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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 28, 1997 Commission file number 1-7553
KNIGHT-RIDDER, INC.
(Exact name of registrant as specified in its charter)
A Florida corporation NO. 38-0723657
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Herald Plaza Miami, Florida 33132
(Address of principal executive offices)
Registrant's telephone number, including area code (305) 376-3800
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $.02 1/12 Par Value New York Stock Exchange
Frankfurt Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
none
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [ ]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. (The aggregate market value is computed by reference to the
price at which the stock was sold as of March 6, 1998: $4,480,605,092.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date: March 6, 1998 - 79,302,745 one
class Common Stock, $.02 1/12 Par Value
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of definitive Proxy Statement dated March 27, 1998, in connection
with the Annual Meeting of Shareholders to be held on April 28, 1998, are
incorporated into Part III.
(2) Portions of the Company's Form 10-K filed March 10, 1997 are incorporated
into Part IV.
(3) Portions of the Company's Form 10-K filed March 20, 1996 are incorporated
into Part IV.
(4) Portions of the Company's Form 10-K filed March 24, 1995 are incorporated
into Part IV.
(5) Portions of the Company's Form 10-K filed March 23, 1994 are incorporated
into Part IV.
(6) Rights Agreement filed July 9, 1996 on Form 8-A is incorporated into Part
IV.
(7) Registration Statement No. 33-28010 on Form S-3 is incorporated into Part
IV.
(8) Registration Statement No. 333-37603 on Form S-3 is incorporated into Part
IV.
1
Table of Contents for 1997 Form 10-K
Page
PART I
Item 1. Business ................................................................................. 3-8
Item 2. Properties ............................................................................... 8
Item 3. Legal Proceedings ........................................................................ 9
Item 4. Submission of Matters to a Vote of Security Holders ...................................... 9
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters ..................... 9-10
Item 6. Selected Financial Data .................................................................. 11-14
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations .... 15-26
Item 8. Financial Statements and Supplementary Data .............................................. 27-48
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ..... 49
PART III
Item 10. Directors and Executive Officers of the Registrant ....................................... 49-51
Item 11. Executive Compensation ................................................................... 52
Item 12. Security Ownership of Certain Beneficial Owners and Management ........................... 52
Item 13. Certain Relationships and Related Transactions ........................................... 52
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K .......................... 52-55
SIGNATURES ......................................................................................... 56-58
SCHEDULES .......................................................................................... 59
EXHIBITS ........................................................................................... 59
2
PART I
Item 1. BUSINESS
THE COMPANY
Knight-Ridder, Inc., was formed in 1974 by a merger between Knight Newspapers,
Inc., and Ridder Publications, Inc.
In 1903, Charles Landon Knight purchased the Akron Beacon Journal. Knight
Newspapers was founded by John S. Knight, who inherited the Beacon Journal from
his father in 1933. Ridder Publications was founded in 1892 when Herman Ridder
acquired the German-language Staats-Zeitung in New York. Both groups flourished,
each taking its stock public in 1969. The merger created a company with
operations coast to coast.
Knight-Ridder, Inc., was incorporated in Florida in 1976, is headquartered in
Miami, Florida, and employs about 22,000 people.
Recent Developments
In 1997, Knight Ridder acquired four newspapers indirectly owned by The Walt
Disney Company, exchanged its newspaper in Boulder, Colo., for two newspapers in
California owned by the E.W. Scripps Co. and sold four of its newspapers. Also,
in 1997, Knight Ridder sold Knight-Ridder Information, Inc. (KRII) and in
December the company announced its intent to sell Technimetrics, Inc. The
company's announcement to divest KRII and Technimetrics resulted in the
reclassification of its former Business Information Services (BIS) segment as
discontinued operations.
NEWSPAPERS
Knight Ridder has 31 daily newspapers and 18 nondaily newspapers.
Operating revenue is derived primarily from the sale of newspaper advertising.
Due to seasonal factors such as heavier retail selling during the winter and
spring holiday seasons, advertising income fluctuates significantly throughout
the year. Consecutive quarterly results are not uniform or comparable and are
not indicative of the results over an entire year.
Each of Knight Ridder's newspapers is operated on a substantially autonomous
basis by local management appointed by corporate headquarters in Miami. Each
newspaper is free to manage its own news coverage, set its own editorial
policies and establish most business practices. Basic business policies,
however, are set by the corporate staff in Miami. Editorial services and quality
control also are provided by the corporate staff.
Each newspaper is served by the company-owned news bureau in Washington, D.C. A
supplemental news service provided by KRT Information Services, a partnership
between Knight Ridder and Tribune Co., distributes editorial material produced
by all Knight Ridder newspapers and by 16 foreign correspondents. The service
also distributes editorial computer graphics and deadline photos via the Knight
Ridder-owned PressLink Online.
All of the company's newspapers compete for advertising and readers' time and
attention with broadcast, satellite and cable television, the Internet and other
computer services, radio, magazines, nondaily suburban newspapers, free
shoppers, billboards and direct mail. In some cases, the newspapers also compete
with other newspapers published in nearby cities and towns-- particularly in
Miami, St. Paul and Fort Worth. In Detroit and Fort Wayne, Knight Ridder has
joint operating agreements with a second newspaper. The rest of Knight Ridder's
newspapers are the only daily and Sunday papers of general circulation published
in their communities.
The newspapers rely on local sales operations for local retail and classified
advertising. The larger papers are assisted by Newspapers First and by the
Newspaper National Network, a sales force created by a group of some 50 major
newspapers, in obtaining national or general advertising.
3
Source of Knight Ridder Operating Revenue
The table below presents the relative percentage contributions by individual
papers to the company's overall operating revenue in 1997, 1996 and 1995. The
percentage contributions of each paper to operating revenue are not necessarily
indicative of contributions to operating profit.
1997 1996 1995
---- ---- ----
The Philadelphia Inquirer and
Philadelphia Daily News ............. 19.0% 21.3% 21.7%
The Miami Herald ...................... 11.4 13.3 14.3
San Jose Mercury News ................. 10.4 12.0 11.9
The Kansas City Star(1) ............... 6.1
Fort Worth Star-Telegram(1) ........... 4.9
Detroit Free Press(2) ................. 7.0 7.7 8.5
The Charlotte Observer ................ 6.2 6.9 6.8
Saint Paul Pioneer Press .............. 4.1 4.7 4.8
Contra Costa Newspapers(3) ............ 3.9 4.4 1.0
Akron Beacon Journal .................. 3.6 4.0 4.0
All other ............................. 23.4 25.7 27.0
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
(1) The Kansas City Star and Fort Worth Star-Telegram were acquired on May 9,
1997. This table presents their partial year contribution percentage.
(2) Knight Ridder portion of Detroit Newspapers.
(3) Contra Costa Newspapers was acquired on Oct. 31, 1995.
Newsprint
Knight Ridder consumed 752,000 metric tons of newsprint in 1997. Approximately
16.8% of the company's total operating expenses during the year was for
newsprint. Purchases are made under long-term agreements with 18 newsprint
producers. Knight Ridder purchases approximately 70% of its annual consumption
from mills in the United States with the remainder purchased from mills in
Canada and one in Korea. In the opinion of management, sources are adequate to
meet current demands.
Approximately 83% of the newsprint consumed by the company contained some
recycled content; the average content of these rolls was 47% recycled fiber.
This translates into an overall recycled newsprint average of 39%.
Knight Ridder is a one-third partner with Cox Newspapers, Inc., and Media
General, Inc., in Southeast Paper Manufacturing Co., a newsprint mill in Dublin,
Ga. The mill produced 456,000 metric tons in 1997, using more than 600,000 tons
of recycled newsprint as the principal raw material and coal as the primary
energy source. Knight Ridder also owns a 13.5% equity share of Ponderay
Newsprint Company in Usk, Wash., which produced more than 232,000 metric tons in
1997. Knight Ridder's purchases from these two mills reached 22.6% of our annual
consumption for 1997, proving an important hedge against price volatility.
Technology
Efforts to improve the quality of products continued during 1997. The company
completed the installation of new publishing systems in Duluth, Contra Costa,
Columbia and Grand Forks (made necessary by the flood). Systems installations
are under way in Akron, Biloxi, Macon, Myrtle Beach, Philadelphia and San Jose,
and have been approved for Charlotte.
The Charlotte Observer completed a full conversion to Flexographic printing, and
a press replacement project was completed in Duluth.
Major press replacement projects are well under way at The Miami Herald and in
Akron. New presses were approved for Fort Worth. Significant renovations are
continuing at the business and editorial offices in Detroit and Philadelphia.
General Advertising Sales
Knight Ridder newspapers depend most heavily on three agents for the sale of
general advertising.
4
Newspapers First, a national advertising sales cooperative, is the primary sales
representative for the larger Knight Ridder newspapers, Detroit Newspapers and
several leading independents. It allows customers to place ads in a combination
of newspapers.
Newspaper National Network (NNN), Knight Ridder's second general sales agent,
was established in 1994 to focus on national selling on behalf of the newspaper
industry. It represents all the Knight Ridder newspapers, plus more than 500
others. Like Newspapers First, it makes the purchase of newspaper advertising a
"one-stop shopping," "one-order, one-bill" prospect.
Sawyer, Ferguson and Walker, Inc., a private company, sells sales-
representative services for Knight Ridder's medium to small markets and helps
with regional retail advertising sales.
Knight Ridder/Tribune
Knight Ridder/Tribune Information Services (KRT) is a joint venture of Knight
Ridder and Tribune Co. that offers news stories, graphics, illustrations and
photos for print and online publishers and animations for TV broadcasters. This
year, KRT added three new products: graphic packages and news animations for Web
publishers and a regional news service for the Southeast.
The daily interactive packages and graphics help Web publishers offer unique
content, complete with sound and motion. KRT also provides newspaper clients
with complementary stories, photos and graphics that they can use to promote the
online content. This lets them use print circulation to build traffic on their
Web sites.
For print customers, KRT expanded coverage of news, features, business and
sports in the Southeastern United States, creating a premium service called KRT
South.
The Philadelphia Inquirer and Philadelphia Daily News
1997 Revenue was $546.5 million. Philadelphia Newspapers, Inc. (PNI), publisher
of The Philadelphia Inquirer and Philadelphia Daily News reached an all-time
record profit level in 1997. PNI also reported year-over-year circulation gains
for the Sunday and daily Inquirer and the Daily News for the six-month period
ended Sept. 30, 1997.
The year's achievements include the launch of a New Business Development
Department for entrepreneurial projects, which resulted in the start-up or
acquisition of new revenue-producing enterprises; implementing a strategic
planning process; winning a Pulitzer Prize, The Inquirer's 18th, and publishing
two record-breaking recruitment advertising sections, in terms of volume and
revenue dollars. Also in 1997, both newspapers moved into new, technologically
advanced newsrooms, part of the $30 million renovation of PNI's Center City
Philadelphia location.
Advertising revenue was up 11.1% in 1997, with particularly strong performances
in classified and general, up 16.8% and 22.3%, respectively. Retail strengthened
in the last months of the year, and is expected to continue to perform well.
Opportunities to grow advertising in PNI's products within the nine-county
Philadelphia Metropolitan market remain attractive as the market features a
diverse economy, including the state's largest manufacturing center, more than
80 higher education institutions and an extensive hospital and health care
industry.
In 1996, Philadelphia had income per capita 15.2% above the U.S. average; by
2015 it is projected to be 9.1% above.
5
The Miami Herald
1997 Revenue was $324.4 million. The Miami Herald, Florida's largest newspaper,
is sold primarily in Miami-Dade, Broward and Monroe counties. Its International
Satellite Edition is distributed in 29 countries in Latin America and the
Caribbean.
El Nuevo Herald, an award-winning Spanish-language newspaper (102,744 daily and
127,028 Sunday), is available to Herald subscribers for a 7-cent daily delivery
charge or through single-copy sales.
Retail expansion in 1997 was fueled by a wave of new entertainment retailing
projects like BeachPlace in Broward; more are planned for both Miami-Dade and
Broward.
Several retailers are expanding: Bloomingdale's opened a new store; Dillard's
will occupy 10 former Mervyn's locations; Nordstrom and OfficeMax each plan to
open several stores.
Advertising revenue was up 3.1% in 1997. Retail was significantly better for the
first time since the aftermath of Hurricane Andrew. Classified was up only
slightly, reflecting Miami's relatively high unemployment rate.
In 1997, The Herald launched three new online products: HomeHunter, CarHunter
and an entertainment guide, JustGo. On its 10th anniversary, el Nuevo Herald
extended solo distribution to more than 1,000 single-copy racks. The Herald
retooled its Sunday magazine, Tropic. It expanded partnerships with NBC 6 and
Channel 23 and agreed to produce a pilot program with Silver King Broadcasting
featuring the Herald newsroom. Attendance was strong at the first Americas
Conference. A partnership with the Florida Marlins contributed to the largest
single-copy sales day in Herald history when the team won the World Series.
Installation of state-of-the-art offset presses is ongoing.
The Miami/Fort Lauderdale DMA population is expected to grow 26.7% between 1996
and 2015, compared with 18.0% for the U.S.
The Miami/Fort Lauderdale market in 1996 had income per capita 0.7% above the
U.S. average; by 2015 it is projected to be 6.8% above.
San Jose Mercury News
1997 Revenue was $299.3 million. In 1997, Time magazine named the San Jose
Mercury News the "most tech-savvy" newspaper in America. The Mercury News serves
Silicon Valley, which encompasses San Jose, California's third-largest city, and
surrounding communities. The region became the national leader in exports and is
the world leader in high technology. Business Week reported: "In 1996, on
average, one Valley company went public every five days...More than 50,000 new
jobs were created, while wages grew five times the national average."
Sharing in Silicon Valley's economic boom, the Mercury News has introduced or
developed products in the past year to compensate for a retail market that
didn't grow as quickly as other segments.
Advertising revenue was up 5.0% in 1997. Classified was up just slightly after
the major gains of 1996 and 1995, and retail rebounded strongly after
year-earlier consolidations in the market. General, up 25%, has been the high
point, driven by high-tech products and services, telecommunications and
exports.
Mercury Center reflects the newspaper's innovative initiatives. The online
edition added Just Go/Bay Area, an online entertainment guide; HomeHunter, a
real estate site; and Bay Area Yellow Pages, an online directory. Existing
products expanded: the Talent Scout recruitment site, for example, introduced a
branded job fair.
Founded in 1993, Mercury Center (www.mercurycenter.com) averaged more than 1.2
million users per month in 1997. The site's stature as a news source was
demonstrated during October's market tremors, registering over 2 million hits in
a single day.
6
Nuevo Mundo, serving the nation's fourth-largest Hispanic market, celebrated its
first anniversary. The Spanish-language free weekly ended the year with average
circulation of 56,900 copies.
The population of the San Jose Metropolitan Statistical Area (MSA), which
includes only Santa Clara County, is expected to grow 21.0% between 1996 and
2015; the U.S. average is 18.0%.
In 1996, San Jose had income per capita 33.7% above the U.S. average; by 2015 it
is projected to be 32.6% above.
The Kansas City Star
1997 Revenue was $265.4 million. The Kansas City Star serves the Kansas City
metro and outlying areas on both sides of the Kansas and Missouri state lines.
The Star's primary market area consists of 11 counties in the two states.
After a relatively slow period of economic growth, Kansas City became a boomtown
in 1996. Higher personal incomes, stronger economic output and increased
employment in retail and service industries have led to a tight job market.
Recruitment for the more than 19,000 new jobs created in 1997 brought an upsurge
in help-wanted advertising, with a nearly 20% increase in revenue.
Kansas City's retail landscape has also been changing with the addition of
several major retailers. Kohl's, Jacobson's, Target and Home Depot entered the
market in late 1996 and early 1997, with Nordstrom set to debut in early 1998.
Coupled with the addition of a major mall, retail advertising increased 9.5% in
1997.
Advertising revenue was up 10.1% in 1997 and is expected to increase about 7% in
1998. The profit margin was in the low 30s and is expected to remain steady.
The Star's online community site, kansascity.com, and online product,
kcstar.com, continue to grow and improve. The kansascity.com site won the 1997
Newspaper Association of America Digital Edge award for best use of classified
online. The site saw a 461% year-over-year increase in traffic for November.
StarDirect, a subsidiary offering turnkey database marketing solutions, saw a
108% increase in revenue. Additionally, revenue increased 44% for Grand
Communications, the event marketing subsidiary.
Kansas City in 1996 had income per capita 3.4% above the U.S. average; by 2015
it is projected to be 2.5% above.
Fort Worth Star-Telegram
1997 Revenue was $212.6 million. The Star-Telegram is located in the western
portion of the Dallas/Fort Worth market. The four-county Fort Worth/Arlington
PMSA metropolitan area ranks as the 32nd most populous in the U.S. and third
largest in Texas in 1997.
The number of jobs hit a historic high in 1997, with 2% growth projected for
1998. Unemployment is just over 3%. In far North Fort Worth, the Texas Motor
Speedway and a FedEx national distribution hub opened. Intel Corp. plans to open
a $1.3 billion manufacturing facility by the year 2000, and Nokia and Motorola
Fort Worth are expanding, making the area a new national technology center. The
area is home to such Fortune 500 companies as American Airlines, Tandy
Corporation and Burlington Northern Santa Fe Railroad.
The 1.8 million-square-foot Grapevine Mills opened and a major expansion of
North East Mall is under way, including new Nordstrom and JCPenney stores. The
Bass Performing Arts Hall will open in 1998. Renovation of historic buildings
and construction of new housing are driving development of Sundance Square and
downtown Fort Worth.
Ad revenue was up 6.5% in 1997, and we project about a 6% gain in 1998. Profit
margin was in the mid-20s.
7
The Star-Telegram continues its intensely zoned approach to local news,
advertising and customer service. The Arlington Star-Telegram set new
circulation and advertising records in the face of aggressive competition in
1997. In 1998, Northeast Tarrant County will be served by four distinct editions
of the successful weekly Hometown Star. Star-Telegram Online Services, under the
banner Star-Telegram.com, is undergoing a major strategic repositioning and
expansion of advertising opportunities. La Estrella, with its two distinct
bilingual and Spanish-predominant weekly editions, continues to develop.
Fort Worth/Arlington's population has grown 57% since 1980, and is expected to
grow 39.9% between 1996 and 2015, compared with 18.0% for the U.S.
Detroit Free Press
1997 Revenue (Knight Ridder's share) was $201.7 million. The Detroit Free Press
is the largest newspaper in Michigan. The combined Sunday edition, The Detroit
News and Free Press, ranks sixth in circulation in the nation.
The two newspapers are published by Detroit Newspapers (DN), an agency combining
the business operations of the two newspapers. This joint operating agency (JOA)
was formed in 1989. The profits (or losses) are split equally between the two
partners, Knight Ridder and Gannett Co. The Free Press is an a.m. paper and The
News is a p.m. paper. On weekends, they publish combined editions.
On July 13, 1995, six of DN's 11 unions struck over proposed changes in work
rules. In February 1997, the unions made an unconditional offer to return to
work.
In normal times, Detroit will generate approximately $450 million in revenue
from its two newspapers. Total advertising at the end of 1997 was at about 90%
of prestrike levels.
Retail advertising was at nearly 80%; general was about the same, and classified
was slightly improved from prestrike levels.
Circulation continued to improve; as of the ABC Publisher's Statement for the
six months ended Sept. 30, 1997, it was at approximately 71.6% of its prestrike
level for the daily Free Press and 74.4% for the combined Sunday paper. DN
continues to rebound in both advertising and circulation. The company returned
to profitability in the fourth quarter of 1996.
Detroit in 1996 had income per capita 15.3% above the U.S. average; in 2015 it
is projected to be 9.1% above.
