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 September 24, 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 incorporation (I.R.S. Employer
or organization) Identification No.)
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 November 3, 2000, 73,347,451 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 23
Item 6. Exhibits and Reports on Form 8-K 23
SIGNATURE 24
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET
(Unaudited in thousands of dollars, except per share data)
<TABLE>
<CAPTION>
September 24, 2000 December 26, 1999
------------------ -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash, including short-term cash investments of $20,081 in 2000 and $5,598 in 1999 $ 56,077 $ 34,084
Accounts receivable, net of allowances of $17,847 in 2000 and $15,917 in 1999 395,539 423,016
Inventories 54,090 39,238
Prepaid expense 32,417 32,246
Other current assets 34,662 41,720
----------- -----------
Total Current Assets 572,785 570,304
----------- -----------
INVESTMENTS AND OTHER ASSETS
Equity in unconsolidated companies and joint ventures 310,397 206,880
Other 300,238 181,583
----------- -----------
Total Investments and Other Assets 610,635 388,463
----------- -----------
PROPERTY, PLANT AND EQUIPMENT
Land and improvements 95,575 93,995
Buildings and improvements 484,013 484,163
Equipment 1,240,904 1,244,110
Construction and equipment installations in progress 74,760 67,922
----------- -----------
1,895,252 1,890,190
Less accumulated depreciation (855,853) (831,041)
----------- -----------
Net Property, Plant and Equipment 1,039,399 1,059,149
GOODWILL
Less accumulated amortization of $381,282 in 2000
and $331,504 in 1999 2,136,734 2,174,418
----------- -----------
Total $ 4,359,553 $ 4,192,334
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
CONSOLIDATED BALANCE SHEET (cont.)
(Unaudited in thousands of dollars, except per share data)
<TABLE>
<CAPTION>
September 24, 2000 December 26, 1999
------------------ -----------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 137,964 $ 142,460
Accrued expenses and other liabilities 129,752 100,668
Accrued compensation and amounts withheld from employees 105,828 126,529
Federal and state income taxes 40,885 16,039
Deferred revenue 73,365 71,505
Short-term borrowings and current portion of long-term debt 39,966 39,940
----------- -----------
Total Current Liabilities 527,760 497,141
----------- -----------
NONCURRENT LIABILITIES
Long-term debt 1,628,974 1,260,814
Deferred Federal and state income taxes 292,347 306,636
Postretirement benefits other than pensions 146,464 145,143
Employment benefits and other noncurrent liabilities 195,201 197,045
----------- -----------
Total Noncurrent Liabilities 2,262,986 1,909,638
----------- -----------
MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES 3,371 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 - 73,768,615 in 2000 1,537 1,659
and 79,654,493 in 1999
Additional capital 916,314 938,969
Retained earnings 711,304 798,971
Accumulated other comprehensive income (62,722) 42,084
Treasury stock, at cost, 39,798 shares in 2000 and 42,510 shares in 1999 (2,222) (2,373)
----------- -----------
Total Shareholders' Equity 1,565,436 1,780,684
----------- -----------
Total $ 4,359,553 $ 4,192,334
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
CONSOLIDATED STATEMENT OF INCOME
(Unaudited in thousands of dollars, except per share data)
<TABLE>
<CAPTION>
Quarter Ended Three Quarters Ended
--------------------------------- ---------------------------------
September 24, September 26, September 24, September 26,
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATING REVENUE
Advertising
Retail $ 256,419 $ 256,085 $ 774,431 $ 770,816
General 81,524 69,957 261,462 225,914
Classified 279,344 270,869 848,271 804,493
----------- ----------- ----------- -----------
Total 617,287 596,911 1,884,164 1,801,223
Circulation 136,729 143,306 421,763 435,247
Other 58,913 44,522 167,160 128,734
----------- ----------- ----------- -----------
Total Operating Revenue 812,929 784,739 2,473,087 2,365,204
----------- ----------- ----------- -----------
OPERATING COSTS
Labor and employee benefits 312,885 310,100 949,056 923,692
Newsprint, ink and supplements 120,717 106,798 353,310 355,613
Other operating costs 172,082 169,693 541,510 510,952
