-----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, Pr5xKS3NGcG5umXsXtz55iHn1O540DVv/62cIY1joKYKSqyZbQiJfTsmh/Qr2bTS zbYZcaQpiPS55awUdDALTg== 0001019056-98-000262.txt : 19980514 0001019056-98-000262.hdr.sgml : 19980514 ACCESSION NUMBER: 0001019056-98-000262 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980329 FILED AS OF DATE: 19980513 SROS: NYSE 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-Q SEC ACT: SEC FILE NUMBER: 001-07553 FILM NUMBER: 98617768 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 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR QUARTER ENDED: MARCH 29, 1998 -------------- 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 - - 78,465,446 shares as of May 5, 1998. 1 Table of Contents for Form 10-Q Page ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Consolidated Statement of Income 3 Consolidated Balance Sheet 4-5 Consolidated Statement of Cash Flows 6 Notes to Consolidated Financial Statements 7-9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10-13 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 14 Item 6. Exhibits and Reports on Form 8-K 15 SIGNATURE 16 EXHIBITS 17 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF INCOME (UNAUDITED, IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
Quarter Ended Four Quarters Ended ---------------------- ------------------------- March 29 March 30 March 29 March 30 1998 1997 1998 1997 -------- -------- ---------- --------- OPERATING REVENUE Advertising Retail $ 240,545 $ 193,367 $1,055,914 $ 833,084 General 63,684 51,498 258,282 204,059 Classified 260,755 208,516 999,658 785,809 --------- --------- ---------- --------- Total 564,984 453,381 2,313,854 1,822,952 Circulation 148,597 126,855 589,499 501,827 Other 30,302 20,594 116,485 79,519 --------- --------- ---------- --------- Total Operating Revenue 743,883 600,830 3,019,838 2,404,298 --------- --------- ---------- --------- OPERATING COSTS Labor and employee benefits 291,917 249,328 1,174,816 972,496 Newsprint, ink and supplements 130,634 93,464 503,499 439,151 Other operating costs 162,368 129,708 648,130 489,393 Depreciation and amortization 45,777 30,161 172,347 121,595 --------- --------- ---------- --------- Total Operating Costs 630,696 502,661 2,498,792 2,022,635 --------- --------- ---------- --------- OPERATING INCOME 113,187 98,169 521,046 381,663 --------- --------- ---------- --------- OTHER INCOME (EXPENSE) Interest expense (27,961) (14,906) (115,717) (68,512) Interest expense capitalized 1,150 1,793 4,733 6,995 Interest income 1,618 437 4,585 4,569 Equity in earnings of unconsolidated companies and joint ventures 4,339 868 14,271 22,981 Minority interests in earnings of consolidated subsidiaries (2,481) (2,659) (11,325) (10,378) Other, net 81,753 219,120 145,042 235,775 --------- --------- ---------- --------- Total 58,418 204,653 41,589 191,430 --------- --------- ---------- --------- Income before income taxes 171,605 302,822 562,635 573,093 Income taxes 70,168 127,364 240,152 235,250 --------- --------- ---------- --------- Income from continuing operations 101,437 175,458 322,483 337,843 Gains on sales of discontinued BIS operations, net of applicable income taxes of $8,365 and $69,631 for the four quarters ended 1998 and 1997. 15,261 86,255 Income/(loss) from discontinued BIS operations, net of applicable income taxes/(benefits) of $133 and $(526) for the quarters ended 1998 and 1997 and $1,778 and $3,404 for the four quarters ended 1998 and 1997. 184 (726) 2,160 (5,011) --------- --------- ---------- --------- Net income $ 101,621 $ 174,732 $ 339,904 $ 419,087 ========= ========= ========== ========= EARNINGS PER SHARE Basic: - ----- Income from continuing operations $ 1.27 $ 1.88 $ 3.79 $ 3.56 Gains on sales of discontinued BIS operations, net 0.18 0.91 Income/(loss) from discontinued BIS operations, net 0.02 (0.05) --------- --------- ---------- --------- Net income $ 1.27 $ 1.88 $ 3.99 $ 4.42 ========= ========= ========== ========= Diluted: - ------- Income from continuing operations $ 1.02 $ 1.85 $ 3.15 $ 3.51 Gains on sales of discontinued BIS operations, net 0.15 0.90 Income/(loss) from discontinued BIS operations, net 0.02 (0.06) --------- --------- ---------- --------- Net income $ 1.02 $ 1.85 $ 3.32 $ 4.35 ========= ========= ========== ========= DIVIDENDS DECLARED PER COMMON SHARE $ 0.20 $ 0.20 $ 0.80 $ .60 (1) ========= ========= ========== ========= AVERAGE SHARES OUTSTANDING (000s) Basic 79,950 93,124 85,182 94,882 ========= ========= ========== ========= Diluted 99,560 94,683 102,533 96,354 ========= ========= ========== =========
