-----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, DiP76gNDor8ZLthYZUz/4Omxv9fHMHJyMkFORWKXma9SEdgRm7Oz2As92fEOSHrM hOUhOREPMczMsxlEolUubw== 0001019056-98-000688.txt : 19981123 0001019056-98-000688.hdr.sgml : 19981123 ACCESSION NUMBER: 0001019056-98-000688 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980927 FILED AS OF DATE: 19981120 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/A SEC ACT: SEC FILE NUMBER: 001-07553 FILM NUMBER: 98756336 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 FORM 10-Q/A NO. 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q/A No. 1 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR QUARTER ENDED: September 27, 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.) 50 W. SAN FERNANDO ST. SUITE 1200, SAN JOSE, CA 95113 ------------------------------------------------------------------------- (Address of principal executive offices) (408)938-7700 --------------------------------------------------------------------------- (Registrant's telephone number, including area code) ONE HERALD PLAZA, MIAMI, FLORIDA 33132 ---------------------------------------------------------------------------- (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 78,232,597 shares as of November 5, 1998. 1 Table of Contents for Form 10-Q/A No. 1 Page ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited), as amended November 20, 1998, to revise the Consolidated Statement of Cash Flows 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 (as amended November 20, 1998, only to indicate Year 2000 Readiness Disclosure) 10-15 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 16 SIGNATURE 17 EXHIBIT 18 2
PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF INCOME (UNAUDITED, IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA) Quarter Ended Three Quarters Ended Four Quarters Ended --------------------------- --------------------------- ---------------------------- September 27, September 28, September 27, September 28, September 27, September 28, 1998 1997 1998 1997 1998 1997 ------------- ------------- ------------- ------------- ------------- ------------- OPERATING REVENUE Advertising Retail $ 254,873 $ 253,238 $ 762,800 $ 686,587 $ 1,084,949 $ 937,119 General 59,728 59,142 188,765 172,050 262,811 226,590 Classified 257,013 258,236 780,890 711,963 1,016,346 894,352 ----------- ----------- ----------- ----------- ----------- ----------- Total 571,614 570,616 1,732,455 1,570,600 2,364,106 2,058,061 Circulation 145,093 149,989 441,337 416,460 592,634 541,873 Other 36,071 28,099 102,161 74,130 134,808 92,255 ----------- ----------- ----------- ----------- ----------- ----------- Total Operating Revenue 752,778 748,704 2,275,953 2,061,190 3,091,548 2,692,189 OPERATING COSTS Labor and employee benefits 301,027 300,346 895,526 828,934 1,198,819 1,071,372 Newsprint, ink and supplements 128,064 126,632 392,671 330,205 528,795 433,763 Other operating costs 165,741 165,311 497,019 441,077 671,412 562,600 Depreciation and amortization 46,317 48,479 138,796 117,892 177,635 150,473 ----------- ----------- ----------- ----------- ----------- ----------- Total Operating Costs 641,149 640,768 1,924,012 1,718,108 2,576,661 2,218,208 ----------- ----------- ----------- ----------- ----------- ----------- OPERATING INCOME 111,629 107,936 351,941 343,082 514,887 473,981 ----------- ----------- ----------- ----------- ----------- ----------- OTHER INCOME (EXPENSE) Interest expense (26,030) (33,763) (80,866) (72,420) (111,108) (89,257) Interest expense capitalized 776 1,040 3,177 4,189 4,364 6,188 Interest income 225 559 3,108 1,244 5,268 2,873 Equity in earnings of unconsolidated companies and joint ventures 3,896 4,542 16,731 8,315 19,216 15,992 Minority interests in earnings of consolidated subsidiaries (2,507) (2,785) (7,537) (8,182) (10,858) (11,502) Other, net 2,959 47,365 89,119 263,920 107,608 279,567 ----------- ----------- ----------- ----------- ----------- ----------- Total (20,681) 16,958 23,732 197,066 14,490 203,861 ----------- ----------- ----------- ----------- ----------- ----------- Income before income taxes 90,948 124,894 375,673 540,148 529,377 677,842 Income taxes 33,965 51,427 150,328 230,273 217,403 286,402 ----------- ----------- ----------- ----------- ----------- ----------- Income from continuing operations 56,983 73,467 225,345 309,875 311,974 391,440 Gain/(adjustment) on sale of discontinued BIS operations, net of applicable income taxes (benefits) of $ 43,752 for the three quarters ended 1998; $52,117 and $(354) for the four quarters ended 1998 and 1997. 