The Charlotte Observer
1997 Revenue was $171.9 million. The Charlotte Observer, the largest-circulation
daily in North and South Carolina, is sold primarily in a 15-county region
across the two states. The Observer enjoyed strong advertising growth in 1997,
with retail revenue up 8.7%, general up 2.2% and classified up 13.3% over last
year. Continued growth is expected in 1998.
Population in the Charlotte Metropolitan Statistical Area (MSA) is expected to
grow 26.9% between 1996 and 2015, compared with the U.S. average of 18.0%.
Item 2. PROPERTIES
The company has daily newspaper facilities in 28 markets located in 18 states.
These facilities vary in size from 7,300 square feet at the Florida Keys
Keynoter operation in Marathon, Fla., to 2.8 million square feet in
Philadelphia. In total, they occupy about 10.5 million square feet.
Approximately 2.1 million of the total square footage is leased from others.
Virtually all the owned property is owned in fee. The company owns substantially
all of its production equipment, although certain office equipment is leased.
The company also owns land for future expansion in Columbus and Macon, Ga.,
Detroit and San Jose.
Knight Ridder properties are maintained in excellent operating condition and are
suitable for present and foreseeable operations. During the three years ended
Dec. 28, 1997, the company spent approximately $311.6 million for capital
additions and improvements to its properties, excluding discontinued BIS
operations.
8
Item 3. LEGAL PROCEEDINGS
On July 13, 1995, six unions struck the Detroit Free Press, The Detroit News and
the Detroit Newspaper Agency, which operates both newspapers. Subsequently, the
unions filed numerous unfair labor practice charges against the newspapers and
the Agency. In June 1997, after a lengthy trial, a National Labor Relations
Board (NLRB) administrative law judge ruled that the strike was caused by the
unfair labor practices of the Agency and The Detroit News and recommended that
the Agency and the newspapers reinstate all strikers, displacing permanent
replacements if necessary. The Agency and the newspapers have appealed the
decision, which is pending before the NLRB.
Various libel actions and environmental and other legal proceedings that have
arisen in the ordinary course of business are pending against the company and
its subsidiaries. In the opinion of management, the ultimate liability to the
company and its subsidiaries as a result of all legal proceedings, including
Detroit, will not be material to its financial position or results of
operations.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the vote of security holders of Knight-Ridder,
Inc., during the quarter ended December 28, 1997.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
KRI Stock
Knight Ridder common stock is listed on the New York Stock Exchange and the
Frankfurt Stock Exchange under the symbol KRI.
The stock is also traded in exchanges in Philadelphia, Chicago, Boston, San
Francisco, Los Angeles and Cincinnati, and through the Intermarket Trading
System. Options are traded on the Philadelphia Exchange.
Knight Ridder stock split two-for-one in 1996. The company's 81.6 million shares
outstanding at December 28, 1997, were held in all 50 states by 11,723
shareholders of record.
Market Price of Common Stock
The last closing price of the company's common stock prior to the preparation of
this report was $55.06 on Jan. 30, 1998.
The average stock trading volume per day for the years 1997, 1996, and 1995 was
271,016, 181,805, and 132,300, respectively. The following table presents the
company's common stock market data:
1997 1996 1995
------------------- ---------------- --------------------
Quarter High Low High Low High Low
-------- ------ ------- ------- ------- --------
1st ........... 42 3/8 37 3/8 36 1/16 29 7/8 28 1/16 25 1/8
2nd ........... 49 35 3/4 38 7/16 32 11/16 28 7/8 26 3/16
3rd ........... 55 13/16 48 3/4 38 32 7/16 29 3/16 27 5/8
4th ........... 57 1/8 49 1/8 42 35 3/8 33 5/16 28 1/8
9
Treasury Stock Purchases
The table below is a summary of treasury stock purchases since 1987:
Shares Cost
Purchased (000s)
---------- ----------
1997 ...................... 13,824,300 $ 643,375
1996 ...................... 6,219,100 221,768
1995 ...................... 11,508,600 319,363
1994 ...................... 5,044,600 136,977
1993 ...................... 1,500,000 40,693
1992
1991
1990 ...................... 5,325,400 129,909
1989 ...................... 5,522,200 131,885
1988 ...................... 9,099,200 198,279
1987 ...................... 2,000,000 38,728
Dividends
Common stock dividend history and policy appears in Item 6. "11 Year Financial
Highlights", Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations", Quarterly Operations, and Item 8.
"Financial Statements and Supplementary Data", Note E, incorporated herein by
reference.
10
Item 6. SELECTED FINANCIAL DATA
11-YEAR FINANCIAL HIGHLIGHTS
The following data was compiled from the consolidated financial statements of Knight Ridder and subsidiaries. The consolidated
financial statements and related notes and discussions for the year ended Dec. 28, 1997 (Items 7 and 8) should be read in order to
obtain a better understanding of this data.
- ------------------------------------------------------------------------------------------------------------------------------------
Compound
Growth Rate
(In thousands, except per share ---------------- Dec. 28 Dec. 29 Dec. 31
data and ratios) 5-Year 10-Year 1997 1996 1995
------ ------- ----------- ----------- -----------
SUMMARY OF OPERATIONS
Operating Revenue
Advertising ........................ 8.8% 4.2% $ 2,202,251 $ 1,793,424 $ 1,672,970
Circulation ........................ 4.3 4.7 567,757 501,826 495,315
Other .............................. 21.7 8.6 106,777 78,974 81,897
----------- ----------- -----------
Total Operating Revenue .......... 8.2 4.4 2,876,785 2,374,224 2,250,182
----------- ----------- -----------
Operating Costs
Labor, newsprint and other
operating costs .................. 6.7 4.0 2,214,026 1,920,444 1,923,179
Depreciation and amortization ...... 11.8 7.1 156,731 120,647 98,741
----------- ----------- -----------
Total Operating Costs ............ 7.0 4.2 2,370,757 2,041,091 2,021,920
----------- ----------- -----------
Operating Income ..................... 14.6 5.5 506,028 333,133 228,262
Interest expense ................... 12.4 6.6 (102,662) (73,137) (59,512)
Other, net(1) ...................... 82.6 30.2 290,486 50,213 14,067
Income taxes, net .................. 29.2 9.7 (297,348) (124,829) (72,861)
----------- ----------- -----------
Income from continuing operations(1).. 24.0 10.3 396,504 185,380 109,956
Discontinued BIS operations(2) ....... 16,511 82,493 57,426
Discontinued broadcast operations(2)
Cumulative effect of changes in
accounting principles(3) ........... (7,320)
----------- ----------- -----------
Net Income(1) ........................ 58.8 10.3 $ 413,015 $ 267,873 $ 160,062
=========== =========== ===========
Operating income percentage (profit
margin) ............................ 17.6% 14.0% 10.1%
- -----------------------------------------------------------------------------------------------------------------------
SHARE DATA(4)
Basic weighted-average number of
shares ............................. 88,475 96,021 99,451
Diluted weighted-average number of
shares ............................. 101,314 97,420 100,196
Earnings per share
Basic:
Continuing operations(1).............. 29.3 13.2 $ 4.48 $ 1.93 $ 1.11
Discontinued BIS operations(2) ....... 0.19 0.86 0.57
Discontinued broadcast operations(2)
Cumulative effect of changes in
accounting principles(3) ........... (0.07)
Net income(1) ........................ 65.2 13.2 4.67 2.79 1.61
Diluted:
Continuing operations(1).............. 26.3 11.9 $ 3.91 $ 1.90 $1.10
Discontinued BIS operations(2) ....... 0.17 0.85 0.57
Discontinued broadcast operations(2)
Cumulative effect of changes in
accounting principles(3) ........... (0.07)
Net income(1) ........................ 61.6 11.9 4.08 2.75 1.60
Dividends declared per common
share(5) ........................... 2.7 4.5 0.80 0.58-1/2 0.74
Common stock price
High ............................... 57-1/8 42 33-5/16
Low ................................ 35-3/4 29-7/8 25-1/8
Close .............................. 50-3/16 39-1/4 31-1/4
Shareholders' equity per common
share .............................. 7.8 7.0 $ 15.65 $ 12.12 $ 11.43
Price/earnings ratio(6) .............. 21.8:1 21.6:1 28.4:1
- -----------------------------------------------------------------------------------------------------------------------
OTHER FINANCIAL DATA
Common stock acquired ................ $ 643,375 $ 221,768 $ 319,363
Payment of cash dividends ............ 78,335 74,262 74,377
Ratio of earnings to fixed
charges (7) ........................ 7.1:1 4.0:1 3.2:1
At Year End
Total assets ....................... $ 4,355,142 $ 2,860,907 $ 2,966,321
Long-term debt (excluding current
maturities) ...................... 1,599,133 771,335 1,000,721
Total debt ......................... 1,668,830 821,335 1,013,850
Shareholders' equity ............... 1,551,673 1,131,508 1,110,970
Return on average shareholders'
equity(8) ........................ 30.8% 23.9% 14.3%
Current ratio ...................... 1.2:1 1.0:1 1.1:1
Total debt/total capital ratio ..... 51.8% 42.1% 47.7%
11
- -----------------------------------------------------------------------------------------------------------
(In thousands, except per share Dec. 25 Dec. 26 Dec. 27 Dec. 29
data and ratios) 1994 1993 1992 1991
----------- ----------- ----------- -----------
SUMMARY OF OPERATIONS
Operating Revenue
Advertising ..................... $ 1,583,373 $ 1,481,631 $ 1,444,144 $ 1,429,661
Circulation ..................... 484,581 474,420 460,014 439,029
Other ........................... 66,968 56,772 39,932 35,127
----------- ----------- ----------- -----------
Total Operating Revenue ....... 2,134,922 2,012,823 1,944,090 1,903,817
----------- ----------- ----------- -----------
Operating Costs
Labor, newsprint and other
operating costs ............... 1,730,158 1,655,138 1,597,983 1,593,847
Depreciation and amortization ... 96,613 96,233 89,665 86,896
----------- ----------- ----------- -----------
Total Operating Costs ......... 1,826,771 1,751,371 1,687,648 1,680,743
----------- ----------- ----------- -----------
Operating Income .................. 308,151 261,452 256,442 223,074
Interest expense ................ (44,216) (44,403) (52,358) (68,806)
Other, net(1) ................... 1,802 2,987 13,868 35,832
Income taxes, net ............... (106,493) (83,281) (82,496) (67,965)
----------- ----------- ----------- -----------
Income from continuing operations(1) 159,244 136,755 135,456 122,135
Discontinued BIS operations (2) ... 11,656 11,334 10,630 9,933
Discontinued broadcast operations (2)
Cumulative effect of changes in
accounting principles(3) ........ (105,200)
----------- ----------- ----------- -----------
Net Income(1) ..................... $ 170,900 $ 148,089 $ 40,886 $ 132,068
=========== =========== =========== ===========
Operating income percentage (profit
margin) ......................... 14.4% 13.0% 13.2% 11.7%
- -----------------------------------------------------------------------------------------------------------
SHARE DATA(4)
Basic weighted-average number
of shares ....................... 107,888 109,702 108,948 102,586
Diluted weighted-average number of
shares .......................... 108,551 110,663 110,356 103,594
Earnings per share
Basic:
Continuing operations(1)........... $ 1.48 $ 1.25 $ 1.24 $ 1.19
Discontinued BIS operations(2) .... 0.10 0.10 0.11 0.10
Discontinued broadcast operations(2)
Cumulative effect of changes in
accounting principles(3) ........ (0.97)
Net income(1) ..................... 1.58 1.35 0.38 1.29
Diluted:
Continuing operations(1)........... $ 1.47 $ 1.24 $ 1.22 $ 1.18
Discontinued BIS operations(2) 0.10 0.10 0.10 0.09
Discontinued broadcast operations(2)
Cumulative effect of changes in
accounting principles(3) ........ (0.95)
Net income(1) ..................... 1.57 1.34 0.37 1.27
Dividends declared per common
share(5) ........................ 0.73 0.70 0.70 0.70
Common stock price
High ............................ 30-1/2 32-1/2 32-1/16 28-3/4
Low ............................. 23-1/4 25-5/16 25-3/8 21-7/8
Close ........................... 25-7/16 29-11/16 29-1/16 25-3/8
Shareholders' equity per common
share ........................... $ 11.58 $ 11.33 $ 10.75 $ 10.72
Price/earnings ratio(6) ........... 17.3:1 23.9:1 23.8:1 21.5:1
- -----------------------------------------------------------------------------------------------------------
OTHER FINANCIAL DATA
Common stock acquired ............. $ 136,977 $ 40,693 $ -- $ --
Payment of cash dividends ......... 77,942 76,787 75,992 71,087
Ratio of earnings to fixed
charges(7) ...................... 5.2:1 4.4:1 3.8:1 2.8:1
At Year End
Total assets .................... $ 2,409,239 $ 2,399,067 $ 2,431,307 $ 2,305,731
Long-term debt (excluding current
maturities) ................... 411,504 410,388 495,941 556,797
Total debt ...................... 411,504 451,075 560,245 606,840
Shareholders' equity ............ 1,224,654 1,243,169 1,181,812 1,148,620
Return on average shareholders'
equity(8) ..................... 13.9% 12.2% 12.5% 12.9%
Current ratio ................... 1.0:1 1.0:1 1.1:1 1.1:1
Total debt/total capital ratio .. 25.2% 26.6% 32.2% 34.6%
12
- -------------------------------------------------------------------------------------------------------
(In thousands, except per share Dec. 30 Dec. 31 Dec. 31 Dec. 31
data and ratios) 1990 1989 1988 1987
----------- ----------- ---------- -----------
SUMMARY OF OPERATIONS
Operating Revenue
Advertising ..................... $ 1,556,932 $ 1,577,449 $1,523,030 $ 1,464,447
Circulation ..................... 403,188 385,214 370,898 357,553
Other ........................... 31,981 32,212 29,743 46,922
----------- ----------- ---------- -----------
Total Operating Revenue ....... 1,992,101 1,994,875 1,923,671 1,868,922
----------- ----------- ---------- -----------
Operating Costs
Labor, newsprint and other
operating costs ............... 1,617,138 1,593,186 1,571,525 1,494,003
Depreciation and amortization ... 91,553 91,780 84,657 78,807
----------- ----------- ---------- -----------
Total Operating Costs ......... 1,708,691 1,684,966 1,656,182 1,572,810
----------- ----------- ---------- -----------
Operating Income .................. 283,410 309,909 267,489 296,112
Interest expense ................ (71,784) (84,492) (62,456) (49,550)
Other, net(1) ................... 17,019 57,505 26,732 20,053
Income taxes, net ............... (88,076) (108,883) (86,484) (117,369)
----------- ----------- ---------- -----------
Income from continuing operations(1) 140,569 174,039 145,281 149,246
Discontinued BIS operations (2) ... 8,476 5,797 1,494 (512)
Discontinued broadcast operations (2) 67,366 9,608 6,429
Cumulative effect of changes in
accounting principles(3) ........
----------- ----------- ---------- -----------
Net Income(1) ..................... $ 149,045 $ 247,202 $ 156,383 $ 155,163
=========== =========== ========== ===========
Operating income percentage (profit
margin) ......................... 14.2% 15.5% 13.9% 15.8%
- -------------------------------------------------------------------------------------------------------
SHARE DATA(4)
Basic weighted-average number
of shares ....................... 100,098 103,110 111,842 114,794
Diluted weighted-average number of
shares .......................... 101,366 104,878 113,406 117,292
Earnings per share
Basic:
Continuing operations(1)........... $ 1.40 $ 1.69 $ 1.30 $ 1.30
Discontinued BIS operations(2) .... 0.09 0.06 0.01 (0.01)
Discontinued broadcast operations(2) 0.65 0.09 0.06
Cumulative effect of changes in
accounting principles(3) ........
Net income(1)...................... 1.49 2.40 1.40 1.35
Diluted:
Continuing operations(1)........... $ 1.39 $ 1.66 $ 1.28 $ 1.27
Discontinued BIS operations(2)..... 0.08 0.06 0.01
Discontinued broadcast operations(2) 0.64 0.09 0.05
Cumulative effect of changes in
accounting principles(3) ........
Net income(1) ..................... 1.47 2.36 1.38 1.32
Dividends declared per common
share(5) ........................ 0.67 0.62-1/4 0.57-1/4 0.51-1/2
Common stock price
High ............................ 29 29-3/16 23-7/8 30-5/8
Low ............................. 18-1/2 21-7/16 17-7/8 16-5/8
Close ........................... 22-15/16 29-3/16 22-11/16 20-1/16
Shareholders' equity per common
share ........................... $ 9.05 $ 8.92 $ 7.74 $ 7.93
Price/earnings ratio(6) ........... 16.5:1 21.2:1 17.7:1 15.8:1
- -------------------------------------------------------------------------------------------------------
OTHER FINANCIAL DATA
Common stock acquired ............. $ 129,909 $ 131,885 $ 198,279 $ 38,728
Payment of cash dividends ......... 66,422 63,260 62,990 57,426
Ratio of earnings to fixed
charges(7) ...................... 3.3:1 3.6:1 3.8:1 5.3:1
At Year End
Total assets .................... $ 2,244,919 $ 2,112,184 $2,340,576 $ 1,904,117
Long-term debt (excluding current
maturities) ................... 803,914 660,900 727,043 508,203
Total debt ...................... 823,958 712,940 1,037,075 553,235
Shareholders' equity ............ 894,913 917,145 821,625 901,498
Return on average shareholders'
equity(8) ..................... 16.5% 28.4% 18.2% 18.1%
Current ratio ................... 1.2:1 1.2:1 1.1:1 1.2:1
Total debt/total capital ratio .. 47.9% 43.7% 55.8% 38.0%
13
(1) Other, net, Income from Continuing Operations and Net Income include: the
gains from the sales of TKR Cable and our newspapers in Long Beach, Calif.,
Boca Raton, Fla., Milledgeville, Ga., and Newberry, S.C., as well as the
gain on the Boulder, Colo., exchange in 1997; the gain on Netscape in 1996;
and the gain from the sale of Pasadena Star-News in 1989. Net income also
includes the gains on the sales of KRII in 1997, KRF in 1996, and the JoC in
1995.
(2) All years have been restated to present the Business Information Services
Division (BIS) as discontinued operations. Results of operations of the
company's BIS Division (discontinued in 1997), and Broadcast Division
(discontinued in 1989) and the gains on the sales of BIS and broadcast
assets are presented as "discontinued BIS operations" and "discontinued
broadcast operations," respectively.
(3) For 1995, the cumulative effect of change in accounting principle represents
an adjustment from the implementation of FAS 116--Accounting for
Contributions Received and Contributions Made. For 1992, the cumulative
effect of change in accounting principle represents adjustments from the
implementation of FAS 109--Accounting for Income Taxes and FAS
106--Accounting for Postretirement Benefits Other than Pensions.
(4) All share data is restated for a stock split in 1996.
(5) The Board of Directors declared a $0.20 per share dividend on Jan. 28, 1997.
The quarterly dividend previously paid in January was paid in February.
(6) Price/earnings ratio is computed by dividing closing market price by diluted
earnings per share from continuing operations. 1995 and 1992 earnings
exclude the effects of changes in accounting principles. Earnings also
exclude the gains from the sales of TKR Cable, our four newspapers in Long
Beach, Calif., Boca Raton, Fla., Milledgeville, Ga., and Newberry, S.C., as
well as the gain on the Boulder exchange in 1997; the gain on Netscape in
1996; and the gain from the sale of the Pasadena Star-News in 1989.
(7) The ratio of earnings to fixed charges is computed by dividing earnings (as
adjusted for fixed charges and undistributed equity income from
unconsolidated subsidiaries) by fixed charges for the period. Fixed charges
include the interest on debt (before capitalized interest), the interest
component of rental expense, and the proportionate share of interest expense
on guaranteed debt of certain equity-method investees and on debt of
50%-owned companies.
