-----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, BwX4vM0VTKsfpMZzxsPcHsh+d6Sq4WuI9YG5kMgDIJz4WXt88RCofiKF7ixYygiA P+jxCoglTTBEoXT1f9Fb0w== 0001019056-98-000491.txt : 19980812 0001019056-98-000491.hdr.sgml : 19980812 ACCESSION NUMBER: 0001019056-98-000491 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980628 FILED AS OF DATE: 19980811 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: 98682008 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: June 28, 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 78,827,487 shares as of August 3, 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 10-12 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 13 SIGNATURE 14 EXHIBIT 15 2 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 28, June 29, June 28, June 29, June 28, June 29, 1998 1997 1998 1997 1998 1997 ----------- ----------- ----------- ----------- ----------- ----------- OPERATING REVENUE Advertising Retail $ 267,382 $ 239,982 $ 507,927 $ 433,349 $ 1,083,314 $ 872,415 General 65,353 61,410 129,037 112,908 262,225 214,368 Classified 263,122 245,211 523,877 453,727 1,017,569 833,333 ----------- ----------- ----------- ----------- ----------- ----------- Total 595,857 546,603 1,160,841 999,984 2,363,108 1,920,116 Circulation 147,647 139,616 296,244 266,471 597,530 515,606 Other 35,788 25,437 66,090 46,031 126,836 84,650 ----------- ----------- ----------- ----------- ----------- ----------- Total Operating Revenue 779,292 711,656 1,523,175 1,312,486 3,087,474 2,520,372 OPERATING COSTS Labor and employee benefits 302,582 279,260 594,499 528,588 1,198,138 1,010,203 Newsprint, ink and supplements 133,973 110,109 264,607 203,573 527,363 421,617 Other operating costs 168,910 146,058 331,278 275,766 670,982 516,972 Depreciation and amortization 46,702 39,252 92,479 69,413 179,797 131,587 ----------- ----------- ----------- ----------- ----------- ----------- Total Operating Costs 652,167 574,679 1,282,863 1,077,340 2,576,280 2,080,379 ----------- ----------- ----------- ----------- ----------- ----------- OPERATING INCOME 127,125 136,977 240,312 235,146 511,194 439,993 ----------- ----------- ----------- ----------- ----------- ----------- OTHER INCOME (EXPENSE) Interest expense (26,875) (23,751) (54,836) (38,657) (118,841) (73,129) Interest expense capitalized 1,251 1,356 2,401 3,149 4,628 6,967 Interest income 1,265 248 2,883 685 5,602 2,924 Equity in earnings of unconsolidated companies and joint ventures 8,496 2,905 12,835 3,773 19,862 17,071 Minority interests in earnings of consolidated subsidiaries (2,549) (2,738) (5,030) (5,397) (11,136) (10,605) Other, net 4,407 (2,565) 86,160 216,555 152,014 232,429 ----------- ----------- ----------- ----------- ----------- ----------- Total (14,005) (24,545) 44,413 180,108 52,129 175,657 ----------- ----------- ----------- ----------- ----------- ----------- Income before income taxes 113,120 112,432 284,725 415,254 563,323 615,650 Income taxes 46,195 51,482 116,363 178,846 234,865 258,337 ----------- ----------- ----------- ----------- ----------- ----------- Income from continuing operations 66,925 60,950 168,362 236,408 328,458 357,313 Gains on sales of discontinued BIS operations, net of applicable income taxes of $43,752 for the quarter and two quarters ended 1998 and applicable income taxes of $52,117 and $69,631 for the four quarters ended 1998 and 1997. 60,042 60,042 75,303 86,255 Income/(loss) from discontinued BIS operations, net of applicable income taxes/(benefits) of $295 for the quarter ended 1997; $133 and $(231) for the two quarters ended 1998 and 1997 and $1,483 and $3,102 for the four quarters ended 1998 and 1997. 