-----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, AB2WKR8tEiIXS7OBhmusNjjZqpLlQ5SVIggJlVm26KnqvFbwPKlll7k71n7T7UKJ 7AbSt4QfktOytL5KTExazA== 0000950144-97-009245.txt : 19970912 0000950144-97-009245.hdr.sgml : 19970912 ACCESSION NUMBER: 0000950144-97-009245 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970629 FILED AS OF DATE: 19970812 DATE AS OF CHANGE: 19970829 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: 2711 IRS NUMBER: 380723657 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 001-07553 FILM NUMBER: 97662798 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-Q/A 1 KNIGHT-RIDDER, INC. FORM 10-Q/A DATED 06/29/97 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q/A QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR QUARTER ENDED: JUNE 29, 1997 COMMISSION FILE NUMBER: 1-7553 KNIGHT-RIDDER, INC. --------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) FLORIDA 38-0723657 -------------------------------------------------------------------------- (State of Incorporation) (I.R.S. Employer Identification No.) ONE HERALD PLAZA, MIAMI, FLORIDA 33132 ------------------------------------------------------------------------- (Address of principal executive offices) (305) 376-3800 --------------------------------------------------------------------------- (Registrant's telephone number, including area code) NOT APPLICABLE ---------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date. Common Stock, $.02 1/12 Par Value - - - 87,425,496 shares as of August 7, 1997. 1 2 Table of Contents for Form 10-Q/A PAGE ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Consolidated Statement of Income 3 Consolidated Balance Sheet 4 Consolidated Statement of Cash Flows 5 Notes to Consolidated Financial Statements 6-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9-12 PART II. OTHER INFORMATION Item 1. Legal Proceedings 13 Item 6. Exhibits and Reports on Form 8-K 13 SIGNATURE 14 EXHIBITS 15-23 3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF INCOME (UNAUDITED, IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
Quarter Ended Two Quarters Ended Four Quarters Ended -------------------- -------------------- -------------------- June 29 June 30 June 29 June 30 June 29 June 30 1997 1996 1997 1996 1997 1996 ------- ------- ------- ------- ------- ------- OPERATING REVENUE Advertising Retail $240,612 $200,651 $433,979 $382,702 $873,045 $808,584 General 61,410 51,101 112,908 97,337 214,368 185,531 Classified 245,211 197,687 453,727 393,253 833,333 733,460 -------- -------- --------- --------- --------- --------- Total 547,233 449,439 1,000,614 873,292 1,920,746 1,727,575 Circulation 139,616 125,837 266,471 252,691 515,606 502,368 Other 31,045 24,770 57,208 48,878 106,169 100,082 -------- -------- --------- --------- --------- --------- Total Operating Revenue 717,894 600,046 1,324,293 1,174,861 2,542,521 2,330,025 -------- -------- --------- --------- --------- --------- OPERATING COSTS Labor and employee benefits 282,367 243,589 534,858 489,754 1,021,246 989,745 Newsprint, ink and supplements 110,109 127,643 203,573 254,163 421,616 498,222 Other operating costs 147,750 119,785 279,064 242,505 523,049 519,293 Depreciation and amortization 40,038 29,924 70,984 59,828 134,755 111,055 -------- -------- --------- --------- --------- --------- Total Operating Costs 580,264 520,941 1,088,479 1,046,250 2,100,666 2,118,315 -------- -------- --------- --------- --------- --------- OPERATING INCOME 137,630 79,105 235,814 128,611 441,855 211,710 -------- -------- --------- --------- --------- --------- OTHER INCOME (EXPENSE) Interest expense (23,751) (19,064) (38,657) (38,666) (73,129) (73,305) Interest expense capitalized 1,356 1,384 3,148 2,579 6,967 3,858 Interest income 248 1,894 685 4,250 2,925 8,656 Equity in earnings of unconsolidated companies and joint ventures 2,905 8,815 3,773 16,570 17,071 28,887 Minority interests in earnings of consolidated subsidiaries (2,738) (2,511) (5,397) (4,085) (10,605) (8,462) Other, net (2,576) 675 216,551 764 230,988 626 -------- -------- --------- --------- --------- --------- Total (24,556) (8,807) 180,103 (18,588) 174,217 (39,740) -------- -------- --------- --------- --------- --------- Income before income taxes 113,074 70,298 415,917 110,023 616,072 171,970 Income taxes 51,777 28,566 179,149 45,419 260,034 69,684 -------- -------- --------- --------- --------- --------- Income from continuing operations 61,297 41,732 236,768 64,604 356,038 102,286 Net gain on sale of discontinued BIS operations (Note 3) 86,255 Income/(loss) from discontinued BIS operations, net (Note 3) 621 (738) 1,266 (4,261) 1,174 -------- -------- --------- --------- --------- --------- Net income $61,297 $42,353 $236,030 $65,870 $438,032 $103,460 ======== ======== ========= ========= ========= ========= EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE Income from continuing operations $0.61 $0.42 $2.42 $0.65 $3.68 $1.04 Net gain on sale of discontinued BIS operations (Note 3) 0.89 Income/(Loss) from discontinued BIS operations (Note 3) 0.01 (0.01) 0.01 (0.04) 0.01 -------- -------- --------- --------- --------- --------- Net income $0.61 $0.43 $2.41 $0.66 $4.53 $1.05 ======== ======== ========= ========= ========= ========= DIVIDENDS DECLARED PER COMMON SHARE $0.20 $0.20 $0.40 $0.38 1/2 $0.60* $0.75 1/2 ======== ======== ========= ========= ========= ========= AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING (000s) 100,777 99,014 97,730 98,980 96,795 98,714 ======== ======== ========= ========= ========= =========
* The Board of Directors declared a $.20 per share dividend on January 28, 1997. The quarterly dividend usually paid in January was paid on February 24, 1997, to shareholders of record as of the close of business on February 12, 1997. See "Notes to Consolidated Financial Statements." 3 4 CONSOLIDATED BALANCE SHEET (UNAUDITED, IN THOUSANDS OF DOLLARS EXCEPT SHARE DATA)
June 29 Dec. 29 June 30 1997 1996 1996 ------- ------- ------- ASSETS CURRENT ASSETS Cash, including short-term cash invest- ments of $50 in June 1997, December 1996, and June 1996 $ 28,558 $ 22,880 $ 31,230 Accounts receivable, net of allowances of $16,868 in 1997, $12,685 in December 1996 and $14,875 in June 1996 410,451 356,079 356,409 Inventories 62,080 42,941 76,717 Prepaid Expense 25,497 90,314 20,704 Other current assets 45,446 53,513 66,554 ---------- ---------- ---------- Total Current Assets 572,032 565,727 551,614 ---------- ---------- ---------- INVESTMENTS AND OTHER ASSETS Equity in unconsolidated companies and joint ventures 189,630 330,267 332,926 Net assets of discontinued BIS operations (Note 3) 351,981 357,351 454,250 Other 291,114 133,909 162,628 ---------- ---------- ---------- Total Investments and Other Assets 832,725 821,527 949,804 ---------- ---------- ---------- PROPERTY, PLANT AND EQUIPMENT Land and improvements 88,635 77,526 77,596 Buildings and improvements 453,170 387,509 388,106 Equipment 1,203,192 996,703 1,001,616 Construction and equipment installations in progress 151,899 110,590 103,441 ---------- ---------- ---------- 1,896,896 1,572,328 1,570,759 Less accumulated depreciation 870,944 702,141 696,676 ---------- ---------- ---------- Net Property, Plant and Equipment 1,025,952 870,187 874,083 ---------- ---------- ---------- EXCESS OF COST OVER NET ASSETS ACQUIRED AND OTHER INTANGIBLES Less accumulated amortization of $170,638 in 1997, $153,530 in December 1996 and $143,391 in June 1996 2,313,581 636,882 629,013 ---------- ---------- ---------- TOTAL $4,744,290 $2,894,323 $3,004,514 ========== ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 156,212 $ 223,962 $ 134,073 