60,042 75,303 (4,646) Income/(loss) from discontinued BIS operations, net of applicable income taxes of $362 for the quarter ended 1997; $133 and $131 for the three quarters ended 1998 and 1997; $1,121 and $1,635 for the four quarters ended 1998 and 1997. 545 184 169 1,265 (1,004) ----------- ----------- ----------- ----------- ----------- ----------- Net income $ 56,983 $ 74,012 $ 285,571 $ 310,044 388,542 385,790 =========== =========== =========== =========== =========== =========== EARNINGS PER SHARE BASIC: Income from continuing operations $ 0.72 $ 0.85 $ 2.85 $ 3.44 $ 3.89 $ 4.30 Gain/(adjustment) on sale of discontinued BIS operations, net 0.76 0.94 (0.05) Income/(loss) from discontinued BIS operations, net 0.02 (0.01) ----------- ----------- ----------- ----------- ----------- ----------- Net income $ 0.72 $ 0.85 $ 3.61 $ 3.44 $ 4.85 $ 4.24 =========== =========== =========== =========== =========== =========== DILUTED: Income from continuing operations $ 0.58 $ 0.69 $ 2.29 $ 3.08 $ 3.13 $ 3.94 Gain/(adjustment) on sale of discontinued BIS operations, net 0.61 0.76 (0.05) Income/(loss) from discontinued BIS operations, net 0.01 (0.01) ----------- ----------- ----------- ----------- ----------- ----------- Net income $ 0.58 $ 0.69 $ 2.90 $ 3.08 $ 3.90 $ 3.88 =========== =========== =========== =========== =========== =========== DIVIDENDS DECLARED PER COMMON SHARE $ 0.20 $ 0.20 $ 0.60 $ 0.60 $ 0.80 $ 0.60(1) =========== =========== =========== =========== =========== =========== AVERAGE SHARES OUTSTANDING (000s) Basic 78,670 86,920 79,074 90,120 80,190 91,015 =========== =========== =========== =========== =========== =========== Diluted 97,746 106,660 98,488 100,707 99,650 99,364 =========== =========== =========== =========== =========== ===========
(1) The Board of Directors declared a $.20 per share dividend on Jan. 28, 1997. The quarterly dividend previously 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)
SEPTEMBER 27, DECEMBER 28, SEPTEMBER 28, 1998 1997 1997 ------------- ------------ ------------- ASSETS Current Assets Cash, including short-term cash investments of $120 in 1998, $140,210 in December 1997, and $50 in September 1997 $ 20,353 $ 160,291 $ 35,849 Accounts receivable, net of allowances of $16,146 in 1998, $14,963 in December 1997, and $16,744 in September 1997 355,174 374,746 414,323 Inventories 55,951 50,332 59,029 Prepaid expense 12,864 15,844 29,906 Other current assets 40,228 39,902 46,268 ----------- ----------- ----------- Total Current Assets 484,570 641,115 585,375 ----------- ----------- ----------- Investments and Other Assets Equity in unconsolidated companies and joint ventures 195,741 197,585 194,516 Net assets of discontinued BIS operations 24,673 346,590 Other 220,511 172,859 174,341 ----------- ----------- ----------- Total Investments and Other Assets 416,252 395,117 715,447 ----------- ----------- ----------- Property, Plant and Equipment Land and improvements 94,048 89,375 96,621 Buildings and improvements 456,899 444,952 426,085 Equipment 1,164,947 1,127,875 1,104,242 Construction and equipment installations in progress 133,267 111,883 161,553 ----------- ----------- ----------- 1,849,161 1,774,085 1,788,501 Less accumulated depreciation (777,710) (727,571) (751,029) ----------- ----------- ----------- Net Property, Plant and Equipment 1,071,451 1,046,514 1,037,472 Excess of Cost Over Net Assets Acquired and Other Intangibles Less accumulated amortization of $246,961 in 1998, $197,966 in December 1997 and $182,203 in September 1997 2,231,674 2,272,396 2,302,986 ----------- ----------- ----------- Total $ 4,203,947 $ 4,355,142 $ 4,641,280 =========== =========== =========== 4
CONSOLIDATED BALANCE SHEET (UNAUDITED, IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA) SEPTEMBER 27, DECEMBER 28, SEPTEMBER 28, 1998 1997 1997 ------------- ------------ ------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable $ 115,933 $ 172,021 $ 167,768 Accrued expenses and other liabilities 129,454 131,491 142,107 Accrued compensation and amounts withheld from employees 105,959 119,036 118,255 Federal and state income taxes 22,420 33,920 46,085 Deferred revenue 67,284 72,491 91,161 Short-term borrowings and current portion of long-term debt 199,101 69,697 39,893 ----------- ----------- ----------- Total Current Liabilities 640,151 598,656 605,269 ----------- ----------- ----------- Noncurrent Liabilities Long-term debt 1,365,795 1,599,133 1,726,610 Deferred federal and state income taxes 285,217 282,695 333,022 Postretirement benefits other than pensions 152,199 150,485 155,341 Employment benefits and other noncurrent liabilities 160,473 171,225 125,716 ----------- ----------- ----------- Total Noncurrent Liabilities 1,963,684 2,203,538 2,340,689 ----------- ----------- ----------- Minority Interests in Consolidated Subsidiaries 2,682 1,275 2,002 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 September 1997 1,755 1,755 1,755 Common stock, $.02 1/12 par value; shares authorized - 250,000,000; shares issued -78,461,946 in 1998, 81,597,631 December 1997 and 85,863,984 in September 1997 1,635 1,700 1,789 Additional capital 910,087 911,572 927,638 Retained earnings 678,232 636,646 762,138 Treasury stock, at cost, 47,928 shares in 1998, and 0 in 1997 (2,675) Accumulated other comprehensive income 8,396 ----------- ----------- ----------- Total Shareholders' Equity 1,597,430 1,551,673 1,693,320 ----------- ----------- ----------- Total $ 4,203,947 $ 4,355,142 $ 4,641,280 =========== =========== ===========
See "Notes to Consolidated Financial Statements". 5
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED, IN THOUSANDS OF DOLLARS) Quarter Ended Three Quarters Ended Four Quarters Ended -------------------------- ---------------------------- ---------------------------- September 27, September 28, September 27, September 28, September 27, September 28, 1998 1997 1998 1997 1998 1997 ------------ ------------ ------------ ------------- ------------- -------------- CASH PROVIDED BY (REQUIRED FOR) OPERATING ACTIVITIES Net income $ 56,983 $ 74,012 $ 285,571 $ 310,044 $ 388,542 $ 385,790 Noncash items deducted from (included in) income: Gains on sales/exchanges of investee/subsidiaries (43,205) (75,251) (265,006) (93,371) (265,006) Net gain/(adjustment) on sale of discontinued BIS operations (60,042) (75,303) 4,646 Depreciation 26,532 29,265 79,573 74,216 99,495 97,693 Amortization of excess of cost over net assets acquired and other intangibles 16,474 15,227 48,995 31,712 64,758 36,535 Amortization of other assets 3,311 3,987 10,228 11,964 13,382 16,245 Provision (benefit) for deferred taxes (8,959) 23,148 (11,738) 23,562 (50,050) 60,598 Earnings from investees in excess of distributions (3,260) (5,425) (15,804) (9,574) (20,888) (18,576) Minority interests in earnings of consolidated subsidiaries 2,507 2,785 7,537 8,182 10,858 11,502 Other items, net 4,814 4,344 12,061 15,769 34,948 (10,230) Change in certain assets and liabilities: Accounts receivable (13,538) (3,643) 12,052 (7,068) (14,733) (24,819) Inventories 6,734 3,236 (6,240) (6,471) (95) 3,194 Other current assets (5,117) (5,709) 4,884 5,116 148 (150,840) Accounts payable (81,162) 8,971 (67,827) (83,592) (68,204) (17,989) Federal and state income taxes (52,523) (19,926) (46,956) 46,085 (83,418) 53,240 Other liabilities 25,409 48,025 (10,077) 46,767 (9,120) 32,607 ----------- ----------- ----------- ----------- ----------- ----------- Net Cash Provided by (Required for) Operating Activities (21,795) 135,092 166,966 201,706 196,949 214,590 ----------- ----------- ----------- ----------- ----------- ----------- 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 125,000 541,983 Change in net noncurrent assets of discontinued BIS operations (7,201) 520 (1,332) 3,848 4,472 Proceeds from sales of securities available for sale 1,808 110,915 4,319 241,894 4,319 241,894 Additions to property, plant and equipment (28,779) (22,750) (106,312) (83,411) (129,515) (102,055) Other items, net (5,825) (892) (9,038) (3,759) (13,444) 20,882 ----------- ----------- ----------- ----------- ----------- ----------- Net Cash Provided by (Required for) Investing Activities (32,796) 80,072 72,614 284,046 515,807 295,847 ----------- ----------- ----------- ----------- ----------- ----------- CASH PROVIDED BY (REQUIRED FOR) FINANCING ACTIVITIES Proceeds from sale of commercial paper, notes payable and senior notes payable 67,696 254,937 952,756 581,653 1,204,703 745,684 Reduction of total debt (40,000) (317,823) (1,057,325) (626,812) (1,407,124) (779,460) ----------- ----------- ----------- ----------- ----------- ----------- Net Change in Total Debt 27,696 (62,886) (104,569) (45,159) (202,421) (33,776) Payment of cash dividends (19,276) (21,014) (57,994) (57,990) (78,339) (76,803) Sale of common stock to employees 5,438 26,270 35,079 61,273 44,337 78,562 Purchase of treasury stock (30,498) (146,118) (238,027) (409,844) (471,558) (457,131) Other items, net (4,970) (4,125) (14,007) (21,063) (20,271) (7,600) ----------- ----------- ----------- ----------- ----------- ----------- Net Cash Required for Financing Activities (21,610) (207,873) (379,518) (472,783) (728,252) (496,748) ----------- ----------- ----------- ----------- ----------- ----------- Net Increase (Decrease) in