Depreciation and amortization 52,410 47,171 149,244 142,822
----------- ----------- ----------- -----------
Total Operating Costs 658,094 633,762 1,993,120 1,933,079
----------- ----------- ----------- -----------
OPERATING INCOME 154,835 150,977 479,967 432,125
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)
Interest expense (29,314) (22,422) (83,654) (71,224)
Interest expense capitalized 429 1,170 1,641 4,493
Interest income 334 525 1,108 2,064
Equity in earnings of unconsolidated
companies and joint ventures (225) 1,230 343 10,058
Minority interests (2,569) (2,482) (8,361) (7,941)
Other, net (453) (1,092) 160,768 7,819
----------- ----------- ----------- -----------
Total (31,798) (23,071) 71,845 (54,731)
----------- ----------- ----------- -----------
Income before income taxes 123,037 127,906 551,812 377,394
Income taxes 46,931 51,697 218,578 151,733
----------- ----------- ----------- -----------
Net Income $ 76,106 $ 76,209 $ 333,234 $ 225,661
=========== =========== =========== ===========
NET INCOME PER SHARE
Basic $ 0.99 $ 0.90 $ 4.27 $ 2.70
=========== =========== =========== ===========
Diluted $ 0.87 $ 0.78 $ 3.71 $ 2.31
=========== =========== =========== ===========
DIVIDENDS DECLARED PER COMMON SHARE $ 0.23 $ 0.23 $ 0.69 $ 0.66
=========== =========== =========== ===========
AVERAGE SHARES OUTSTANDING (000s)
Basic 74,330 81,366 76,013 79,597
=========== =========== =========== ===========
Diluted 87,686 97,980 89,926 97,715
=========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited, in thousands of dollars)
<TABLE>
<CAPTION>
Three Quarters Ended
---------------------------------
September 24, September 26,
2000 1999
------------- -------------
<S> <C> <C>
CASH PROVIDED BY (REQUIRED FOR) OPERATING ACTIVITIES
Net income $ 333,234 $ 225,661
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 149,244 142,832
Provision for deferred taxes 47,584 9,150
Provision for bad debt 18,409 17,949
Distributions in excess of (less than) earnings 4,386 (2,273)
Minority interests in earnings of consolidated subsidiaries 8,361 7,941
Other items, net 8,417 (1,574)
Change in certain assets and liabilities:
Accounts receivable 9,260 (23,657)
Inventories (13,509) 16,034
Other assets (99,814) 4,436
Accounts payable (5,092) (40,564)
Federal and state income taxes 26,777 25,079
Other liabilities 15,728 19,509
----------- -----------
Net Cash Provided by Operating Activities 339,511 389,336
----------- -----------
CASH PROVIDED BY (REQUIRED FOR) INVESTING ACTIVITIES
Proceeds from sale of investments 1,965 91,963
Proceeds from sale of building 15,694
Acquisition of subsidiary, investees, and other investments, net (190,416) (68,037)
Additions to property, plant and equipment (67,173) (66,976)
Other items, net 20,740 (5,543)
----------- -----------
Net Cash Required for Investing Activities (219,190) (48,593)
----------- -----------
CASH PROVIDED BY (REQUIRED FOR) FINANCING ACTIVITIES
Proceeds from sale of commercial paper, notes payable and 3,452,141 2,013,549
senior notes payable
Reduction of total debt, net of unamortized discount (3,113,039) (2,268,699)
----------- -----------
Net Change in Total Debt 339,102 (255,150)
Payment of cash dividends (61,319) (63,573)
Sale of common stock to employees 21,215 28,626
Purchase of treasury stock (407,170) (38,004)
Other items, net 9,844 (7,774)
----------- -----------
Net Cash Required for Financing Activities (98,328) (335,875)
----------- -----------
Net Increase in Cash 21,993 4,868
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 $ 56,077 $ 31,704
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
6
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS (cont.)
(Unaudited, in thousands of dollars)
<TABLE>
<CAPTION>
Three Quarters Ended
---------------------------------
September 24, September 26,
2000 1999
------------- -------------
<S> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION:
Non cash investing activities
Stock proceeds from sale of unconsolidated investment 195,624 -
Non cash financing activities
Conversion of preferred stock to common stock
Preferred Stock (149) (381)
Additional Capital (55,775) (142,843)
Issuance of preferred stock for acquisition
Common Stock 31 80
Additional Capital 55,893 143,144
</TABLE>
See Notes to Consolidated Financial Statements.
