-----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, ARk5ukGks4cUBwR9Ddm0uirxZEOrZCm2ylmg+Su8fBY8NHZC84z/e/XAEIfxAzuW ENfxY4wDj+k5MPlzqOc1GA== 0001019056-01-500107.txt : 20010511 0001019056-01-500107.hdr.sgml : 20010511 ACCESSION NUMBER: 0001019056-01-500107 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010401 FILED AS OF DATE: 20010510 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KNIGHT RIDDER INC CENTRAL INDEX KEY: 0000205520 STANDARD INDUSTRIAL CLASSIFICATION: NEWSPAPERS: PUBLISHING OR PUBLISHING & PRINTING [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: 1629014 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 file001.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: April 1, 2001 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 May 8, 2001, 73,211,202 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 Consolidated Balance Sheet 3 Consolidated Statement of Income 4 Consolidated Statement of Cash Flows 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Operations 10 Item 3. Quantitative and Qualitative Disclosures about Market Risk 16 PART II - OTHER INFORMATION Item 1. Legal Proceedings 17 Item 2. Changes in Securities and Use of Proceeds 17 Item 3. Defaults Upon Senior Securities 17 Item 4. Submission of Matters to a Vote of Security Holders 17 Item 5. Other Information 17 Item 6. Exhibits and Reports on Form 8-K 17 SIGNATURE 18 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEET (In 000's of dollars, except per share data)
April 1, 2001 December 31, (unaudited) 2000 ----------- ----------- ASSETS CURRENT ASSETS Cash, including short-term investments of $0 in 2001, and $7,001 in 2000 $ 39,925 $ 41,661 Accounts receivable, net of allowances of $19,102 in 2001 and $20,238 in 2000 372,358 416,498 Inventories 58,291 52,786 Prepaid expense 34,877 30,767 Other current assets 33,933 34,382 ----------- ----------- Total Current Assets 539,384 576,094 ----------- ----------- INVESTMENTS AND OTHER ASSETS Equity in unconsolidated companies and joint ventures 295,979 304,486 Other 222,902 202,951 ----------- ----------- Total Investments and Other Assets 518,881 507,437 ----------- ----------- PROPERTY, PLANT AND EQUIPMENT Land and improvements 97,077 96,925 Buildings and improvements 468,752 460,770 Equipment 1,277,036 1,265,866 Construction and equipment installations in progress 58,349 57,694 ----------- ----------- 1,901,214 1,881,255 Less accumulated depreciation (864,793) (841,812) ----------- ----------- Net Property, Plant and Equipment 1,036,421 1,039,443 GOODWILL AND OTHER IDENTIFIED INTANGIBLE ASSETS Less accumulated amortization of $413,466 in 2001, and $396,307 in 2000 2,104,171 2,120,552 ----------- ----------- Total $ 4,198,857 $ 4,243,526 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 98,671 $ 121,300 Accrued expenses and other liabilities 117,270 101,660 Accrued compensation and amounts withheld from employees 88,200 114,810 Federal and state income taxes 26,546 16,928 Deferred revenue 77,403 73,300 Short-term borrowings and current portion of long-term debt 80,379 80,362 ----------- ----------- Total Current Liabilities 488,469 508,360 ----------- ----------- NONCURRENT LIABILITIES Long-term debt 1,600,647 1,591,910 Deferred federal and state income taxes 268,767 269,702 Postretirement benefits other than pensions 139,864 137,791 Employment benefits and other noncurrent liabilities 188,440 191,847 ----------- ----------- Total Noncurrent Liabilities 2,197,718 2,191,250 ----------- ----------- MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES 551 2,446 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY Preferred stock, $1.00 par value; shares authorized - 20,000,000; shares issued - 1,110,500 in 2001 and 2000 1,111 1,111 Common stock, $.02 1/12 par value; shares authorized - 250,000,000; shares issued - 73,311,211 in 2001 and 74,036,046 in 2000 1,527 1,542 Additional capital 945,743 919,582 Retained earnings 565,944 622,801 Accumulated other comprehensive income -- (1,301) Treasury stock, at cost, 39,947 shares in 2001 and 41,009 shares in 2000 (2,206) (2,265) ----------- ----------- Total Shareholders' Equity 1,512,119 1,541,470 ----------- ----------- Total $ 4,198,857 $ 4,243,526 =========== ===========
