697 369,114 --------- ----------- --------- CASH PROVIDED BY (REQUIRED FOR) INVESTING ACTIVITIES Net proceeds from sale of Knight-Ridder Financial (Note H) ............ 271,859 Acquisition of Contra Costa Newspapers, Inc. (Note H) ................. (335,755) Additions to property, plant and equipment ............................ (126,586) (121,025) (67,110) Other items, net (Note H) ............................................. 19,532 47,403 (61,013) --------- ----------- --------- Net Cash Provided by (Required for) Investing Activities ........ 164,805 (409,377) (128,123) --------- ----------- --------- CASH PROVIDED BY (REQUIRED FOR) FINANCING ACTIVITIES Proceeds from sale of commercial paper and senior notes payable ....... 601,010 1,092,620 375,308 Reduction of total debt ............................................... (793,525) (490,274) (414,879) --------- ----------- --------- Net Change in Total Debt ........................................ (192,515) 602,346 (39,571) Payment of cash dividends ............................................. (74,262) (74,377) (77,942) Sale of common stock to employees ..................................... 72,202 75,437 25,897 Purchase of treasury stock ............................................ (221,768) (319,363) (136,977) Other items, net ...................................................... (24,720) (25,604) (26,157) --------- ----------- --------- Net Cash Provided by (Required for) Financing Activities ........ (441,063) 258,439 (254,750) --------- ----------- --------- Net Increase (Decrease) in Cash ............................... (3,132) 16,759 (13,759) Cash and short-term cash investments at beginning of the year ........... 26,012 9,253 23,012 --------- ----------- --------- Cash and short-term cash investments at end of the year ................. $ 22,880 $ 26,012 $ 9,253 ========= =========== ========= Working capital at end of the year ...................................... $ 21,157 $ 65,280 $ 2,163 ========= =========== =========
See "Notes to Consolidated Financial Statements." 26 27 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
COMMON SHARES COMMON ADDITIONAL RETAINED TREASURY (In thousands of dollars, except share data) OUTSTANDING(1) STOCK(1) CAPITAL EARNINGS(1) STOCK -------------- -------- ---------- ----------- -------- BALANCES AT DEC. 26, 1993 ........................... 109,694,972 $2,285 $ 342,201 $ 898,683 $ - Issuance of common shares under stock option plans ............................... 59,200 1,104 Issuance of treasury shares under stock option plans ............................... 455,622 (3,562) (12,571) Issuance of treasury shares under stock purchase plan ............................. 620,246 (2,767) (16,835) Purchase of treasury shares ....................... (5,044,600) 136,977 Retirement of 3,968,732 treasury shares (1) ....... (81) (12,300) (95,189) (107,571) Tax benefits arising from employee stock plans .... 1,716 Net income ........................................ 170,900 Cash dividends declared on common stock - $.73 per share (1) ................ (78,336) ----------- ------ --------- --------- -------- BALANCES 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) (16,926) Purchase of treasury shares ....................... (11,508,600) 319,363 Retirement of 8,741,282 treasury shares (1) ....... (181) (26,830) (212,715) (239,725) Tax benefits arising from employee stock plans .... 4,488 Unrealized gains on investments ................... 42,942 Net income ........................................ 160,062 Cash dividends declared on common stock - $.74 per share (1) ................ (72,762) ----------- ------ --------- --------- -------- BALANCES 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 (2) ............ (56,283) ----------- ------ --------- --------- -------- BALANCES AT DEC. 29, 1996 ........................... 93,340,652 $1,945 $ 308,320 $ 821,243 $ - =========== ====== ========= ========= ========
(1) Number of shares and related amounts have been restated to reflect a two-for-one stock split in the form of a 100% stock dividend, effected July 31, 1996. (2) 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." 27 28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A description of the company's business and the nature and scope of its operations is set forth in Item 1 and 2. Reading this information is recommended for a more complete understanding of the financial statements. The company reports on a fiscal year, ending the last Sunday in the calendar year. Results for 1996 and 1994 are for the 52 weeks ended Dec. 29 and Dec. 25, 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, Inc., and its more-than-50%-owned subsidiaries. All significant intercompany transactions and account balances have been eliminated in consolidation. The company is a 50% partner in the DETROIT NEWSPAPER AGENCY (DNA), a joint operating agency between Detroit Free Press, Inc., a wholly owned subsidiary of Knight-Ridder, Inc., and The Detroit News, Inc., a wholly owned subsidiary of Gannett Co., Inc. In 1989, business operations of the Free Press and The Detroit News were transferred to the DNA. Knight-Ridder received 45% of any profit of the agency through the first three years, with Gannett receiving 55%. In the fourth year, Knight-Ridder received 47% of the DNA profit and beginning Dec. 27, 1993, received 49%. As of Dec. 26, 1994, profits are split equally through the end of the 100-year Joint Operating Agreement (JOA). The Consolidated Statement of Income includes, on a line-by-line basis, the company's pro rata share of the revenue and expense generated by the operation of the agency. INVESTMENTS in companies in which Knight-Ridder, Inc., has an equity interest of at least 20% but not more than 50% are accounted for under the equity method. Under this method, the company records its share of earnings as income and increases the investment by the equivalent amount. Dividends are recorded as a reduction in the investment. The investment caption "EQUITY IN UNCONSOLIDATED COMPANIES AND JOINT VENTURES" in the Consolidated Balance Sheet represents the company's equity in the net assets of DNA; the Seattle Times Company and subsidiaries; Newspapers First, a company responsible for the sales and services of general, retail and classified advertising accounts for a group of newspapers; Southeast Paper Manufacturing Co. and Ponderay Newsprint Company, two newsprint mill partnerships; TKR Cable Company and TKR Cable Partners, a cable television joint venture; InfiNet, a joint venture that allows newspapers to offer Internet access to subscribers; Destination Florida, a company that provides online travel information services; and Interealty (formerly known as PRC Realty Systems, Inc.,) a software system producer for the real estate industry. The company owns 49-1/2% of the voting common stock and 65% of the nonvoting common stock of the SEATTLE TIMES COMPANY, owns 48% of the voting stock of NEWSPAPERS FIRST, is a one-third partner in the SOUTHEAST PAPER MANUFACTURING CO., owns a 13-1/2% equity share of PONDERAY NEWSPRINT COMPANY, and owns 50% of the stock of TKR CABLE COMPANY and is a 50% partner in TKR CABLE PARTNERS. The company has a 15% interest in TCI/TKR Limited partnership through TKR Cable Partners. The company is a one-third partner in INFINET and a 50% partner in DESTINATION FLORIDA and owns a 25% interest in INTEREALTY. The investment in unconsolidated companies and joint ventures at Dec. 29, 1996, includes $300.3 million representing the company's share of undistributed earnings (excluding the DNA) accumulated since the investment dates. The company's share of the earnings of the unconsolidated companies (except for the DNA) of $29.9 million in 1996, $20.7 million in 1995 and $7.4 million in 1994 