(1) The Board of Directors declared a $.20 per share dividend on January 28, 1997. The quarterly dividend, usually paid in January, was paid on February 24, 1997, to shareholders of record as of the close of business on February 12, 1997. See "Notes to Consolidated Financial Statements". 3 CONSOLIDATED BALANCE SHEET (UNAUDITED, IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
March 29 December 28 March 30 1998 1997 1997 ---------- ----------- ---------- ASSETS Current Assets Cash, including short-term cash investments of $61,688 in 1998, $140,210 in December 1997, and $50 in March 1997 $ 80,254 $ 160,291 $ 24,552 Accounts receivable, net of allowances of $14,716 in 1998, $14,963 in December 1997, and $13,714 in March 1997 341,352 374,746 338,760 Inventories 65,456 50,332 48,313 Prepaid expense 11,180 15,844 33,930 Other current assets 39,466 39,902 45,345 ---------- ---------- ---------- Total Current Assets 537,708 641,115 490,900 ---------- ---------- ---------- Investments and Other Assets Equity in unconsolidated companies and joint ventures 188,620 197,585 197,926 Net assets of discontinued BIS operations 25,178 24,673 344,325 Other 217,498 172,859 356,532 ---------- ---------- ---------- Total Investments and Other Assets 431,296 395,117 898,783 ---------- ---------- ---------- Property, Plant and Equipment Land and improvements 93,980 89,375 77,457 Buildings and improvements 441,450 444,952 387,078 Equipment 1,144,223 1,127,875 1,003,188 Construction and equipment installations in progress 105,276 111,883 131,503 ---------- ---------- ---------- 1,784,929 1,774,085 1,599,226 Less accumulated depreciation (736,106) (727,571) (719,203) ---------- ---------- ---------- Net Property, Plant and Equipment 1,048,823 1,046,514 880,023 Excess of Cost Over Net Assets Acquired and Other Intangibles Less accumulated amortization of $214,330 in 1998, $197,966 in December 1997 and $155,084 in March 1997 2,252,567 2,272,396 607,338 ---------- ---------- ---------- Total $4,270,394 $4,355,142 $2,877,044 ========== ========== ==========
4 CONSOLIDATED BALANCE SHEET (UNAUDITED, IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
March 29 December 28 March 30 1998 1997 1997 ----------- ----------- ----------- LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable $ 176,344 $ 172,021 $ 136,407 Accrued expenses and other liabilities 120,027 131,491 102,516 Accrued compensation and amounts withheld from employees 95,682 119,036 87,150 Federal and state income taxes 92,621 33,920 113,649 Deferred revenue 76,232 72,491 74,632 Short-term borrowings and current portion of long-term debt 42,434 69,697 ----------- ----------- ----------- Total Current Liabilities 603,340 598,656 514,354 ----------- ----------- ----------- Noncurrent Liabilities Long-term debt 1,599,230 1,599,133 706,630 Deferred federal and state income taxes 287,814 282,695 130,759 Postretirement benefits other than pensions 152,117 150,485 147,420 Employment benefits and other noncurrent liabilities 166,697 171,225 112,792 ----------- ----------- ----------- Total Noncurrent Liabilities 2,205,858 2,203,538 1,097,601 ----------- ----------- ----------- Minority Interests in Consolidated Subsidiaries 2,348 1,275 1,047 Commitments and Contingencies Shareholders' Equity Preferred stock, $1.00 par value; shares authorized- 2,000,000; shares issued - 1,754,930 in 1998 and December 1997, and 0 in March 1997 1,755 1,755 Common stock, $.02 1/12 par value; shares authorized - 250,000,000; shares issued - 78,540,546 in 1998, 81,597,631 in December 1997 and 93,330,962 in March 1997 1,636 1,700 1,944 Additional capital 900,647 911,572 303,753 Retained earnings 551,158 636,646 974,138 Accumulated other comprehensive income/(loss) 3,652 (15,793) ----------- ----------- ----------- Total Shareholders' Equity 1,458,848 1,551,673 1,264,042 ----------- ----------- ----------- Total $ 4,270,394 $ 4,355,142 $ 2,877,044 =========== =========== ===========