350 184 (376) 1,810 (5,533) ----------- ----------- ----------- ----------- ----------- ----------- Net income $ 126,967 $ 61,300 $ 228,588 $ 236,032 $ 405,571 $ 438,035 =========== =========== =========== =========== =========== =========== EARNINGS PER SHARE BASIC: Income from continuing operations $ 0.85 $ 0.67 $ 2.12 $ 2.58 $ 3.99 $ 3.84 Gains on sale of discontinued BIS operations, net 0.76 0.76 0.92 0.93 Income/(loss) from discontinued BIS operations, net 0.01 (0.01) 0.02 (0.06) ----------- ----------- ----------- ----------- ----------- ----------- Net income $ 1.61 $ 0.68 $ 2.88 $ 2.57 $ 4.93 $ 4.71 =========== =========== =========== =========== =========== =========== DILUTED: Income from continuing operations $ 0.68 $ 0.60 $ 1.70 $ 2.42 $ 3.22 $ 3.69 Gains on sale of discontinued BIS operations, net 0.61 0.61 0.74 0.89 Income/(loss) from discontinued BIS operations, net 0.01 (0.01) 0.02 (0.05) ----------- ----------- ----------- ----------- ----------- ----------- Net income $ 1.29 $ 0.61 $ 2.31 $ 2.41 $ 3.98 $ 4.53 =========== =========== =========== =========== =========== =========== DIVIDENDS DECLARED PER COMMON SHARE $ 0.20 $ 0.20 $ 0.40 $ 0.40 $ 0.80 $ 0.60(1) =========== =========== =========== =========== =========== =========== AVERAGE SHARES OUTSTANDING (000s) Basic 78,600 90,316 79,275 91,720 82,253 93,076 =========== =========== =========== =========== =========== =========== Diluted 98,159 100,777 98,859 97,730 101,879 96,795 =========== =========== =========== =========== =========== =========== (1) The Board of Directors declared a $.20 per share dividend on Jan. 28, 1997. The quarterly dividend usually paid in January was paid on Feb. 24, 1997, to shareholders of record as of the close of business on Feb. 12, 1997. See "Notes to Consolidated Financial Statements".
3 CONSOLIDATED BALANCE SHEET (UNAUDITED, IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
June 28, December 28, June 29, 1998 1997 1997 ----------- ----------- ----------- ASSETS Current Assets Cash, including short-term cash investments of $75,237 in 1998, $140,210 in December 1997, and $50 in June 1997 $ 96,554 $ 160,291 $ 28,558 Accounts receivable, net of allowances of $16,124 in 1998, $14,963 in December 1997, and $16,868 in June 1997 340,210 374,746 410,451 Inventories 62,725 50,332 62,080 Prepaid expense 7,829 15,844 25,497 Other current assets 36,959 39,902 45,446 ----------- ----------- ----------- Total Current Assets 544,277 641,115 572,032 ----------- ----------- ----------- Investments and Other Assets Equity in unconsolidated companies and joint ventures 195,058 197,585 189,630 Net assets of discontinued BIS operations 24,673 347,403 Other 226,071 172,859 288,557 ----------- ----------- ----------- Total Investments and Other Assets 421,129 395,117 825,590 ----------- ----------- ----------- Property, Plant and Equipment Land and improvements 93,762 89,375 88,635 Buildings and improvements 439,657 444,952 453,170 Equipment 1,153,546 1,127,875 1,200,616 Construction and equipment installations in progress 136,534 111,883 151,891 ----------- ----------- ----------- 1,823,499 1,774,085 1,894,312 Less accumulated depreciation (756,242) (727,571) (869,825) ----------- ----------- ----------- Net Property, Plant and Equipment 1,067,257 1,046,514 1,024,487 Excess of Cost Over Net Assets Acquired and Other Intangibles Less accumulated amortization of $230,487 in 1998, $197,966 in December 1997 and $166,976 in June 1997 2,238,822 2,272,396 2,288,861 ----------- ----------- ----------- Total $ 4,271,485 $ 4,355,142 $ 4,710,970 =========== =========== ===========
4 CONSOLIDATED BALANCE SHEET (UNAUDITED, IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
June 28, December 28, June 29, 1998 1997 1997 ----------- ----------- ----------- LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable $ 194,021 $ 172,021 $ 156,212 Accrued expenses and other liabilities 111,328 131,491 106,302 Accrued compensation and amounts withheld from employees 97,069 119,036 105,056 Federal and state income taxes 75,486 33,920 66,011 Deferred revenue 67,021 72,491 86,867 Short-term borrowings and current portion of long-term debt 289,429 69,697 ----------- ----------- ----------- Total Current Liabilities 834,354 598,656 520,448 ----------- ----------- ----------- Noncurrent Liabilities Long-term debt 1,247,559 1,599,133 1,829,280 Deferred federal and state income taxes 291,883 282,695 319,205 Postretirement benefits other than pensions 152,522 150,485 155,210 Employment benefits and other noncurrent liabilities 161,756 171,225 121,391 ----------- ----------- ----------- Total Noncurrent Liabilities 1,853,720 2,203,538 2,425,086 ----------- ----------- ----------- Minority