-----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, N8d0YzTI9H2wk8GAuxnwVNBiOTMtvok9eyGMKobM0CS8UeB5YOnCsx/QWSCrPp/8 gkiOsz1qNCFWKhTWxNH4PQ== 0001019056-02-000361.txt : 20020514 0001019056-02-000361.hdr.sgml : 20020514 ACCESSION NUMBER: 0001019056-02-000361 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020514 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: 1934 Act SEC FILE NUMBER: 001-07553 FILM NUMBER: 02646662 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 kri_1q.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: March 31, 2002 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 (I.R.S. Employer of incorporation 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 April 26, 2002, 83,303,923 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 12 Item 3. Quantitative and Qualitative Disclosures about Market Risk 18 PART II - OTHER INFORMATION Item 1. Legal Proceedings 18 Item 2. Changes in Securities and Use of Proceeds 18 Item 3. Defaults Upon Senior Securities 18 Item 4. Submission of Matters to a Vote of Security Holders 18 Item 5. Other Information 18 Item 6. Exhibits and Reports on Form 8-K 18 SIGNATURE 19 2
PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEET (in thousands, except share data) March 31, 2002 December 30, (unaudited) 2001 -------------- -------------- ASSETS Current Assets Cash $ 46,765 $ 37,287 Accounts receivable, net of allowances of $24,204 in 2002 and $23,811 in 2001 342,765 391,788 Inventories 43,761 43,240 Prepaid expense 39,469 35,464 Other current assets 25,627 27,792 -------------- -------------- Total Current Assets 498,387 535,571 -------------- -------------- Investments and Other Assets Equity in unconsolidated companies and joint ventures 381,554 393,777 Other 208,083 215,325 -------------- -------------- Total Investments and Other Assets 589,637 609,102 -------------- -------------- Property, Plant and Equipment Land and improvements 99,481 99,605 Buildings and improvements 501,031 492,576 Equipment 1,327,611 1,301,826 Construction and equipment installations in progress 12,714 43,772 -------------- -------------- 1,940,837 1,937,779 Less accumulated depreciation (942,930) (922,453) -------------- -------------- Net Property, Plant and Equipment 997,907 1,015,326 Goodwill and Other Identified Intangible Assets Goodwill less accumulated amortization of $465,795 in 2002, and $464,091 in 2001 2,034,015 2,035,703 Other identified intangible assets 17,674 17,674 -------------- -------------- Total Goodwill and Other Identified Intangible Assets 2,051,689 2,053,377 Total $ 4,137,620 $ 4,213,376 ============== ============== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable $ 98,920 $ 110,333 Accrued expenses and other liabilities 122,616 112,946 Accrued compensation and amounts withheld from employees 100,424 107,842 Federal and state income taxes 27,713 30,844 Deferred revenue 80,641 77,368 Short-term borrowings and current portion of long-term debt 40,367 40,699 -------------- -------------- Total Current Liabilities 470,681 480,032 -------------- -------------- Noncurrent Liabilities Long-term debt 1,518,129 1,582,888 Deferred Federal and state income taxes 251,595 255,266 Postretirement benefits other than pensions 136,976 136,134 Employment benefits and other noncurrent liabilities 198,155 197,448 -------------- -------------- Total Noncurrent Liabilities 2,104,855 2,171,736 -------------- -------------- Minority Interests in Consolidated Subsidiaries 612 1,320 Commitments and Contingencies Shareholders' Equity Common stock, $.02 1/12 par value; shares authorized - 250,000,000; shares issued - 83,826,703 in 2002 and 84,012,749 in 2001 1,746 1,750 Additional capital 1,022,250 984,830 Retained earnings 539,362 575,649 Treasury stock, at cost, 33,763 shares in 2002 and 34,757 shares in 2001 (1,886) (1,941) -------------- -------------- Total Shareholders' Equity 1,561,472 1,560,288 -------------- -------------- Total $ 4,137,620 $ 4,213,376 ============== ==============
See "Notes to Consolidated Financial Statements." 3
