-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EabpruU6Z3rl/xPyoI8tVOTXUNuKnkl1yVCtrZWaG01NwI19DRCDa5evGDjBnNvM 0Kj8gHVv6Bi6e+VD/h6MeA== /in/edgar/work/0001019056-00-000581/0001019056-00-000581.txt : 20001109 0001019056-00-000581.hdr.sgml : 20001109 ACCESSION NUMBER: 0001019056-00-000581 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000924 FILED AS OF DATE: 20001108 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KNIGHT RIDDER INC CENTRAL INDEX KEY: 0000205520 STANDARD INDUSTRIAL CLASSIFICATION: [2711 ] IRS NUMBER: 380723657 STATE OF INCORPORATION: FL FISCAL YEAR END: 1227 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07553 FILM NUMBER: 755826 BUSINESS ADDRESS: STREET 1: 50 W SAN FRANCISCO ST CITY: SAN JOSE STATE: CA ZIP: 95113 BUSINESS PHONE: 4089387700 MAIL ADDRESS: STREET 1: 50 W SAN FRANCISCO ST CITY: SAN JOSE STATE: CA ZIP: 95113 FORMER COMPANY: FORMER CONFORMED NAME: KNIGHT RIDDER NEWSPAPERS INC /FL/ DATE OF NAME CHANGE: 19860707 10-Q 1 0001.txt FORM 10-Q 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. 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 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEET (Unaudited in thousands of dollars, except per share data)
September 24, 2000 December 26, 1999 ------------------ ----------------- 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 =========== ===========
See Notes to Consolidated Financial Statements 3 CONSOLIDATED BALANCE SHEET (cont.) (Unaudited in thousands of dollars, except per share data)
September 24, 2000 December 26, 1999 ------------------ ----------------- 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 =========== ===========
See Notes to Consolidated Financial Statements. 4 CONSOLIDATED STATEMENT OF INCOME (Unaudited in thousands of dollars, except per share data)
Quarter Ended Three Quarters Ended --------------------------------- --------------------------------- September 24, September 26, September 24, September 26, 2000 1999 2000 1999 ------------- ------------- ------------- ------------- 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 =========== =========== =========== ===========
See Notes to Consolidated Financial Statements. 5 CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited, in thousands of dollars)
Three Quarters Ended --------------------------------- September 24, September 26, 2000 1999 ------------- ------------- 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 =========== ===========
See Notes to Consolidated Financial Statements 6 CONSOLIDATED STATEMENT OF CASH FLOWS (cont.) (Unaudited, in thousands of dollars)
Three Quarters Ended --------------------------------- September 24, September 26, 2000 1999 ------------- ------------- 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
See Notes to Consolidated Financial Statements. 7 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 NOTE 2 - COMPREHENSIVE INCOME The following table sets forth the computation of comprehensive income (in thousands):
Quarter Ended Three Quarters Ended ----------------------------- ----------------------------- September 24, September 26, September 24, September 26, 2000 1999 2000 1999 ------------- ------------- ------------- ------------- 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 ========= ========= ========= =========
NOTE 3 - DEBT (In Thousands of Dollars)
Effective Balance At Interest ------------------------------- Rate At September 24, September 24, December 26, 2000 2000 1999 ------------- ------------- ------------- 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 ========== ==========
(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 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):
Quarter Ended Three Quarters Ended -------------------------------- -------------------------------- September 24, September 26, September 24, September 26, 2000 1999 2000 1999 ------------- ------------- ------------- ------------- 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 =========== =========== =========== ===========
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 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):
Quarter Ended Three Quarters Ended ----------------------------------- ----------------------------------- Sept 24, 2000 Sept 26, 1999 Sept 24, 2000 Sept 26, 1999 ------------- ------------- ------------- ------------- 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 ============= ============= ============= =============
11 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 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):
Quarter Ended --------------------------------- September 24, September 26, 2000 1999 % Change ------------- ------------- ------------ 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% ============ ============
13 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):
Quarter Ended --------------------------------- September 24, September 26, 2000 1999 Variance % Change ------------- ------------- ------------ ------------ 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% ------------ ------------ ------------
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 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):
Quarter Ended --------------------------------- September 24, September 26, 2000 1999 Variance % Change ------------- ------------- ------------ ------------ 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% ============ ============ ============
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):
Quarter Ended --------------------------------- September 24, September 26, 2000 1999 Variance % Change ------------- ------------- ------------ ------------ 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%
Operating revenue for the third quarter of 2000 was up due to increases in banner and sponsorship revenue and classified listings revenue. 15 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):
Quarter Ended --------------------------------- September 24, September 26, 2000 1999 Variance % Change ------------- ------------- ------------ ------------ 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%
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 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):
Three Quarters Ended --------------------------------- September 24, September 26, 2000 1999 % Change ------------- ------------- ------------ 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% ============ ============
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 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):
Three Quarters Ended --------------------------------- September 24, September 26, 2000 1999 Variance % Change ------------- ------------- ------------ ------------ 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% ------------ ------------ ------------
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 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):
Three Quarters Ended --------------------------------- September 24, September 26, 2000 1999 Variance % Change ------------- ------------- ------------ ----------- 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% ============ ============ ============
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):
Three Quarters Ended --------------------------------- September 24, September 26, 2000 1999 Variance % Change ------------- ------------- ------------ ------------ 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%
19 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):
Three Quarters Ended --------------------------------- September 24, September 26, 2000 1999 Variance % Change ------------- ------------- ------------ ------------ 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% ============ ============ ============
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 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 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 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 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 EX-27 2 0002.txt FDS
5 0000205520 Knight-Ridder, Inc. 1,000 USD 9-MOS DEC-31-2000 DEC-27-1999 SEP-24-2000 1 35,996 20,081 413,383 17,847 54,090 572,785 1,895,252 855,853 4,359,553 527,760 827,928 0 1,225 1,537 1,562,674 4,359,553 2,473,087 2,473,087 353,310 1,993,120 (71,845) 0 83,654 551,812 218,578 333,234 0 0 0 333,234 4.27 3.71
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