-----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, EEehRsIXHE9qx4KlIFHmWITPGkP1VtGJ87SnXQ+01IrL3qbD0iHPGcyIvaqAT0Zq Ep/I6QXGCRmjojBUgawxYQ== 0001019056-02-000860.txt : 20021216 0001019056-02-000860.hdr.sgml : 20021216 20021216163832 ACCESSION NUMBER: 0001019056-02-000860 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20011230 FILED AS OF DATE: 20021216 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-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-07553 FILM NUMBER: 02858896 BUSINESS ADDRESS: STREET 1: 50 W SAN FERNANDO ST CITY: SAN JOSE STATE: CA ZIP: 95113 BUSINESS PHONE: 4089387700 MAIL ADDRESS: STREET 1: 50 W SAN FERNANDO ST CITY: SAN JOSE STATE: CA ZIP: 95113 FORMER COMPANY: FORMER CONFORMED NAME: KNIGHT RIDDER NEWSPAPERS INC /FL/ DATE OF NAME CHANGE: 19860707 10-K/A 1 kri_10ka.txt FORM 10K/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A (Amendment 1) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 30, 2001 Commission file number 1-7553 Knight-Ridder, Inc ------------------------------------------------------ (Exact name of registrant as specified in its charter) Florida 38-0723657 ------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 50 W. San Fernando St., San Jose, CA 95113 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 408-938-7700 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered - ------------------- ----------------------------------------- Common Stock, $.02 1/12 par value New York Stock Exchange Preferred Share Purchase Rights Frankfurt Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None 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 [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] State the aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant - $5,738,919,010 (The average market value is computed by reference to the closing price at which the company's common stock was sold as of March 19, 2002, as reported on the New York Stock Exchange for such date). Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date - 83,782,317 one class Common Stock, $.02 1/12 par value (as of March 19, 2002). DOCUMENTS INCORPORATED BY REFERENCE (1) Portions of the Registrant's definitive Proxy Statement, in connection with the Annual Meeting of Shareholders to be held on April 23, 2002, are incorporated by reference into Part III. Explanatory Note This amendment as of December 16, 2002, to the company's annual report on Form 10-K for the fiscal year ended December 30, 2001, reflects the following changes: under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, the table under the Results of Operations section was modified to exclude non-GAAP pro forma measures of net income and diluted earnings per share amounts; expanded disclosure of the components of the "Other, net" line item in the Consolidated Statement of Net Income; expanded disclosure under the Acquisitions and Dispositions section discussing certain dispositions; and the Liquidity and Capital Resource section was modified to delete the presentation of non-GAAP financial ratios. Where appropriate, enhanced disclosure of the aforementioned information was also included in the Notes to the Consolidated Financial Statements. Additionally, Note 5 to the Notes to the Consolidated Financial Statements was expanded to include information for Assets, Unusual Items and Capital Expenditures by Business Segment. Table of Contents for 2001 Form 10-K
Page PART I Item 1. Business 1 Item 2. Properties 5 Item 3. Legal Proceedings 5 Item 4. Submission of Matters to a Vote of Security Holders 6 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 9 Item 6. Selected Financial Data 11 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 14 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 16 Item 8. Financial Statements and Supplementary Data 24 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 47 PART III Item 10. Directors and Executive Officers of the Registrant 48 Item 11. Executive Compensation 48 Item 12. Security Ownership of Certain Beneficial Owners and Management 48 Item 13. Certain Relationships and Related Transactions 48 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 49 SIGNATURES 51 SCHEDULES 54 EXHIBITS 55
PART I Item 1. Business The Company Knight-Ridder, Inc. ("Knight Ridder") is the nation's second-largest newspaper publisher based on circulation, with products in print and online. The company publishes 32 daily newspapers in 28 U.S. markets, with a readership of 8.5 million daily and 12.1 million Sunday. Knight Ridder also has investments in a variety of Internet and technology companies and two newsprint companies. The company's Internet operation, Knight Ridder Digital, creates and maintains a variety of online services, including Real Cities (http://www.realcities.com/), a national network of city and regional destination sites in 58 U.S. markets. Financial information about the company's business segments is incorporated by reference to Note 5 to the consolidated financial statements on page 36 of this report. Knight Ridder was formed in 1974 by a merger between Knight Newspapers, Inc. and Ridder Publications, Inc. In 1903, Charles Landon Knight purchased the Akron Beacon Journal. Knight Newspapers was founded by John S. Knight, who inherited the Beacon Journal from his father in 1933. Ridder Publications was founded in 1892 when Herman Ridder acquired the German-language Staats-Zeitung in New York. Both groups flourished, each taking its stock public in 1969. The merger created a company with operations coast to coast. Knight Ridder, incorporated in Florida in 1976, is headquartered in San Jose, California, and employs about 19,000 full-time equivalent employees. Newspapers Knight Ridder had 32 daily and 25 nondaily newspapers at the end of 2001. Newspaper operating revenue is derived primarily from the sale of newspaper advertising. Due to seasonal factors such as heavier retail selling during Christmas and Easter, retail advertising revenue fluctuates significantly throughout the year. General advertising, while not as seasonal as retail, is lower during the summer months. Classified advertising revenue has in the past been a reflection of the overall economy and has not been significantly affected by seasonal trends. Consecutive quarterly results are not uniform or comparable and are not indicative of the results over an entire year. Each of Knight Ridder's newspapers is operated on a substantially autonomous basis by local management, headed by the publisher/president appointed by the corporate headquarters in San Jose. Each newspaper is free to manage its own news coverage, set its own editorial policies and establish most business practices. Basic business policies, however, are set by the corporate staff in San Jose. Editorial and quality control assistance, including development of best practices, also are provided by the corporate staff. Each newspaper is served by the company-owned news bureau in Washington, D.C. Supplemental news, graphic and photographic services provided by Knight Ridder/Tribune Information Services, Inc. (KRT), a partnership between Knight Ridder and Tribune Co., include editorial material produced by all Knight Ridder newspapers, by Knight Ridder's 15 foreign correspondents and by a number of other newspapers. All of the company's newspapers compete for advertising and readers' time and attention with broadcast, satellite and cable television, the Internet and other computer services, radio, magazines, nondaily suburban newspapers, free shoppers, billboards and direct mail. In some cases, the newspapers also compete with other newspapers published in nearby cities and towns - particularly in Miami, St. Paul and Fort Worth. In Detroit and Fort Wayne, Knight Ridder has joint operating agreements with a second newspaper. The rest of Knight Ridder's newspapers are the only daily and Sunday papers of general circulation published in their communities. 1 The newspapers rely on local sales operations for local retail and classified advertising. The larger papers are assisted by Newspapers First and by the Newspaper National Network in obtaining national or general advertising. The table below presents the relative percentage contributions by individual papers to the company's overall operating revenue in 2001, 2000 and 1999. The percentage contributions of each paper to operating revenue are not necessarily indicative of contributions to operating profit.
- --------------------------------------------------------------------- -------------- -------------- ------------- 2001 2000 1999 - --------------------------------------------------------------------- -------------- -------------- ------------- Sources of Knight Ridder Newspaper Operating Revenue The Philadelphia Inquirer and Philadelphia Daily News 17.3% 18.3% 18.8% The Miami Herald and el Nuevo Herald 10.9 10.3 10.4 The Kansas City Star 9.0 8.6 8.5 San Jose Mercury News 8.7 10.3 9.5 Fort Worth Star-Telegram 7.7 7.4 7.3 The Charlotte Observer 6.0 5.8 6.1 Contra Costa Newspapers 4.4 4.5 4.1 Saint Paul Pioneer Press 3.9 3.8 4.0 Akron Beacon Journal 3.1 3.2 3.3 All other 29.0 27.8 28.0 - --------------------------------------------------------------------- -------------- -------------- ------------- 100.0% 100.0% 100.0% ===================================================================== ============== ============== =============
Newspapers Fiscal year 2000 included a 53rd week, a once-every-five-year occurrence coinciding with the newspaper industry's accounting calendar. Therefore, revenue figures discussed in this section are presented on a 52-week basis, unless otherwise noted. Newsprint Knight Ridder, excluding Detroit, consumed approximately 661,000 metric tons of newsprint in 2001. Approximately 15.4% of the company's total operating expenses during the year were for newsprint. Purchases are made under long-term agreements with 16 newsprint producers. In 2001, Knight Ridder purchased approximately 67.9% of its consumption from 15 mills in the United States, 31.8% from 17 mills in Canada and 0.3% from other offshore sources. Management believes that current sources are more than adequate to meet current demands. Approximately 81% of the newsprint consumed by the company contained some recycled content; the average content of these rolls was 49.8% recycled fiber. This translates into an overall recycled newsprint average of 40.3%. Knight Ridder is a one-third partner with Cox Enterprises and Media General, Inc. in SP Newsprint Co., formerly Southeast Paper Manufacturing Co (SP). It is the fourth-largest newsprint manufacturing company in North America. SP's mill in Dublin, Georgia, produces more than 500,000 metric tons per year of 100% recycled-content newsprint. Its plant in Newberg, Oregon, produces more than 363,000 metric tons per year of newsprint with at least 40% recycled content. SP provides recycled-content newsprint to its owners and more than 200 publishers and commercial printers. Its SP Recycling Corp. subsidiary recycles more than 1.2 million short tons of recovered material annually. Knight Ridder also owns a 13.5% equity interest in Ponderay Newsprint Company in Usk, Washington, which produced more than 242,000 metric tons of newsprint in 2001. 2 Knight Ridder expects that its purchases from these two newsprint companies will represent approximately 46% of its annual consumption, providing an important hedge against price volatility and a secure source of supply. Technology The company's focus in 2001 was on launching the implementation of new technology standards created by several task forces. Network security was also a major focus, leading to the replacement of several key network security devices and the documentation of many standards and security policies. As a result, a well developed, centralized security infrastructure able to develop, implement and monitor security policy was put in place. The Tallahassee Democrat, Lexington Herald-Leader and The (Fort Wayne) News-Sentinel implemented new advertising systems, and the Saint Paul Pioneer Press installed a new editorial system. General Advertising Sales Knight Ridder newspapers depend most heavily on two agents for the sale of general advertising. Newspapers First, a national advertising sales cooperative, is the primary sales representative for many of Knight Ridder's newspapers, many of the leading newspaper groups and several leading independents. It acts as an interface to national advertisers across the country. Newspaper National Network, Knight Ridder's second general sales agent, was established in 1994 to focus national selling on behalf of the newspaper industry. It represents all Knight Ridder newspapers and more than 500 others. Like Newspapers First, it offers "one-stop shopping" and "one-order, one-bill." Knight Ridder/Tribune Knight Ridder/Tribune Information Services, Inc. (KRT), a joint venture between Knight Ridder and Tribune Co., offers stories, graphics, illustrations, photos and paginated pages for print publishers; news animations, graphics and news specials for TV broadcasters; and Web-ready content for online publishers. In 2001, KRT again improved its profitability by improving margins for its business, general news and photo services and by reducing the cost of delivering its products through the Web. Working with Newscom, another Knight Ridder-Tribune joint venture, KRT improved its Web delivery site, KRT Direct, resulting in gains in spot sales in the fourth quarter and opening up new sales and promotion opportunities for 2002. The Philadelphia Inquirer and Philadelphia Daily News Philadelphia Newspapers, Inc. (PNI), publishes two of the nation's most respected newspapers: The Philadelphia Inquirer and the Philadelphia Daily News. They are sold in nine counties in Pennsylvania and southern New Jersey. The weekly net cumulative penetration of the newspapers is 63% of all adults in the region. Together, the papers have won 20 Pulitzer Prizes. Operating revenue in 2001 was $526.9 million. The Philadelphia Primary Metropolitan Statistical Area (PMSA) population is expected to grow 1.1% between 2001 and 2006; the U.S. average is 4.3%. In 2001, Philadelphia had income per capita 13.5% above the U.S. average; by 2006, it is projected to be 12.6% above the U.S. average. The Miami Herald/el Nuevo Herald The Miami Herald is Florida's largest newspaper. el Nuevo Herald is America's premier Spanish language newspaper. Both are published by the Miami Herald Publishing Company (MHPC). The Miami Herald is sold in South Florida and in 28 3 Latin American and Caribbean countries, primarily through its International Edition. el Nuevo Herald serves the growing Spanish-speaking population of Miami-Dade and Broward counties. Operating revenue in 2001 was $300.9 million for The Miami Herald and $30.7 million for the el Nuevo Herald. The Miami-Fort Lauderdale combined market population is expected to grow 6.6% between 2001 and 2006. In 2001, the area had income per capita 11.7% below the U.S. average; by 2006, it is projected to be 18.6% below the U.S. average. San Jose Mercury News The San Jose Mercury News, the newspaper of Silicon Valley, serves one of the most historically prosperous and diverse markets in the nation. Circulation is concentrated in Santa Clara County, which encompasses San Jose - California's third-largest city - and surrounding communities. The region is the world leader in high technology and ranks fourth nationally in exports. Operating revenue in 2001 was $266.7 million. The population of the San Jose Primary Metropolitan Statistical Area is expected to grow 4.2% between 2001 and 2006. In 2001, San Jose had income per capita that was 57.6% above the U.S. average; by 2006, it is projected to be 62.7 % above the U.S. average. The Kansas City Star The Kansas City Star serves the Kansas City metropolitan area. The Star's primary market consists of 11 counties in Kansas and Missouri. Operating revenue in 2001 was $274.3 million. The Kansas City Metropolitan Statistical Area population is expected to grow 3.9% between 2001 and 2006. In 2001, Kansas City had income per capita 6.9% above the U.S. average; by 2006, it is projected to be 7.6% above the U.S. average. Fort Worth Star-Telegram The Star-Telegram serves the western portion of the Dallas/Fort Worth market. The four-county Fort Worth/Arlington market is the third largest in Texas and is projected to be one of the nation's 10 fastest-growing major metropolitan areas over the next five years. Operating revenue in 2001 was $236.1 million. Fort Worth/Arlington's population is expected to grow 7.4% between 2001 and 2006. In 2001, Fort Worth/Arlington had income per capita 8.3% above the U.S. average; by 2006, it is projected to be 9.8% above the U.S. average. Detroit Free Press The Detroit Free Press, Michigan's largest daily newspaper, is sold primarily in the six-county area surrounding Detroit. It is also sold throughout the state of Michigan, in Windsor, Ontario, and in Toledo, Ohio. The Detroit Free Press is published in combination with The Detroit News by Detroit Newspapers (DN), a joint operating agency formed in 1989 to combine the business operations of the two partners, Knight Ridder and Gannett Co. The profits (or losses) are split equally. The Free Press, owned by Knight Ridder, is a morning paper; The News, owned by Gannett, is an evening paper. On weekends and holidays, they publish combined editions. The Sunday edition ranks seventh in circulation in the nation. The population of the Detroit Primary Metropolitan Statistical Area is expected to grow 1.1% between 2001 and 2006. In 2001, Detroit had per capita income 10.8% above the U.S. average; in 2006, it is projected to be 11.4% above the U.S. average. 4 The Charlotte Observer The Charlotte Observer, the largest-circulation daily between Washington D.C. and Atlanta, is sold primarily in a 15-county region across the two Carolinas. Operating revenue in 2001 was $182.4 million. Population in the Charlotte Metropolitan Statistical Area is projected to grow 8.3% between 2001 and 2006. In 2001, Charlotte had per capita income 9.9% above the U.S. average; in 2006, it is projected to be 13.8% above the U.S. average. Online Activities During the first quarter of 2000, the company consolidated all its Internet operations under a wholly-owned subsidiary, Knight Ridder Digital, formerly KnightRidder.com. Previously, Knight Ridder's Internet activities were reported and managed as a part of the company's newspaper operations. Knight Ridder Digital controls all of Knight Ridder's online efforts, including the Web sites previously operated by the newspapers. Knight Ridder Digital operates and manages the Real Cities Network, which consists of all Knight Ridder Web sites and those of several other media affiliates. Employees The company has more than 19,000 full-time equivalent employees, of which approximately 37% are represented by approximately 70 local unions and work under multiyear collective bargaining agreements. Individual newspapers that have one or more collective bargaining agreements are in Akron, Detroit, Duluth, Fort Wayne, Grand Forks, Kansas City, Lexington, Monterey, Philadelphia, St. Paul, San Jose, State College and Wichita. During 2002, there will be negotiations to extend collective bargaining agreements at six newspapers. Item 2. Properties Knight Ridder has daily newspaper facilities in 28 markets situated in 17 states. These facilities vary in size from 8,000 square feet at The Buyer's Guide in Warner Robins, Georgia, to 2.9 million square feet in Philadelphia. In total, they occupy about 8.1 million square feet. Approximately 1.7 million of the total square footage is leased from others. Virtually all of the owned property is owned in fee. The company owns substantially all of its production equipment, although certain office equipment is leased. The company also owns land for future expansion in Columbus and Macon, Georgia, Kansas City, Kansas and Detroit, Michigan. Knight Ridder properties are maintained in excellent condition and are suitable for current and foreseeable operations. During the three years ended December 30, 2001, the company spent approximately $295.1 million for additions to property, plant and equipment. Item 3. Legal Proceedings 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. 5 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 U.S. 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 subsidiary of the company. 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. Item 4. Submission of Matters to a Vote of Security Holders None Executive Officers of Knight Ridder Management Committee* P. ANTHONY RIDDER, 61, Chairman of the Management Committee since 1995; Knight Ridder chairman and CEO since 1995. Served as president 1989 to 1995; president of the Newspaper Division 1986 to 1995. Served as publisher, San Jose Mercury News, 1977 to 1986; general manager 1975 to 1977. B.A., economics, University of Michigan, 1962. JERRY CEPPOS, 55, Vice president/news since 1999. Oversees news operations of Knight Ridder's 32 daily newspapers; responsible for the Knight Ridder Washington Bureau and the content of Knight Ridder/Tribune Information Services. Served as vice president and executive editor, San Jose Mercury News, 1995 to 1999; managing editor 1983 to 1995; various editing positions 1981 to 1983. B.S., journalism, University of Maryland, 1969. MARY JEAN CONNORS, 49, Senior vice president/human resources since 1996; vice president/human resources 1989 to 1996. Oversees human resources for Knight Ridder; manages annual strategy and goal-setting. Served as vice president/human resources, Philadelphia Newspapers, Inc., 1988 to 1989; assistant to the senior vice president/news, Knight Ridder, 1988; assistant managing editor/personnel, The Miami Herald, 1985 to 1988. Stanford Executive Program, Stanford University, 1999; B.A., English, Miami University in Oxford, Ohio, 1973. GARY R. EFFREN, 45, Senior vice president/CFO since May 2001. Oversees all finance functions of the company and helps develop strategy and evaluate business opportunities. Served as controller 1995 to 2001; assistant vice president/assistant treasurer 1993 to 1995; assistant to the vice president/finance and treasurer 1989 to 1993; director of corporate accounting 1986 to 1989; business manager, Viewdata Corporation of America, 1984 to 1986. M.B.A., University of Miami, 1989; B.S., accounting, Rider College, 1978; CPA. 6 STEVEN B. ROSSI, 52, President/Newspaper Division since 2001. Responsible for all Knight Ridder newspaper operations. Also directly oversees newspapers in Akron, Charlotte, Columbia, Contra Costa, Detroit, Fort Worth, Kansas City, Lexington, Miami, Olathe, Philadelphia, St. Paul and San Jose; publishers report to him. Served as senior vice president/operations Knight Ridder, 1998 to 2001; executive vice president and general manager, Philadelphia Newspapers, Inc., 1992 to 1998. M.B.A., The Wharton School of the University of Pennsylvania, 1974; B.A., economics, Ursinus College, 1971. JOSEPH (CHIP) VISCI, 48, Vice president/operations since 2000. Oversees operations for newspapers in Aberdeen, Belleville, Biloxi, Bradenton, Columbus, Duluth, Fort Wayne, Grand Forks, Macon, Monterey, Myrtle Beach, San Luis Obispo, State College, Tallahassee, Warner Robins, Wichita and Wilkes-Barre; publishers report to him. Served as assistant to the chairman and CEO, Knight Ridder, 1996 to 2001; managing editor, Detroit Free Press, 1996, and in various newsroom positions 1978 to 1996. M.A., journalism, Ohio State University, 1977; B.A., journalism, Ohio Wesleyan University, 1975. GORDON YAMATE, 46, Vice president and general counsel since 2000. Manages companywide legal affairs. Served as vice president, general counsel and corporate secretary at Liberate Technologies, 1999 to 2000; partner in the law firm of McCutchen, Doyle, Brown & Enersen, LLP, in Palo Alto and San Jose, 1988 to 1999; associate 1983 to 1988. J.D., Santa Clara University School of Law, 1980; B.A., economics and political science, University of California, Davis, 1977. Officers* MARSHALL W. ANSTANDIG, 53, Vice president/senior labor and employment counsel since 1998. Advises and assists Knight Ridder and its companies on legal matters related to labor relations and employment law. Served as partner in the law firm of Brown & Bain, P.A., 1996 to 1998; managing partner in the law firm of Bryan Cave in Phoenix, 1990 to 1996. J.D., Detroit College of Law, Michigan State University, 1974; B.A., political science, Hope College, 1971. VIRGINIA DODGE FIELDER, 53, Vice president/research since 1989. Responsible for market research for Knight Ridder, including its annual reader, advertiser and Internet surveys; consults with the newspapers on local research projects. Served as vice president/news and circulation research 1986 to 1989; director/news and circulation research 1981 to 1985; editorial research manager, Chicago Sun-Times, 1979 to 1981. Ph.D., mass communications, Indiana University, 1976; M.A., journalism, Indiana University, 1974; B.A., psychology, Transylvania University, 1970. DAN FINNIGAN, 39, Vice president since 1999 and president of Knight Ridder Digital. Heads the company's Internet operations and helps lead the company's interactive strategies and investments. Served as president and CEO, SBC Interactive, 1998 to 1999; held various positions at SBC Communications, Inc., 1995 to 1998; group manager for product development, ESS Ventures, LLC, 1994 to 1995. M.B.A., finance and marketing, The Wharton School of the University of Pennsylvania, 1993; B.A., communication studies, University of California, Los Angeles, 1984. STEVE HANNAH, 43, Vice president/technology since 2000. Responsible for creating the vision for technology while setting the standards in implementing new technology. Served as vice president/technology and CIO, Gazette Communications, 1996 to 2000; director of management information systems 1993 to 1996; computer services manager, Journal/Sentinel, Inc., 1986 to 1993. B.A., business administration, Eastern Michigan University, 1982. 7 POLK LAFFOON IV, 56, Vice president/corporate relations since 1994 and corporate secretary since 1999. Oversees the investor relations, public and media relations and corporate secretary functions, including contact with the financial community. Served as assistant to the president 1992 to 1994; assistant circulation director/distribution, The Miami Herald, 1991 to 1992. Served as director and vice president/investor relations, Taft Broadcasting Co., 1982 to 1987. M.B.A., marketing, The Wharton School of the University of Pennsylvania, 1970; B.A., English, Yale, 1967. LARRY D. MARBERT, 48, Vice president/production and facilities since 1998. Oversees capital investments in facilities and manufacturing systems; tracks and promotes advances in newspaper production technology and acts as an internal consultant. Served as vice president/technology, Knight Ridder, 1994 to 1998; senior vice president/operations, Philadelphia Newspapers, Inc., 1991 to 1994; vice president/operations research and planning 1988 to 1991; vice president/production 1986 to 1988. M.S., management science, Auburn University, 1977; B.S., University of North Carolina, business administration, 1976. JACQUI LOVE MARSHALL, 53, Vice president/human resources/diversity and development since 2000. Oversees recruiting, corporate learning and diversity. Served as assistant vice president/human resources 1996 to 2000; vice president/human resources, The Miami Herald Publishing Co., 1993 to 1996; various roles, The Washington Post, 1986 to 1993. Ed.M., educational counseling, Harvard University, 1970; B.A., education, Trenton State College, 1969. MIKE PETRAK, 43, Vice president/marketing since 2001. Oversees planning and implementation of strategic marketing initiatives including sales, branding efforts, reader and advertising research, new product initiatives and database marketing across the company. Served as executive vice president and general manager of The Kansas City Star, 1997 to 2001; vice president of marketing and advertising, 1994 to 1997; director of marketing for Consumer Power Marketing, 1992 to 1994; advertising director for the Wisconsin State Journal and The Capital Times and The (Tacoma, Wash.) News Tribune, 1987 to 1992. M.B.A., marketing, University of Iowa, 1982; B.A., journalism, University of Iowa, 1980. MARGARET RANDAZZO, 34, Vice president and controller since 2001. Responsible for all financial reporting, corporate accounting and risk management. Served as vice president and CFO of the Fort Worth Star-Telegram, 1998 to 2001, and financial planning manager, 1996 to 1998; manager, Audit and Business Advisory Division of Arthur Andersen LLP, 1990 to 1996. B.B.A., accounting, University of Oklahoma, 1990; CPA. STEVEN J. STEIN, 48, Vice president/human resources/compensation and benefits since 2000. Oversees benefits, compensation and human resources information systems, and works with companies on succession planning, organizational development and employee research activities. Served as assistant vice president/human resources 1995 to 2000; vice president/human resources for Knight Ridder Business Information Services, 1989 to 1995. Ph.D., psychology, University of Florida, 1981; B.A., psychology, George Washington University, 1974. *Ages as of February 1, 2002 8 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters KRI Stock Knight Ridder common stock is registered on the New York Stock Exchange and the Frankfurt Stock Exchange under the symbol KRI. The stock is also traded on exchanges in Philadelphia, Chicago, Boston, San Francisco, Los Angeles and Cincinnati and through the Intermarket Trading System. Options are traded on the Philadelphia Exchange. The company's 83,782,317 shares outstanding on March 19, 2002 were held in all 50 states by 8,720 shareholders of record. Market Price of Common Stock The last closing price of the company's common stock prior to the preparation of this report was $69.01 on March 19, 2002. The average stock trading volume of shares per day for the years 2001, 2000 and 1999 was 406,000, 398,000 and 417,000, respectively. The following table presents the high and low sale price of the company's common stock by fiscal quarter for the two most recent fiscal years: ----------2001---------- ----------2000---------- Quarter High Low High Low - ------- ---- --- ---- --- 1st 60.48 52.02 59.81 44.19 2nd 59.04 52.02 55.88 45.88 3rd 63.32 53.76 56.69 49.38 4th 65.17 53.77 57.63 44.13 Treasury Stock Purchases The table below is a summary of treasury stock purchases since 1990: Stock Cost Average Price Purchased (000s) Per Share - ------------------------------------------------------------------------------- 2001 2,993,567 $ 171,795 $57.39 2000 9,048,895 464,835 51.37 1999 3,704,378 210,141 56.73 1998 4,725,000 255,533 54.08 1997 13,824,300 643,375 46.54 1996 6,219,100 221,768 35.66 1995 11,508,600 319,363 27.75 1994 5,044,600 136,977 27.15 1993 1,500,000 40,693 27.13 1992* 1991* 1990 5,325,400 129,909 24.39 *There were no treasury stock purchases in 1991 and 1992. 9 Dividends Quarterly cash dividends declared on the company's common stock were $.25 per share in 2001 and $.23 per share in 2000. Total cash dividends declared on common stock by the company were $84,197,805 in 2001 and $81,002,426 in 2000. 10 Item 6. Selected Financial Highlights 11-YEAR FINANCIAL HIGHLIGHTS The following information was compiled from the consolidated financial statements of Knight Ridder and its subsidiaries. The consolidated financial statements and related notes and discussions for the year ended December 30, 2001 (pages 14 through 47), should be read to obtain a better understanding of this information.