CONSOLIDATED STATEMENT OF INCOME (Unaudited in thousands, except per share data) Quarter Ended ----------------------------- March 31, April 1, 2002 2001 ------------ ------------ OPERATING REVENUE Advertising Retail $ 243,631 $ 246,353 General 74,883 79,784 Classified 201,533 247,019 ------------ ------------ Total 520,047 573,156 Circulation 126,425 129,141 Other 31,740 33,101 ------------ ------------ Total Operating Revenue 678,212 735,398 ------------ ------------ OPERATING COSTS Labor and employee benefits 278,417 292,592 Newsprint, ink and supplements 90,671 116,196 Other operating costs 156,537 162,945 Depreciation and amortization 31,757 47,156 ------------ ------------ Total Operating Costs 557,382 618,889 ------------ ------------ OPERATING INCOME 120,830 116,509 ------------ ------------ OTHER INCOME (EXPENSE) Interest expense (19,873) (28,220) Interest expense capitalized 279 481 Interest income 73 285 Equity in losses of unconsolidated companies and joint ventures (15,469) (4,777) Minority interests (1,938) (2,938) Other, net (1,470) (13,067) ------------ ------------ Total (38,398) (48,236) ------------ ------------ Income before income taxes 82,432 68,273 Income taxes 30,664 27,536 ------------ ------------ Net Income $ 51,768 $ 40,737 ============ ============ NET INCOME PER SHARE Basic $ 0.62 $ 0.52 ============ ============ Diluted $ 0.60 $ 0.47 ============ ============ DIVIDENDS DECLARED PER COMMON SHARE $ 0.25 $ 0.25 ============ ============ AVERAGE SHARES OUTSTANDING (000's) Basic 84,017 73,382 ============ ============ Diluted 86,076 86,064 ============ ============
See "Notes to Consolidated Financial Statements." 4
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited, in thousands) Quarter Ended ----------------------------- March 31, April 1, 2002 2001 ------------- ------------- CASH PROVIDED BY (REQUIRED FOR) OPERATING ACTIVITIES Net income $ 51,768 $ 40,737 Noncash items deducted from (included in) income: Depreciation 29,115 28,515 Amortization of goodwill and other intangible assets 1,706 17,160 Amortization of other assets 936 1,481 Losses on sales, exchange and write down of investments 400 11,538 Benefit for deferred taxes (3,671) (1,802) Provision for bad debts 5,206 6,442 Distributions in excess of earnings in investees 18,418 8,700 Minority interests in earnings of consolidated subsidiaries 1,938 2,938 Other items, net 2,588 (459) Change in certain assets and liabilities: Accounts receivable 43,817 39,980 Inventories (521) (4,057) Other assets (12,731) (44,376) Accounts payable 778 (25,300) Federal and state income taxes 4,149 15,221 Other liabilities 9,596 (6,694) ------------- ------------- Net Cash Provided by Operating Activities 153,492 90,024 ------------- ------------- CASH PROVIDED BY (REQUIRED FOR) INVESTING ACTIVITIES Proceeds from sale of investments 1,122 10,759 Acquisition of subsidiary, investees, and other investments, net (3,003) (263) Additions to property, plant and equipment (12,976) (24,938) Other items, net 0 609 ------------- ------------- Net Cash Required for Investing Activities (14,857) (13,833) ------------- ------------- CASH PROVIDED BY (REQUIRED FOR) FINANCING ACTIVITIES Net increase (decrease) in debt, net of unamortized discount (63,075) 8,551 Payment of cash dividends (21,076) (21,084) Issuance of common stock to employees and directors 47,297 31,316 Purchase of treasury stock (81,774) (87,225) Other items, net (10,529) (9,485) ------------- ------------- Net Cash Required for Financing Activities (129,157) (77,927) ------------- ------------- Net Increase (Decrease) in Cash 9,478 (1,736) Cash and short-term cash investments at beginning of the period 37,287 41,661 ------------- ------------- Cash and short-term cash investments at end of the period $ 46,765 $ 39,925 ============= =============