is included in the caption "EQUITY IN EARNINGS OF UNCONSOLIDATED COMPANIES AND JOINT VENTURES" in the Consolidated Statement of Income. Dividends and cash distributions received from the unconsolidated companies and joint ventures (excluding the DNA) were $18.6 million in 1996, $3.2 million in 1995 and $3.1 million in 1994 and were offset against the investment account. FORT WAYNE NEWSPAPERS, INC., INFOMART/DIALOG AND TRANSAX SYSTEMS (Transax Systems was sold in 1995) are the only consolidated subsidiaries and joint ventures that have a minority ownership interest. The minority shareholders' interest in the net income of these subsidiaries has been reflected as an expense in the Consolidated Statement of Income in the caption "MINORITY INTERESTS IN EARNINGS OF CONSOLIDATED SUBSIDIARIES." Also included in this caption is a contractual minority interest resulting from a JOA that runs through the year 2021 between The Miami Herald Publishing Co. and Cox Newspapers, Inc., covering the publication of The Herald and The Miami News, which ceased publication in 1988. The company's liability to the minority interest shareholders is included in the Consolidated Balance Sheet caption, "MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES." "CASH AND SHORT-TERM CASH INVESTMENTS" includes currency and checks on hand, demand deposits at commercial banks, overnight repurchase agreements of government securities and investment-grade commercial paper with maturities of 90 days or less. Cash and short-term investments are recorded at cost. Due to the short-term nature of marketable securities, cost approximates market value. The majority of the company's "ACCOUNTS RECEIVABLE" as of Dec. 29, 1996, Dec. 31, 1995, and Dec. 25, 1994, are from advertisers, newspaper subscribers and information users. Credit is extended based on the evaluation of the customer's financial condition, and generally collateral is not required. Credit losses are provided for in the financial statements and consistently have been within management's expectations. "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. 28 29 "OTHER ASSETS" includes investments in companies in which Knight-Ridder owns a less than 20% interest. These investments are reviewed for appropriate classification at the time of purchase and re-evaluated as of each balance sheet date. Investments available for sale are carried on the balance sheet at fair market value, with the unrealized gains/losses (net of tax) reported as a separate component of shareholders' equity, which resulted in unrealized gains (net of tax) of $1.7 million at Dec. 29, 1996, $42.9 million at Dec. 31, 1995, and zero at Dec. 25, 1994. Upon the sale of an investment, the gain/loss is calculated based on the original cost, less the proceeds from the sale. Investments are classified as held-to-maturity when the company has the positive intent and ability to hold the investment to maturity. "PROPERTY, PLANT AND EQUIPMENT" is recorded at cost, and the provision for depreciation for financial statement purposes is computed principally by the straight-line method over the estimated useful lives of the assets. "EXCESS OF COST OVER NET ASSETS ACQUIRED" arises from the purchase of at least a 50% interest in a company for a price higher than the fair market value of the net tangible assets. Intangible assets of this type arising from acquisitions accounted for as purchases and occurring subsequent to Oct. 31, 1970, totaled approximately $1.1 billion at Dec. 29, 1996. They are generally being amortized over a 40-year period on a straight-line basis, unless management has concluded a shorter term is more appropriate. If, in the opinion of management, an impairment in value occurs, based on the undiscounted cash flow method, any necessary additional write-downs will be charged to expense. "DEFERRED REVENUE" arises as a normal part of business from advance subscription payments for newspapers and business information services. Revenue is recognized in the period in which it is earned. "SHORT-TERM BORROWINGS" represent the carrying amounts of commercial paper and other short-term borrowings that approximate fair value. "LONG-TERM DEBT" represents the carrying amounts of debentures and notes payable. Fair values, disclosed in Note C, are estimated using discounted cash flow analyses based on the company's current incremental borrowing rates for similar types of borrowing arrangements. In 1994, the company adopted FAS 112 - EMPLOYERS ACCOUNTING FOR POST EMPLOYMENT BENEFITS. The adoption of FAS 112 did not materially impact the financial statements. In the first quarter of 1995, the company adopted FAS 116-ACCOUNTING FOR CONTRIBUTIONS RECEIVED AND CONTRIBUTIONS MADE. Under FAS 116, unconditional promises, including multi-year promises, are recognized in the period the promise is made. The adoption of FAS 116 resulted in a $7.3 million charge (net of tax) to operations, or $.07 per share, and was recorded as a cumulative effect adjustment. In 1996, the company adopted FAS 121-ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS. FAS 121 requires impairment losses to be recorded on long-lived assets when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. The adoption of FAS 121 did not materially impact the financial statements. Also in 1996, the company implemented FAS 123 - - ACCOUNTING FOR STOCK-BASED COMPENSATION. Under this statement, the company accounts for stock-based compensation plans under the provisions of APB 25 - Accounting for Stock Issued to Employees, and discloses the general and pro forma financial information required by FAS 123 (Note E). "EARNINGS PER SHARE" is computed by dividing net income by the weighted average number of common and common equivalent shares outstanding. Quarterly earnings per share may not add to the total for the year, since each quarter and the year are calculated separately based on average outstanding shares during the period. USE OF ESTIMATES - the preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Certain amounts in 1995 and 1994 have been reclassified to conform to the 1996 presentation. NOTE 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):
1996 1995 1994 ------------------- ------------------- ----------------- Current Deferred Current Deferred Current Deferred -------- -------- -------- -------- -------- ------- Federal income taxes ............................ $127,610 $28,075 $100,568 $(10,128) $ 97,824 $2,501 State and local income taxes .................... 29,883 13,167 26,733 3,241 18,791 54 -------- ------- -------- --------- -------- ------ Total ......................................... $157,493 $41,242 $127,301 $ (6,887) $116,615 $2,555 ======== ======= ======== ======== ======== ======
Cash payments of income taxes for the years 1996, 1995 and 1994 were $147.2 million, $130.1 million and $104.5 million, respectively. Payments in 1996 and 1995 include the tax impact resulting from gains on the sale of Knight-Ridder Financial and the Journal of Commerce, respectively. 29 30 EFFECTIVE INCOME TAX RATES The differences between income tax expense 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):
1996 1995 1994 -------- -------- --------- Federal statutory income tax ........................................... $ 163,312 $ 100,729 $ 101,525 State and local income taxes, net of federal benefit ................... 27,540 19,483 12,249 Statutory rate applied to nondeductible amortization of the excess of cost over net assets acquired ....................... 5,706 6,122 7,650 Change in deferred state tax asset valuation allowance ................. (2,628) Other items, net ....................................................... 2,177 (3,292) (2,254) --------- --------- --------- Total .............................................................. $ 198,735 $ 120,414 $ 119,170 ========= ========= =========