(8) Return on average shareholders' equity is computed by dividing net income
before the cumulative effect of changes in accounting principles in 1995 and
1992, including the results of discontinued operations in 1987 through 1997,
by average shareholders' equity. Average shareholders' equity is the average
of shareholders' equity on the first day and the last day of the fiscal
year.
14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Glossary of Newspaper Advertising Terms
The following definitions may be helpful when reading Management's Discussion
and Analysis of Operations.
RETAIL. Display advertising from local merchants, such as department and grocery
stores, selling goods and services to the public.
GENERAL. Display advertising by national advertisers that promotes products or
brand names on a nationwide basis.
CLASSIFIED. Small, locally placed ads listed together and organized by category,
such as real estate sales, employment opportunities or automobile sales, and
display-type advertisements in these categories.
FULL-RUN. Advertising appearing in all editions of a newspaper.
PART-RUN. Advertising appearing in select editions or zones of a newspaper's
market. Part-run advertising is translated into full-run equivalent linage
(referred to as factored) based on the ratio of the circulation in a particular
zone to the total circulation of a newspaper.
RUN-OF-PRESS (ROP). All advertising printed on Knight Ridder presses and
appearing within a newspaper.
PREPRINT. Advertising supplements prepared by advertisers and inserted into a
newspaper.
Knight Ridder is the nation's second-largest newspaper publisher in terms of
revenue and circulation, with products in print and online. The company
publishes 31 daily newspapers in 28 U.S. markets, reaching 9.0 million readers
daily and 12.6 million on Sunday. It maintains 34 associated Web sites.
In 1997, the gross revenue from these businesses was about $2.9 billion. The
company is also involved in other newspaper businesses and newsprint
manufacturing through business arrangements, including joint ventures and
partnerships.
Newspaper revenue is derived principally from advertising and newspaper copy
sales. Newspaper advertising currently accounts for about 77% of consolidated
revenue. This revenue comes from the three basic categories of advertising --
retail, general and classified discussed herein.
Newspaper advertising volume is categorized as either run-of-press (ROP) or
preprint. Volume for ROP advertising is measured in terms of either full-run or
part-run advertising linage and reported in six-column inches. A six-column inch
consists of one inch of advertising in one column of a newspaper page when that
page is divided into six columns of equal size. By using part-run advertising,
advertisers can direct their messages to selected market segments.
Circulation revenue results from the sale of newspapers. Circulation of daily
and Sunday newspapers currently accounts for about 20% of consolidated revenue.
It is reported at the net wholesale price for newspapers delivered or sold by
independent contractors and at the retail price for newspapers delivered or sold
by employees.
Other newspaper revenue comes from commercial job printing, alternate delivery
services, niche publications, online services, newsprint waste sales, book
publishing, newspaper trucking services, audiotext and other miscellaneous
sources.
15
On April 4, 1997, the company announced that it would divest Knight-Ridder
Information, Inc. (KRII). On Dec. 11, 1997, the company announced that it would
sell Technimetrics, Inc., its global diversified information subsidiary. These
announcements resulted in the reclassification of the former Business
Information Services (BIS) segment as discontinued operations. KRII was sold to
M.A.I.D plc on Nov. 14, 1997, for $420 million plus a working capital purchase
price adjustment of approximately $15 million. Prior to July 1996, the BIS
segment included Knight-Ridder Financial (KRF). KRF was sold on July 26, 1996,
to Global Financial Information Corporation for $275 million. Prior to April
1995, the BIS segment included the Journal of Commerce (JoC). The JoC was sold
on April 3, 1995, to the Economist Group of London for $115 million.
Results of Operations
SUMMARY OF OPERATIONS. A summary of the company's operations, certain share data
and other financial data for the past 11 years is provided in Item 6. Compound
growth rates for the past five- and 10-year periods are also included, if
applicable. A review of this summary and of the supplemental information in Item
6 will provide a better understanding of the following discussion and analysis
of operating results and of the financial statements as a whole. The
supplemental information contains financial data for the company's largest
newspapers and information regarding the company's properties, technology and
the raw materials used in operations.
RESULTS OF OPERATIONS: 1997 VS. 1996
Diluted earnings per share from continuing operations was $3.91, up $2.01 from
the $1.90 reported in 1996. The $3.91 includes three one-time gains on sales: a
$1.27 gain on the sale of TKR Cable, a $.24 gain on the exchange of the Daily
Camera in Boulder, Colo., and a $.10 gain on the sale of four newspapers. The
$1.90 includes an $.08 gain on the sale of our Netscape Communications
Corporation (Netscape), investment, net of adjustments in the carrying value of
certain investments. Excluding the one-time gains from 1997 and 1996, diluted
EPS for 1997 was $2.30, which was up $.48, or 26.4%, from the $1.82 earned in
1996.
Operating income in 1997 was $506.0 million, up $172.9 million, or 51.9%, from
1996. The results include operations from four newspapers acquired from The Walt
Disney Company in May and from two newspapers received in exchange from E.W.
Scripps Co. for the Boulder, Colo. newspaper in August. They exclude results
from the Boulder Daily Camera after August and for the Long Beach (Calif.)
Press-Telegram, the Boca Raton (Fla.) News, The (Milledgeville, Ga.)
Union-Recorder and the Suburban Newberry (S.C.) Observer after their date of
sale in December 1997. On a pro forma basis for the former Disney and Scripps
newspapers (that is, including full-year results in 1997 and 1996) and excluding
the sold newspapers from both 1997 and 1996 (comparable basis), operating income
was up $122.9 million, or 30.2%, from 1996. The increase was due to an 8.0%
increase in total advertising revenue offset in part by a 2.7% increase in
operating costs.
OPERATING REVENUE. Total company revenue of $2.9 billion was up 21.2% from 1996.
On a comparable basis, total operating revenue was up 6.7%.
Newspaper advertising revenue increased by $408.8 million, or 22.8%, in 1997 on
a full-run ROP linage increase of 18.0%. On a comparable basis, total
advertising revenue improved by 8.0% from 1996 on a full-run ROP linage increase
of 6.7%. The following table summarizes the percentage change in revenue and
full-run ROP linage from 1996 as reported in our financial statements, as well
as results on a comparable basis.
Pro Forma But Excluding
Divested Newspapers*
-------------------------
% Change % Change
% Change in Full-Run % Change in Full-Run
Advertising Category in Revenue ROP Linage in Revenue ROP Linage
---------- ----------- ---------- -----------
Retail ................. 22.8 19.0 5.7 5.6
General ................ 23.8 16.7 11.8 8.4
Classified ............. 22.6 17.3 9.6 7.6
Total ................ 22.8 18.0 8.0 6.7
* Including full-year results in 1997 and 1996 for the former Disney and Scripps
newspapers and excluding the sold newspapers from both 1997 and 1996.
16
Retail advertising revenue improved by $187.0 million, or 22.8%, from 1996 on a
19.0% increase in full-run ROP linage. On a comparable basis, retail advertising
revenue increased 5.7% from 1996, with increases seen at almost all of our
newspapers.
General advertising revenue was up $47.3 million, or 23.8%, from 1996 on a 16.7%
increase in full-run ROP linage. On a comparable basis, general advertising
revenue was up 11.8%.
Classified advertising revenue was up $174.6 million, or 22.6%, from 1996 on a
17.3% increase in full-run ROP linage. On a comparable basis, classified
advertising revenue was up 9.6%. The increase was due primarily to help wanted.
Circulation revenue improved by $65.9 million, or 13.1%. On a comparable basis,
circulation revenue increased 0.5% on an average daily circulation increase of
16,912 copies, or 0.4%, and an average Sunday circulation decrease of 27,719
copies, or 0.5%.
Other revenue increased $27.8 million, or 35.2%, during 1997 due to increases in
commercial print and augmentation revenue.
OPERATING EXPENSES. Labor and employee benefits costs were up $165.2 million, or
17.1%. On a comparable basis, labor and employee benefits costs were up $67.7
million, or 6.2%, on a 2.9% increase in the work force and an average wage rate
increase of 4.2%.
Newsprint, ink and supplements costs decreased by $5.9 million, or 1.2%, due to
a 20.7% decrease in the average cost per ton of newsprint, offset in part by
increased newsprint consumption of 129,000 tons for the year, due to
acquisitions, greater ad volume and some increased newshole.
Depreciation and amortization increased $36.1 million, or 29.9%, due to
amortization expense associated with the acquisition of the former Disney
newspapers.
Other operating expenses increased by $134.3 million, or 27.9%. On a comparable
basis, other operating expenses were up $71.6 million, or 12.6%. Expenditures
for circulation promotion accounted for a large part of the increase.
NON-OPERATING ITEMS. Net interest expense increased $33.6 million, or 55.8%,
from 1996, due to higher debt levels associated with the Disney acquisition. The
average debt balance for the year increased $150.8 million from 1996, due to the
debt assumed with the former Disney newspaper acquisition.
Equity in earnings of unconsolidated companies and joint ventures decreased by
$19.1 million, or 63.8%, due to the absence of earnings from the cable
investment (sold in January 1997) and lower income from our newsprint mill
investments.
The "Other, net" line of the non-operating section increased $265.7 million over
1996, due to the gain on TKR Cable, the Boulder exchange and the four newspapers
sold in December. The 1996 results included the gain on the sale of our
investment in Netscape, net of the reduction in the carrying value of certain
other investments.
INCOME TAXES. The effective income tax rate on a continuing operations basis for
1997 was 42.9%, up from 40.2% in 1996. The rate increase was due to additional
nondeductible goodwill amortization from the Disney acquisition.
OTHER. Net income in 1997 includes an after-tax gain on the sale of Knight-
Ridder Information, Inc., of $15.3 million, or $.15 per share (diluted), and
income from discontinued BIS operations, net of applicable taxes, of $1.3
million, or $.02 per share (diluted).
RESULTS OF OPERATIONS: 1996 VS. 1995
Diluted earnings per share from continuing operations were $1.90, up $.80 from
the $1.10 reported in 1995. The $1.90 includes an $.08 gain on the sale of our
Netscape investment, net of adjustments in the carrying value of certain
investments. Excluding this gain, diluted EPS for 1996 was $1.82, which was up
$.72 from $1.10 earned in 1995.
17
Operating income in 1996 was $333.1 million, up $104.9 million, or 45.9%, from
1995. The results include Detroit, which was rebuilding throughout the year from
a strike that began on July 13, 1995. They also include a full year of
operations for Contra Costa Newspapers (CCN), which was purchased on Oct. 31,
1995. And, finally, they reflect a 52-week year for 1996 as opposed to a 53-week
year for 1995, an anomaly of our fiscal-year reporting convention. On a pro
forma basis for CCN (that is, full-year results for 1995, including the period
in which the company did not own CCN), but excluding Detroit from both years and
the 53rd week from 1995 (comparable basis), operating income was up $72.8
million, or 27.0%, from 1995. The increase was due to a 5.2% increase in total
advertising revenue and improvement in operating profit in Philadelphia and
other large markets.
OPERATING REVENUE. Total company revenue of $2.4 billion was up 5.5% from 1995.
On a comparable basis, total operating revenue was up 4.0%.
Advertising revenue increased by $120.5 million, or 7.2%, in 1996 on a full- run
ROP linage increase of 10.0%. On a comparable basis, total advertising revenue
improved by 5.2% from 1995. The following table summarizes the percentage change
in revenue and full-run ROP linage from 1995 as reported in our financial
statements, as well as results on a pro forma basis for CCN, but excluding
Detroit:
Pro Forma
Contra Costa Newspapers
But Excluding Detroit
-------------------------
% Change % Change
% Change in Full-Run % Change in Full-Run
Advertising Category in Revenue ROP Linage in Revenue* ROP Linage
---------- ----------- ----------- -----------
Retail ............... 1.7 4.7 (0.3) (4.6)
General .............. 8.9 21.5 7.5 5.0
Classified ........... 13.2 14.3 10.9 4.3
Total .............. 7.2 10.0 5.2 0.1
* Excludes the 53rd week from 1995 results.
Retail advertising revenue improved by $14.0 million, or 1.7%, from 1995 on a
4.7% increase in full-run ROP linage. On a comparable basis, retail advertising
revenue decreased 0.3% from 1995, primarily as a result of department store
consolidations in Philadelphia and Northern California. Excluding these markets
and Detroit, retail was up 1.9% in the rest of the markets on a 52-week basis.
General advertising revenue was up $16.3 million, or 8.9%, from the prior year,
with an increase in full-run ROP linage of 21.5%. On a comparable basis, general
advertising revenue was up 7.5%.
Classified revenue improved by $90.2 million, or 13.2%, on a 14.3% increase in
full-run ROP volume from 1995. Employment advertising revenue, up 22.8% for the
year, was the strength of our classified revenue performance. On a comparable
basis, classified advertising revenue was up 10.9%. Philadelphia and San Jose
contributed more than half of the classified revenue improvement.
Circulation revenue improved by $6.5 million, or 1.3%, on an average daily
circulation decrease of 217,957 copies, or 5.9%, and an average Sunday
circulation decrease of 307,088 copies, or 6.0%. The circulation copy decline
reflects the impact of the Detroit strike.
Other revenue decreased $2.9 million, or 3.6%, during 1996, partly due to the
decline of newsprint waste sales and one less week in the fiscal year.
OPERATING EXPENSES. Labor and employee benefits costs were down $2.4 million, or
0.2%, with a 4.3% decrease in the work force, excluding Detroit. The decrease in
labor and employee benefits costs was due primarily to the reduction in the work
force, the fourth quarter 1995 charge for buyouts and separation costs and the
impact of the 53rd week. These reductions were partly offset by an increase in
the average wage per employee of 3.8%, (excluding Detroit and CCN).
18
Newsprint, ink and supplements costs increased by $25.4 million, or 5.7%, due to
an 11.5% increase in the average cost per ton of newsprint offset by a 4.0%
decrease in newsprint consumption from the prior year.
Depreciation and amortization increased $21.9 million, or 22.2%, due mostly to
the acquisition of CCN.
Other operating costs decreased 5.1% from 1995. On a pro forma basis for CCN,
but excluding Detroit and the impact of the 53rd week, other operating costs
were down 1.6% from the prior year.
NON-OPERATING ITEMS. Net interest expense increased $11.2 million, or 22.8%,
from 1995, due primarily to higher debt levels. The average debt balance for the
year increased $325.2 million from 1995, due largely to the $221.8 million
repurchase of 6.2 million shares in 1996 and the $360 million acquisition of CCN
in the fourth quarter of 1995.
Equity in earnings of unconsolidated companies and joint ventures increased by
$9.2 million during 1996 due to earnings improvements from our newsprint mill
investments, which benefited from the rise in newsprint prices.
The "Other, net" line of the non-operating section increased $25.0 million over
1995, mostly as a result of the 1996 gain on the sale of our investment in
Netscape, net of the reduction in the carrying values of certain other
investments.
INCOME TAXES. The effective income tax rate on a continuing operations basis for
1996 was 40.2%, up from 39.9% in 1995. The increase was due to a change in the
distribution of income to states with higher income tax rates.
OTHER. Net income in 1996 includes a one-time after-tax gain on the sale of
Knight-Ridder Financial of $86.3 million, or $.89 per share (diluted), and a
loss from discontinued BIS operations, net of applicable taxes, of $3.8 million,
or $.04 per share (diluted).
RESULTS OF OPERATIONS: 1995 VS. 1994
Diluted earnings per share from continuing operations was $1.10, down $.37, or
25.2%, from $1.47 per share in 1994. The decline in earnings per share from 1994
was due to the impact of the Detroit strike, the increase in the cost of
newsprint from 1994 and fourth quarter charges related to buyout and separation
expenses.
Operating income in 1995 was $228.3 million, down from $308.2 million in 1994 on
a $115.3 million, or 5.4%, increase in revenue. Operating income as a percentage
of revenue was 10.1%, compared with 14.4% in 1994. The decline in operating
income from 1994 was due primarily to:
- A $72.7 million decline from Detroit's prior year operating profit as a
result of the strike that began on July 13, 1995.
- A nearly 40% increase in the cost of newsprint from 1994, which resulted in
a $105.9 million expense increase.
- Charges related to buyout and separation expenses of about $16 million, of
which $15.3 million was charged in the fourth quarter of 1995.
Excluding the Detroit operations and buyout and separation charges from both
years, operating income would have been up 1.8% from 1994.
OPERATING REVENUE. Total operating revenue of $2.3 billion was up $115.3
million, or 5.4%, from 1994.
19
Advertising revenue increased by $89.6 million, or 5.7%, in 1995 on a full- run
ROP linage increase of 2.8%. The 1995 results reflect: reduction in revenue due
to the Detroit strike, two months of revenue recorded for Contra Costa
Newspapers (CCN), acquired on Oct. 31, 1995, and an additional week of revenue
(53 weeks vs. 52 weeks) in 1995. Excluding the impact of these items from 1995
results, advertising revenue would have increased by 5.8%. The following table
summarizes the percentage change in revenue and full-run ROP linage from 1994 as
reported in our financial statements, as well as results excluding Detroit and
CCN:
Excluding Detroit and
Contra Costa Newspapers
-------------------------
% Change % Change
% Change in Full-Run % Change in Full-Run
Advertising Category in Revenue ROP Linage in Revenue ROP Linage
---------- ----------- ---------- -----------
Retail ................ 1.9 (0.6) 3.8 (2.4)
General ............... (1.1) 2.9 0.6 1.3
Classified ............ 12.6 6.7 14.3 5.4
Total ............... 5.7 2.8 7.5 1.3
Retail advertising revenue improved $15.3 million, or 1.9%, from 1994 on a 0.6%
decrease in full-run ROP linage. The increase in average rates and preprint
revenue offset the decrease in full-run ROP linage.
General advertising revenue was $182.5 million, down from the $184.5 million
reported in 1994, with an increase in full-run ROP linage of 2.9%.
Classified revenue improved by $76.3 million, or 12.6%, on a 6.7% increase in
full-run ROP volume. San Jose contributed nearly half of the classified revenue
improvement. Employment advertising revenue, up 24.6% for the year, was the
strength of our classified revenue performance.
Circulation revenue improved by $10.7 million, or 2.2%, on an average daily
circulation increase of 52,866 copies, or 1.5%, and an average Sunday
circulation increase of 10,754 copies, or 0.2%. Circulation copies reflect the
impact of the Detroit strike, offset by additional circulation from CCN.
Other revenue increased $14.9 million, or 22.3%, during 1995, due primarily to
increased revenue from newsprint waste sales, commercial printing and other
lines of business developed to augment the revenue of our core newspaper
business.
OPERATING EXPENSES. Labor and employee benefits costs were up $41.8 million, or
4.5%, with a 4.5% increase in the work force. The increase in the work force was
due to the CCN acquisition. The increase in labor and employee benefits costs
was due primarily to a fourth quarter charge for buyouts and separation costs,
the impact of the 53rd week and the addition of CCN. This was partly offset by a
decrease in labor costs as a result of the Detroit strike. The average wage per
employee, excluding severance, Detroit and CCN, increased 2.9% from 1994.
Newsprint, ink and supplements costs increased by $110.9 million, or 33.0%, due
to a nearly 40% increase in the average cost of newsprint, offset by a 0.2%
decrease in newsprint consumption from the prior year.
Depreciation and amortization increased $2.1 million, or 2.2%, due mostly to the
acquisition of CCN.
Other operating costs increased 8.6% from 1994, due primarily to strike-related
costs in Detroit.
NON-OPERATING ITEMS. Net interest expense increased $11.0 million, or 29.0%,
from 1994, due primarily to higher debt levels. The average debt balance for the
year increased $146.0 million from 1994, due largely to the $319.4 million
repurchase of 11.5 million shares in 1995 and the $360 million acquisition of
CCN in the fourth quarter of 1995.
Equity in earnings of unconsolidated companies and joint ventures increased by
$13.0 million during 1995 due to earnings improvements from our newsprint mill
investments, which benefited from the rise in newsprint prices.
