The Incredible Shrinking Herald

People are fleeing in record numbers and not being replaced. Morale has hit bottom. News coverage has been severely curtailed. Money is scarce. And the corporate bigshots love it.

But Miami certainly hasn't been the only profit center. As part of the annual corporate report, Knight-Ridder chairman and chief executive officer Jim Batten, and company president Tony Ridder together penned a lengthy letter outlining their achievements last year. "It is a pleasure to report that 1994 was a record year for the company A in revenue, net income, and earnings per share," the two men wrote. "Total company revenue grew 8.1 percent to $2.6 billion. Net income was $170.9 million, up 15.4 percent from 1993, and up substantially from any previous year in our history. Earnings per share of $3.15 increased 17.5 percent from $2.68 in the previous year.

"Operating income in our Newspaper Division rose 17.4 percent to $350.9 million, our best operating profit performance ever," the executives added. The only "cloud on the horizon," they warned, was a concern over rising newsprint prices. For the past five years newsprint costs had either remained stable or had actually dropped, but the company would no longer be able to reap the benefits of a depressed newsprint market, and was now bracing for a dramatic increase.

However, even this dark cloud had its proverbial silver lining. Because Knight-Ridder has an ownership interest in two of the major paper mills that are now jacking up prices, the corporation will likely enjoy a windfall profit. "As a result of the expected rise in newsprint prices, we anticipate strong earnings improvement from the company's investments in Southeast Paper Manufacturing Co. and Ponderay Newsprint Company," Batten and Ridder wrote. "Earnings from these investments will help offset newsprint costs."

To ensure against any shortfall, Batten and Ridder informed shareholders that steps were being taken to increase each paper's revenue, and that all publishers would be given financial incentives to make their operations as profitable as possible. "We have undertaken significant new revenue initiatives at each of our newspapers and have made publishers' bonuses in part dependent upon their success," they wrote. "We believe that these initiatives, the anticipated growth in ad revenue, and continued tight cost control will allow us to have another year of Newspaper Division profit growth despite an estimated increase of more than $100 million in newsprint costs." Not only will Knight-Ridder newspapers make a profit this year, the two men predicted, they will make an even greater profit than the record set in 1994.

The company's performance and outlook was so strong that both Batten and Ridder, as well as other top corporate executives, received hundreds of thousands of dollars in bonuses last year. According to Knight-Ridder's proxy statement, released publicly on March 24, Batten received a $325,000 bonus on top of his base salary of $656,250. Ridder received a $315,000 bonus above his annual salary of $518,000. Both men were also awarded generous stock options. (Batten, who is suffering from brain cancer, recently stepped aside as chief executive officer, and was replaced by Ridder, though Batten retains his position as chairman.)

Among the challenges Tony Ridder faces is the continuing stagnation of the company's stock. During one of greatest bull markets in history, the price for shares of Knight-Ridder has remained flat. Since January 1992, the Dow Jones index has risen nearly 50 percent, yet Knight-Ridder, which was selling for $55 per share in January 1992, is now selling for only $54 per share. Analysts attribute the lack of growth to various factors, including investor wariness of companies whose profits are heavily dependent on newspaper publishing, an industry that has experienced a steady decline in readership and circulation. (More than 80 percent of Knight-Ridder's revenues derive from its newspapers, whereas the Tribune Company, which owns the Fort Lauderdale Sun Sentinel, and Gannett, which owns USA Today, are more diversified.)

"This stock has not done well at all, and there is tremendous pressure on Knight-Ridder executives to do something about it," says Doug Arthur, an analyst for the New York brokerage firm Morgan Stanley. "And with newsprint prices going higher and higher, and advertising momentum being only fair, it's putting a lot of pressure on management to look at staffing."

Mike Wilson, the former Tropic writer now at the St. Petersburg Times; Susan Olds, the former assistant managing editor who landed at the Newark Star-Ledger; and Bill Greer, the Herald's enterprise editor who moved on to the Palm Beach Post, all claim there is a noticeable difference in working for a publicly held company like Knight-Ridder and working for their current papers, which are privately owned. "The idea of working at an independent newspaper seemed real appealing after working at the Herald," Wilson says. "The Herald labors under the same constraints of any big corporation. It has to make a profit, and a big one. The paper I'm at now is also concerned about making a profit, but they aren't as obsessed."

Olds asserts that rather than make potentially destructive decisions based on short-term goals (improving quarterly earnings, offsetting newsprint costs), privately owned papers are more likely to take a longer view. "The paper I'm at now is adding staff," she says. "It's expanding."

"My sense of our people is that they are demoralized by the most recent cost cutting. They see only the short term. They are skeptical or unaware of our commitment to long-term strategic planning to shape our future and end this continuous cycle of cost cutting.

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