See "Notes to Consolidated Financial Statements". 5 CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED, IN THOUSANDS OF DOLLARS)
Quarter Ended Four Quarters Ended ---------------------- ---------------------- March 29 March 30 March 29 March 30 1998 1997 1998 1997 -------- -------- -------- -------- CASH PROVIDED BY (REQUIRED FOR) OPERATING ACTIVITIES Net income $101,621 $174,732 $339,904 $419,087 Noncash items deducted from (included in) income: Gains on sales/exchanges of investee/subsidiaries (75,251) (221,801) (136,576) (221,801) Net gain on sale of discontinued BIS operations (15,261) (86,255) Depreciation 25,927 21,513 98,552 87,239 Amortization of excess of cost over net assets acquired and other intangibles 16,364 4,594 59,245 18,559 Amortization of other assets 3,486 4,054 14,550 15,797 Provision (benefit) for deferred taxes (1,241) 679 (16,670) 41,527 Earnings from investees in excess of distributions (3,497) (2,379) (15,776) (19,617) Minority interests in earnings of consolidated subsidiaries 2,481 2,659 11,325 10,378 Other items, net 3,398 6,213 35,841 (8,150) Change in certain assets and liabilities: Accounts receivable 31,279 17,496 (20,070) (28,119) Inventories (15,705) (5,372) (10,659) 45,030 Other current assets 5,639 1,724 4,295 (163,126) Accounts payable 2,747 (88,003) 6,781 6,723 Federal and state income taxes 62,569 113,649 (41,457) 114,816 Other liabilities (29,215) (6,463) 24,972 6,910 -------- -------- -------- -------- Net Cash Provided by Operating Activities 130,602 23,295 338,996 238,998 -------- -------- -------- -------- CASH PROVIDED BY (REQUIRED FOR) INVESTING ACTIVITIES Proceeds from sales of investee/subsidiaries, net 58,125 130,654 108,616 130,654 Proceeds from sale of discontinued BIS operations, net 416,983 271,859 Change in net noncurrent assets of discontinued BIS operations 520 5,447 (2,931) 6,533 Proceeds from sales of securities available for sale 17,547 224,347 17,547 Additions to property, plant and equipment (30,694) (27,779) (109,529) (102,230) Other items, net (4,002) (4,313) ( 7,854) 45,690 -------- -------- -------- -------- Net Cash Provided by Investing Activities 23,949 121,556 629,632 370,053 -------- -------- -------- -------- CASH PROVIDED BY (REQUIRED FOR) FINANCING ACTIVITIES Proceeds from sale of commercial paper, notes payable and senior notes payable 68,748 764,852 507,219 Reduction of total debt (27,378) (183,562) (820,427) (854,872) -------- -------- -------- -------- Net Change in Total Debt (27,378) (114,814) (55,575) (347,653) Payment of cash dividends (19,514) (18,613) (79,236) (74,897) Sale of common stock to employees 17,174 19,613 68,092 58,580 Purchase of treasury stock (199,625) (25,733) (817,267) (240,434) Other items, net (5,245) (3,632) (28,940) (19,170) -------- -------- -------- -------- Net Cash Required for Financing Activities (234,588) (143,179) (912,926) (623,574) -------- -------- -------- -------- Net Increase (Decrease) in Cash (80,037) 1,672 55,702 (14,523) Cash and short-term cash investments at beginning of the period 160,291 22,880 24,552 39,075 -------- -------- -------- -------- Cash and short-term cash investments at end of the period $ 80,254 $ 24,552 $ 80,254 $ 24,552 ======== ======== ======== ======== SUPPLEMENTAL CASH FLOW INFORMATION: Non cash investing activities Securities received as proceeds on the sale of investee $ 37,678 $229,163 $ 37,678 $229,163 Non cash financing activities Issuance of preferred stock for the acquisition of the Disney newspapers Preferred Stock 1,755 Additional Capital 658,245 Long-term debt assumed on the acquisition of the Disney newspapers 990,000
See "Notes to Consolidated Financial Statements". 