See "Notes to Consolidated Financial Statements." 3 CONSOLIDATED STATEMENT OF INCOME (Unaudited, in 000's of dollars, except per share data) Quarter Ended ------------------------ April 1, March 26, 2001 2000 --------- --------- OPERATING REVENUE Advertising Retail $ 246,353 $ 238,857 General 79,784 81,509 Classified 247,019 267,318 --------- --------- Total 573,156 587,684 Circulation 129,141 131,190 Other 33,101 39,693 --------- --------- Total Operating Revenue 735,398 758,567 --------- --------- OPERATING COSTS Labor and employee benefits 292,592 291,119 Newsprint, ink and supplements 116,196 104,917 Other operating costs 162,945 170,171 Depreciation and amortization 47,156 46,938 --------- --------- Total Operating Costs 618,889 613,145 --------- --------- OPERATING INCOME 116,509 145,422 --------- --------- OTHER INCOME (EXPENSE) Interest expense (28,220) (26,049) Interest expense capitalized 481 561 Interest income 285 329 Losses of unconsolidated companies and joint ventures (4,777) (1,127) Minority interests (2,938) (2,605) Other, net (13,067) 152,372 --------- --------- Total (48,236) 123,481 --------- --------- Income before income taxes 68,273 268,903 Income taxes 27,536 108,048 --------- --------- Net Income $ 40,737 $ 160,855 ========= ========= NET INCOME PER SHARE Basic $ 0.52 $ 2.03 ========= ========= Diluted $ 0.47 $ 1.74 ========= ========= DIVIDENDS DECLARED PER COMMON SHARE $ 0.25 $ 0.23 --------- --------- AVERAGE SHARES OUTSTANDING (000s) Basic 73,382 77,779 ========= ========= Diluted 86,064 92,668 ========= ========= See "Notes to Consolidated Financial Statements." 4 CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited, in 000's of dollars)
Quarter Ended -------------------------- April 1, March 26, 2001 2000 ----------- ----------- CASH PROVIDED BY (REQUIRED FOR) OPERATING ACTIVITIES Net income $ 40,737 $ 160,855 Noncash items deducted from (included in) income: Losses/(gains) on sale of investments 11,538 (153,982) Depreciation and amortization 47,156 46,938 Provision (benefit) for deferred taxes (1,802) 30,538 Provision for bad debt 6,442 6,429 Distributions in excess of earnings 8,700 4,839 Minority interests in earnings of consolidated subsidiaries 2,938 2,605 Other items, net (459) 2,304 Change in certain assets and liabilities: Accounts receivable 39,980 30,311 Inventories (4,057) (1,822) Other assets (44,376) (82,444) Accounts payable (25,300) (18,962) Federal and state income taxes 15,221 55,747 Other liabilities (6,694) (21,167) ----------- ----------- Net Cash Provided by Operating Activities 90,024 62,189 ----------- ----------- CASH PROVIDED BY (REQUIRED FOR) INVESTING ACTIVITIES Proceeds from sale of investments 10,759 1,965 Acquisition of subsidiary, investees, and other investments, net (263) (21,922) Additions to property, plant and equipment (24,938) (16,501) Other items, net 609 173 ----------- ----------- Net Cash Required for Investing Activities (13,833) (36,285) ----------- ----------- CASH PROVIDED BY (REQUIRED FOR) FINANCING ACTIVITIES Net increase in commercial paper, net of unamortized discount 8,551 178,110 Payment of cash dividends (21,084) (21,110) Sale of common stock to employees 31,316 6,806 Purchase of treasury stock (87,225) (186,251) Other items, net (9,485) (2,554) ----------- ----------- Net Cash Required for Financing Activities (77,927) (24,999) ----------- ----------- Net Increase (decrease) in Cash (1,736) 905 Cash and short-term cash investments at beginning of the period 41,661 34,084 ----------- ----------- Cash and short-term cash investments at end of the period $ 39,925 $ 34,989 =========== =========== SUPPLEMENTAL CASH FLOW INFORMATION: Non cash investing activities Stock proceeds from sale of unconsolidated investment $ -- $ 195,624
See "Notes to Consolidated Financial Statements." 5 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 ended April 1, 2001 are not necessarily indicative of the results that may be expected for the year ending December 30, 2001. For further information, refer to the consolidated financial statements and footnotes thereto included in the company's annual report on Form 10-K for the year ended December 31, 2000. Certain amounts in 2000 have been reclassified to conform to the 2001 presentation. NEW ACCOUNTING STANDARD 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 had 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 stated that the use of pro rata consolidation is no longer allowed for the company's equity investments. The company adopted this accounting standard for the period ended December 31, 2000, and all prior periods have been reclassified to conform to this current presentation. NOTE 2 - COMPREHENSIVE INCOME The following table sets forth the computation of comprehensive income (in 000's):