Interests in Consolidated Subsidiaries 2,377 1,275 1,758 Commitments and Contingencies Shareholders' Equity Preferred stock, $1.00 par value; shares authorized - 2,000,000; shares issued - 1,754,930 in 1998, December 1997, and June 1997 1,755 1,755 1,755 Common stock, $.02 1/12 par value; shares authorized - 250,000,000; shares issued - 78,843,842 in 1998, 81,597,631 in December 1997 and 88,007,596 in June 1997 1,643 1,700 1,833 Additional capital 911,251 911,572 942,800 Retained earnings 658,922 636,646 813,780 Treasury stock, at cost, 48,973 shares in 1998 and 0 in 1997 (2,748) Accumulated other comprehensive income 10,211 3,510 ----------- ----------- ----------- Total Shareholders' Equity 1,581,034 1,551,673 1,763,678 ----------- ----------- ----------- Total $ 4,271,485 $ 4,355,142 $ 4,710,970 =========== =========== =========== See "Notes to Consolidated Financial Statements". 5
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED, IN THOUSANDS OF DOLLARS)
Quarter Ended Two Quarters Ended Four Quarters Ended ---------------------- ----------------------- --------------------- June 28, June 29, June 28, June 29, June 28, June 29, 1998 1997 1998 1997 1998 1997 --------- ----------- ----------- ---------- ----------- --------- CASH PROVIDED BY (REQUIRED FOR) OPERATING ACTIVITIES Net income $ 126,967 $ 61,300 $ 228,588 $ 236,032 $ 405,571 $ 438,035 Noncash items deducted from (included in) income: Gains on sales/exchanges of investee/subsidiaries (75,251) (221,801) (136,576) (221,801) Net gain on sale of discontinued BIS operations (60,042) (60,042) (75,303) (86,255) Depreciation 27,114 23,437 53,041 44,951 102,228 89,537 Amortization of excess of cost over net assets acquired and other intangibles 16,157 11,891 32,521 16,485 63,512 25,892 Amortization of other assets 3,431 3,924 6,917 7,977 14,057 16,158 Provision (benefit) for deferred taxes (1,538) (265) (2,779) 414 (17,943) 43,960 Earnings from investees in excess of distributions (9,047) (1,770) (12,544) (4,149) (23,053) (12,000) Minority interests in earnings of consolidated subsidiaries 2,549 2,738 5,030 5,397 11,136 10,605 Other items, net 3,849 5,212 7,247 11,425 34,479 (7,227) Change in certain assets and liabilities: Accounts receivable (5,689) (20,921) 25,590 (3,425) (4,838) (41,601) Inventories 2,731 (4,335) (12,974) (9,707) (3,593) 23,869 Other current assets 4,362 9,101 10,001 10,825 (444) (128,407) Accounts payable 10,588 (4,560) 13,335 (92,563) 21,929 (12,837) Federal and state income taxes (57,002) (47,638) 5,567 66,011 (50,821) 67,178 Other liabilities (6,271) 5,205 (35,486) (1,258) 13,495 (4,931) --------- ----------- ----------- ---------- ----------- --------- Net Cash Provided by Operating Activities 58,159 43,319 188,761 66,614 353,836 200,175 --------- ----------- ----------- ---------- ----------- --------- CASH PROVIDED BY (REQUIRED FOR) INVESTING ACTIVITIES Proceeds from sales of investee/subsidiaries, net 58,125 130,654 108,616 130,654 Proceeds from sale of discontinued BIS operations, net 125,000 125,000 541,983 271,859 Change in net noncurrent assets of discontinued BIS operations 422 520 5,869 (3,353) 8,273 Proceeds from sales of securities available for sale 2,511 113,432 2,511 130,979 113,426 130,979 Additions to property, plant and equipment (46,839) (32,882) (77,533) (60,661) (123,486) (103,876) Other items, net 789 1,446 (3,213) (2,867) (8,511) 13,540 --------- ----------- ----------- ---------- ----------- --------- Net Cash Provided by Investing Activities 81,461 82,418 105,410 203,974 628,675 451,429 --------- ----------- ----------- ---------- ----------- --------- CASH PROVIDED BY (REQUIRED FOR) FINANCING ACTIVITIES Proceeds from sale of commercial paper, notes payable and senior notes payable 885,060 257,968 885,060 326,716 1,391,944 594,103 Reduction of total debt (989,947) (125,427) (1,017,325) (308,989) (1,684,947) (809,097) --------- ----------- ----------- ---------- ----------- --------- Net Change in Total Debt (104,887) 132,541 (132,265) 17,727 (293,003) (214,994) Payment of cash dividends (19,204) (18,363) (38,718) (36,976) (80,077) (75,105) Sale of common stock to employees 12,467 15,390 29,641 35,003 65,169 