UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 25, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to _______________
Commission file number 1-7553
KNIGHT-RIDDER, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
FLORIDA 38-0723657
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
50 W. SAN FERNANDO ST., SUITE 1500, SAN JOSE, CA 95113
------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(408) 938-7700
----------------------------------------------------
(Registrant's telephone number, including area code)
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (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 [ ]
As of August 2, 2000, 75,633,931 shares of Common Stock, $.02 1/12 par value,
were outstanding.
<PAGE>
Table of Contents for Form 10-Q
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheet 3
Consolidated Statement of Income 5
Consolidated Statement of Cash Flows 6
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures about Market Risk 22
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 2. Changes in Securities and Use of Proceeds 23
Item 3. Defaults Upon Senior Securities 23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 24
SIGNATURE 25
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET
(Unaudited in thousands of dollars, except share data)
<TABLE>
<CAPTION>
June 25, 2000 December 26, 1999
--------------- -----------------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash, including short-term cash investments
of $1,060 in 2000, and $5,598 in 1999 $ 34,596 $ 34,084
Accounts receivable, net of allowances of
$18,011 in 2000 and $15,917 in 1999 399,947 423,016
Inventories 50,850 39,238
Prepaid expense 36,243 32,246
Other current assets 35,612 41,720
--------------- ---------------
Total Current Assets 557,248 570,304
--------------- ---------------
INVESTMENTS AND OTHER ASSETS
Equity in unconsolidated companies and joint ventures 185,888 206,880
Other 344,381 181,583
--------------- ---------------
Total Investments and Other Assets 530,269 388,463
--------------- ---------------
PROPERTY, PLANT AND EQUIPMENT
Land and improvements 94,925 93,995
Buildings and improvements 482,522 484,163
Equipment 1,248,358 1,244,110
Construction and equipment installations in progress 65,994 67,922
--------------- ---------------
1,891,799 1,890,190
Less accumulated depreciation (851,109) (831,041)
--------------- ---------------
Net Property, Plant and Equipment 1,040,690 1,059,149
GOODWILL
Less accumulated amortization of $363,837 in 2000,
and $331,504 in 1999 2,148,410 2,174,418
--------------- ---------------
Total $ 4,276,617 $ 4,192,334
=============== ===============
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
<TABLE>
<CAPTION>
June 25, 2000 December 26, 1999
--------------- -----------------
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 158,263 $ 142,460
Accrued expenses and other liabilities 130,224 100,668
Accrued compensation and amounts withheld
from employees 102,158 126,529
Federal and state income taxes 86,090 16,039
Deferred revenue 73,551 71,505
Short-term borrowings and current portion
of long-term debt 39,952 39,940
--------------- ---------------
Total Current Liabilities 590,238 497,141
--------------- ---------------
NONCURRENT LIABILITIES
Long-term debt 1,406,859 1,260,814
Deferred Federal and state income taxes 297,258 306,636
Postretirement benefits other than pensions 146,251 145,143
Employment benefits and other noncurrent
liabilities 194,462 197,045
--------------- ---------------
Total Noncurrent Liabilities 2,044,830 1,909,638
--------------- ---------------
MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES 3,528 4,871
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, $1.00 par value; shares
authorized - 2,000,000; shares issued -
1,225,000 in 2000 and 1,374,000 in 1999 1,225 1,374
Common stock, $.02 1/12 par value; shares
authorized - 250,000,000; shares issued -
75,584,648 in 2000 and 79,654,493 in 1999 1,575 1,659
Additional capital 920,049 938,969
Retained earnings 752,363 798,971
Accumulated other comprehensive income (34,924) 42,084
Treasury stock, at cost, 40,605 shares in 2000
and 42,510 shares in 1999 (2,267) (2,373)
--------------- ---------------
Total Shareholders' Equity 1,638,021 1,780,684
--------------- ---------------
Total $ 4,276,617 $ 4,192,334
=============== ===============
See Notes to Consolidated Financial Statements.