Cash (76,201) 7,291 (139,938) 12,969 (15,496) 13,689 Cash and short-term cash investments at beginning of the period 96,554 28,558 160,291 22,880 35,849 22,160 ----------- ----------- ----------- ----------- ----------- ----------- Cash and short-term cash investments at end of the period $ 20,353 $ 35,849 $ 20,353 $ 35,849 $ 20,353 $ 35,849 =========== =========== =========== =========== =========== =========== 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 Additional Capital 658,245 658,245 Long-term debt assumed on the acquisition of the Disney newspapers 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, three quarters and four quarters ended September 27, 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 pre-tax and after-tax gains 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 that unrealized gains or losses on the company's available-for-sale securities be included in "other comprehensive income". Prior to its adoption, unrealized gains or losses on available-for-sale securities were recorded separately in shareholders' equity. For the quarter and three quarters ended September 27, 1998, total comprehensive income was $55.2 million and $294.0 million, respectively, and $70.5 million and $308.4 million, respectively, for the comparable periods in 1997. 7
NOTE 4 - DEBT (In Thousands of Dollars) Effective Interest Balance At Rate At ---------------------------------------------- September 27, September 27, December 28, September 28, 1998 1998 1997 1997 ------------- ------------- ------------ ------------- Commercial paper, net of discount 5.7% $ 955,363 $ 29,793 $ 319,658 Senior secured bank debt (a) 990,000 990,000 Debentures, net of discount (b) 10.0 198,257 198,133 198,092 Debentures, net of discount (c) 7.6 94,337 94,261 Notes payable, net of discount (d) 8.5 119,737 159,617 159,573 Notes payable, net of discount (e) 6.8 97,922 97,821 Senior notes, net of discount (f) 6.3 99,280 99,205 99,180 ---------- ---------- ----------- Total Debt (g) 6.7 1,564,896 1,668,830 1,766,503 Less amounts classified as current 199,101 69,697 39,893 ---------- ---------- ----------- Total Long-term Debt 6.8% $1,365,795 $1,599,133 $ 1,726,610 ========== ========== ===========
(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 September 27, 1998 and September 28, 1997, interest payments of $82.9 million and $41.1 million had been made for the year to date, respectively. NOTE 5 - INCOME TAX PAYMENTS Income tax payments for the three quarters ended September 27, 1998 and September 28, 1997, were $209.2 million and $155.7 million, respectively. 8 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 Three Quarters Ended Four Quarters Ended ---------------------------- ---------------------------- ---------------------------- September 27, September 28, September 27, September 28, September 27, September 28, 1998 1997 1998 1997 1998 1997 ------------- ------------- ------------- ------------- ------------- ------------- Income from continuing operations $ 56,983 $ 73,467 $225,345 $309,875 $311,974 $391,440 ======== ======== ======== ======== ======== ======== Average shares outstanding (basic) 78,670 86,920 79,074 90,120 80,190 91,015 -------- -------- -------- -------- -------- -------- Effect of dilutive securities: Convertible preferred stock 17,549 17,549 17,549 8,775 17,549 6,581 Stock options 1,527 2,191 1,865 1,812 1,911 1,768 -------- -------- -------- -------- -------- -------- Average shares outstanding (diluted) 97,746 106,660 98,488 100,707 99,650 99,364 -------- -------- -------- -------- -------- -------- Earnings per share from continuing operations (basic) $ 0.72 $ 0.85 $ 2.85 $ 3.44 $ 3.89 $ 4.30 ======== ======== ======== ======== ======== ======== Earnings per share from continuing operations (diluted) $ 0.58 $ 0.69 $ 2.29 $ 3.08 $ 3.13 $ 3.94 ======== ======== ======== ======== ======== ========
9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE THIRD QUARTER THIRD QUARTER 1998 COMPARED WITH THIRD QUARTER 1997 AND THE YEAR-TO-DATE RESULTS ENDED SEPTEMBER 27, 1998 COMPARED WITH THE YEAR-TO-DATE RESULTS ENDED SEPTEMBER 28, 1997 Diluted earnings per share from continuing operations was $.58, up $.12, or 26.1%, from the $.46 reported last year, excluding the $.23 gain on the Boulder newspaper exchange for two newspapers received from the E.W. Scripps Co. Excluding corporate relocation costs, Knight Ridder reported diluted earnings of $.63 per share, up $.17, or 37%, from 1997. Diluted earnings per share from continuing operations for the first three quarters of 1998 was $1.93, excluding the $.46 per share gain on the sale