- ----------------------------------------------------------------- --------------------- ------------ ------------- ------------ Compound Growth Rate December December December --------------------- 30 31 26 (In thousands, except per share data and ratios) 5-Year 10-Year 2001 2000 1999 - ----------------------------------------------------------------- ---------- ---------- ------------ ------------- ------------ Summary of Operations Operating Revenue Advertising 6.3% 5.8% $2,254,422 $ 2,507,836 $2,353,520 Circulation 2.3 2.9 512,309 523,856 525,686 Other 15.2 14.3 133,478 180,075 154,569 - ----------------------------------------------------------------- ------------ ------------- ------------ Total Operating Revenue 5.9 5.4 2,900,209 3,211,767 3,033,775 - ----------------------------------------------------------------- ------------ ------------- ------------ Operating Costs Labor, newsprint and other operating costs 5.4 4.9 2,253,881 2,355,398 2,229,410 Depreciation and amortization 10.2 8.5 184,573 187,597 182,943 - ----------------------------------------------------------------- ------------ ------------- ------------ Total Operating Costs 5.7 5.1 2,438,454 2,542,995 2,412,353 - ----------------------------------------------------------------- ------------ ------------- ------------ Operating Income 6.7 7.5 461,755 668,772 621,422 Interest expense 6.6 3.9 (100,833) (116,652) (97,444) Other, net 1.3 4.1 (53,523) (26,830) 44,037 Income taxes, net (0.4) 6.1 (122,575) (210,927) (228,076) - ----------------------------------------------------------------- ------------ ------------- ------------ Income from continuing operations (0.1) 4.2 184,824 314,363 339,939 Discontinued BIS operations (1) Cumulative effect of changes in accounting principles (2) - ----------------------------------------------------------------- ------------ ------------- ------------ Net Income (7.2) 3.4 $ 184,824 $ 314,363 $ 339,939 ================================================================= ========== ========== ============ ============= ============ Operating income percentage (profit margin) 15.9% 20.8% 20.5% - ----------------------------------------------------------------- ---------- ---------- ------------ ------------- ------------ Share Data Basic weighted-average number of shares 76,074 75,370 80,025 Diluted weighted-average number of shares 85,694 89,105 97,460 Earnings per share Basic: Continuing operations 3.8 7.0 $2.33 $4.02 $4.07 Discontinued BIS operations (1) Cumulative effect of changes in accounting principles (2) Net income (3.5) 6.1 2.33 4.02 4.07 Diluted:Continuing operations 2.6 6.2 $2.16 $3.53 $3.49 Discontinued BIS operations (1) Cumulative effect of changes in accounting principles (2) Net income (4.7) 5.5 2.16 3.53 3.49 Dividends declared per common share (3) 11.3 3.6 1.00 0.92 0.89 Common stock price: High 65.17 59.81 65.00 Low 52.02 44.13 46.00 Close 65.17 56.88 58.94 Shareholders' equity per common share 8.8 5.6 $18.50 $18.09 $19.07 Price/earnings ratio (4) 30.2 16.1 16.9 Adjusted price/earnings ratio (5) 23.4 15.4 17.9 - ----------------------------------------------------------------- ---------- ---------- ------------ ------------- ------------ Other Financial Data Treasury Stock Purchases: Number of shares 2,994 9,049 3,704 Cost $ 171,795 $ 464,835 $ 210,141 Cash dividends declared 84,198 81,002 85,526 Ratio of earnings to fixed charges (6) 4.1 5.2 6.3 At year end Total assets $4,213,376 $ 4,243,526 $4,192,334 Total debt 1,613,954 1,672,272 1,300,754 Shareholders' equity 1,560,288 1,541,470 1,780,684 Return on average shareholders' equity (7) 11.9% 18.9% 19.7% Total debt/total capital ratio 50.8% 52.0% 42.2% - ----------------------------------------------------------------- ---------- ---------- ------------ ------------- ------------
11 (Table Continued)
- ----------------------------------------------------------------- -------------- -------------- -------------- -------------- December December December December 27 28 29 31 (In thousands, except per share data and ratios) 1998 1997 1996 1995 - ----------------------------------------------------------------- -------------- -------------- -------------- -------------- Summary of Operations Operating Revenue Advertising $ 2,222,597 $ 2,060,772 $ 1,659,336 $ 1,534,761 Circulation 533,340 521,135 457,306 444,506 Other 139,617 103,515 65,913 32,789 - ----------------------------------------------------------------- -------------- -------------- -------------- -------------- Total Operating Revenue 2,895,554 2,685,422 2,182,555 2,012,056 - ----------------------------------------------------------------- -------------- -------------- -------------- -------------- Operating Costs Labor, newsprint and other operating costs 2,209,819 2,029,587 1,735,639 1,691,655 Depreciation and amortization 181,112 149,802 113,778 92,134 - ----------------------------------------------------------------- -------------- -------------- -------------- -------------- Total Operating Costs 2,390,931 2,179,389 1,849,417 1,783,789 - ----------------------------------------------------------------- -------------- -------------- -------------- -------------- Operating Income 504,623 506,033 333,138 228,267 Interest expense (105,936) (102,662) (73,137) (59,512) Other, net 109,229 290,481 50,208 14,062 Income taxes, net (202,285) (297,348) (124,829) (72,861) - ----------------------------------------------------------------- -------------- -------------- -------------- -------------- Income from continuing operations 305,631 396,504 185,380 109,956 Discontinued BIS operations (1) 60,226 16,511 82,493 57,426 Cumulative effect of changes in accounting principles (2) (7,320) - ----------------------------------------------------------------- -------------- -------------- -------------- -------------- Net Income $ 365,857 $ 413,015 $ 267,873 $ 160,062 ================================================================= ============== ============== ============== ============== Operating income percentage (profit margin) 17.4% 18.8% 15.3% 11.3% - ----------------------------------------------------------------- -------------- -------------- -------------- -------------- Share Data Basic weighted-average number of shares 78,882 88,475 96,021 99,451 Diluted weighted-average number of shares 98,176 101,314 97,420 100,196 Earnings per share Basic: Continuing operations $3.70 $4.40 $1.93 $1.11 Discontinued BIS operations (1) 0.77 0.19 0.86 0.57 Cumulative effect of changes in accounting (0.07) principles (2) 4.47 4.59 2.79 1.61 Net income Diluted:Continuing operations $3.11 $3.91 $1.90 $1.10 Discontinued BIS operations (1) 0.62 0.17 0.85 0.57 Cumulative effect of changes in accounting (0.07) principles (2) 3.73 4.08 2.75 1.60 Net income Dividends declared per common share (3) 0.80 0.80 0.58 1/2 0.74 Common stock price: High 59.63 57.13 42.00 33.31 Low 40.50 35.75 29.88 25.13 Close 50.81 50.19 39.25 31.25 Shareholders' equity per common share $17.33 $15.65 $12.12 $11.43 Price/earnings ratio (4) 13.6 12.3 14.3 19.5 Adjusted price/earnings ratio (5) 19.3 21.8 21.6 28.4 - ----------------------------------------------------------------- -------------- -------------- -------------- -------------- Other Financial Data Treasury Stock Purchases: Number of shares 4,725 13,824 6,219 11,509 Cost $ 255,533 $ 643,375 $ 221,768 $ 319,363 Cash dividends declared 77,152 78,335 74,262 74,377 Ratio of earnings to fixed charges (6) 5.2 7.1 4.0 3.2 At year end Total assets $ 4,257,097 $ 4,355,142 $ 2,860,907 $ 2,966,321 Total debt 1,527,278 1,668,830 821,335 1,013,850 Shareholders' equity 1,662,731 1,551,673 1,131,508 1,110,970 Return on average shareholders' equity (7) 22.8% 30.8% 23.9% 14.3% Total debt/total capital ratio 47.9% 51.8% 42.1% 47.7% - ----------------------------------------------------------------- -------------- -------------- -------------- --------------
(Table Continued)
- ----------------------------------------------------------------- -------------- -------------- -------------- -------------- December December December December 25 26 27 29 (In thousands, except per share data and ratios) 1994 1993 1992 1991 - ----------------------------------------------------------------- -------------- -------------- -------------- -------------- Summary of Operations Operating Revenue Advertising $ 1,414,343 $ 1,324,312 $ 1,294,944 $ 1,284,748 Circulation 426,799 418,726 406,388 386,363 Other 91,818 69,689 47,747 35,100 - ----------------------------------------------------------------- -------------- -------------- -------------- -------------- Total Operating Revenue 1,932,960 1,812,727 1,749,079 1,706,211 - ----------------------------------------------------------------- -------------- -------------- -------------- -------------- Operating Costs Labor, newsprint and other operating costs 1,534,496 1,460,563 1,408,480 1,401,750 Depreciation and amortization 90,310 90,712 84,144 81,375 - ----------------------------------------------------------------- -------------- -------------- -------------- -------------- Total Operating Costs 1,624,806 1,551,275 1,492,624 1,483,125 - ----------------------------------------------------------------- -------------- -------------- -------------- -------------- Operating Income 308,154 261,452 256,455 223,086 Interest expense (44,216) (44,403) (52,358) (68,806) Other, net 1,799 2,987 13,855 35,820 Income taxes, net (106,493) (83,281) (82,496) (67,965) - ----------------------------------------------------------------- -------------- -------------- -------------- -------------- Income from continuing operations 159,244 136,755 135,456 122,135 Discontinued BIS operations (1) 11,656 11,334 10,630 9,933 Cumulative effect of changes in accounting principles (2) (105,200) - ----------------------------------------------------------------- -------------- -------------- -------------- -------------- Net Income $ 170,900 $ 148,089 $ 40,886 $ 132,068 ================================================================= ============== ============== ============== ============== Operating income percentage (profit margin) 15.9% 14.4% 14.7% 13.1% - ----------------------------------------------------------------- -------------- -------------- -------------- -------------- Share Data Basic weighted-average number of shares 107,888 109,702 108,948 102,586 Diluted weighted-average number of shares 108,551 110,663 110,356 103,594 Earnings per share Basic: Continuing operations $1.48 $1.25 $1.24 $1.19 Discontinued BIS operations (1) 0.10 0.10 0.11 0.10 Cumulative effect of changes in accounting (0.97) principles (2) 1.58 1.35 0.38 1.29 Net income Diluted:Continuing operations $1.47 $1.24 $1.22 $1.18 Discontinued BIS operations (1) 0.10 0.10 0.10 0.09 Cumulative effect of changes in accounting (0.95) principles (2) 1.57 1.34 0.37 1.27 Net income Dividends declared per common share (3) 0.73 0.70 0.70 0.70 Common stock price: High 30.50 32.50 32.06 28.75 Low 23.25 25.31 25.38 21.88 Close 25.44 29.69 29.06 25.38 Shareholders' equity per common share $11.58 $11.33 $10.75 $10.72 Price/earnings ratio (4) 16.2 22.2 78.5 20.0 Adjusted price/earnings ratio (5) 17.3 23.9 23.8 21.5 - ----------------------------------------------------------------- -------------- -------------- -------------- -------------- Other Financial Data Treasury Stock Purchases: Number of shares 5,045 1,500 Cost $ 136,977 $ 40,693 $ - $ - Cash dividends declared 77,942 76,787 75,992 71,087 Ratio of earnings to fixed charges (6) 5.2 4.4 3.8 2.8 At year end Total assets $ 2,409,239 $ 2,399,067 $ 2,431,307 $ 2,305,731 Total debt 411,504 451,075 560,245 606,840 Shareholders' equity 1,224,654 1,243,169 1,181,812 1,148,620 Return on average shareholders' equity (7) 13.9% 12.2% 12.0% 12.9% Total debt/total capital ratio 25.2% 26.6% 32.2% 34.6% - ----------------------------------------------------------------- -------------- -------------- -------------- --------------
12 (1) Results of operations of the company's Business Information Services (BIS) Division (discontinued in 1997) and the gains on the sales of BIS companies are presented as "discontinued BIS operations." (2) For 1995, the cumulative effect of change in accounting principle relates to the implementation of FAS 116-Accounting for Contributions Received and Contributions Made. For 1992, the cumulative effect of change in accounting principle relates to the implementation of FAS 109-Accounting for Income Taxes and FAS 106-Accounting for Postretirement Benefits Other Than Pensions. (3) On January 28, 1997, the Board of Directors declared a $.20 per share dividend. The quarterly dividend previously paid in January was paid on February 24, 1997, to shareholders of record as of the close of business on February 12, 1997. Prior to January 1997, the quarterly dividends were historically declared in the prior December. (4) Price/earnings ratio is computed by dividing closing market price by diluted earnings per share. (5) Adjusted price/earnings ratio is computed by dividing closing market price by diluted earnings per share from continuing operations. For comparability purposes, diluted earnings per share from continuing operations was adjusted to exclude relocation and severance costs and gains and losses on sales, exchanges and write-downs of investments. (6) The ratio of earnings to fixed charges is computed by dividing earnings (as adjusted for fixed charges and undistributed equity income from unconsolidated subsidiaries) by fixed charges for the period. Fixed charges include the interest on debt (before capitalized interest), the interest component of rental expense, and the proportionate share of interest expense on guaranteed debt of certain equity-method investees and on debt of 50%-owned companies. (7) Return on average shareholders' equity is computed by dividing net income before the cumulative effect of changes in accounting principles in 1995 and 1992, including the results of discontinued operations in 1988 through 1998, by average shareholders' equity. Average shareholders' equity is the average of shareholders' equity on the first day and the last day of the fiscal year. 13 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This amendment as of December 16, 2002, reflects the following changes: under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, the table under the Results of Operations section was modified to exclude non-GAAP pro forma measures of net income and diluted earnings per share amounts; expanded disclosure of the components of the "Other, net" line item in the Consolidated Statement of Net Income; expanded disclosure under the Acquisitions and Dispositions section discussing certain dispositions; and the Liquidity and Capital Resource section was modified to delete the presentation of non-GAAP financial ratios. FORWARD-LOOKING STATEMENTS Certain statements in this annual report on Form 10-K 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. GLOSSARY OF TERMS The following definitions may be helpful when reading Management's Discussion and Analysis of Operations. RETAIL Display advertising from local merchants, such as department and grocery stores, selling goods and services to the public. GENERAL Display advertising by national advertisers that promotes products or brand names on a nationwide basis. CLASSIFIED Locally placed ads listed together and organized by category, such as real estate sales, employment opportunities or automobile sales, and display-type advertisements in these same categories. FULL-RUN Advertising appearing in all editions of a newspaper. PART-RUN Advertising appearing in select editions or zones of a newspaper's market. Part-run advertising is translated into full-run equivalent linage (referred to as factored) based on the ratio of the circulation in a particular zone to the total circulation of a newspaper. RUN-OF-PRESS (ROP) All advertising printed on Knight Ridder presses and appearing within a newspaper. PREPRINT Advertising supplements prepared by advertisers and inserted into a newspaper. UNIQUE VISITORS Number of persons who visited a site or network of sites at least once in the month. Visitors to multiple sites in a network in a given month are counted only once as a unique visitor for that network. In separate, individual site tallies, they are counted once as a unique visitor for each site visited. PAGE VIEWS Total requests for HTML pages or unique screens of information as presented to the user, including co-branded pages from partner sites. 14 CRITICAL ACCOUNTING POLICIES AND ESTIMATES GENERAL. The company's discussion and analysis of its financial condition and results of operations are based upon the company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the company evaluates its estimates, including those related to incentives, bad debts, inventories, investments, intangible assets, income taxes, financing operations, restructuring, long-term service contracts, pensions and other post-retirement benefits, and contingencies and litigation. The company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements. REVENUE RECOGNITION. Revenue recognition varies by source. Advertising revenue is recognized when ads are published. Circulation revenue is recognized when the newspaper is delivered to the customer. Other revenue is recognized when the related product or service has been delivered. Revenues are recorded net of estimated incentive offerings including special pricing agreements, promotions and other volume-based incentives. Revisions to these estimates are charged to income in the period in which the facts that give rise to the revision become known. BAD DEBTS. The company maintains a reserve account for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of the company's customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. The company uses a combination of the percentage of sales and the aging of accounts receivable to establish reserves for losses on accounts receivable. Payment in advance for advertising and circulation revenue and credit background checks have assisted the company in maintaining historical bad debt losses to less than 1% of revenue. EQUITY AND COST METHOD INVESTMENT VALUATION AND ACCOUNTING. The company holds minority interests in companies having operations or technology in areas within its strategic focus and are recorded at cost. The company records an investment impairment charge when it believes an investment has experienced a decline in value that is other than temporary. Future adverse changes in market conditions or poor operating results of underlying investments could result in losses or an inability to recover the carrying value of the investments that may not be reflected in an investment's current carrying value, thereby possibly requiring an impairment charge in the future. GOODWILL AND INTANGIBLE IMPAIRMENT. In assessing the recoverability of the company's goodwill and other intangibles the company must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets. This impairment test requires the determination of the fair value of the intangible asset. If the fair value of the intangible asset is less than its carrying value, an impairment loss will be recognized in an amount equal to the difference. If these estimates or their related assumptions change in the future, the company may be required to record impairment charges for these assets. The company has adopted Statement of Financial Accounting Standards (FAS) No. 142, "Goodwill and Other Intangible Assets," effective January 1, 2002 and will be required to analyze its goodwill and indefinite lived intangible assets for impairment during the first six months of fiscal 2002, and then on at least an annual basis thereafter. The adoption of FAS 142 is not expected to have a material impact on the company's consolidated financial statements. During the year ended December 30, 2001, Knight Ridder did not record any impairment losses related to goodwill and other intangible assets. 15 RESTRUCTURING. During fiscal year 2001, the company recorded significant reserves in connection with a restructuring of its workforce announced in the second quarter of 2001. These reserves include estimates pertaining to employee separation costs and the settlements of contractual obligations resulting from this restructuring. Although the company does not anticipate significant changes, the actual costs may differ from these estimates. PENSION AND POSTRETIREMENT BENEFITS. The company has significant pension and postretirement benefit costs and credits that are developed from actuarial valuations. Inherent in these valuations are key assumptions including discount rates and expected return on plan assets. For an explanation of these assumptions, see "Note 10. Pension and Other Postretirement Benefit Plans" on page 42. The company is required to consider current market conditions, including changes in interest rates, in selecting these assumptions. Changes in the related pension and postretirement benefit costs or credits may occur in the future in addition to changes resulting from fluctuations in the company's related headcount due to changes in the assumptions. SELF-INSURANCE. The company is self-insured for the majority of its group health insurance costs. The company relies on claims experience and the advice of consulting actuaries and administrators in determining an adequate liability for self-insurance claims. ANALYSIS BY SEGMENT The following sections discuss the results of the company's two operating segments, newspaper and online. Online results are included in the "Other revenue" line of total revenue and consist primarily of Web banner, classified and recruitment advertising. Newspaper revenue is derived principally from advertising and newspaper sales. Advertising revenue accounted for about 77.7% of consolidated revenue in 2001. This revenue comes from the three basic categories of advertising - retail, general and classified. Newspaper advertising volume is categorized as either run-of-press (ROP) or preprint. Volume for ROP advertising is measured in terms of either full-run or part-run advertising linage. By using part-run advertising, advertisers can target their messages to selected geographically zoned market segments. Circulation revenue results from the sale of newspapers. Circulation of daily and Sunday newspapers accounted for 17.7% of consolidated revenue in 2001. It is reported at the net wholesale price for newspapers delivered or sold by independent contractors and at the retail price for newspapers delivered or sold by employees and by delivery agents who are paid a fee for delivery of the newspapers. Other revenue comes from commercial job printing, niche and book publications, online services, newsprint waste sales and other miscellaneous sources. 16 SUMMARY OF OPERATIONS A summary of the company's operations, certain share data and other financial information for the past 11 years is provided on pages 11 through 13. Compound growth rates for the past five- and 10-year periods are also included, if applicable. A review of this summary and of the supplemental information on pages 2 through 6 will provide a better understanding of the following discussion and analysis of operating results and of the financial statements as a whole. The supplemental information contains financial data for the company's largest newspapers and information regarding the company's properties, technology and raw materials used in operations. RESULTS OF OPERATIONS: 2001, 2000 and 1999 The company's fiscal year ends on the last Sunday of the calendar year. Results for 2001 are for the 52 weeks ended December 30, results for 2000 are for the 53 weeks ended December 31, and results for 1999 are for the 52 weeks ended December 26. The following tables set forth the results of operations for the periods ended December 30, 2001, December 31, 2000, and December 26, 1999, which are discussed in more detail on pages 18 and 20.
- --------------------------------------------------- ----------- ----------- ----------- ------------------------- % Change (In thousands of dollars, except per share amounts) 2001 2000 1999 01-00 00-99 - --------------------------------------------------- ----------- ----------- ----------- ----------- ----------- Operating Revenue $ 2,900,209 $ 3,211,767 $ 3,033,775 (9.7) 5.9 Operating Income 461,755 668,772 621,422 (31.0) 7.6 Net Income 184,824 314,363 339,939 (41.2) (7.5) Net income includes the following expense (income): Work force reduction 47,100 Severance and relocation costs 10,364 2,787 Losses (gains) on investments 7,099 10,407 (21,580) Gain on sale of building (5,698) ----------- ----------- ----------- Total $ 54,199 $ 15,073 $ (18,763) =========== =========== =========== Diluted earnings per share $ 2.16 $ 3.53 $ 3.49 (38.8) 1.1 Diluted earnings per share includes the following expense (income): Work force reduction 0.55 Severance and relocation costs 0.11 0.03 Losses (gains) on investments 0.08 0.12 (0.22) Gain on sale of building (0.06) ----------- ----------- ----------- Total $ 0.63 $ 0.17 $ (0.19) - --------------------------------------------------- ----------- ----------- ----------- ----------- -----------
17 In 2001, Knight Ridder earned $2.16 per diluted share compared with $3.53 per diluted share in 2000, down $1.37, or 38.8%. Excluding gains and losses on investments and asset sales and work force reduction charges, the company earned $2.79 per diluted share in 2001, down $0.91, or 24.6%, from the $3.70 earned in 2000. On the same basis, the company's earnings per diluted share in 2000 was up $0.40, or 12.1%, from the $3.30 earned in 1999. NEWSPAPER DIVISION OPERATING REVENUE The following table summarizes the results of Operating Revenue, average circulation and related full-run ROP linage statistics for the periods ended December 30, 2001, December 31, 2000, and December 26, 1999.