The deferred tax asset and liability at the fiscal year end is comprised of the following components (in thousands):
1996 1995 1994 ---------- --------- --------- Deferred Tax Assets Postretirement benefits other than pensions (including amounts relating to partnerships in which the company participates) .......... $ 95,764 $ 85,789 $ 84,833 Compensation and benefit accruals ...................................... (6,802) 21,768 17,130 Accrued interest ....................................................... 10,576 8,073 5,135 Other nondeductible accruals ........................................... 43,594 30,068 28,127 --------- --------- --------- Gross deferred tax assets ............................................ $ 143,132 $ 145,698 $ 135,225 ========= ========= ========= Deferred Tax Liability Depreciation and amortization .......................................... $ 196,116 $ 154,242 $ 189,843 Equity in partnerships and investees ................................... 73,499 52,708 46,715 Unrealized appreciation in equity securities ........................... 1,210 33,478 Research and experimental expenditures ................................. 10,964 12,232 9,379 Other .................................................................. 11,066 31,924 5,412 --------- --------- --------- Gross deferred tax liability ......................................... $ 292,855 $ 284,584 $ 251,349 ========= ========= ========= Net deferred tax liability ........................................... $ 149,723 $ 138,886 $ 116,124 ========= ========= =========
The components of deferred taxes included in the Consolidated Balance Sheet are as follows (in thousands):
1996 1995 1994 --------- --------- --------- Current asset .......................................................... $ 24,296 $ 26,159 $ 22,487 Noncurrent liability ................................................... 174,019 165,045 138,611 --------- --------- --------- Net deferred tax liability ............................................. $ 149,723 $ 138,886 $ 116,124 ========= ========= =========
30 31 NOTE C - DEBT Debt consisted of the following (in thousands):
Dec. 29 Dec. 31 Dec. 25 1996 1995 1994 ------- ------- ------- Commercial paper due at various dates through March 21, 1997, at an effective interest rate of 5.5% as of Dec. 29, 1996. Amounts are net of unamortized discounts of $1,683 in 1996, $5,502 in 1995 and $136 in 1994 (a) ....................................... $ 364,817 $ 557,698 $ 54,764 Debentures due on April 15, 2009, bearing interest at 9.875%, net of unamortized discount of $2,032 in 1996; $2,211 in 1995 and $2,363 in 1994 ........................................................ 197,968 197,789 197,637 Notes payable, bearing interest at 8.5%, subject to mandatory pro rata amortization of 25% annually commencing Sept. 1, 1998, through maturity on Sept. 1, 2001, net of unamortized discount of $555 in 1996, $726 in 1995 and $897 in 1994 ............................................. 159,445 159,274 159,103 Senior notes payable on Dec. 15, 2005, bearing interest at 6.3%, net of unamortized discount of $895 in 1996 and $911 in 1995 .............. 99,105 99,089 ---------- ---------- -------- 821,335 1,013,850 411,504 Less amounts payable in one year (b) ........................................ 50,000 13,129 ---------- ---------- -------- Total long-term debt .................................................. $ 771,335 $1,000,721 $411,504 ========== ========== ========
(a) Commercial paper is supported by $650 million of revolving credit and term loan agreements, $400 million of which mature on Oct. 25, 2001, and $250 million of which mature on Oct. 24, 1997. (b) The $400 million revolving credit and term loan agreements maturing on Oct. 25, 2001, are long-term in that no principal payments are required during the next 12 months. However, due to the company's intent to reduce its outstanding commercial paper, $50 million has been classified as current. Interest payments during 1996, 1995 and 1994 were $70.9 million, $45.4 million and $40.2 million, respectively. The following table presents the approximate annual maturities of debt for the five years after 1996 (in thousands): 1997.................................... $ 50,000 1998.................................... 39,861 1999.................................... 39,861 2000.................................... 39,861 2001.................................... 354,679 2002 and thereafter..................... 297,073 --------- Total $ 821,335 =========
The carrying amounts and fair values of debt as of Dec. 29, 1996, are as follows (in thousands):
Carrying Fair Amount Value -------- -------- Commercial paper................. $364,817 $364,817 9.875% Debentures................ 197,968 235,526 8.5% Notes payable............... 159,445 173,408 6.3% Senior notes payable........ 99,105 97,728 -------- -------- Total..................... $821,335 $871,479 ======== ========
31 32 NOTE 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):
1996 1995 1994 ---------- ---------- ----------- Current assets ....................................................... $ 258,037 $ 274,815 $ 228,864 Property, plant and equipment and other assets ....................... 4,076,604 3,671,364 3,498,335 Current liabilities .................................................. 287,782 323,199 290,418 Long-term debt and other noncurrent liabilities ...................... 2,893,716 2,572,060 2,479,374 Net sales ............................................................ 1,417,668 1,248,694 1,021,198 Gross profit ......................................................... 449,383 376,545 313,221 Net income (loss) .................................................... 55,104 6,517 (48,142) Company's share of: Net assets ......................................................... 330,267 321,658 293,205 Net income ......................................................... $ 29,868 $ 20,661 $ 7,412
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. 29, 1996, Dec. 31, 1995, and Dec. 25, 1994, are included above and the net assets contributed to the DNA are included in "Equity in unconsolidated companies and joint ventures" in the Consolidated Balance Sheet. NOTE E - CAPITAL STOCK In 1991, shareholders authorized 20 million shares of preferred stock for future issuance. On June 21, 1996, the Board of Directors declared a two-for-one stock split in the form of a 100% common stock dividend that was payable on July 31, 1996, to shareholders of record on July 10, 1996. The financial statements have been restated to give retroactive recognition to the stock split in prior periods by reclassifying from retained earnings to common stock, the par value of the additional shares arising from the split. In addition, all references in the financial statements to number of shares and per share amounts have been restated. Concurrent with the stock split, the company executed a rights agreement to replace a similar agreement that expired on July 10, 1996. The agreement grants each holder of a common share a right, under certain conditions, to purchase from the company a unit consisting of one one-hundredth of a share of preferred stock, at a price of $150, subject to adjustment. The rights provide that in the event the company is a surviving corporation in a merger, each holder of a right will be entitled to receive, upon exercise, common shares having a value equal to two times the exercise price of the right. In the event the company engages in a merger or other business combination transaction in which the company is not the surviving corporation, the rights agreement provides that proper provision shall be made so that each holder of a right will be entitled to