The "Other, net" line of the non-operating section decreased $6.6 million from
1994, due to the reduction in the carrying value of certain investments.
INCOME TAXES. The effective income tax rate from continuing operations for 1995
was 39.9%, down slightly from 40.1% in 1994.
20
OTHER. Net income in 1995 includes a one-time after-tax gain on the sale of the
Journal of Commerce (JoC) of $53.8 million, or $.54 per share (diluted), and
income from discontinued BIS operations, net of applicable taxes, of $3.7
million, or $.03 per share (diluted).
In the first quarter of 1995, the company adopted Financial Accounting Standard
(FAS) 116 -- Accounting for Contributions Received and Contributions Made. Under
this standard, unconditional promises, including multiyear promises, are
recognized in the period in which the promise is made. The adoption of FAS 116
resulted in a $7.3 million charge (net of tax) to operations, or $.07 per share
(diluted), and was recorded as a cumulative effect adjustment.
A Look Ahead
As we look ahead, we expect another strong year in 1998. Advertising revenue on
a pro forma basis will likely increase in the mid-single digits and newspaper
profits will continue to grow, most notably in Detroit, where all the momentum
is positive.
The average price of newsprint for 1998 is expected to increase in the mid teens
compared to 1997. This will be offset, in part, by improved earnings from our
newsprint mill investments.
The company expects to buy back close to 4 million common shares in the first
part of 1998. After those purchases are completed, we plan to use our
substantial free cash flow to reduce our debt level.
IMPACT OF YEAR 2000. The Year 2000 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. Based on a recent assessment, the company currently
believes that with modifications to existing software and conversions to new
software, the Year 2000 issue will not pose significant operational problems. If
such modifications and conversions are not made, or are not completed in a
timely way, the Year 2000 issue could have a material impact on operations. In
addition, formal communications with all significant suppliers and customers
have been initiated to determine the extent to which related interfaces with
company systems are vulnerable if these third parties fail to remediate their
own Year 2000 issues. There can be no assurance that these third-party systems
will be converted on a timely basis and that they will not adversely affect the
company's systems.
The company will utilize both internal and external resources to complete and
test Year 2000 modifications and expects to substantially complete this process
no later than mid-1999. The total estimated cost of this project is in a range
of $70 million to $80 million, funded through operating cash flows.
Approximately 50% of the total will relate to purchased hardware and software,
which will be capitalized. The remainder will be expensed as incurred. Through
1997, related costs incurred were not material. In certain cases, an expedited
system replacement schedule will also bring enhanced functionality and should
serve to reduce future capital requirements.
Certain statements contained herein and in other sections of this report are
forward-looking statements. These are based on management's current knowledge of
factors affecting Knight Ridder's business. Actual results could differ
materially from those currently anticipated. Investors are cautioned that such
forward-looking statements involve risk and uncertainty, including, but not
limited to, the effects of national and local economies on revenue, negotiations
and relations with labor unions, unforeseen changes to newsprint prices, the
effects of acquisitions and the evolution of the Internet.
Significant Acquisitions and Divestitures
In January 1997, the company and Tele-Communications, Inc., closed on the
previously announced sale of the company's interest in all but one of their
jointly owned cable investments. The remaining system, in Kentucky, accounts for
a small portion of the original investment. That sale is expected to close
later. The after-tax gain on the sale of TKR Cable was $128.3 million. The sale
yielded net after-tax proceeds of $270 million.
21
On May 9, 1997, the company completed the acquisition of four newspapers
indirectly owned by The Walt Disney Company for $1.65 billion. The acquisition
was accomplished through the merger of a wholly owned subsidiary with and into
Cypress Media, Inc., formerly known as ABC Media, Inc., the owner of the four
newspapers. The newspapers are: The Kansas City Star, the Fort Worth Star-
Telegram, the Belleville (Ill.) News-Democrat and The Times Leader in Wilkes-
Barre, Pa. The four newspapers have combined daily and Sunday circulation of
635,000 and 898,000, respectively.
On Aug. 24, 1997, the company exchanged its newspaper in Boulder, Colo., the
Daily Camera, for two newspapers in California owned by the E.W. Scripps Co.
On Nov. 14, 1997, the company completed the sale of Knight-Ridder Information,
Inc., (KRII) to M.A.I.D plc for $420 million. The after-tax gain on the sale of
KRII was $15.3 million.
In December 1997, the company closed on the sale of four newspapers, the Long
Beach Press-Telegram, the Boca Raton News, The (Milledgeville) Union-Recorder
and the suburban Newberry (S.C.) Observer. The sale of these four newspapers
resulted in an after-tax gain of $10.3 million. The sale of the Boca Raton,
Milledgeville and Newberry newspapers to Community Newspaper Holdings, Inc.,
also included the transfer to the company of The Daily Sun and the Buyer's
Guide, a shopper, in Warner Robins, Ga., and the Byron (Ga.) Gazette, a weekly
newspaper, all of which are located in fast-growing suburbs in our Macon
newspapers' market. The sale of a fifth newspaper, the Post-Tribune in Gary,
Ind., to Hollinger International, Inc., closed on Feb. 2, 1998.
Also in December 1997, the company announced the intended sale of Technimetrics,
Inc., its global diversified information subsidiary. The results of
Technimetrics have been reclassified as Discontinued BIS Operations, along with
the rest of the former BIS segment.
In July 1996, the company sold Knight-Ridder Financial (KRF) to Global Financial
Information Corporation for $275 million. The after-tax gain on the sale of KRF
was $86.3 million.
In October 1995, the company acquired 100% of the outstanding shares of Lesher
Communications, Inc. (Lesher), for $360 million. Lesher, based in Walnut Creek,
Calif., publishes four daily newspapers in contiguous Contra Costa and eastern
Alameda County markets in the East Bay area of Northern California. Lesher was
renamed Contra Costa Newspapers, Inc. (CCN), in November 1995.
In April 1995, the company sold the JoC to the Economist Group of London for
$115 million. The after-tax gain on the sale of the JoC was $53.8 million.
Capital Spending Program
The company's capital spending program includes normal replacements,
productivity improvements, capacity increases, building construction and
expansion and printing press equipment. Over the past three years, capital
expenditures have totaled $311.6 million for additions and improvements to
properties, excluding the discontinued BIS operations.
A large portion of the 1997 expenditures was for the Miami press project that
began in 1995. The $108.0 million press expansion is expected to be completed in
1998. Another large component of 1997 expenditures was the $32.0 million
renovation of the Philadelphia Broad Street facility that began in 1995 and the
$27.2 million replacement of three presses at Akron. Both of these projects are
expected to be completed in 1998.
Also included in capital expenditures is an $11.5 million project (before
insurance recoveries) for the replacement of the Grand Forks production plant
and building that were destroyed by a flood in April 1997.
22
Quarterly Operations
The company's largest source of revenue, retail advertising, is seasonal and
tends to fluctuate with retail sales in markets served. Historically, retail
advertising is higher in the second and fourth quarters. General advertising,
while not as seasonal as retail, is lower during the summer months. Classified
advertising revenue has in the past been a reflection of the overall economy and
has not been significantly affected by seasonal trends. The following table
summarizes the company's quarterly results of operations (in thousands, except
per share data):
QUARTER
---------------------------------------------------------------------------------
Description First Second Third Fourth
------------ ----------- ------------- ------------
1997
Operating revenue ......................... $ 600,830 $ 711,598 $ 748,747 $ 815,610
Operating income .......................... 98,169 136,977 107,936 162,946
Income from continuing operations ......... 175,458(a) 60,950 73,467(b) 86,629(c)
Net gain on sale of BIS operations 15,261(d)
Income (loss) from BIS operations, net .... (726) 350 545 1,081
Net income ................................ 174,732 61,300 74,012 102,971
Earnings per share(1)
Basic:
Income from continuing operations ......... 1.88(a) 0.67 0.85(b) 1.04(c)
Net gain on sale of BIS operations 0.18(d)
Income from BIS operations, net 0.01
Net income ................................ 1.88 0.67 0.85 1.23
Diluted:
Income from continuing operations ......... 1.85(a) 0.60 0.69(b) 0.84(c)
Net gain on sale of BIS operations 0.15(d)
Income from BIS operations, net 0.01
Net income ................................ 1.85 0.60 0.69 1.00
Dividends declared per common share ....... 0.20 0.20 0.20 0.20
1996
Operating revenue ......................... $ 570,756 $ 595,582 $ 576,887 $ 630,999
Operating income .......................... 49,639 78,647 73,948 130,899
Income from continuing operations ......... 22,994 41,481 39,340 81,565(f)
Net gain (adjustment) on sale of BIS
operations 90,901(e) (4,646)(e)
Income (loss) from BIS operations, net .... 523 872 (3,984) (1,173)
Net income ................................ 23,517 42,353 126,257 75,746
Earnings per share(1)
Basic:
Income from continuing operations ......... 0.23 0.42 0.41 0.87(f)
Net gain (adjustment) on sale of BIS
operations 0.96(e) (0.05)(e)
Income (loss) from BIS operations, net .... 0.01 0.01 (0.04) (0.01)
Net income ................................ 0.24 0.43 1.33 0.81
Diluted:
Income from continuing operations ......... 0.23 0.42 0.41 0.86(f)
Net gain (adjustment) on sale of BIS
operations .............................. 0.94(e) (0.05)(e)
Income (loss) from BIS operations, net .... 0.01 0.01 (0.04) (0.02)
Net income ................................ 0.24 0.43 1.31 0.79
Dividends declared per common share ....... 0.18-1/2 0.20 0.20 (g)
23
Quarterly Operations (Continued)
QUARTER
---------------------------------------------------------------------------------
Description First Second Third Fourth
------------ ----------- ------------- ------------
1995
Operating revenue ......................... $ 537,133 $ 565,726 $ 515,975 $ 631,348
Operating income .......................... 64,323 81,642 15,438 66,859
Income from continuing operations ......... 29,356 42,278 3,793 34,529
Net gain on sale of BIS operations ........ 53,765(h)
Income (loss) from BIS operations, net .... 6,317 (1,923) 2,797 (3,530)
Income before cumulative effect of
change in accounting principle .......... 35,673 94,120 6,590 30,999
Cumulative effect of change in
accounting principle for
contributions ........................... (7,320)
Net income ................................ 28,353 94,120 6,590 30,999
Earnings per share(1)
Basic:
Income from continuing operations ......... 0.28 0.43 0.04 0.36
Net gain on sale of BIS operations ........ 0.54(h)
Income (loss) from BIS operations, net .... 0.06 (0.02) 0.03 (0.04)
Income before cumulative effect of
change in accounting principle .......... 0.34 0.95 0.07 0.32
Cumulative effect of change in
accounting principle for
contributions ........................... (0.07)
Net income ................................ 0.27 0.95 0.07 0.32
Diluted:
Income from continuing operations ......... 0.28 0.42 0.04 0.35
Net gain on sale of BIS operations ........ 0.54(h)
Income (loss) from BIS operations, net .... 0.06 (0.02) 0.03 (0.03)
Income before cumulative effect of
change in accounting principle .......... 0.34 0.94 0.07 0.32
Cumulative effect of change in
accounting principle for
contributions ........................... (0.07)
Net income ................................ 0.27 0.94 0.07 0.32
Dividends declared per common share ....... 0.18-1/2 0.18-1/2 0.18-1/2 0.18-1/2
(1) Amounts do not total to the annual earnings per share because each quarter
and the year are calculated separately based on average outstanding shares
(basic) and average outstanding and equivalent shares (diluted) during the
periods.
(a) Includes the after-tax gain of $128.3 million on the sale of TKR Cable
($1.38 per share, basic; $1.36 per share, diluted).
(b) Includes the after-tax gain of $24.5 million on the Boulder, Colo.,
exchange ($.28 per share, basic; $.23 per share, diluted).
(c) Includes the after-tax gain of $10.3 million on the sale of four newspapers
($.12 per share, basic; $.10 per share, diluted).
(d) Gain on the sale of KRII.
(e) Gain (adjustment) on the sale of KRF.
(f) Includes the after-tax gain of $8.1 million on the sale of Netscape, net of
adjustments in the carrying value of certain investments ($.09 per share,
basic and diluted).
(g) 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.
(h) Gain on the sale of the Journal of Commerce.
24
Financial Position and Liquidity
1997 VS. 1996. The principal change in the company's financial position during
1997 was the acquisition of four newspapers indirectly owned by The Walt Disney
Company for $1.65 billion. The transaction was financed through the issuance of
$660 million of the company's convertible preferred stock and the assumption of
$990 million of pre-existing debt.
Also during 1997, the company authorized a common stock buyback program to
repurchase in the open market a minimum of 15 million shares over 12 months. In
1997, 13.8 million shares were bought back.
The company utilized proceeds from the sale of its cable investment in January
1997, its subsidiary Knight-Ridder Information, Inc., in November 1997 and four
of its newspapers in December 1997 to fund the stock buyback program and pay
down debt. In November 1997, the company issued $100 million of notes payable
that mature in 2007 and $100 million of debentures maturing in 2027. The new
debt was used to reduce commercial paper borrowings. The total-debt-
to-total-capital ratio increased to 51.8%, from 42.1% in 1996. Standard & Poor's
and Moody's downgraded the company's commercial paper and long-term bonds during
the year. The downgrades resulted from the increased leverage associated with
the Disney newspaper acquisition combined with the company's common stock
repurchase program. Standard & Poor's and Moody's commercial paper rating went
from A1+ and P1 to A1 and P2, respectively. Standard & Poor's and Moody's
long-term bond ratings went from AA- and A to A and A3, respectively. During
1997, Duff & Phelps Credit Rating Co. began rating the company's commercial
paper and long-term bonds. The commercial paper and long-term bonds were rated
D1 and A, respectively.
Average outstanding commercial paper during the year was $286.7 million, with a
weighted-average interest rate of 5.6%. At year-end 1997, commercial paper
outstanding was $30.0 million and aggregate unused credit lines were $612.3
million.
During 1997, net cash provided by operating activities increased $5.2 million to
$231.7 million. The increase was attributed to higher earnings, operating
profits from the former Disney newspapers, and other changes in working capital.
Cash and short-term investments were $160.3 million at the end of 1997, a $137.4
million increase from last year. The increased cash level will be used for stock
repurchases in the first quarter of 1998. The ratio of current assets to current
liabilities was 1.2:1 at year end vs. 1.0:1 at the end of 1996.
The company's operations have historically generated strong positive cash flow,
which, along with the company's commercial paper program, revolving credit lines
and ability to issue public debt, has provided adequate liquidity to meet the
company's short-term and long-term cash requirements, including requirements for
acquisitions.
1996 VS. 1995. The principal change in the company's financial position during
1996 was the application of some KRF after-tax sale proceeds toward the
repurchase of 6.2 million shares for $221.8 million and the reduction of debt by
$193 million. The total-debt-to-total-capital ratio decreased to 42.1%, from
47.7% in 1995.
Average outstanding commercial paper during the year was $495.0 million, with a
weighted-average interest rate of 5.5%. During 1996, the company's revolving
credit and term loan agreement, which backed up the commercial paper program,
decreased from $800 million to $650 million. At year-end 1996, commercial paper
outstanding was $366.5 million and aggregate unused credit lines were $283.5
million.
During 1996, net cash provided by operating activities increased $114.0 million,
to $226.5 million. The increase was attributed to higher earnings, reflecting
the improvements in Detroit's and Philadelphia's operations and other changes in
working capital.
Cash and short-term investments were $22.9 million at the end of 1996, a $3.1
million decrease from 1995. The ratio of current assets to current liabilities
was 1.0:1 at year end vs. 1.1:1 at the end of 1995.
1995 VS. 1994. The principal changes in the company's financial position during
1995 were an increase of $602.3 million of debt in connection with the $360
million CCN acquisition and the $319.4 million repurchase of 11.5 million shares
of the company's common stock. In early 1995, the company sold the JoC for $115
million. The after-tax proceeds offset other debt increases. The
total-debt-to-total-capital ratio increased to 47.7% in 1995, up from 25.2% in
1994.
Average outstanding commercial paper during the year was $263.8 million, with a
weighted-average interest rate of 5.9%. During 1995, the company's revolving
credit and term loan agreement, which backs up the commercial paper program, was
increased from $500 million to $800 million. At year-end 1995, commercial paper
outstanding was $563.2 million and aggregate unused credit lines were $236.8
million.
25
In December 1995, the company issued $100 million principal amount of 6.3%
senior notes due Dec. 15, 2005.
During 1995, net cash provided by operating activities decreased $201.6 million
to $112.6 million. After excluding the gain on the sale of JoC, the decrease was
attributed to lower earnings as a result of the Detroit strike, newsprint price
increases, severance costs and other changes in working capital.
Cash and short-term investments were $26.0 million at the end of 1995, a $16.8
million increase from 1994. The ratio of current assets to current liabilities
was 1.1:1 at year end vs. 1.0:1 at the end of 1994.
Shareholders' equity reflected unrealized gains on investments, net of tax, of
$42.9 million. This represents the unrealized gains on investments available for
sale that are carried on the balance sheet at fair market value, with the
unrealized gains (net of tax) reported as a separate component of shareholders'
equity.
Effect of Changing Prices
The Consumer Price Index, a widely used measure of the impact of changing
prices, has increased only moderately in recent years, up between 2% and 6% each
year since 1990. Historically, when inflation was at higher levels, the impact
on the company's operations was not significant.
The principal effect of inflation on the company's operating results is to
increase reported costs. Subject to normal competitive conditions, the company
generally has demonstrated the ability to raise sales prices to offset these
cost increases.
26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Quarterly Operations in Item 7 and Schedule II, Valuation and Qualifying
Accounts
CONSOLIDATED BALANCE SHEET
(In thousands of dollars, Dec. 28 Dec. 29 Dec. 31
except share data) 1997 1996 1995
----------- ----------- -----------
ASSETS
Current Assets
Cash, including short-term
cash investments of
$140,210 in 1997, $50 in
1996 and 1995 ................ $ 160,291 $ 22,880 $ 26,012
Accounts receivable, net of
allowances of $14,963 in
1997, $12,685 in 1996 and
$14,348 in 1995 .............. 374,746 356,079 339,264
Inventories .................... 50,332 42,941 73,349
Prepaid expense ................ 15,844 90,314 21,543
Other current assets ........... 39,902 53,513 42,754
----------- ----------- -----------
Total Current Assets ..... 641,115 565,727 502,922
----------- ----------- -----------
Investments and Other Assets
Equity in unconsolidated
companies and joint
ventures ..................... 197,585 330,267 321,658
Net assets of discontinued
BIS operations ............... 24,673 352,102 453,189
Other .......................... 172,859 132,425 222,593
----------- ----------- -----------
Total Investments and
Other Assets ........... 395,117 814,794 997,440
----------- ----------- -----------
Property, Plant and Equipment
Land and improvements .......... 89,375 77,526 77,617
Buildings and improvements ..... 444,952 387,509 384,314
Equipment ...................... 1,127,875 994,455 991,263
Construction and equipment
installations in progress .... 111,883 110,590 55,845
----------- ----------- -----------
1,774,085 1,570,080 1,509,039
Less accumulated depreciation .. (727,571) (701,232) (667,210)
----------- ----------- -----------
Net Property, Plant and
Equipment .............. 1,046,514 868,848 841,829
----------- ----------- -----------
Excess of Cost Over Net Assets
Acquired and Other Intangibles
Less accumulated amortization
of $197,966 in 1997,
$150,491 in 1996 and
$131,992 in 1995 ............. 2,272,396 611,538 624,130
----------- ----------- -----------
Total .................... $ 4,355,142 $ 2,860,907 $ 2,966,321
=========== =========== ===========
See "Notes to Consolidated Financial Statements."