- ---------------------------------- -------------- ------------------------- ------------ ----------------------- 2000 Change ------------------------- ----------------------- In thousands 2001 53 Weeks 52 Weeks 1999 01-00* 00-99* - ---------------------------------- -------------- ------------ ------------ ------------ ----------- ----------- Operating revenue Advertising Retail $ 1,073,789 $ 1,104,766 $ 1,081,188 $ 1,065,970 (0.7)% 1.4% General 297,033 336,613 331,010 289,894 (10.3)% 14.2% Classified 883,600 1,066,457 1,052,956 997,656 (16.1)% 5.5% -------------- ------------ ------------ ------------ Total 2,254,422 2,507,836 2,465,154 2,353,520 (8.5)% 4.7% -------------- ------------ ------------ ------------ Circulation 512,309 523,856 514,053 525,686 (0.3)% (2.2)% Other 91,443 136,527 135,364 123,173 (32.4)% 9.9% -------------- ------------ ------------ ------------ Total operating revenue $ 2,858,174 $ 3,168,219 $ 3,114,571 $ 3,002,379 (8.2)% 3.7% ============== ============ ============ ============ Average circulation (1) Daily 3,811 3,903 - 3,934 (2.4)% (0.8)% Sunday 5,155 5,300 - 5,376 (2.7)% (1.4)% Advertising linage (1) Full-run Retail 16,959 18,231 - 18,355 (7.0)% (0.7)% General 2,843 3,432 - 2,730 (17.2)% 25.7% Classified 19,364 20,798 - 19,847 (6.9)% 4.8% -------------- ------------ ------------ ------------ Total full-run 39,166 42,461 - 40,932 (7.8)% 3.7% - ---------------------------------- ============== ============ ============ ============ ----------- ----------- * Excluding the 53rd week in 2000 for revenue amounts only (1) Circulation and linage statistics are not presented on a 52-week basis.
Compared with 2000 on a 52-week basis, retail advertising revenue decreased 0.7% due to a 7.0% full-run ROP linage decrease during 2001, partially offset by a ..9% increase in the full-run average rate and from total market coverage (TMC), specialized publications and database marketing products. Akron, San Jose and Philadelphia were responsible for most of the decrease, down 5.9%, 5.8% and 5.4%, respectively. From 1999 to 2000, retail revenue increased 1.4% due to an increase in revenue from TMC, specialized publications and alternative distribution products, offset by a full-run ROP decline of 0.7%. The weak results from 2000 to 2001 and from 1999 to 2000 were due primarily to consolidations and bankruptcies in most major markets. General advertising revenue on a 52-week basis declined 10.3% in 2001 from 2000 due to a 17.2% decrease in full-run ROP, partially offset by a 5.9% increase in the average rate and from TMC and specialized publications products. Contra Costa, San Jose and Philadelphia had the largest impact, with declines of 41.3%, 32.0% and 12.1%, respectively. General advertising saw an 85% fall-off in dot-com advertising, which had yielded about $18 million in 2000, as well as a decline in airline and hotel advertising following the September 11, 2001 terrorist attacks. National auto, finance, pharmaceuticals and computers were only slightly less affected. From 1999 to 2000, general advertising was up 14.2% on a full-run ROP linage increase of 25.7% due to growth of e-commerce and Internet-related advertising and strength in telecommunications, financial and travel advertising. 18 Classified advertising revenue was down 16.1% in 2001 from 2000 due to a full-run ROP linage decrease of 6.9% and a 12.5% decrease in rate largely due to a decline in the higher rated recruitment revenue, partially offset by increases in revenue from TMC and specialized publications products. A decline in classified recruitment in the largest markets was responsible, with San Jose down 55.0% and Philadelphia down 34.9%. Classified real estate revenue increased 23.4% overall, slightly offsetting the declines in recruitment. From 1999 to 2000, classified advertising was up 5.5% on a full-run ROP linage increase of 4.8%. This increase reflected a relatively strong first half of 2000, up 7.8%, with recruitment providing the majority of the growth. Circulation revenue decreased 0.3% from 2001 to 2000 on a 2.4% decrease in daily circulation and a 2.7% decrease in Sunday circulation. From 1999 to 2000, circulation revenue decreased 2.2% on a 0.8% decrease in daily circulation and a 1.4% decrease in Sunday circulation. The company expects circulation to remain essentially flat in 2002. Other revenue declined 32.4% in 2001 due to a decline in earnings from Detroit and the absence of Professional Exchange, MediaStream and Cable Connection, which were sold in late 2000. From 1999 to 2000, other revenue increased $10.6 million, or 9.9%, due to an increase in commercial print revenue and newsprint waste sales. OPERATING COSTS The following table summarizes operating costs for the periods ended December 30, 2001, December 31, 2000, and December 26, 1999.
- -------------------------------------- ------------ ------------------------- ------------ ------------------- 2000 Change ------------------------- ------------------- In thousands 2001 53 Weeks 52 Weeks 1999 01-00* 00-99* - -------------------------------------- ------------ ------------ ------------ ------------ --------- --------- Operating costs Labor and employee benefits $ 1,134,584 $ 1,167,216 $ 1,133,601 $ 1,099,932 0.1% 3.1% Newsprint, ink and supplements 451,547 473,724 465,534 449,577 (3.0)% 3.5% Other operating costs 575,914 605,447 598,339 593,208 (3.7)% 0.9% Depreciation and amortization 176,029 179,278 179,203 176,340 (1.8)% 1.6% ------------ ------------ ------------ ------------ Total operating costs $ 2,338,074 $ 2,425,665 $ 2,376,677 $ 2,319,057 (1.6)% 2.5% - -------------------------------------- ============ ============ ============ ============ --------- --------- * Excluding the 53rd week in 2000
On a 52-week basis, labor and employee benefits increased 0.1% during 2001 from 2000, primarily as a result of a restructuring charge related to a work force reduction. Due to the slowing economy and the resulting decline in advertising revenue and increases in newsprint expense, the company announced a work force reduction program in the second quarter of 2001 that affected the majority of its newspapers. The work force reduction plan eliminated approximately 1,600 positions through early retirement, voluntary and involuntary buyouts and attrition. As a result of this plan, the company incurred charges of approximately $78.5 million related to employee severance costs and benefits during 2001. Excluding this restructuring charge, labor and employee benefits decreased 6.8% as a result of a 7.2% decrease in full-time equivalents (FTEs) and an 11.7% decrease in bonus and incentive costs, partially offset by a 1.4% increase in the average wage rate per employee. The increase in labor and employee benefits in 2000 from 1999 resulted from a 4.5% increase in the average wage per employee, an increase of 0.5% in the number of FTEs and an increase in benefit costs of 12.3%, partially offset by bonus and incentive costs, which were down 2.5%. Newsprint, ink and supplements decreased 3.0% in 2001 from 2000 due to a 13.2% decline in consumption offset by a 10.4% increase in the average cost per ton. The increase in the cost of newsprint, ink and supplements from 1999 to 2000 was due primarily to a 2.0% increase in consumption and a 3.3% increase in the average cost per ton. Other operating costs were down 3.7% in 2001 compared with 2000, due primarily to a decrease in circulation promotion, advertising and promotion expense, contribution expense and travel expense. From 1999 to 2000, other operating costs remained relatively constant, increasing only 0.9%. Depreciation and amortization decreased 1.8% in 2001 from the 2000 due to a $3.9 million write-down of presses offset by a $1.6 million adjustment recorded on the sale of a building, both occurring in 2000. From 1999 to 2000, depreciation and amortization expense increased 1.6% due to a slightly larger asset base. The 19 company expects to implement FAS 142, "Goodwill and Other Intangible Assets" in the first quarter of fiscal year 2002. Application of the nonamortization provisions of the Statement is expected to result in an increase in net income of approximately $55 million ($.65 per diluted share) per year beginning in fiscal year 2002. ONLINE DIVISION ONLINE ACTIVITIES During the first quarter of 2000, the company consolidated all its Internet operations under a wholly-owned subsidiary, Knight Ridder Digital (KRD). Previously, Knight Ridder's Internet activities were reported and managed as a part of the company's newspaper operations. KRD controls all of Knight Ridder's online efforts, including the Web sites previously operated by the newspapers. KRD operates and manages the Real Cities Network, which consists of all Knight Ridder Web sites and those of several other media affiliates. The company expects significant growth from these operations in 2002. OPERATING REVENUE AND COSTS FOR THE ONLINE DIVISION The following table summarizes operating revenue and costs for the periods ended December 30, 2001, December 31, 2000, and December 26, 1999.
- ----------------------------------------- ----------- ----------------------- -------------------- Change ----------------------- -------------------- In thousands 2001 2000 1999 01-00 00-99 - ----------------------------------------- ----------- ----------- ----------- --------- ---------- Operating revenue $ 42,035 $ 43,548 $ 31,396 (3.5)% 38.7% Operating costs Labor and employee benefits $ 31,859 $ 38,993 $ 27,279 (18.3)% 42.9% Other operating costs 38,877 47,956 26,339 (18.9)% 82.1% Depreciation and amortization 2,801 2,620 1,819 6.9% 44.0% ----------- ----------- ----------- Total operating costs $ 73,537 $ 89,569 $ 55,437 (17.9)% 61.6% =========== =========== =========== Operating loss $ (31,502) $ (46,021) $ (24,041) 31.5% (91.4)% Average monthly page views 176,749 153,541 104,246 15.1% 47.3% - ----------------------------------------- ----------- ----------- ----------- --------- ----------
Revenue for the online division was down 3.5% primarily due to a 23.4% decrease in banners and sponsorship ads, offset by an increase in revenue from CareerBuilder and Classified Ventures and from an increase in upsell revenue. From 1999 to 2000, revenue grew 38.7% due to the expansion of the Real Cities network into six new cities and the purchase, along with Tribune Co., of CareerBuilder. The decrease in the cost of labor and employee benefits in 2001 from 2000 was due primarily to reductions in the number of full-time employees. Other operating costs decreased primarily as a result of lower 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. From 1999 to 2000, labor and employee benefits increased due primarily to increases in 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. NON-OPERATING ITEMS Net interest expense decreased $14.9 million, or 13.2%, in 2001 from 2000 as a result of a lower weighted-average interest rate. For 2000, net interest expense increased $23.1 million, or 25.7% from 1999, due to higher debt levels. The average debt balance increased $103.8 million from 2000 to 2001, and increased $152.0 million from 1999 to 2000. 20 From 2000 to 2001, equity in losses of unconsolidated companies and joint ventures increased $7.6 million due to a full year of losses from Career Holdings, Inc. (acquired in the third quarter of 2000), offset slightly by an increase in earnings from newsprint paper mills. From 1999 to 2000, equity in earnings of unconsolidated companies decreased $21.1 million due to losses from Career Holdings, Inc., and a decrease in earnings from investments in the Seattle Times Company and newsprint mills. The "Other, net" line within other income (expense) on the consolidated statement of income for the fiscal years ended 2001, 2000, and 1999 is summarized in the table below (in millions): - ------------------------------------------------------------------------------- 2001 2000 1999 - ------------------------------------------------------------------------------- Realized gain on sale of Cadabra, Inc. $ -- $ 57.0 $ -- Realized gain on sale of Prio, Inc. 107.0 Realized losses on sales of marketable securities (11.9) (14.0) Realized gains on sales of marketable securities 73.0 Other-than-temporary impairment of GoTo.com, InfoSpace.com and Webvan (156.0) Other-than-temporary impairment of cost-basis internet-related investments (16.8) (16.0) (35.0) Realized gain on other asset sales 15.3 Other (2.0) (2.6) (2.2) -------------------------- $(30.7) $ (9.3) $ 35.8 - ------------------------------------------------------------------------------- During the first quarter 1999, the company completed the sale of Sportsline USA, Inc. stock resulting in a pre-tax gain of $3.8 million. During the second quarter 1999, the company completed the sale of AT&T Corporation and Zip2 Corp. stock resulting in a pre-tax gain of $44.3 million. Offsetting these gains, the company recognized other-than-temporary declines in a number of cost basis investments resulting in a pre-tax loss of $35.0 million. During the fourth quarter 1999, the company completed the sale of additional AT&T Corporation shares resulting in a pre-tax gain of $24.9 million. During the first quarter of 2000, the company completed the sale of two Internet-related investments that resulted in gains. The first involved the exchange of shares of Cadabra, Inc. for shares of GoTo.com, Inc., resulting in a pre-tax gain of approximately $57 million. The second transaction involved the exchange of shares in Prio, Inc. for shares of InfoSpace.com resulting in a pre-tax gain of approximately $107 million. Subsequently, during 2000, the company realized a pre-tax loss of $14 million on the sale of a portion of the GoTo.com shares. Also, in the fourth quarter of 2000, the company assessed the market value of its remaining GoTo.com, Infospace.com and Webvan and concluded that, due to weak economic conditions, these investments had experienced other-than-temporary declines. As a result, the company recorded pre-tax losses on the declines in market values of approximately $156 million for the GoTo.com and InfoSpace.com investments and $16.0 million for other Internet-related investments during the fourth quarter of 2000. Additionally, the company recognized gains on other asset sales of $15.3 million primarily related to the sales of a building in Philadelphia, Cable Connections and Media Stream. The company sold holdings in Infospace.com, AT&T, Webvan and other smaller Internet-related investments in the first quarter of 2001, realizing an aggregate pre-tax loss of approximately $11.9 million. Additionally, the company recorded other-than-temporary declines in a number of other cost basis Internet-related investments of $16.8 million in 2001. 21 ACQUISITIONS AND DISPOSITIONS In August 2000, Career Holdings, Inc., a company jointly controlled by Knight Ridder Digital and Tribune Co., acquired CareerBuilder, Inc., and CareerPath.com, Inc., respectively. In the CareerBuilder acquisition, a wholly-owned subsidiary of Career Holdings made a tender offer for all of CareerBuilder's common stock at a price of $8 per share in cash. The tender offer, which began on July 25, 2000, and expired on August 21, 2000, was followed by the merger of the subsidiary into CareerBuilder on August 24, 2000. The CareerPath.com acquisition was accomplished by the merger of a wholly-owned subsidiary of Career Holdings into CareerPath.com on August 31, 2000. The total purchase price for the CareerBuilder and CareerPath.com acquisitions was approximately $250 million. The company, through Knight Ridder Digital, currently owns a 48.1% interest in Career Holdings, Inc. In November 2001, Career Holdings, Inc. acquired Headhunter.net, an online recruitment and career development business, for $9.25 per share in cash, or approximately $217 million. The company's share was $108.5 million to fund this acquisition. Headhunter.net now operates as a wholly owned subsidiary of Career Holdings, Inc. On August 22, 2000, the company sold Cable Connection for approximately $8.5 million in cash, less an $86,000 working capital adjustment and recorded a $5.8 million pre-tax gain on the sale. Professional Exchange was sold on September 25, 2000 for $5 million cash and the company recorded a $1.5 million loss. On January 1, 2001, the company sold MediaStream for $3.6 million, consisting of $3.35 million in cash and a $250,000 note receivable. The company recorded a $1.7 million pre-tax gain on the sale. LIQUIDITY AND 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's financial position remained strong throughout 2001, with cash and cash equivalents and short-term investments of $37.3 million at December 30, 2001, compared with $41.7 million at December 31, 2000. During 2001, cash flows from operating activities were used to fund treasury stock purchases of $171.8 million. In addition, the company paid dividends of $84.2 million during 2001. Cash provided by operating activities was $481.5 million in 2001, compared with $417.2 million in 2000. The increase was due partially to a reduction of the funding required for a health and welfare trust, an increase in distributions relative to earnings from equity investments and the timing of payments on certain current assets and liabilities. 22 At December 30, 2001, working capital was $55.5 million, compared with $67.7 million at December 31, 2000. The decrease in working capital from 2000 to 2001 was due primarily to a decline in accounts receivable of $24.7 million and inventories of $9.5 million and an increase in accrued income taxes of $13.9 million, partially offset by a decline in short-term borrowings of $39.7 million. Cash required for investing activities was primarily for the purchase of $94.6 million of property and equipment and $135.8 million for acquisition of businesses, including Headhunter.net, Inc., in November 2001, partially offset by proceeds of $21.0 million from the sale of investments. 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 flow with a combination of short- and long-term borrowings. Average outstanding commercial paper during the year was $639.1 million, with an average effective interest rate of 4.6%. At December 30, 2001, the company's revolving credit agreement, which backs up the commercial paper outstanding, had a remaining availability of $317.0 million. The revolving credit facility matures in 2006. The company uses derivatives to hedge certain exposures, including interest rates and newsprint. The company does not trade or engage in hedges for investment purposes. At year end, the company's short- and long-term debt was rated by the three major credit-rating agencies as provided below, which did not reflect any change from the prior year: - --------------------------------------- ----------------- ---------------- Short-Term Long-Term Debt Debt - --------------------------------------- ----------------- ---------------- Moody's P1 A2 Standard & Poor's A-1 A Fitch F1 A - --------------------------------------- ----------------- ---------------- The company believes it has adequate access to the capital debt markets to meet its short- and long-term capital needs. Such access includes the company's $895.0 million revolving credit facility and term loan agreement, which support its commercial paper, and its $200 million extendable commercial notes. The company's future ability to borrow funds and the interest rates on those funds could be adversely impacted by a decrease in its debt ratings and by negative conditions in the capital debt markets. During 2001, the company repurchased 3.0 million common shares at a total cost of $171.8 million and an average cost of $57.39 per share. At year end, authorization remained to purchase 5.5 million shares. The company's operations have historically generated strong positive cash flow, which, along with the company's commercial paper program, revolving credit lines and ability to issue public debt, has provided adequate liquidity to meet the company's short- and long-term cash requirements, including requirements for working capital and capital expenditures. The company's capital spending program includes normal replacements, productivity improvements, capacity increases, building construction and expansion and printing press equipment. Over the past three years, capital expenditures have totaled $295.1 million for additions and improvements to properties. Additions to property, plant and equipment decreased by $13.4 million to $94.6 million in 2001 from $108.0 million in 2000, due primarily to lower expenditures for year 2001 capital projects. Expenditures in 2001 included $7.1 million for a mailroom system in St. Paul and $7.4 million for the development of Knight Ridder Digital's new technology platform. In 2001, $5.9 million was spent to complete the $109.2 million Miami press expansion, and the $11.8 million Lexington mailroom and insertion facility project is scheduled to be completed in 2002. In 2001, $6.9 million was spent for the Lexington project. During 2001, $4.7 million was spent on a $27.7 million press project at The Wichita Eagle that is scheduled for completion in 2003. The press replacement projects are expected to significantly improve reliability, speed, print quality and page and color capacity, and reduce waste. 23 The following table summarizes the company's contractual obligations and commercial commitments as of December 31, 2001:
- --------------------------------------------------------------------------------------------------------------- Payments Due By Period - --------------------------------------------------------------------------------------------------------------- Contractual Obligations Total Less Than 1 1-3 Years 4-5 Years After 5 Years Year - --------------------------------------------------------------------------------------------------------------- Long-Term Debt 1,086,806 850 99,604 986,352 - --------------------------------------------------------------------------------------------------------------- Commercial Paper (a) 527,148 39,849 487,299 - --------------------------------------------------------------------------------------------------------------- Operating Leases 102,548 22,206 47,051 9,128 24,163 - --------------------------------------------------------------------------------------------------------------- Total Contractual Cash Obligations 1,716,502 62,905 146,655 496,427 1,010,515 - --------------------------------------------------------------------------------------------------------------- (a) Commercial paper is supported by $895 million revolving credit facility which matures on June 15, 2006.