</TABLE>
4
<PAGE>
CONSOLIDATED STATEMENT OF INCOME
(Unaudited in thousands of dollars, except per share data)
<TABLE>
<CAPTION>
Quarter Ended Two Quarters Ended
-------------------------- --------------------------
June 25, June 27, June 25, June 27,
2000 1999 2000 1999
----------- ----------- ----------- -----------
OPERATING REVENUE
Advertising
<S> <C> <C> <C> <C>
Retail $ 272,828 $ 266,146 $ 518,012 $ 514,732
General 91,368 81,100 179,938 155,957
Classified 289,689 271,720 568,927 533,624
----------- ----------- ----------- -----------
Total 653,885 618,966 1,266,877 1,204,313
Circulation 140,754 145,183 285,034 291,940
Other 57,817 45,517 108,247 84,212
----------- ----------- ----------- -----------
Total Operating Revenue 852,456 809,666 1,660,158 1,580,465
----------- ----------- ----------- -----------
OPERATING COSTS
Labor and employee benefits 320,703 308,493 636,171 613,592
Newsprint, ink and supplements 118,564 121,944 232,593 248,814
Other operating costs 185,157 175,245 369,428 341,260
Depreciation and amortization 48,320 48,499 96,834 95,652
----------- ----------- ----------- -----------
Total Operating Costs 672,744 654,181 1,335,026 1,299,318
----------- ----------- ----------- -----------
OPERATING INCOME 179,712 155,485 325,132 281,147
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)
Interest expense (28,291) (24,038) (54,340) (48,802)
Interest expense capitalized 651 1,006 1,212 3,323
Interest income 443 1,110 774 1,540
Equity in earnings of unconsolidated
companies and joint ventures 1,695 3,960 568 8,828
Minority interests (3,187) (2,860) (5,792) (5,459)
Other, net 8,849 9,810 161,221 8,910
----------- ----------- ----------- -----------
Total (19,840) (11,012) 103,643 (31,660)
----------- ----------- ----------- -----------
Income before income taxes 159,872 144,473 428,775 249,487
Income taxes 63,599 57,887 171,647 100,034
----------- ----------- ----------- -----------
Net Income $ 96,273 $ 86,586 $ 257,128 $ 149,453
=========== =========== =========== ===========
NET INCOME PER SHARE
Basic $ 1.23 $ 1.04 $ 3.27 $ 1.80
=========== =========== =========== ===========
Diluted $ 1.08 $ 0.88 $ 2.82 $ 1.53
=========== =========== =========== ===========
DIVIDENDS DECLARED PER COMMON SHARE $ 0.23 $ 0.23 $ 0.46 $ 0.43
=========== =========== =========== ===========
AVERAGE SHARES OUTSTANDING (000s)
Basic 75,929 79,000 76,854 78,713
=========== =========== =========== ===========
Diluted 89,423 97,847 91,045 97,583
=========== =========== =========== ===========
See Notes to Consolidated Financial Statements.
</TABLE>
5
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited, in thousands of dollars)
<TABLE>
<CAPTION>
Two Quarters Ended
----------------------------------
June 25, June 27,
2000 1999
--------------- ---------------
<S> <C> <C>
CASH PROVIDED BY (REQUIRED FOR) OPERATING ACTIVITIES
Net income $ 257,128 $ 149,453
Noncash items deducted from (included in) income :
Gains on sale of investments (153,982) (11,187)
Gain on sale of building (9,492)
Depreciation and amortization 96,834 95,652
Provision (benefit) for deferred taxes 33,962 (3,856)
Provision for bad debt 12,178 11,830
Distributions in excess of (less than) earnings from equity investees 6,275 (7,375)
Minority interests in earnings of consolidated subsidiaries 5,792 5,579
Other items, net 3,409 16,418
Change in certain assets and liabilities:
Accounts receivable 11,208 (3,331)
Inventories (10,359) 11,748
Other assets (102,832) 6,474
Accounts payable 16,246 (44,259)
Federal and state income taxes 71,042 15,640
Other liabilities 10,475 7,915
--------------- ---------------
Net Cash Provided by Operating Activities 247,884 250,701
--------------- ---------------
CASH PROVIDED BY (REQUIRED FOR) INVESTING ACTIVITIES
Proceeds from sale of investments 1,965 74,076
Proceeds from sale of building 15,694
Acquisition of businesses, investees, and other investments, net (45,783) (55,394)
Additions to property, plant and equipment (35,326) (49,422)
Other items, net 9,006 7,063
--------------- ---------------
Net Cash Required for Investing Activities (54,444) (23,677)
--------------- ---------------
CASH PROVIDED BY (REQUIRED FOR) FINANCING ACTIVITIES
Proceeds from sale of commercial paper, notes payable and 2,358,827 1,338,921
senior notes payable
Reduction of total debt, net of unamortized discount (2,212,770) (1,539,872)
--------------- ---------------
Net Change in Total Debt 146,057 (200,951)
Payment of cash dividends (41,413) (41,362)
Sale of common stock to employees 13,400 23,063
Purchase of treasury stock (299,297)
Other items, net (11,675) (5,797)
--------------- ---------------
Net Cash Required for Financing Activities (192,928) (225,047)
--------------- ---------------
Net Increase in Cash 512 1,977
Cash and short-term cash
investments at beginning of the period 34,084 26,836
--------------- ---------------
Cash and short-term cash
investments at end of the period $ 34,596 $ 28,813
=============== ===============
See Notes to Consolidated Financial Statements.
</TABLE>
6
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS (cont.)
(Unaudited, in thousands of dollars)
<TABLE>
<CAPTION>
Two Quarters Ended
----------------------------------
June 25, June 27,
2000 1999
--------------- ---------------
SUPPLEMENTAL CASH FLOW INFORMATION:
<S> <C> <C>
Non cash investing activities
Stock received from sale of unconsolidated investment 195,624
Non cash financing activities
Conversion of preferred stock to common stock
Preferred Stock (149) (100)
Additional Capital (55,775) (37,508)
Issuance of common stock upon conversion of preferred stock
Common Stock 31 21
Additional Capital 55,893 37,587
See Notes to Consolidated Financial Statements.