Accrued expenses and other liabilities 106,302 103,730 112,408 Accrued compensation and amounts withheld from employees 105,056 96,426 90,219 Federal and state income taxes 66,011 Deferred revenue 86,867 70,452 72,816 Dividend payable 19,315 Short-term borrowings and current portion of long-term debt 50,000 49,922 ---------- ---------- ---------- Total Current Liabilities 520,448 544,570 478,753 ---------- ---------- ---------- NONCURRENT LIABILITIES Long-term debt 1,829,280 771,335 1,004,134 Deferred federal and state income taxes 349,736 173,259 149,594 Postretirement benefits other than pensions 155,222 158,820 170,322 Employment benefits and other noncurrent liabilities 124,168 112,784 104,776 ---------- ---------- ---------- Total Noncurrent Liabilities 2,458,406 1,216,198 1,428,826 ---------- ---------- ---------- MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES 1,758 2,047 1,125 ---------- ---------- ---------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY Preferred Stock, $1.00 par value; shares authorized - 2,000,000; shares issued - 1,754,930 in 1997 and 0 in December 1996, and June 1996 1,755 Common Stock, $0.2 1/12 par value; shares authorized - 250,000,000; shares issued - 88,007,596 in 1997, 93,340,652 in December 1996 and 96,756,312 in June 1996 1,833 1,945 1,008 Common stock dividend distributable 1,008 Additional capital 942,800 308,320 330,490 Retained earnings 813,780 819,572 736,816 Unrealized gains on investments 3,510 1,671 26,488 ---------- ---------- ---------- Total Shareholders' Equity 1,763,678 1,131,508 1,095,810 ---------- ---------- ---------- TOTAL $4,744,290 $2,894,323 $3,004,514 ========== ========== ==========
See "Notes to Consolidated Financial Statements." 4 5 CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED, IN THOUSANDS OF DOLLARS)
Quarter Ended Two Quarters Ended Four Quarters Ended ------------------------- ------------------------ ------------------------ June 29 June 30 June 29 June 30 June 29 June 30 1997 1996 1997 1996 1997 1996 ----------- ----------- ----------- ----------- ----------- ----------- CASH PROVIDED BY (REQUIRED FOR) OPERATING ACTIVITIES Net income $ 61,297 $ 42,353 $ 236,030 $ 65,870 $ 438,032 $ 103,460 Noncash items deducted from (included in) income: Gain on sale of investee (Note 2) (221,801) (221,801) Net gain on sale of discontinued BIS operations (Note 3) (86,255) Gains on sales of securities available for sale (7,153) (5,535) (5,535) Depreciation 23,542 21,242 45,161 42,619 90,059 80,326 Amortization of excess of cost over net assets acquired 12,205 4,851 17,109 9,627 27,088 16,541 Amortization of other assets 4,291 3,831 8,714 7,582 17,608 14,188 Provision for noncurrent deferred taxes 24 (2,849) 414 (2,899) (27,539) 1,553 Earnings of investees in excess of distributions (1,770) (9,387) (4,149) (13,442) (12,000) (32,573) Other items, net 15,079 6,779 22,358 13,088 8,914 38,701 Change in certain assets and liabilities: Accounts receivable (20,921) (7,439) (3,425) (4,732) (41,601) (18,803) Inventories (4,335) 16,826 (9,707) (3,102) 23,869 (23,089) Other current assets 9,101 (25,618) 10,825 (20,486) (56,908) (5,266) Accounts payable (4,560) 15,000 (92,563) 6,525 (12,837) (8,323) Federal and state income taxes (47,638) 0 66,011 (195) 67,178 (52,805) Other liabilities 5,205 17,046 (1,258) (6,153) (4,931) 18,485 ---------- ---------- ---------- ---------- ---------- ---------- Net Cash Provided by Operating Activities 44,367 82,635 68,184 94,302 203,341 132,395 ---------- ---------- ---------- ---------- ---------- ---------- CASH PROVIDED BY (REQUIRED FOR) INVESTING ACTIVITIES Proceeds from sale of investee 130,654 130,654 Proceeds from sale of discontinued BIS operations (Note 3) 271,859 Change in net non-current assets of discontinued BIS operations (Note 3) (1,070) (2,190) 4,299 491 3,607 (2,203) Acquisition of Contra Costa Newspapers, Inc. (335,755) Proceeds from sales of securities available for sale 113,394 130,979 130,979 Additions to property, plant and equipment (32,695) (31,103) (60,661) (69,681) (103,876) (139,672) Other items, net 1,667 33,767 (2,867) 28,735 15,040 18,877 ---------- ---------- ---------- ---------- ---------- ---------- Net Cash Provided by (Required for) Investing Activity 81,296 474 202,404 (40,455) 448,263 (458,753) ---------- ---------- ---------- ---------- ---------- ---------- CASH PROVIDED BY (REQUIRED FOR) FINANCING ACTIVITIES Proceeds from sale of commercial paper and senior notes payable 257,968 171,084 326,716 333,623 594,103 1,066,664 Reduction of total debt (125,427) (171,202) (308,989) (293,417) (809,097) (546,817) ---------- ---------- ---------- ---------- ---------- ---------- Net Change in Total Debt 132,541 (118) 17,727 40,206 (214,994) 519,847 Payment of cash dividends (18,363) (18,155) (36,976) (36,133) (75,105) (72,342) Sale of common stock to employees 15,390 14,035 35,003 47,270 59,935 105,115 Purchase of treasury stock (237,993) (67,309) (263,726) (74,376) (411,118) (178,597) Other items, net (13,232) (19,407) (16,938) (25,596) (12,994) (39,490) ---------- ---------- ---------- ---------- ---------- ---------- Net Cash Provided by (Required for) Financing Activities (121,657) (90,954) (264,910) (48,629) (654,276) 334,533 ---------- ---------- ---------- ---------- ---------- ---------- Net Increase (Decrease) in Cash 4,006 (7,845) 5,678 5,218 (2,672) 8,175 Cash and short-term cash investments at beginning of the period 24,552 39,075 22,880 26,012 31,230 23,055 ---------- ---------- ---------- ---------- ---------- ---------- Cash and short-term cash investments at end of the period $ 28,558 $ 31,230 $ 28,558 $ 31,230 $ 28,558 $ 31,230 ========== ========== ========== ========== ========== ========== Working capital at end of the period $ 51,584 $ 72,861 $ 51,584 $ 72,861 $ 51,584 $ 72,861 ========== ========== ========== ========== ========== ========== SUPPLEMENTAL CASH FLOW INFORMATION: Non cash investing activities (Note 2) Securities received as proceeds on the sale of investee $ 229,163 $ 229,163 Non cash financing activities (Note 2) Issuance of preferred stock for the acquisition of the Disney newspapers Preferred Stock $ 1,755 1,755 1,755 Additional Capital 658,245 658,245 658,245 Long-term debt assumed on the acquisition of the Disney newspapers 990,000 990,000 990,000
See "Notes to Consolidated Financial Statements". 5 6 Notes to Consolidated Financial Statements (Unaudited) NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the quarter, two quarters, and four quarters ended June 29, 1997 are not necessarily indicative of the results that may be expected for the year ending December 28, 1997. For further information, refer to the consolidated financial statements and footnotes thereto included in the Registrant Company and Subsidiaries' annual report on form 10-K for the year ended December 29, 1996. Certain amounts in 1996 have been reclassified to conform to the 1997 presentation, see Note 3. NOTE 2 ACQUISITIONS AND DISPOSITIONS On May 9, 1997, the company completed the acquisition of Media through the merger of a wholly owned subsidiary with and into Media. Media which was indirectly owned by The Walt Disney Company, owns four newspapers located in Belleville, Illinois, Kansas City, Missouri, Wilkes-Barre, Pennsylvania and Fort-Worth, Texas. The company intends to continue to manage and operate Media as a newspaper company. The four newspapers have combined daily and Sunday circulation of 630,000 and 898,000, respectively. The acquisition was accounted for under the purchase method. The purchase price of $1.65 billion was allocated, based on preliminary allocations, to the estimated