- --------------------------------------------------------------------------------------------------------------- Payments Due By Period - --------------------------------------------------------------------------------------------------------------- Other Commercial Commitments Total Less Than 1 1-3 Years 4-5 Years After 5 Years Year - --------------------------------------------------------------------------------------------------------------- Standby Letters of Credit (b) 50,000 50,000 - --------------------------------------------------------------------------------------------------------------- Guarantees (c) 17,227 17,227 - --------------------------------------------------------------------------------------------------------------- Total Commercial Commitments 67,227 17,227 50,000 - --------------------------------------------------------------------------------------------------------------- (b) In connection with the company's insurance program, letters of credit are required to support certain projected worker compensation obligations. (c) The company guarantees 13.5% of the debt of Ponderay Newsprint Company, a newsprint mill investment.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk Borrowings - By balancing the mix of variable- versus fixed-rate borrowings, the company manages the interest-rate risk of its debt. Note 3 to the Consolidated Financial Statements includes information related to the contractual interest rates and fair value of the individual borrowings. In 2001, the company entered into interest rate swap agreements for interest rate risk exposure management purposes. The company accounts for its interest rate swap agreements as fair value hedges. The fair value of the swaps at December 30, 2001 was $9.6 million. There was no ineffectiveness associated with the swaps during fiscal year 2001. The company does not trade or engage in hedging for investment purposes. A hypothetical 10% increase in interest rates would increase interest expense associated with both fixed- and variable-rate borrowings by approximately $8.2 million. This hypothetical interest rate change would also decrease the fair value of the fixed debt by $95.2 million. Newsprint - The company, excluding Detroit, consumed approximately 661,000 metric tons of newsprint in 2001. This represents 15.4% of the company's 2001 total operating expenses. Under the caption "Newsprint" on page 2, the company has included information on its suppliers, the long-term purchase agreements used to manage the related risk of price increases, and natural hedges the company has in place through its investment in newsprint mills. Collective Bargaining Agreements - About 37% of the company's more than 19,000 full-time equivalent employees are represented by approximately 70 local unions and work under multiyear collective bargaining agreements. These agreements are typically renegotiated in the years in which they expire. EFFECT OF CHANGING PRICES The Consumer Price Index, a widely used measure of the impact of changing prices, has increased only moderately in recent years, up between 2% and 3% each year since 1991. Historically, when inflation was at higher levels, the impact on the company's operations was not significant. The principal effect of inflation on the company's operating results is to increase costs. Subject to normal competitive conditions, the company generally has demonstrated the ability to raise sales prices to offset these cost increases. 24 Item 8. Financial Statements and Supplementary Data This amendment as of December 16, 2002, reflects the following changes: Note 5 was expanded to include information for Assets, Unusual Items and Capital Expenditures by Business Segment; Note 9 was expanded to include enhanced disclosure on dispositions; and Note 14 was added to include expanded disclosure of the components of the "Other, net" line item in the Consolidated Statement of Net Income. Selected quarterly financial data is presented in Note 8 to the Consolidated Financial Statements. Schedule II - Valuations and Qualifying Accounts is included in Item 14 of this report and incorporated herein by reference. Consolidated Balance Sheet (In thousands, except share data)
- ---------------------------------------------------------------------------------------- ------------------- ------------------ December 30, December 31, 2001 2000 - ---------------------------------------------------------------------------------------- ------------------- ------------------ ASSETS Current Assets Cash, including short-term cash investments of $1 in 2001 and $7,001 in 2000 $ 37,287 $ 41,661 Accounts receivable, net of allowances of $23,811 in 2001 and $20,238 in 2000 391,788 416,498 Inventories 43,240 52,786 Prepaids 35,464 30,767 Other current assets 27,792 34,382 - ---------------------------------------------------------------------------------------- ------------------- ------------------ Total Current Assets 535,571 576,094 - ---------------------------------------------------------------------------------------- ------------------- ------------------ Investments and Other Assets Equity in unconsolidated companies and joint ventures 393,777 304,486 Other 215,325 202,951 - ---------------------------------------------------------------------------------------- ------------------- ------------------ Total Investments and Other Assets 609,102 507,437 - ---------------------------------------------------------------------------------------- ------------------- ------------------ Property, Plant and Equipment Land and improvements 99,605 96,925 Buildings and improvements 492,576 460,770 Equipment 1,301,826 1,265,866 Construction and equipment installations in progress 43,772 57,694 - ---------------------------------------------------------------------------------------- ------------------- ------------------ 1,937,779 1,881,255 Less accumulated depreciation (922,453) (841,812) - ---------------------------------------------------------------------------------------- ------------------- ------------------ Net Property, Plant and Equipment 1,015,326 1,039,443 - ---------------------------------------------------------------------------------------- ------------------- ------------------ Goodwill and Other Identified Intangible Assets Less accumulated amortization of $464,091 in 2001 and $396,307 in 2000 2,053,377 2,120,552 - ---------------------------------------------------------------------------------------- ------------------- ------------------ Total $ 4,213,376 $ 4,243,526 ======================================================================================== =================== ==================
See "Notes to Consolidated Financial Statements." 25
- ---------------------------------------------------------------------------------------- ------------------- ------------------ December 30, December 31, 2001 2000 - ---------------------------------------------------------------------------------------- ------------------- ------------------ LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable $ 110,333 $ 121,300 Accrued expenses and other liabilities 112,946 101,660 Accrued compensation and amounts withheld from employees 107,842 114,810 Federal and state income taxes 30,844 16,928 Deferred revenue 77,368 73,300 Short-term borrowings and current portion of long-term debt 40,699 80,362 - ---------------------------------------------------------------------------------------- ------------------- ------------------ Total Current Liabilities 480,032 508,360 - ---------------------------------------------------------------------------------------- ------------------- ------------------ Noncurrent Liabilities Long-term debt 1,573,255 1,591,910 Deferred federal and state income taxes 255,266 269,702 Postretirement benefits other than pensions 136,134 137,791 Employment benefits and other noncurrent liabilities 207,081 191,847 - ---------------------------------------------------------------------------------------- ------------------- ------------------ Total Noncurrent Liabilities 2,171,736 2,191,250 - ---------------------------------------------------------------------------------------- ------------------- ------------------ Minority Interests in Consolidated Subsidiaries 1,320 2,446 Commitments and Contingencies (Note 11) Shareholders' Equity Preferred stock, $1.00 par value; shares authorized - 20,000,000; 1,111 shares issued - 0 in 2001 and 1,110,500 in 2000 Common stock, $.02 1/12 par value; shares authorized - 250,000,000; 1,750 1,542 shares issued - 84,012,749 in 2001 and 74,036,046 in 2000 Additional capital 984,830 919,582 Retained earnings 575,649 622,801 Accumulated other comprehensive loss (1,301) Treasury stock, at cost; 34,757 shares in 2001 and 41,009 shares in 2000 (1,941) (2,265) - ---------------------------------------------------------------------------------------- ------------------- ------------------ Total Shareholders' Equity 1,560,288 1,541,470 - ---------------------------------------------------------------------------------------- ------------------- ------------------ Total $ 4,213,376 $ 4,243,526 ======================================================================================== =================== ==================
See "Notes to Consolidated Financial Statements." 26 CONSOLIDATED STATEMENT OF INCOME (In thousands, except per share data)
- ----------------------------------------------------------------- ----------------- ---------------- ----------------- Year Ended December 30, December 31, December 26, 2001 2000 1999 - ----------------------------------------------------------------- ----------------- ---------------- ----------------- Operating Revenue Advertising Retail $ 1,073,789 $ 1,104,766 $ 1,065,970 General 297,033 336,613 289,894 Classified 883,600 1,066,457 997,656 - ----------------------------------------------------------------- ----------------- ---------------- ----------------- Total 2,254,422 2,507,836 2,353,520 Circulation 512,309 523,856 525,686 Other 133,478 180,075 154,569 - ----------------------------------------------------------------- ----------------- ---------------- ----------------- Total Operating Revenue 2,900,209 3,211,767 3,033,775 ================================================================= ================= ================ ================= Operating Costs Labor and employee benefits 1,177,554 1,220,221 1,152,432 Newsprint, ink and supplements 440,782 460,463 437,054 Other operating costs 635,545 674,714 639,924 Depreciation and amortization 184,573 187,597 182,943 - ----------------------------------------------------------------- ----------------- ---------------- ----------------- Total Operating Costs 2,438,454 2,542,995 2,412,353 - ----------------------------------------------------------------- ----------------- ---------------- ----------------- Operating Income 461,755 668,772 621,422 - ----------------------------------------------------------------- ----------------- ---------------- ----------------- Other Income (Expense) Interest expense (100,833) (116,652) (97,444) Interest expense capitalized 1,961 2,230 5,197 Interest income 938 1,553 2,425 Equity in earnings (losses) of unconsolidated companies and joint ventures (16,095) (8,506) 12,571 Minority interests in losses of consolidated subsidiaries (9,675) (12,814) (11,984) Other, net (30,652) (9,293) 35,828 - ----------------------------------------------------------------- ----------------- ---------------- ----------------- Total (154,356) (143,482) (53,407) - ----------------------------------------------------------------- ----------------- ---------------- ----------------- Income before income taxes 307,399 525,290 568,015 Income taxes 122,575 210,927 228,076 - ----------------------------------------------------------------- ----------------- ---------------- ----------------- Net Income $ 184,824 $ 314,363 $ 339,939 ================================================================= ================= ================ ================= Earnings Per Share Basic $2.33 $4.02 $4.07 Diluted $2.16 $3.53 $3.49 Average Shares Outstanding (000s) Basic 76,074 75,370 80,025 Diluted 85,694 89,105 97,460 - ----------------------------------------------------------------- ----------------- ---------------- -----------------
See "Notes to Consolidated Financial Statements." 27 CONSOLIDATED STATEMENT OF CASH FLOWS (In thousands of dollars)
- ------------------------------------------------------------------------- ---------------- --------------- ---------------- Year Ended December 30, December 31, December 26, 2001 2000 1999 - ------------------------------------------------------------------------- ---------------- --------------- ---------------- Cash Provided by Operating Activities Net income $ 184,824 $ 314,363 $ 339,939 Noncash items deducted from (included in) income: Depreciation 111,717 111,124 101,444 Amortization of goodwill 67,784 68,567 67,503 Amortization of other assets 5,072 7,906 13,996 Losses (gains) on sales, exchange and write-down of investments 30,191 19,401 (37,655) Benefit for deferred taxes (8,414) (8,759) (1,895) Provision for bad debts 31,958 27,070 24,440 Distributions in excess of earnings from investees 32,519 1,505 2,506 Minority interests in earnings of consolidated subsidiaries 9,675 12,814 11,984 Other items, net 1,929 15,200 7,913 Change in certain assets and liabilities: Accounts receivable (7,248) (20,767) (64,221) Inventories 9,126 (13,548) 19,871 Other assets (10,353) (97,390) (22,452) Accounts payable (11,189) (21,160) (22,098) Federal and state income taxes 15,969 3,976 16,176 Other liabilities 17,983 (3,062) 48,253 - ------------------------------------------------------------------------- ---------------- --------------- ---------------- Net Cash Provided by Operating Activities 481,543 417,240 505,704 - ------------------------------------------------------------------------- ---------------- --------------- ---------------- Cash Required for Investing Activities Proceeds from sales of investments 21,038 40,058 129,810 Purchases of investments (5,000) (10,000) Proceeds from sale of building 15,694 Acquisition of businesses (135,827) (194,476) (38,403) Other investments (38,227) Additions to property and equipment (94,587) (107,956) (92,563) Other items, net 311 23,685 33,205 - ------------------------------------------------------------------------- ---------------- --------------- ---------------- Net Cash Required for Investing Activities (209,065) (227,995) (16,178) - ------------------------------------------------------------------------- ---------------- --------------- ---------------- Cash Required for Financing Activities Net increase (decrease) in debt, net of unamortized discount (316,675) 367,557 (483,737) Proceeds from issuance of long-term debt 297,107 296,446 Repayment of long-term debt (40,000) (40,000) (40,000) Payment of cash dividends (84,198) (81,002) (85,526) Issuance of common stock to employees and directors 76,742 29,867 50,335 Purchase of treasury stock (171,795) (464,835) (210,141) Other items, net (38,033) 6,745 (9,655) - ------------------------------------------------------------------------- ---------------- --------------- ---------------- Net Cash Required for Financing Activities (276,852) (181,668) (482,278) - ------------------------------------------------------------------------- ---------------- --------------- ---------------- Net Increase (Decrease) in Cash (4,374) 7,577 7,248 Cash and short-term cash investments at beginning of year 41,661 34,084 26,836 - ------------------------------------------------------------------------- ---------------- --------------- ---------------- Cash and short-term cash investments at end of year $ 37,287 $ 41,661 $ 34,084 ========================================================================= ================ =============== ================ Supplemental Cash Flow Information Noncash investing activities Securities received on the sale of investees $ - $ 195,624 $ - Write-down of Internet-related investments (16,800) (167,827) (35,000) Unrealized gains (net of tax) on investments available for sale 1,301 (43,385) 23,346 Noncash financing activities Conversion of preferred stock held by Disney to common stock Preferred stock (1,111) (263) (381) Additional capital (416,530) (98,872) (142,842) Issuance of common stock upon conversion of preferred stock Common stock 231 55 79 Additional capital 417,410 99,080 143,144 - ------------------------------------------------------------------------- ---------------- --------------- ----------------
See "Notes to Consolidated Financial Statements." 28 Consolidated Statement of Shareholders' Equity (In thousands of dollars, except share data)
- ----------------------------------------------------------------- ----------------- ---------------- ----------------- Preferred Common Treasury Shares Shares Shares - ----------------------------------------------------------------- ----------------- ---------------- ----------------- Balance at December 27, 1998 1,754,930 78,374,195 (46,667) Issuance of common shares under stock option plan 840,375 Issuance of common shares under stock purchase plan 336,001 Conversion of preferred shares (380,830) 3,808,300 Issuance of treasury shares to nonemployee directors 4,157 Purchase of treasury shares (3,704,378) Retirement of treasury shares (3,704,378) 3,704,378 Tax benefits arising from employee stock plans Comprehensive income: Net income Change in unrealized gains on securities available for sale, net of tax of $15,564 Comprehensive income Cash dividends declared - ----------------------------------------------------------------- ----------------- ---------------- ----------------- Balance at December 26, 1999 1,374,100 79,654,493 (42,510) Issuance of common shares under stock option plan 447,453 Issuance of common shares under stock purchase plan 344,800 Conversion of preferred shares (263,600) 2,636,000 Issuance of treasury shares to nonemployee directors 3,696 Purchase of treasury shares (9,048,895) Retirement of treasury shares (9,046,700) 9,046,700 Tax benefits arising from employee stock plans Comprehensive income: Net income Change in unrealized losses on securities available for sale, net of tax of $28,923 Comprehensive income Cash dividends declared - ----------------------------------------------------------------- ----------------- ---------------- ----------------- Balance at December 31, 2000 1,110,500 74,036,046 (41,009) Issuance of common shares under stock option plan 1,603,450 Issuance of common shares under stock purchase plan 264,015 Conversion of preferred shares (1,110,500) 11,105,000 Issuance of treasury shares to nonemployee directors 4,057 Purchase of treasury shares (2,993,567) Retirement of treasury shares (2,995,762) 2,995,762 Tax benefits arising from employee stock plans Comprehensive income: Net income Change in unrealized losses on securities available for sale, net of tax of $868 Comprehensive income Cash dividends declared - ----------------------------------------------------------------- ----------------- ---------------- ----------------- Balance at December 30, 2001 - 84,012,749 (34,757) ================================================================= ================= ================ =================
(Table Continued)
- ----------------------------------------------------------------- -------------- -------------- -------------- -------------- Preferred Common Additional Retained Stock Stock Capital Earnings - ----------------------------------------------------------------- -------------- -------------- -------------- -------------- Balance at December 27, 1998 $ 1,755 $ 1,633 $ 908,078 $ 735,132 Issuance of common shares under stock option plan 17 25,893 Issuance of common shares under stock purchase plan 7 14,996 Conversion of preferred shares (381) 79 302 Issuance of treasury shares to nonemployee directors Purchase of treasury shares Retirement of treasury shares (77) (19,490) (190,574) Tax benefits arising from employee stock plans 9,190 Comprehensive income: Net income 339,939 Change in unrealized gains on securities available for sale, net of tax of $15,564 Comprehensive income Cash dividends declared (85,526) - ----------------------------------------------------------------- -------------- -------------- -------------- -------------- Balance at December 26, 1999 $ 1,374 $ 1,659 $ 938,969 $ 798,971 Issuance of common shares under stock option plan 9 14,672 Issuance of common shares under stock purchase plan 7 14,991 Conversion of preferred shares (263) 55 208 Issuance of treasury shares to nonemployee directors (18) Purchase of treasury shares Retirement of treasury shares (188) (53,345) (409,531) Tax benefits arising from employee stock plans 4,105 Comprehensive income: Net income 314,363 Change in unrealized losses on securities available for sale, net of tax of $28,923 Comprehensive income Cash dividends declared (81,002) - ----------------------------------------------------------------- -------------- -------------- -------------- -------------- Balance at December 31, 2000 $ 1,111 $ 1,542 $ 919,582 $ 622,801 Issuance of common shares under stock option plan 33 63,294 Issuance of common shares under stock purchase plan 6 13,179 Conversion of preferred shares (1,111) 231 880 Issuance of treasury shares to nonemployee directors 4 Purchase of treasury shares Retirement of treasury shares (62) (24,053) (147,778) Tax benefits arising from employee stock plans 11,944 Comprehensive income: Net income 184,824 Change in unrealized losses on securities available for sale, net of tax of $868 Comprehensive income Cash dividends declared (84,198) - ----------------------------------------------------------------- -------------- -------------- -------------- -------------- Balance at December 30, 2001 $ - $ 1,750 $ 984,830 $ 575,649 ================================================================= ============== ============== ============== ==============
(Table Continued)
- ----------------------------------------------------------------- ------------------ ---------------- ---------------- Accumulated Other Comprehensive Treasury Income (Loss) Stock Total - ----------------------------------------------------------------- ------------------ ---------------- ---------------- Balance at December 27, 1998 $ 18,738 $ (2,605) $ 1,662,731 Issuance of common shares under stock option plan 25,910 Issuance of common shares under stock purchase plan 15,003 Conversion of preferred shares Issuance of treasury shares to nonemployee directors 232 232 Purchase of treasury shares (210,141) (210,141) Retirement of treasury shares 210,141 Tax benefits arising from employee stock plans 9,190 Comprehensive income: Net income 339,939 Change in unrealized gains on securities available for sale, net of tax of $15,564 23,346 23,346 ----------- Comprehensive income 363,285 ----------- Cash dividends declared (85,526) - ----------------------------------------------------------------- ------------------ ---------------- ---------------- Balance at December 26, 1999 $ 42,084 $ (2,373) $ 1,780,684 Issuance of common shares under stock option plan 14,681 Issuance of common shares under stock purchase plan 14,998 Conversion of preferred shares Issuance of treasury shares to nonemployee directors 206 188 Purchase of treasury shares (464,835) (464,835) Retirement of treasury shares 464,737 1,673 Tax benefits arising from employee stock plans 4,105 Comprehensive income: Net income 314,363 Change in unrealized losses on securities available for sale, net of tax of $28,923 (43,385) (43,385) ------------ Comprehensive income 270,978 ------------ Cash dividends declared (81,002) - ----------------------------------------------------------------- ------------------ ---------------- ---------------- Balance at December 31, 2000 $ (1,301) $ (2,265) $ 1,541,470 Issuance of common shares under stock option plan 63,327 Issuance of common shares under stock purchase plan 13,185 Conversion of preferred shares Issuance of treasury shares to nonemployee directors 226 230 Purchase of treasury shares (171,795) (171,795) Retirement of treasury shares 171,893 Tax benefits arising from employee stock plans 11,944 Comprehensive income: Net income 184,824 Change in unrealized losses on securities available for sale, net of tax of $868 1,301 1,301 ----------- Comprehensive income 186,125 ----------- Cash dividends declared (84,198) - ----------------------------------------------------------------- ------------------ ---------------- ---------------- Balance at December 30, 2001 $ - $ (1,941) $ 1,560,288 ================================================================= ================== ================ ================
See "Notes to Consolidated Financial Statements." 29 Notes to Consolidated Financial Statements Note 1. Summary of Significant Accounting Policies The company reports on a fiscal year ending on the last Sunday in the calendar year. Results are for the 52 weeks ended December 30, 2001, the 53 weeks ended December 31, 2000, and the 52 weeks ended December 26, 1999, respectively. The basis of consolidation is to include in the consolidated financial statements all the accounts of Knight Ridder and its more-than-50%-owned subsidiaries. All significant intercompany transactions and account balances have been eliminated. Revenue recognition varies by source. Advertising revenue is recognized when ads are published. Circulation revenue is recognized when the newspaper is delivered to the customer. Other revenue is recognized when the related product or service has been delivered. The company owns a 50% equity interest in Detroit Newspapers (DN), a joint operating agency between Detroit Free Press, Inc., a wholly-owned subsidiary of Knight Ridder, and The Detroit News, Inc., a wholly owned subsidiary of Gannett Co., Inc. In 1989, business operations of the Detroit Free Press and The Detroit News were transferred to DN under a joint operating agreement that expires in 2089. The company shows its share of revenue and expenses as a net amount in the "Other revenue" line. Investments in entities in which Knight Ridder has an equity interest of at least 20% but not more than 50% are accounted for under the equity method. The company records its share of earnings as income and increases the investment by the equivalent amount. Dividends and losses are recorded as a reduction in the investment. The investment caption "Equity in unconsolidated companies and joint ventures" in the Consolidated Balance Sheet represents the company's equity in the net assets of DN; Seattle Times Company and subsidiaries; Newspapers First, a company responsible for the sales and servicing of general, retail and classified advertising accounts for a group of newspapers; SP Newsprint Co. and Ponderay Newsprint Company, two newsprint mill partnerships; InfiNet Company, a joint venture that provides Web-hosting services; Career Holdings, Inc., a company in the business of providing recruitment services through the Internet via its wholly-owned subsidiaries, CareerBuilder, Inc. and Headhunter.net; Classified Ventures, Inc., an online classified listings service; and Newscom, a company that provides online access to news wires, features, graphics and photographic content to the media. The company owns 49.5% of the voting common stock and 65% of the nonvoting common stock of the Seattle Times Company; 31.1% of the voting stock of Newspapers First; a 48.1% equity share of Career Holdings, Inc.; a 19.2% equity interest in Classified Ventures; a 50% equity interest in Newscom; a 13.5% equity interest in Ponderay Newsprint Company; and 33.3% of the voting stock of InfiNet Company. It is a one-third partner in the SP Newsprint Co. The company owns a 55% equity interest in Fort Wayne Newspapers, Inc., and consolidates 100% of its revenues and expenses. The minority shareholders' interest in the net income of this subsidiary has been reflected as an expense in the Consolidated Statement of Income in the caption "Minority interests in losses of consolidated subsidiaries." Also included in this caption is a contractual minority interest resulting from a joint operating agreement that runs through 2021 between The Miami Herald Publishing Co. and Cox Newspapers, Inc., covering the publication of The Herald and of The Miami News, which ceased publication in 1988. The related effects are included in the Consolidated Balance Sheet caption "Minority Interests in Consolidated Subsidiaries." "Cash, including short-term cash investments" includes currency and checks on hand, demand deposits at commercial banks, overnight repurchase agreements of government securities and investment-grade commercial paper. Cash and short-term investments are recorded at cost. Due to the short-term nature of marketable securities, cost approximates market value. 30 Most of the company's "Accounts receivable" is from advertisers, newspaper subscribers and information users. Credit is extended based on the evaluation of the customer's financial condition, and generally collateral is not required. Credit losses are provided for in the financial statements and are written off to a reserve account at the time they are deemed uncollectible. The company uses a combination of the percentage of sales and the aging of accounts receivable to establish reserves for losses on accounts receivable. Credit losses have historically been within management's expectations. "Inventories" are priced at the lower of cost (first-in, first-out FIFO method) or market value. Most of the inventory is newsprint, ink and other supplies used in printing newspapers. Newsprint inventory varies from approximately a 30-day to a 45-day supply, depending on availability and market conditions. Damaged newsprint is generally returned to the manufacturer or supplier within 30 days for full credit. Obsolete inventory is generally not a factor. The price of newsprint has varied significantly over the past three years; however, the company is able to mitigate price volatility through its newsprint mill investments. "Other assets" includes investments in companies in which Knight Ridder owns less than a 20% interest. These investments are reviewed for appropriate classification at the time of purchase and re-evaluated as of each balance sheet date. Investments available for sale are carried on the balance sheet at fair market value, with the unrealized gains/losses (net of tax) reported as "Accumulated other comprehensive loss," a separate component of shareholders' equity. Upon the sale of an investment, the gain/loss is calculated based on the original cost less the proceeds from the sale. Investments are classified as "held to maturity" when the company has the positive intent and ability to hold the investment to maturity. "Property, Plant and Equipment" is recorded at cost, and the provision for depreciation for financial statement purposes is computed principally by the straight-line method over the estimated useful lives of the assets as follows: - ------------------------------------------ ------------------------------ Depreciation or Type of Asset Amortization Period - ------------------------------------------ ------------------------------ Buildings and improvements 10 to 40 years Machinery, equipment and fixtures Three to 25 years Automobile and trucks Three to eight years Software Three to seven years, not to exceed the remaining useful life of the related hardware - ------------------------------------------ ------------------------------ The company capitalizes interest costs as part of the cost of constructing major facilities and equipment. Expenditures for maintenance, repairs and minor renewals are charged to expense as incurred. "Goodwill and Other Identified Intangible Assets" includes the unamortized excess of cost over the fair market value on the purchase of at least a 50% interest in a company's net tangible and intangible assets. The goodwill is amortized over a 40-year period on a straight-line basis, unless management concludes that a shorter term is more appropriate. Identified acquired intangibles of approximately $400 million consisting of trademarks, subscriber and advertiser lists, and mastheads are amortized on a straight-line basis over periods ranging from five to forty years, with a weighted-average life of 25.7 years. If, in the opinion of management, an impairment in value occurs, any additional write-down of assets will be charged to expense. Management uses the undiscounted cash flow method to determine impairment. See also Recent Accounting Pronouncements on page 33. "Deferred revenue" arises as a normal part of business from advance subscription payments for newspapers. Revenue is recognized in the period in which it is earned. "Short-term borrowings and current portion of long-term debt" includes the carrying amounts of commercial paper and other short-term borrowings with original maturities of less than one year that management does not intend to refinance, and the portion of long-term debt payable within 12 months. The 31 carrying amounts of short-term borrowings approximate fair value. "Long-term debt" represents the carrying amounts of debentures, notes payable, other indebtedness with maturities longer than one year and commercial paper backed by a revolving credit and term loan agreement that management intends to refinance at maturity. Fair values, disclosed in Note 3, are estimated using the discounted cash flow analysis based on the company's current incremental borrowing rates for similar types of borrowing arrangements. In accordance with the Statement of Financial Accounting Standards (FAS) 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," the company reviews long-lived assets and related intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable. To date, no such impairment has been indicated. If this review indicates that the carrying value of these assets would not be recoverable as measured based on estimated undiscounted cash flows over their remaining life, the carrying amount would be adjusted to fair value. The cash flow estimates used contain management's best estimates, using appropriate and customary assumptions and projections. The company accounts for stock-based compensation plans in accordance with Accounting Principals Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees" and discloses the general and pro forma financial information required by FAS 123. See Note 6. Under FAS 128, "Earnings Per Share (EPS)," "basic earnings per share" is computed by dividing net income attributable to common stock (net income less preferred stock dividends) by the weighted-average number of common shares outstanding. Net income attributable to common shares was $177.3 million in 2001, $303.0 million in 2000 and $325.7 million in 1999. "Diluted earnings per share" is computed by dividing net income by the weighted-average number of common and common equivalent shares outstanding. See Note 6. The following table sets forth the calculation of basic and diluted weighted-average shares outstanding (in thousands).