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 three quarters ended
September 24, 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 1999 have been reclassified to conform to the 2000
presentation.
New Accounting Standards
In January 2000, the SEC issued Staff Accounting Bulletin ("SAB") No. 101,
"Revenue Recognition." The Bulletin provides guidance for applying generally
accepted accounting principles to revenue recognition, presentation and
disclosure in financial statements filed with the SEC. SAB No. 101 is effective
no later than the fourth quarter for fiscal years beginning after December 15,
1999. Management believes that the adoption of this statement will not have a
material impact.
Emerging Issues Task Force Issue 00-1
The Company is a 50% partner in the Detroit Newspaper Agency, a joint operating
agency between Detroit Free Press, Inc., a wholly-owned subsidiary of Knight
Ridder, and the Detroit News, a wholly-owned subsidiary of Gannett Co., Inc. The
Company has historically included in its Consolidated Statement of Income, on a
line-by-line basis, the Company's pro rata share of the revenue and expense
generated by the operation of the Detroit Newspaper Agency.
In May 2000, the Emerging Issues Task Force (EITF) issued EITF Consensus 00-1,
Applicability of the Pro Rata Method of Consolidation to Investments in Certain
Partnerships and Other Unincorporated Joint Ventures. This consensus states that
the use of pro rata consolidation is no longer allowed for the Company's equity
investments. This consensus is required to be adopted in the annual report for
the period ending December 31, 2000 and will require the Company to restate all
prior period presentations of the earnings of the Detroit News Agency and
reflect those earnings in one income statement line.
8
<PAGE>
NOTE 2 - COMPREHENSIVE INCOME
The following table sets forth the computation of comprehensive income (in
thousands):
<TABLE>
<CAPTION>
Quarter Ended Three Quarters Ended
----------------------------- -----------------------------
September 24, September 26, September 24, September 26,
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income $ 76,106 $ 76,209 $ 333,234 $ 225,661
Total unrealized gains (losses) on securities available for sale (27,798) (7,708) (99,259) 3,687
Less: reclassification adjustment for realized gains, net of taxes - - (5,547) (9,183)
--------- --------- --------- ---------
Change in accumulated other comprehensive income (27,798) (7,708) (104,806) (5,496)
--------- --------- --------- ---------
Total comprehensive income $ 48,308 $ 68,501 $ 228,426 $ 220,165
========= ========= ========= =========
</TABLE>
NOTE 3 - DEBT
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Effective Balance At
Interest -------------------------------
Rate At
September 24, September 24, December 26,
2000 2000 1999
------------- ------------- -------------
<S> <C> <C> <C>
Commercial paper, net of discount (a) 6.6% $ 841,012 $ 433,796
Debentures, net of discount (b) 10.0% 198,588 198,464
Debentures, net of discount (c) 7.4% 94,680 94,534
Debentures, net of discount (d) 6.9% 296,528 296,443
Notes payable, net of discount (e) 8.6% 39,956 79,903
Notes payable, net of discount (f) 6.9% 98,379 98,209
Senior notes, net of discount (g) 6.4% 99,480 99,405
Notes payable, other 10.2% 317 -
---------- ----------
Total Debt (h) 7.1% 1,668,940 1,300,754
Less amounts classified as current 39,966 39,940
---------- ----------
Total long-term debt 7.0% $1,628,974 $1,260,814
========== ==========
</TABLE>
(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 the remaining balance of a $80 million of 8 1/2% notes payable
at Sept. 1, 2001, subject to a mandatory repayment of $40.0 million in
Sept. 2000. This amount 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 three quarters ended September 2000 and September
1999 were $74.3 million and $68.2 million, respectively.