fair market value of tangible and intangible net assets of Media. Identified intangible net assets of Media were approximately $350 million. The excess of purchase price over these net assets of Media of approximately $1.36 billion, has been recorded as goodwill and will be amortized on a straight-line basis over 40 years. Pursuant to the merger, the company issued 1,754,930 shares of its Series B convertible preferred stock. Each share of preferred stock is convertible into 10 shares of Common Stock. At the effective time of the merger, Media had $990 million of bank debt which was assumed by the company. The proforma results of operations (as though the acquisition had occurred at the beginning of the fiscal year) for the current and prior year to date periods ended in June (in thousands of dollars, except share data) are as follows: SIX MONTH PERIODS ENDED ----------------------- JUNE 29, 1997 JUNE 30, 1996 ------------- ------------- Revenue $1,563,604 $1,415,684 Net earnings 234,551 54,739 Net earnings per common and common share equivalent $ 2.12 $ 0.47 Average common and common equivalent shares outstanding (000's) 110,892 116,529 On January 10, 1997, the company closed on the sale of the company's interest in all but one of the jointly owned cable properties with TeleCommunications, Inc. (TCI). The sale of the remaining cable property is expected to close later. 6 7 NOTE 3. DISCONTINUED OPERATIONS On April 4, 1997, Knight-Ridder, Inc. announced that it will divest Knight-Ridder Information, Inc. (KRII). The announcement resulted in the former Business Information Service (BIS) Division (except Technimetrics) being reclassified as discontinued operations. The net non-current assets and liabilities of the former BIS Division (except Technimetrics) have been classified in the consolidated Balance Sheets as net assets of discontinued BIS operations. The accompanying Statement of Income and Statement of Cash Flows have also been reclassified to present the former BIS Division (except Technimetrics) as discontinued operations. Although the ultimate sales price can not presently be determined, the sale of KRII is expected to result in a gain and should be completed by year end. NOTE 4 - DEBT
(In Thousands of Dollars) Effective Interest Balance At Rate At ----------------------------------------------- June 29 June 29 Dec. 29 June 30 1997 1997 1996 1996 ---------- ----------- --------- ------------ Commercial paper, net of discount 5.9% $382,543 $364,817 $597,780 Debenture (a) 6.0 990,000 Debentures, net of discount (b) 10.0 198,051 197,968 197,864 Notes payable, net of discount (c) 8.5 159,531 159,445 159,359 Senior notes, net of discount (d) 6.4 99,155 99,105 99,053 ---------- -------- ---------- Total Debt (e) 6.6 1,829,280 821,335 1,054,056 Less amounts classified as current 50,000 49,922 ---------- -------- ---------- Total long-term debt 6.6% $1,829,280 $771,335 $1,004,134 ========== ======== ==========
(a) Represents $990 million advance under a $1.2 billion credit agreement with a variable interest rate indexed to Libor plus 27 1/2 basis points due in 1999, see Note 2. (b) Represents $200 million of a 20-year 9 7/8% debenture due in 2009. (c) Represents $160 million of a 8 1/2% notes subject to mandatory pro rata amortization of 25% annually commencing 1998 through maturity in 2001. (d) Represents $100 million of 10 year 6.3% senior notes due in 2005. (e) At June 29, 1997, and June 30, 1996, interest payments of $ 30.1 million and $37.7 million had been made for the year-to-date, respectively. NOTE 5 - INCOME TAX PAYMENTS Income tax payments for the two quarters ended June 29, 1997 and June 30, 1996, were $107.1 million and $42.7 million, respectively. 7 8 NOTE 6 - COMMITMENTS AND CONTINGENCIES On July 13, 1995, six unions struck the Detroit Free Press, The Detroit News and the Detroit Newspaper Agency, which operates both newspapers. Subsequently, the unions filed numerous unfair labor practice charges against the newspapers and the Agency. In June, 1997, after a lengthy trial, a National Labor Relations Board Administrative Law Judge ruled that the strike was triggered by the unfair labor practices of the Agency and The Detroit News. The Judge recommended that the Agency and the newspapers reinstate all former strikers, displacing permanent replacements if necessary. The Agency and the newspapers already have filed their appeal of the decision. In the opinion of management, the ultimate liability to the Company and its subsidiaries, if any, as a result of this and related legal proceedings will not be material to their financial position or results of operations. 8 9 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE SECOND QUARTER SECOND QUARTER 1997 COMPARED WITH SECOND QUARTER 1996 Earnings per share from continuing operations for the second quarter of 1997 were $.61, up $.19 per share, or 45.2%, from the $.42 per share earned in 1996. These numbers include results from four newspapers acquired from The Walt Disney Company on May 9, 1997. They exclude results, for both years, for the Business Information Services Division (BIS) (except Technimetrics), pending the sale of Knight-Ridder Information, Inc. (KRII). The results have been reclassified as Discontinued Operations. Technimetrics' revenue is consolidated in the "other revenue" line. Earnings per share from continuing operations for the first two quarters of 1997 were $1.11, excluding the $1.31 gain on the sale of our cable investment, up $.46, or 70.8%, from the $.65 reported in the prior year. Net income from continuing operations in the second quarter of 1997 was $61.3 million, up $19.6 million, or 46.9% from the same period last year, on an operating revenue increase of 19.6%. For the year-to-date, net income from continuing operations was $108.4 million, up $43.8 million, or 67.8%, from 1996, exclusive of the $128.3 million gain on the sale of cable, on an operating revenue increase of 12.7%. Operating income rose 74.0% to $137.6 million in the second quarter and rose 83.4% to $235.8 million for the two quarters ended June 29, 1997. The increase for both the quarter and the year-to-date was due to strong advertising revenue and lower newsprint costs. OPERATING REVENUE Advertising revenue increased $97.8 million, or 21.8%, over the second quarter last year and $127.3 million, or 14.6%, for the year-to-date. Excluding the Disney newspapers, advertising revenue increased 8.0% over the second quarter last year and 7.5% for the year-to-date, on full-run ROP linage increases of 5.9% and 6.0%, respectively. This reflected improvement in all advertising revenue categories. Classified advertising revenue increased $47.5 million, or 24.0%, over the second quarter last year and $60.5 million, or 15.4%, over year-to-date 1996. Excluding the Disney newspapers, classified advertising revenue increased $23.1 million, or 11.7%, over the second quarter last year, on a 7.0% full-run ROP linage increase. The employment category showed the largest gain, posting a 20.6% revenue improvement. All of the 12 largest markets showed classified increases, with Philadelphia showing the largest increase, up 22.5% from second quarter last year, followed by Detroit, Contra Costa and Charlotte, up 18.9%, 15.2% and 13.9%, respectively. Year-to-date classified advertising revenue increased $36.0 million, or 9.2%, from 1996, on a 7.0% full-run ROP linage increase excluding the Disney newspapers. Retail advertising revenue increased $40.0 million, or 19.9%, over the second quarter last year and $51.3 million, or 13.4%, over year-to-date 1996. Retail advertising revenue, excluding the Disney newspapers, improved by $8.6 million, or 4.3%, from the second quarter 1996. During the second quarter of 1997, ten of our 12 largest markets showed year-over-year gains. While drivers of this growth varied a bit from market to market, retail revenue was strong in Charlotte, Contra Costa, San Jose and Miami. Year-to-date retail revenue was up $20.0 million, or 5.2%, from 1996, on a 4.5% full-run ROP linage increase excluding the Disney newspapers. 