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 three month period and four quarters ended March 29, 1998 are not necessarily indicative of the results that may be expected for the year ending December 27, 1998. For further information, refer to the consolidated financial statements and footnotes thereto included in the Registrant Company and Subsidiaries' annual report on Form 10-K for the year ended December 28, 1997. In 1998, the company adopted FAS 130, REPORTING COMPREHENSIVE INCOME. See Note 3. NOTE 2 - DISPOSITIONS Continuing Operations On February 2, 1998, the company completed the sale of the Post-Tribune in Gary, Indiana, to Hollinger International, Inc. On March 18, 1998, the company closed on the sale of its remaining interest in a jointly owned cable investment with Telecommunications, Inc. (TCI). The proceeds from the sale of the company's Gary Post-Tribune newspaper and the sale of the remaining cable investment were $95.8 million, consisting of $58.1 million in cash and TCI stock with an aggregate market value of $37.7 million. The pretax and after-tax gains on the sales were $75.3 million and $45.0 million, respectively. Discontinued Operations On April 13, 1998, the company closed on the sale of Technimetrics, Inc. to an operating unit of The Thomson Corporation. Technimetrics was a subsidiary which sold global shareholding and business contact information. NOTE 3 - COMPREHENSIVE INCOME In 1998, the Company adopted FAS 130, REPORTING COMPREHENSIVE INCOME. FAS 130 establishes new rules for the reporting and display of comprehensive income and its components. FAS 130 requires unrealized gains or losses on the company's available-for-sale securities, which prior to its adoption were recorded 7 separately in shareholders' equity, to be included in "other comprehensive income". For the quarter ended March 29, 1998 and March 30, 1997, total comprehensive income was $105.3 million and $157.3 million, respectively. NOTE 4 - DEBT (In Thousands of Dollars)
Effective Interest Balance At Rate At ------------------------------------- March 29 March 29 December 28 March 30 1998 1998 1997 1997 --------- ---------- ----------- ----------- Commercial paper, net of discount 5.7% $ 2,494 $ 29,793 $ 250,002 Senior secured bank debt (a) 6.2 990,000 990,000 Debentures, net of discount (b) 10.0 198,175 198,133 198,010 Debentures, net of discount (c) 7.6 94,270 94,261 Notes payable, net of discount (d) 8.5 159,657 159,617 159,488 Notes payable, net of discount (e) 6.8 97,838 97,821 Senior notes, net of discount (f) 6.3 99,230 99,205 99,130 ---------- ---------- ---------- Total Debt (g) 7.0 1,641,664 1,668,830 706,630 Less amounts classified as current 42,434 69,697 ---------- ---------- ---------- Total long-term debt 6.9% $1,599,230 $1,599,133 $ 706,630 ========== ========== ==========
(a) Represents $990 million advance under a $1.2 billion credit agreement with a variable interest rate indexed to Libor plus 27 1/2 basis points due in 1999. (b) Represents $200 million of a 20-year 9 7/8% debenture due in 2009. (c) Represents $100 million of a 7.15% debenture due in 2027. (d) Represents $160 million of 8 1/2% notes subject to mandatory pro rata amortization of 25% annually commencing 1998 through maturity in 2001. (e) Represents $100 million of a 6.625% note due in 2005. (f) Represents $100 million of 10 year 6.3% senior notes due in 2005. (g) Interest payments for the quarters ended March 29, 1998 and March 30, 1997 were $33.3 million and $12.1 million, respectively. 8 NOTE 5 - INCOME TAX PAYMENTS Income tax payments for the quarters ended March 29, 1998 and March 30, 1997, were $8.8 million and $741,000, respectively. NOTE 6 - EARNINGS PER SHARE In 1997, the company adopted FAS 128 -- Earnings Per Share. The following table sets forth the computation of basic and diluted earnings per share from continuing operations (in thousands, except share data):
Quarter Ended --------------------------- March 29 March 30 1998 1997 -------- -------- Income from continuing operations $101,437 $175,458 ======== ======== Average shares outstanding (basic) 79,950 93,124 -------- -------- Effect of dilutive securities: Convertible preferred stock 17,549 Stock options 2,061 1,559 -------- -------- Average shares outstanding (dilutive) 99,560 94,683 -------- -------- Earnings per share from continuing operations (basic) $ 1.27 $ 1.88 ======== ======== Earnings per share from continuing operations (diluted) $ 1.02 $ 1.85 ======== ========