59,935 Purchase of treasury stock (7,904) (237,993) (207,529) (263,726) (587,178) (411,118) Other items, net (3,792) (13,306) (9,037) (16,938) (19,426) (12,994) --------- ----------- ----------- ---------- ----------- --------- Net Cash Required for Financing Activities (123,320) (121,731) (357,908) (264,910) (914,515) (654,276) --------- ----------- ----------- ---------- ----------- --------- Net Increase (Decrease) in Cash 16,300 4,006 (63,737) 5,678 67,996 (2,672) Cash and short-term cash investments at beginning of the period 80,254 24,552 160,291 22,880 28,558 31,230 --------- ----------- ----------- ---------- ----------- --------- Cash and short-term cash investments at end of the period $ 96,554 $ 28,558 $ 96,554 $ 28,558 $ 96,554 $ 28,558 ========= =========== =========== ========== =========== ========= SUPPLEMENTAL CASH FLOW INFORMATION: Non cash investing activities Securities received as proceeds on the sale of investee $ 37,678 $ 229,163 $ 37,678 $ 229,163 Non cash financing activities Issuance of preferred stock for the acquisition of the Disney newspapers Preferred Stock $ 1,755 1,755 1,755 Additional Capital 658,245 658,245 658,245 Long-term debt assumed on the acquisition of the Disney newspapers 990,000 990,000 990,000
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 quarter, two quarters and four quarters ended June 28, 1998 are not necessarily indicative of the results that may be expected for the year ending December 27, 1998. For further information, refer to the consolidated financial statements and footnotes thereto included in the Registrant Company and Subsidiaries' annual report on Form 10-K for the year ended December 28, 1997. In 1998, the company adopted FAS 130, REPORTING COMPREHENSIVE INCOME. See Note 3. Certain amounts in 1997 have been reclassified to conform to the 1998 presentation. NOTE 2 - DISPOSITIONS Continuing Operations On February 2, 1998, the company completed the sale of the Post-Tribune in Gary, Indiana, to Hollinger International, Inc. On March 18, 1998, the company closed on the sale of its remaining interest in a jointly owned cable investment with Telecommunications, Inc. (TCI). The proceeds from the sale of the company's Gary Post-Tribune newspaper and the sale of the remaining cable investment were $95.8 million, consisting of $58.1 million in cash and TCI stock with an aggregate market value of $37.7 million. The pretax and after-tax gains on the sales were $75.3 million and $45.0 million, respectively. Discontinued Operations On April 13, 1998, the company closed on the sale of Technimetrics, Inc. to an operating unit of The Thomson Corporation. Technimetrics was a subsidiary which sold global shareholding and business contact information. The proceeds from the sale were $125.0 million and resulted in a pre-tax and after-tax gain of $103.8 million and $60.0 million, respectively. NOTE 3 - COMPREHENSIVE INCOME In 1998, the Company adopted FAS 130, REPORTING COMPREHENSIVE INCOME. FAS 130 establishes new rules for the reporting and display of comprehensive income and its components. FAS 130 requires unrealized gains or losses on the company's available-for-sale securities, which prior to its adoption were recorded separately in shareholders' equity, to be included in "other comprehensive income". For the quarter and two quarters ended June 28, 1998, total comprehensive income was $133.5 million and $238.8 million, respectively, and $80.6 million and $237.9 million, respectively, for the comparable periods in 1997. 7
NOTE 4 - DEBT (In Thousands of Dollars) Effective Balance At Interest ----------------------------------------------- Rate At June 28, June 28, December 28, June 29, 1998 1998 1997 1997 --------- ----------- ------------ ------------- Commercial paper, net of discount 5.9% $ 887,667 $ 29,793 $ 382,543 Senior secured bank debt (a) 990,000 990,000 Debentures, net of discount (b) 10.0 198,216 198,133 198,051 Debentures, net of discount (c) 7.6 94,288 94,261 Notes payable, net of discount (d) 8.5 159,697 159,617 159,531 Notes payable, net of discount (e) 6.8 97,865 97,821 Senior notes, net of discount (f) 6.3 99,255 99,205 99,155 ----------- ------------ ------------- Total Debt (g) 6.9 1,536,988 1,668,830 1,829,280 Less amounts classified as current 289,429 69,697 ----------- ------------ ------------- Total long-term debt 7.0% $ 1,247,559 $ 1,599,133 $ 1,829,280 =========== ============ =============