9 10 General advertising revenue increased $10.3 million, or 20.2%, over the second quarter last year and $15.6 million, or 16.0%, over year-to-date 1996. Excluding the Disney newspapers, general advertising revenue was up $4.4 million, or 8.7%, from last year. Virtually all of the strength in general advertising was concentrated in Philadelphia, San Jose and Detroit, with airlines, telecommunications and computers strong in each of these markets. For the first two quarters of 1997, general advertising revenue was up $9.7 million, or 10.0%, from the prior year, on an 8.9% full-run ROP linage increase excluding the Disney newspapers. Circulation revenue increased $13.8 million, or 10.9%, over the second quarter last year and $13.8 million, or 5.5%, for the year-to-date. Excluding the Disney newspapers, circulation revenue was relatively flat with second quarter 1996, on a 0.2% decline in average seven-day circulation. Circulation revenue was also relatively flat with 1996 for the year-to-date. Other revenue increased $6.3 million, or 25.3%, from the second quarter 1996 and $8.3 million, or 17.0%, from year-to-date 1996. Excluding the Disney newspapers, other revenue increased by $3.5 million, or 14.2%, and $5.6 million, or 11.4%, for the second quarter and year-to-date, respectively. The increase was due to growth of 41.1% for the quarter and 39.2% for the year-to-date in Technimetrics revenue, as well as increases in commercial print, special publication, event marketing and other augmentation revenue. OPERATING COSTS Labor and employee benefit costs increased $38.8 million, or 15.9%, from the second quarter 1996 and $45.1 million, or 9.2%, for the year-to-date. Excluding the Disney newspapers, labor and employee benefit costs increased $15.3 million, or 6.3%, above second quarter 1996, reflecting a 3.3% increase in the average wage rate and a 1.6% increase in the workforce. Year-to-date labor and employee benefit costs were $21.7 million, or 4.4%, higher than 1996, excluding the Disney newspapers. The increase was primarily due to a 2.8% increase in the average wage rate and a 0.6% increase in the workforce. Newsprint, ink and supplements decreased $17.5 million, or 13.7%, from second quarter 1996 and $50.6 million, or 19.9%, from year-to-date 1996. Excluding the Disney newspapers, newsprint, ink and supplement costs decreased $32.5 million, or 25.4%, on a 30.9% decrease in the average newsprint price, offset by a 5.4% increase in consumption. These costs were down $65.5 million, or 25.8%, for the year-to-date, on a 30.9% decrease in the average newsprint price, offset by a 4.0% increase in consumption. Other operating costs increased $28.0 million, or 23.3%, from second quarter 1996 and $36.6 million, or 15.1%, from year-to-date 1996. Excluding the Disney newspapers, other operating costs increased $13.7 million, or 11.4%, from second quarter 1996, primarily due to increased circulation promotion costs and other advertising costs. On this same basis, other operating costs rose $22.3 million, or 9.2%, from the prior year-to-date, again, partly due to an increase in circulation promotion costs and other advertising costs. Depreciation and amortization increased $10.1 million, or 33.8%, from second quarter 1996 and $11.2 million, or 18.6%, from year-to-date 1996. Excluding the Disney newspapers and goodwill amortization related to the acquisition, depreciation and amortization increased $1.1 million, or 3.7%, from second quarter 1996 and $2.1 million, or 3.6 %, for the year-to-date. 10 11 NON-OPERATING ITEMS Interest expense, net of interest income and interest expense capitalized, increased $6.4 million over second quarter 1996 and $3.0 million for the year-to-date. The second quarter increase was due to higher debt levels associated with the Disney newspapers acquisition and share purchase. The average debt balance for the quarter increased $226.2 million from the second quarter of last year. Equity in earnings of unconsolidated companies and joint ventures decreased by $5.9 million for the quarter and $12.8 million for the year-to-date. This was primarily due to our newsprint mill investments which were negatively impacted by the decline in the price of newsprint compared to the prior year. This was partly offset by improvements in some of our other investments, including The Seattle Times. "Other, net" was $3.3 million below second quarter 1996, but $215.8 million above year-to-date 1996. The year-to-date increase was due primarily to the gain on the January sale of most of our cable investment. The effective tax rate was 45.8%, compared with 40.6% in the second quarter of 1996. The increase was primarily a result of non-deductible goodwill amortization related to the acquisition of the Disney newspapers. OTHER On July 25, 1997, we announced an agreement with the E.W. Scripps Company to trade the Daily Camera in Boulder, Colorado for two newspapers in California, the Monterey County Herald and the Telegram-Tribune in San Luis Obispo. We expect to close on the exchange in August. On June 20, 1997, we announced our intention to sell five newspapers: the Press-Telegram in Long Beach, California, the Post-Tribune in Gary, Indiana, the Boca Raton News in Boca Raton, Florida, The Union-Recorder in Milledgeville, Georgia and The Newberry Observer in Newberry, South Carolina. Earlier this year in April, the company announced that it will divest Knight-Ridder Information, Inc. (KRII), its online information service for business and professional users, which includes Dialog and DataStar. The company anticipates completing the sale during 1997. During the second quarter of 1997, the company purchased 5.8 million shares of Knight-Ridder common stock, bringing to almost 6.5 million the number purchased in 1997. It is our intention to repurchase, by the end of the first quarter of 1998, at least 15 million shares, including those purchased through the end of the second quarter of 1997. 11 12 LIQUIDITY Net cash provided by operating activities decreased to $44.4 million from $82.6 million in the second quarter of 1996. The decrease was attributed to changes in several working capital components, including the timing of the federal and state income tax payments. Net cash provided by investing activities increased $80.8 million from the second quarter of 1996 due to the proceeds from the sale of securities available for sale. Cash and short term cash investments were down $2.7 million from June 30, 1996, but up $5.7 million from year end. Total debt increased $775 million from June 30, 1996, and $1.0 billion from year end due to the assumption of debt from the Disney newspaper acquisition and share repurchase. Total-debt-to-total-capital ratio was 50.9%, up from 42.1% at year end and 49.0% in June 1996. The company's indebtedness has increased as a result of the acquisition of the four Disney newspapers, but the company intends to reduce debt levels through the intended sale of KRII, the five newspapers and strong cash flow. Approximately $267 million in aggregate unused credit lines remained at the end of the quarter. The ratio of current assets to current liabilities was 1.1:1 at June 29, 1997, 1.0:1 at December 