receive, upon the exercise thereof at the then-current exercise price of the right, common stock of the acquiring company having a value equal to two times the exercise price of the right. No rights certificates will be distributed until 10 days following a public announcement that a person or group of affiliated or associated persons has acquired, or obtained the right to acquire, beneficial ownership of 20% or more of the company's outstanding common stock, or 10 business days following the commencement of a tender offer or exchange offer for 20% or more of the company's outstanding stock. Until such time, the rights are evidenced by the common share certificates of the company. The rights are not exercisable until distributed and will expire on July 10, 2006, unless earlier redeemed or exchanged by the company. The company has the option to redeem the rights in whole, but not in part, at a price of $.01 per right subject to adjustment. The company's Board of Directors has reserved for issuance upon exercise of the rights 1,500,000 preferred shares. The Employees Stock Purchase Plan provides for the sale of common stock to employees of the company and its subsidiaries at a price equal to 85% of the market value at the end of each purchase period. Participants under the plan received 453,754 shares in 1996, 599,558 shares in 1995 and 620,246 shares in 1994. The purchase price of shares issued in 1996 under this plan ranged between $28.59 and $35.49, and the market value on the purchase dates of such shares ranged from $33.63 to $41.75. The Employee Stock Option Plan provides for the issuance of nonqualified stock options and incentive stock options. Options are issued at prices not less than market value at date of grant and until 1994 were exercisable at issue date. Options granted after March 1994 are exercisable in three equal installments vesting over a three-year period from the date of grant. There is 32 33 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. Transactions under the Employee Stock Option Plans are summarized as follows:
Weighted Average Exercise Number of Price Shares Per Share ---------- --------- Outstanding Dec. 26, 1993 ....................................................... 7,732,846 $ 25.47 Exercised ......................................................... (514,822) 19.55 Expired ........................................................... Forfeited ......................................................... (12,200) 27.79 Granted ........................................................... 1,440,900 24.62 Outstanding 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
At Dec. 29, 1996, shares of the company's authorized but unissued common stock were reserved for issuance as follows:
Shares --------- Employee stock option plans ................ 3,223,215 Employees stock purchase plan .............. 1,808,620 --------- Total ...................................... 5,031,835 =========
As required by FAS 123, pro forma information regarding net income and earnings per share has been determined as if the company had accounted for its employee stock options under the fair value method of that statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 1996 and 1995, respectively: risk-free rates of 6.1% and 5.5%; dividend yields of 2.0% and 2.5%; volatility factors of the expected market price of the company's common stock of 0.16 and 0.17; and a weighted-average expected life of the option of 6.5 years for both. The weighted-average fair value of the stock options for the years 1996 and 1995 were $9.65 and $6.94, respectively. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the company's employee stock options have characteristics significantly different from those traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, the existing models, in management's opinion, do not necessarily provide a reliable single measure of the fair value of its employee stock options. 33 34 For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. In addition, the 15% discount in market value under the employees stock purchase plan is treated as compensation expense for pro forma purposes. The company's 1996 and 1995 pro forma information follows (in thousands, except for earnings per share information):
1996 1995 -------- ------- Net earnings $264,506 $158,472 Earnings per common and common equivalent share 2.72 1.58
The 1996 pro forma effect on net income is not necessarily representative of the effect in future years because it does not take into consideration pro forma compensation expense related to grants made prior to 1995. The exercise price of options outstanding at Dec. 29, 1996, ranged between $20.13 and $39.31. The weighted-average remaining contractual life of those options for 1996 and 1995, is 7.3 and 7.1 years, respectively. 4,305,845 and 5,323,930 options were exercisable at the end of 1996 and 1995, respectively. NOTE F - RETIREMENT PLANS The company and its subsidiaries have several company-administered noncontributory defined benefit plans covering most non-union employees. These plans provide benefits that are based on the employees' compensation during various times before retirement. The funding policy for these plans is to contribute annually an amount that is intended to provide the projected benefit earned during the year for the covered employees. The company also contributes to certain multi-employer union defined benefit plans, company-administered and jointly administered negotiated plans covering union employees. The funding policy for these plans is to make annual contributions in accordance with applicable agreements. The company also sponsors certain defined contribution plans established pursuant to Section 401(k) of the Internal Revenue Code. Subject to certain dollar limits, employees may contribute a percentage of their salaries to these plans, and the company will match a portion of the employees' contributions. A summary of the components of net periodic pension cost for the defined benefit plans (both company-administered non-negotiated and single-employer negotiated plans) is presented here, along with the total amounts charged to pension expense for multi-employer union defined benefit plans, defined contribution plans and other agreements (in thousands):
1996 1995 1994 --------- ---------- -------- Defined benefit plans: Service cost........ $ 27,916 $ 19,570 $23,699 Interest cost....... 56,698 51,725 48,559 Actual return on plan assets....... (106,651) (137,554) 20,553 Net amortization and deferral...... 43,681 84,042 (78,037) --------- --------- ------- Net............... 21,644 17,783 14,774 Multi-employer union plans......... 11,849 13,006 13,640 Defined contribution plans............... 10,838 11,030 10,415 Other.................. 1,416 1,808 2,129 --------- --------- ------- Net periodic pension cost...... $ 45,747 $ 43,627 $40,958 ========= ========= =======
Assumptions used each year in accounting for defined benefit plans were:
1996 1995 1994 ------ ------ ------ Discount rate as of year end.................. 7.5% 7.25% 8.5% Expected long-term rate of return on assets assumed in determining pension expense........... 8.5 8.5 8.0-8.5 Rate of increase in compensation levels as of year end............ 4.5 4.5 3.5-4.5
34 35 The following table sets forth the funded status and amounts recognized in the Consolidated Balance Sheet for the defined benefit plans (in thousands):