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 March 31, 2002 are not necessarily indicative of the results that may be expected for the year ending December 29, 2002. For further information, refer to the consolidated financial statements and footnotes thereto, as well as the critical accounting policies in Management's Discussion and Analysis, included in the company's annual report on Form 10-K for the year ended December 30, 2001. Certain amounts in 2001 have been reclassified to conform to the 2002 presentation. NOTE 2 - COMPREHENSIVE INCOME The following table sets forth the computation of comprehensive income (in thousands): Quarter Ended ----------------------------- March 31, April 1, 2002 2001 ------------ ------------ Net income $ 51,768 $ 40,737 Total unrealized losses on securities available for sale - (5,799) Less: reclassification adjustment for realized losses, net of taxes - 7,099 ------------ ------------ Change in accumulated other comprehensive income - 1,301 ------------ ------------ Total comprehensive income $ 51,768 $ 42,038 ============ ============
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NOTE 3 - DEBT Debt consisted of the following (in thousands): Balance At Effective Interest --------------------------- Rate as of March 31, December 30, March 31, 2002 2002 2001 -------------- ----------- ------------ Commercial paper, net of discount (a) 1.8% $ 464,072 $ 527,148 Debentures, net of discount (b) 8.3% 198,836 198,795 Debentures, net of discount (c) 7.8% 94,976 94,927 Debentures, net of discount (d) 7.1% 296,717 296,686 Notes payable, net of discount (e) 3.0% 98,724 98,667 Notes payable, net of discount (f) 5.9% 297,344 297,277 Senior notes, net of discount (g) 2.7% 99,630 99,604 Notes payable, other 4.5% 518 850 Fair market value of interest swaps 7,679 9,633 ----------- ------------ Total debt (h) 5.0% 1,558,496 1,623,587 Less amounts classified as current 40,367 40,699 ----------- ------------ Total long-term debt 5.0% $ 1,518,129 $ 1,582,888 =========== ============
(a) Commercial paper is supported by $895 million revolving credit facility which matures in 2006. (b) Represents $200 million of 9.875% debentures due in 2009. (c) Represents $100 million of 7.15% debentures due in 2027. (d) Represents $300 million of 6.875% debentures due in 2029. (e) Represents $100 million of 6.625% notes due in 2007. (f) Represents $300 million of 7.125% notes due in 2011. (g) Represents $100 million of 6.3% senior notes due in 2005. (h) Interest payments for the three months ended March 31, 2002 and April 1, 2001 were $15.3 million and $35.6 million, respectively. NOTE 4 - INCOME TAX PAYMENTS Income tax payments for the quarters ended March 31, 2002 and April 1, 2001, were $29.9 million and $14.0 million, respectively. 7 NOTE 5 - EQUITY 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 -------------------------- March 31, April 1, 2002 2001 ----------- ----------- Net income $ 51,768 $ 40,737 Less dividends on preferred stock - 2,776 ----------- ----------- Net income attributable to common stock $ 51,768 $ 37,961 =========== =========== Average shares outstanding (basic) 84,017 73,382 ----------- ----------- Effect of dilutive securities: Weighted average preferred stock, as converted - 11,105 Stock options 2,059 1,577 ----------- ----------- Average shares outstanding (diluted) 86,076 86,064 ----------- ----------- Net income per share (basic) $ 0.62 $ 0.52 =========== =========== Net income per share (diluted) $ 0.60 $ 0.47 =========== =========== NOTE 6. COMMITMENTS AND CONTINGENCIES The company's wholly-owned subsidiary, MediaStream, Inc. ("MediaStream"), was named as one of a number of defendants in two separate class action lawsuits that have been consolidated with one other similar lawsuit by the Judicial Panel on Multi-District Litigation under the caption "In re Literary Works in Electronic Databases Copyright Litigation," M.D.L. Docket No. 1379 (the "Multi-District Litigation"). The two lawsuits originally filed against MediaStream in September 2000 were: The Authors Guild, Inc. et al. v. The Dialog Corporation et al., and Posner et al. v. Gale Group Inc. et al. These lawsuits were brought by or on behalf of freelance authors who allege that the defendants have infringed plaintiffs' copyrights by making plaintiffs' works available on databases operated by the defendants. The plaintiffs are seeking to be certified as class representatives of all similarly-situated freelance authors. The two lawsuits were initially stayed pending disposition by the U.S. Supreme Court of New York Times Company et al. v. Tasini et al., No. 00-21. On June 25, 2001, the Supreme Court ruled that the