Quarter Ended ------------------------ April 1, March 26, 2001 2000 ---------- ---------- Net income $ 40,737 $ 160,855 Total unrealized losses on securities available for sale (5,798) (40,113) Less: reclassification adjustment for realized losses, net of taxes 7,099 5,547 ---------- ---------- Change in accumulated other comprehensive income 1,301 (34,566) ---------- ---------- Total comprehensive income $ 42,038 $ 126,289 ========== ==========
6 NOTE 3 - DEBT (In 000's of dollars)
Balance At Effective Interest --------------------------- Rate as of April 1, December 31, April 1, 2001 2001 2000 ------------------ ----------- ----------- Commercial paper, net of discount (a) 5.5% $ 851,575 $ 843,027 Debentures, net of discount (b) 10.0% 198,671 198,630 Debentures, net of discount (c) 7.8% 94,780 94,731 Debentures, net of discount (d) 7.0% 296,595 296,564 Notes payable, net of discount (e) 8.6% 39,980 39,969 Notes payable, net of discount (f) 7.0% 98,495 98,438 Senior notes, net of discount (g) 6.4% 99,530 99,505 Notes payable, other 2.5% 1,400 1,408 ----------- ----------- Total Debt (h) 6.7% 1,681,026 1,672,272 Less amounts classified as current 80,379 80,362 ----------- ----------- Total long-term debt 7.4% $ 1,600,647 $ 1,591,910 =========== ===========
(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, which is extendable for one year at the sole discretion of the company. (b) Represents $200 million of a 9.875% 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 $40 million of 8.50% notes payable on Sept. 1, 2001. (f) Represents $100 million of a 6.625% note due in 2007. (g) Represents $100 million of 6.3% senior notes due in 2005. (h) Interest payments for the three months ended April 2001 and March 2000 were $35.6 million and $24.3 million, respectively. NOTE 4 - INCOME TAX PAYMENTS Income tax payments for the quarters ended April 1, 2001 and March 26, 2000, were $14.0 million and $20.6 million, respectively. 7 NOTE 5 - EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share from continuing operations (in 000's, except per share data): Quarter Ended ----------------------- April 1, March 26, 2001 2000 ---------- ---------- Net income $ 40,737 $ 160,855 Less dividends on preferred stock 2,776 3,160 ---------- ---------- Net income attributable to common stock $ 37,961 $ 157,695 ========== ========== Average shares outstanding (basic) 73,382 77,779 ---------- ---------- Effect of dilutive securities: Weighted average preferred stock, as converted 11,105 13,741 Stock options 1,577 1,148 ---------- ---------- Average shares outstanding (diluted) 86,064 92,668 ---------- ---------- Net income per share (basic) $ 0.52 $ 2.03 ========== ========== Net income per share (diluted) $ 0.47 $ 1.74 ========== ========== NOTE 6. COMMITMENTS AND CONTINGENCIES 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 will not be material to its financial position or results of operations on a consolidated basis. 8 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 000's): Quarter Ended -------------------------- April 1, March 26, 2001 2000 ----------- ----------- Operating revenue Newspapers $ 725,033 $ 748,675 Online 10,365 9,892 ----------- ----------- $ 735,398 $ 758,567 =========== =========== Operating income (loss) Newspapers $ 134,350 $ 163,029 Online (11,097) (8,204) Corporate (6,744) (9,403) ----------- ----------- $ 116,509 $ 145,422 =========== =========== Depreciation and amortization Newspapers $ 44,912 $ 44,799 Online 747 578 Corporate 1,497 1,561 ----------- ----------- $ 47,156 $ 46,938 =========== =========== 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS FORWARD LOOKING STATEMENTS Certain statements contained in this Form 10-Q 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) disruptions in electricity and natural gas supplies and increases in engery costs; (g) acquisitions of new businesses or dispositions of existing businesses; (h) increases in interest or financing costs; and (i) rapid technological changes and frequent new product introductions prevalent in electronic publishing, including the evolution of the Internet. 10 RESULTS OF OPERATIONS: FIRST QUARTER ENDED APRIL 1, 2001 COMPARED WITH FIRST QUARTER ENDED MARCH 26, 2000 Diluted income per share from operations for the quarter was $.47, down $1.27, or 73.0%, from a year ago. During the quarter, the company recorded a pre-tax loss of $11.5 million, or $.09 after tax per diluted share, related to the sale of certain Internet investments. Excluding the net gains and losses on investments in both years, diluted income per share was $.56, down $.18, or 24.3%, from the quarter ended March 26, 2000. Net income in the first quarter was $40.7 million, down $120.1 million, or 74.7%, from the same period last year. Excluding the net gains and losses on investments, net income for the first quarter was $47.8 million, down $21.1 million, or 30.6% from 2000. The following table sets forth the results of operations for the quarters ended April 1, 2001 and March 26, 2000 (in 000's of dollars, except per share amounts):