29, 1996 and 1.2:1 at June 30, 1996. OUTLOOK FOR THE REMAINDER OF THE YEAR As we look ahead to the third quarter and the year, we anticipate advertising growth will be moderately above the prior year. Despite recent announcements of proposed price increases, we will not feel any significant impact until 1998, and as such, we anticipate that the average price of newsprint for the year will be below 1996 by about 15%. We continue to anticipate an earnings increase for the year of at least 20%, despite dilution from the Disney acquisition. Certain statements contained herein are forward looking statements. These are based on management's current knowledge of factors affecting Knight-Ridder's business. Actual results could differ materially from those currently anticipated. Investors are cautioned that such forward looking statements involve risk and uncertainty, including, but not limited to, the effects of international, national and local economies on revenue, negotiations and relations with labor unions, unforeseen changes to newsprint prices and interest rates, the effects of acquisitions and dispositions, and the evolution of the Internet. 12 13 PART II. OTHER INFORMATION Item 1. Legal Proceedings On July 13, 1995, six unions struck the Detroit Free Press, The Detroit News and the Detroit Newspaper Agency, which operates both newspapers. Subsequently, the unions filed numerous unfair labor practice charges against the newspapers and the Agency. In June, 1997, after a lengthy trial, a National Labor Relations Board Administrative Law Judge ruled that the strike was triggered by the unfair labor practices of the Agency and The Detroit News. The Judge recommended that the Agency and the newspapers reinstate all former strikers, displacing permanent replacements if necessary. The Agency and the newspapers already have filed their appeal of the decision. In the opinion of management, the ultimate liability to the company, and its subsidiaries, if any, as a result of this and related legal proceedings will not be material to their financial position or results of operation. Item 6. Exhibits and Reports of Form 8-K (a) Exhibits Filed No. 2.1 - Acquisition Agreement, dated as of April 4, 1997, incorporated by reference to the Company's Form 10-Q filed May 9, 1997 No. 2.2 - Acquisition and Plan of Merger, dated as of May 9, 1997, incorporated by reference to the Company's Form 8-K filed May 22, 1997 No. 3 - Articles of Amendment to the Articles of Incorporation, Establishing Series B Preferred Stock No. 10 - Consulting Agreement No. 27 - Financial Data Schedule (b) Reports on Form 8-K Form 8-K Dated May 9, 1997, filed May 22, 1997 Item 2. Acquisition or Disposition of Assets Item 7. Financial Statements and Exhibits (a) Financial Statements of Business Acquired (b) Pro-Forma Financial Information (c) Exhibits 2.1 Acquisition Agreement 2.2 Agreement and Plan of Merger Form 8-K/A Dated May 9, 1997, filed July 22, 1997 Item 7. Financial Statements and Exhibits (a) Financial Statements of Business Acquired (i) Report of Independent Certified Public Accountants (ii) Interim Financial Statements (unaudited) (b) Pro-Forma Financial Information (unaudited) 13 14 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. KNIGHT-RIDDER, INC. (Registrant) Date: August 14, 1997 Gary R. Effren Vice President/Controller (Chief Accounting Officer and Duly Authorized Officer of Registrant) 14 EX-3 2 AMEND TO ARTICLES OF INCORPORATION 1 EXHIBIT 3 ARTICLES OF AMENDMENT TO THE ARTICLES OF INCORPORATION OF KNIGHT-RIDDER, INC. ESTABLISHING SERIES B PREFERRED STOCK KNIGHT-RIDDER, INC., a corporation organized and existing under the Florida General Corporation Act (the "Corporation"), DOES HEREBY CERTIFY: That pursuant to authority conferred upon the Board of Directors by the Amended and Restated Articles of Incorporation of the Corporation, and pursuant to the provisions of Section 607.0602 of the Florida Business Corporation Act, said Board of Directors, duly called and held on April 15, 1997, duly adopted a resolution amending the Articles of Incorporation to provide for the issuance of a new series of the Corporation's Preferred Stock, $1.00 par value per share, to be designated "Series B Preferred Stock", and fixing and determining the relative powers, preferences and other rights, and the qualifications, limitations or restrictions thereof, which resolution is as follows: RESOLVED, that pursuant and subject to the provisions of Article THIRD of the Amended and Restated Articles of Incorporation of the Corporation, there is hereby established a series of Preferred Stock to which the following provisions shall be applicable: 1. Designation. The series shall be designated as "Series B Preferred Stock" ("this Series"). 2. Number. The number of shares of this Series authorized to be issued is 1,758,242. 3. Dividends. If and when dividends and other distributions, in cash, in property or in shares of stock or other securities are declared by the Board of Directors on the Corporation's Common Stock, the holders of this Series shall be entitled to receive per share of this Series the dividends and other distributions, in cash, in property or in shares of stock or other securities declared and paid on the number of shares of the Corporation's Common Stock into which such share of this Series is convertible on the record date of such dividend or other distribution, and no more, when and as declared by the Board of Directors of the Corporation out of funds legally available therefor, to be paid to holders of record on the respective dates fixed for that purpose by the Board of Directors in advance of payment of each dividend. This Series shall rank junior as to dividends and distributions to all other shares of Preferred Stock and any other class or series of stock of the Corporation which are not by their terms expressly made junior or equal as to dividends and distributions to this Series. This Series shall rank equally as to dividends and distributions to the Corporation's Common Stock and all other shares of Preferred Stock and any other class or series of stock of the Corporation which are expressly made equal as to dividends and distributions to this Series. This Series shall rank senior as to dividends and distributions to all other shares of Preferred Stock and any other class or series of stock of the Corporation which are by their terms expressly made junior as to dividends and distributions to this Series 15 2 4. Liquidation Rights. In the event of the voluntary or involuntary liquidation, dissolution or winding up ("Liquidation") of the Corporation, each holder of shares of this Series shall be entitled to have paid to him or it out of the assets of the Corporation, before any distribution is made to or set apart for the holders of any shares of any class or series of stock of the Corporation ranking junior to this Series in respect of distribution of assets upon Liquidation, per share of this Series held by such holder, an amount equal to (i) the liquidation preference of $.01 per share plus (ii) the amount which would be paid to a holder of the Common Stock Conversion Number (as defined below) of shares of Common Stock. After payment to holders of this Series of the full preferential amount as aforesaid, holders of this Series shall, as such, have no right or claim to any of the remaining assets of the Corporation. If upon any Liquidation of the Corporation the assets of the Corporation or proceeds thereof distributable among the holders of shares of this Series and of any class or series of stock ranking equally with this Series as to distribution of assets upon