</TABLE>
7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the quarter and two quarters ended June 25,
2000 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2000. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K/A for the year ended December 26, 1999.
Certain amounts in the 1999 consolidated statement of cash flows have been
reclassified to conform to the 2000 presentation.
NOTE 2 - COMPREHENSIVE INCOME
The following table sets forth the computation of comprehensive income (in
thousands):
<TABLE>
<CAPTION>
Quarter Ended Two Quarters Ended
---------------------- ----------------------
June 25, June 27, June 25, June 27,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income $ 96,273 $ 86,586 $ 257,128 $ 149,453
Total unrealized gains (losses) on securities
available for sale (42,442) (1,351) (67,736) 11,394
Less: reclassification adjustment for realized gains,
net of taxes -- (6,911) (9,272) (9,182)
--------- --------- --------- ---------
Change in accumulated other comprehensive income (42,442) (8,262) (77,008) 2,212
--------- --------- --------- ---------
Total comprehensive income $ 53,831 $ 78,324 $ 180,120 $ 151,665
========= ========= ========= =========
</TABLE>
8
<PAGE>
NOTE 3 - DEBT
(In Thousands of Dollars)
Effective
Interest Balance At
Rate At --------------------------
June 25, June 25, December 26,
2000 2000 1999
---------- ----------- ------------
Commercial paper, net of discount (a) 6.6% $ 579,419 $ 433,796
Debentures, net of discount (b) 10.0% 198,547 198,464
Debentures, net of discount (c) 7.4% 94,631 94,534
Debentures, net of discount (d) 6.9% 296,499 296,443
Notes payable, net of discount (e) 8.6% 79,937 79,903
Notes payable, net of discount (f) 6.9% 98,322 98,209
Senior notes, net of discount (g) 6.4% 99,456 99,405
----------- -----------
Total Debt (h) 7.3% 1,446,811 1,300,754
Less amounts classified as current 39,952 39,940
----------- -----------
Total long-term debt 7.2% $ 1,406,859 $ 1,260,814
=========== ===========
(a) Commercial paper is supported by $1.0 billion of revolving credit and term
loan agreements, $500 million of which matures on June 22, 2003 and $500
million of which matures June 18, 2001.
(b) Represents $200 million of a 20-year 9 7/8% debenture due in 2009.
(c) Represents $100 million of a 7.15% debenture due in 2027.
(d) Represents $300 million of a 6.875% debenture due in 2029.
(e) Represents $80 million of 8 1/2% notes payable at Sept. 1, 2001, subject to
a mandatory repayment of $40.0 million in Sept. 2000.
The September 2000 maturity is represented under current activities.
(f) Represents $100 million of a 6.625% note due in 2007.
(g) Represents $100 million of 10 year 6.3% senior notes due in 2005.
(h) Interest payments for the two quarters ended June 2000 and June 1999 were
$52.8 million and $43.3 million, respectively.
NOTE 4 - INCOME TAX PAYMENTS
Income tax payments for the two quarters ended June 25, 2000 and June 27, 1999,
were $56.9 million and $90.0 million, respectively.
9
<PAGE>
NOTE 5 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share from continuing operations (in thousands, except per share data):
<TABLE>
<CAPTION>
Quarter Ended Two Quarters Ended
--------------------------- ----------------------------
June 25, June 27, June 25, June 27,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income $ 96,273 $ 86,586 257,128 $ 149,453
Less dividends on preferred stock 2,818 4,036 5,979 7,546
------------ ------------ ------------ ------------
Net income attributable to common stock $ 93,455 $ 82,550 251,149 $ 141,907
============ ============ ============ ============
Average shares outstanding (basic) 75,929 79,000 76,854 78,713
------------ ------------ ------------ ------------
Effect of dilutive securities:
Weighted average preferred stock, as converted 12,254 17,383 12,997 17,465
Stock options 1,240 1,464 1,194 1,405
------------ ------------ ------------ ------------
Average shares outstanding (diluted) 89,423 97,847 91,045 97,583
------------ ------------ ------------ ------------
Net income per share (basic) $ 1.23 $ 1.04 3.27 $ 1.80
============ ============ ============ ============
Net income per share (diluted) $ 1.08 $ 0.88 2.82 $ 1.53
============ ============ ============ ============
</TABLE>
NOTE 6 - COMMITMENTS AND CONTINGENCIES
On July 13, 1995, six unions struck the Detroit Free Press, The Detroit News and
the Detroit Newspaper Agency (Agency), which handles all business functions for
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 judge ruled that
the strike was caused by the unfair labor practices of the Agency and The
Detroit News and ordered that the Agency and the newspapers reinstate all
strikers, displacing permanent replacements if necessary. The Agency and the
newspapers appealed the decision to the NLRB.