First Quarter Ended ------------------------------ April 1, March 26, 2001 2000 % Change ------------- ------------- ------------ Operating revenue $ 735,398 $ 758,567 -3.1% Operating income 116,509 145,422 -19.9% Net income before gains and losses on investments 47,836 68,904 -30.6% Gains (losses) on investment sales, net of tax (7,099) 91,951 ------------- ------------- Net income $ 40,737 $ 160,855 -74.7% ============= ============= Diluted earnings per share Before gains and losses on investments $ 0.56 $ 0.74 -24.3% Gains (losses) on investment sales, net of tax (0.09) 1.00 ------------- ------------- Net income $ 0.47 $ 1.74 -73.0% ============= =============
11 NEWSPAPER DIVISION OPERATING REVENUE The table below presents operating revenue and related statistics for newspaper operations for the quarter ended April 1, 2001 compared with the quarter ended March 26, 2000 (in 000's):
Quarter Ended --------------------------------- April 1, March 26, 2001 2000 Variance % Change -------------- -------------- -------------- ----------- Operating revenues Advertising Retail $ 246,353 $ 238,857 $ 7,496 3.1% General 79,784 81,509 (1,725) -2.1% Classified 247,019 267,318 (20,299) -7.6% -------------- -------------- -------------- Total 573,156 587,684 (14,528) -2.5% -------------- -------------- -------------- Circulation 129,141 131,190 (2,049) -1.6% Other 22,736 29,801 (7,065) -23.7% -------------- -------------- -------------- Total operating revenue $ 725,033 $ 748,675 $ (23,642) -3.2% ============== ============== ============== Average daily circulation Daily 3,892 3,971 (79) -2.0% Sunday 5,247 5,403 (156) -2.9% Advertising linage Full run Retail 3,856.1 4,060.7 (204.6) -5.0% General 698.7 779.4 (80.7) -10.4% Classified 4,775.0 4,951.3 (176.3) -3.6% -------------- -------------- -------------- Total full run 9,329.8 9,791.4 (461.6) -4.7% ============== ============== ============== Factored part-run 544.1 521.4 22.7 4.4% -------------- -------------- -------------- Total preprints inserted 1,654.0 1,567.0 87.0 5.6% -------------- -------------- --------------
Advertising revenue and linage for the quarter declined compared with the prior year. Classified revenue was responsible for the majority of the decrease due to reduced recruitment and auto advertising, down 18.0% and 4.9%, respectively, in the first quarter of 2001 compared to the year-earlier quarter. While there were declines in classified revenue in most major markets during the first quarter of 2001 compared with the same period in 2000, Philadelphia and San Jose were responsible for a majority of the decrease, down 15.2% and 12.2%, respectively. Partially offsetting the declines in recruitment and auto advertising was classified real estate revenue which increased 22.4% during the first quarter. San Jose, up 72.2%, Contra Costa, up 24.9%, and Miami, up 14.0%, were responsible for the majority of the increase. Retail advertising increased during the quarter ended April 1, 2001 compared with the same period last year, with growth in Miami, Kansas City and Fort Worth. Miami's increase was due to furniture, department stores, healthcare, and government. Kansas City benefited from entertainment and furniture. Fort Worth had increases from the prior year from department stores, home improvement, and furniture. The company was also negatively impacted from the bankruptcy of Montgomery Wards. General advertising revenue for the quarter ended April 1, 2001 was below the comparable quarter in 2000 with San Jose, Contra Costa and Philadelphia showing the largest decreases, down 17.4%, 36.5%, and 7.0%, respectively. General advertising revenue was down at most newspapers as many advertisers reduced their spending. 12 Other revenue declined $7.1 million, or 23.7%, from the quarter ended April 1, 2001 compared with the quarter ended March 26, 2000, primarily reflecting lower profitability from Detroit (see Note 1 of the Notes to Consolidated Financial Statements), and the absence in 2001 of Professional Exchange, MediaStream, and Cable Connection, all of which were sold in 2000. OPERATING COSTS The table below presents operating costs for newspaper operations for the quarter ended April 1, 2001 compared with the quarter ended March 26, 2000 (in 000's):