defendants in Tasini did not have a privilege under Section 201 of the Copyright Act to republish articles previously appearing in print publications absent the author's separate permission for electronic republication. The judge has ordered the parties in the Multi-District Litigation to try to resolve the claims through mediation, which commenced November 2001, and the parties have agreed to a limited stay to respond to the complaint during such mediation, which may be terminated by the plaintiffs upon 30 days prior written notice. In September 2001, the plaintiffs submitted an amended complaint, which named the company as an additional defendant and makes reference to Knight Ridder Digital, a wholly owned subsidiary of the company. 8 Plaintiffs in the Multi-District Litigation seek actual damages, statutory damages and injunctive relief, among other remedies. The company and MediaStream intend to contest liability and vigorously defend their positions in the litigation, including opposing class certification. In addition, MediaStream has indemnity agreements from various content providers supplying articles to MediaStream's databases that could mitigate its potential exposure. Management is currently unable to predict whether an unfavorable outcome is likely or the magnitude of any potential loss. 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 such other legal proceedings will not be material to its financial position or results of operations on a consolidated basis. NOTE 7 - BUSINESS SEGMENT INFORMATION 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 -------------------------------- March 31, 2002 April 1, 2001 -------------- ------------- Operating revenue Newspapers $ 665,322 $ 725,033 Online 12,890 10,365 -------------- ------------- $ 678,212 $ 735,398 ============== ============= Operating income (loss) Newspapers $ 132,535 $ 134,350 Online (3,902) (11,097) Corporate (7,803) (6,744) -------------- ------------- $ 120,830 $ 116,509 ============== ============= Depreciation and amortization Newspapers $ 29,581 $ 44,912 Online 769 747 Corporate 1,407 1,497 -------------- ------------- $ 31,757 $ 47,156 ============== ============= 9 NOTE 8 - WORKFORCE REDUCTION PLAN Due to the slowing economy and the resulting decline in advertising revenue and increases in newsprint expense, the company announced in the second quarter of 2001 a workforce reduction program affecting the majority of its newspapers. The workforce reduction plan eliminated approximately 1,600 positions through early retirement programs as well as voluntary and involuntary buyouts and attrition. As a result of this plan, the company incurred charges of $78.5 million related to employee severance costs and benefits during the second quarter of 2001. As of December 30, 2001, there was a remaining liability of $15 million. Cash payments of $3 million related to payroll, pension and benefits costs of the workforce reduction plan have been made during the quarter ended March 31, 2002. The remaining accrual of $12 million for this workforce reduction program is included in "Accrued expenses and other liabilities" on the company's Consolidated Balance Sheet at March 31, 2002 and is recorded in accordance with the provisions of SEC Staff Accounting Bulletin No. 100, Restructuring and Impairment Charges and EITF 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity. The majority of the remaining liability will be paid during the second quarter of 2002. 10
NOTE 9 - GOODWILL AND OTHER INTANGIBLE ASSETS In June 2001, the FASB issued Statements of Financial Accounting Standards (FAS) No. 142, Goodwill and Other Intangible Assets. Under FAS 142, goodwill and indefinite-lived intangible assets are no longer amortized but are reviewed at least annually for impairment. Separable intangible assets that are not deemed to have an indefinite life will continue to be amortized over their useful lives. The amortization provisions of FAS 142 apply to goodwill and intangible assets acquired after June 30, 2001. With respect to goodwill and intangible assets acquired prior to July 1, 2001, the company has applied the new accounting rules beginning December 31, 2001. Pursuant to FAS 