of the balance of the company's cable investment and the Gary newspaper, and other non-recurring items of $.10 per share. This represents an increase of $.36 per share, or 22.9%, from the $1.57 reported in 1997, excluding the $1.27 gain on the sale of most of the company's cable investment and the $.24 gain on the Boulder newspaper exchange. These results include operations from four newspapers acquired from The Walt Disney Company in May 1997, two newspapers received in exchange from E. W. Scripps Co. in August 1997 and The Daily Sun in Warner Robins, Ga., acquired in December 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) sold in December 1997 and February 1998. Net income from continuing operations in the third quarter, excluding corporate relocation costs, was $61.4 million, up $12.4 million, or 25.4%, from the same period last year, excluding the 1997 gain on the Boulder exchange. For the year to date, net income from continuing operations, exclusive of one-time gains and corporate relocation costs, was $189.7 million, up $32.7 million, or 20.8%, from 1997, on an operating revenue increase of 10.4%. On a pro forma basis excluding non-recurring items, total operating income in the third quarter was $118.6 million, up $13.0 million, or 12.3%, from the same period a year ago, reflecting a 3.3% increase in total operating revenue and tight cost controls. Total operating income, excluding non-recurring items, rose $4.4 million, or 1.2%, to $370.6 million for the three quarters ended September 27, 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 0.2% from the third quarter last year and $161.9 million, or 10.3%, for the year to date. On a pro forma basis excluding sold newspapers (comparable), advertising revenue for the quarter increased 3.1% from last year and 4.4% for the year to date. This reflected improvement in all advertising revenue categories for both the quarter and year to date. 10 Retail advertising revenue improved by $1.6 million, or 0.6%, from third quarter 1997 and $76.2 million, or 11.1%, from year-to-date 1997. On a comparable basis, retail advertising revenue improved by $10.3 million, or 4.2% for the quarter. Retail revenue benefited from Detroit and Philadelphia, up 12.6% and 8.0%, respectively. In these markets, revenues from large department store advertising were especially strong. Year-to-date retail revenue was up $32.2 million, or 4.4%, from 1997. Classified advertising revenue decreased $1.2 million, or 0.5%, from the third quarter last year, but increased $68.9 million, or 9.7%, from year-to-date 1997. On a comparable basis, classified advertising revenue for the quarter increased by $5.2 million, or 2.1%. All classified revenue categories were above the prior year, with real estate showing the largest improvement, up 4.3% from 1997. Year-to-date classified advertising revenue increased $32.1 million, or 4.3%, from 1997, primarily due to the employment category, up $23.3 million, or 6.7%. General advertising revenue was up $586,000, or 1.0%, from the third quarter last year and $16.7 million, or 9.7%, above year-to-date 1997. On a comparable basis, general advertising revenue for the quarter was up $1.8 million, or 3.2%. General revenue results were mixed across markets, with St. Paul up 56.9% due to airline strike advertising, and Ft. Worth down 25.0% due to non-recurring account campaigns and lower airline spending. Year-to-date general advertising revenue was up $8.6 million, or 4.8%, from the prior year. Circulation revenue for the quarter was down $4.9 million, or 3.3%, from 1997, but increased $24.9 million, or 6.0%, for the year to date. On a comparable basis, circulation revenue for the quarter was down $1.0 million, or 0.7%, on a 0.9% decrease in the average seven-day circulation, offset in part by a 0.2% increase in average rate. On this same basis, circulation revenue was down $902,000, or 0.2%, for the year to date, on a 0.4% decline in the average rate, offset by a 0.2% increase in the average seven-day circulation. Other revenue increased by $8.0 million, or 28.4%, from the prior year quarter and $28.0 million, or 37.8%, from year-to-date 1997. On a pro forma basis excluding sold newspapers, other revenue increased by $7.8 million, or 27.6%, for the third quarter, and $19.6 million, or 23.8%, for the year to date. The improvement for the third quarter and year to date was due to greater event marketing, alternate distribution, commercial print and online revenue. The increase in event marketing and commercial print revenue for the third quarter and year to date was primarily due to acquisitions and