- ----------------------------------------------------------------- ----------------- ---------------- ----------------- 2001 2000 1999 - ----------------------------------------------------------------- ----------------- ---------------- ----------------- Basic weighted-average shares outstanding 76,074 75,370 80,025 Effect of dilutive securities: Assumed conversion of convertible preferred stock 8,272 12,597 15,948 Treasury stock effect of outstanding stock options 1,348 1,138 1,487 - ----------------------------------------------------------------- ----------------- ---------------- ----------------- Diluted weighted-average shares outstanding 85,694 89,105 97,460 ================================================================= ================= ================ =================
Under FAS 130, "Reporting Comprehensive Income," the company presents unrealized gains or losses on the company's available-for-sale securities as an element of "Accumulated other comprehensive income," a separate component of shareholders' equity. See Note 12. The company is a newspaper company with products in print and online. It maintains operations and local management in the markets it serves, including the metropolitan areas of Philadelphia, Miami, San Jose, Kansas City, Fort Worth, Detroit and Charlotte. Revenue is earned through the sale of advertising and circulation and related activities. Newspapers are distributed in print through local distribution channels, as well as online through Knight Ridder Digital's Real Cities Network (see "Management's Discussion and Analysis of Operations: Online Activities" on page 20). Although not required to do so, the company has elected to report its online operations as a reportable business segment separate from its newspaper operations pursuant to FAS 131, "Disclosures About Segments of an Enterprise and Related Information". See Note 5. The company has entered into interest rate swap agreements for interest rate risk exposure management purposes. In accordance with FAS 133, "Accounting for Derivative Instruments and Hedging Activities," the company accounts for its interest rate swap agreements as fair value hedges. The fair value of the swaps at December 30, 2001 was $9.6 million. There was no ineffectiveness associated 32 with the swaps during fiscal year 2001. The company does not trade or engage in hedging for investment purposes. In certain circumstances, the company may use derivatives to hedge certain exposures. Use of estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Recent Accounting Pronouncements. In June 2001, FASB issued FAS 141, "Business Combinations" (FAS 141). This statement requires that all business combinations initiated after June 30, 2001, be accounted for under the purchase method of accounting. Use of the pooling-of-interests method is no longer permitted. The company will adopt FAS 141 in the first quarter of 2002. The issuance of FAS 141 has no impact on the company's consolidated financial statements. In June 2001, FASB issued FAS 142, "Goodwill and Other Intangible Assets" (FAS 142). This statement continues to require recognition of goodwill as an asset, but amortization of goodwill as currently required by APB Opinion No. 17, "Intangible Assets," is no longer permitted. In lieu of amortization, goodwill must be tested for impairment using a fair-value-based approach. This impairment test requires the determination of the fair value of the intangible asset. If the fair value of the intangible asset is less than its carrying value, an impairment loss should be recognized in an amount equal to the difference. The company is currently assessing the impact that this new pronouncement will have on the recorded amounts of goodwill and other intangibles; however, the adoption of FAS 142 is not expected to have a material impact on the company's consolidated financial statements. Amortization of goodwill and other intangibles totaled $72,855,000, $76,473,000 and $81,499,000, respectively, for the fiscal years ended in 2001, 2000 and 1999. Application of the nonamortization provisions of the Statement is expected to result in an increase in net income of approximately $55 million ($.65 per diluted share) per year. FAS 142 must be implemented for fiscal years beginning after December 15, 2001. The company expects to implement FAS 142 in the first quarter of fiscal 2002. Under the transition provisions of FAS 142, goodwill acquired after June 30, 2001 is subject to the nonamortization provisions of the statement and therefore no amortization of goodwill has been recorded for the year ended December 30, 2001 relating to the acquisition of Headhunter.net. In October 2001, FASB issued FAS 144, "Impairment on Disposal of Long-Lived Assets" (FAS 144). Under the new rules, the criteria required for classifying an asset as held for sale have been significantly changed. Assets held for sale are stated at the lower of their fair values or carrying amounts, and depreciation is no longer recognized. In addition, more dispositions will qualify for discontinued operations treatment in the statement of operations. FAS 144 is required to be implemented for fiscal years beginning after December 15, 2001. The company is evaluating the impact of FAS 144; however, the adoption of FAS 144 is not expected to have a material impact on the company's consolidated financial statements. Note 2. Income Taxes The company's income tax expense is determined under the provisions of FAS 109, "Accounting for Income Taxes," which requires the use of the liability method in adjusting previously deferred taxes for changes in tax rates. Substantially all of the company's earnings are subject to domestic taxation. No material foreign income taxes have been imposed on reported earnings. 33 Federal, state and local income taxes (benefits) consist of the following (in thousands):
- -------------------------------- -------------------------- ------------------------- ------------------------- 2001 2000 1999 -------------------------- ------------------------- ------------------------- Current Deferred Current Deferred Current Deferred - -------------------------------- ------------- ------------ ------------ ------------ ------------ ------------ Federal income taxes $ 113,810 $ (6,306) $ 191,635 $ (3,241) $ 203,101 $ (6,447) State and local income taxes 17,179 (2,108) 28,051 (5,518) 26,870 4,552 - -------------------------------- ------------- ------------ ------------ ------------ ------------ ------------ Total $ 130,989 $ (8,414) $ 219,686 $ (8,759) $ 229,971 $ (1,895) ================================ ============= ============ ============ ============ ============ ============
Cash payments of income taxes for the years 2001, 2000 and 1999 were $112.6 million, $209.9 million and $213.1 million, respectively. The differences between income tax expense for continuing operations shown in the financial statements and the amounts determined by applying the federal statutory rate of 35% in each year are as follows (in thousands):
- --------------------------------------------------------------- ----------------- ---------------- ----------------- 2001 2000 1999 - --------------------------------------------------------------- ----------------- ---------------- ----------------- Federal statutory income tax $ 107,590 $ 183,851 $ 198,805 State and local income taxes, net of federal benefit 9,796 14,664 20,425 Statutory rate applied to nondeductible amortization of the excess of cost over net assets acquired 14,903 15,058 15,016 Tax settlements and other, net (9,714) (2,646) (6,170) - --------------------------------------------------------------- ----------------- ---------------- ----------------- Total $ 122,575 $ 210,927 $ 228,076 =============================================================== ================= ================ =================
The deferred tax asset and liability at the fiscal year end consist of the following components (in thousands):
- --------------------------------------------------------------------------------- ---------------- ----------------- 2001 2000 - --------------------------------------------------------------------------------- ---------------- ----------------- Deferred Tax Asset Postretirement benefits other than pensions (including amounts related to partnerships in which the company participates) $ 78,624 $ 80,812 Accrued interest 8,248 8,885 Compensation and benefit accruals 727 (20,068) Other nondeductible accruals 55,680 80,498 - --------------------------------------------------------------------------------- ---------------- ----------------- Gross deferred tax asset $ 143,279 $ 150,127 ================================================================================= ================ ================= Deferred Tax Liability Depreciation and amortization $ 352,754 $ 354,239 Equity in partnerships and investees 13,004 36,806 Unrealized loss in equity securities 0 (867) Other 10,020 40 - --------------------------------------------------------------------------------- ---------------- ----------------- Gross deferred tax liability 375,778 390,218 - --------------------------------------------------------------------------------- ---------------- ----------------- Net deferred tax liability $ 232,499 $ 240,091 ================================================================================= ================ =================
The components of deferred taxes included in the Consolidated Balance Sheet are as follows (in thousands):
- --------------------------------------------------------------------------------- ---------------- ----------------- 2001 2000 - --------------------------------------------------------------------------------- ---------------- ----------------- Current asset $ 22,767 $ 29,611 Noncurrent liability 255,266 269,702 - --------------------------------------------------------------------------------- ---------------- ----------------- Net deferred tax liability $ 232,499 $ 240,091 ================================================================================= ================ =================
34 Note 3. Debt Debt consisted of the following (in thousands):
- --------------------------------------------------------------------------------- ---------------- ----------------- December 30 December 31 2001 2000 - --------------------------------------------------------------------------------- ---------------- ----------------- Commercial paper due at various dates through March 27, 2002, at an effective interest rate of 4.62% as of December 30, 2001 and 6.55% as of December 31, 2000. Amounts are net of unamortized discounts of $735 in 2001 and $2,951 in 2000 (a) $ 527,148 $ 843,027 Debentures due on April 15, 2009, bearing interest at 9.875%, net of unamortized discount of $1,205 in 2001 and $1,370 in 2000 198,795 198,630 Debentures due on November 1, 2027, bearing interest at 7.15%, net of unamortized discount of $5,073 in 2001 and $5,269 in 2000 94,927 94,731 Debentures due on March 15, 2029, bearing interest at 6.875%, net of unamortized discount of $3,314 in 2001 and $3,436 in 2000 296,686 296,564 Notes payable, bearing interest at 8.5%, subject to mandatory pro rata amortization of 25% annually commencing September 1, 1998, through maturity on September 1, 2001, net of unamortized discount of $0 in 2001 and $32 in 2000 39,969 Notes payable due on November 1, 2007, bearing interest at 6.625%, net of unamortized discount of $1,333 in 2001 and $1,562 in 2000 98,667 98,438 Notes payable due on June 1, 2011, bearing interest at 7.125%, net of unamortized discount of $2,723 in 2001 297,277 Senior notes payable due on December 15, 2005, bearing interest at 6.3%, net of unamortized discount of $395 in 2001 and $495 in 2000 99,604 99,505 Notes payable, other 850 1,408 - --------------------------------------------------------------------------------- ---------------- ----------------- 1,613,954 1,672,272 Less amounts payable in one year 40,699 80,362 - --------------------------------------------------------------------------------- ---------------- ----------------- Total long-term debt $ 1,573,255 $ 1,591,910 ================================================================================= ================ ================= (a) Commercial paper is supported by $895 million revolving credit facility which matures on June 15, 2006. Interest payments during 2001 and 2000 were $118.4 million and $100.6 million, respectively.
The company guarantees 13.5% of the debt of Ponderay Newsprint Company, a newsprint mill investment. For the year ended December 30, 2001, and December 31, 2000, these guarantees totaled $17.2 million and $19.6 million, respectively. 35 The carrying amounts and fair values of debt as of December 30, 2001, are as follows (in thousands): - -------------------------------- ------------- -------------- Carrying Fair Amount Value - -------------------------------- ------------- -------------- Commercial paper $ 527,148 $ 527,148 9.875% Debentures 198,795 237,402 7.15% Debentures 94,927 97,292 6.875% Debentures 296,686 282,123 6.625% Notes payable 98,667 101,925 7.125% Notes payable 297,277 308,486 6.3% Senior notes payable 99,604 101,481 Notes payable, other 850 850 - -------------------------------- ------------- -------------- Total $ 1,613,954 $ 1,656,707 ================================ ============= ============== The following table presents the approximate annual maturities of debt, net of discounts, for the years after 2001 (in thousands): - ------------------------------ ------------- 2002 $ 40,699 2003 2004 2005 99,604 2006 487,299 2007 and thereafter 986,352 - ------------------------------ ------------- Total $1,613,954 ============================== ============= Note 4. Unconsolidated Companies and Joint Ventures Summary financial information for the company's unconsolidated companies and joint ventures that are accounted for under the equity method is as follows (in thousands):
- --------------------------------------------------------------- ----------------- ---------------- ----------------- 2001 2000 1999 - --------------------------------------------------------------- ----------------- ---------------- ----------------- Current assets $ 308,822 $ 307,945 $ 226,155 Property, plant and equipment and other assets 1,769,702 1,627,313 1,458,029 Current liabilities 235,452 192,030 199,114 Long-term debt and other noncurrent liabilities 579,473 669,911 645,555 Net sales 1,319,245 1,393,426 1,202,978 Gross profit 168,219 103,469 31,116 Net income (loss) (4,584) 9,832 (2,026) Company's share of: Net assets 393,777 304,486 206,880 Net income (16,095) (8,506) 12,571 - --------------------------------------------------------------- ----------------- ---------------- -----------------
In 1989, the Detroit Free Press and The Detroit News began operating under a joint operating agreement as Detroit Newspapers (DN). Balance sheet and net sales amounts for DN at December 30, 2001, December 31, 2000, and December 26, 1999, are included in the preceding table, and the net assets contributed to DN are included in "Equity in unconsolidated companies and joint ventures" in the Consolidated Balance Sheet. Excluding DN, net sales of the unconsolidated companies and joint ventures were $904.3 million in 2001, $936.8 million in 2000 and $740.5 million in 1999. Excluding DN, the company's investment in unconsolidated subsidiaries includes $393.8 million of net assets accumulated since the investment dates. Dividends and cash distributions received from unconsolidated companies and joint ventures (excluding DN) were $3.4 million in 2001, $9.5 million in 2000 and $10.8 million in 1999. 36 Note 5. Business Segments Financial data for the company's segments are as follows (in thousands):
- --------------------------------------------------------------- ----------------- ---------------- ----------------- 2001 2000 1999 - --------------------------------------------------------------- ----------------- ---------------- ----------------- Operating revenue Newspapers $ 2,858,174 $ 3,168,219 $ 3,002,379 Online 42,035 43,548 31,396 - --------------------------------------------------------------- ----------------- ---------------- ----------------- Total $ 2,900,209 $ 3,211,767 $ 3,033,775 =============================================================== ================= ================ ================= Operating income (loss) Newspapers $ 520,100 $ 742,554 $ 683,322 Online (31,502) (46,021) (24,041) Corporate (26,843) (27,761) (37,859) - --------------------------------------------------------------- ----------------- ---------------- ----------------- Total $ 461,755 $ 668,772 $ 621,422 =============================================================== ================= ================ ================= Depreciation and amortization Newspapers $ 176,029 $ 179,278 $ 176,340 Online 2,801 2,620 1,819 Corporate 5,743 5,699 4,784 - --------------------------------------------------------------- ----------------- ---------------- ----------------- Total $ 184,573 $ 187,597 $ 182,943 =============================================================== ================= ================ ================= Assets Newspapers $ 3,541,190 $ 3,697,966 $ 3,830,775 Online 239,032 157,382 5,057 Corporate 433,154 388,178 356,502 - --------------------------------------------------------------- ----------------- ---------------- ----------------- Total $ 4,213,376 $ 4,243,526 $ 4,192,334 =============================================================== ================= ================ ================= Unusual Items Newspapers $ 78,500 $ 17,216 $ 4,652 Online -- -- -- Corporate -- -- -- - --------------------------------------------------------------- ----------------- ---------------- ----------------- Total $ 78,500 $ 17,216 $ 4,652 =============================================================== ================= ================ ================= Capital Expenditures Newspapers $ 81,696 $ 89,228 $ 87,029 Online 11,130 4,341 1,284 Corporate 1,761 14,387 4,250 - --------------------------------------------------------------- ----------------- ---------------- ----------------- Total $ 94,587 $ 107,956 $ 92,563 =============================================================== ================= ================ =================
Note 6. Capital Stock The company has 20 million shares of preferred stock authorized and available for future issuance. In 1997, the Board of Directors authorized 1,758,242 shares of Series B preferred stock, $1.00 par value per share, and issued 1,754,930 preferred shares in connection with the acquisition of four newspapers that were indirectly owned by The Walt Disney Company. Each share of Series B preferred stock was convertible into 10 shares of common stock. During 2000, 263,600 shares of preferred stock were converted into approximately 2.6 million common shares. During 2001, the remaining balance of 1,110,500 shares of preferred stock were converted into approximately 11.1 million common shares. The company has a stock rights agreement. The agreement grants each holder of a common share a right, under certain conditions, to purchase from the company a unit consisting of one one-hundredth of a share of preferred stock at a price of $150, subject to adjustment. The rights provide that in the event the company is a surviving corporation in a merger, each holder of a right will be entitled to receive, upon exercise, common shares having a value equal to two times the exercise price of the right. In the event the company engages in a merger or other business combination transaction in which the company is not the surviving corporation, the rights agreement provides that proper provision shall be made so that each holder of a right will be entitled to receive, upon the exercise thereof at the then-current exercise price of the right, common stock of the acquiring company having a value equal to two times the exercise price of the right. No rights certificates will be distributed until 10 days following a public announcement that a person or group of affiliated or associated persons has acquired, or obtained the right to acquire, beneficial ownership of 20% or more of the company's outstanding common stock, or 10 business days following the commencement of a tender offer or exchange offer for 20% or more of the company's outstanding stock. Until such time, the rights are evidenced by the common share certificates of the company. The rights are not exercisable until distributed and will expire on July 10, 2006, unless earlier redeemed or exchanged by the company. 37 The company has the option to redeem the rights in whole, but not in part, at a price of $.01 per right, subject to adjustment. The company's Board of Directors has reserved 1,500,000 preferred shares for issuance upon exercise of the rights. In 2001, 2000 and 1999, the Series B preferred stock, each share of which was convertible into 10 shares of common stock, and shares of common stock issuable upon exercise of stock options are included in the diluted earnings per share calculation, but excluded from the basic earnings per share calculation. The 2001, 2000 and 1999 diluted earnings per share calculations include 8,272,458, 12,596,170 and 15,947,916 weighted-average shares of Series B convertible preferred stock, respectively, and 1,347,968, 1,138,199 and 1,487,231 weighted-average shares of common stock issuable upon exercise of stock options, respectively. The Employees Stock Purchase Plan provides for the sale of common stock to employees of the company and its subsidiaries at a price equal to 85% of the market value at the end of each purchase period. Participants under the plan received 264,015 shares in 2001, 344,800 shares in 2000 and 336,001 shares in 1999. The purchase price of shares issued in 2001 under this plan ranged from $46.86 to $51.29, and the market value on the purchase dates of such shares ranged from $55.13 to $60.35. The Employee Stock Option Plan provides for the issuance of nonqualified stock options and incentive stock options. Options are issued at prices not less than fair market value at date of grant. Options granted vest in one year or three years from the date of grant. Options vesting over three years vest annually in three equal installments. Options expire no later than 10 years from the date of grant. The option plan provides for the discretionary grant of stock appreciation rights (SARs) in tandem with previously granted options, which allow a holder to receive in cash, stock or combinations thereof the difference between the exercise price and the fair market value of the stock at date of exercise. Shares of common stock relating to options outstanding under this plan are reserved at the date of grant. Transactions under the Employee Stock Option Plan are summarized as follows: - ---------------------------------- ----------------- ----------------------- Weighted-Average Number of Exercise Price Shares Per Share - ---------------------------------- ----------------- ----------------------- Outstanding December 27, 1998 6,616,038 $39.74 1999: Exercised (840,375) 30.88 Expired (24,907) 43.38 Forfeited (140,295) 45.55 Granted 1,652,850 57.82 Outstanding December 26, 1999 7,263,311 44.75 2000: Exercised (448,447) 32.75 Expired (26,849) 55.45 Forfeited (237,571) 53.66 Granted 3,578,075 54.64 Outstanding December 31, 2000 10,128,519 48.59 2001: Exercised (1,604,985) 39.51 Expired (99,867) 54.83 Forfeited (568,307) 55.17 Granted 2,144,250 61.57 Outstanding December 30, 2001 9,999,610 52.39 - ---------------------------------- ----------------- ----------------------- The company also maintains a Compensation Plan for Nonemployee Directors. The purpose of the plan is to attract and retain the services of qualified individuals who are not employees of the company to serve as members of the Board of Directors. Part of the compensation plan includes the issuance of stock 38 options. Options vest in three equal installments over a three-year period and expire no later than 10 years from the date of grant. In 1997, there were 200,000 shares authorized for issuance under the plan.. The expiration dates for these options are from December 16, 2007, to December 12, 2011. Transactions under the Compensation Plan for Nonemployee Directors are summarized as follows: - ---------------------------------- ----------------- ----------------------- Weighted-Average Number of Exercise Price Shares Per Share - ---------------------------------- ----------------- ----------------------- Outstanding December 27, 1998 48,000 $50.68 1999: Exercised Expired Forfeited Granted 20,000 57.97 Outstanding December 26, 1999 68,000 52.82 2000: Exercised Expired Forfeited Granted 32,000 54.81 Outstanding December 31, 2000 100,000 53.46 2001: Exercised Expired Forfeited Granted 32,000 62.25 Outstanding December 30, 2001 132,000 55.59 - ---------------------------------- ----------------- ----------------------- The following table summarizes information about stock options outstanding under the Employee Stock Option Plan and the Compensation Plan for Nonemployee Directors at December 30, 2001:
- --------------------------------------- ------------------------------------------------ ------------------------------ Outstanding Exercisable - --------------------------------------- ------------------------------------------------ ------------------------------ Stock Options Outstanding - --------------------------------------- ------------- Average Average Average Exercise Price Range Shares Life (a) Exercise Price Shares Exercise Price - --------------------------------------- ------------- ----------------- ---------------- ------------- ---------------- $24.56 - $33.47 967,887 3.0 $ 29.27 967,887 $ 29.27 39.31 - 49.63 1,694,554 6.3 45.85 1,642,232 45.77 50.00 - 54.48 1,072,089 6.3 51.99 963,357 51.79 54.81 - 54.81 3,000,519 9.0 54.81 1,871,575 54.81 56.33 - 58.88 1,418,629 8.0 57.91 895,457 57.97 58.91 - 62.45 1,978,450 9.9 62.12 -- 0.00 - --------------------------------------- ------------- ----------------- ---------------- ------------- ---------------- Total 10,132,128 7.7 $ 52.44 6,340,508 $ 48.56 ======================================= ============= ================= ================ ============= ================ (a) Average contractual life remaining in years.
At year-end 2001, options with an average exercise price of $48.56 were exercisable on 6.3 million shares; at year-end 2000, options with an average exercise price of $48.64 were exercisable on 5.1 million shares. The company maintains a Long-Term Incentive Plan. Under the plan, an executive's ability to receive a stock award is contingent upon and related directly to the total return received by shareholders on their investment (TSR) in the company's stock over a three-year period, compared to the return received by holders of stock in the other companies that comprise the S&P Publishing/Newspapers Index. The plan provides that none of the shares will vest unless the company's TSR is 39 positive and at least equal to the median TSR of the other companies in the S&P Newspaper Index during this performance period. If these conditions are met, 15% of the shares will vest if the company's TSR is equal to the peer group median and 100% of the shares will vest if the company's TSR is at the 90th percentile or more of the peer TSR or higher. The plan originally covered a three-year performance period from January 1, 1997, through December 31, 1999. The initial performance period ended on December 31, 1999, and no shares vested because the company did not meet the specified performance targets. The plan was extended for an additional three-year period beginning on January 1, 2000 and ending on December 31, 2002, with an initial grant of 342,012 restricted shares to participants. The grant of such shares are restricted, as the vesting of these shares is triggered upon the achievement of certain performance goals as described above. As of December 30, 2001, there were 359,974 shares included as contingently issuable. The company accrues compensation expense for the plan, based upon the average December closing price, over the performance period, when it is probable that performance goals will be met. Total compensation expense recognized in 2001 was approximately $12 million and the total accrual related to the plan is approximately $15 million, which is included in accrued compensation at December 30, 2001. Proceeds from the issuance of shares under these plans are included in shareholders' equity and do not affect income. Due to the financial upheaval in the Internet industry and other severe market conditions negatively affecting the company's wholly-owned subsidiary, Knight Ridder Digital, the company's compensation and corporate governance committee approved a program in 2001 to allow all Knight Ridder Digital optionholders to voluntarily surrender their options granted under the Knight Ridder Digital 2000 Stock Option Plan in exchange for a commitment by Knight Ridder Digital to grant in the future new options to purchase the same number of shares of Knight Ridder Digital common stock covered by the surrendered option at an exercise price based on the fair market value on the new date of grant. At the time the exchange program was approved, the value of the options originally granted in March 2000 (approximately $5.23) had declined to approximately $2.77 per share, and many options were underwater, i.e., the current fair market value of the shares underlying options were below the option exercise price. In accordance with the program, the new grant could occur no earlier than six months and one day from the end of a specified waiting period during which an optionholder could elect to participate in the program. Vesting credit was accorded to the replacement options based on the actual vesting of the existing options earned as of the date of cancellation. During the period following the surrender and cancellation of the existing options and prior to the grant of new options, no options vested. In March 2001, the company's officers (in addition to most of the Knight Ridder Digital employees) surrendered for cancellation all existing options held by them. Replacement options were granted on October 3, 2001 at $1.18 per share, the fair market value of the underlying Knight Ridder Digital shares on the new date of grant. At December 30, 2001, shares of the company's authorized but unissued common stock were reserved and available for issuance as follows: - -------------------------------------------- ----------------- Shares - -------------------------------------------- ----------------- Employee Stock Option Plan 2,702,458 Employees Stock Purchase Plan 1,088,202 Nonemployee Directors Plan 68,000 - -------------------------------------------- ----------------- Total 3,858,660 ============================================ ================= As required by FAS 123, pro forma information regarding net income and earnings per share has been determined as if the company had accounted for its stock options under the fair value method of that statement. 40 Disclosures required by FAS 123 are as follows (in dollars):
- --------------------------------------------------------------- ----------------- ---------------- ----------------- Option value information (a) 2001 2000 1999 - --------------------------------------------------------------- ----------------- ---------------- ----------------- Fair value per option (b) $ 10.53 $ 11.29 $ 14.67 Valuation assumptions Expected option term (years) 3.0 4.0 5.6 Expected volatility 21.0% 20.0% 16.0% Expected dividend yield 1.6% 1.8% 1.5% Risk-free interest rate 4.3% 6.1% 6.2% - --------------------------------------------------------------- ----------------- ---------------- ----------------- (a) Weighted averages of option grants during each period. (b) Estimated using Black-Scholes option pricing model.