9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FIRST QUARTER FIRST QUARTER 1998 COMPARED WITH FIRST QUARTER 1997 Diluted earnings per share from continuing operations for the first quarter of 1998, excluding one-time gains, was $.57, up $.08, or 16.3%, from the $.49 reported in 1997. The $.08 per share improvement from 1997, excluding the one-time gains, was due to: a 6.2% increase in advertising revenue (on a pro forma basis excluding sold newspapers); operating margin improvement in Detroit and Philadelphia; and non-operating gains, including an insurance settlement related to last year's flood in Grand Forks. Including the $.45 gain on the sale of the remainder of Knight Ridder's interest in the jointly owned cable investments with TeleCommunications, Inc. (TCI) and the newspaper in Gary, Indiana, diluted earnings per share from continuing operations for the first quarter of 1998 was $1.02, down $.83 from the $1.85 earned in the same period last year, including the $1.36 gain on the sale of most of our jointly owned cable investment. The results include operations from four newspapers acquired from The Walt Disney Company in May 1997 and from two newspapers received in exchange from E. W. Scripps Co. for the Boulder, Colorado newspaper in August 1997. They exclude results from the Boulder Daily Camera after August 1997 and for five newspapers (Boca Raton News, Gary Post-Tribune, Long Beach Press-Telegram, Newberry Observer and Milledgeville Union-Recorder) after their dates of sale in December 1997 and February 1998. Certain comparisons are provided on a pro forma basis for the former Disney and Scripps newspapers (including their results as if owned since January 1997) and exclude the sold newspapers' results from both years. OPERATING REVENUE Newspaper advertising revenue increased 24.6% over the first quarter last year. On a pro forma basis excluding sold newspapers (comparable), newspaper advertising revenue increased 6.2% from last year with growth in all advertising revenue categories. Classified advertising revenue increased $52.2 million, or 25.1%, over the first quarter last year. On a comparable basis, classified advertising revenue increased 8.1%, on a 5.0% full-run ROP linage increase. The employment category showed the largest gain, posting a 13.2% revenue improvement. All other classified revenue categories also reflected improvement. Retail advertising revenue improved by $47.2 million, or 24.4%, over last year. On a comparable basis, retail advertising revenue improved by $8.5 million, or 3.7%. Retail benefited from increased major accounts advertising in Philadelphia and by increased preprint rate and volume in Detroit and Kansas City. General advertising revenue was up $12.2 million, or 23.7%, from last year. On a comparable basis, general advertising revenue was up $5.1 million, or 8.7%. Telecommunications advertising in several large markets helped boost performance. 10 Circulation revenue was up $21.7 million, or 17.1%, from 1997. On a comparable basis, circulation revenue was flat with first quarter 1997, on a 1.1% increase in the seven-day circulation, offset by a 1.3% decline in average rate. Other newspaper revenue increased by $9.7 million, or 47.1%, from the prior year. On a comparable basis, other newspaper revenue increased by $4.5 million, or 17.3%. The increase was due to growth in event marketing, commercial print and online revenue. OPERATING COSTS Labor and employee benefit costs increased $42.6 million, or 17.1%. On a pro forma basis excluding sold newspapers, labor and employee benefit costs increased $10.6 million, or 3.8%, on a 2.5% increase in the average wage rate and a 2.4% increase in the workforce. Newsprint, ink and supplement costs increased $37.2 million, or 39.8%. On a comparable basis, these costs increased $20.1 million, or 18.2%, on a 12.3% increase in the average newsprint price and a 5.6% increase in consumption. This consumption increase was driven by both advertising volume gains and circulation growth. Other operating costs increased $32.7 million, or 25.2%, from first quarter 1997. On a comparable basis, these costs increased $8.8 million, or 5.7%, mostly from circulation promotion costs and the change from non-employee carriers to circulation agents in Detroit, which results in both greater revenue and expense. Depreciation and amortization increased $15.6 million, or 51.8%, from first quarter 1997. On a comparable basis, depreciation and amortization increased $2.4 million, or 5.5%, from 1997, primarily due to the Miami press project and the Philadelphia renovation project. NON-OPERATING ITEMS Interest expense, net of interest income and interest expense capitalized, increased $12.5 million from last year due to the increase in debt related to the Disney newspaper acquisition and share repurchases. The average debt balance for the quarter increased $903.7 million from the first quarter of last year. Equity in earnings of unconsolidated companies and joint ventures increased by $3.5 million, mostly due to our newsprint mill investments which were favorably impacted by the increase in the price of newsprint compared to the prior year. The "Other, net" line of the non-operating section reflects a $137.4 million decrease from 1997. The first quarter 1998 includes a pre-tax gain of $75.3 million on the sale of Gary and the sale of the remaining cable investment, while 1997 includes a pre-tax gain of $221.8 million on most of our cable investment. Excluding one-time gains from both years, "other, net" improved by $9.2 million, largely due to the Grand Forks insurance proceeds. The effective tax rate was 40.9%, compared with 42.1% in the first quarter of 1997. Excluding one-time gains, the effective tax rate was 41.4%, compared with 41.8% in the prior year. 11 OTHER On April 13, 1998, the company completed the sale of Technimetrics, Inc., a global shareholding and business contact information company, to an operating unit of The Thomson Corporation. In April 1998, the company announced the reorganization of its Miami-based corporate staff and the move of certain key people to California's Silicon Valley. Approximately 60 to 70 positions will be relocated and certain support activities will be reorganized. Estimated related one time costs will approximate $25 million. The majority of these costs will be expensed as incurred. The planned relocation and reorganization will be completed sometime in early 1999. By the end of March 1998, the company purchased 3.7 million shares of Knight Ridder common stock. This completed the buyback program defined in mid 1997. The company has authorization to repurchase approximately 1.2 million additional shares and will carefully consider market opportunities for additional share repurchases. LIQUIDITY Net cash provided by operating activities increased to $130.6 million from $23.3 million in the first quarter of 1997. The increase was attributed to higher earnings, excluding non-recurring items, as well as changes in several working capital components. Net cash provided by investing activities decreased $97.6 million from the first quarter of 1997 due to the $130.7 million of cash proceeds received from the sale of the majority of our cable investment in the first quarter of 1997, offset by sale proceeds in the first quarter of 1998. The company received $95.8 million on the sale of its Gary Post-Tribune newspaper and the sale of its remaining cable investments in the first quarter of 1998, consisting of $58.1 million in cash and TCI stock with an aggregate market value of $37.7 million. The TCI securities are included on the balance sheet under investments and other assets. Cash and short term cash investments were up $55.7 million from March 30, 1997, and down $80.0 million from year end. Total debt decreased $27.2 million during the quarter, due to the use of a portion of the Gary newspaper and cable sale proceeds. Debt increased $935.0 million from March 30, 1997, due to the debt assumed as part of the Disney acquisition and share repurchases, offset by proceeds from the sales of Knight-Ridder Information, Inc., five newspapers and the remaining cable investment. Total-debt-to-total-capital ratio was 53.0% compared to 51.8% at year end and 35.9% in March 1997. Approximately $639.8 million in aggregate unused credit lines remained at the end of the quarter. The ratio of current assets to current liabilities was 0.9:1 at March 29, 1998, 1.1:1 at December 28, 1997, and 1.0:1 at March 30, 1997. During the second quarter, the company intends to replace its current revolving credit facility with a larger facility to meet general corporate needs. OUTLOOK FOR THE REMAINDER OF THE YEAR As we look ahead to the second quarter and the year, we anticipate advertising growth will be moderately above the prior year. The cost of newsprint is more encouraging than originally anticipated as the expected price increases look to be smaller and later than previously thought. We believe that we will be able to report record earnings for the year, excluding non-recurring items. 