142, Knight Ridder will complete its test for goodwill impairment during the second quarter of 2002, and if impairment is indicated, record such impairment as a cumulative effect of accounting change effective December 31, 2001. The adoption of FAS 142 is not expected to have a material impact on the company's consolidated financial statements. The following table shows what net income would have been had the provision been applied at the beginning of fiscal 2001 (in thousands, except per share amounts): Quarter Ended -------------------------- March 31, April 1, 2002 2001 % Change ----------- ----------- -------- Net Income as Reported $ 51,768 $ 40,737 27.1% Goodwill and other intangibles amortization 13,825 ----------- ----------- Adjusted Net Income $ 51,768 $ 54,562 -5.1% =========== =========== Basic Earnings per Share as Reported $ 0.62 $ 0.52 19.2% Goodwill and other intangibles amortization 0.19 ----------- ----------- Adjusted Basic Earnings per Share $ 0.62 $ 0.71 -12.7% =========== =========== Diluted Earnings per Share as Reported $ 0.60 $ 0.47 27.7% Goodwill and other intangibles amortization 0.16 ----------- ----------- Adjusted Diluted Earnings per Share $ 0.60 $ 0.63 -4.8% =========== ===========
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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 accelerated 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 or shortages that may cause revenue declines or increased labor costs; (f) disruptions in electricity and natural gas supplies and increases in energy costs; (g) acquisitions of new businesses or dispositions of existing businesses; (h) increases in interest or financing costs or availability of credit; (i) rapid technological changes and frequent new product introductions prevalent in electronic publishing, including the evolution of the Internet; and (j) acts of war, terrorism or other events that may adversely affect the company's operations or the operations of key suppliers to the company. RESULTS OF OPERATIONS: FIRST QUARTER ENDED MARCH 31, 2002, COMPARED WITH FIRST QUARTER ENDED APRIL 1, 2001 The following table sets forth the results of operations for the quarters ended March 31, 2002 and April 1, 2001 (in thousands, except per share amounts): Quarter Ended -------------------------- March 31, April 1, 2002 2001 % Change ----------- ----------- ---------- Operating revenue $ 678,212 $ 735,398 -7.8% Operating income $ 120,830 $ 116,509 3.7% ----------- ----------- Net income (GAAP) $ 51,768 $ 40,737 27.1% =========== =========== Proforma adjustments, net of tax: Losses on sales/ write-downs of investments 7,099 Goodwill and other intangibles amortization 13,825 ----------- ----------- Proforma adjusted net income $ 51,768 $ 61,661 -16.0% =========== =========== Diluted earnings per share (GAAP) $ 0.60 $ 0.47 27.7% =========== =========== Proforma adjustments, net of tax: Losses on sales/ write-downs of investments 0.09 Goodwill and other intangibles amortization 0.16 ----------- ----------- Proforma adjusted earnings per share $ 0.60 $ 0.72 -16.7% =========== ===========
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NEWSPAPER DIVISION Operating Revenue The table below presents operating revenue and related statistics for newspaper operations for the quarter ended March 31, 2002, compared with the quarter ended April 1, 2001 (in thousands): Quarter Ended --------------------------- March 31, April 1, 2002 2001 Variance % Change ----------- ----------- ----------- --------- Operating revenues Advertising Retail $ 243,631 $ 246,353 $ (2,722) -1.1% General 74,883 79,784 (4,901) -6.1% Classified 201,533 247,019 (45,486) -18.4% ----------- ----------- ----------- Total 520,047 573,156 (53,109) -9.3% ----------- ----------- ----------- Circulation 126,425 129,141 (2,716) -2.1% Other 18,850 22,736 (3,886) -17.1% ----------- ----------- ----------- Total operating revenue $ 665,322 $ 725,033 $ (59,711) -8.2% =========== =========== =========== Average daily circulation Daily 3,884 3,891 (7) -0.2% Sunday 5,178 5,243 (65) -1.2% Advertising linage Full run Retail 3,910.5 3,856.1 54 1.4% General 685.9 698.7 (13) -1.8% Classified 4,574.7 4,775.0 (200) -4.2% ----------- ----------- ----------- Total full run 9,171.1 9,329.8 (159) -1.7% =========== =========== =========== Factored part-run 521.1 544.1 (23) -4.2% ----------- ----------- ----------- Total preprints inserted 1,576.1 1,653.7 (78) -4.7% ----------- ----------- -----------