NOTE 4 - INCOME TAX PAYMENTS
Income tax payments for the three quarters ended September 24, 2000 and
September 26, 1999, were $136.7 million and $120.2 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 Three Quarters Ended
-------------------------------- --------------------------------
September 24, September 26, September 24, September 26,
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income $ 76,106 $ 76,209 $ 333,234 $ 225,661
Less dividends on preferred stock 2,818 3,369 8,797 10,825
----------- ----------- ----------- -----------
Net income attributable to common stock $ 73,288 $ 72,840 $ 324,437 $ 214,836
=========== =========== =========== ===========
Average shares outstanding (basic) 74,330 81,366 76,013 79,597
----------- ----------- ----------- -----------
Effect of dilutive securities:
Weighted average preferred stock, as converted 12,254 15,115 12,749 16,682
Stock options 1,102 1,499 1,164 1,436
----------- ----------- ----------- -----------
Average shares outstanding (diluted) 87,686 97,980 89,926 97,715
----------- ----------- ----------- -----------
Net income per share (basic) $ 0.99 $ 0.90 $ 4.27 $ 2.70
=========== =========== =========== ===========
Net income per share (diluted) $ 0.87 $ 0.78 $ 3.71 $ 2.31
=========== =========== =========== ===========
</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. Based on that
decision, the Company has no back pay liability to the union or striking
workers. The unions and the NLRB petitioned the Court of Appeals to reconsider
its decision. The union's request was denied on August 28, 2000, and the NLRB
request was denied on August 31, 2000. The unions and the NLRB have until
November 29, 2000 to file a Petition for Certiorari with the U.S. Supreme Court.
10
<PAGE>
Various libel and copyright infringement 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 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.
Financial data for the Company's segments is as follows (in thousands):
<TABLE>
<CAPTION>
Quarter Ended Three Quarters Ended
----------------------------------- -----------------------------------
Sept 24, 2000 Sept 26, 1999 Sept 24, 2000 Sept 26, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Operating revenue
Newspapers $ 800,757 $ 776,301 $ 2,439,623 $ 2,342,864
Online 12,172 8,438 33,464 22,340
------------- ------------- ------------- -------------
$ 812,929 $ 784,739 $ 2,473,087 $ 2,365,204
============= ============= ============= =============
Operating income (loss)
Newspapers $ 168,740 $ 165,107 $ 526,364 $ 472,597
Online (10,461) (5,561) (29,632) (15,517)
Corporate (3,444) (8,569) (16,765) (24,955)
------------- ------------- ------------- -------------
$ 154,835 $ 150,977 $ 479,967 $ 432,125
============= ============= ============= =============
Depreciation and amortization
Newspapers $ 50,299 $ 45,193 $ 142,807 $ 136,938
Online 560 457 1,764 1,376
Corporate 1,551 1,521 4,673 4,508
------------- ------------- ------------- -------------
$ 52,410 $ 47,171 $ 149,244 $ 142,822
============= ============= ============= =============
</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 limitation, 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: THIRD QUARTER ENDED SEPTEMBER 24, 2000 COMPARED WITH
THIRD QUARTER ENDED SEPTEMBER 26, 1999
The following table sets forth the results of operations for the quarters ended
September 24, 2000 and September 26, 1999 (in thousands of dollars, except per
share amount):
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------
September 24, September 26,
2000 1999 % Change
------------- ------------- ------------
<S> <C> <C> <C>
Operating revenue $ 812,929 $ 784,739 3.6%
Operating income $ 154,835 $ 150,977 2.6%
------------ ------------
Net income $ 76,106 $ 76,209 -0.1%
============ ============
Diluted earnings per share $ 0.87 $ 0.78 11.5%
============ ============
</TABLE>
13
<PAGE>
NEWSPAPERS
OPERATING REVENUE
The table below presents operating revenue and related statistics for newspaper
operations for the quarter ended September 24, 2000 compared to the quarter
ended September 26, 1999 (in thousands):
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------
September 24, September 26,
2000 1999 Variance % Change
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Operating revenues
Advertising
Retail $ 256,419 $ 256,085 $ 334 0.1%
General 81,524 69,957 11,567 16.5%
Classified 279,387 270,869 8,518 3.1%
------------ ------------ ------------
Total 617,331 596,911 20,420 3.4%
------------ ------------ ------------
Circulation 136,729 143,306 (6,577) -4.6%
Other 46,697 36,084 10,613 29.4%
------------ ------------ ------------
Total operating revenue $ 800,757 $ 776,301 $ 24,456 3.2%
============ ============ ============
Average daily circulation
Daily 3,836 3,856 (20) -0.5%
Sunday 5,252 5,344 (92) -1.7%
Advertising linage
Full run
Retail 4,252 4,412 (160) -3.6%
General 840 647 193 29.8%
Classified 5,594 5,353 241 4.5%
------------ ------------ ------------
Total full run 10,686 10,412 274 2.6%
============ ============ ============
Factored part-run 554 525 29 5.5%
------------ ------------ ------------
Total preprints inserted 1,776 1,457 319 21.9%
------------ ------------ ------------
</TABLE>
Retail revenue for the quarter was virtually flat compared with the prior year.