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because the company's stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, the existing models, in management's opinion, do not necessarily provide a reliable single measure of the fair value of its stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. In addition, the 15% discount in market value under the Employees Stock Purchase Plan is treated as compensation expense for pro forma purposes. The company's 2001, 2000 and 1999 pro forma information follows (in thousands, except for earnings per share information):
- --------------------------------------------------------------- ----------------- ---------------- ----------------- 2001 2000 1999 - --------------------------------------------------------------- ----------------- ---------------- ----------------- Pro forma net income $ 169,651 $ 288,408 $ 329,689 Pro forma basic earnings per share 2.13 3.68 3.94 Pro forma diluted earnings per share 1.98 3.24 3.38 - --------------------------------------------------------------- ----------------- ---------------- -----------------
The pro forma effect on net income is not necessarily representative of the effect in future years because it does not take into consideration pro forma compensation expense related to grants made prior to 1995. Note 7. Work Force Reduction Program Due to the slowing economy and the resulting decline in advertising revenue and increases in the price of newsprint expense, the company announced a work force reduction program in the second quarter of 2001 that affected the majority of its newspapers. The work force reduction plan eliminated approximately 1,600 positions through early retirement, 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 2001. Substantially all of these charges were paid by December 30, 2001 and all target positions were eliminated. There was approximately $15 million remaining as a liability for the work force reduction plan as of December 30, 2001, the majority of which will be paid in the first half of 2002. The plan was 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." Note 8. Related Party Transactions The company has regular transactions in the normal course of business with CareerBuilder, Inc. (owned by Career Holdings, Inc.) and Classified Ventures, Inc. At December 30, 2001, the company owned 48.1% of Career Holdings and 19.2% of Classified Ventures. In 2001, the company recorded $2.8 million in sales related to CareerBuilder and $6.5 million to Classified Ventures. The company also had expenses related to services provided by CareerBuilder and Classified Ventures of $2.9 million and $5.1 million, respectively, for the year ended December 30, 2001. 41 Note 9. Acquisitions and Dispositions In August 2000, Career Holdings, Inc., a company jointly controlled by Knight Ridder Digital and Tribune Co., acquired CareerBuilder, Inc., and CareerPath.com, Inc., respectively. In the Career-Builder acquisition, a wholly-owned subsidiary of Career Holdings made a tender offer for all of CareerBuilder's common stock at a price of $8 per share in cash. The tender offer, which began on July 25, 2000, and expired on August 21, 2000, was followed by the merger of the subsidiary into CareerBuilder on August 24, 2000. The CareerPath.com acquisition was accomplished by the merger of a wholly-owned subsidiary of Career Holdings into CareerPath.com on August 31, 2000. The total purchase price for the CareerBuilder and CareerPath.com acquisitions was approximately $250 million. The company, through Knight Ridder Digital, currently owns a 48.1% interest in Career Holdings, Inc. In November 2001, Career Holdings, Inc. acquired Headhunter.net, an online recruitment and career development business, for $9.25 per share in cash, or approximately $217 million. The company's share was $108.5 million to fund this acquisition. Headhunter.net now operates as a wholly owned subsidiary of Career Holdings, Inc. On August 22, 2000, the company sold Cable Connection for approximately $8.5 million in cash, less an $86,000 working capital adjustment and recorded a $5.8 million pre-tax gain on the sale. Professional Exchange was sold on September 25, 2000 for $5 million cash and the company recorded a $1.5 million loss. On January 1, 2001, the company sold MediaStream for $3.6 million, consisting of $3.35 million in cash and a $250,000 note receivable. The company recorded a $1.7 million pre-tax gain on the sale. Note 10. Pension and Other Postretirement Benefit Plans A summary of the components of net periodic benefit cost for the defined benefit plans and postretirement benefit plans (other benefits) is presented here, along with the total amounts charged to pension expense for multi-employer union defined benefit plans, defined contribution plans and other agreements (in thousands): - ---------------------------------------------- ------------------------------------- ------------------------------------ Pension Benefits Other Benefits ------------------------------------- ------------------------------------ 2001 2000 1999 2001 2000 1999 - ---------------------------------------------- ------------ ------------ ----------- ------------ ----------- ----------- Defined benefit plans: Service cost and plan expenses $ 69,297 $ 42,324 $ 36,340 $ 1,686 $ 1,271 $ 2,516 Interest cost 81,235 75,897 71,900 8,625 8,186 7,812 Expected return on plan assets (110,251) (102,917) (93,141) (739) (702) (805) Recognized net actuarial (gain) loss (11,954) (10,508) 1,380 3,939 (519) (48) Amortization of prior service cost 6,524 6,733 6,596 (4,104) (4,104) (4,103) Amortization of transition asset 227 (3,128) (3,865) - ---------------------------------------------- ------------ ------------ ----------- ------------ ----------- ----------- Net 35,078 8,401 19,210 9,407 4,132 5,372 Multi-employer union plans 11,500 11,218 10,860 Defined contribution plans 11,789 12,534 11,741 Other 1,731 1,413 1,812 - ---------------------------------------------- ------------ ------------ ----------- ------------ ----------- ----------- Net periodic benefit cost $ 60,098 $ 33,566 $ 43,623 $ 9,407 $ 4,132 $ 5,372 ============================================== ============ ============ =========== ============ =========== ===========
Service cost in 2001 and 2000 included approximately $35.6 and $15.0 million, respectively, related to accelerating the retirement of certain employees under the work force reduction program. 42 Weighted-average assumptions used each year in accounting for defined benefit plans and postretirement benefits were:
- ---------------------------------------------- ------------------------------------- ------------------------------------ Pension Benefits Other Benefits ------------------------------------- ------------------------------------ 2001 2000 1999 2001 2000 1999 - ---------------------------------------------- ------------ ------------ ----------- ------------ ----------- ----------- Discount rate as of year end 7.5% 7.8% 7.8% 7.5% 7.8% 7.8% Return on plan assets 9.0 9.0 9.0 6.5 6.5 6.5 Rate of compensation increase 4.1 4.3 3.5 4.5 4.5 3.5 Medical trend rate: Projected 5.5 5.5 6.0 Reducing to this percentage in 2002 and thereafter 5.5 5.5 5.5 - ---------------------------------------------- ------------ ------------ ----------- ------------ ----------- -----------
The assumed health-care-cost trend rate has a significant effect on the amounts reported. A one-percentage-point change in the assumed health-care-cost trend rate would have the following effects:
- ---------------------------------------- ----------------------- -------------------- One-Percentage-Point One-Percentage-Point Increase Decrease - ---------------------------------------- ----------------------- -------------------- Effect on total of service and interest cost components in 2001 $ 667 $ (667) Effect on postretirement benefit obligation as of December 30, 2001 $ 5,162 $ (4,492) - ---------------------------------------- ----------------------- --------------------
43 The following table sets forth the funded status and amounts recognized in the Consolidated Balance Sheet for the company's benefit plans (excluding liabilities of Detroit Newspapers that are reported net in the Consolidated Balance Sheet under the caption "Equity in unconsolidated companies and joint ventures") (in thousands):
- ------------------------------------------ ------------------------------------------ ------------------------------------------ Pension Benefits Other Benefits ------------------------------------------ ------------------------------------------ 2001 2000 1999 2001 2000 1999 - ------------------------------------------ ------------- -------------- ------------- ------------- ------------- -------------- Change in benefit obligation Benefit obligation at beginning of year $ 1,063,691 $ 940,990 $ 1,020,113 $ 121,995 $ 120,819 $ 121,229 Service cost 64,520 40,717 35,143 1,685 1,271 2,516 Interest cost 81,235 75,897 71,900 8,625 8,186 7,812 Plan participants' contributions 1,428 1,297 1,102 Amendments 428 3,820 4,361 Actuarial loss (gain) 14,583 54,912 (136,868) 14,239 3,272 (1,575) Benefits paid (99,604) (52,645) (53,659) (14,351) (12,850) (10,265) - ------------------------------------------ ------------- -------------- ------------- ------------- ------------- -------------- Benefit obligation at end of year $ 1,124,853 $ 1,063,691 $ 940,990 $ 133,621 $ 121,995 $ 120,819 ========================================== ============= ============== ============= ============= ============= ============== Change in plan assets Fair value of plan assets at beginning of year $ 1,197,963 $ 1,171,546 $ 1,090,569 $ 11,803 $ 11,623 $ 12,701 Actual return on plan assets (24,954) 65,878 120,730 935 1,027 520 Company contributions 24,598 15,573 15,570 11,077 10,706 7,565 Plan participants' contributions 1,428 1,297 1,102 Benefits paid and administrative costs (117,652) (55,034) (55,323) (14,351) (12,850) (10,265) - ------------------------------------------ ------------- -------------- ------------- ------------- ------------- -------------- Fair value of plan assets at end of year $ 1,079,955 $ 1,197,963 $ 1,171,546 $ 10,892 $ 11,803 $ 11,623 ========================================== ============= ============== ============= ============= ============= ============== Funded status of plan (underfunded) $ (44,898) $ 134,272 $ 230,556 $ (122,730) $ (110,192) $ (109,196) Unrecognized net actuarial gain (4,222) (177,783) (273,818) (5,976) (16,292) (19,758) Unrecognized prior service cost 31,598 43,369 40,693 (7,982) (12,085) (16,189) Unrecognized transition obligation (asset) (63) 306 (2,920) - ------------------------------------------ ------------- -------------- ------------- ------------- ------------- -------------- Net prepaid (accrued) benefit cost $ (17,585) $ 164 $ (5,489) $ (136,688) $ (138,569) $ (145,143) ========================================== ============= ============== ============= ============= ============= ==============
Amounts recognized in the Consolidated Balance Sheet consist of:
- --------------------------------------- ------------------------------------------ ----------------------------------------- Pension Benefits Other Benefits ------------- ------------- -------------- ------------- ------------- ------------- 2001 2000 1999 2001 2000 1999 - --------------------------------------- ------------- ------------- -------------- ------------- ------------- ------------- Prepaid benefit cost $ 63,428 $ 51,926 $ 44,263 Accrued benefit liability (81,013) (51,762) (49,752) $ (136,688) $ (138,569) $ (145,143) Additional minimum liability (7,852) (9,282) Intangible asset 7,852 9,282 - --------------------------------------- ------------- ------------- -------------- ------------- ------------- ------------- Net prepaid (accrued) benefit cost $ (17,585) $ 164 $ (5,489) $ (136,688) $ (138,569) $ (145,143) ======================================= ============= ============= ============== ============= ============= =============
Amounts applicable to the company's pension plans with accumulated benefit obligations in excess of plan assets are as follows:
- ---------------------------------------------------------------------------------- ------------- ------------- ------------- 2001 2000 1999 - ---------------------------------------------------------------------------------- ------------- ------------- ------------- Projected benefit obligation $ 94,074 $ 122,878 $ 37,666 - ---------------------------------------------------------------------------------- ------------- ------------- ------------- Accumulated benefit obligation 78,129 106,057 26,462 Fair value of plan assets 42,840 79,552 - ---------------------------------------------------------------------------------- ------------- ------------- ------------- Unfunded accumulated benefit obligation $ 35,289 $ 26,505 $ 26,462 ================================================================================== ============= ============= =============
44 Of the plans whose accumulated benefit obligations exceed plan assets, the amounts applicable to qualified plans are as follows (none in 1999):
- ---------------------------------------------------------------------------------- ------------- ------------- ------------- 2001 2000 1999 - ---------------------------------------------------------------------------------- ------------- ------------- ------------- Projected benefit obligation $ 49,001 $ 85,838 $ - - ---------------------------------------------------------------------------------- ------------- ------------- ------------- Accumulated benefit obligation 46,622 82,239 Fair value of plan assets 42,840 79,552 - ---------------------------------------------------------------------------------- ------------- ------------- ------------- Unfunded accumulated benefit obligation $ 3,782 $ 2,687 $ - ================================================================================== ============= ============= =============
Net pension assets are included in "Other" noncurrent assets, and net pension liabilities are included in "Employment benefits and other noncurrent liabilities." Substantially all of the assets of the company-administered plans are invested in listed stocks and bonds. Employee Labor Arrangements About 37% of the company's more than 19,000 full-time equivalent employees are represented by approximately 70 local unions and work under multiyear collective bargaining agreements. These agreements are renegotiated in the years in which they expire. A six-year extension of all labor contracts in Philadelphia was negotiated in January 2001 and ratified by all unions shortly thereafter. Note 11. Quarterly Operations (Unaudited) The company's largest source of revenue, retail advertising, is seasonal and tends to fluctuate with retail sales in markets served. Historically, retail advertising is higher in the second and fourth quarters. General advertising, while not as seasonal as retail, is lower during the summer months. Classified advertising revenue has in the past been a reflection of the overall economy and has not been significantly affected by seasonal trends. The following table summarizes the company's quarterly results of operations (in thousands, except per share data):
- ------------------------------------------------------- ---------------------------------------------------------------------- Quarter ---------------------------------------------------------------------- Description First Second Third Fourth - ------------------------------------------------------- ----------------- ----------------- ---------------- ----------------- 2001 Operating revenue $ 735,398 $ 738,437 $ 693,122 $ 733,252 Operating income 116,509 52,632 123,896 168,718 Net income 40,737 13,426 (a) 55,685 74,976 Earnings per share Basic: Net Income 0.52 0.15 0.71 0.91 Diluted: Net Income 0.47 0.15 0.65 0.88 Dividends declared per common share 0.25 0.25 0.25 0.25 - ------------------------------------------------------- ----------------- ----------------- ---------------- ----------------- 2000 Operating revenue $ 758,567 $ 806,168 $ 769,234 $ 877,798 Operating income 145,423 179,712 154,837 188,800 Net income (loss) 160,855 (b) 96,273 (c) 76,106 (18,871) (d) Earnings per share Basic: Net Income (loss) 2.03 1.23 0.99 (0.29) Diluted: Net Income (loss) 1.74 1.08 0.87 (0.29) Dividends declared per common share 0.23 0.23 0.23 0.23 - ------------------------------------------------------- ----------------- ----------------- ---------------- ----------------- 1999 Operating revenue $ 720,568 $ 758,107 $ 737,201 $ 817,899 Operating income 125,664 152,653 150,980 192,125 Net income 62,867 (e) 86,586 (f) 76,209 114,277 (g) Earnings per share Basic: Net Income 0.76 1.04 0.90 1.37 Diluted: Net Income 0.65 0.88 0.78 1.18 Dividends declared per common share 0.20 0.23 0.23 0.23 - ------------------------------------------------------- ----------------- ----------------- ---------------- -----------------
45 (a) Includes after-tax work force reduction costs of $47.1 million. (b) Includes after-tax gain of $92 million related to InfoSpace, Inc.'s, acquisition of Prio, Inc., and GoTo.com, Inc.'s, acquisition of Cadabra, Inc. (c) Includes after-tax gain of $5.7 million on sale of a building in Philadelphia. (d) Includes after-tax severance costs of $10.4 million and after-tax loss of $103.3 million on the write-down of investments primarily in InfoSpace, Inc., and GoTo.com, Inc. (e) Includes after-tax severance costs of $1.3 million and an after-tax gain of $2.3 million on the sale of SportsLine USA, Inc. (f) Includes after-tax severance costs of $1.4 million and after-tax gains on the sale of Zip2 Corp. and AT&T Corporation stock (net of adjustments to certain investments to write down permanent declines in their market value) of $6.7 million. (g) Includes an after-tax gain of $14.7 million on the sale of AT&T Corporation stock. Note 12. Comprehensive Income The following table presents the components of other comprehensive income for 2001, 2000 and 1999 as shown in the Consolidated Statement of Shareholders' Equity (in thousands):
- -------------------------------------------------------------------------- ------------- ------------- ------------- 2001 2000 1999 - -------------------------------------------------------------------------- ------------- ------------- ------------- Net income $ 184,824 $ 314,363 $ 339,939 Total gains (losses) on securities available for sale, net of taxes (5,584) (144,559) 47,462 Less: reclassification adjustment for realized losses (gains), net of taxes 6,885 101,174 (24,116) - -------------------------------------------------------------------------- ------------- ------------- ------------- Change in accumulated comprehensive income 1,301 (43,385) 23,346 - -------------------------------------------------------------------------- ------------- ------------- ------------- Comprehensive income $ 186,125 $ 270,978 $ 363,285 ========================================================================== ============= ============= =============
Note 13. Commitments and Contingencies At December 30, 2001, the company had lease commitments currently estimated to aggregate approximately $102.5 million that expire from 2002 through 2051 as follows (in thousands): - -------------------------- ------------------ 2002 $ 22,206 2003 19,221 2004 16,032 2005 11,798 2006 9,128 2007 and thereafter 24,163 - -------------------------- ------------------ Total $102,548 ========================== ================== Payments under the lease contracts were $25.2 million in 2001, $23.1 million in 2000 and $24.7 million in 1999. In connection with the company's insurance program, letters of credit are required to support certain projected worker compensation obligations. At December 30, 2001, the company had approximately $50 million of undrawn letters of credit outstanding. On July 13, 1995, six unions struck the Detroit Free Press, The Detroit News and Detroit Newspapers (DN), which operates both newspapers. Subsequently, the unions filed numerous unfair labor practice charges against the newspapers and DN. In June 1997, after a long trial, a National Labor Relations Board (NLRB) administrative judge ruled that the strike was caused by the unfair labor practices of DN and The Detroit News and ordered that DN and the newspapers reinstate all strikers, displacing permanent replacements if necessary. DN and the newspapers appealed the decision to the NLRB. 46 On August 27, 1998, the NLRB affirmed certain unfair labor practice findings against The Detroit News and DN and reversed certain findings of unfair labor practices against DN. DN and the newspapers filed a motion to reconsider with the NLRB, which was denied on March 4, 1999. The unions and DN filed appeals to the U.S. Court of Appeals for the District of Columbia Circuit. On July 7, 2000, the U.S. Court of Appeals unanimously reversed the NLRB, holding that the strike was an economic strike. Thus, the NLRB order to reinstate and pay back pay to the strikers was also set aside. The time to appeal has expired and no appeal was filed. 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 subsidiary of the company. 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. DEBT GUARANTEES The company guarantees 13.5% of the debt of Ponderay Newsprint Company, a newsprint mill investment. For the year ended December 30, 2001, and December 31, 2000, these guarantees totaled $17.2 million and $19.6 million, respectively. Management does not expect any material losses from these off-balance sheet instruments as performance is not expected to be required. See page 23, "Management's Discussion and Analysis of Financial Condition and Results of Operations." 47 Note 14. Detail of "Other, net" The "Other, net" line within other income (expense) on the consolidated statement of income for the fiscal years ended 2001, 2000, and 1999 is summarized in the table below (in millions): - ------------------------------------------------------------------------------- 2001 2000 1999 - ------------------------------------------------------------------------------- Realized gain on sale of Cadabra, Inc. $ -- $ 57.0 $ -- Realized gain on sale of Prio, Inc. 107.0 Realized losses on sales of marketable securities (11.9) (14.0) Realized gains on sales of marketable securities 73.0 Other-than-temporary impairment of GoTo.com, InfoSpace.com and Webvan (156.0) Other-than-temporary impairment of cost-basis internet-related investments (16.8) (16.0) (35.0) Realized gain on other asset sales 15.3 Other (2.0) (2.6) (2.2) -------------------------- $(30.7) $ (9.3) $ 35.8 - ------------------------------------------------------------------------------- During the first quarter 1999, the company completed the sale of Sportsline USA, Inc. stock resulting in a pre-tax gain of $3.8 million. During the second quarter 1999, the company completed the sale of AT&T Corporation and Zip2 Corp. stock resulting in a pre-tax gain of $44.3 million. Offsetting these gains, the company recognized other-than-temporary declines in a number of cost basis investments resulting in a pre-tax loss of $35.0 million. During the fourth quarter 1999, the company completed the sale of additional AT&T Corporation shares resulting in a pre-tax gain of $24.9 million. During the first quarter of 2000, the company completed the sale of two Internet-related investments that resulted in gains. The first involved the exchange of shares of Cadabra, Inc. for shares of GoTo.com, Inc., resulting in a pre-tax gain of approximately $57 million. The second transaction involved the exchange of shares in Prio, Inc. for shares of InfoSpace.com resulting in a pre-tax gain of approximately $107 million. Subsequently, during 2000, the company realized a pre-tax loss of $14 million on the sale of a portion of the GoTo.com shares. Also, in the fourth quarter of 2000, the company assessed the market value of its remaining GoTo.com, Infospace.com and Webvan and concluded that, due to weak economic conditions, these investments had experienced other-than-temporary declines. As a result, the company recorded pre-tax losses on the declines in market values of approximately $156 million for the GoTo.com and InfoSpace.com investments and $16.0 million for other Internet-related investments during the fourth quarter of 2000. Additionally, the company recognized gains on other asset sales of $15.3 million primarily related to the sales of a building in Philadelphia, Cable Connections and Media Stream. The company sold holdings in Infospace.com, AT&T, Webvan and other smaller Internet-related investments in the first quarter of 2001, realizing an aggregate pre-tax loss of approximately $11.9 million. Additionally, the company recorded other-than-temporary declines in a number of other cost basis Internet-related investments of $16.8 million in 2001. 48 Report of Independent Auditors To Shareholders of Knight-Ridder, Inc. We have audited the accompanying consolidated balance sheets of Knight-Ridder, Inc., as of December 30, 2001, and December 31, 2000, and the related consolidated statements of income, cash flows and shareholders' equity for each of the three years in the period ended December 30, 2001. Our audits also included the financial statement schedule listed in the Index at Item 14(d) for the years ended December 30, 2001, December 31, 2000 and December 26, 1999. These financial statements and schedule are the responsibility of the company's management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Knight-Ridder, Inc., at December 30, 2001, and December 31, 2000, and the consolidated results of its operations and cash flows for each of the three years in the period ended December 30, 2001, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ ERNST & YOUNG, LLP San Jose, California January 18, 2002 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None 49 PART III Item 10. Directors and Executive Officers of the Registrant In addition to the information set forth under the caption "Executive Officers of Knight Ridder" in Part I of this Form 10-K, the information required by this section is incorporated by reference from the Proxy Statement for the 2002 Annual Meeting under the captions "Item 1: Election of Directors - Nominees for Election for Three Year Terms Ending 2005," "Nominee for Election for One-Year Term Ending 2003," "Directors Continuing in Office Until 2004," "Directors Continuing in Office Until 2003," and "Section 16(a) Beneficial Ownership Reporting Compliance." Item 11. Executive Compensation The information required by this item is incorporated by reference from the Proxy Statement for the 2002 Annual Meeting under the captions "Item 1: Election of Directors - How the Company Compensates Directors" and " Executive Compensation." Item 12. Security Ownership of Certain Beneficial Owners and Management The information required by this item is incorporated by reference from the Proxy Statement for the 2002 Annual Meeting under the captions "Principal Holders of the Company's Stock" and "Stock Ownership of Directors and Officers" under the heading "Information About Knight Ridder Stock Ownership." Item 13. Certain Relationships and Related Transactions The information required by this item is incorporated by reference from the Proxy Statement for the 2002 Annual Meeting under the captions "Compensation Committee Interlocks and Insider Participation" and "Certain Relationships and Related Transactions." 50 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) 1. The following consolidated financial statements of Knight-Ridder, Inc. and subsidiaries, included in the annual report of the registrant to its shareholders for the year ended December 30, 2001, are included in Item 8: Consolidated Balance Sheet - December 30, 2001 and December 31, 2000 Consolidated Statement of Income - Years ended December 30, 2001, December 31, 2000, and December 26, 1999 Consolidated Statement of Cash Flows - Years ended December 30, 2001, December 31, 2000, and December 26, 1999 Consolidated Statement of Shareholders' Equity - Years ended December 30, 2001, December 31, 2000, and December 26, 1999 Notes to consolidated financial statements - December 30, 2001 2. The following consolidated financial statement schedule of Knight-Ridder, Inc and subsidiaries is included in Item 14(d): Schedule II - Valuation and qualifying accounts All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions, or are inapplicable, or have been shown in the consolidated financial statements or notes thereto, and therefore have been omitted from this section. 3. Exhibits Number Description ------ ----------- 2 Disposition of Assets, dated as of March 18, 1998, is incorporated by reference to the Company's Report on Form 8-K filed March 31, 1998 3 (i) Amended and Restated Articles of Incorporation of Knight-Ridder, Inc. (amended and restated as of February 3, 1998), are incorporated by reference to the Company's Form 10-K filed March 13, 1998 3 (ii) Bylaws of Knight-Ridder, Inc. (as amended July 25, 2000), are incorporated by reference to the Company's Form 10-Q filed August 9, 2000 4 (a) Indenture, dated as of February 15, 1986, between the Company and Manufacturers Hanover Trust Company, as Trustee, is incorporated by reference to Exhibit 4 to the Company's Registration Statement on Form S-3 (No. 33-28010) 51 (b) First Supplemental Indenture dated as of April 15, 1989, to the Indenture dated as of February 15, 1986, between the Company and Chase Manhattan Bank (as successor to Manufacturers Hanover Trust Company), as Trustee, is incorporated by reference to the Company's Report on Form 8-K, filed April 30, 1989 (c) Rights Agreement, dated as of June 21, 1996, between Knight-Ridder, Inc. and ChaseMellon Shareholder Services, L.L.C., is incorporated by reference to the Company's Report on Form 8-K filed July 10, 1996 (d) First Amendment to Rights Agreement, dated as of July 25, 2000, between Knight-Ridder, Inc. and ChaseMellon Shareholder Services, L.L.C., as Rights Agent, is incorporated by reference to the Company's Report on Form 8-A/A filed August 10, 2000 (e) Indenture, dated as of November 4, 1997, between Knight-Ridder, Inc. and The Chase Manhattan Bank of New York, as Trustee, is incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-3 (No. 333-37603) (f) First Supplemental Indenture, dated June 1, 2001, between Knight-Ridder, Inc., The Chase Manhattan Bank of New York, as original Trustee and The Bank of New York, as series Trustee, is incorporated by reference to Exhibit 4 to the Company's Report on Form 8-K filed June 1, 2001 10 (a) Knight-Ridder, Inc. Employee Stock Option Plan (as amended through January 22, 2002)* (b) Knight-Ridder, Inc. Compensation Plan for Nonemployee Directors effective July 1, 1997 (as amended through October 24, 2000), is incorporated by reference to the Company's Form 10-K filed March 28, 2001* (c) Knight Ridder Annual Incentive Plan as amended and restated effective January 1, 2002* (d) Knight Ridder Long-Term Incentive Plan (as amended effective January 1, 2000) is incorporated by reference to the Company's Form 10-K/A filed April 12, 2000* (e) Executive Officer's Retirement Agreement dated December 19, 1991, is incorporated by reference to the Company's Form 10-K filed March 23, 1994* (f) Executive Income Security Agreement (as amended effective October 24, 2000) is incorporated by reference to the Company's Form 10-K filed March 28, 2001* (g) Knight-Ridder, Inc. Annual Incentive Deferral Plan (effective as of November 1, 1996)* (h) First Amendment to the Knight-Ridder, Inc. Annual Incentive Deferral Plan* (i) Second amendment to the Knight-Ridder, Inc. Annual Incentive Deferral Plan (as amended effective January 1, 2000)* (j) Third amendment to the Knight-Ridder, Inc. Annual Incentive Deferral Plan (as amended effective October 1, 2000)* 12 Statement re. Computation of Earnings to Fixed Charges Ratio from Continuing Operations 21 Table of Subsidiaries of Knight-Ridder, Inc. 23 Consent of Independent Auditors 24 Powers of Attorney * Denotes a management contract or compensatory plan or arrangement. (b) Reports on Form 8-K filed during the fourth quarter of 2001. There were no reports on Form 8-K filed during the fourth quarter of 2001. 52 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. Dated December 16, 2002 /s/ P. Anthony Ridder - ----------------------- ------------------------------------- By P. Anthony Ridder Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Dated December 16, 2002 /s/ P. Anthony Ridder - ----------------------- ------------------------------------- P. Anthony Ridder Chairman and Chief Executive Officer Dated December 16, 2002 /s/ Gary Effren - ----------------------- ------------------------------------- Gary Effren Senior Vice President/Finance and Chief Financial Officer Dated December 16, 2002 /s/ Margaret Randazzo - ----------------------- ------------------------------------- Margaret Randazzo Vice President/Controller (Chief Accounting Officer) 53 /s/ James I. Cash, Jr.* ------------------------------------- James I. Cash, Jr. Director /s/ Kathleen Foley Feldstein* ------------------------------------- Kathleen Foley Feldstein Director /s/ Thomas P. Gerrity* ------------------------------------- Thomas P. Gerrity Director /s/ Barbara Barnes Hauptfuhrer* ------------------------------------- Barbara Barnes Hauptfuhrer Director /s/ Patricia Mitchell* ------------------------------------- Patricia Mitchell Director /s/ M. Kenneth Oshman* ------------------------------------- M. Kenneth Oshman Director /s/ P. Anthony Ridder* ------------------------------------- P. Anthony Ridder Director /s/ Randall L. Tobias* ------------------------------------- Randall L. Tobias Director /s/ Gonzalo F. Valdes-Fauli* ------------------------------------- Gonzalo F. Valdes-Fauli Director ------------------------------------- John Warnock Director /s/John L. Weinberg* ------------------------------------- John L. Weinberg Director 54 Dated December 16, 2002 /s/ Gary Effren - ----------------------- ------------------------------------- Gary Effren Attorney-in-fact 55