Advertising revenue and linage for the quarter ended March 31, 2002, declined compared with the same quarter of the prior year due primarily to classified recruitment and general advertising, down $49.6 million, or 43.3%, and $4.9 million, or 6.1%, respectively. Retail advertising decreased $2.7 million, or 1.1%, during the quarter ended March 31, 2002, compared with the same period last year on a 5.8% decline in the average full run advertising rate due to newspaper market mix, offset by a 1.4% increase in full run linage. The decline is primarily due to continuing advertising softness in markets including Kansas City, Akron and Charlotte. General advertising revenue for the quarter ended March 31, 2002, was below the comparable quarter in 2001 by $4.9 million, or 6.1%, with a 1.8% decrease in full run linage and a 2.8% decline in the average full run advertising rate due to advertiser mix. San Jose, Saint Paul and Akron showed the largest decreases, down 24.5%, 23.3% and 21.9%, respectively. The decrease in general advertising revenue was primarily due to reduced placements by high-tech/dot-com and travel companies. 13
Classified revenue is down $45.5 million, or 18.4%, compared to the first quarter in 2001. Classified recruitment drove the decline, down $49.6 million, or 43.3%. While there were declines in recruitment revenue in most major markets during the first quarter of 2002 compared with the same period in 2001, San Jose, Philadelphia and Kansas City were responsible for a majority of the decrease, down 68.0%, 42.4% and 37.8%, respectively. Offsetting these declines, classified automotive revenue increased 5.8%, with growth of 24.4% in Philadelphia, 22.3% in Charlotte and 21.9% in Fort Worth. Classified real estate revenue was also up 3.3%, due to increases in Contra Costa, up 30.1%, Saint Paul, up 26.8%, and San Jose, up 18.1%. Circulation revenue declined $2.7 million, or 2.1%, on a 0.2% decrease in daily circulation and a 1.2% decrease in Sunday circulation. Other revenue declined $3.9 million, or 17.1%, for the quarter ended March 31, 2002 compared with the quarter ended April 1, 2001, with decreases in commercial printing and newsprint waste sales. Operating Costs The table below presents operating costs for newspaper operations for the quarter ended March 31, 2002, compared with the quarter ended April 1, 2001 (in thousands): Quarter Ended --------------------------- March 31, April 1, 2002 2001 Variance % Change ----------- ----------- ----------- -------- Operating costs Labor and employee benefits $ 266,205 $ 279,766 $ (13,561) -4.8% Newsprint, ink and supplements 93,279 119,221 (25,942) -21.8% Other operating costs 143,722 146,784 (3,062) -2.1% Depreciation and amortization 29,581 44,912 (15,331) -34.1% ----------- ----------- ----------- Total operating costs $ 532,787 $ 590,683 $ (57,896) -9.8% =========== =========== ===========
Total operating costs were down $57.9 million, or 9.8%, in the first quarter of 2002 compared to the first quarter of 2001. Excluding the effect of the change in goodwill and other intangible amortization in 2001, total operating costs declined $42.7 million, or 7.4%. Labor and employee benefits decreased $13.6 million, or 4.8%, in the first quarter of 2002 from the first quarter of 2001 as a result of a 10.7% decline in the number of full-time equivalent employees (FTEs), offset by a 3.7% average wage rate increase. Newsprint, ink and supplements decreased in the first quarter of 2002 from the first quarter of 2001 by $25.9 million, or 21.8%, due to a 16.2% decrease in the price per ton of newsprint, as well as a 9.1% decline in consumption. Other operating costs decreased in the first quarter of 2002 from the first quarter of 2001 by $3.1 million, or 2.1%, primarily due to decreases in production costs of $1.3 million, or 4.5%, as well as a decline in bad debt expense of $1.2 million, or 18.6%, due to the recovery of previously estimated losses. 