27
CONSOLIDATED BALANCE SHEET (Continued)
(In thousands of dollars, Dec. 28 Dec. 29 Dec. 31
except share data) 1997 1996 1995
----------- ----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable ................... $ 172,021 $ 223,962 $ 127,532
Accrued expenses and other
liabilities ...................... 131,491 103,730 105,317
Accrued compensation and
amounts withheld from
employees ........................ 119,036 96,426 101,357
Federal and state income
taxes ............................ 33,920 195
Deferred revenue ................... 72,491 70,452 72,134
Dividends payable .................. 17,978
Short-term borrowings and
current portion of long-
term debt ........................ 69,697 50,000 13,129
---------- ---------- ----------
Total Current
Liabilities ................ 598,656 544,570 437,642
---------- ---------- ----------
Noncurrent Liabilities
Long-term debt ..................... 1,599,133 771,335 1,000,721
Deferred federal and state
income taxes ..................... 282,695 142,727 134,460
Postretirement benefits other
than pensions .................... 150,485 158,811 169,057
Employment benefits and other
noncurrent liabilities ........... 171,225 109,909 112,713
---------- ---------- ----------
Total Noncurrent
Liabilities ................ 2,203,538 1,182,782 1,416,951
---------- ---------- ----------
Minority Interests in
Consolidated Subsidiaries ............ 1,275 2,047 758
---------- ---------- ----------
Commitments and Contingencies (Note I)
Shareholders' Equity
Preferred stock, $1.00 par
value; shares authorized --
2,000,000; shares issued --
1,754,930 in 1997, and 0 in
1996 and 1995 .................... 1,755
Common stock, $.02-1/12
par value; shares
authorized -- 250,000,000;
shares issued -- 81,597,631
in 1997, 93,340,652 in 1996
and 97,196,308 in 1995 ........... 1,700 1,945 2,025
Additional capital ................. 911,572 308,320 295,360
Retained earnings .................. 636,646 819,572 770,643
Unrealized gains on
investments ...................... 1,671 42,942
---------- ---------- ----------
Total Shareholders'
Equity ..................... 1,551,673 1,131,508 1,110,970
---------- ---------- ----------
Total ........................ $4,355,142 $2,860,907 $2,966,321
========== ========== ==========
28
CONSOLIDATED STATEMENT OF INCOME
Year Ended
-----------------------------------------
(In thousands of dollars, Dec. 28 Dec. 29 Dec. 31
except per share data) 1997 1996 1995
----------- ----------- -----------
Operating Revenue
Advertising
Retail ....................... $ 1,008,736 $ 821,768 $ 807,758
General ...................... 246,096 198,797 182,516
Classified ................... 947,419 772,859 682,696
----------- ----------- -----------
Total .................... 2,202,251 1,793,424 1,672,970
Circulation .................. 567,757 501,826 495,315
Other ........................ 106,777 78,974 81,897
----------- ----------- -----------
Total Operating Revenue .. 2,876,785 2,374,224 2,250,182
----------- ----------- -----------
Operating Costs
Labor and employee benefits .... 1,132,227 967,069 969,476
Newsprint, ink and
supplements .................. 466,329 472,207 446,841
Other operating costs .......... 615,470 481,168 506,862
Depreciation and amortization .. 156,731 120,647 98,741
----------- ----------- -----------
Total Operating Costs .... 2,370,757 2,041,091 2,021,920
----------- ----------- -----------
Operating Income ................. 506,028 333,133 228,262
----------- ----------- -----------
Other Income (Expense)
Interest expense ............... (102,662) (73,137) (59,512)
Interest expense capitalized ... 5,376 6,397 1,889
Interest income ................ 3,404 6,488 8,576
Equity in earnings of
unconsolidated companies
and joint ventures ........... 10,800 29,868 20,661
Minority interests in
earnings of consolidated
subsidiaries ................. (11,503) (9,293) (8,809)
Other, net (Note G) ............ 282,409 16,753 (8,250)
----------- ----------- -----------
Total .................... 187,824 (22,924) (45,445)
----------- ----------- -----------
Income before income taxes ....... 693,852 310,209 182,817
Income taxes ..................... 297,348 124,829 72,861
----------- ----------- -----------
Income From Continuing
Operations ....................... 396,504 185,380 109,956
Net gain on sale of
discontinued BIS operations,
net of applicable income
taxes of $8,365 in 1997,
$69,631 in 1996 and $38,933
in 1995 (Notes B and G) ........ 15,261 86,255 53,765
Income/(loss) from discontinued
BIS operations, net of
applicable income taxes of
$1,119 in 1997, $4,305 in
1996 and $8,608 in 1995 (Note G) 1,250 (3,762) 3,661
----------- ----------- -----------
Income Before Cumulative Effect
of Change in Accounting
Principle ........................ 413,015 267,873 167,382
Cumulative effect of change in
accounting principle for
contributions .................. (7,320)
----------- ----------- -----------
Net Income ............... $ 413,015 $ 267,873 $ 160,062
=========== =========== ===========
29
CONSOLIDATED STATEMENT OF INCOME (Continued)
Year Ended
----------------------------------------
Dec. 28 Dec. 29 Dec. 31
1997 1996 1995
----------- ----------- -----------
Earnings Per Share
Basic:
Income from continuing
operations ................ $ 4.48 $ 1.93 $ 1.11
Net gain on sale of
discontinued BIS
operations (Notes B
and G) .................... .17 .90 .54
Income/(loss) from
discontinued BIS
operations, net (Note G) .. .02 (.04) .03
----------- ----------- -----------
Income before cumulative
effect of change in
accounting principle ...... 4.67 2.79 1.68
Cumulative effect of change
in accounting principle
for contributions ......... (.07)
----------- ----------- -----------
Net Income .............. $ 4.67 $ 2.79 $ 1.61
=========== =========== ===========
Diluted:
Income from continuing
operations ................ $ 3.91 $ 1.90 $ 1.10
Net gain on sale of
discontinued BIS
operations (Notes B
and G) .................... .15 .89 .54
Income/(loss) from
discontinued BIS
operations, net (Note G) .. .02 (.04) .03
----------- ----------- -----------
Income before cumulative
effect of change in
accounting principle ...... 4.08 2.75 1.67
Cumulative effect of change
in accounting principle
for contributions ......... (.07)
----------- ----------- -----------
Net Income .............. $ 4.08 $ 2.75 $ 1.60
=========== =========== ===========
Average Shares Outstanding
(000s)
Basic ......................... 88,475 96,021 99,451
=========== =========== ===========
Diluted ....................... 101,314 97,420 100,196
=========== =========== ===========
See "Notes to Consolidated Financial Statements."
30
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended
--------------------------------------
Dec. 28 Dec. 29 Dec. 31
(In thousands of dollars) 1997 1996 1995
---------- ---------- ----------
Cash Provided by (Required for)
Operating Activities
Net income ......................... $ 413,015 $ 267,873 $ 160,062
Noncash items deducted from
(included in) income:
Cumulative effect of
change in accounting
principle .................... 7,320
Gains on sales/exchanges
of investee/
subsidiaries (Note G) ........ (283,126)
Net gain on sale of
discontinued BIS
operations ................... (15,261) (86,255) (53,765)
Depreciation ................... 94,138 86,976 75,197
Amortization of excess of
cost over net assets
acquired ..................... 47,475 18,500 11,504
Amortization of other
assets ....................... 15,118 15,171 12,040
Provision (benefit) for deferred
taxes ........................ (14,750) 40,647 (7,367)
Earnings of investees in
excess of distributions ...... (14,658) (21,293) (16,250)
Minority interests in
earnings of
consolidated
subsidiaries ................. 11,503 9,293 8,809
Other items, net ............... 38,656 (9,648) 34,996
Change in certain assets and
liabilities:
Accounts receivable .............. (33,853) (42,908) (18,620)
Inventories ...................... (326) 30,474 (32,292)
Other current assets ............. 380 (159,718) 2,227
Accounts payable ................. (83,969) 86,251 (19,235)
Federal and state income
taxes .......................... 9,623 972 (55,078)
Other liabilities ................ 47,724 (9,826) 3,006
--------- --------- ---------
Net Cash Provided by
Operating Activities ........ 231,689 226,509 112,554
--------- --------- ---------
Cash Provided by (Required for)
Investing Activities
Proceeds from sale of
investee, net (Note G) ........... 130,654
Proceeds from sale of
subsidiaries, net (Note G) ....... 50,491
Proceeds from sale of
discontinued BIS
operations, net (Note G) ......... 416,983 271,859 114,907
Change in net noncurrent
assets of discontinued BIS
operations ....................... 1,996 4,249 4,523
Acquisition of Contra Costa
Newspapers, Inc. (Note G) ........ (335,755)
Proceeds from sales of
securities available for
sale ............................. 241,894
Additions to property, plant
and equipment .................... (106,614) (112,896) (92,086)
Other items, net ................... (8,165) 45,142 (46,081)
--------- --------- ---------
Net Cash Provided by
(Required for)
Investing Activities ........ 727,239 208,354 (354,492)
--------- --------- ---------
31
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
Year Ended
----------------------------------------
Dec. 28 Dec. 29 Dec. 31
(In thousands of dollars) 1997 1996 1995
---------- ---------- ----------
Cash Provided by (Required for)
Financing Activities
Proceeds from sale of
commercial paper, notes
payable and senior notes
payable ....................... 833,600 601,010 1,092,620
Reduction of total debt ......... (976,611) (793,525) (490,274)
---------- ---------- ----------
Net Change in Total Debt ... (143,011) (192,515) 602,346
Payment of cash dividends ....... (78,335) (74,262) (74,377)
Sale of common stock to
employees ..................... 70,531 72,202 75,437
Purchase of treasury stock ...... (643,375) (221,768) (319,363)
Other items, net ................ (27,327) (21,652) (25,346)
---------- ---------- ----------
Net Cash Provided by
(Required for)
Financing Activities ..... (821,517) (437,995) 258,697
---------- ---------- ----------
Net Increase
(Decrease) in Cash ..... 137,411 (3,132) 16,759
Cash and short-term cash
investments at beginning of
the year ........................ 22,880 26,012 9,253
---------- ---------- ----------
Cash and short-term cash
investments at end of the
year ............................ $ 160,291 $ 22,880 $ 26,012
========== ========== ==========
Supplemental Cash Flow
Information
Noncash investing activities
(Note G)
Securities received as
proceeds on the sale of
investee .................... $ 229,163
Noncash financing activities
(Note G)
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."
32
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Preferred Common
(In thousands of dollars, except Shares Shares Preferred Common Additional Retained Treasury
share data) Outstanding Outstanding Stock Stock Capital Earnings Stock
----------- ----------- --------- ------- ---------- --------- ----------
Balance at Dec. 25, 1994 ........ -- 105,785,440 $ -- $ 2,204 $ 326,392 $ 896,058 $ --
Issuance of common shares
under stock option plans .... 152,150 2 3,429
Issuance of treasury shares
under stock option plans .... 2,167,760 (9,712) (62,712)
Issuance of treasury shares
under stock purchase plan ... 599,558 (2,407) (16,925)
Purchase of treasury shares ... (11,508,600) 319,363
Retirement of 8,741,282
treasury shares.............. (181) (26,830) (212,715) (239,726)
Tax benefits arising from
employee stock plans ........ 4,488
Unrealized gains on
investments ................. 42,942
Net income .................... 160,062
Cash dividends declared on
common stock -- $.74 per
share ....................... (72,762)
--------- ---------- --------- ------- --------- --------- ---------
Balance at Dec. 31, 1995 ........ -- 97,196,308 $ -- $ 2,025 $ 295,360 $ 813,585 $ --
Issuance of common shares
under stock option plans .... 1,040,938 22 26,589 (11)
Issuance of common shares
under stock purchase plan ... 126,808 3 3,724 (1)
Issuance of treasury shares
under stock option plans .... 868,752 (7,661) (30,783)
Issuance of treasury shares
under stock purchase plan ... 326,946 (1,278) (11,645)
Purchase of treasury shares ... (6,219,100) 221,768
Retirement of 5,023,402
treasury shares ............. (105) (16,586) (162,649) (179,340)
Expenses related to capital
transactions ................ (203)
Tax benefits arising from
employee stock plans ........ 8,375
Reductions in unrealized gains
on investments .............. (41,271)
Net income .................... 267,873
Cash dividends declared on
common stock -- $.58-1/2
per share(1) ................ (56,283)
--------- ---------- --------- ------- --------- --------- ---------
Balance at Dec. 29, 1996 ........ -- 93,340,652 $ -- $ 1,945 $ 308,320 $ 821,243 $ --
Issuance of common shares
under stock option plans .... 89,318 2 2,395
Issuance of treasury shares
under stock option plans .... 1,604,447 (28,149) (70,785)
Issuance of treasury shares
under stock purchase plan ... 387,514 (2,222) (17,218)
Issuance of convertible
preferred shares ............ 1,754,930 1,755 658,245
Purchase of treasury shares ... (13,824,300) 643,375
Retirement of 11,832,339
treasury shares ............. (247) (37,519) (517,606) (555,372)
Tax benefits arising from
employee stock plans ........ 10,502
Reductions in unrealized gains
on investments .............. (1,671)
Net income .................... 413,015
Cash dividends declared on
common stock -- $.80 per
share ....................... (78,335)
--------- ---------- --------- ------- --------- --------- ---------
Balance at Dec. 28, 1997 ........ 1,754,930 81,597,631 $ 1,755 $ 1,700 $ 911,572 $ 636,646 $ --
========= ========== ========= ======= ========= ========= =========
(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."
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Knight Ridder is the nation's second-largest newspaper publisher in terms of
circulation and revenue, with products in print and online. The company
publishes 31 daily newspapers in 28 U.S. markets, reaching 9.0 million readers
daily and 12.6 million on Sunday. It maintains 34 associated Web sites and has
investments in two newsprint mills.
The company reports on a fiscal year, ending the last Sunday in the calendar
year. Results for 1997 and 1996 are for the 52 weeks ended Dec. 28 and Dec. 29,
respectively, and results for 1995 are for the 53 weeks ended Dec. 31.
The BASIS OF CONSOLIDATION is to include in the consolidated financial
statements all the accounts of Knight Ridder and its more-than-50%-owned
subsidiaries. All significant intercompany transactions and account balances
have been eliminated in consolidation.
The company is a 50% partner in the DETROIT NEWSPAPER AGENCY (DNA), a joint
operating agency between Detroit Free Press, Inc., a wholly owned subsidiary of
Knight Ridder, and The Detroit News, Inc., a wholly owned subsidiary of Gannett
Co., Inc. In 1989, business operations of the Free Press and The Detroit News
were transferred to the DNA. Under the joint operating agreement that expires
in the year 2089, as of Dec. 26, 1994, profits are split equally between the
partners. The Consolidated Statement of Income includes, on a line-by-line
basis, the company's pro rata share of the revenue and expense generated by the
operation of the agency.
INVESTMENTS in companies in which Knight Ridder has an equity interest of at
least 20% but not more than 50% are accounted for under the equity method. Under
this method, the company records its share of earnings as income and increases
the investment by the equivalent amount. Dividends are recorded as a reduction
in the investment.
The investment caption "EQUITY IN UNCONSOLIDATED COMPANIES AND JOINT VENTURES"
in the Consolidated Balance Sheet represents the company's equity in the net
assets of DNA; the Seattle Times Company and subsidiaries; Newspapers First, a
company responsible for the sales and servicing of general, retail and
classified advertising accounts for a group of newspapers; Southeast Paper
Manufacturing Co. and Ponderay Newsprint Company, two newsprint mill
partnerships; TKR Cable Company and TKR Cable Partners, cable television joint
ventures (all but one of the cable companies jointly owned with
TeleCommunications, Inc. (TCI), were sold in January 1997); InfiNet, a joint
venture that allows newspapers to offer Internet access to subscribers;
Destination Florida, a company that provided online travel information services
(ceased operation in 1997); and Interealty (formerly known as PRC Realty
Systems, Inc.), a software system producer for the real estate industry.
The company owns 49-1/2% of the voting common stock and 65% of the nonvoting
common stock of the SEATTLE TIMES COMPANY, owns 32% of the voting stock of
NEWSPAPERS FIRST, is a one-third partner in the SOUTHEAST PAPER MANUFACTURING
CO., and owns a 13-1/2% equity share of PONDERAY NEWSPRINT COMPANY. The company
is a one-third partner in INFINET and owns a 25% interest in INTEREALTY.
The investment in unconsolidated companies and joint ventures at Dec. 28, 1997,
includes $171.0 million representing the company's share of undistributed
earnings (excluding the DNA) accumulated since the investment dates. The
company's share of the earnings of the unconsolidated companies (except for the
DNA) of $10.8 million in 1997, $29.9 million in 1996 and $20.7 million in 1995
is included in the caption "EQUITY IN EARNINGS OF UNCONSOLIDATED COMPANIES AND
JOINT VENTURES" in the Consolidated Statement of Income. Dividends and cash
distributions received from the unconsolidated companies and joint ventures
(excluding the DNA) were $3.1 million in 1997, $18.6 million in 1996 and $3.2
million in 1995 and were offset against the investment account.
FORT WAYNE NEWSPAPERS, INC. is the only consolidated subsidiary that has a
minority ownership interest. The minority shareholders' interest in the net
income of this subsidiary has been reflected as an expense in the Consolidated
Statement of Income in the caption "MINORITY INTERESTS IN EARNINGS OF
CONSOLIDATED SUBSIDIARIES." Also included in this caption is a contractual
minority interest resulting from a JOA that runs through the year 2021 between
The Miami Herald Publishing Company and Cox Newspapers, Inc., covering the
publication of The Herald and The Miami News, which ceased publication in 1988.
The company's liability to the minority interest shareholders is included in the
Consolidated Balance Sheet caption, "MINORITY INTERESTS IN CONSOLIDATED
SUBSIDIARIES."
34
"CASH AND SHORT-TERM CASH INVESTMENTS" includes currency and checks on hand,
demand deposits at commercial banks, overnight repurchase agreements of
government securities and investment-grade commercial paper with maturities of
90 days or less. Cash and short-term investments are recorded at cost. Due to
the short-term nature of marketable securities, cost approximates market value.
The majority of the company's "ACCOUNTS RECEIVABLE" as of Dec. 28, 1997, Dec.
29, 1996, and Dec. 31, 1995, are from advertisers, newspaper subscribers and
information users. Credit is extended based on the evaluation of the customer's
financial condition, and generally collateral is not required. Credit losses are
provided for in the financial statements and consistently have been within
management's expectations.
"INVENTORIES" are priced at the lower of cost (first-in, first-out FIFO method)
or market. Most of the inventory is newsprint, ink and other supplies used in
printing newspapers.
"OTHER ASSETS" includes investments in companies in which Knight Ridder owns
less than a 20% interest. These investments are reviewed for appropriate
classification at the time of purchase and re-evaluated as of each balance sheet
date. Investments available for sale are carried on the balance sheet at fair
market value, with the unrealized gains/losses (net of tax) reported as a
separate component of shareholders' equity. Unrealized gains (net of tax) were
zero at Dec. 28, 1997, $1.7 million at Dec. 29, 1996, and $42.9 million at Dec.
31, 1995. Upon the sale of an investment, the gain/loss is calculated based on
the original cost, less the proceeds from the sale. Investments are classified
as "held-to-maturity" when the company has the positive intent and ability to
hold the investment to maturity.
"PROPERTY, PLANT AND EQUIPMENT" is recorded at cost, and the provision for
depreciation for financial statement purposes is computed principally by the
straight-line method over the estimated useful lives of the assets.