Dec. 29, 1996 Dec. 31, 1995 Dec. 25, 1994 ----------------------- ---------------------- ---------------------- Plans Whose Plans Whose Plans Whose Plans Whose Plans Whose Plans Whose Assets Accumulated Assets Accumulated Assets Accumulated Exceed Benefits Exceed Benefits Exceed Benefits Accumulated Exceed Accumulated Exceed Accumulated Exceed Benefits Assets Benefits Assets Benefits Assets (16 plans) (9 plans) (17 plans) (11 plans) (19 plans) (8 plans) ----------- ----------- ---------- ----------- ----------- ---------- Actuarial present value of benefit obligations: Vested benefit obligations ............. $601,284 $ 74,766 $ 564,319 $ 83,275 $ 459,237 $ 49,613 ======== ========= ========== ========= ========= ======== Accumulated benefit obligations ........ $612,444 $ 77,021 $ 574,642 $ 85,581 $ 468,205 $ 51,217 ======== ========= ========== ========= ========= ======== Projected benefit obligation ............. $709,412 $ 87,467 $ 672,691 $ 100,273 $ 539,832 $ 58,989 Plan assets at fair value ................ 810,102 49,809 717,475 55,019 612,776 32,380 -------- --------- ---------- --------- --------- -------- Projected benefit obligation less than (in excess of) plan assets ... 100,690 (37,658) 44,784 (45,254) 72,944 (26,609) Unrecognized net (gain) loss ............. (96,564) 11,704 (15,441) 15,032 (37,278) 1,220 Prior service cost not yet recognized in net periodic pension cost ........... 33,135 11,283 24,865 12,522 28,408 13,685 Unrecognized net (asset) obligation at the date FAS 87 was adopted, net of amortization .................... (18,592) 1,738 (23,689) 2,190 (29,122) 2,523 Adjustment required to recognize minimum liability ...................... (14,279) (18,071) (10,199) -------- --------- -------- --------- --------- -------- Net pension asset (liability) recognized in the Consolidated Balance Sheet ...... $ 18,669 $ (27,212) $ 30,519 $ (33,581) $ 34,952 $(19,380) ======== ========= ======== ======== ========= ========
Of the nine plans whose accumulated benefits exceed assets, four are qualified pension plans. These qualified plans have vested benefits of $50.5 million and assets of $49.8 million. Net pension assets are included in "Other" noncurrent assets and net pension liabilities are included in "Employment benefits and other noncurrent liabilities." Substantially all of the assets of the company-administered plans are invested in listed stocks and bonds. NOTE G - SEGMENT INFORMATION The company is a diversified information and communications company with two principal business segments: Newspapers and Business Information Services. Financial data regarding the company's business segments are presented in Item 1 and 2 Business/Properties. Operating revenue by industry segment includes sales to unaffiliated customers, as reported in the company's consolidated income statement. Operating income is operating revenue less operating expenses, including depreciation expense and amortization of intangibles. General corporate expenses are not allocated to the Newspaper or Business Information Services divisions. Equity in earnings of unconsolidated companies and joint ventures, minority interests in earnings of consolidated subsidiaries, interest income, net interest expense, other nonoperating income and expense items, as well as income taxes and the cumulative effect of change in accounting principle, have not been included in the amounts reflected as operating income by segment. Identifiable assets by segment are all assets employed in the individual operations of each business segment and excess of cost over net assets acquired associated with acquisitions in each segment. General corporate assets include cash and equivalents, other investments, net assets of unconsolidated companies and joint ventures (other than the Detroit Newspaper Agency, which is included in Newspaper Division assets), and property, plant and equipment used primarily for corporate purposes. Investments in unconsolidated companies and joint ventures are discussed in Notes A and D. 35 36 NOTE H - ACQUISITIONS AND DISPOSITIONS ACQUISITIONS 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., publishes four daily newspapers in contiguous Contra Costa and eastern Alameda County markets in the East Bay area of Northern California. Lesher was renamed Contra Costa Newspapers, Inc., (CCN) in November 1995. The fair value of assets acquired, not including goodwill, was $99.0 million and assumed liabilities totaled $107.7 million. Included in the assumed liabilities was $68.1 million of liabilities paid at closing. Goodwill and other intangibles of $276.4 million are being amortized over periods ranging from 15 to 40 years on the straight-line basis. The pro forma results listed below are unaudited and reflect purchase price accounting adjustments assuming the acquisition occurred at the beginning of each year presented (in thousands, except per share data).
1995 1994 ---------- ---------- Net sales ..................... $2,854,923 $2,744,623 Operating earnings ............ 243,754 336,470 Earnings before income taxes ................ 267,678 275,007 Net earnings .................. 161,700 161,765 Earnings per common and common equivalent share ..... 1.61 1.49
During October 1995, the company acquired 100% interest in The CARL Corporation, a leading provider of library automation services. The company also acquired a 100% interest in The UnCover Company, a joint partnership of The CARL Corporation and Blackwell Limited. All acquisitions were accounted for as purchases and, accordingly, the accompanying financial statements include the results of their operations from the acquisition dates. The acquisition cost of CCN in 1995 is included in the caption "Acquisition of Contra Costa Newspapers, Inc.," while the costs of the CARL and UnCover acquisitions in 1995 are included in the caption "Other items, net" in the "Cash Provided by (Required for) Investing Activities" section of the Consolidated Statement of Cash Flows. DISPOSITIONS 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. In November 1996, the company sold its investment in Netscape Communications Corporation, resulting in an after-tax gain of $7.3 million, net of adjustments in the carrying value of certain other investments. In January 1997, the company and Tele-Communications, Inc., closed on the previously announced sale of the company's interest in all but one of their jointly owned cable investments. The remaining systems, including Kentucky, account for a small portion of the original investment. That sale is expected to close later. The company expects to report an after-tax gain on the transaction of between $130 million and $150 million. The company expects the total sale to yield net after-tax proceeds of between $270 million and $280 million. On April 3, 1995, the company sold the Journal of Commerce (JoC) to the Economist Group of London for $115 million. The after-tax gain from the sale of the JoC was $53.8 million. NOTE I - POSTRETIREMENT BENEFITS OTHER THAN PENSIONS The company and its subsidiaries have defined postretirement benefit plans that provide medical and life insurance for retirees and eligible dependents. The company's postretirement benefit expense is determined under the provisions of FAS 106, Employers' Accounting for Postretirement Benefits Other Than Pensions. This statement requires that the cost of these benefits, which are primarily for health care and life insurance, be recognized in the financial statements throughout the employees' active working careers. The company valued the accumulated postretirement benefit obligation using the following assumptions:
1996 1995 1994 ---- ---- ---- Discount rate at the end of the year ............................... 7.5% 7.25% 8.5% Annual rate of increase in salaries ................................ 4.5 4.5 4.5 Medical trend rate: Projected ........................................................ 9.0 10.0 11.0 Reducing to this percentage in 2001 and thereafter ............... 5.5 5.5 5.5
36 37 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 investment caption "Equity in unconsolidated companies and joint ventures") and the components of 1996, 1995 and 1994 periodic expense (in thousands):