14 Depreciation and amortization was down $15.3 million, or 34.1%, in the first quarter of 2002 compared to the first quarter of 2001. The company adopted FAS 142, "Goodwill and Other Intangible Assets" in the first quarter of fiscal year 2002. Application of the non-amortization provision resulted in an increase in operating income of $15.2 million, and an increase in net income of $13.8 million, or $.16 per share, in the first quarter of 2002. Removing goodwill and other intangible amortization from 2001, depreciation and amortization declined $115,000, or 0.4%. ONLINE DIVISION The table below presents operating revenue and related statistics for online operations for the quarter ended March 31, 2002, compared with the quarter ended April 1, 2001 (in thousands): Quarter Ended -------------------------- March 31, April 1, 2002 2001 Variance % Change ----------- ----------- ----------- -------- Operating revenue $ 12,890 $ 10,365 $ 2,525 24.4% Unique visitors 6,828 5,737 1,091 19.0% Operating revenue for the first quarter of 2002 increased from the same period in 2001 primarily due to increases in recruitment packages and recruitment upsell. Unique visitors increased due to an increasing number of Internet users (a reach of 5.8% in the first quarter of 2002 versus 5.2% in the first quarter of 2001). The Real Cities network now covers 54 cities with 17 of the top 25 markets. Operating Costs The following table summarizes operating costs for online operations for the quarters ended March 31, 2002 and April 1, 2001 (in thousands):
Quarter Ended --------------------------- March 31, April 1, 2002 2001 Variance % Change ----------- ----------- ----------- -------- Operating costs Labor and employee benefits $ 6,942 $ 9,222 $ (2,280) -24.7% Other operating costs 9,081 11,493 (2,412) -21.0% Depreciation and amortization 769 747 22 2.9% ----------- ----------- ----------- Total operating costs $ 16,792 $ 21,462 $ (4,670) -21.8% =========== =========== ===========
The decrease in labor and employee benefits for the first quarter of 2002 compared to the same quarter last year was primarily due to an FTE (full-time equivalent employees) reduction of 125, or 32.5%. Other operating costs for the first quarter of 2002 were down due to a decrease in advertising and promotion costs compared to the same quarter in 2001. Depreciation and amortization expense in the first quarter of 2002 was consistent with that recorded during the same quarter in 2001. 15 CORPORATE AND OTHER NON-OPERATING ITEMS Interest expense, net of interest income and capitalized interest, decreased $7.9 million, or 28.9%, from the first quarter ended April 1, 2001, due to a lower average debt balance and a lower weighted-average interest rate in the first quarter of 2002. Weighted-average interest rates were lower due to a general decline in short-term interest rates and as a result of the interest rate swaps the company entered into during the second quarter of 2001 and the first quarter of 2002. Equity in losses of investments in unconsolidated companies and joint ventures for the quarter ended March 31, 2002, increased by $10.7 million from the comparable period in 2001. Contributing to the year-over-year decline were newsprint mill investments (due to declining newsprint prices) and Career Holdings, Inc. (which included a $7.5 million charge in March related to management changes and workforce reduction). Partially offsetting these losses was an increase in earnings from the Seattle Times. Losses from "Other, net" items for the first quarter ended March 31, 2002, decreased $11.6 million from the same period in 2001 due to the pre-tax loss of $11.5 million on the sale and write-down of Internet investments during the first quarter of 2001. The effective tax rate was 37.2% for the first quarter ended March 31, 2002, compared to 40.3% for the comparable period in 2001. The decrease in the effective tax rate from 2001 to 2002 was primarily due to the non-amortization of goodwill and certain other intangible assets in 2002. 