On August 27, 1998, the NLRB affirmed certain unfair labor practice findings
against The Detroit News and the Agency, and reversed certain findings of unfair
labor practices against the Agency. The Agency and the newspapers filed a motion
to reconsider with the NLRB, which was denied on March 4, 1999. The unions and
the Agency filed appeals to the U.S. Court of Appeals for the District of
Columbia Circuit. Oral argument on the case was heard on May 4, 2000, and on
July 7, 2000 the Court of Appeals issued its decision. The Court reversed the
NLRB and found that there were no unfair labor practices. Accordingly, the
Company has no back pay liability to the union or striking workers.
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, on a consolidated basis.
NOTE 7 - BUSINESS SEGMENT INFORMATION
Beginning in the quarter ended March 26, 2000, although the Company is not
required to do so, the Company elected to begin reporting its online operations
as a separate reportable business segment from its newspaper operations pursuant
to FASB 131, Disclosures about Segments of an Enterprise and Related
Information. FASB 131 requires disclosure of certain information about
reportable operating segments management believes are important and allows users
to assess the performance of individual operating segments in the same way that
management reviews performance and makes decisions.
10
<PAGE>
Financial data for the Company's segments is as follows (in thousands):
<TABLE>
<CAPTION>
Quarter Ended Two Quarters Ended
------------------------------ ------------------------------
June 25, 2000 June 27, 1999 June 25, 2000 June 27, 1999
------------- ------------- ------------- -------------
Operating revenue
<S> <C> <C> <C> <C>
Newspapers $ 841,507 $ 801,958 $ 1,638,866 $ 1,566,563
Online 10,949 7,708 21,292 13,902
------------- ------------- ------------- -------------
$ 852,456 $ 809,666 $ 1,660,158 $ 1,580,465
============= ============= ============= =============
Operating income (loss)
Newspapers $ 194,597 $ 165,217 $ 357,624 $ 307,490
Online (10,968) (4,971) (19,172) (9,956)
Corporate (3,917) (4,761) (13,320) (16,387)
------------- ------------- ------------- -------------
$ 179,712 $ 155,485 $ 325,132 $ 281,147
============= ============= ============= =============
Depreciation and amortization
Newspapers $ 46,143 $ 46,538 $ 92,508 $ 91,745
Online 617 466 1,205 918
Corporate 1,560 1,495 3,121 2,989
------------- ------------- ------------- -------------
$ 48,320 $ 48,499 $ 96,834 $ 95,652
============= ============= ============= =============
</TABLE>
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
FORWARD LOOKING STATEMENTS
Certain statements contained herein are forward-looking statements. These
forward-looking statements are subject to certain risks and uncertainties that
could cause actual results and events to differ materially from those
anticipated.
Potential risks and uncertainties that could adversely affect the Company's
ability to obtain these results include, without limitations, the following
factors: (a) increased consolidation among major retailers or other events that
may adversely affect business operations of major customers and depress the
level of local and national advertising; (b) an economic downturn in some or all
of the Company's principal newspaper markets that may lead to decreased
circulation or decreased local or national advertising; (c) a decline in general
newspaper readership patterns as a result of competitive alternative media or
other factors; (d) an increase in newsprint costs over the levels anticipated;
(e) labor disputes which may cause revenue declines or increased labor costs;
(f) acquisitions of new businesses or dispositions of existing businesses; (g)
increases in interest or financing costs; and (h) rapid technological changes
and frequent new product introductions prevalent in electronic publishing,
including the evolution of the Internet.
12
<PAGE>
RESULTS OF OPERATIONS: SECOND QUARTER ENDED JUNE 25, 2000 COMPARED WITH SECOND
QUARTER ENDED JUNE 27, 1999
The following table sets forth the results of operations for the quarters ended
June 25, 2000 and June 27, 1999 (in thousands of dollars, except per share
amount):
Quarter Ended
------------------------
June 25, June 27,
2000 1999 % Change
---------- ---------- ----------
Operating revenue $ 852,456 $ 809,666 5.3%
Operating income 179,712 155,485 15.6%
Net income
Before gains on investment sales,
sale of building and severance 90,765 81,330 11.6%
Gains on investment sales -- 6,701
Gain on sale of building 5,508 --
Severance -- (1,445)
---------- ----------
Net income $ 96,273 $ 86,586 11.2%
========== ==========
Diluted earnings per share
Before gains on investment sales,
sale of building and severance $ 1.02 $ 0.83 22.9%
Gains on investment sales -- 0.07
Gain on sale of building 0.06 --
Severance -- (0.02)
---------- ----------
Net income $ 1.08 $ 0.88 22.7%
========== ==========
During the second quarter of 2000, the Company sold a building in Philadelphia,
recording a gain of $5.7 million, net of tax, or $.06 per diluted share. During
the same period in 1999, the Company recorded a gain of $6.7 million, net of
tax, or $.07 per diluted share on the sale of Zip2 Corp. and AT&T stock, and had
non-recurring relocation and severance costs, of $1.4 million, net of tax, or
$.02 per diluted share.