Liquidation shall be insufficient to pay in full the preferential amounts payable to such holders, then such assets or the proceeds thereof shall be distributed among such holders ratably in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full. This Series shall rank junior as to distributions of assets upon Liquidation to all other shares of Preferred Stock and any other class or series of stock of the Corporation which are not by their terms expressly made junior or equal as to distributions of assets upon Liquidation to this Series. This Series shall rank equally as to distribution of assets upon Liquidation to the Corporation's Common Stock and all other shares of Preferred Stock and any other class or series of stock of the Corporation which are expressly made equal as to distribution of assets upon Liquidation to this Series. This Series shall rank senior as to distribution of assets upon Liquidation to all other shares of Preferred Stock and any other class or series of stock of the Corporation which are by their terms expressly made junior as to distribution of assets upon Liquidation to this Series. For purposes of this Certificate, the voluntary sale, lease, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property or assets of the Corporation to, or a consolidation or merger of the Corporation with, one or more corporations shall not be deemed to be a Liquidation. 5. Transfer. No Person holding shares of this Series of record may sell, assign, transfer, pledge or otherwise dispose of, and the Corporation shall not register such transfer, sale, assignment, pledge or other disposal of, such shares of this Series, whether by sale, assignment, gift, bequest, appointment or otherwise, except to The Walt Disney Company or an Affiliate of The Walt Disney Company. As used in this Section 5, "Affiliate" shall mean, with respect to a Person, any other Person which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such Person. 6. Conversion Rights. In the event a holder of shares of this Series sells, assigns, transfers, pledges or otherwise disposes of such shares contrary to the provisions of Section 5 hereof, such sale, assignment, transfer, pledge or other disposition shall be deemed (i) an election by the holder thereof to convert such shares of this Series into shares of the Corporation's Common Stock and (ii) a sale, assignment, transfer, pledge or other disposition of such shares of Common Stock. Upon any such sale, assignment, transfer, pledge or other disposition, each share of this Series so sold, assigned, transferred, pledged or otherwise disposed of shall automatically convert into the Common Stock Conversion 16 3 Number of fully paid and nonassessable whole shares of Common Stock of the Corporation on the date of such sale, assignment, transfer, pledge or other disposition and such conversion shall be deemed effective as of the date of such sale, assignment, transfer, pledge or other disposition. Upon presentation to the Corporation's Transfer Agent of the certificate or certificates representing such shares of this Series, a certificate or certificates representing the number of shares of Common Stock equal to the number of shares of this Series so presented multiplied by the Common Stock Conversion Number shall be issued in the name of the transferee or pledgee. Upon any conversion of shares of this Series, the holders thereof shall not be entitled to receive any accrued or unpaid dividends and distributions in respect of the shares converted or the shares of Common Stock issued on conversion thereof; provided, however, that such holders shall be entitled to receive any dividends and distributions on such shares of this Series paid or declared prior to such conversion if such holder held such shares on the record date for the payment of such dividend or distribution. For all purposes, except the right to receive dividends and distributions as provided in the foregoing paragraph, the rights of a converting holder as a holder of shares of this Series shall cease, and the person or persons in whose name or names the certificate or certificates for Common Stock issuable upon such conversion are to be issued shall be deemed to have become the record holder or holders of such Common Stock at the close of business on the day (the "Date of Conversion") on which such shares are converted. The issuance of certificates for shares of Common Stock upon conversion of shares of this Series shall be made without charge for any stamp or other similar tax in respect of such issuance. However, if any such certificate is to be issued in a name other than that of the holder of the share or shares of this Series converted, the person or persons requesting issuance thereof shall pay to the Corporation the amount of any tax which may be payable in respect to any transfer involved in such issuance or shall establish to the satisfaction of the Corporation that such tax has been paid. The Corporation shall not be required to issue fractional shares of Common Stock upon conversion of shares of this Series. If more than one share of this Series shall be converted at one time by the same holder, the number of full shares of Common Stock issuable upon conversion thereof shall be computed on the basis of the aggregate number of shares so converted. If any fractional interest in a share of Common Stock would be deliverable upon the conversion of any shares, the Corporation shall, in lieu of delivering the fractional share therefor, make a cash adjustment in respect of such fraction in an amount equal to the same fraction of the Current Market Price of one share of the Common Stock of the Corporation on the last business day before the Date of Conversion. The "Current Market Price" on any given day shall be: (i) the closing sale price regular way of the shares of Common Stock of the Corporation on The New York Stock Exchange, or, in case no such sale takes place on such day, the reported closing bid price regular way of the shares of Common Stock of the Corporation on such day on The New York Stock Exchange, or if the Common Stock of the Corporation is not listed or admitted to trading on The New York Stock Exchange, the principal exchange on which such stock is traded or (ii) if the Current Market Price on such day of the Common Stock of the Corporation is not available pursuant to one of the methods specified above, then the average of the bid and asked prices for the Corporation's Common Stock on such day as furnished by any New York Stock Exchange member firm selected from time to time by the Board of Directors for that purpose. 