(a) Represents $990 million advance under a $1.2 billion credit agreement with a variable interest rate indexed to Libor plus 27 1/2 basis points. Bank debt was paid off on June 26, 1998 with proceeds from the sale of commercial paper. (b) Represents $200 million of a 20-year 9 7/8% debenture due in 2009. (c) Represents $100 million of a 7.15% debenture due in 2027. (d) Represents $160 million of 8 1/2% notes subject to mandatory pro rata amortization of 25% annually commencing in 1998 through maturity in 2001. (e) Represents $100 million of a 6.625% note due in 2007. (f) Represents $100 million of 10 year 6.3% senior notes due in 2005. (g) At June 28, 1998, and June 29, 1997, interest payments of $69.0 million and $30.1 million had been made for the year-to-date, respectively. 8 NOTE 5 - INCOME TAX PAYMENTS Income tax payments for the two quarters ended June 28, 1998 and June 29, 1997, were $112.6 million and $107.1 million, respectively. NOTE 6 - EARNINGS PER SHARE In 1997, the company adopted FAS 128 -- EARNINGS PER SHARE. The following table sets forth the computation of basic and diluted earnings per share from continuing operations (in thousands, except share data):
Quarter Ended Two Quarters Ended ------------------- ------------------- June 28, June 29, June 28, June 29, 1998 1997 1998 1997 -------- -------- -------- -------- Income from continuing operations $ 66,925 $ 60,950 $168,362 $236,408 ======== ======== ======== ======== Average shares outstanding (basic) 78,600 90,316 79,275 91,720 -------- -------- -------- -------- Effect of dilutive securities: Convertible preferred stock 17,549 8,775 17,549 4,387 Stock options 2,010 1,686 2,035 1,623 -------- -------- -------- -------- Average shares outstanding (diluted) 98,159 100,777 98,859 97,730 -------- -------- -------- -------- Earnings per share from continuing operations (basic) $ 0.85 $ 0.67 $ 2.12 $ 2.58 ======== ======== ======== ======== Earnings per share from continuing operations (diluted) $ 0.68 $ 0.60 $ 1.70 $ 2.42 ======== ======== ======== ======== 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE SECOND QUARTER SECOND QUARTER 1998 COMPARED WITH SECOND QUARTER 1997 Diluted earnings per share was $1.29, up $.68, from the $.61 reported for the second quarter of 1997. This includes a $.61 per share gain on the sale of Technimetrics, the last piece of the discontinued Business Information Services Division, which was sold on April 13, 1998. Diluted earnings per share from continuing operations for the second quarter of 1998, excluding corporate relocation costs and other non-recurring items, was $.73, up $.13 per share, or 21.7%, from the $.60 reported in 1997. Including the corporate relocation costs and other non-recurring items, Knight Ridder earned $.68 per diluted share from continuing operations, up $.08, or 13.3%, from the $.60 earned in the same quarter of 1997. Net income from continuing operations in the second quarter, excluding corporate relocation costs and other non-recurring items, was $72.0 million, up 18.0%, from the $61.0 million realized last year. On this same basis, total operating income was $138.7 million, up $1.8 million, or 1.3%, from the same period a year ago, reflecting a 13% increase in the price of newsprint. The results include operations from four newspapers acquired from The Walt Disney Company in May 1997 and from two newspapers received in exchange from E. W. Scripps Co. for the Boulder, Colorado newspaper in August 1997. They exclude results from the Boulder Daily Camera after August 1997 and for five newspapers (Boca Raton News, Gary Post-Tribune, Long Beach Press-Telegram, Newberry Observer and Milledgeville Union Recorder) after their dates of sale in December 1997 and February 1998. Certain comparisons are provided on a pro forma basis for the former Disney and Scripps newspapers (including their results as if owned since January 1997 and excluding the sold newspapers