1996 1995 1994 ----------------------- -------------------- ------------------- Life Life Life Insurance Insurance Insurance Medical and Other Medical and Other Medical and Other Plans Plans Plans Plans Plans Plans ---------- ---------- -------- ---------- --------- ---------- Accumulated postretirement benefit obligation: Retirees.................................... $ 58,225 $13,519 $ 69,180 $13,313 $ 64,244 $11,194 Fully eligible active plan participants..... 12,476 5,202 16,935 5,500 11,673 4,467 Other active plan participants.............. 17,802 14,695 21,820 16,423 13,554 15,454 -------- ------- -------- ------- -------- ------- Accumulated benefit obligation in excess of plan assets.................... 88,503 33,416 107,935 35,236 89,471 31,115 Unrecognized net reduction (increase) in prior service costs...................... 27,693 (158) 31,723 (180) 35,752 (222) Unrecognized net gain (loss).................. 1,496 8,317 (10,623) 5,581 1,628 8,938 -------- ------- -------- ------- -------- ------- Accrued liability recognized in the balance sheet............................... $117,692 $41,575 $129,035 $40,637 $126,851 $39,831 ======== ======= ======== ======= ======== =======
Net periodic postretirement benefit cost includes the following components: Service cost.............................. $ 3,804 $ 4,477 $ 3,081 Interest cost............................. 11,334 11,909 11,203 Amortization.............................. (4,793) (5,303) (4,810) ------- ------- ------- Net periodic postretirement benefit cost.. $10,345 $11,083 $ 9,474 ======= ======= ======= Impact of 1% increase in medical trend rate: Aggregate impact on 1996 service cost and interest cost....................... $ 1,058 ======= Increase in Dec. 29, 1996, accumulated postretirement benefit obligation....... $ 6,160 =======
A pretax gain resulting from curtailments, settlements and special termination benefits under these plans was $8.6 million in 1996, which related primarily to restructuring of plans. NOTE J - COMMITMENTS AND CONTINGENCIES At Dec. 29, 1996, the company had lease commitments currently estimated to aggregate approximately $73.8 million that expire from 1997 through 2051 as follows (in thousands):
1997........................................... $18,888 1998........................................... 13,937 1999........................................... 11,374 2000........................................... 8,785 2001........................................... 6,356 2002 and thereafter............................ 14,447 ------- Total.......................................... $73,787 =======
Payments under the lease contracts were $25.1 million in 1996, $27.8 million in 1995, and $27.0 million in 1994. In connection with the company's insurance program, letters of credit are required to support certain projected worker compensation obligations. At Dec. 29, 1996, the company had approximately $40.3 million of undrawn letters of credit outstanding. In 1990, a verdict was rendered against the company's subsidiary, Philadelphia Newspapers, Inc. (PNI), publisher of The Philadelphia Inquirer and Philadelphia Daily News, in a libel action entitled Sprague v. Philadelphia Newspapers, Inc., for $2.5 million in compensatory damages and $31.5 million in punitive damages. On April 1, 1996, the libel action was settled. The settlement had no material impact on earnings. Various libel actions and environmental and other legal proceedings that have arisen in the ordinary course of business are pending against the company and its subsidiaries. In the opinion of management, the ultimate liability to the company and its subsidiaries as a result of these legal proceedings will not be material to the financial position or results of operations. 37 38 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. 29, 1996, Dec. 31, 1995, and Dec. 25, 1994, 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. 29, 1996, Dec. 31, 1995, and Dec. 25, 1994, and the consolidated results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. 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. 29, 1997 38 39 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 1996 Proxy Statement page 2, "Election of Directors"; page 3, "Nominees for Election as Directors for Terms Ending 2000; pages 4 and 5 "Continuing Directors"; pages 7 and 8, "Compensation Committee Interlocks and Insider Participation"; page 15, "Certain Relationships"; page 15, "Section 16(a) Beneficial Ownership Reporting Compliance". KNIGHT-RIDDER EXECUTIVE COMMITTEE Alvah H. Chapman Jr., 75 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; Miami Herald general manager 1962 to 1969. B.S., business administration, The Citadel, 1942. Mary Jean Connors, 44 Senior vice president/human resources since October; 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, 65 President since 1995. Served as executive vice president 1994 to 1995; senior vice president 1987 to 1993; general counsel 1980 to 1993. Formerly a partner with Hughes Hubbard & Reed. LL.B., Harvard Law School, 1956; B.A., political science, University of Michigan, 1953. Ross Jones, 54 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. M.B.A., finance, Columbia University Business School, 1970; B.A., classics, Brown University, 1965. Frank McComas, 51 Senior vice president/operations since September; 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., 80 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. P. Anthony Ridder, 56 Chairman of 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. 39 40 OTHER OFFICERS MARTY CLAUS, 48 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, 40 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, 48 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, 57 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, 54 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, the Detroit Free Press and Washington Bureau. B.A., English literature, Columbia College, 1964. ROBERT D. INGLE, 57 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, 41 Vice president/operations since August; 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. POLK LAFFOON IV, 51 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, 46 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, 43 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, 50 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, 50 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. 40 41 JEROME S. TILIS, 54 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. ITEM 11. EXECUTIVE COMPENSATION 1996 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"; page 13, "Pension Benefits"; page 14 "Performance of the Company's Stock"; and page 15, "Compensation of Directors" ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 1996 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 1996 Proxy Statement page 15, "Certain Relationships"; Page 3 "Nominees for Election as Directors for Terms Ending 2000"; Pages 4 and 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 29, 1996, are included in Item 8: Consolidated Balance Sheet - December 29, 1996, December 31, 1995 and December 25, 1994 Consolidated Statement of Income - Years ended December 29, 1996, December 31, 1995 and December 25, 1994 Consolidated Statement of Cash Flows - Years ended December 29, 1996, December 31, 1995 and December 25, 1994 Consolidated Statement of Shareholders' Equity - Years ended December 29, 1996, December 31, 1995 and December 25, 1994 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. 3. Exhibits No. 3 - Articles of Incorporation and Bylaws are incorporated by reference to the Company's Form 10-K filed in March 1981. 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.