Quarter Ended ----------------------------- April 1 March 26 2001 2000 Variance % Change ------------ ------------ ------------ ------------ Operating costs Labor and employee benefits $ 279,766 $ 277,821 $ 1,945 0.7% Newsprint, ink and supplements 119,221 107,969 11,252 10.4% Other operating costs 146,784 155,057 (8,273) -5.3% Depreciation and amortization 44,912 44,799 113 0.3% ------------ ------------ ------------ Total operating costs $ 590,683 $ 585,646 $ 5,037 0.9% ============ ============ ============
Labor and employee benefit costs increased during the quarter as a result of a 1.6% increase in the average wage rate and a 5.1% increase in employee benefits, primarily health and welfare benefits, offset by a decrease of 1.8% in the number of full time equivalent employee's (FTE's). Newsprint, ink and supplements increased due to a 19.7% increase in the price per ton of newsprint, offset by a 5.8% decrease in newsprint consumption. Other operating costs decreased during the first quarter of 2001 compared with the same quarter of 2000. The decrease was due to a decline in circulation and promotional costs and general and administrative expenses. Philadelphia was responsible for a majority of the decrease, down 16.4%, followed by Akron, down 16.5%, and Charlotte, down 10.6%. ONLINE DIVISION OPERATING REVENUE The table below presents operating revenue and related statistics for online operations for the quarter ended April 1, 2001 compared with the quarter ended March 26, 2000 (in 000's):
Quarter Ended ----------------------------- April 1 March 26 2001 2000 Variance % Change ------------ ------------ ------------ ------------ Operating revenue $ 10,365 $ 9,892 $ 473 4.8% Unique visitors 4,876 3,562 1,314 36.9% Average monthly page views 191,831 131,424 60,407 46.0%
13 Operating revenue for the first quarter of 2001 increased from the same period in 2000 due primarily to sales of our Classified Ventures cars.com product and recruitment upsell (revenue resulting from a bundled sale of advertising in both the newspaper and online) revenue. Unique visitors and average monthly page views increased due to the first quarter 2001 addition of The Seattle Times and The Atlantic City Press into the Real Cities National network. The Real Cities network now covers 40 cities with 13 of the top 25 markets. OPERATING COSTS The following table summarizes operating costs for online operations for the quarters ended April 1, 2001 and March 26, 2000 (in 000`s of dollars):
Quarter Ended ----------------------------- April 1 March 26 2001 2000 Variance % Change ------------ ------------ ------------ ------------ Operating costs Labor and employee benefits $ 9,222 $ 7,325 $ 1,897 25.9% Other operating costs 11,493 10,193 1,300 12.8% Depreciation and amortization 747 578 169 29.2% ------------ ------------ ------------ Total operating costs $ 21,462 $ 18,096 $ 3,366 18.6% ============ ============ ============
The increase in labor and employee benefits was primarily due to a higher average wage rate, increased employee benefits costs, and bonus expense. Other operating costs increased from the first quarter of 2000 to the first quarter of 2001 primarily as a result of higher advertising and promotion costs and an increase in the reserve for bad debt. Depreciation and amortization expense increased due to the acquisition of additional equipment. CORPORATE AND OTHER NON-OPERATING ITEMS Interest expense, net of interest income and capitalized interest, increased $2.3 million, or 9.1%, from the first quarter of 2000, due to higher debt levels and a higher weighted-average interest rate in the first quarter of 2001. Losses from equity investments in unconsolidated companies and joint ventures for the first quarter of 2001increased by $3.7 million from the comparable period in 2000. Contributing to the year-over-year decline were losses in the Seattle Times Company and from Career Holdings, Inc. Partially offsetting these losses was an increase in earnings from our newsprint mill investments as a result of increases in the average price of newsprint. "Other, net" income was $165.4 million lower than the first quarter of 2000 due to the net pre-tax gain of $154.0 million, from the sale of Internet investments, in the first quarter of 2000 and a pre-tax loss of $11.5 million on the sale of Internet investments during the first quarter of 2001. The effective tax rate was 40.3% in the quarter ended April 1, 2001 compared with 40.2% for the comparable quarter in 2000. Excluding the gains and losses in both years, the effective tax rate was 40.1% in the first quarter of 2001 compared with 40.0% in the first quarter of 2000. 