from both years). OPERATING REVENUE Advertising revenue increased 9.0% over the second quarter last year. On a pro forma basis excluding sold newspapers (comparable), newspaper advertising revenue increased 3.9% from last year with growth in all advertising revenue categories. Retail advertising revenue improved by $27.4 million, or 11.4%, over last year. On a pro forma basis excluding sold newspapers, retail advertising revenue improved by $13.4 million, or 5.3%. Retail benefited from Detroit, up 12.9% for the quarter, due to increased major accounts advertising, along with the strongest part-run ROP showing since the strike began, and a major upsurge in preprints. Classified advertising revenue increased $17.9 million, or 7.3%, over the second quarter last year. On a comparable basis, classified advertising revenue increased 2.9%, with the employment category showing the largest gain, reflecting a 5.4% revenue improvement. 10 General advertising revenue was up $3.9 million, or 6.4%, from last year. On a comparable basis, general advertising revenue was up $1.7 million, or 2.7%. Telecommunications and airlines advertising in several large markets helped boost performance. Circulation revenue was up $8.0 million, or 5.8%, from 1997. On a comparable basis, circulation revenue was flat with second quarter 1997, on a 0.6% increase in the average seven-day circulation, offset in part by a 0.3% decline in average rate. Other revenue increased by $10.4 million, or 40.7%, from the prior year. On a comparable basis, other newspaper revenue increased by $7.4 million, or 25.9%. The increase was due to growth in commercial print, alternate distribution, database marketing, event marketing and online revenue. OPERATING COSTS Labor and employee benefit costs increased $23.3 million, or 8.4%. On a pro forma basis excluding sold newspapers and corporate relocation and severance costs, labor and employee benefit costs increased $4.5 million, or 1.5%, on a 1.0% increase in the average wage rate and a 1.0% increase in the workforce offset in part by a decline in employee benefits. Newsprint, ink and supplement costs increased $23.9 million, or 21.7%. On a comparable basis, these costs increased $17.3 million, or 14.8%, on a 13% increase in the average newsprint price and a 2.0% increase in consumption. This consumption increase was driven by circulation and advertising volume gains. Other operating costs increased $22.9 million, or 15.6%, from second quarter 1997. On a comparable basis, these costs increased $13.1 million, or 8.4%, mostly from circulation promotion costs and the change from non-employee carriers to circulation agents in Detroit, which results in both greater revenue and expense. Depreciation and amortization increased $7.5 million, or 19.0%, from second quarter 1997. On a comparable basis, depreciation and amortization increased $2.3 million, or 5.2%, from 1997, primarily due to the Miami press project and the Philadelphia renovation project. NON-OPERATING ITEMS Interest expense, net of interest income and interest expense capitalized, increased $2.2 million from last year due to the increase in debt related to the Disney newspaper acquisition and share repurchases. The average debt balance for the quarter increased $195.4 million from the second quarter of last year. Equity in earnings of unconsolidated companies and joint ventures increased by $5.6 million, mostly due to our newsprint mill investments which were favorably impacted by the increase in the price of newsprint compared to the prior year. The "Other, net" line of the non-operating section reflects a $7.0 million increase from 1997 due to the previously mentioned non-recurring items, primarily final settlements on asset sales. The effective tax rate was 40.8% in the quarter ended June 28, 1998 compared to 45.8% for the comparable quarter in 1997. The Disney newspapers acquisition was completed in the quarter ended June 29, 1997. Certain effects of the related preliminary purchase price allocation contributed to the increase in the effective tax rate for that quarter as compared to the same quarter in 1998. The final purchase price allocation was completed as of December 28, 1997. 