new business in Philadelphia. OPERATING COSTS Labor and employee benefit costs increased $681,000, or 0.2% from the third quarter 1997 and $66.6 million, or 8.0%, for the year to date. On a pro forma basis excluding sold newspapers and corporate relocation and severance costs, labor and employee benefit costs increased $6.2 million, or 2.1% from third quarter 1997. The increase was due to a 2.6% increase in the average wage rate and a 0.2% increase in the workforce, offset in part by a decline in employee benefits costs. On this same basis, year-to-date labor and employee benefit costs were $21.3 million, or 2.5%, higher than 1997, on a 2.6% increase in the average wage rate and a 1.2% increase in the workforce, offset by a decline in employee benefit costs. 11 Newsprint, ink and supplement costs increased $1.4 million, or 1.1% from third quarter 1997 and $62.5 million, or 18.9%, from year-to-date 1997. On a comparable basis, these costs increased $4.1 million, or 3.3%, on a 1.6% increase in the average newsprint price and an increase in ink and supplements, offset in part by a 0.1% decline in newsprint consumption. On this same basis, the year-to-date costs were up $41.5 million, or 11.8%, on an 8.8% increase in the average newsprint price and 2.5% increase in newsprint consumption. Other operating costs increased $430,000, or 0.3%, from third quarter 1997 and $55.9 million, or 12.7%, from year-to-date 1997. On a pro forma basis, excluding sold newspapers and corporate relocation costs, these costs for the quarter increased $2.6 million, or 1.6%, mostly as a result of higher circulation promotion costs and the change from non-employee carriers to circulation agents in Detroit, which results in both greater revenue and expense. Other operating costs rose $24.0 million, or 5.1%, from the prior year-to-date, also due to higher circulation promotion and advertising expenses and the changeover to circulation agents in Detroit. Depreciation and amortization decreased $2.2 million, or 4.5%, from third quarter 1997, but increased $20.9 million, or 17.7%, from year-to-date 1997. On a pro forma basis excluding sold newspapers, these costs decreased $1.8 million, or 3.7% for the quarter, primarily due to the accelerated writedown of equipment in the same period last year in Miami related to the installation of new presses. On this same basis, the year-to-date results increased $2.9 million, or $2.2%, from 1997. NON-OPERATING ITEMS Interest expense, net of interest income and interest expense capitalized, decreased $7.1 million from third quarter 1997, but increased $7.6 million for the year to date. The quarter's decrease was due to decreased debt levels and lower interest rates resulting from the second quarter 1998 debt refinancing. The average debt balance for the quarter decreased $258.4 million from the third quarter of last year. The year-to-date increase was due to higher debt levels from the Disney acquisition and share repurchases. Equity in earnings of unconsolidated companies and joint ventures dropped slightly in the third quarter, due primarily to lower earnings from The Seattle Times and the company's newsprint mill investments, which were affected by lower newsprint prices in the quarter. The year-to-date results were up $8.4 million from the prior year due primarily to the company's newsprint mill investments, which were favorably affected by the increase in the price of newsprint compared to the prior year and the absence of the company's investment in cable, which reported a loss in 1997. The "Other, net" line of the non-operating section was down $44.4 million from third quarter 1997 and $174.8 million below year-to-date 1997. The quarter decline was due principally to the gain recorded in the prior year on the exchange of the company's Boulder newspaper. The year-to-date decline was primarily due to the January 1997 sale of most of the company's cable investment and the August 1997 Boulder gain, offset by the 1998 sales of the balance of the company's cable investment and the Gary newspaper. 