13
<PAGE>
NEWSPAPERS
OPERATING REVENUE
The table below presents operating revenue and related statistics for newspaper
operations for the quarter ended June 25, 2000 compared to the quarter ended
June 27, 1999 (in thousands):
<TABLE>
<CAPTION>
Quarter Ended
------------------------
June 25, June 27,
2000 1999 Variance % Change
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Operating revenues
Advertising
Retail $ 272,828 $ 266,146 $ 6,682 2.5%
General 91,368 81,100 10,268 12.7%
Classified 289,689 271,720 17,969 6.6%
---------- ---------- ----------
Total 653,885 618,966 34,919 5.6%
---------- ---------- ----------
Circulation 140,754 145,183 (4,429) -3.1%
Other 46,868 37,809 9,059 24.0%
---------- ---------- ----------
Total operating revenue $ 841,507 $ 801,958 $ 39,549 4.9%
========== ========== ==========
Average daily circulation
Daily 3,914 3,934 (20) -0.5%
Sunday 5,327 5,355 (28) -0.5%
Advertising linage
Full run
Retail 4,581 4,638 (57) -1.2%
General 945 749 196 26.2%
Classified 5,556 5,310 246 4.6%
---------- ---------- ----------
Total full run 11,082 10,697 385 3.6%
========== ========== ==========
Factored part-run 603 555 48 8.7%
---------- ---------- ----------
Total preprints inserted 1,743 1,772 (29) -1.6%
---------- ---------- ----------
</TABLE>
The increase in retail advertising revenue was primarily due to
telecommunications, preprints and special publications. The increase in preprint
revenue resulted from higher rates offset by a decrease in preprints inserted.
General advertising revenue was up primarily from continued strong demand in
high-tech, dot-com, telecommunications, automotive, and travel. Classified
advertising revenue improved as recruitment advertising continued to contribute
significantly to the classified growth and from additional growth in real estate
advertising.
The increase in other revenue resulted from commercial printing and specialized
publication revenue from companies acquired during 1999.
14
<PAGE>
OPERATING COSTS
The following table summarizes operating costs for newspaper operations for the
quarters ended June 25, 2000 and June 27, 1999 (in thousands of dollars):
<TABLE>
<CAPTION>
Quarter Ended
--------------------------
June 25, June 27,
2000 1999 Variance % Change
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Operating costs
Labor and employee benefits $ 307,871 $ 299,119 $ 8,752 2.9%
Newsprint, ink and supplements 121,756 125,091 (3,335) -2.7%
Other operating costs 171,140 165,993 5,147 3.1%
Depreciation and amortization 46,143 46,538 (395) -0.8%
---------- ---------- ----------
Total operating costs $ 646,910 $ 636,741 10,169 1.6%
========== ========== ==========
</TABLE>
During the second quarter of 2000, the Company incurred $1.9 million in labor
costs related to the union settlement in San Jose, while in the same period in
1999, the Company incurred $2.4 million in severance and relocation costs.
Excluding these costs, the increase in labor and employee benefits resulted
primarily from an increase in the average wage rate per employee of 2.0% and an
increase of 1.1% in the workforce between the second quarters of 1999 and 2000.
Newsprint, ink and supplement costs decreased from the second quarter of 1999 on
a 5.2% decrease in the average newsprint price, offset in part by a 1.3%
increase in newsprint consumption.
Other operating costs increased from the second quarter of 1999 primarily due to
promotion, relocation and recruiting, repairs and maintenance, and
volume-related expenses.
ONLINE
OPERATING REVENUE
The table below presents operating revenue and related statistics for online
operations for the quarter ended June 25, 2000 compared to the quarter ended
June 27, 1999 (in thousands):
<TABLE>
<CAPTION>
Quarter Ended
--------------------------
June 25, June 27,
2000 1999 Variance % Change
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Operating revenue $ 10,949 $ 7,708 $ 3,241 42.0%
Unique visitors 3,600 2,900 700 24.1%
Average monthly page views 151,518 94,230 57,288 60.8%
</TABLE>
Operating revenue for the first quarter of 2000 was up due to increases in
banner and sponsorship revenue and classified listings revenue.
15
<PAGE>
OPERATING COSTS
The following table summarizes operating costs for online operations for the
quarters ended June 25, 2000 and June 27, 1999 (in thousands of dollars):
<TABLE>
<CAPTION>
Quarter Ended
------------------------
June 25, June 27,
2000 1999 Variance % Change
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Operating costs
Labor and employee benefits $ 10,313 $ 6,484 $ 3,829 59.1%
Other operating costs 10,987 5,729 5,258 91.8%
Depreciation and amortization 617 466 151 32.4%
---------- ---------- ----------
Total operating costs $ 21,917 $ 12,679 9,238 72.9%
========== ========== ==========
</TABLE>
The increase in labor and employee benefits was primarily due to increases in
sales and volume-related full-time employees. Other operating costs increased
from the second quarter of 1999 to the second quarter of 2000 primarily as a
result of increased promotion-related expenses and volume-related fees paid to
advertising and content providers. Depreciation and amortization expense
increased due to the acquisition of additional equipment.