41 42 No. 10 - Knight-Ridder Annual Incentive Plan description is incorporated by reference to the Company's Form 10-K filed electronically on March 24, 1995. - Amendment to the Employee Stock Option Plan is incorporated by reference to the Company's Form 10-K filed electronically on March 23, 1994. - Director's Pension Plan dated January 1, 1994 is incorporated by reference to the Company's Form 10-K filed electronically 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 electronically 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 electronically 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 electronically March 24, 1995. - Knight-Ridder local Incentive Plan description is incorporated by reference to the Company's Form 10-K filed electronically on March 20, 1996. No. 11 - Statement re Computation of Per Share Earnings is filed herein on page 48. No. 12 - Statement re Computation of Earnings to Fixed Charges Ratio From Continuing Operations is filed herein on page 49. No. 21 - Subsidiaries of the registrant is filed herein on page 50. No. 23 - "Consent of Independent Certified Public Accountants" is filed herewith on page 51. No. 24 - "Power of Attorneys" for M. Kenneth Oshman filed herein on page 52. "Power of Attorneys" for James I. Cash, Jr. is incorporated by reference to the Company's Form 10-K filed electronically on March 20, 1996. "Power of Attorneys" for all other members of the Board of Directors is incorporated by reference to the Company's Form 10-K filed electronically on March 24, 1995. No. 27 - "Financial Data Schedule" is filed herein on page 53.
(b) Reports on Form 8-K filed during the fourth quarter of 1996: No reports were filed on Form 8-K during the quarter ended December 29, 1996. Form 8-K dated January 10, 1997 Item 2. Disposition of Assets Item 7. Financial Statements and Exhibits; proforma 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. 42 43 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. Dated March 10, 1997 /s/ P. Anthony Ridder - ------------------------- ---------------------------------------- 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. Dated March 10, 1997 /s/ P. Anthony Ridder - ------------------------- ---------------------------------------- P. Anthony Ridder Chairman and Chief Executive Officer Dated March 10, 1997 /s/ Ross Jones - ------------------------- ---------------------------------------- Ross Jones Chief Financial Officer and Senior Vice President/Finance Dated March 10, 1997 /s/ Gary R. Effren - ------------------------- ---------------------------------------- Gary R. Effren Vice President/Controller (Chief Accounting Officer) 43 44 /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 44 45 /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 10, 1997 * By Ross Jones - ------------------------- ---------------------------------------- Ross Jones Attorney-in-fact 45 46 ANNUAL REPORT ON FORM 10-K ITEM 14 (a)(2), (c) and (d) SUPPLEMENTARY DATA CERTAIN EXHIBITS YEAR ENDED DECEMBER 29, 1996 KNIGHT-RIDDER, INC. AND SUBSIDIARIES MIAMI, FLORIDA 46 47 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 - ----------- ---------- -------- -------- ---------- --------- YEAR ENDED DECEMBER 29, 1996: RESERVES AND ALLOWANCES DEDUCTED FROM ASSET ACCOUNT: ACCOUNTS RECEIVABLE ALLOWANCES $ 14,348 $ 21,412 $ 23,075 (1) $ 12,685 VALUATION ALLOWANCE FOR DEFERRED TAXES 1,357 - 1,357 --------- --------- -------- --------- --------- $ 15,705 $ 21,412 $ 23,075 $ 14,042 YEAR ENDED DECEMBER 31, 1995: RESERVES AND ALLOWANCES DEDUCTED FROM ASSET ACCOUNT: ACCOUNTS RECEIVABLE ALLOWANCES $ 13,728 $ 20,129 $ 19,509 (1) $ 14,348 VALUATION ALLOWANCE FOR DEFERRED TAXES 3,985 - 2,628 (2) 1,357 --------- --------- -------- --------- --------- $ 17,713 $ 20,129 $ 22,137 $ 15,705 YEAR ENDED DECEMBER 25, 1994: RESERVES AND ALLOWANCES DEDUCTED FROM ASSET ACCOUNT: ACCOUNTS RECEIVABLE ALLOWANCES $ 14,554 $ 17,818 $ 18,644 (1) $ 13,728 VALUATION ALLOWANCE FOR DEFERRED TAXES 3,985 - - 3,985 --------- --------- -------- --------- --------- $ 18,539 $ 17,818 $ 18,644 $ 17,713
(1) Represents uncollectible accounts written-off, net of recoveries. (2) Represents net reduction in valuation allowance which was determined to no longer be required. 47 EX-11 2 COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 11 COMPUTATION OF PER SHARE EARNINGS (IN THOUSANDS, EXCEPT PER SHARE DATA)
Year Ended ------------------------------------------------- Dec. 29, Dec. 31, Dec. 25, 1996 1995 1994 PRIMARY ---- ---- ---- Average shares outstanding* 96,021 99,452 107,888 Net effect of dilutive stock options - based upon the Treasury Stock method using the average market price* 1,399 744 663 -------- -------- -------- TOTAL* 97,420 100,196 108,551 ======== ======== ======== Income before cumulative effect of change in accounting principle $267,873 $167,382 $170,900 Cumulative effect of change in accounting principle for contributions (7,320) -------- -------- -------- NET INCOME $267,873 $160,062 $170,900 ======== ======== ======== Earnings per Common and Common Equivalent Share Income before cumulative effect of change in accounting principle* $ 2.75 $ 1.67 $ 1.57 Cumulative effect of change in accounting principle for contributions* (0.07) -------- -------- -------- NET INCOME PER SHARE* $ 2.75 $ 1.60 $ 1.57 ======== ======== ======== FULLY DILUTED Average shares outstanding* 96,021 99,452 107,888 Net effect of dilutive stock options - based upon Treasury Stock method using the higher of quarter-end or average market price* 1,517 906 730 -------- -------- -------- TOTAL* 97,538 100,358 108,618 ======== ======== ======== Income before cumulative effect of change in accounting principle $267,873 $167,382 $170,900 Cumulative effect of change in accounting principle for contributions (7,320) -------- -------- -------- NET INCOME $267,873 $160,062 $170,900 ======== ======== ======== Earnings per Common and Common Equivalent Share Income before cumulative effect of changes accounting principle for contributions* $ 2.75 $ 1.67 $ 1.57 Cumulative effect of change in accounting principle for contributions* (0.07) -------- -------- -------- NET INCOME PER SHARE* $ 2.75 $ 1.60 $ 1.57 ======== ======== ========