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS KNIGHT-RIDDER, INC. AND SUBSIDIARIES (IN THOUSANDS OF DOLLARS) COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - --------- --------- --------- --------- -------- ADDITIONS --------------------------------- BALANCE AT CHARGED CHARGED BEGINNING TO COSTS TO BALANCE DESCRIPTION OF AND OTHER AT END PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD ------------- ----------------- --------------- -------------- ------------ YEAR ENDED DECEMBER 30, 2001: RESERVES AND ALLOWANCES DEDUCTED FROM ASSET ACCOUNT: ACCOUNTS RECEIVABLE ALLOWANCES $ 20,238 $ 31,958 $ 28,385 (1) $ 23,811 ---------- ---------- ----------- --------- ---------- $ 20,238 $ 31,958 $ 0 $ 28,385 $ 23,811 ========== ========== =========== ========= ========== YEAR ENDED DECEMBER 31, 2000: RESERVES AND ALLOWANCES DEDUCTED FROM ASSET ACCOUNT: ACCOUNTS RECEIVABLE ALLOWANCES $ 15,917 $ 27,070 $ 22,749 (1) $ 20,238 ---------- ---------- ----------- --------- ---------- $ 15,917 $ 27,070 $ 0 $ 22,749 $ 20,238 ========== ========== =========== ========= ========== YEAR ENDED DECEMBER 26, 1999: RESERVES AND ALLOWANCES DEDUCTED FROM ASSET ACCOUNT: ACCOUNTS RECEIVABLE ALLOWANCES $ 15,738 $ 25,135 $ 24,956 (1) $ 15,917 ---------- ---------- ----------- --------- ---------- $ 15,738 $ 25,135 $ 0 $ 24,956 $ 15,917 ========== ========== =========== ========= ==========
(1) Represents uncollectible accounts written-off, net of recoveries, and dispositions of subsidiaries' balances. 56 EXHIBIT INDEX Exhibits marked with an asterik are management contracts or compensatory plans or arrangements filed pursuant to Item 601(b)(10)(iii)(A) of Regulation S-K. Unless otherwise indicated, all other documents listed are filed with this report. Number Description ------ ----------- 2 Disposition of Assets, dated as of March 18, 1998, is incorporated by reference to the Company's Report on Form 8-K filed March 31, 1998 3 (i) Amended and Restated Articles of Incorporation of Knight-Ridder, Inc. (amended and restated as of February 3, 1998), are incorporated by reference to the Company's Form 10-K filed March 13, 1998 3 (ii) Bylaws of Knight-Ridder, Inc. (as amended July 25, 2000), are incorporated by reference to the Company's Form 10-Q filed August 9, 2000 4 (a) Indenture, dated as of February 15, 1986, between the Company and Manufacturers Hanover Trust Company, as Trustee, is incorporated by reference to Exhibit 4 to the Company's Registration Statement on Form S-3 (No. 33-28010) (b) First Supplemental Indenture dated as of April 15, 1989, to the Indenture dated as of February 15, 1986, between the Company and Chase Manhattan Bank (as successor to Manufacturers Hanover Trust Company), as Trustee, is incorporated by reference to the Company's Report on Form 8-K, filed April 30, 1989 (c) Rights Agreement, dated as of June 21, 1996, between Knight-Ridder, Inc. and ChaseMellon Shareholder Services, L.L.C., is incorporated by reference to the Company's Report on Form 8-K filed July 10, 1996 (d) First Amendment to Rights Agreement, dated as of July 25, 2000, between Knight-Ridder, Inc. and ChaseMellon Shareholder Services, L.L.C., as Rights Agent, is incorporated by reference to the Company's Report on Form 8-A/A filed August 10, 2000 (e) Indenture, dated as of November 4, 1997, between Knight-Ridder, Inc. and The Chase Manhattan Bank of New York, as Trustee, is incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-3 (No. 333-37603) (f) First Supplemental Indenture, dated June 1, 2001, between Knight-Ridder, Inc., The Chase Manhattan Bank of New York, as original Trustee and The Bank of New York, as series Trustee, is incorporated by reference to Exhibit 4 to the Company's Report on Form 8-K filed June 1, 2001 10 (a) Knight-Ridder, Inc. Employee Stock Option Plan (as amended through January 22, 2002)* 57 (b) Knight-Ridder, Inc. Compensation Plan for Nonemployee Directors effective July 1, 1997 (as amended through October 24, 2000), is incorporated by reference to the Company's Form 10-K filed March 28, 2001* (c) Knight Ridder Annual Incentive Plan as amended and restated effective January 1, 2002* (d) Knight Ridder Long-Term Incentive Plan (as amended effective January 1, 2000) is incorporated by reference to the Company's Form 10-K/A filed April 12, 2000* (e) Executive Officer's Retirement Agreement dated December 19, 1991, is incorporated by reference to the Company's Form 10-K filed March 23, 1994* (f) Executive Income Security Agreement (as amended effective October 24, 2000) is incorporated by reference to the Company's Form 10-K filed March 28, 2001* (g) Knight-Ridder, Inc. Annual Incentive Deferral Plan (effective as of November 1, 1996)* (h) First Amendment to the Knight-Ridder, Inc. Annual Incentive Deferral Plan* (i) Second amendment to the Knight-Ridder, Inc. Annual Incentive Deferral Plan (as amended effective January 1, 2000)* (j) Third amendment to the Knight-Ridder, Inc. Annual Incentive Deferral Plan (as amended effective October 1, 2000)* 12 Statement re. Computation of Earnings to Fixed Charges Ratio from Continuing Operations 21 Table of Subsidiaries of Knight-Ridder, Inc. 23 Consent of Independent Auditors 24 Powers of Attorney 58 EX-10 3 ex10_a.txt EXHIBIT 10(A) Exhibit 10(a) KNIGHT-RIDDER, INC. EMPLOYEE STOCK OPTION PLAN (As amended through January 22, 2002) 1. PURPOSE The purpose of this Stock Option Plan (hereinafter referred to as the "Plan") is to attract and retain key employees of Knight-Ridder, Inc. (hereinafter referred to as the "Company") and its subsidiaries, by the grant of options and stock appreciation rights. "Subsidiaries" as used herein shall mean corporations (other than Knight-Ridder, Inc.) or partnerships in an unbroken chain of corporations and/or partnerships beginning with Knight-Ridder, Inc. if, at the time of the granting of the option or stock appreciation right, each of the corporations and partnerships other than the last corporation or partnership in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in a corporation in such chain or at least a 50% partnership interest in such chain. The term "fair market value" of a share of common stock as of any date shall be the mean between the highest and lowest sales price of a share of common stock on the date in question as reported on the composite tape for issues listed on the New York Stock Exchange. If no transaction was reported on the composite tape in the common stock on such date, the prices used shall be the prices reported on the nearest day preceding the date in question. If the common stock is not then quoted on the composite tape, "fair market value" shall be the closing sales price or the mean between the closing bid and asked prices on the date in question, as applicable, as furnished by any member firm of the New York Stock Exchange selected from time to time for that purpose by the Compensation Committee. 2 The term "incentive stock option" shall mean an option described in Section 422(b) of the Internal Revenue Code of 1986, as amended. 2. ADMINISTRATION OF THE PLAN The Plan shall be administered by a committee as appointed from time to time by the Board of Directors of the Company, which committee shall consist of not less than three (3) members of such Board of Directors, all of whom shall be "nonemployee directors" within the meaning of Rule 16b-3 promulgated under the Securities Exchange Act of 1934. Said committee shall be called the "Compensation Committee." In administering the Plan, the Compensation Committee may adopt rules and regulations for carrying out the Plan. The interpretation and decision with regard to any question arising under the Plan made by the Committee shall, unless overruled or modified by the Board of Directors of the Company, be final and conclusive on all employees of the Company and its subsidiaries participating or eligible to participate in the Plan. 3. STOCK The stock which may be issued and sold pursuant to the exercise of options or stock appreciation rights granted under the Plan may be authorized and unissued common stock or shares of common stock reacquired by the Company and held in treasury of a total number not exceeding [45,200,000] shares. The shares deliverable under the Plan shall be fully paid and nonassessable shares. Any shares, in respect of which an option is granted under the Plan which shall have for any reason expired or terminated, may be again allotted under the Plan. Any shares covered by options which have been canceled by reason of the exercise of related stock appreciation rights as provided in the immediately following paragraph or which are used to exercise other options or to satisfy tax withholding obligations shall not be available for other options under the Plan. 3 The exercise of options with respect to which stock appreciation rights shall have been granted shall cause a corresponding cancellation of such stock appreciation rights, and the exercise of stock appreciation rights issued in respect of options shall cause a corresponding cancellation of such options. Each option and stock appreciation right granted under the Plan shall be subject to the requirement and condition that if the Board of Directors shall determine that the listing, registration or qualification upon any securities exchange or under any state or federal law, or the approval or consent of any governmental body is necessary or desirable as a condition of granting such option or stock appreciation right, or the issue or purchase of any shares thereunder, then no such option or stock appreciation right may be exercised in whole or in part unless or until such listing, registration, qualification, approval or consent has been obtained, free of any conditions which are not acceptable to the Board of Directors of the Company. 4. ELIGIBILITY Options and stock appreciation rights will be granted only to persons who are employees of the Company and its subsidiaries (including officers and directors except for persons acting as directors only). The Compensation and Corporate Governance Committee of the Board of Directors of the Company shall determine in its sole discretion the employees to be granted options, the number of shares subject to each option, the employees to be granted stock appreciation rights and the options with respect to which such stock appreciation rights shall be granted. Subject to the provisions of Section 13 of the Plan, the maximum number of shares with respect to which options or stock appreciation rights, or a combination thereof, may be granted under the Plan to any person in any calendar year is 300,000. 4 5. PRICE The purchase price under each option shall be determined by the Compensation Committee subject to approval by the Board of Directors of the Company, but such price shall not be less than one hundred percent (100%) of the fair market value of the common stock at the time such option is granted. 6. THE PERIOD OF THE OPTION AND THE EXERCISE OF THE SAME Each option granted under the Plan shall expire no later than ten (10) years from the date such option is granted, but the Compensation Committee may prescribe a shorter period for any individual option or options. The shares subject to the option may be purchased from time to time during the option period, subject to any waiting period or vesting schedule the Compensation Committee may specify for any individual option or options. In order to exercise the option or any part thereof, the employee shall give notice in writing to the Company of his or her intention to purchase all or part of the shares subject to the option, and in said notice the employee shall set forth the number of shares as to which he or she desires to exercise such option, and shall pay for such shares at the time of exercise of such option. Such payment may be made in such manner as the Compensation Committee may specify, which may include cash, delivery to the Company of shares of common stock of the Company, delivery of proceeds of the sale of the option shares by the Company's designated broker on behalf of the employee, and any other manner permitted by law specified by the Committee. At the time of granting an option, the Committee may impose conditions on the right to exercise an option. 5 Except as specified in Sections 10 and 11 below, no option may be exercised except by the Optionee personally while the Optionee e is in the employ of the Company or its subsidiaries. No Optionee or his or her legal representative, legatees or distributees, as the case may be, shall be or have any of the rights and privileges of a shareholder of the Company by reason of such option unless and until the shares are issued to him or her under the terms of the Plan. 7. MERGER; REORGANIZATION; ACCELERATION In the event that the Company is a party to a merger or other reorganization, outstanding Options shall be subject to the agreement of merger or reorganization. Such agreement may provide, without limitation, for the assumption of outstanding Options by the surviving corporation, or a parent or subsidiary of such corporation ("Successor Corporation"), for their continuation by the Company (if the Company is a surviving corporation), for accelerated vesting or for their cancellation with or without consideration, in all cases without the consent of the Optionee. Upon a Change in Control, all Options granted under the Plan and held by Optionees whose employment with the Company has not terminated shall vest and become exercisable as to all Shares subject to such Option in accordance with the following provisions: (i) If any of the Optionee's outstanding Options are assumed or an equivalent option is substituted by a Successor Corporation, or if any of the Optionee's outstanding Options are continued by the Company (if the Company is a surviving corporation), then the entire unvested portion of 6 any Option shall remain subject to the vesting schedule in effect for such Option immediately prior to the Change in Control; unless, within one year of the Change in Control, (A) the Optionee is terminated without cause (as provided in Section 10), or (B) the Optionee Resigns for Good Reason, in which case, the entire unvested portion of any Option shall be deemed to have vested and become fully exercisable immediately prior to any such termination or resignation. (ii) If any of the Optionee's outstanding options are not assumed or an equivalent option is not substituted by the Successor Corporation, and if any of the Optionee's outstanding Options are not continued by the Company (if the Company is a surviving corporation), all of the then unvested portion of the Option shall be deemed to have vested immediately prior to the Change in Control. "Change in Control" means the occurrence of any of the following: (i) The consummation of a merger or consolidation of the Company with or into another entity or any other corporate reorganization, if more than 65% of the combined voting power of the continuing or surviving entity's securities outstanding immediately after such merger, consolidation or other reorganization is owned by persons who were not stockholders of the Company immediately prior to such merger, consolidation or other reorganization; (ii) The sale, transfer or other disposition of all or substantially all of the Company's assets; 7 (iii) A change in the composition of the Board of Directors of the Company, as a result of which fewer that one-half of the incumbent directors are directors who either (i) had been directors of the Company on the date 24 months prior to the date of the event that may constitute a Change in Control (the "original directors") or (ii) were elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the aggregate of the original directors who were still in office at the time of the election or nomination and the directors whose election or nomination was previously so approved; or (iv) Any transaction as a result of which any person is the "beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of securities of the Company representing at least 20% of the total voting power represented by the Company's then outstanding voting securities. For purposes of this subparagraph, the term "person" shall have the same meaning as when used in sections 13(d) and 14(d) of the Securities Exchange Act of 1934 but shall exclude: (A) trustee or other fiduciary holding securities under an employee benefit plan of the Company or a subsidiary of the Company; and (B) corporation owned directly or indirectly by the shareholders of the Company in substantially the same proportions as their ownership of the common stock of the Company. 8 A transaction shall not constitute a Change in Control if its sole purpose is to change the state of the Company's incorporation or to create a holding company that will be owned in substantially the same proportions by the persons who held the Company's securities immediately before such transactions. "Resignation for Good Reason" means the Optionee's resignation due to (i) a material diminution of Optionee's duties without Optionee's consent, (ii) a diminution of Optionee's base salary in effect immediately prior to a Change in Control, or (iii) a requirement that Optionee's commute distance increase by more than fifty (50) miles without Optionee's consent. Notwithstanding the above provisions of this Section 7, if any agreement between the Optionee and the Company provides greater rights to the Optionee than does this Section 7 upon the occurrence of one or more of the events described in this Section 7, the provisions of such other agreement shall govern and shall supersede this Section 7. 8. PROVISIONS REGARDING STOCK APPRECIATION RIGHTS A stock appreciation right granted under the Plan shall entitle the holder thereof to receive from the Company, upon surrender of the related option, payment of an amount, in cash, shares of common stock or a combination thereof, as determined by the Compensation Committee, equal in value to (A) the excess of the fair market value of a share of common stock on the date the stock appreciation right is exercised over the option price provided for in the related option, multiplied by (B) the number of shares with respect to which the stock appreciation right was exercised. A stock appreciation right shall be 9 exercisable during the period commencing on a date specified by the Compensation Committee and ending on the date on which the related option expires or is earlier canceled or terminated. Notwithstanding the preceding sentence, the Compensation Committee may provide for the grant of a stock appreciation right which may be exercised only within a sixty-day period following certain events specified by the Compensation Committee in the grant of such stock appreciation right. Moreover, the Compensation Committee may provide that such stock appreciation right shall be payable only in cash and that, in addition to payment of the amount otherwise due upon exercise of such stock appreciation right, the holder thereof shall receive (unless such stock appreciation right is in tandem with an incentive stock option), an amount equal to the excess of the highest price paid for a share of common stock in the open market or otherwise over the sixty-day period prior to exercise over the fair market value of a share of common stock on the date the stock appreciation right is exercised. In order to exercise the stock appreciation right or any part thereof, the employee shall give notice in writing to the Company of his or her intention to exercise such right, and in said notice the employee shall set forth the number of shares as to which such employee desires to exercise the stock appreciation right, provided that such right may not be exercised with respect to a number of shares in excess of the number for which the related option could then be exercised. Any limitations on the right to exercise the related option shall also apply to the stock appreciation right. No holder of a stock appreciation right or such holder's legal representatives, legatees or distributees, as the case may be, shall be or have any of the rights and privileges of a shareholder of the Company by reason of such stock appreciation right unless and until the shares are issued to such holder under the terms of the Plan. 10 9. NON-TRANSFERABILITY OF OPTION AND STOCK APPRECIATION RIGHT No option or stock appreciation right granted under the Plan to an employee shall be transferred by him or her otherwise than by will or by the laws of descent and distribution, and such option or stock appreciation right shall be exercisable during the employee's lifetime only by him or her. 10. TERMINATION OF EMPLOYMENT All options granted less than one year before an Optionee's termination of employment shall terminate immediately upon such Optionee's termination of employment. The remaining provisions of this Section 10 shall apply to options granted one year or more before an Optionee's termination of employment. Except as provided below, if an Optionee shall cease to be employed by the Company or one of its subsidiaries, as the case may be, for any reason other than death, disability or retirement pursuant to a retirement plan of the Company or one of its subsidiaries, any option theretofore granted to the Optionee which has not been exercised shall forthwith cease and terminate. The Compensation Committee may provide in the grant of any option or in an amendment of such grant that in the event of any such termination of employment (except termination for "cause" as defined below), such option shall be exercisable (solely to the extent it was exercisable on the date of the Optionee's termination of employment) within the ninety days after the Optionee's termination, but in no event after the expiration of the term of said option prescribed pursuant to Section 6. The Company or any of its subsidiaries shall have "cause" to terminate the Optionee's employment only on the basis of the Optionee's having been guilty of fraud, misappropriation, embezzlement or any other act or acts of 11 dishonesty constituting a felony and resulting or intended to result directly or indirectly in a substantial gain or personal enrichment to the Optionee at the expense of the Company or any of its subsidiaries. Notwithstanding the foregoing, the Optionee shall not be deemed to have been terminated for cause unless and until there shall have been delivered to the Optionee a copy of a resolution (i) duly adopted by three-quarters (3/4) of the entire membership of the Compensation Committee, or of the Board of Directors of the Company, at a meeting called and held for such purpose after reasonable notice to the Optionee and an opportunity for the Optionee, together with the Optionee's counsel, to be heard before such Committee or Board, as the case may be, and (ii) finding that in the good faith opinion of such Committee or Board, as the case may be, the Optionee was guilty of conduct described in the preceding sentence of this paragraph and specifying the particulars of such conduct in detail. However, an Optionee's right to exercise his outstanding options shall automatically be suspended from the moment the Optionee is notified that the Company has commenced an investigation into whether there are grounds for terminating the Optionee's employment for "cause" until a determination has been made that no such grounds exist. In the case of an Optionee employed by any of the subsidiaries of the Company that were sold during 1997 or 1998 and whose employment with the group consisting of the Company and its subsidiaries ceased as a result of such sale, any option (other than an incentive stock option) theretofore granted to the Optionee which has not been exercised as of the Optionee's termination of employment shall become 100% vested and shall be exercisable within one (1) year after the date of the subsidiary's sale by the Company, but in no event after the expiration of the term of said option prescribed pursuant to Section 6. 12 In the case of any Optionee employed at the Miami, Florida headquarters of the Company at the time of the May 1998 announcement of the reorganization of the Company who terminates employment with the Company because (i) the Optionee's position is eliminated as a result of the reorganization or (ii) the Optionee declines employment at the Company's new headquarters in San Jose, California, any option (other than an incentive stock option) theretofore granted to the Optionee which has not been exercised as of the Optionee's termination of employment shall become 100% vested and shall be exercisable within three (3) years following termination of employment, but in no event after the expiration of the term of said option prescribed pursuant to Section 6. 11. RETIREMENT, DISABILITY OR DEATH All options granted less than one year before an Optionee's retirement, disability, or death shall terminate immediately upon such Optionee's retirement, disability, or death. The remaining provisions of this Section 11 shall apply to options granted one year or more before an Optionee's retirement, disability, or death. In the event of the retirement of an Optionee pursuant to a retirement plan of the Company or one of its subsidiaries, as the case may be, the options theretofore granted to the Optionee shall be exercisable during such period of time as the Compensation Committee shall specify in the option grant either at the time of grant or by amendment, which period shall not exceed the first to expire of: (i) one (1) year after the date of such retirement with respect to incentive stock options, (ii) three (3) years after the date of such retirement for Optionees whose retirement date is prior to July 1, 1997, (iii) five (5) years after the date of such retirement for Optionees whose retirement date is on or after July 1, 1997, and (iv) the expiration of the term of said option prescribed pursuant to Section 6. Options not exercisable on the date of an Optionee's retirement shall continue to become exercisable during such period in accordance with the schedule specified by the Compensation Committee pursuant 13 to Section 6; provided that no additional options shall become exercisable following an Optionee's death. In the event of the disability or death of an Optionee while in the employ of the Company or one of its subsidiaries, or during the post-employment period referred to in the immediately preceding paragraph, the options theretofore granted to him shall be exercisable during such period of time as the Compensation Committee shall specify in the option grant either at the time of grant or by amendment, which period shall not exceed the first to expire of the following: (i) one (1) year after the date of such disability or death, with respect to incentive stock options, (ii) three (3) years after the date of such disability if the date of such disability is prior to July 1, 1997, (iii) five (5) years after the date of such disability if the date of such disability is on or after July 1, 1997, (iv) three (3) years after the date of such death, (v) the applicable post-retirement period as set forth in the preceding paragraph, and (vi) the expiration of the term of said option prescribed pursuant to Section 6. Options not exercisable on the date of an Optionee's termination of employment by reason of disability shall continue to become exercisable during such period in accordance with the schedule specified by the Compensation Committee pursuant to Section 6; provided that no additional options shall become exercisable following an Optionee's death. Such option (or the related stock appreciation right) may only be exercised by the personal representative of such decedent or by the person or persons to whom such employee's rights under the option shall pass by such employee's Will or by the laws of Descent and Distribution of the state of such employee's domicile at the time of death, and then only as and to the extent that such employee was entitled to exercise the option on the date of death. 14 12. WRITTEN AGREEMENT Within a reasonable time after the date of grant of an option, an option and stock appreciation right, or a stock appreciation right related to a previously granted option, a written agreement in a form approved by the Compensation Committee shall be duly executed and delivered to the Optionee. 