"EXCESS OF COST OVER NET ASSETS ACQUIRED AND OTHER INTANGIBLES" includes the
unamortized excess of cost over the fair market value on the purchase of at
least a 50% interest in a company's net tangible and intangible assets arising
from these acquisitions. The excess of cost over net assets acquired and
intangible assets from acquisitions accounted for as purchases and occurring
subsequent to Oct. 31, 1970, totaled, at Dec. 28, 1997, approximately $2.5
billion, including $390.9 million of intangible assets. The excess of cost over
net assets acquired is being amortized over a 40-year period on a straight-line
basis, unless management concludes a shorter term is more appropriate. Other
intangibles acquired through acquisitions, consist of trademarks, subscriber and
advertiser lists and mastheads which are being amortized on a straight-line
basis over periods ranging from 5 to 40 years, with a weighted-average life of
26.5 years. If, in the opinion of management, an impairment in value occurs,
based on the undiscounted cash flow method, any necessary additional write-downs
will be charged to expense.
"DEFERRED REVENUE" arises as a normal part of business from advance subscription
payments for newspapers. Revenue is recognized in the period in which it is
earned.
"SHORT-TERM BORROWINGS AND CURRENT PORTION OF LONG TERM DEBT" includes the
carrying amounts of commercial paper and other short-term borrowings with
original maturities of less than one year, and the portion of long-term debt
payable within twelve months. The carrying amounts of short-term borrowings
approximate fair value. "LONG-TERM DEBT" represents the carrying amounts of
debentures, notes payable and other indebtedness with maturities longer than one
year. Fair values, disclosed in Note C, are estimated using discounted cash flow
analyses based on the company's current incremental borrowing rates for similar
types of borrowing arrangements.
In the first quarter of 1995, the company adopted FAS 116 -- ACCOUNTING FOR
CONTRIBUTIONS RECEIVED AND CONTRIBUTIONS MADE. Under FAS 116, unconditional
promises, including multiyear promises, are recognized in the period the promise
is made. The adoption of FAS 116 resulted in a $7.3 million charge (net of tax)
to operations, or $.07 per share, and was recorded as a cumulative effect
adjustment.
35
In 1996, the company adopted FAS 121 -- ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS. FAS 121 requires impairment losses to be recorded on
long-lived assets when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the assets'
carrying amount. The adoption of FAS 121 did not materially impact the financial
statements. Also in 1996, the company implemented FAS 123 -- ACCOUNTING FOR
STOCK-BASED COMPENSATION. Under this statement, the company accounts for
stock-based compensation plans under the provisions of APB 25 -- Accounting for
Stock Issued to Employees, and discloses the general and pro forma financial
information required by FAS 123 (see Note E).
In 1997, the company adopted FAS 128 -- EARNINGS PER SHARE (EPS). FAS 128
replaced the calculation of primary and fully diluted EPS with basic and diluted
EPS. Unlike primary EPS, basic EPS will typically be higher than primary EPS due
to the exclusion of any dilutive effects of options, warrants and convertible
securities from the calculation. Diluted EPS is very similar to the previously
reported fully diluted EPS. All EPS amounts for all periods presented have been
restated where appropriate, to conform to the FAS 128 requirements.
"BASIC EARNINGS PER SHARE" is computed by dividing net income by the
weighted-average number of common shares outstanding. "DILUTED EARNINGS PER
SHARE" is computed by dividing net income by the weighted-average number of
common and common equivalent shares outstanding. Quarterly earnings per share
may not add to the total for the year, since each quarter and the year are
calculated separately based on average outstanding shares during the period.
In 1997, the company also adopted FAS 129 -- DISCLOSURE OF INFORMATION ABOUT
CAPITAL STRUCTURE. FAS 129 establishes standards for disclosing information
about an entity's capital structure. The adoption of this statement did not
result in additional required disclosures. FAS 130 -- REPORTING COMPREHENSIVE
INCOME and FAS 131 -- DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION are effective beginning in 1998. FAS 130 establishes standards for
reporting and displaying comprehensive income, while FAS 131 abandons the
"industry segment approach" in favor of the "management approach" for disclosure
purposes. Adoption of FAS 130 is not expected to result in a significant change
from the current required disclosures and the adoption of FAS 131 is not
expected to result in additional disclosures.
USE OF ESTIMATES -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Certain amounts in 1996 and 1995 have been reclassified to conform to the 1997
presentation.
B. INCOME TAXES
The company's income tax expense is determined under the liability method, which
requires adjusting previously deferred taxes for changes in tax rates.
Substantially all of the company's earnings are subject to domestic taxation. No
material foreign income taxes have been imposed on reported earnings.
Federal, state and local income taxes consist of the following (in thousands):
1997 1996 1995
------------------------ ------------------------ -------------------------
Current Deferred Current Deferred Current Deferred
--------- --------- --------- --------- --------- ----------
Federal income taxes ................... $ 286,645 $ (33,176) $ 127,610 $ 28,075 $ 100,568 $(10,128)
State and local income taxes ........... 64,519 (11,156) 29,913 13,167 26,721 3,241
--------- --------- --------- -------- --------- ---------
Total ................................ $ 351,164 $ (44,332) $ 157,523 $ 41,242 $ 127,289 $ (6,887)
========= ========= ========= ======== ========= ========
Provision for:
Continuing operations ................ $ 312,098 $ (14,750) $ 84,182 $ 40,647 $ 80,228 $ (7,367)
Discontinued operations .............. 39,066 (29,582) 73,341 595 47,061 480
--------- --------- --------- -------- --------- ---------
Total .............................. $ 351,164 $ (44,332) $ 157,523 $ 41,242 $ 127,289 $ (6,887)
========= ========= ========= ======== ========= ========
36
Cash payments of income taxes for the years 1997, 1996 and 1995 were $278.5
million, $147.2 million and $130.1 million, respectively. Payments in 1997, 1996
and 1995 include the tax impact resulting from one-time gains. The 1997 payment
included the tax impact from the sale of our cable investment, Knight- Ridder
Information, Inc., and our newspaper in Long Beach, Calif., as well as the
Boulder exchange. Payments in 1996 and 1995 included the tax impact from the
sale of Knight-Ridder Financial and the Journal of Commerce, respectively.
Effective Income Tax Rates
The differences between income tax expense for continuing operations shown in
the financial statements and the amounts determined by applying the federal
statutory rate of 35% in each year are as follows (in thousands):
1997 1996 1995
--------- --------- --------
Federal statutory income tax ......... $ 242,848 $ 108,573 $ 63,986
State and local income taxes, net of
federal benefit .................... 34,300 13,612 11,421
Statutory rate applied to
nondeductible amortization of the
excess of cost over net assets
acquired ........................... 13,482 2,781 2,712
Other items, net ..................... 6,718 (137) (5,258)
--------- --------- ---------
Total .............................. $ 297,348 $ 124,829 $ 72,861
========= ========= =========
The deferred tax asset and liability at the fiscal year end consist of the
following components (in thousands):
1997 1996 1995
--------- --------- ---------
Deferred Tax Assets
Postretirement benefits other than
pensions (including amounts relating
to partnerships in which the company
participates) ...................... $ 88,016 $ 95,764 $ 85,789
Compensation and benefit accruals .... (15,855) (6,802) 21,768
Accrued interest ..................... 8,165 10,576 8,073
Other nondeductible accruals ......... 51,651 43,594 30,068
--------- --------- ---------
Gross deferred tax assets .......... $ 131,977 $ 143,132 $ 145,698
========= ========= =========
Deferred Tax Liability
Depreciation and amortization ........ $ 341,872 $ 196,116 $ 154,242
Equity in partnerships and investees . 46,845 73,499 52,708
Unrealized appreciation in equity
securities ......................... 1,210 33,478
Research and experimental expenditures 10,964 12,232
Other ................................ 4,010 11,066 31,924
--------- --------- ---------
Gross deferred tax liability ....... $ 392,727 $ 292,855 $ 284,584
--------- --------- ---------
Net deferred tax liability ......... $ 260,750 $ 149,723 $ 138,886
========= ========= =========
The components of deferred taxes included in the Consolidated Balance Sheet are
as follows (in thousands):
1997 1996 1995
--------- --------- ---------
Current asset ........................ $ 23,445 $ 24,296 $ 26,160
Noncurrent liability ................. 282,695 142,727 134,460
Discontinued BIS operations - net
liability .......................... 1,500 31,292 30,586
--------- --------- ---------
Net deferred tax liability ......... $ 260,750 $ 149,723 $ 138,886
========= ========= =========
37
C. DEBT
Debt consisted of the following (in thousands):
Dec. 28 Dec. 29 Dec. 31
1997 1996 1995
----------- --------- -----------
Commercial paper due at various dates
through March 25, 1998, at an
effective interest rate of 5.6% as
of Dec. 28, 1997. Amounts are net of
unamortized discounts of $207 in 1997,
$1,683 in 1996 and $5,502 in 1995(a) ....... $ 29,793 $ 364,817 $ 557,698
Senior secured bank debt due on Sept.
15, 1999, advanced under a $1.2
billion credit agreement with a variable
interest rate indexed to
LIBOR plus 27 1/2 basis points(b) ......... 990,000
Debentures due on April 15, 2009,
bearing interest at 9.875%, net of
unamortized discount of $1,867 in
1997, $2,032 in 1996 and $2,211 in
1995 ....................................... 198,133 197,968 197,789
Debentures due on Nov. 1, 2027,
bearing interest at 7.15%, net of
unamortized discount of $5,739 in
1997 ....................................... 94,261
Notes payable, bearing interest at
8.5%, subject to mandatory pro rata
amortization of 25% annually
commencing Sept. 1, 1998, through
maturity on Sept. 1, 2001, net of
unamortized discount of $383 in
1997, $555 in 1996 and $726 in 1995 ........ 159,617 159,445 159,274
Notes payable due on Nov. 1, 2007,
bearing interest at 6.625%, net of
unamortized discount of $2,179 in
1997 ....................................... 97,821
Senior notes payable due on Dec. 15,
2005, bearing interest at 6.3%, net
of unamortized discount of $795 in
1997, $895 in 1996 and $911 in 1995 ........ 99,205 99,105 99,089
----------- --------- -----------
1,668,830 821,335 1,013,850
Less amounts payable in one year(c) .......... 69,697 50,000 13,129
----------- --------- -----------
Total long-term debt ..................... $ 1,599,133 $ 771,335 $ 1,000,721
=========== ========= ===========
(a) Commercial paper is supported by $642.3 million of revolving credit and
term loan agreements, $400 million of which matures on Oct. 25, 2001, and
$242.3 million of which matures on Oct. 23, 1998.
(b) Senior secured bank debt is collateralized by all personal property assets
and four recorded first mortgages of Cypress Media, Inc., a wholly owned
subsidiary.
(c) In 1997, this represents $39.9 million for the 8.5% note payable due on
Sept. 1, 1998, and $29.8 million of commercial paper due within the next 12
months and which management does not intend to refinance.
Interest payments during 1997, 1996 and 1995 were $87.2 million, $70.9 million
and $45.4 million, respectively.
38
The following table presents the approximate annual maturities of debt for the
years after 1997 (in thousands):
1998 ..................................... $ 69,697
1999 ..................................... 1,029,904
2000 ..................................... 39,904
2001 ..................................... 39,904
2002
2003 and thereafter ...................... 489,421
-----------
Total .................................. $ 1,668,830
===========
The carrying amounts and fair values of debt as of Dec. 28, 1997, are as follows
(in thousands):
Carrying Fair
Amount Value
----------- -----------
Commercial paper ..................... $ 29,793 $ 29,793
Senior secured bank debt ............. 990,000 990,000
9.875% Debentures .................... 198,133 249,878
7.15% Debentures ..................... 94,261 102,234
8.5% Notes payable ................... 159,617 171,775
6.625% Notes payable ................. 97,821 100,598
6.3% Senior notes payable ............ 99,205 99,013
----------- -----------
Total .............................. $ 1,668,830 $ 1,743,291
=========== ===========
D. UNCONSOLIDATED COMPANIES AND JOINT VENTURES
Summary financial information for the company's unconsolidated companies and
joint ventures that are accounted for under the equity method is as follows (in
thousands):
1997 1996 1995
---------- ---------- ----------
Current assets ................................ $ 212,939 $ 258,037 $ 274,815
Property, plant and equipment and
other assets ................................ 1,158,224 4,076,604 3,671,364
Current liabilities ........................... 143,683 287,782 323,199
Long-term debt and other noncurrent
liabilities ................................. 394,253 2,893,716 2,572,060
Net sales ..................................... 806,587 1,417,668 1,248,694
Gross profit .................................. 124,650 449,383 376,545
Net income .................................... 24,428 55,104 6,517
Company's share of:
Net assets .................................. 197,585 330,267 321,658
Net income .................................. 10,800 29,868 20,661
In 1989, the Detroit Free Press and The Detroit News began operating under a
joint operating agreement as the Detroit Newspaper Agency (DNA). Balance sheet
amounts for the DNA at Dec. 28, 1997, Dec. 29, 1996, and Dec. 31, 1995, are
included above, and the net assets contributed to the DNA are included in
"Equity in unconsolidated companies and joint ventures" in the Consolidated
Balance Sheet.
In January 1997, the company and Tele-Communications, Inc. closed on the sale of
the company's interest in all but one of their jointly owned cable investments.
See Note G.
E. CAPITAL STOCK
In 1991, shareholders authorized 2 million shares of Series B preferred stock
for future issuance (which is convertible into 20 million shares of common
stock).
39
In 1997, the Board of Directors authorized 1,758,242 of Series B preferred
stock, $1.00 par value per share, for issuance in connection with the
acquisition of four newspapers that were indirectly owned by The Walt Disney
Company on May 9, 1997. The Series B preferred stock is convertible into 10
shares of common stock. If and when dividends and other distributions are
declared by the Board of Directors, holders of the Series B preferred stock
shall be entitled to receive the dividends or other distribution paid on the
number of shares of the corporation's common stock into which such share of this
series is convertible. Each holder of this series is entitled to vote with
respect to all matters upon which holders of the corporation's common stock are
entitled to vote.
On June 21, 1996, the Board of Directors declared a two-for-one stock split in
the form of a 100% common stock dividend that was payable on July 31, 1996, to
shareholders of record on July 10, 1996. The financial statements have been
restated to give retroactive recognition to the stock split in prior periods by
reclassifying from retained earnings to common stock the par value of the
additional shares arising from the split. In addition, all references in the
financial statements to number of shares and per share amounts have been
restated.
Concurrent with the stock split, the company executed a rights agreement to
replace a similar agreement that expired on July 10, 1996. The agreement grants
each holder of a common share a right, under certain conditions, to purchase
from the company a unit consisting of one one-hundredth of a share of preferred
stock, at a price of $150, subject to adjustment. The rights provide that in the
event the company is a surviving corporation in a merger, each holder of a right
will be entitled to receive, upon exercise, common shares having a value equal
to two times the exercise price of the right. In the event the company engages
in a merger or other business combination transaction in which the company is
not the surviving corporation, the rights agreement provides that proper
provision shall be made so that each holder of a right will be entitled to
receive, upon the exercise thereof at the then-current exercise price of the
right, common stock of the acquiring company having a value equal to two times
the exercise price of the right. No rights certificates will be distributed
until 10 days following a public announcement that a person or group of
affiliated or associated persons has acquired, or obtained the right to acquire,
beneficial ownership of 20% or more of the company's outstanding common stock,
or 10 business days following the commencement of a tender offer or exchange
offer for 20% or more of the company's outstanding stock. Until such time, the
rights are evidenced by the common share certificates of the company. The rights
are not exercisable until distributed and will expire on July 10, 2006, unless
earlier redeemed or exchanged by the company.
The company has the option to redeem the rights in whole, but not in part, at a
price of $.01 per right subject to adjustment. The company's Board of Directors
has reserved for issuance upon exercise of the rights 1,500,000 preferred
shares.
The Employees Stock Purchase Plan provides for the sale of common stock to
employees of the company and its subsidiaries at a price equal to 85% of the
market value at the end of each purchase period. Participants under the plan
received 387,514 shares in 1997, 453,754 shares in 1996 and 599,558 shares in
1995. The purchase price of shares issued in 1997 under this plan ranged between
$34.00 and $43.46, and the market value on the purchase dates of such shares
ranged from $40.00 to $51.13.
The Employee Stock Option Plans provide for the issuance of nonqualified stock
options and incentive stock options. Options are issued at prices not less than
market value at date of grant and until 1994 were exercisable at issue date.
Options granted after March 1994 are exercisable in three equal installments
vesting over a three-year period from the date of grant. There is no expiration
date for the granting of options, but options must expire no later than 10 years
from the date of grant. The option plan provides for the discretionary grant of
stock appreciation rights (SARs) in tandem with previously granted options,
which allow a holder to receive in cash, stock or combinations thereof the
difference between the exercise price and the fair market value of the stock at
date of exercise.
Proceeds from the issuance of shares under these plans are included in
shareholders' equity and do not affect income.
40
Transactions under the Employee Stock Option Plans are summarized as follows:
Weighted-
Average
Number of Exercise Price
Shares Per Share
----------- ---------------
Outstanding
Dec. 25, 1994 ....................... 8,646,724 $ 25.68
Exercised ......................... (2,319,910) 24.21
Expired
Forfeited ......................... (24,800) 26.24
Granted ........................... 1,345,300 32.16
Outstanding
Dec. 31, 1995 ....................... 7,647,314 27.26
Exercised ......................... (1,909,690) 25.95
Expired ........................... (8,650) 29.54
Forfeited ......................... (148,579) 28.70
Granted ........................... 1,324,450 39.25
Outstanding
Dec. 29, 1996 ....................... 6,904,845 29.89
Exercised ......................... (1,693,765) 26.54
Expired ........................... (340,341) 29.00
Forfeited ......................... (25,873) 32.55
Granted ........................... 1,412,668 51.65
Outstanding
Dec. 28, 1997 ....................... 6,257,534 35.74
In 1997, the company established a long-term incentive plan. The plan rewards
participants whose leadership helps the company reach levels of total
shareholder return, as defined. The plan covers a single three year performance
period from Jan. 1, 1997 through Dec. 31, 1999. Participants received an initial
grant of 252,406 shares of restricted Knight Ridder common stock. The initial
grant of common stock was restricted as the vesting of these shares is triggered
upon the occurrence of certain performance goals.
In 1997, the company established a compensation plan for nonemployee directors.
The purpose of the plan is to attract and retain the services of qualified
individuals who are not employees of the company to serve as members of the
Board of Directors. Part of the compensation plan includes the issuance of stock
options. Options vest in three equal installments over a three-year period and
expire no later than 10 years from the date of grant. In 1997, 26,000 options
were granted.
At Dec. 28, 1997, shares of the company's authorized but unissued common stock
were reserved for issuance as follows:
Shares
---------
Employee Stock Option Plans ................ 2,176,761
Employees Stock Purchase Plan .............. 1,421,106
Nonemployee Directors Stock Option
Plan ..................................... 174,000
---------
Total .................................... 3,771,867
=========
As required by FAS 123, pro forma information regarding net income and earnings
per share has been determined as if the company had accounted for its employee
stock options under the fair value method of that statement. The fair value for
these options was estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted-average assumptions for 1997, 1996 and
1995, respectively: risk-free rates of 5.7%, 6.1% and 5.5%; dividend yields of
1.6%, 2.0% and 2.5%; volatility factors of the expected market price of the
company's common stock of 0.14, 0.16 and 0.17; and a weighted-average expected
life of the option of 6.4, 6.5 and 6.5 years. The weighted-average fair values
of the stock options for 1997, 1996 and 1995 were $12.44, $9.65 and $6.94,
respectively.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected stock price volatility. Because
the company's employee stock options have characteristics significantly
different from those traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, the existing models,
in management's opinion, do not necessarily provide a reliable single measure of
the fair value of its employee stock options.
41
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. In addition, the 15%
discount in market value under the Employees Stock Purchase Plan is treated as
compensation expense for pro forma purposes. The company's 1997, 1996 and 1995
pro forma information follows (in thousands, except for earnings per share
information):
1997 1996 1995
--------- --------- ---------
Net income .......................... $ 407,274 $ 264,600 $ 158,461
Basic earnings per share ............ 4.60 2.76 1.59
Diluted earnings per share .......... 4.02 2.72 1.58
The pro forma effect on net income is not necessarily representative of the
effect in future years because it does not take into consideration pro forma
compensation expense related to grants made prior to 1995.