* Average shares outstanding and earnings per common equivalent share have been restated to reflect a two-for-one stock split in the form of a 100% stock dividend, effected July 31, 1996. 48 EX-12 3 COMPUTATION OF EARNINGS TO FIXED CHARGES 1 EXHIBIT 12 COMPUTATION OF EARNINGS TO FIXED CHARGES RATIO FROM CONTINUING OPERATIONS (IN THOUSANDS OF DOLLARS, EXCEPT RATIO DATA)
YEAR ENDED --------------------------------------------------------------------------- December 29 December 31 December 25 December 26 December 27 1996 1995 1994 1993 1992 ----------- ----------- ----------- ----------- ----------- FIXED CHARGES COMPUTATION INTEREST EXPENSE: NET INTEREST EXPENSE $ 66,899 $ 57,683 $ 44,111 $ 44,992 $ 37,629 PLUS CAPITALIZED INTEREST 6,397 1,889 474 120 14,746 ----------- ----------- ----------- ----------- ----------- GROSS INTEREST EXPENSE 73,296 59,572 44,585 45,112 52,375 PROPORTIONATE SHARE OF INTEREST EXPENSE OF 50% OWNED PERSONS 17,941 13,824 12,351 13,608 15,546 INTEREST COMPONENT OF RENT EXPENSE 9,687 11,290 11,118 9,888 9,826 ----------- ----------- ----------- ----------- ----------- TOTAL FIXED CHARGES $ 100,924 $ 84,686 $ 68,054 $ 68,608 $ 77,747 =========== =========== =========== =========== =========== EARNINGS COMPUTATION PRETAX EARNINGS $ 466,608 $ 287,796 $ 290,070 $ 243,401 $ 239,715 ADD: FIXED CHARGES 100,924 84,686 68,054 68,608 77,747 LESS: CAPITALIZED INTEREST (6,397) (1,889) (474) (120) (14,746) LESS: DISTRIBUTIONS IN EXCESS OF (LESS THAN) EARNINGS OF INVESTEES (12,962) (9,285) (4,287) (4,226) (1,216) ----------- ----------- ----------- ----------- ----------- TOTAL EARNINGS AS ADJUSTED $ 548,173 $ 361,308 $ 353,363 $ 307,663 $ 301,500 =========== =========== =========== =========== =========== RATIO OF EARNINGS TO FIXED CHARGES 5.4:1 4.3:1 5.2:1 4.5:1 3.9:1 =========== =========== =========== =========== ===========
49 EX-21 4 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT
State/Country Company Name of Incorporation - ------------ ---------------- Knight-Ridder, Inc. Florida Aberdeen News Company Delaware The Beacon Journal Publishing Company Ohio Boca Raton News, Inc. Florida Boulder Publishing, Inc. Colorado The Bradenton Herald, Inc. Florida Circom Corporation Pennsylvania Contra Costa Newspapers, Inc. California Destination Florida Florida (partnership) Detroit Free Press, Incorporated Michigan Detroit Newspaper Agency Michigan (partnership) Drinnon, Inc. Georgia The Gables Publishing Company Florida 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) KR Publication Services, Inc. Delaware KR U.S.A., 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 Knight-Ridder Information, Inc. California Article Express International, Inc. Delaware CARL Corporation Colorado Carl Systems Data Retrieval, Inc. Colorado The UnCover Company Colorado (partnership) Dialog Information Europe, Inc. California Dialog Information Services Europe, Ltd. England Infomart/DIALOG Ltd. Canada KMK DigiTex Company Ltd. Japan Knight-Ridder Compania de Servicios, S.A. de C.V. Mexico Knight-Ridder Information, AB Sweden Knight-Ridder Information A.G. Switzerland Knight-Ridder Information A./S Denmark Knight-Ridder Information GmbH Germany Knight-Ridder Information, Ltd. England Knight-Ridder Information Nova KK Japan Knight-Ridder Information S.A. Belgium Knight-Ridder Informacion, S.A. de C.V. Mexico Knight-Ridder Information SARL France Knight-Ridder Information S.r.l. Italy Technimetrics, Inc. Delaware Grabill-Bloom, Inc. Illinois Knight-Ridder Cablevision, Inc. Florida KRC-NJFT, Inc. Delaware KRC-SNJ, Inc. Delaware KRC-CCC Colorado (partnership) TKR Cable Company Colorado (partnership) TKR Cable Partners Colorado (partnership) TCI-TKR L.P. Colorado (partnership) Knight-Ridder International, Inc. Delaware Knight-Ridder Investment Company Delaware Knight-Ridder Leasing Company Florida Seattle Times Company 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 * Newberry Publishing Company, Inc. South Carolina New Media Center, Inc. Delaware 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 Philadelphia Online, Inc. Delaware Post-Tribune Publishing, Inc. Indiana Press-Telegram Publications, Inc. California P.T. Sales and Marketing, Inc. California The R.W. Page Corporation Georgia Ridder Publications, Inc. Delaware KR Land Holding Corporation Delaware The UnCover Company Colorado (partnership) San Jose Mercury News, Inc. California Silicon Valley D.A.T.A., Inc. California The State-Record 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
* indicates that the subsidiary listed is a division, not a legal entity. 50 EX-23 5 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT 1 EXHIBIT 23 Consent of Independent Certified Public Accountants We consent to the incorporation by reference in Registration Statement No. 33-11021 on From 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 of Knight-Ridder, Inc. and in the related Prospectuses, of our report dated January 29, 1997, 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 29, 1996. /s/ Ernst & Young LLP --------------------- Miami, Florida March 10, 1997 51 EX-24 6 POWER OF ATTORNEY 1 EXHIBIT 24 POWER OF ATTORNEY The undersigned member of the Board of Directors of Knight-Ridder, Inc. hereby constitutes and appoints John C. Fontaine, Ross Jones, and Gary R. Effren and each of them severally, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities to sign any and all Reports on Form 10-K (Annual Report pursuant to the Securities Exchange Act of 1934) and any amendments thereto, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. /s/ M. Kenneth Oshman Date: January 28, 1997 - ------------------------ -------------------------- M. Kenneth Oshman 52 EX-27 7 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED STATEMENT OF INCOME, THE CONSOLIDATED BALANCE SHEET, AND THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-29-1996 JAN-01-1996 DEC-29-1996 22,880 0 368,764 12,685 42,941 565,727 1,660,186 757,722 2,900,310 544,570 456,518 0 0 1,945 1,129,563 2,900,310 2,774,843 2,774,843 472,207 2,439,925 (131,690) 21,412 73,296 466,608 198,735 267,873 0 0 0 267,873 2.75 2.75 COST OF GOODS SOLD CONSISTS OF NEWSPRINT, INK AND SUPPLEMENTS. OTHER EXPENSES CONSIST OF ALL NON-OPERATING COSTS NET, EXCLUDING INCOME TAXES. AMOUNT INCLUDES INTEREST EXPENSE NET OF INTEREST INCOME AND OTHER NON-OPERATING COSTS, NET OF NON-OPERATING INCOME. INCLUDES PRETAX GAIN OF $155.9 MILLION ON THE SALE OF KNIGHT RIDDER FINANCIAL.
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