The major drivers of these results include large advertisers advertising at less
than their customary levels, a shift by some advertisers to preprints and
fall-off in some markets with mid-to-smaller advertisers. The increase in
general advertising revenue was primarily due to telecommunications and computer
advertising in the third quarter of 2000 versus the third quarter of 1999.
Classified advertising revenue improved as recruitment advertising continued to
contribute significantly to the classified growth.
The increase in other revenue primarily 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 September 24, 2000 and September 26, 1999 (in thousands of
dollars):
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------
September 24, September 26,
2000 1999 Variance % Change
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Operating costs
Labor and employee benefits $ 300,852 $ 297,048 $ 3,804 1.3%
Newsprint, ink and supplements 123,785 109,817 13,968 12.7%
Other operating costs 157,081 159,136 (2,055) -1.3%
Depreciation and amortization 50,299 45,193 5,106 11.3%
------------ ------------ ------------
Total operating costs $ 632,017 $ 611,194 $ 20,823 3.4%
============ ============ ============
</TABLE>
The increase in labor and employee benefits resulted primarily from a 1.6%
increase in the workforce. Average wage rate per employee between the third
quarters of 1999 and 2000 was virtually unchanged.
Newsprint, ink and supplement costs increased from the third quarter of 1999 on
a 13.8% increase in the average newsprint price and a .8% increase in newsprint
consumption.
Other operating costs increased from the third quarter of 1999 primarily due to
promotion, relocation and recruiting, repairs and maintenance, and
volume-related expenses.
Depreciation and amortization expense increased due to the acceleration of
depreciation on certain assets.
ONLINE
OPERATING REVENUE
The table below presents operating revenue and related statistics for online
operations for the quarter ended September 24, 2000 compared to the quarter
ended September 26, 1999 (in thousands):
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------
September 24, September 26,
2000 1999 Variance % Change
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Operating revenue $ 12,172 $ 8,438 $ 3,734 44.3%
Unique visitors 4,270 3,214 1,056 32.9%
Average monthly page views 160,896 112,353 48,543 43.2%
</TABLE>
Operating revenue for the third 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 September 24, 2000 and September 26, 1999 (in thousands of
dollars):
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------
September 24, September 26,
2000 1999 Variance % Change
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Operating costs
Labor and employee benefits $ 9,338 $ 7,073 $ 2,265 32.0%
Other operating costs 12,735 6,469 6,266 96.9%
Depreciation and amortization 560 457 103 22.5%
Total operating costs $ 22,633 $ 13,999 $ 8,634 61.7%
</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 third quarter of 1999 to the third 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 third quarter of 2000 by $7.8 million, or 37.8%, from the third quarter of
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 third quarter of 1999.
Earnings from equity investments for the third quarter of 2000 were $1.5 million
less than the comparable period in 1999. The year-over-year decline resulted
from a $7.4 million loss on the investment in Career Builder, offset by a $5.1
million increase on the investment in Infinet.
The effective tax rate was 38.1% in the quarter ended September 26, 2000
compared to 40.4% for the comparable quarter in 1999. The decrease results from
the finalization of certain tax matters during the quarter.