17 4 At the option of the Corporation, by vote of the Board of Directors, the Corporation may from time to time cause the holders of the shares of this Series to convert their shares in accordance with this Section 6. In the event that the Corporation causes fewer than all of the shares of this Series to be converted at any one time, the shares so to be converted shall be selected by lot or pro rata. The Corporation shall cause a notice to be mailed, first class postage prepaid, at least 30 days, but not more than 90 days, prior to the Date of Conversion, to each holder of record of shares of this Series. Such notice shall be mailed to all record holders at their respective addresses as they shall appear upon the books of the Corporation and shall set forth the date of such conversion and the place for shares to be converted. In case the Corporation causes fewer than all of the shares represented by any one certificate to be converted, a new certificate representing the unredeemed shares shall be issued to the converting holder at the expense of the Corporation. Notwithstanding the foregoing, the Corporation may not cause the conversion of shares of this Series in accordance with this paragraph if within 15 days after delivery of the conversion notice contemplated by this paragraph, the holder of the shares of this Series which are the subject of the conversion notice (i) advises the Corporation in writing that such holder's Federal Communication Commission ("FCC") counsel has informed such holder that such FCC counsel believes it is reasonably likely that the holder's conversion of shares of this Series into shares of the Corporation's Common Stock would result in the attribution of properties of the Corporation and its Affiliates to The Walt Disney Company and its Affiliates under the multiple ownership rules, or would cause The Walt Disney Company and its Affiliates to be in violation of the cross-interest policy of, the FCC, or (ii) delivers a written opinion of counsel reasonably satisfactory to the Corporation to the effect that it is reasonably likely that The Walt Disney Company's and its Affiliates' ownership of shares of the Corporation's Common Stock would cause a violation of any federal or state law. The initial Common Stock Conversion Number is 10. (A) Adjustment of the Common Stock Conversion Number. The Common Stock Conversion Number shall be subject to adjustment from time to time as follows. In case the Corporation shall (i) subdivide or split the outstanding Common Stock into a larger number of shares of Common Stock by reclassification or otherwise or (ii) combine outstanding Common Stock into a smaller number of shares of Common Stock by reclassification or otherwise, the Common Stock Conversion Number in effect immediately prior thereto shall be adjusted proportionately so that the holder of a share of this Series thereafter converted shall be entitled to receive the number of shares of Common Stock that he or it would have owned after the happening of either of such events had such share of this Series been converted immediately prior to the happening of such event. An adjustment made pursuant to this subparagraph (A) shall become effective immediately after the effective date of such subdivision, split or combination or reclassification. This provision for adjustment of the Common Stock Conversion Number shall apply in each successive instance in which an adjustment is required thereby. No adjustment in the Common Stock Conversion Number resulting from the application of this provision is to be given effect unless, by making such adjustment, the Common Stock Conversion Number in effect immediately prior to such adjustment would be changed by 1% or more, but any adjustment which would change the Common Stock Conversion Number by less than 1% is to be carried forward and given effect in making future adjustments. All calculations under this Section 6 shall be made to the nearest one-hundredth (1/100th) of a share of Common Stock of the Corporation. (B) Effect of a Reorganization or Consolidation. In case the Corporation shall effect any capital reorganization or reclassification of its Common Stock (except as provided in subparagraph (A) and other than a change in par value, or from par value to no par value, or from no par value to par value) or shall consolidate or merge with or into any other Person (other than a merger in which the 18 5 Corporation is the surviving corporation which does not result in any reclassification of, or change in, the outstanding shares of the Corporation's Common Stock) or shall sell or transfer substantially all its assets to any other Person, (i) as a condition of such reorganization, reclassification, consolidation, merger, sale or transfer, lawful provision shall be made whereby the holders of shares of this Series shall, if required to convert such shares at any time after the consummation of such transaction, receive upon conversion thereof in lieu of each share of Common Stock issuable upon conversion of such shares prior to such consummation the same kind and amount of stock (or other securities, cash or property, if any) as may be issuable or distributable in connection with such transaction with respect to each outstanding share of Common Stock, subject to adjustments for subsequent subdivisions, splits or combinations or reclassifications of shares, capital reorganizations, consolidations or mergers as nearly equivalent as possible to the adjustments provided for in this Section 6 or (ii) at the option of the Corporation, by vote of the Board of Directors, the Corporation may cause the holders of the shares of this Series to convert their shares in accordance with this Section 6; provided that such holders receive upon conversion thereof consideration equal to the amount which would be paid to a holder of the Common Stock Conversion Number of shares of Common Stock for each share of this Series held by such holder on the date of such reorganization or reclassification, consolidation or merger or sale or transfer of all or substantially all of the Corporation's assets; and provided further, that the Corporation may not cause the conversion of shares of this Series in accordance with clause (ii) of this paragraph if within 15 days after delivery of the conversion notice contemplated by Section 6 hereof, the holder of the shares of this Series which are the subject of the conversion notice advises the Corporation in writing that such holder's FCC counsel has informed such holder that such FCC counsel believes it is reasonably likely that the holder's conversion of shares of this Series into shares of the Corporation's Common Stock would result in the attribution of properties of the Corporation and its Affiliates to The Walt Disney Company and its Affiliates under the multiple ownership rules, or would cause The Walt Disney Company and its Affiliates to be in violation of the cross-interest policy of, the FCC. Whenever the number of shares of Common Stock deliverable upon the conversion of shares of this Series shall be adjusted pursuant to the provisions hereof, the Corporation shall forthwith file at its principal office and with any Transfer Agent for this Series and for the Common Stock a statement, signed by the President or one of the Vice- Presidents of the Corporation and by its Treasurer or one of its Assistant Treasurers, stating the adjusted number of shares of Common Stock deliverable per share of this Series and setting forth in reasonable detail the method of calculation and the facts requiring such adjustment and upon which such calculation is based, and shall give notice (i) by certified or registered mail, postage prepaid, (ii) by a nationally known overnight delivery service or (iii) by hand, of such adjustment to each holder of record of this Series. Each adjustment shall remain in effect until a subsequent adjustment hereunder is required. In the event: (a) of the occurrence of any of the events referred to in subparagraphs (A) and (B) above whether or not they would require an adjustment in the Common Stock Conversion Number under any such subparagraph (including an adjustment of less than 1%); or (b) of the Liquidation of the Corporation; then the Corporation shall cause to be given to any Transfer Agent for this Series and to the holders of record of the outstanding shares of this Series notice (i) by certified or registered mail, postage prepaid, (ii) by a nationally known overnight delivery service or (iii) by hand at least twenty days prior to the 19 6 applicable date hereinafter specified, a notice describing the event and stating the effect, if any, that such event