12 The effective tax rate on continuing operations was 37.3% in the quarter ended September 27, 1998 compared to 41.2% for the comparable quarter in 1997. Excluding one-time gains from the third quarter 1997, the effective tax rate was 40.1%. The effective tax rate on continuing operations for the year to date was 40.0% in 1998 compared to 42.6% in 1997. Excluding non-recurring items from both years, the effective tax rate on continuing operations was 39.9% in 1998 and 42.9% in 1997. The decline from 1997 for the quarter and the year to date was due to favorable audit settlements. OTHER On April 28, 1998, the company announced that it would move its corporate headquarters to the Silicon Valley area of California from Miami, Florida. By late September 1998, the move was substantially complete. Costs related to the move will be around $20 million to $25 million, of which $18.6 million was recognized through September 27, 1998. Most of the remaining costs will be recognized in the fourth quarter of 1998. LIQUIDITY Net cash provided by operating activities decreased by $156.9 million from $135.1 million in the third quarter of 1997. The decrease was attributed to changes in several working capital components, caused in part by the timing of payments to vendors, decreases in federal and state income taxes and the decrease in the provision for deferred taxes, offset in part by increased earnings, exclusive of one-time gains. Cash and short term cash investments were down $15.5 million from September 28, 1997, and down $139.9 million from year end. Total debt decreased $103.9 million from December 28, 1997 and declined $201.6 million from September 28, 1997. The decline from year end was due to the application of the proceeds from the balance of the company's cable investment, the sale of the Gary newspaper and the sale of Technimetrics, Inc. The decrease from September 28, 1997 was due to the application of the proceeds from the sale of Knight Ridder Information, Inc., Technimetrics, the five newspapers in December 1997 and February 1998, and proceeds from the balance of the company's cable investment, offset in part by the share repurchase program. Total-debt-to-total-capital ratio was 49.5% compared to 51.8% at year end and 51.1% in September 1997. Approximately $139.6 million in aggregate unused credit lines remained at the end of the quarter. The ratio of current assets to current liabilities was 0.8:1 at September 27, 1998, 1.1:1 at December 28, 1997, and 1.0:1 at September 28, 1997. During the third quarter, the company purchased approximately 627,000 shares, reflecting the company's belief that the stock price was undervalued due to the weakness in the overall stock market and the company's standing compared to peer companies. In October 1998, the Board of Directors authorized the company to repurchase up to an additional 3,000,000 shares of its stock. The company will carefully consider market opportunities for future share repurchases. OUTLOOK FOR THE REMAINDER OF THE YEAR As the company looks ahead to the fourth quarter, we continue to anticipate an overall earnings increase on continuing operations, excluding non-recurring items, of around 20% for the year. Although revenue is not as strong as we had forecast, the cost of newsprint is lower than anticipated due to delays in price increases. 13 YEAR 2000 READINESS DISCLOSURE The Year 2000 (Y2K) issue results from computer programs using two digits rather than four to define the applicable year. Company computer programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure, disruption of operations, and/or a temporary inability to conduct normal business activities. In the spring of 1997, the company initiated a comprehensive project to address Y2K issues. The Y2K project has been divided into five phases: Scope Definition, Impact Assessment, Conversion, Testing and Implementation. To implement this project, the company established a Y2K Project Management Office (PMO) to act as a central point of coordination for Y2K activity, chaired by the Vice President and Chief Information Officer who reports directly to the Chief Executive Officer. The PMO team includes executive management and employees with expertise from various disciplines, as well as an outside consultant. At each business unit, a Y2K coordinator has been appointed to direct all local Y2K activities. The Y2K coordinator works closely with the PMO team and local executive management and employees. The Scope Definition Phase, completed in June 1997, determined that the Y2K project would encompass both Information Technology (IT) and non-IT assets (embedded chip), including: software, microprocessor-based hardware (including embedded chips found in facilities and production environments) and significant suppliers, customers and other relevant third parties. The Impact Assessment Phase included a comprehensive inventory of both internally developed software and vendor products, as well as microprocessor-based hardware. These inventoried systems were evaluated to determine Y2K issues, if any, and a preliminary assessment regarding replacement or remediation was developed to make these systems Y2K