11 OTHER On April 13, 1998, the company completed the sale of Technimetrics, Inc., a global shareholding and business contact information company, to an operating unit of The Thomson Corporation for $125.0 million. The pre-tax and after-tax gains on the sale of Technimetrics were $103.8 million and $60.0 million, respectively. On April 28, 1998, the company announced the reorganization and move of its corporate headquarters to the Silicon Valley area of California from Miami, Florida in early 1999. Costs related to the move are estimated to be around $25 million, of which $11.6 million was recognized in the second quarter. The majority of the remaining costs will be recognized in the third quarter. LIQUIDITY Net cash provided by operating activities increased to $58.2 million from $43.3 million in the second quarter of 1997. The increase was attributed to higher earnings, excluding non-recurring items, as well as changes in several working capital components. Cash and short term cash investments were up $68.0 million from June 29, 1997, but down $63.7 million from year end. Total debt decreased $104.7 million during the quarter, due to the use of Technimetrics sale proceeds. Debt decreased $292.3 million from June 29, 1997, due to the use of proceeds from the remaining cable investment sale, the sale of Knight Ridder Information, Inc. and five newspapers in December 1997 and February 1998, offset in part by the share repurchase program. Total-debt-to-total-capital ratio was 49.3% compared to 51.8% at year end and 50.9% in June 1997. Approximately $212.3 million in aggregate unused credit lines remained at the end of the quarter. During the second quarter, existing bank debt was refinanced with commercial paper supported by a $1.1 billion line of credit. The ratio of current assets to current liabilities was 0.7:1 at June 28, 1998, 1.1:1 at December 28, 1997 and June 29, 1997. OUTLOOK FOR THE REMAINDER OF THE YEAR As we look ahead to the third quarter and the year, we anticipate advertising growth will be moderately above the prior year. The outlook for newsprint continues to be encouraging. The third quarter gives us our best comparisons of the year, and the fourth quarter should align closely with it, provided the Abitibi strike (a newspaper vendor) is settled soon. We believe that we will be able to report record earnings for the year, excluding non-recurring items. Certain statements contained herein are forward looking statements. These are based on management's current knowledge of factors affecting Knight Ridder's business. Actual results could differ materially from those currently anticipated. Investors are cautioned that such forward looking statements involve risk and uncertainty, including, but not limited to, the effects of national and local economies on revenue, negotiations and relations with labor unions, unforeseen changes to newsprint prices and interest rates, the effects of acquisitions and dispositions, and the evolution of the Internet. 12 PART II - OTHER INFORMATION Item 6. Exhibits and Reports of Form 8-K (a) Exhibits Filed No. 27 - Financial Data Schedule (b) Reports on Form 8-K There were no reports on Form 8-K filed during the quarter ended June 28, 1998. 13 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. KNIGHT-RIDDER, INC. (Registrant) Date: August 11, 1998 /s/ Gary R. Effren --------------------------------- Gary R. Effren Vice President/Controller (Chief Accounting Officer and Duly Authorized Officer of Registrant) 14 EX-27 2 FDS - FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED STATEMENT OF INCOME, THE CONSOLIDATED BALANCE SHEET, AND THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000205520 KNIGHT-RIDDER, INC. 1,000 U.S. DOLLAR 6-MOS DEC-27-1998 DEC-29-1997 JUN-28-1998 1 21,317 75,237 356,334 16,124 62,725 544,277 1,823,499 756,242 4,271,485 834,354 649,321 0 1,755 1,643 1,577,636 4,271,485 1,523,175 1,523,175 264,607 1,282,863 (44,413) 10,124 54,836 284,725 116,363 168,362 60,226 0 0 228,588 2.88 2.31 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 CABLE INVESTMENT. SEE PART I., NOTE 2.
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