CORPORATE AND OTHER RELATED NON-OPERATING ITEMS
Interest expense, net of interest income and capitalized interest, increased in
the second quarter of 2000 by $5.3 million, or 24.1%, from the second quarter of
1999. The quarter's increase was due to higher average debt balances as a result
of additional share repurchases, a reduction in capitalized interest due to the
completion of various capital projects, and a higher weighted-average interest
rate compared to the second quarter of 1999.
Earnings from equity investments for the second quarter of 2000 were $2.3
million, or 57.2%, below the comparable period in 1999. The year-over-year
decline resulted from losses at the Company's newsprint mill investments due to
lower newsprint prices.
"Other, net" income was down slightly from the second quarter of 1999. During
the second quarter of 2000 the Company recorded a pre-tax gain of $9.5 million
on the sale of a building in Philadelphia, while during the comparable period in
1999 the Company recorded a pre-tax gain of $11.2 million on the sale of Zip2
Corp. and AT&T stock.
The effective tax rate was 39.8% in the quarter ended June 25, 2000 compared to
40.1% for the comparable quarter in 1999.
16
<PAGE>
RESULTS OF OPERATIONS: TWO QUARTERS ENDED 2000 COMPARED WITH TWO QUARTERS ENDED
1999
The following table sets forth the results of operations for the two quarters
ended 2000 compared to the two quarters ended 1999 (in thousands of dollars,
except per share amount):
Two Quarters Endend
---------------------------
June 25, June 27,
2000 1999 % Change
------------ ------------ ------------
Operating revenue $ 1,660,158 $ 1,580,465 5.0%
Operating income $ 325,132 $ 281,147 15.6%
Net income
Before gains on investment sales,
sale of building and severance 159,517 145,539 9.6%
Gains on investment sales 91,952 6,701 100% +
Gain on sale of building 5,659 --
Severance -- (2,787)
------------ ------------
Net income $ 257,128 $ 149,453 72.0%
============ ============
Diluted earnings per share
Before gains on investment sales,
sale of building and severance $ 1.75 $ 1.49 17.5%
Gains on investment sales 1.01 0.07 100%+
Gain on sale of building 0.06 --
Severance -- (0.03)
------------ ------------
Net income $ 2.82 $ 1.53 84.3%
============ ============
For the two quarters ended 2000, the Company recorded a gain of $159.5 million,
net of tax, or $1.01 per diluted share related to InfoSpace.com's acquisition of
Prio and GoTo.com's acquisition of Cadabra and a gain of $5.7 million, net of
tax, or $.06 per diluted share, on the sale of a building in Philadelphia.
During the same period in 1999, the Company recorded a gain of $6.7 million, net
of tax, or $.07 per diluted share on the sale of Zip2 Corp. and AT&T stock and
had non-recurring relocation and severance costs of $2.8 million, net of tax, or
$.03 per diluted share.
17
<PAGE>
NEWSPAPERS
OPERATING REVENUE
The table below presents operating revenue and related statistics for newspaper
operations for the two quarters ended June 25, 2000 compared to the two quarters
ended June 27, 1999 (in thousands):
<TABLE>
<CAPTION>
Two Quarters Ended
----------------------------
June 25, June 27,
2000 1999 Variance % Change
------------ ------------ ------------ ----------
<S> <C> <C> <C> <C>
Operating revenues
Advertising
Retail $ 518,012 $ 514,732 $ 3,280 0.6%
General 179,938 155,957 23,981 15.4%
Classified 568,927 533,624 35,303 6.6%
------------ ------------ ------------
Total 1,266,877 1,204,313 62,564 5.2%
------------ ------------ ------------
Circulation 285,034 291,940 (6,906) -2.4%
Other 86,955 70,310 16,645 23.7%
------------ ------------ ------------
Total operating revenue $ 1,638,866 $ 1,566,563 $ 72,303 4.6%
============ ============ ============
Average daily circulation
Daily 3,945 3,957 (12) -0.3%
Sunday 5,368 5,393 (25) -0.5%
Advertising linage
Full run
Retail 8,757 8,890 (133) -1.5%
General 1,768 1,396 372 26.6%
Classified 10,651 10,177 474 4.7%
------------ ------------ ------------
Total full run 21,176 20,463 713 3.5%
============ ============ ============
Factored part-run 1,124 1,047 77 7.3%
------------ ------------ ------------
Total preprints inserted 3,389 3,442 (53) -1.5%
------------ ------------ ------------
</TABLE>
The increase in retail advertising revenue was primarily due to
telecommunications, preprints and special publications offset by decreases in
out-of-business accounts and weakness in department store and national chain
stores. The increase in preprint revenue resulted from higher rates offset by a
decrease in preprints inserted. General advertising revenue was up primarily
from strong demand in high-tech, dot-com, telecommunications, automotive, and
travel. Classified advertising revenue improved as recruitment advertising
continued to contribute significantly to the classified growth and from
additional growth in real estate advertising.