will have upon the Common Stock Conversion Number, and the date on which any such subdivision, split or combination or reclassification or other capital reorganization or consolidation, merger or sale of assets referred to in subparagraph (A) or (B) of this Section 6 or such Liquidation is expected to become effective. The Corporation covenants that it will at all times reserve and keep available out of its authorized but unissued Common Stock, solely for the purpose of issuance upon conversion of the outstanding shares of this Series, such number of shares of Common Stock as shall be issuable upon the conversion of all such outstanding shares of this Series. The Corporation will take all such action as may be necessary to assure that all such shares of Common Stock may be so issued without violation of any applicable law or regulation, or of any requirement of any national securities exchange upon which the Common Stock may be listed. The Corporation will not take any action which results in any adjustment to the Common Stock Conversion Number if the total number of shares of Common Stock issued and issuable after such action upon conversion of the shares of this Series would exceed the total number of shares of Common Stock then authorized by the Amended and Restated Articles of Incorporation of the Corporation. The shares of Common Stock issuable upon conversion of the shares of this Series, when the same shall be issued in accordance with the terms of this Series, are hereby declared to be and shall be fully paid shares of Common Stock and not liable to any calls, taxes or assessments thereon, and the holders thereof shall not be liable for any further payments in respect thereof. "Common Stock" when used in Section 6 with reference to the Common Stock into which this Series is convertible shall mean only Common Stock as authorized by the Amended and Restated Articles of Incorporation of the Corporation to the date of this resolution, and any shares into which such Common Stock may thereafter have been changed, and, when otherwise used throughout this certificate, shall also include shares of the Corporation of any other class or series, whether now or hereafter authorized, that ranks or is entitled to participation, as to payment of assets upon Liquidation and payment of dividends, substantially on a parity with such Common Stock or other class of shares into which such Common Stock may have been changed. "Person" when used in Section 5 with reference to a transfer of the shares of this Series or Section 6 with reference to the consolidation or merger of the Corporation or the sale or transfer of all or substantially all of the Corporation's assets shall mean and include any individual, corporation, limited liability company, partnership (limited or general), joint venture, joint stock company, association, trust, any other unincorporated organization or entity and a governmental entity or any department or agency thereto. 7. Voting Rights. In addition to any voting rights provided by law, each holder of this Series shall be entitled to vote with respect to all matters upon which holders of the Corporation's Common Stock are entitled to vote (except as otherwise provided by law or by any other provision of the Amended and Restated Articles of Incorporation or of this Section). In exercising such voting rights, each holder of shares of this Series who holds such shares on the record date for such vote in his or its name on the transfer books of the Corporation shall be entitled to vote, in person or by proxy, 1/5 of the number of shares of this Series held by such holder multiplied by the Common Stock Conversion 20 7 Number. Except as otherwise provided by law, the holders of Common Stock and shares of this Series shall vote together as a single class on all matters. At the time when shares of this Series are outstanding, the Corporation shall not, without the approval of a majority of the holders of record of the then outstanding shares of this Series, given in writing or by vote at a meeting consenting or voting (as the case may be) separately as a single class, amend, alter, repeal or modify (i) any rights, preferences or privileges of this Series as set forth in this Certificate of Designations or (ii) any other provisions of the Amended and Restated Articles of Incorporation or this Certificate of Designations, if such amendment, alteration, repeal or modification would have a material adverse effect on the rights of the holders of the shares of this Series. 8. Other Rights. The holders of this Series shall not have any other preferences or special rights. IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be hereunto affixed and these Articles of Amendment to be signed by Cristina L. Mendoza, its Vice President and General Counsel, and attested by Douglas C. Harris, its Secretary, this 6 day of May, 1997. KNIGHT-RIDDER, INC. By /s/ Cristina L. Mendoza Cristina L. Mendoza Vice President and General Counsel [SEAL] ATTEST: By /s/ Douglas C. Harris Douglas C. Harris Secretary 21 EX-10 3 CONSULTING AGREEMENT 1 Exhibit 10 PERSONAL AND CONFIDENTIAL ------------------------- May 5, 1997 John C. Fontaine One Grove Isle Drive #1503 Miami, FL 33133 Dear Jack, This letter sets forth our agreement with respect to your services to Knight-Ridder, Inc. following your retirement as an officer and employee of the Company effective July 1, 1997. You have agreed to continue to serve as a Director of the Company and as a member of its Executive Committee. I am also pleased that you have agreed to serve as a consultant to the Company for the 12 months beginning July 1, 1997. In consideration of your services as a member of the Executive Committee and as a consultant, the Company will pay you $150,000 for the 12-month period July 1, 1997 through June 30, 1998, in equal monthly installments. And as customary, you will be compensated as an outside director, including meeting fees for the Board and Executive Committee. Our consulting relationship will not preclude you from accepting consulting assignments from other companies and from other profit-making activities, provided your other assignments and activities do not constitute a conflict of interest with Knight-Ridder. The Company will reimburse you for travel and other out-of-pocket expenses incurred in connection with your Knight-Ridder consulting activities. Office space will be provided, when and if required. I am happy we will continue to work together. If I have accurately summarized our understanding, I'd appreciate your signing and returning one copy of this letter to me for the Company's files. Sincerely, /s/ P. Anthony Ridder ---------------------- P. Anthony Ridder Agreed: /s/ John C. Fontaine 5/5/97 - - -------------------------------------------------- John C. Fontaine Date 22 EX-27 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED STATEMENT OF INCOME, THE CONSOLIDATED BALANCE SHEET, THE CONSOLIDATED STATEMENT OF CASH FLOWS AND THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 1000 6-MOS DEC-28-1997 DEC-30-1996 JUN-29-1997 28,558 0 427,319 16,868 62,080 572,032 1,896,896 870,944 4,744,290 520,448 1,446,737 0 1,755 1,833 1,760,090 4,744,290 1,324,293 1,324,293 203,573 1,088,479 (180,103) 9,974 38,657 415,917 179,149 236,768 (738) 0 0 236,030 2.41 2.41 COST OF GOODS SOLD CONSISTS OF NEWSPRINT, INK, AND SUPPLEMENTS. OTHER EXPENSES CONSIST OF ALL NON-OPERATING INCOME AND COSTS, NET, EXCLUDING INCOME TAXES. AMOUNT INCLUDES INTEREST EXPENSE, NET OF INTEREST INCOME AND OTHER NON-OPERATING COSTS, NET OF NON-OPERATING INCOME. 23
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