The exercise price of options outstanding at Dec. 28, 1997, ranged between
$22.66 and $52.78. The weighted-average remaining contractual life of those
options for 1997, 1996 and 1995 is 6.4, 7.3 and 7.1 years, respectively.
3,643,950, 4,305,845 and 5,323,930 options were exercisable at the end of 1997,
1996 and 1995, respectively.
In 1997, the company adopted FAS 128 -- EARNINGS PER SHARE (EPS). EPS amounts
for all periods presented have been restated as appropriate to conform to the
FAS 128 requirements. In 1997, the Series B preferred stock, which is
convertible into 10 shares of common stock, and stock options are included in
the diluted EPS calculation, but excluded from the basic EPS calculation. The
1997 diluted EPS calculation includes 10,931,741 weighted-average shares of
Series B preferred stock and 1,906,912 weighted-average stock options. In 1996
and earlier, the only difference between the basic and diluted EPS calculations
is the dilutive impact of options that are included in the diluted EPS
calculation.
F. RETIREMENT PLANS
The company and its subsidiaries maintain several company-administered
noncontributory defined benefit plans covering most nonunion employees. Benefits
are based on years of service and compensation or stated amounts for each year
of service. The company's funding policy for defined benefit plans is to
contribute annually not less than the ERISA minimum funding standards nor more
than the maximum amount which can be deducted for federal income tax purposes.
The company also contributes to certain multi-employer union defined benefit
plans, company-administered and jointly administered negotiated plans covering
union employees. The funding policy for these plans is to make annual
contributions in accordance with applicable agreements.
The company also sponsors certain defined contribution plans established
pursuant to Section 401(k) of the Internal Revenue Code. Subject to certain
dollar limits, employees may contribute a percentage of their salaries to these
plans, and the company will match a portion of the employees' contributions.
A summary of the components of net periodic pension cost for the defined benefit
plans (both company-administered non-negotiated and single-employer negotiated
plans) is presented here, along with the total amounts charged to pension
expense for multi-employer union defined benefit plans, defined contribution
plans and other agreements (in thousands):
1997 1996 1995
--------- --------- ---------
Defined benefit plans:
Service cost ....................... $ 30,116 $ 28,562 $ 21,550
Interest cost ...................... 61,458 56,698 51,725
Actual return on plan assets ....... (173,445) (106,651) (137,554)
Net amortization and deferral ...... 99,825 43,681 84,042
--------- --------- ---------
Net .............................. 17,954 22,290 19,763
Multi-employer union plans ........... 11,125 9,157 9,484
Defined contribution plans ........... 10,742 9,022 8,389
Other ................................ 1,968 1,412 1,808
--------- --------- ---------
Net periodic pension cost .......... $ 41,789 $ 41,881 $ 39,444
========= ========= =========
42
Assumptions used each year in accounting for defined benefit plans were:
1997 1996 1995
----- ----- -----
Discount rate as of year end ............ 7.0% 7.5% 7.25%
Expected long-term rate of return on
assets assumed in determining
pension expense ....................... 8.5 8.5 8.5
Rate of increase in compensation
levels as of year end ................. 4.5 4.5 4.5
The following table sets forth the funded status and amounts recognized in the
Consolidated Balance Sheet for the defined benefit plans (in thousands):
Dec. 28, 1997 Dec. 29, 1996 Dec. 31, 1995
----------------------------- ---------------------------- ----------------------------
Plans Whose Plans Whose Plans Whose Plans Whose Plans Whose Plans Whose
Assets Exceed Accumulated Assets Exceed Accumulated Assets Exceed Accumulated
Accumulated Benefits Accumulated Benefits Accumulated Benefits
Benefits Exceed Assets Benefits Exceed Assets Benefits Exceed Assets
(20 plans) (7 plans) (16 plans) (9 plans) (17 plans) (11 plans)
----------- ------------- ------------- ------------- ------------- -------------
Actuarial present value of benefit
obligations:
Vested benefit obligations ........... $ 767,330 $ 31,543 $ 601,284 $ 74,766 $ 564,319 $ 83,275
========== ======== ========= ======== ========= =========
Accumulated benefit obligations ...... $ 781,678 $ 32,484 $ 612,444 $ 77,021 $ 574,642 $ 85,581
========== ======== ========= ======== ========= =========
Projected benefit obligation ........... $ 911,835 $ 43,497 $ 709,412 $ 87,467 $ 672,691 $ 100,273
Plan assets at fair value .............. 1,056,230 2,529 810,102 49,809 717,475 55,019
---------- -------- --------- -------- --------- ---------
Projected benefit obligation less
than (in excess of) plan assets ...... 144,395 (40,968) 100,690 (37,658) 44,784 (45,254)
Unrecognized net (gain) loss ........... (138,206) 11,438 (96,564) 11,704 (15,441) 15,032
Prior service cost not yet
recognized in net periodic pension
cost ................................. 38,940 3,971 33,135 11,283 24,865 12,522
Unrecognized net (asset) obligation
at the date FAS 87 was adopted,
net of amortization .................. (13,441) 865 (18,592) 1,738 (23,689) 2,190
Adjustment required to recognize
minimum liability .................... (5,922) (14,279) (18,071)
---------- -------- --------- -------- --------- ---------
Net pension asset (liability)
recognized in the Consolidated
Balance Sheet ........................ $ 31,688 $(30,616) $ 18,669 $(27,212) $ 30,519 $ (33,581)
========== ======== ========= ======== ========= =========
Of the seven plans whose accumulated benefits exceed assets, one is a qualified
pension plan. This qualified plan has vested benefits of $2.4 million and assets
of $2.5 million.
Net pension assets are included in "Other" noncurrent assets and net pension
liabilities are included in "Employment benefits and other noncurrent
liabilities." In 1995 and 1996, net pension liabilities related to discontinued
operations were included in "Net assets of discontinued BIS operations." These
net pension liabilities were assumed by corporate in 1997. Substantially all of
the assets of the company-administered plans are invested in listed stocks and
bonds.
G. ACQUISITIONS AND DISPOSITIONS
Acquisitions
On May 9, 1997, the company completed the acquisition of four newspapers,
indirectly owned by The Walt Disney Company, for $1.65 billion. The acquisition
was accomplished through the merger of a wholly owned subsidiary with and into
Cypress Media, Inc. ("Media"), formerly known as ABC Media, Inc., the owner of
the four newspapers. Media owns newspapers in Kansas City, Mo., Fort Worth,
Texas, Belleville, Ill., and Wilkes-Barre, Pa. The company intends to continue
to manage and operate Media as a newspaper company. The four newspapers have
combined daily and Sunday circulation of 635,000 and 898,000, respectively.
43
The acquisition was accounted for under the purchase method. The purchase price
was allocated based on the estimated fair market value of net tangible and
intangible assets acquired. The fair market value of the net tangible and
intangible assets of Media was approximately $317.3 million at date of purchase,
including $351.6 million of intangible assets, which are being amortized on a
straight-line basis over periods ranging from 10 years to 40 years. The excess
of purchase price over these net assets, of approximately $1.33 billion, has
been recorded as goodwill and is being amortized on a straight-line basis over
40 years.
Pursuant to the merger, the company issued 1,754,930 shares of its Series B
convertible preferred stock. Each share of preferred stock is convertible into
10 shares of common stock. At the effective time of the merger, Media had $990
million of bank debt, which was assumed by the company. The company's results of
operations include Media from May 9, 1997.
The pro forma unaudited results of operations, as though the former Media
newspapers acquisition had occurred at the beginning of the fiscal year in which
the acquisition took place as well as for the comparable preceding year, were as
follows (in thousands of dollars, except share data):
1997 1996
----------- -----------
Operating revenue ................... $ 3,058,791 $ 2,873,946
Income before income taxes .......... 695,466 313,038
Net income .......................... 413,932 255,602
Earnings per share
Basic ............................. $ 4.68 $ 2.66
Diluted ........................... 4.09 2.22
On Aug. 24, 1997, the company exchanged its newspaper in Boulder, Colo., for two
newspapers in California owned by the E.W. Scripps Co. The Monterey County
Herald has circulation of 34,000 daily and 38,000 Sunday, and the San Luis
Obispo Telegram-Tribune has circulation of 36,000 Monday through Saturday.
The exchange was accounted for under the purchase method. The fair market value
of the two newspapers received in the exchange was approximately $56.6 million,
and that value was allocated to the net tangible and intangible assets of these
newspapers. The fair market value of the identified tangible and intangible
assets was approximately $51.5 million at date of exchange, including $16.7
million of intangible assets, which are being amortized on a straight-line basis
over periods ranging from 10 years to 40 years. The excess of the fair value of
these newspapers over their net assets, of approximately $5.1 million, has been
recorded as goodwill and is being amortized on a straight-line basis over 40
years. The company's results of operations include Boulder through Aug. 24, and
Monterey and San Luis Obispo from that same date through the end of the fiscal
year.
On Oct. 31, 1995, the company acquired 100% of the outstanding shares of Lesher
Communications, Inc., ("Lesher") for $360 million. The difference between the
purchase price of $360 million and the cash distribution of $335.8 million was
due to certain assumed liabilities. Lesher, a privately held newspaper company
based in Walnut Creek, Calif., published four daily newspapers in contiguous
Contra Costa and eastern Alameda County markets in the East Bay area of Northern
California. Lesher, renamed Contra Costa Newspapers, Inc., (CCN) in November
1995, continues to publish four newspapers.
The acquisition was accounted for under the purchase method. The purchase price
was allocated, based on the estimated fair market value of the net tangible and
intangible assets of CCN. The fair market value of the tangible and intangible
assets was approximately $106.2 million at date of purchase, including $22.6
million of intangible assets, which are being amortized on a straight-line basis
over periods ranging from 15 to 40 years. The excess of purchase price over
these net assets, of approximately $253.8 million, has been recorded as goodwill
and is being amortized on a straight-line basis over 40 years. The company's
results of operations include CCN from Oct. 31, 1995, forward.
The pro forma unaudited results of operations, as though the former CCN
newspapers acquisition had occurred at the beginning of the 1995 fiscal year
were: (1) revenues, $2.4 billion; (2) net income, $161.7 million and (3) basic
earnings per share, $1.63, and diluted earnings per share, $1.61.
44
Dispositions
Related to Continuing Operations:
In July 1997, the company announced that it would sell its newspapers in Boca
Raton, Fla., Gary, Ind., Long Beach, Calif., Milledgeville, Ga. and Newberry,
S.C. Combined daily and Sunday circulation for the Boca Raton, Gary and Long
Beach newspapers is 188,448 and 213,487, respectively. The Milledgeville
newspaper has circulation of 8,153 (five days a week) and the Newberry newspaper
has circulation of 6,500 (three days a week).
In December 1997, the company sold all of these newspapers except the one in
Gary. The sale of the Boca Raton, Newberry and Milledgeville newspapers to
Community Newspaper Holdings, Inc., also included the transfer to the company of
The Daily Sun and the Buyer's Guide, a shopper, in Warner Robins, Ga., and the
Byron (Ga.) Gazette, a weekly newspaper. The Long Beach newspaper was sold to
Garden State Newspapers, an affiliate of Media News Group. On Feb. 2, 1998, the
company closed on the sale of the Gary newspaper to Hollinger International,
Inc.
The proceeds from the sale of the four newspapers were $50.7 million. The pretax
and after-tax gains from their sale were $18.1 million and $10.3 million,
respectively.
On Aug. 24, 1997, the company exchanged its newspaper in Boulder, Colo., for two
newspapers in California owned by the E.W. Scripps Co. The exchange resulted in
a pretax and an after-tax gain of $43.2 million and $24.5 million, respectively.
In January 1997, the company and Tele-Communications, Inc., closed on the sale
of the company's interest in all but one of their jointly owned cable
investments. The total sales price was $377.6 million and resulted in a pretax
and an after-tax gain of $221.8 million and $128.3 million, respectively. The
remaining system, in Kentucky, accounts for a small portion of the original
investment. That sale is expected to close later.
In November 1996, the company sold its investment in Netscape Communications
Corporation, resulting in an after-tax gain of $8.1 million, net of adjustments
in the carrying value of certain other investments.
Related to Discontinued Operations:
On April 4, 1997, the company announced that it would sell Knight-Ridder
Information, Inc. (KRII). The announcement resulted in its former Business
Information Services (BIS) segment (excluding one business called Technimetrics)
being reclassified as discontinued operations in the quarter ended June 29,
1997. On Dec. 11, 1997, the company announced that it would also sell
Technimetrics. Since this business was previously included in the BIS segment,
it was similarly reclassified and included in discontinued operations.
On Nov. 14, 1997, the company sold KRII to M.A.I.D plc for $420 million plus a
working capital purchase price adjustment of approximately $15 million. The sale
resulted in a pretax gain of $23.6 million and an after-tax gain of $15.3
million.
On July 26, 1996, the company sold Knight-Ridder Financial (KRF) to Global
Financial Information Corporation for $275 million. The pretax and after-tax
gains from the sale of KRF were $155.9 million and $86.3 million, respectively.
On April 3, 1995, the company sold the Journal of Commerce (JoC) to the
Economist Group of London for $115 million. The pretax and after-tax gains from
the sale of the JoC were $92.7 million and $53.8 million, respectively.
H. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The company and its subsidiaries have defined postretirement benefit plans that
provide medical and life insurance for retirees and eligible dependents. The
company's postretirement benefit expense is determined under the provisions of
FAS 106 -- EMPLOYERS' ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN
PENSIONS. This statement requires that the cost of these benefits, which are
primarily for health care and life insurance, be recognized in the financial
statements throughout the employees' active working careers.
45
The company valued the accumulated postretirement benefit obligation using the
following assumptions:
1997 1996 1995
----- ----- -----
Discount rate at the end of the
year .................................... 7.0% 7.5% 7.25%
Return on plan assets ..................... 8.5 8.5 8.5
Annual rate of increase in
salaries ................................ 4.5 4.5 4.5
Medical trend rate:
Projected ............................... 8.0 9.0 10.0
Reducing to this percentage in
2001 and thereafter ................... 5.5 5.5 5.5
The following tables present the funded status of the company's benefit plans
(excluding liabilities of the DNA that are reported in the Consolidated Balance
Sheet under the caption "Equity in unconsolidated companies and joint ventures")
and the components of 1997, 1996 and 1995 periodic expense (in thousands):
1997 1996 1995
------------------------ ------------------------ ------------------------
Life Life Life
Insurance Insurance Insurance
Medical and Medical and Medical and
Plans Other Plans Plans Other Plans Plans Other Plans
--------- ----------- --------- ----------- --------- --------
Accumulated postretirement benefit
obligation:
Retirees ............................. $ 60,845 $ 13,873 $ 58,225 $ 13,519 $ 69,180 $ 13,313
Fully eligible active plan
participants ....................... 13,054 5,931 12,369 5,157 16,778 5,440
Other active plan participants ....... 18,706 20,209 17,650 14,568 21,617 16,243
--------- -------- --------- -------- --------- --------
Accumulated benefit obligation in
excess of plan assets ................ 92,605 40,013 88,244 33,244 107,575 34,996
Fair value of assets 12,386
Unfunded status ........................ 92,605 27,627 88,244 33,244 107,575 34,996
Unrecognized net reduction
(increase) in prior service costs .... 23,664 (135) 27,693 (158) 31,723 (180)
Unrecognized net gain (loss) ........... 2,746 3,978 1,493 8,295 (10,633) 5,576
--------- -------- --------- -------- --------- --------
Accrued liability recognized in the
balance sheet ........................ $ 119,015 $ 31,470 $ 117,430 $ 41,381 $ 128,665 $ 40,392
========= ======== ========= ======== ========= ========
Net periodic postretirement benefit
cost includes the following components:
Service cost ......................... $ 3,524 $ 3,769 $ 4,414
Interest cost ........................ 10,988 11,229 11,742
Amortization ......................... (4,812) (4,600) (5,095)
Actual return on plan assets ......... (773)
--------- --------- --------
Net periodic postretirement
benefit cost ....................... $ 8,927 $ 10,398 $ 11,061
========= ========= ========
Impact of 1% increase in medical trend rate:
Aggregate impact on 1997 service
cost and interest cost ............. $ 945
=========
Increase in Dec. 28, 1997, accumulated
postretirement benefit obligation .. $ 5,843
=========
A pretax gain resulting from curtailments, settlements and special termination
benefits under these plans was $8.6 million in 1996, which related to
restructuring of plans.
46
I. COMMITMENTS AND CONTINGENCIES
At Dec. 28, 1997, the company had lease commitments currently estimated to
aggregate approximately $54.9 million that expire from 1998 through 2051 as
follows (in thousands):
1998 ....................................... $ 13,908
1999 ....................................... 11,615
2000 ....................................... 9,208
2001 ....................................... 6,610
2002 ....................................... 4,330
2003 and thereafter ........................ 9,211
--------
Total .................................... $ 54,882
========
Payments under the lease contracts were $15.6 million in 1997, $14.2 million in
1996 and $12.7 million in 1995.
In connection with the company's insurance program, letters of credit are
required to support certain projected worker compensation obligations. At Dec.
28, 1997, the company had approximately $40.3 million of undrawn letters of
credit outstanding.
On July 13, 1995, six unions struck the Detroit Free Press, The Detroit News and
the Detroit Newspaper Agency, which operates both newspapers. Subsequently, the
unions filed numerous unfair labor practice charges against the newspapers and
the Agency. In June 1997, after a lengthy trial, a National Labor Relations
Board (NLRB) administrative law judge ruled that the strike was caused by the
unfair labor practices of the Agency and The Detroit News and recommended that
the Agency and the newspapers reinstate all strikers, displacing permanent
replacements if necessary. The Agency and the newspapers have appealed the
decision, which is pending before the NLRB.
Various libel actions and environmental and other legal proceedings that have
arisen in the ordinary course of business are pending against the company and
its subsidiaries. In the opinion of management, the ultimate liability to the
company and its subsidiaries as a result of all legal proceedings, including
Detroit, will not be material to its financial position or results of
operations.
47
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Shareholders
Knight-Ridder, Inc.
We have audited the accompanying consolidated balance sheet of Knight- Ridder,
Inc., and subsidiaries as of Dec. 28, 1997, Dec. 29, 1996, and Dec. 31, 1995,
and the related consolidated statements of income, cash flows and shareholders'
equity for the years then ended. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These financial statements
and schedule are the responsibility of the company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Knight- Ridder,
Inc., and subsidiaries at Dec. 28, 1997, Dec. 29, 1996, and Dec. 31, 1995, and
the consolidated results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles. Also, in
our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
As discussed in Note A to the financial statements, in 1995 the company changed
its method of accounting for contributions.
/s/ Ernst & Young LLP
---------------------
Miami, Florida
Jan. 26, 1998
48
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
1997 Proxy Statement page 2, "Election of Directors"; page 3, "Nominees for
Election as Directors for Terms Ending 2001; pages 3 through 5, "Continuing
Directors"; page 7, "Compensation Committee Interlocks and Insider
Participation"; page 16, "Certain Relationships"; and page 16, "Section 16(a)
Beneficial Ownership Reporting Compliance".
KNIGHT RIDDER EXECUTIVE COMMITTEE
Alvah H. Chapman Jr., 76
- --------------------------------------------------------------------------------
Served as chairman of the Executive Committee 1984 to 1995; chairman of the
board 1982 to 1989; chief executive officer 1976 to 1988; president 1973 to
1982; executive vice president 1967 to 1973; vice president 1966 to 1967; The
Miami Herald general manager 1962 to 1969. B.S., business administration, The
Citadel, 1942.