The increase in other revenue resulted from commercial printing and specialized
publication revenue primarily generated by companies acquired in 1999.
18
<PAGE>
OPERATING COSTS
The following table summarizes operating costs for newspaper operations for the
two quarters ended June 25, 2000 and June 27, 1999 (in thousands of dollars):
<TABLE>
<CAPTION>
Two Quarters Ended
--------------------------
June 25, June 27,
2000 1999 Variance % Change
---------- ---------- ---------- ----------
Operating costs
<S> <C> <C> <C> <C>
Labor and employee benefits $ 609,848 $ 591,187 $ 18,661 3.2%
Newsprint, ink and supplements 238,837 255,022 (16,185) -6.3%
Other operating costs 340,049 321,119 18,930 5.9%
Depreciation and amortization 92,508 91,745 763 0.8%
---------- ---------- ----------
Total operating costs $1,281,242 $1,259,073 $ 22,169 1.8%
========== ========== ==========
</TABLE>
During the first two quarters of 2000, the Company incurred $1.9 million in
labor costs related to the union settlement in San Jose, while in the same
period in 1999, the Company incurred $4.7 million in severance and relocation
costs. Excluding these costs, the increase in labor and employee benefits
resulted primarily from an increase in the average wage rate per employee of
3.2% and an increase of .5% in the workforce between the first half of 1999 and
2000.
Newsprint, ink and supplement costs decreased from the two quarters ended 1999
on a 9.3% decrease in the average newsprint price, offset in part by a 1.4%
increase in newsprint consumption.
Other operating costs increased from the two quarters ended 1999 due to strike
preparation costs, promotion, relocation and recruiting, repairs and
maintenance, and volume-related expenses. The increase was also due to the
inclusion of the operations of three recently acquired businesses - Promedia
Publishing Company in February 1999, MACDirect in March 1999 and Consumer and
Community Publishing in September 1999.
ONLINE
OPERATING REVENUE
The table below presents operating revenue and related statistics for online
operations for the two quarters ended June 25, 2000 compared to the two quarters
ended June 27, 1999 (in thousands):
<TABLE>
<CAPTION>
Two Quarters Ended
--------------------------
June 25, June 27,
2000 1999 Variance % Change
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Operating revenue $ 21,292 $ 13,902 $ 7,390 53.2%
Unique visitors 7,162 6,147 1,015 16.5%
Average monthly page views 143,206 95,025 48,181 50.7%
</TABLE>
Operating revenue for the two quarters ended June 25, 2000 was up due to
increases in banner and sponsorship revenue and classified listings revenue.
19
<PAGE>
OPERATING COSTS
The following table summarizes operating costs for online operations for the two
quarters ended June 25, 2000 and June 27, 1999 (in thousands of dollars):
<TABLE>
<CAPTION>
Two Quarters Ended
-----------------------
June 25, June 27,
2000 1999 $ Change % Change
---------- ---------- ---------- ----------
Operating costs
<S> <C> <C> <C> <C>
Labor and employee benefits $ 17,849 $ 12,390 $ 5,459 44.1%
Other operating costs 21,410 10,550 10,860 102.9%
Depreciation and amortization 1,205 918 287 31.3%
---------- ---------- ----------
Total operating costs $ 40,464 $ 23,858 $ 16,606 69.6%
========== ========== ==========
</TABLE>
The increase in labor and employee benefits was primarily due to increases in
sales and volume-related full-time employees. Other operating costs increased
primarily as a result of increased promotion-related expenses and volume-related
fees paid to advertising and content providers. Depreciation and amortization
expense increased due to the acquisition of additional equipment.
CORPORATE AND OTHER RELATED NON-OPERATING ITEMS
Interest expense, net of interest income and capitalized interest, increased for
the two quarters ended June 25, 2000 by $8.4 million, or 19.2%, from the same
period in 1999. The increase was due to higher average debt balances as a result
of additional share repurchases, a reduction in capitalized interest due to the
completion of various capital projects, and a higher weighted-average interest
rate compared to the first two quarters of 1999.
Earnings from equity investments for the two quarters ended 2000 were $8.3
million, or 93.6%, below the comparable period in 1999. The year-over-year
decline resulted from losses at the Company's newsprint mill investments due to
lower newsprint prices.