16
<PAGE>
RESULTS OF OPERATIONS: THREE QUARTERS ENDED SEPTEMBER 24, 2000 COMPARED WITH
THREE QUARTERS ENDED SEPTEMBER 26, 1999
The following table sets forth the results of operations for the three quarters
ended September 24, 2000 compared to the three quarters ended September 26, 1999
(in thousands of dollars, except per share amounts):
<TABLE>
<CAPTION>
Three Quarters Ended
---------------------------------
September 24, September 26,
2000 1999 % Change
------------- ------------- ------------
<S> <C> <C> <C>
Operating revenue $ 2,473,087 $ 2,365,204 4.6%
Operating income $ 479,967 $ 432,125 11.1%
Net income
Before gains on investment sales 235,774 221,747 6.3%
Gains on investment sales 91,952 6,701 100% +
Gain on sale of building 5,508 -
Severance - (2,787)
------------ ------------
Net income $ 333,234 $ 225,661 47.7%
============ ============
Diluted earnings per share
Before gains on investment sales $ 2.63 $ 2.27 16.0%
Gains on investment sales 1.02 0.07 100% +
Gain on sale of building 0.06 -
Severance - (0.03)
------------ ------------
Net income $ 3.71 $ 2.31 60.6%
============ ============
</TABLE>
For the three quarters ended September 24, 2000, the Company recorded a gain of
$92.0 million, net of tax, or $1.02 per diluted share related to InfoSpace.com's
acquisition of Prio and GoTo.com's acquisition of Cadabra, and a gain of $5.5
million, net of tax, or $.06 per diluted share gain on the sale of a building in
Philadelphia. During the same period in 1999, the Company recorded a gain of
$6.7 million, 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, or
$.03 per diluted share.
17
<PAGE>
NEWSPAPERS
OPERATING REVENUE
The table below presents operating revenue and related statistics for newspaper
operations for the three quarters ended September 24, 2000 compared to the three
quarters ended September 26, 1999 (in thousands):
<TABLE>
<CAPTION>
Three Quarters Ended
---------------------------------
September 24, September 26,
2000 1999 Variance % Change
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Operating revenues
Advertising
Retail $ 774,431 $ 770,816 $ 3,615 0.5%
General 261,462 225,914 35,548 15.7%
Classified 848,271 804,493 43,778 5.4%
------------ ------------ ------------
Total 1,884,164 1,801,223 82,941 4.6%
------------ ------------ ------------
Circulation 421,763 435,247 (13,484) -3.1%
Other 133,696 106,394 27,302 25.7%
------------ ------------ ------------
Total operating revenue $ 2,439,623 $ 2,342,864 $ 96,759 4.1%
============ ============ ============
Average daily circulation
Daily 3,910 3,922 (12) -0.3%
Sunday 5,331 5,408 (77) -1.4%
Advertising linage
Full run
Retail 13,009 13,302 (294) -2.2%
General 2,608 2,043 565 27.7%
Classified 16,248 15,530 718 4.6%
------------ ------------ ------------
Total full run 31,864 30,874 990 3.2%
============ ============ ============
Factored part-run 1,678 1,573 106 6.7%
------------ ------------ ------------
Total preprints inserted 5,232 4,899 333 6.8%
------------ ------------ ------------
</TABLE>
The increase in retail advertising revenue was primarily due to
telecommunications, preprints and special publications offset by decreases due
to out-of-business advertisers and weakness in department store and national
chain stores. 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.
The increase in other revenue resulted from commercial printing and specialized
publication revenue primarily generated by three recently acquired businesses -
Promedia Publishing Company in February, 1999, MACDirect in March, 1999 and
Consumer and Community Publishing in September, 1999.
18
<PAGE>
OPERATING COSTS
The following table summarizes operating costs for newspaper operations for the
three quarters ended September 24, 2000 and September 26, 1999 (in thousands of
dollars):
<TABLE>
<CAPTION>
Three Quarters Ended
---------------------------------
September 24, September 26,
2000 1999 Variance % Change
------------- ------------- ------------ -----------
<S> <C> <C> <C> <C>
Operating costs
Labor and employee benefits $ 910,701 $ 888,234 $ 22,467 2.5%
Newsprint, ink and supplements 362,622 364,840 (2,218) -0.6%
Other operating costs 497,129 480,255 16,873 3.5%
Depreciation and amortization 142,807 136,938 5,870 4.3%
------------ ------------ ------------
Total operating costs $ 1,913,259 $ 1,870,267 $ 42,992 2.3%
============ ============ ============
</TABLE>
During the first three 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 of 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
1.4% and an increase of 1.1% in the workforce between the first nine months of
1999 and 2000.