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-term investments to meet 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. Commercial paper outstanding at March 31, 2002, was $464.1 million, with an average effective interest rate of 1.8%. As of March 31, 2002, the company's $895 million revolving credit agreement, which backs up the commercial paper outstanding, had remaining availability of $430.9 million. During the second quarter of 2001 and the first quarter of 2002, the company entered into certain interest rate swap agreements. The principal objective of such agreements is to maintain a roughly equal balance between fixed and floating interest rates in the company's debt structure. The swap agreements expire at various dates in 2005, 2007, 2009 and 2011 and convert an aggregate principal amount of $500 million of fixed rate, long-term debt into variable rate borrowings. The variable interest rates are based on 3- or 6-month LIBOR plus a rate spread. As of March 31, 2002, the weighted average variable interest rates under these agreements were 4.2% versus the fixed rates of 7.8%. Cash provided by operating activities was $153.5 million for the quarter ended March 31, 2002, compared to $90.0 million for the quarter ended April 1, 2001. The increase in cash provided by operating activities is due to a non-recurring $40 million contribution to a health and welfare trust in the first quarter of 2001, an increase in distributions in excess of earnings of investees, as well as the timing of payments in certain current assets and liabilities. 16 Cash required for investing activities in the first quarter of 2002 was $14.9 million compared to $13.8 million in the first quarter of 2001. The increase in cash required was due to higher proceeds from the sale of investments in 2001 offset by lower capital expenditures in 2002. Cash required for financing activities for the quarter ended March 31, 2002 was $129.2 million compared to $77.9 million for the quarter ended April 1, 2001. The increase in cash required for financing activities is due to the reduction of debt in the first quarter of 2002. During the quarter ended March 31, 2002, the company repurchased a total of 1.2 million common shares at a total cost of $81.8 million and average cost of $66.73 per share. At March 31, 2002, the company has remaining authorization to repurchase 4.3 million shares of its common stock. The company received $47.3 million from the issuance of shares to employees under the company's stock option and stock purchase plans. For the quarter ended March 31, 2002, the company's interest coverage ratio (defined as operating income plus depreciation and amortization divided by interest expense), was 7.7 to 1 compared to 5.8 to 1 for the same period in 2001. The increase in the interest coverage ratio from the quarter ended April 1, 2001, was due to a decrease in interest expense as a result of a lower average debt balance and a decline in interest rates. The company's recurring cash flow to debt ratio (defined as net income plus depreciation and amortization for the previous four quarters divided by debt, and excluding the 53rd week in 2000, gains and losses on investments in all affected quarters, severance expense in the fourth quarter of 2000, the workforce reduction charge in the second quarter of 2001, and the impact of the change in accounting for amortization of goodwill and other intangible assets in all years), was 26.2% as of the first quarter of 2002 compared to 29.2% as of the first quarter of 2001. The company's operations have historically generated strong positive cash flow, which, along with the company's commercial paper program, revolving credit line 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. 17 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 30, 2001. PART II - OTHER INFORMATION Item 1. Legal Proceedings Refer to Part 1, Item 1, Note 6, incorporated herein by reference. 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 None 18 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 13, 2002 /s/ GARY R. EFFREN ----------------------------------------- Gary R. Effren Senior Vice President/Finance and Chief Financial Officer (Chief Accounting Officer and Duly Authorized Officer of Registrant) 19 -----END PRIVACY-ENHANCED MESSAGE-----