Mary Jean Connors, 45
- --------------------------------------------------------------------------------
Senior vice president/human resources since 1996; vice president/human resources
1989 to 1996. Served as Philadelphia Newspapers, Inc., vice president/human
resources 1988 to 1989; assistant to the senior vice president/news for Knight
Ridder 1988; The Miami Herald assistant managing editor/personnel 1985 to 1988;
held various editing positions at The Miami Herald 1980 to 1985. B.A., English,
Miami University in Oxford, Ohio, 1973.
John C. Fontaine, 66
- --------------------------------------------------------------------------------
Retired president and a partner in the law firm of Hughes Hubbard & Reed. Served
as executive vice president 1994 to 1995; senior vice president 1987 to 1993;
general counsel 1980 to 1993. Prior to that, a partner with Hughes Hubbard &
Reed. LL.B., Harvard Law School, 1956; B.A., political science, University of
Michigan, 1953.
Ross Jones, 55
- --------------------------------------------------------------------------------
Senior vice president and chief financial officer since 1993. Served as vice
president/finance in 1993; vice president and treasurer of Reader's Digest
Association, Inc., 1985 to 1993 and in other positions there 1977 to 1985.
Served as manager at Brown Brothers Harriman & Co. 1970 to 1977. Advanced
Management Program, Harvard Business School, 1988; M.B.A., finance, Columbia
University Business School, 1970; B.A., classics, Brown University, 1965.
Frank McComas, 52
- --------------------------------------------------------------------------------
Senior vice president/operations since 1996; vice president/operations 1995 to
1996. Served as publisher, The (Columbia) State, 1988 to 1995; publisher,
Bradenton Herald, 1980 to 1988; held various positions at The Miami Herald and
The Charlotte Observer, 1970 to 1980. Advanced Management Program, Harvard
Business School, 1994; B.B.A. in business administration, Kent State University,
1968.
Bernard H. Ridder Jr., 81
- --------------------------------------------------------------------------------
Former chairman of the board 1979 to 1982; former chairman of the Executive
Committee 1976 to 1984; former vice chairman of the board 1974 to 1979. Served
as president and chief executive officer of Ridder Publications, Inc., 1969 to
1974. B.A., history, Princeton University, 1938.
49
P. Anthony Ridder, 57
- --------------------------------------------------------------------------------
Chairman of the Executive Committee since 1995; Knight Ridder chairman and CEO
since 1995. Served as president 1989 to 1995; president of the Newspaper
Division 1986 to 1995; chairman of the Operating Committee since 1985. Served as
publisher of the San Jose Mercury News 1977 to 1986; general manager 1975 to
1977; business manager 1969 to 1975. B.A., economics, University of Michigan,
1962.
KNIGHT RIDDER OFFICERS
Marty Claus, 49
- --------------------------------------------------------------------------------
Vice president/news since 1993. Served as Detroit Free Press managing editor/
business and features from 1987 to 1992; held various editing positions at the
Free Press 1977 to 1987. Held various writing and editing positions at the San
Bernardino (Calif.) Sun-Telegram 1970 to 1977. B.A., journalism, Michigan State
University Honors College, 1970.
Gary R. Effren, 41
- --------------------------------------------------------------------------------
Vice president/controller since 1995. Served as assistant vice president/
assistant treasurer 1993 to 1995; assistant to the vice president/finance and
treasurer 1989 to 1993; director of corporate accounting 1986 to 1989; business
manager of Viewdata Corp. of America 1984 to 1986; manager of financial
reporting 1983 to 1984. M.B.A., University of Miami, 1989; B.S., accounting,
Rider College, 1978; CPA.
Virginia Dodge Fielder, 49
- --------------------------------------------------------------------------------
Vice president/research since 1989. Served as vice president/news and
circulation research 1986 to 1989. Served as director/news and circulation
research 1981 to 1985; editorial research manager, Chicago Sun-Times 1979 to
1981; held various positions at Lexington Herald-Leader 1976 to 1979. Ph.D.,
mass communications, Indiana University, 1976; M.A., journalism, Indiana
University, 1974; B.A., psychology, Transylvania University, 1970.
Douglas C. Harris, 58
- --------------------------------------------------------------------------------
Vice president and secretary since 1986. Served as vice president/personnel 1977
to 1985; director/personnel 1972 to 1977. Formerly with Peat, Marwick, Mitchell
and Co. as director of college and special recruiting. Advanced Management
Program, Harvard Business School, 1987; Ed.D., counseling and guidance, Indiana
University, 1968; M.S., student personnel, Indiana University, 1964; B.S.,
business administration, Murray State University, 1961.
Clark Hoyt, 55
- --------------------------------------------------------------------------------
Vice president/news since 1993. Served as chief of the Knight Ridder Washington
Bureau 1987 to 1993; news editor 1985 to 1987; managing editor, The Wichita
Eagle 1981 to 1985; various editing positions, Detroit Free Press 1977 to 1981;
various reporting positions, Detroit Free Press and Washington Bureau. B.A.,
English literature, Columbia College, 1964.
Robert D. Ingle, 58
- --------------------------------------------------------------------------------
Vice president/new media since 1995. Served as president and executive editor of
the San Jose Mercury News 1981 to 1995; managing editor, The Miami Herald 1977
to 1981; various editing positions, The Miami Herald 1962 to 1977. B.A.,
journalism and political science, University of Iowa, 1962.
Mindi Keirnan, 42
- --------------------------------------------------------------------------------
Vice president/operations since 1996; assistant vice president/assistant to the
chairman and CEO 1995 to 1996. Served as assistant to the president 1994 to
1995; managing editor/news, Saint Paul Pioneer Press 1991 to 1994; various
editing positions at Gannett News Service, Crain's Chicago Business, the Detroit
Free Press and the Tallahassee Democrat 1977 to 1991. B.S., political science,
Florida State University, 1984.
50
Polk Laffoon IV, 52
- --------------------------------------------------------------------------------
Vice president/corporate relations since 1994. Served as assistant to the
president 1992 to 1994; assistant circulation director/distribution, The Miami
Herald 1991 to 1992; executive assistant to the vice president/marketing 1989 to
1991; Living Today editor, 1987 to 1989. Served as director and vice
president/investor relations, Taft Broadcasting Co. 1982 to 1987. M.B.A.,
marketing, Wharton School, 1970; B.A., English, Yale, 1967.
Tally C. Liu, 47
- --------------------------------------------------------------------------------
Vice president/finance and administration since 1994. Served as vice
president/finance and controller 1993 to 1994; vice president and controller
1990 to 1993. Served as San Jose Mercury News vice president and chief financial
officer 1987 to 1990 and in various roles 1983 to 1987; held various finance
positions, Boca Raton News, 1978 to 1983. M.B.A., Florida Atlantic University,
1977; B.S., business administration, National Chen-Chi University, 1973; CPA.
Larry D. Marbert, 44
- --------------------------------------------------------------------------------
Vice president/technology since 1994. Served as Philadelphia Newspapers, Inc.,
senior vice president/operations 1991 to 1994; vice president/operations
research and planning 1988 to 1991; vice president/production 1986 to 1988;
Knight Ridder director of production/Newspaper Division 1981 to 1986; various
production positions, The Miami Herald 1977 to 1981. M.S., management science,
Auburn University, 1977; B.S., University of North Carolina, business
administration, 1976.
Cristina Lagueruela Mendoza, 51
- --------------------------------------------------------------------------------
Vice president/general counsel since 1993; vice president/associate general
counsel 1992 to 1993; associate general counsel 1990 to 1992. Served as a
partner in Murai, Wald, Biondo, Moreno & Mendoza, P.A., 1988 to 1990; associate
1984 to 1988. J.D., University of Miami Law School, 1982; M.A., political
science, University of Miami, 1967; B.A., political science, Chatham College,
1966.
Alan G. Silverglat, 51
- --------------------------------------------------------------------------------
Vice president/treasurer since 1995. Served as senior vice president/finance and
planning for Business Information Services Division 1983 to 1995; other BIS
positions 1980 to 1983. Formerly with Ernst & Young. B.S., business
administration, University of Missouri, 1968; CPA.
Jerome S. Tilis, 55
- --------------------------------------------------------------------------------
Vice president/marketing since 1987. Served as president of the Detroit Free
Press 1985 to 1989; senior vice president of Philadelphia Newspapers, Inc., 1980
to 1985; vice president of advertising sales and marketing 1979 to 1980;
advertising director 1977 to 1979. Advanced Management Program, Harvard Business
School, 1984; B.S., chemistry, Hunter College, 1964.
Robert Woodworth, 50
- --------------------------------------------------------------------------------
Vice president since June. Served as president and publisher of The Kansas City
Star Company 1993 to 1997; president and general manager 1988 to 1993; and
executive vice president and general manager of the Fort Worth Star- Telegram,
1986 to 1988. M.B.A., Darden School of Business, University of Virginia; B.A.,
economics, Allegheny College.
51
ITEM 11. EXECUTIVE COMPENSATION
1997 Proxy Statement, pages 7 and 8, "Compensation Committee Interlocks and
Insider Participation"; page 8, "Executive Compensation"; pages 8 through 10,
"Compensation Committee Report"; page 11, "Senior Executive Compensation"; page
12, "Stock Options Granted"; pages 12 and 13, "Stock Options Exercised"; pages
13 and 14, "Long-Term Incentive Plan"; page 14, "Pension Benefits"; page 15,
"Performance of the Company's Stock"; and page 16, "Compensation of Directors"
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
1997 Proxy Statement, page 1, "Common Stock Outstanding and Principal Holders"
and page 6, "Security Ownership of Management"
See Note E in Item 8.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
1997 Proxy Statement, page 16, "Certain Relationships"; page 3, "Nominees for
Election as Directors for Terms Ending 2001"; pages 3 through 5, "Continuing
Directors"; pages 7 and 8, "Compensation Committee Interlocks and Insider
Participation"; and page 1, "Common Stock Outstanding and Principal Holders"
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)
1. The following consolidated financial statements of Knight-Ridder,
Inc. and subsidiaries, included in the annual report of the
registrant to its shareholders for the year ended December 28, 1997,
are included in Item 8:
Consolidated Balance Sheet - December 28, 1997, December 29, 1996,
and December 31, 1995
Consolidated Statement of Income - Years ended December 28, 1997,
December 29, 1996, and December 31, 1995
Consolidated Statement of Cash Flows - Years ended December 28,
1997, December 29, 1996, and December 31, 1995
Consolidated Statement of Shareholders' Equity - Years ended
December 28, 1997, December 29, 1996, and December 31, 1995
Notes to consolidated financial statements
2. The following consolidated financial statement schedule of
Knight-Ridder, Inc. and subsidiaries is included in Item 14(d):
Schedule II - Valuation and qualifying accounts
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are
not required under the related instructions, or are inapplicable, or
have been shown in the consolidated financial statements or notes
thereto, and therefore have been omitted from this section.
52
3. Exhibits
No. 2 - Acquisition Agreement, dated as of April 4, 1997, is
incorporated by reference to the Company's Form 10-Q
filed May 9, 1997.
- Acquisition and Plan of Merger, dated as of May 9,
1997, is incorporated by reference to the Company's
Form 8-K filed May 22, 1997.
No. 3(i) - Amended and Restated Articles of Incorporation of
Knight-Ridder, Inc. (totally amended and restated as of
February, 1998) are filed herein.
(ii) - Bylaws of Knight-Ridder, Inc. (As Amended Through
January 28, 1997), are incorporated by reference to the
Company's Form 10-Q filed May 9, 1997.
No. 4 - Indenture, dated as of April 6, 1989, is incorporated
by reference to the Company's Registration Statement on
Form S-3, effective April 7, 1989. (No. 33-28010)
- Rights Agreement, dated as of June 21, 1996, is
incorporated by reference to the Company's Form 8-A
filed July 9, 1996.
- Indenture, dated as of October 9, 1997, is Incorporated
by reference to the Company's Registration Statement on
Form S-3, effective October 10, 1997 (No. 333-37603).
53
No. 10 - Knight-Ridder, Inc. Compensation Plan for Nonemployee
Directors dated July 1, 1997 is filed herein.
- Stock Purchase Agreement between Knight-Ridder Business
Information Services, Inc. and M.A.I.D plc, dated as
of October 1, 1997 is incorporated by reference to the
Company's Form 10-Q filed November 12, 1997.
- Consulting Agreement is incorporated by reference to
the Company's Form 10-Q filed on August 14, 1997.
- Knight-Ridder, Inc. Long-Term Incentive Plan is
incorporated by reference to the Company's Form 10-Q
filed on May 9, 1997.
- Knight-Ridder Annual Incentive Plan is incorporated by
reference to the Company's Form 10-K filed on March 24,
1995.
- Amendment to the Employee Stock Option Plan is
incorporated by reference to the Company's Form 10-K
filed on March 23, 1994.
- Executive Officer's Retirement Agreement dated July 19,
1993 is incorporated by reference to the Company's Form
10-K filed on March 23, 1994.
- Executive Officer's Retirement Agreement dated December
19, 1991 is incorporated by reference to the Company's
Form 10-K filed on March 23, 1994.
- Executive Officer's Consulting/Retirement Agreement
dated September 20, 1989 is incorporated by reference
to the Company's Form 10-K filed on March 24, 1995.
- Knight-Ridder Local Incentive Plan description is
incorporated by reference to the Company's Form 10-K
filed on March 20, 1996.
No. 11 - Statement re Computation of Per Share Earnings is filed
herein.
No. 12 - Statement re Computation of Earnings to Fixed Charges
Ratio From Continuing Operations is filed herein.
No. 21 - Subsidiaries of the Registrant is filed herein.
No. 23 - "Consent of Independent Certified Public Accountants"
is filed herein.
No. 24 - "Power of Attorney" for M. Kenneth Oshman is
incorporated by reference to the Company's Form 10-K
filed on March 10, 1997. "Power of Attorney" for James
I. Cash, Jr. is incorporated by reference to the
Company's Form 10-K filed on March 20, 1996. "Powers of
Attorney" for all other members of the Board of
Directors are incorporated by reference to the
Company's Form 10-K filed on March 24, 1995.
No. 27 - "Financial Data Schedule" is filed herein.
54
(b) Reports on Form 8-K filed during the fourth quarter of 1997:
Form 8-K dated and filed October 8, 1997
Item 5. Other Events; Financial statements restated for the
reclassification of the company's discontinued Business
Information Services segment (excluding one business called
Technimetrics) for the years ended December 29, 1996, December
31, 1995 and December 25, 1994. Pro forma financial statements
of the company's acquisition of ABC Media, Inc., which was
indirectly owned by The Walt Disney Company, restated for the
reclassification of the company's discontinued Business
Information Services segment for the quarter ended March 30,
1997 and the year ended December 29, 1996.
Form 8-K dated November 14, 1997, filed November 26, 1997
Item 2. Disposition of Assets
Item 7. Financial Statements and Exhibits; pro forma financial
statements filed.
(c) Exhibits
The response to this portion of Item 14 is submitted as a separate
section of this report.
(d) Financial Statement Schedules
The response to this portion of Item 14 is submitted as a separate
section of this report.
55
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
KNIGHT-RIDDER, INC.
/s/ P. Anthony Ridder
Dated March 13, 1998 ---------------------------------------------
By P. Anthony Ridder
Chairman and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
/s/ P. Anthony Ridder
Dated March 13, 1998 ---------------------------------------------
P. Anthony Ridder
Chairman and
Chief Executive Officer
/s/ Ross Jones
Dated March 13, 1998 ---------------------------------------------
Ross Jones
Chief Financial Officer and
Senior Vice President/Finance
/s/ Gary R. Effren
Dated March 13, 1998 ---------------------------------------------
Gary R. Effren
Vice President/Controller
(Chief Accounting Officer)
56
/s/ James I. Cash, Jr.*
---------------------------------------------
James I. Cash, Jr.
Director
/s/ Alvah H. Chapman, Jr.*
---------------------------------------------
Alvah H. Chapman, Jr.
Director
/s/ Joan Ridder Challinor *
---------------------------------------------
Joan Ridder Challinor
Director
/s/ John C. Fontaine*
---------------------------------------------
John C. Fontaine
Director
/s/ Peter C. Goldmark, Jr.*
---------------------------------------------
Peter C. Goldmark, Jr.
Director
/s/ Barbara Barnes Hauptfuhrer*
---------------------------------------------
Barbara Barnes Hauptfuhrer
Director
/s/ Jesse Hill, Jr.*
---------------------------------------------
Jesse Hill, Jr.
Director
/s/ C. Peter McColough*
---------------------------------------------
C. Peter McColough
Director
/s/ M. Kenneth Oshman*
---------------------------------------------
M. Kenneth Oshman
Director
/s/ Thomas L. Phillips*
---------------------------------------------
Thomas L. Phillips
Director
57
/s/ P. Anthony Ridder*
---------------------------------------------
P. Anthony Ridder
Director
/s/ Randall L. Tobias*
---------------------------------------------
Randall L. Tobias
Director
/s/ Gonzalo F. Valdes-Fauli*
---------------------------------------------
Gonzalo F. Valdes-Fauli
Director
/s/ John L. Weinberg*
---------------------------------------------
John L. Weinberg
Director
Dated March 13, 1998 * By /s/ Ross Jones
---------------------------------------------
Ross Jones
Attorney-in-fact
58
ANNUAL REPORT ON FORM 10-K
ITEM 14 (a) (2), (c) and (d)
SUPPLEMENTARY DATA
CERTAIN EXHIBITS
YEAR ENDED DECEMBER 28, 1997
KNIGHT-RIDDER, INC. AND SUBSIDIARIES
MIAMI, FLORIDA
59
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
KNIGHT-RIDDER, INC. AND SUBSIDIARIES
(IN THOUSANDS OF DOLLARS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- --------- ------------ ---------- ---------- ----------
ADDITIONS
---------------------------
BALANCE AT CHARGED CHARGED
BEGINNING TO COSTS TO BALANCE
OF AND OTHER AT END
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
- ----------- ------------ ------------ ------------ ------------ ----------
YEAR ENDED DECEMBER 28, 1997:
RESERVES AND ALLOWANCES
DEDUCTED FROM ASSET ACCOUNT:
ACCOUNTS RECEIVABLE
ALLOWANCES ....................... $ 12,685 $ 23,332 $ 752 (1) $ 21,806 (2) $ 14,963
VALUATION ALLOWANCE FOR
DEFERRED TAXES ................... 1,357 1,357
---------- --------- ----- -------- -----------
$ 14,042 $ 23,332 $ 752 $ 21,806 $ 16,320
YEAR ENDED DECEMBER 29, 1996:
RESERVES AND ALLOWANCES
DEDUCTED FROM ASSET ACCOUNT:
ACCOUNTS RECEIVABLE
ALLOWANCES ....................... $ $14,348 $ 19,315 $ 2,097 (1) $ 23,075 (2) $ 12,685
VALUATION ALLOWANCE FOR
DEFERRED TAXES ................... 1,357 1,357
---------- --------- ----- -------- ----------
$ 15,705 $ 19,315 $ 2,097 $ 23,075 $ 14,042
YEAR ENDED DECEMBER 31, 1995:
RESERVES AND ALLOWANCES
DEDUCTED FROM ASSET ACCOUNT:
ACCOUNTS RECEIVABLE
ALLOWANCES ....................... $ 13,728 $ 17,211 $ 2,918 (1) $ 19,509 (2) $ 14,348
VALUATION ALLOWANCE FOR
DEFERRED TAXES ................... 3,985 2,628 (3) 1,357
---------- --------- ----- -------- ----------
$ 17,713 $ 17,211 $ 2,918 $ 22,137 $ 15,705
(1) Represents amounts for the former BIS division included in "Income (loss)
from discontinued BIS operations" in the Consolidated Statement of Income.
(2) Represents uncollectible accounts written-off, net of recoveries, and
dispositions of subsidiaries' balances.
(3) Represents net reduction in valuation allowance which was determined to be
no longer required.