"Other, net" income increased significantly for the two quarters of 2000 as
compared to the previous year. For the two quarters ended June 25, 2000, the
Company recorded a pre-tax gain of $154.0 million related to InfoSpace.com's
acquisition of Prio and GoTo.com's acquisition of Cadabra, and $9.5 million gain
on the sale of a building in Philadelphia. During the comparable period in 1999,
the Company recorded a pre-tax gain of $11.2 million on the sale of Zip2 Corp.
and AT&T stock. In connection with the gain recorded in 2000, the Company
received stock in GoTo.com and InfoSpace.com.
The effective tax rate was 40.0% in the two quarters ended June 25, 2000
compared to 40.1% for the comparable period in 1999.
20
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operations is the Company's primary source of liquidity. The
Company uses financial leverage to minimize the overall cost of capital and
maintain adequate operating and financial flexibility. The Company invests
excess cash in short- and mid-term investments, depending on projected cash
needs from operations, capital expenditures and other business purposes.
As of June 25, 2000, the Company's total debt to total capital ratio was 47.5%,
compared to 44.2% as of June 27, 1999. Interest coverage ratio (defined as
operating income plus depreciation and amortization divided by interest expense)
was 7.8 at June 25, 2000, compared to 7.7 at June 27, 1999.
Cash and short-term investments were $34.6 million at June 25, 2000, compared to
$28.8 million at June 27, 1999. During the first two quarters of 2000, cash
provided by borrowings and by operations was used to fund treasury stock
purchases of $299.3 million.
During the first two quarters of 2000, total debt increased by $146.1 million
from fiscal year-end 1999. Approximately $420.6 million in aggregate unused
credit lines remained at the end of the second quarter. In February 2000,
Moody's upgraded the Company's short- and long-term debt to P1 and A2,
respectively. Standard & Poor's and Fitch continued to rate the Company's short-
and long-term debt at A-1 and F1, and A and A, respectively.
Additions to property, plant and equipment decreased by $14.1 million from the
first two quarters of 1999 to $35.3 million, due primarily to the completion of
major projects and Year 2000 computer-related expenditures in 1999. During
the first two quarters the Company invested $45.8 million for the acquisitions
of two businesses and for increases in ownership interest of certain
minority-owned companies.
Other assets increased by $162.8 million primarily as a result of advanced
funding of certain union employee benefits and of InfoSpace.com's acquisition of
Prio and GoTo.com's acquisition of Cadabra.
During the first two quarters of 2000, the Company purchased 5.9 million shares
of its common stock at a total cost of $299.3 million and an average cost of
$50.67 per share. At quarter-end, the Company had remaining authorization to
purchase approximately 5.6 million shares.
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- and long-term cash requirements, including requirements for
working capital and capital expenditures.
21
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There are no material changes to the disclosure made on this matter in the
Company's annual report on Form 10-K/A for the year ended December 26, 1999.
22
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Refer to Part 1, Item 1, Note 6, incorporated herein by reference, for
a discussion of legal proceedings relating to the Detroit Free Press.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company's Annual Meeting of Shareholders was held on April 25,
2000. The results of the voting with respect to matters presented at the Annual
Meeting were as follows:
Common Stock Voted
---------------------------------
For Against Withheld
---------- ------- --------
(b) Election of Directors
For a three- year term ending 2003:
Barbara Barnes Hauptfuhrer 68,839,861 0 1,257,599
M. Kenneth Oshman 69,137,064 0 960,396
John L. Weinberg 67,980,831 0 2,116,629
Continuing Directors:
James I. Cash
Joan Ridder Challinor
Gonzalo Valdes-Fauli
Kathleen Foley Feldstein
Thomas P. Gerrity
P. Anthony Ridder
Randall L. Tobias
23
<PAGE>
(c) Ratify the appointment of Ernst & Young LLP as independent auditors of
the company for the year 2000:
Common Stock Voted
---------- -------------------- ----------------
For Against Abstained Broker Non-Votes
---------- ------- --------- ----------------
69,788,339 91,918 217,203 None
(d) Vote on the amendment of the Incentive Plan to preserve the tax
deductibility of certain compensation paid under the Plan:
Common Stock Voted
---------- -------------------- ----------------
For Against Abstained Broker Non-Votes
---------- ------- --------- ----------------
68,309,711 1,437,427 350,322 None
(e) Vote on shareholder proposal requesting that the company prepare and
distribute a report regarding equal employment opportunity:
Common Stock Voted
---------- -------------------- ----------------
For Against Abstained Broker Non-Votes
---------- ------- --------- ----------------
4,022,597 58,637,373 1,737,602 None
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3 (ii) - Bylaws of Knight-Ridder, Inc. (as amended through
July 25, 2000)
27 - Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter
ended June 25, 2000.
24
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KNIGHT-RIDDER, INC.
(Registrant)
Date: August 9, 2000
/s/ GARY R. EFFREN
----------------------------------
Gary R. Effren
Vice President/Controller
(Chief Accounting Officer and Duly
Authorized Officer of Registrant)
25
EXHIBIT INDEX
3 (ii) - Bylaws of Knight-Ridder, Inc. (as amended through July 25, 2000)
27 - Financial Data Schedule
26