14 LIQUIDITY & CAPITAL RESOURCES Cash flow from operations is the company's primary source of liquidity. Management is focused on growing cash flow and on managing cash effectively. In addition, 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 long-term investments depending on projected cash needs from operations, capital expenditures and other business purposes. The company supplements internally generated cash with a combination of short- and long-term borrowings. Average outstanding commercial paper during the quarter was $847.3 million, with an average effective interest rate of 5.5%. As of April 1, 2001, the company's revolving credit and term loan agreements, which back up the commercial paper outstanding, had remaining availability of $141.7 million. The 364-day revolving credit and term loan portion of the facility matures in June 2001; however, the company has the option and the intention to renew this facility for an additional term through June 2002. Cash provided by operating activities was $90.0 million at April 1, 2001, compared to $62.2 million at March 26, 2000. The decrease in cash provided by operating activities primarily related the timing of various tax-related payments in both years. Cash required for investing activities decreased from $36.3 million for the quarter ended March 26, 2000 compared with $13.8 million for the quarter ended April 1, 2001. The decrease was primarily related to cash generated from the sale of Internet investments, offset by cash required for the purchase of property and equipment. Cash required for financing activities was primarily the repurchase of the company's common stock, in the amount of $87.2 million, and the payment of cash dividends, in the amount of $21.1 million, offset by cash provided from the sale of common stock to employees, in the amount of $31.3 million. In the first quarter of 2001, the company repurchased a total of 1.5 million common shares at a total cost of $87.6 million and average cost of $56.87. During the first quarter the company received a refund of $381,000 related to repurchases made in fiscal year 2000. At a meeting held on April 24, 2001, the Board of Directors approved an increase of 6 million shares authorized for repurchase. After this increase the company has remaining authorization to repurchase 6.9 million shares. For the quarter ended April 1, 2001, the company's interest coverage ratio (defined as operating income plus depreciation and amortization divided by interest expense) was 5.8 to 1 compared with 7.4 to 1 for the same period in 2000 and 7.3 to 1 at December 31, 2000. The decrease in the interest coverage ratio from the first quarter of 2000 and from the prior year end, resulted from a decrease in operating income and an increase in interest expense. The company's cash flow to debt ratio (defined as net income plus depreciation and amortization for the previous four quarters divided by debt), was 22.7% as of the first quarter of 2001 compared with 42.1% as of the first quarter of 2000. The decrease in the cash flow to debt ratio from the four quarters ended March 26, 2000 to the four quarters ended April 1, 2001 was due primarily to gains recorded in the first quarter of 2000 and losses recorded in the fourth quarter of 2000. Without these gains and losses, the company's cash flow to debt ratio was 29.6% for the four quarters ended April 1, 2001 compared with 34.5% for the four quarters ended March 26, 2000. 15 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. SUBSEQUENT EVENT On April 27, 2001, the company announced a restructuring of its work force in response to a decline in advertising revenue and an increase in the price of newsprint. The company stated its desire to achieve the reduction in the work force primarily through buyouts and early retirement. The actual number of employees subject to the reduction in work force is expected to vary by location. The financial impact of the reduction in the work force has not been determined as of the date of this report. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The company has no material changes to the disclosure made on this matter in the company's annual report on Form 10-K for the year ended December 31, 2000. 16 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. 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 None. (b) Reports on Form 8-K There were no reports on Form 8-K filed during the quarter ended April 1, 2001. 17 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: May 10, 2001 /s/ GARY R. EFFREN ---------------------------------------- Gary R. Effren Vice President/Controller (Chief Accounting Officer and Duly Authorized Officer of Registrant) 18 -----END PRIVACY-ENHANCED MESSAGE-----