Newsprint, ink and supplement costs decreased from the three quarters ended
September 26, 1999 on a 2.3% decrease in the average newsprint price, offset in
part by a 1.2% increase in newsprint consumption.
Other operating costs increased from the three quarters ended September 26, 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, MACDirect and Consumer and Community Publishing.
Depreciation and amortization expense increased due to the acceleration of
depreciation on certain assets.
ONLINE
OPERATING REVENUE
The table below presents operating revenue and related statistics for online
operations for three quarters ended September 24, 2000 compared to three
quarters ended September 26, 1999 (in thousands):
<TABLE>
<CAPTION>
Three Quarters Ended
---------------------------------
September 24, September 26,
2000 1999 Variance % Change
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Operating revenue $ 33,464 $ 22,340 $ 11,124 49.8%
Unique visitors 11,432 9,361 2,071 22.1%
Average monthly page views 149,102 100,801 48,301 47.9%
</TABLE>
19
<PAGE>
Operating revenue for the three quarters ended 2000 was up due to increases in
banner and sponsorship revenue and classified listings revenue.
OPERATING COSTS
The following table summarizes operating costs for online operations for the
three quarters ended September 24, 2000 and September 26, 1999 (in thousands of
dollars):
<TABLE>
<CAPTION>
Three Quarters Ended
---------------------------------
September 24, September 26,
2000 1999 Variance % Change
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Operating costs
Labor and employee benefits $ 27,187 $ 19,463 $ 7,724 39.7%
Other operating costs 34,145 17,018 17,127 100.6%
Depreciation and amortization 1,764 1,376 388 28.2%
------------ ------------ ------------
Total operating costs $ 63,096 $ 37,857 $ 25,239 66.7%
============ ============ ============
</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 three quarters ended September 24, 2000 by $16.2 million, or 25.1%, 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 three quarters of 1999.
Earnings from equity investments for the three quarters ended 2000 were $9.7
million, or 96.6%, below the comparable period in 1999. The year-over-year
decline resulted from losses of $7.4 million on Career Builder and losses at the
Company's newsprint mill investments due to lower newsprint prices during the
first half of the year.
"Other, net" income increased significantly for the first three quarters of 2000
as compared to the previous year. For the three quarters ended 2000, the Company
recorded a pre-tax gain of $159.5 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 39.6% in the three quarters ended September 24, 2000
compared to 40.2% 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 for operations, capital expenditures and other business purposes.
As of September 24, 2000, the Company's total debt to total capital ratio was
52.2%, compared to 42.6% as of September 26, 1999. The interest coverage ratio
(defined as operating income plus depreciation and amortization divided by
interest expense) was 7.1 at September 24, 2000, compared to 8.8 at September
26, 1999.
Cash and short-term investments were $56.1 million at September 24, 2000,
compared to $31.7 million at September 26, 1999. During the first three quarters
of 2000, cash provided by borrowings and by operations was used to fund treasury
stock purchases of $407.2 million.
During the first three quarters of 2000, total debt increased by $368.2 million
from fiscal year-end 1999. Approximately $147.8 million in aggregate unused
credit lines remained at the end of the third 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 A, and F1 and A, respectively.
Additions to property, plant and equipment increased by $197,000 from the first
three quarters of 1999 to $67.2 million.
Other assets increased by $118.7 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.
Cash required for the acquisition of subsidiaries, investees and other
investments rose to $190.4 million in the three quarters ended September 24,
2000 compared to $68.0 million for the three quarters ended September 26, 2000.
The increase is attributable to the acquisition of Career Builder in August
2000.
During the first three quarters of 2000, the Company purchased 7.9 million
shares of its common stock at a total cost of $407.2 million and an average cost
of $51.37 per share. At quarter-end, the Company had remaining authorization to
purchase approximately 3.6 million shares.
The Company's operations have historically generated strong positive cash flows,
that, along with the Company's commercial paper program, revolving credit lines
and ability to issue public debt, have 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
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 - Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter
ended September 24, 2000.
23
<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: November 6, 2000
/s/ GARY R. EFFREN
----------------------------------
Gary R. Effren
Vice President/Controller
(Chief Accounting Officer and Duly
Authorized Officer of Registrant)
24