12 Certain statements contained herein are forward looking statements. These are based on management's current knowledge of factors affecting Knight Ridder's business. Actual results could differ materially from those currently anticipated. Investors are cautioned that such forward looking statements involve risk and uncertainty, including, but not limited to, the effects of national and local economies on revenue, negotiations and relations with labor unions, unforeseen changes to newsprint prices and interest rates, the effects of acquisitions and dispositions, and the evolution of the Internet. 13 PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders (a) The Company's Annual Meeting of Shareholders was held on April 28, 1998. The results of the voting with respect to matters presented at the Annual Meeting were as follows:
Common Stock Voted --------------------------------------------- For Against Withheld --- ------- -------- (b) Election of Directors For a three- year term ending 2001: Joan Ridder Challinor 74,184,783 0 970,827 Kathleen Foley Feldstein 73,593,243 0 1,562,367 Thomas P. Gerrity 73,591,964 0 1,563,646 Gonzalo F. Valdes-Fauli 74,197,904 0 957,706 Continuing Directors: James I. Cash, Jr. Alvah H. Chapman, Jr. Peter C. Goldmark, Jr. Barbara Barnes Hauptfuhrer Jesse Hill, Jr. M. Kenneth Oshman Thomas L. Phillips P. Anthony Ridder Randall L. Tobias John L. Weinberg
(c) Ratify the appointment of Ernst & Young LLP as independent auditors of the company for the year 1998. Common Stock Voted --------------------------------------------------------------- For Against Abstained Broker Non-Votes --- ------- --------- ---------------- 74,848,753 191,496 115,361 None Vote on shareholder proposal seeking redemption of the rights issued pursuant to the company's Shareholder Rights Plan. Common Stock Voted --------------------------------------------------------------- For Against Abstained Broker Non-Votes --- ------- --------- ---------------- 27,776,301 44,425,129 379,165 2,575,015 14 Vote on shareholder proposal to provide for the annual election of all directors. Common Stock Voted --------------------------------------------------------------- For Against Abstained Broker Non-Votes --- ------- --------- ---------------- 27,633,669 44,620,303 326,623 2,575,015 Vote on shareholder proposal seeking adoption of an executive compensation policy dealing primarily with the company's newspapers' content. Common Stock Voted --------------------------------------------------------------- For Against Abstained Broker Non-Votes --- ------- --------- ---------------- 1,726,546 70,218,280 478,135 2,732,649 Item 6. Exhibits and Reports of Form 8-K (a) Exhibits Filed No. 11 - Statement re Computation of Per Share Earnings Refer to Part I., Note 6, incorporated herein by reference. No. 27 - Financial Data Schedule (b) Reports on Form 8-K Form 8-K dated March 18, 1998 Item 2. Disposition of Assets Item 7. Financial Statements and Exhibits. 15 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. KNIGHT-RIDDER, INC. (Registrant) Date: May 13, 1998 /s/ Gary R. Effren ---------------------------------- Gary R. Effren Vice President/Controller (Chief Accounting Officer and Duly Authorized Officer of Registrant) 16 EX-27 2 FDS
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED STATEMENT OF INCOME, THE CONSOLIDATED BALANCE SHEET, AND THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000205520 Knight-Ridder, Inc. 1,000 USD 3-MOS DEC-27-1998 DEC-29-1997 MAR-29-1998 1 80,254 0 341,352 14,716 65,456 537,708 1,784,929 736,106 4,270,394 603,340 1,639,171 0 1,755 1,636 1,455,457 4,270,394 743,883 743,883 130,634 630,696 (58,418) 5,219 27,961 171,605 70,168 101,437 184 0 0 101,621 1.27 1.02 COST OF GOODS SOLD CONSISTS OF NEWSPRINT, INK, AND SUPPLEMENTS. OTHER EXPENSES CONSISTS OF ALL NON-OPERATING INCOME AND COSTS, NET, EXCLUDING INCOME TAXES. AMOUNT INCLUDES INTEREST EXPENSE, NET OF INTEREST INCOME AND OTHER NON-OPERATING COSTS, NET OF NON-OPERATING INCOME, WHICH INCLUDE PRETAX GAINS AGGREGATING $75.3 MILLION ON THE SALE OF A NEWSPAPER AND A REMAINING CABLE INVESTMENT. SEE PART I., NOTE 2.
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