compliant, as necessary. Additionally, a central database repository was developed, which contains each Y2K project prioritized based on the perceived business risk. This phase was completed in November 1997. Conversion, testing and implementation phases have been ongoing simultaneously since mid-1997. A majority of the company's software is vendor packaged. Depending on the package and Y2K remediation completed by the vendor, a business unit will (1) complete Y2K testing prior to implementation of the package, or (2) install the software version deemed by the vendor to be Y2K compliant and complete Y2K testing. In either case, when possible, previously created test cases will be run and results will be compared to the baseline results. For in-house developed systems, regression and other Y2K date testing is done as appropriate after Y2K remediation is complete. Results of regression testing are documented and compared to previous baseline results. Upon successful completion of the test phase, the systems will be implemented in the live production environment (implementation phase). In all material respects, the company expects that the conversion, testing and implementation phases will be completed by June 30, 1999. 14 Formal communications with all significant suppliers, customers and other relevant third parties has been initiated to determine the extent to which related interfaces with company systems are vulnerable if these third parties fail to remediate their own Y2K issues. There can be no assurance that these third-party systems will be converted on a timely basis. If any of the critical third party systems fail, such failure could have a material adverse impact on operations. However, the company is monitoring vendor compliance and will consider alternatives if vendors cannot meet the company's compliance requirements in a timely manner. At the present time, the total cost of the Y2K project is estimated to range from $70 million to $80 million, and will be funded through operating cash flows. Approximately 65% of the total will relate to purchased hardware and software, which will be capitalized. The remainder will be expensed as incurred. Expenditures through September 27, 1998 total $19.3 million, of which 70% has been capitalized. In certain cases, an expedited system replacement schedule will also bring enhanced functionality and should serve to reduce future capital requirements. The company believes that the acceleration of certain projects has not resulted in the deferral of other IT projects which would have a material impact on the financial condition and results of operation. As part of normal business practices, the company maintains site-specific emergency publication plans to be followed during emergency circumstances. Emergency publication plans are being reviewed and updated with Y2K contingency considerations in mind. This effort, plus additional contingency planning activities, will be completed by mid 1999. Based on a recent assessment of its internal operations, those over which the company has direct control, the company believes that with modifications to existing software and conversions to new software, the Y2K issue will not pose significant operational problems. The remediation or replacement of these systems is well under way. Furthermore, the contingency plan will outline alternatives in the event that any Y2K related situations may occur. However, if such modifications and conversions are not made, or are not completed timely, the Y2K issue could have a material adverse impact on the operations of the company. FORWARD LOOKING STATEMENTS Certain statements, including "Outlook For the Remainder of the Year" and "Year 2000 Readiness Disclosure", 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. 15 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 September 27, 1998. 16 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: November 20, 1998 /s/ GARY R. EFFREN ---------------------------------- Gary R. Effren Vice President/Controller (Chief Accounting Officer and Duly Authorized Officer of Registrant) 17 EX-27 2
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. 1000 USD 9-MOS DEC-27-1998 DEC-29-1997 SEP-27-1998 1 20,233 120 371,320 16,146 55,951 484,570 1,849,161 777,710 4,203,947 640,151 609,533 0 1,755 1,635 1,594,040 4,203,947 2,275,953 2,275,953 392,671 1,924,012 (23,732) 15,386 80,866 375,673 150,328 225,345 60,226 0 0 285,571 3.61 2.90 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 INCLUDES 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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