13. ADJUSTMENT BY REASON OF RECAPITALIZATION, STOCK SPLITS, STOCK DIVIDENDS, ETC. If, after the effective date of this Plan, there shall be any changes in the common stock structure of the Company by reason of the declaration of stock dividends, recapitalization resulting in stock split-ups, or combinations or exchanges of shares by reason of merger, consolidation, or by any other means, then the number of shares available under the Plan, the shares subject to any outstanding options, and the maximum number of shares with respect to which options may be granted to any person shall be equitably and appropriately adjusted by the Board of Directors of the Company as in its sole and uncontrolled discretion shall seem just and reasonable in the light of all the circumstances pertaining thereto. 14. RIGHT TO TERMINATE EMPLOYMENT The Plan shall not confer upon any employee any right with respect to being continued in the employ of the Company and its subsidiaries or interfere in any way with the right of the Company and its subsidiaries to terminate his or her employment at any time, nor shall it interfere in any way with the employee's right to terminate his or her employment. 15. WITHHOLDING AND OTHER TAXES The Company or one of its subsidiaries shall have the right to withhold from salary or otherwise or to cause an Optionee (or the executor or administrator of the Optionee's estate or his legatees or distributees) to make payment of any Federal, State, or other (to the extent permitted by applicable 15 law, rule or regulation) taxes required to be withheld with respect to any exercise of a stock option or a stock appreciation right. An Optionee may elect to have the withholding tax obligation or, if the Compensation Committee so determines, any additional tax obligation with respect to any exercise of a stock option or stock appreciation right satisfied by (a) having the Company or one of its subsidiaries withhold shares otherwise deliverable to the Optionee with respect to such exercise, or (b) delivering shares of common stock to the Company. 16. AMENDMENT TO THE PLAN The Board of Directors shall have the right to amend, suspend or terminate the Plan at any time; provided, however, that no such action shall affect or in any way impair the rights of the holder of any option or stock appreciation right theretofore granted under the Plan; and provided further, that unless first duly approved by the common shareholders of the Company entitled to vote thereon at a meeting (which may be the annual meeting) duly called and held for such purpose, no amendment or change shall be made in the Plan (a) increasing the total number of shares which may be purchased or transferred upon exercise of options or stock appreciation rights under the Plan by all employees; (b) changing the minimum purchase price hereinbefore specified for the optioned shares; (c) changing the maximum option period; (d) increasing the amount that may be received upon exercise of a stock appreciation right; or (e) allowing a stock appreciation right to be exercised after the expiration date of the related option. 17. EFFECTIVE DATE OF THE PLAN The Plan shall be effective as of February 24, 1971. 18. SAVINGS CLAUSE Each option and stock appreciation right shall be governed by the terms of the Plan as in effect on the date of its grant unless the option or stock appreciation right is expressly amended to include one or more Plan 16 provisions adopted after the date of grant. The Compensation Committee shall have authority to amend outstanding options to include any provisions permitted by the Plan as in effect at the time of such amendment. EX-10 4 ex10_c.txt EXHIBIT 10(C) Exhibit 10 (c) KNIGHT RIDDER ANNUAL INCENTIVE PLAN As Amended and Restated Effective January 1, 2002 INTRODUCTION - ------------ This Amended and Restated Knight Ridder Annual Incentive Plan (the "Plan") is intended to motivate and reward corporate executives and top management at individual operating units who contribute significantly to Knight Ridder's success. Specific Plan objectives include the following: o Focus participants on achieving key annual objectives o Link rewards to results relative to financial and non-financial goals at the corporate and business unit levels o Provide participants the opportunity to earn competitive compensation commensurate with performance The Plan provides participants the opportunity to earn cash awards each year based on the performance of the corporation and/or the business unit in which they work. Awards are earned on a calendar year basis (the "Plan Year") and are paid in cash following the end of the Plan Year. This Plan complies with Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code") with respect to covered employees under such Code section. Accordingly, individuals who may be covered employees under the Code will be designated as "Covered Employees". PLAN ADMINISTRATION - ------------------- The Plan will be administered by the Compensation and Corporate Governance Committee of the Knight Ridder Board of Directors (the "Committee"). The Committee has the authority to interpret the provisions of the Plan and to make any rules and regulations necessary to administer the Plan. The Committee's decision is final in all matters of judgment pertaining to the Plan, and the Committee may, without notice, amend, suspend or revoke the Plan. ELIGIBILITY - ----------- Employees in the following categories are eligible to participate in the Plan as determined by the Committee: corporate officers and certain director-level corporate employees; newspaper publishers and other business unit operating heads who report directly to top officers; top editors, general managers and all division directors; and selected other positions that can have significant impact on results. Operating unit heads should present proposed changes in eligible positions to the appropriate Vice President Operations and then to the Knight Ridder senior Human Resources officer. PLAN OVERVIEW - ------------- Bonus Amounts Payable for Meeting Goals --------------------------------------- Each plan participant will have a potential target bonus award that is payable for meeting goals. The size of this potential award varies by salary range. The bonus potential for each salary range is stated as a percentage of the annual salary earned during the year. Therefore, the dollar amount of an individual's opportunity is computed by multiplying the applicable percentage times the salary. The potential bonus payable for meeting goals for each salary range (other than for Knight Ridder's Chief Executive Officer whose target award shall be set annually by the Committee and shall be 70% of salary for the 2002 Plan Year) is as follows: Base Salary Range Target Award ----------------- ------------ $250,000 and above 50% $150,000 to $249,999 45% $100,000 to $149,999 40% $50,000 to $99,999 35% Up to $49,999 25% Types of Performance Measures and Their Weightings -------------------------------------------------- Each participant's bonus will be determined based on measures of how well the corporation or the business unit in which the individual works performed relative to two type of goals: Financial Performance and Non-financial Performance. The potential award for meeting goals will be divided between the two types of measures in the following way: 65% of each participant's potential award for meeting goals will be based on Financial Performance, and 35% will be based on Non-financial Performance, as shown in the following table: Potential Award --------------------------------------------------- Base Salary Total Financial Non-financial ----------- ----- --------- ------------- $250,000 and above 50% 32.5% 17.5% $150,000 to $249,999 45% 29.25% 15.75% $100,000 to $149,999 40% 26% 14% $50,000 to $99,999 35% 22.75% 12.25% Up to $49,999 25% 16.25% 8.75% 2 As a general rule, the measurement will be based on the organizational level at which the individual is employed: corporate performance for those at the corporate level and business unit performance for those in a newspaper or other business unit. However, the Knight Ridder CEO may determine that the measures for selected individuals (other than Covered Employees) will consist of a specified mix of two or more bases, or that those in a business unit will have awards based on corporate performance. PERFORMANCE MEASUREMENT - ----------------------- Financial Performance Measure ----------------------------- Financial performance will be evaluated relative to budgeted goals set at the beginning of the Plan Year, subject to approved adjustments during the year. Unless otherwise determined by the Committee, the financial measure will be operating profit. The financial performance measure and the goals for the year for covered employees shall be established by the Committee within the time period required by Code Section 162 (m). The financial performance measures and goals will be communicated to participants by the early part of each year. Non-financial Performance Measures ---------------------------------- At the beginning of each Plan Year, Knight Ridder and each of the business units will establish non-financial goals that represent major elements of their strategies. Quantifiable measures are preferred, and measures that are redundant with the financial goal should be avoided. There should be no more than eight measures. The non-financial performance measures may include the following items: (i) market share, (ii) customer knowledge, (iii) market driven strategy, (iv) content, (v) brand management, and (vi) technology. Such corporate measures and goals will be approved by the Knight Ridder CEO, and business unit measures and goals will be approved by the appropriate Knight Ridder Vice President. All participants at corporate and in each of the business units will have the non-financial component of their awards based on the measures selected for their unit. However, the weightings of these measures may vary among participants to reflect each individual's impact on the achievement of the goals. The weightings assigned to all measures must total 100 points for each of the participants. The achievement of a goal will result in target awards being paid for that goal. Awards for performance on the non-financial measures cannot exceed 100% of target, but standards for partial achievement of goals (and therefore payouts below 100%) as well as threshold standards for achieving any award should be established. The non-financial measures for Covered Employees shall be objective and quantifiable and shall be established solely by the Committee within the time period required by Code Section 162(m). 3 DETERMINING AND PAYING AWARDS - ----------------------------- Overview -------- Each participant's award will be determined by adding together the award earned based on financial performance and the award earned based on non-financial performance. An award may be paid for one type of measure even if no award was earned for the other type of measure. The only constraint is that a corporate performance threshold must be achieved for any award to be payable. Normally this threshold requirement will be that corporate operating income, as reported in the annual report, must equal at least 80% of prior year operating income, although the Committee reserves the right to adjust the threshold. The Committee shall have the discretion to decrease (but not increase) awards to Covered Employees. If a Plan participant's base salary changes during the Plan Year, the potential award is calculated on a prorata basis, based on the amount of base salary earned at each salary level. Determining Financial Awards ---------------------------- Financial awards will be based on actual operating profit performance compared to goal for each participant's unit (either corporate or business unit). Individual unit operating profit goals have been set to support the overall Knight Ridder operating profit goal. Threshold and maximum operating profit performance are set as a percent of target operating profit. Actual financial awards can range between 0% and 300% of target award opportunity. In order to achieve a financial award over 200%, a business unit's operating profit must be at least 12% above prior year and operating profit must exceed Yr. 2000 levels. o If actual results are equal to budget, 100% of the Financial Performance award will be paid. o If actual results are at or below 90% of budgeted results, no award will be paid for Financial Performance. o If actual results are above 90% of budget, but below 100% of budget, then the award will be less than the amount payable for meeting budget, with each 1% shortfall in performance versus budget resulting in a 10% reduction of the amount payable for meeting budget. o The "Actual vs Budget" is calculated to one decimal place. Awards percentages should be interpolated for achievement between amounts shown in the table below. Actual vs. Budget Award Percentage ----------------- ---------------- 100% 100% 99% 90% 98% 80% 97% 70% 96% 60% 95% 50% 94% 40% 93% 30% 92% 20% 91% 10% 90% 0% 4 If actual results are above 100% of budget, then the award will be greater than the amount payable for meeting budget, up to 300% of that amount. Each 1% improvement in performance versus budget will result in an incremental award equal to 10% of the amount payable for meeting budget, up to 200% of the financial portion of the award. If financial results exceed 110% two criteria must be met in order to achieve payout greater than 200% of target: business unit operating profit must be at least 12% above prior year, and business unit operating profit must exceed Yr. 2000 levels. If these two criteria are met, award payouts may reach 300% of target. In this scenario, each 1% improvement in performance versus budget will result in an incremental award equal to 10% of amount payable. Actual vs. Budget Percentage of Financial Award ----------------- ----------------------------- (65% of total potential) 100% 100% 101% 110% 102% 120% 103% 130% 104% 140% 105% 150% 106% 160% 107% 170% 108% 180% 109% 190% 110% 200% If operating profit exceeds 110% and the business unit meets the criteria for payout above 200%, bonus payouts may be paid in excess of 200% of target, up to a maximum of 300% of target, as follows: Actual vs. Budget Percentage of Financial Award (65% of total potential) 111% 210% 112% 220% 113% 230% 114% 240% 115% 250% 116% 260% 117% 270% 118% 280% 119% 290% 120% 300% Determining Non-financial Awards - -------------------------------- A performance score will be determined for each of the non-financial measures at corporate and each of the business units. A score will be 100% of the points assigned if the goal was achieved, zero if threshold performance was not achieved, and between 0 and 100% if performance was above threshold and the goal was partially achieved. 5 An individual's non-financial award will equal the sum of the scores on each of the measures times the weighting given to that measure for that individual. Awards can range from 100% of the non-financial target if all goals were achieved, to zero if performance on all goals was below threshold. OTHER PLAN FEATURES - ------------------- Award Payment ------------- Awards will be paid in cash following the end of the Plan Year, unless deferral has been elected under the annual incentive deferral plan, upon completion of the computation of results. Required tax amounts will be withheld. Notwithstanding anything to the contrary, the maximum award payable for a Plan Year to any individual under the Code shall not exceed $2,500,000. Partial Year Participants and Changes in Position ------------------------------------------------- Individuals who are hired or promoted into positions that qualify for Plan participation will be eligible for a pro rata award based on the amount of salary earned while a participant and the performance levels achieved. If a participant's responsibilities change during a year and a different part of the company's performance is used in computing awards for the two positions, then ordinarily the award will be determined on a pro rata basis relative to the time spent in the two positions, although exceptions may be made on a case by case basis. Termination ----------- In the event of death, permanent disability (as defined by Knight Ridder's disability plan) or retirement (as defined in a retirement plan of Knight Ridder or one of its subsidiaries) prior to the date of payment, a participant (or the participant's estate) will be entitled to receive a pro rata award based on the time employed during the year. Pro-rated payments will be made following the end of the Plan Year and computation of results. Required tax amounts will be withheld. In the event of resignation or termination for other reasons at any time during the Plan Year, no award will be paid. Employment Rights ----------------- The Plan does not constitute a contract of employment, nor does participation in one Plan Year guarantee participation in another Plan Year. 6 EXHIBIT 1 Exhibit 1 illustrates calculation of the award payout for two scenarios - --------------------------------------------------------------- Example 1: Operating Profit Equals 105% of Target Performance - --------------------------------------------------------------- Participant earns a salary as follows: 1/1/2002 through 12/31/2002 $90,000 Award Payout Opportunity at target: 35% of salary or $31,500 Broken down by components: 65% financial performance or $20,475 35% non-financial performance or $11,025 Example: Operating profit achievement: 105% of target Non-financial achievement: 100% of goals Financial portion of award: $20,475 x 150% = $30,712.50 Non-financial portion of award: $11,025 x 100% = $11,025.00 ---------- Total Award Payout: $41,737.50 - ------------------------------------------------------------------- - --------------------------------------------------------------- Example 2: Operating Profit Equals 111% of Target Performance - --------------------------------------------------------------- Participant earns a salary as follows: 1/1/2002 - 6/30/2002 $45,000 (6 months @ $90,000 annual base) 7/1/2002 - 12/31/2002 $49,000 (6 months @ $98,000 annual base) ------- $94,000 Total annual salary Award Payout Opportunity at target: 35% of salary or $32,900 Broken down by components: 65% financial performance or $21,385 35% non-financial performance or $11,515 Example: Operating profit achievement: 111% of target Non-financial achievement: 90% of goals Financial portion of award: $21,385 x 210% = $44,908.50 Non-financial portion of award: $11,515 x 90% = $10,363.50 ---------- Total Award Payout: $55,272.00 - ------------------------------------------------------------------- 7 BONUS AS A PERCENTAGE OF BASE SALARY - FINANCIAL PORTION ONLY Exhibit 2
---------------------------------------------------- % of Base Salary ---------------------------------------------------- Financial Financial Payout $250,000 $150,000 $100,000 $ 50,000 Up to Performance % and to to to $ 49,000 as a % of above $249,999 $149,999 $ 99,999 Target ------------------------------------------------------------------------------------- Maximum 120.0% 300.0% 97.5% 87.8% 78.0% 68.3% 48.8% 119.0% 290.0% 94.3% 84.8% 75.4% 66.0% 47.1% 118.0% 280.0% 91.0% 81.9% 72.8% 63.7% 45.5% 117.0% 270.0% 87.8% 79.0% 70.2% 61.4% 43.9% 116.0% 260.0% 84.5% 76.1% 67.6% 59.2% 42.3% 115.0% 250.0% 81.3% 73.1% 65.0% 56.9% 40.6% 114.0% 240.0% 78.0% 70.2% 62.4% 54.6% 39.0% 113.0% 230.0% 74.8% 67.3% 59.8% 52.3% 37.4% 112.0% 220.0% 71.5% 64.4% 57.2% 50.1% 35.8% 111.0% 210.0% 68.3% 61.4% 54.6% 47.8% 34.1% 110.0% 200.0% 65.0% 58.5% 52.0% 45.5% 32.5% 109.0% 190.0% 61.8% 55.6% 49.4% 43.2% 30.9% 108.0% 180.0% 58.5% 52.7% 46.8% 41.0% 29.3% 107.0% 170.0% 55.3% 49.7% 44.2% 38.7% 27.6% 106.0% 160.0% 52.0% 46.8% 41.6% 36.4% 26.0% 105.0% 150.0% 48.8% 43.9% 39.0% 34.1% 24.4% 104.0% 140.0% 45.5% 41.0% 36.4% 31.9% 22.8% 103.0% 130.0% 42.3% 38.0% 33.8% 29.6% 21.1% 102.0% 120.0% 39.0% 35.1% 31.2% 27.3% 19.5% 101.0% 110.0% 35.8% 32.2% 28.6% 25.0% 17.9% Target 100.0% 100.0% 32.5% 29.3% 26.0% 22.8% 16.3% 99.0% 90.0% 29.3% 26.3% 23.4% 20.5% 14.6% 98.0% 80.0% 26.0% 23.4% 20.8% 18.2% 13.0% 97.0% 70.0% 22.8% 20.5% 18.2% 15.9% 11.4% 96.0% 60.0% 19.5% 17.6% 15.6% 13.7% 9.8% 95.0% 50.0% 16.3% 14.6% 13.0% 11.4% 8.1% 94.0% 40.0% 13.0% 11.7% 10.4% 9.1% 6.5% 93.0% 30.0% 9.8% 8.8% 7.8% 6.8% 4.9% 92.0% 20.0% 6.5% 5.9% 5.2% 4.6% 3.3% 91.0% 10.0% 3.3% 2.9% 2.6% 2.3% 1.6% Minimum 90.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
8 EX-10 5 kri_ex10g.txt EXHIBIT 10(G) - -------------------------------------------------------------------------------- Exhibit 10 (g) KNIGHT-RIDDER, INC. ANNUAL INCENTIVE DEFERRAL PLAN Effective November 1, 1996 - -------------------------------------------------------------------------------- KNIGHT-RIDDER, INC. ANNUAL INCENTIVE DEFERRAL PLAN TABLE OF CONTENTS Page ---- 1. PURPOSE AND INTENT OF PLAN...............................................1 2. DEFINITIONS..............................................................1 3. ELECTION TO DEFER BONUS AND COMPENSATION.................................3 4. TRANSFER TO TRUSTEE......................................................3 5. PARTICIPANT'S DEFERRAL ACCOUNT...........................................4 6. TIME AND FORM OF DISTRIBUTION OF DEFERRAL ACCOUNT........................4 7. DEATH BENEFIT............................................................6 8. HARDSHIP DISTRIBUTION....................................................6 9. DISTRIBUTION UPON CHANGE IN CONTROL......................................6 10. ADMINISTRATION OF PLAN...................................................8 11. INTENDED TAX CONSEQUENCES...............................................10 12. INTENDED ERISA CONSEQUENCES.............................................11 13. AMENDMENT OR TERMINATION................................................11 14. MISCELLANEOUS...........................................................11 -i- KNIGHT-RIDDER, INC. ANNUAL INCENTIVE DEFERRAL PLAN -------------------------------------------------- The KNIGHT-RIDDER, INC. ANNUAL INCENTIVE DEFERRAL PLAN is hereby established by Knight-Ridder, Inc. effective November 1, 1996. 1. PURPOSE AND INTENT OF PLAN. This Plan is created for the purpose of affording to eligible Participants the opportunity to defer payment of compensation until a future date. The Plan is intended to qualify as an unfunded deferred compensation plan maintained primarily to provide deferred compensation for eligible Participants, all of whom are members of a select group of management or highly compensated employees of the Company for purposes of the Employee Retirement Income Security Act of 1974, as amended. 2. DEFINITIONS. As used in this Plan, the following terms shall have the meaning hereinafter set forth: (a) "Amount Deferred" means the amount of bonus or Compensation the payment of which is deferred pursuant to the Participant's election provided in Section 3 hereof. (b) "Annual Incentive Plan" means the Company's annual performance bonus program also known as the Management By Objective ("MBO") Bonus Plan. (c) "Beneficiary" means the person designated by the Participant to receive benefits hereunder following the death of the Participant, or the person designated by such Beneficiary to receive benefits hereunder following the death of the Beneficiary. (d) "Board" means the Board of Directors of the Company. (e) "Code" means the Internal Revenue Code of 1986, as amended. (f) "Committee" means the Compensation Committee of the Board or any other committee appointed by the Board to assume the Committee's rights and responsibilities hereunder. (g) "Company" means Knight-Ridder, Inc., a Florida corporation, or any successor legal entity. (h) "Compensation" means all of each Participant's basic annual compensation, bonuses other than the MBO bonus, short-term sick or injury leave pay not paid through insurance, incentive pay, and amounts not includable in gross income by reason of a deferral election made by the Participant under Code Section 125 or 401(k). Notwithstanding the foregoing, the Committee shall determine what proportion of each Participant's Compensation may be eligible for deferral hereunder in any Plan Year. (i) "Controlled Group" means that group of entities consisting of (i) the Company, (ii) any corporation which is a member of a controlled group of corporations (as defined in Code Section 414(b)) that includes the Company, (iii) any trade or business (whether or not incorporated) that is under common control (as defined in Code Section 414(c)) with the Company, (iv) Fort Wayne Newspapers, Inc. and (v) Fort Wayne News-Sentinel. (j) "Deferral Account" means the account or accounts maintained by the Plan Administrator to which shall be credited a Participant's Amount Deferred for each year and the amount, if any, of the proceeds of the deemed investment and reinvestment thereof, as referred to in Section 5 hereof. (k) "Deferral Election" means the written notice on the form provided by the Plan Administrator by which a Participant elects to defer the receipt of an MBO bonus or Compensation. (l) "Disability" means, with respect to any Participant, that a determination has been made under the Employer's long-term disability plan that the Participant is, or after satisfaction of any applicable waiting period will be, eligible for disability benefits or, if the Participant is not covered by the Employer's long-term disability plan, a determination has been made by the Plan Administrator that the Participant would be eligible for such benefits if the Participant were covered by the Employer's long-term disability plan. No other determination or definition of disability or disabled status shall govern for purposes of this Plan. (m) "Distribution Date" means the date(s) for distribution of all or a portion of a Participant's Deferral Account described at Section 6(a) hereof. (n) "Distribution Event" means any of the events permitting distribution of all or a portion of a Participant's Deferral Account described at Section 6(a) hereof. (o) "Employee" means any person employed by any member of the Controlled Group. (p) "Employer" means the Company and any other member of the Controlled Group. (q) "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. (r) "MBO Bonus" means the bonus compensation to which each Participant may become eligible under the Annual Incentive Plan. (s) "Participant" means any Employee of the Employer who is eligible to receive an MBO Bonus. (t) "Plan" means the Knight-Ridder, Inc. Annual Incentive Deferral Plan set forth herein. -2- (u) "Plan Administrator" means the Compensation Committee of the Board or such other person or committee as may be appointed from time to time by the Board in accordance with Section 10 hereof to supervise the administration of the Plan. (v) "Plan Year" means the calendar year. 3. ELECTION TO DEFER BONUS AND COMPENSATION. (a) 1996 Elections. During November 1996, each Participant shall be entitled to elect to defer receipt of any percentage of the MBO Bonus that the Participant otherwise would be entitled to receive from the Company for services performed in 1996 and 1997, which MBO Bonus payments are otherwise scheduled to be paid in March 1997 and March 1998, respectively. (b) 1997 and Subsequent Elections. Except as provided in the following sentence, during November 1997 and November of each subsequent year that this Plan remains in effect, each Participant shall be entitled to elect to defer receipt of any percentage of the MBO Bonus or any percentage of Compensation established by the Committee as eligible for deferral hereunder that the Participant otherwise would be entitled to receive from the Employer for services performed in the calendar year immediately following the year of election. Notwithstanding the foregoing, within 30 days after the date the Participant first becomes eligible to participate in the Plan, the newly eligible Participant may make an election to defer Compensation for services to be performed after, and during the Plan Year of, the election. (c) Written Election. The Participant may elect to defer the receipt of bonus or Compensation as provided herein by filing a Deferral Election with the Plan Administrator on the form and in the manner required by the Plan Administrator. 4. TRANSFER TO TRUSTEE. In order to assist the Company in providing for the payment of deferred compensation under the Plan, the Company will establish the Knight-Ridder, Inc. Annual Incentive Deferral Plan Trust (the "Trust") and shall transfer to the then acting trustee of the Trust (the "Trustee") on behalf of each Employer an amount equal to each Participant's Amount Deferred, within 15 business days following the close of the month during which the Amount Deferred otherwise would have been paid to the Participant but for the Participant's Deferral Election. Thereafter, all such amounts shall be invested and reinvested as determined by such Trustee, as permitted by the Plan, and, so long as not otherwise prohibited by the terms of the Trust, paid from the Trust to each Participant or his Beneficiary in satisfaction of the Plan's payment obligation hereunder. The Trust and any assets held by the Trust to assist the Plan in meeting its obligations hereunder will conform to the substantive terms of the trust described in Internal Revenue Service Revenue Procedure 92-64. -3- 5. PARTICIPANT'S DEFERRAL ACCOUNT. (a) Deferral Account Credit. Each Participant's Amount Deferred shall be credited to the Participant's Deferral Account. There shall be established a separate Deferral Account for the Amount Deferred for each Plan Year, which shall be accounted for separately by the Plan Administrator from the Amounts Deferred for each other Plan Year. (b) Deemed Investment Direction. For purposes of determining the amount to be paid to the Participant hereunder, the Plan Administrator may permit each Participant to elect from among certain investments, including stock of the Company, in which the Participant's Deferral Account shall be deemed to be invested. Notwithstanding this deemed investment election by the Participant, none of the Company, the Plan Administrator or the Trustee is required to purchase or hold any specific investments for payment to or on behalf of the Participant. The Participant shall have the right from time to time to notify the Plan Administrator or its designee of his or her desire to change the deemed investment of one or more of his or her Deferral Accounts from among the available investment funds by giving notice to the Plan Administrator or its designee in the manner specified by the Plan Administrator provided, however, that the Plan Administrator or its designee shall not be obliged to follow such notice. The Plan Administrator may impose limitations on the timing and frequency of any such changes. (c) Deferral Account Adjustments. The amount of the Participant's Deferral Account shall be adjusted periodically, and no less often than once every 12 months as of the last day of the Plan Year, for the amount of any net appreciation or net depreciation, and for the amount of any net income or net loss, in the assets in which the Participant's Deferral Account is deemed to be invested. The Plan Administrator shall provide or cause to be provided to the Participant periodically, and no less often than once every 12 months as of the last day of the Plan Year, a statement reflecting the amount of the Participant's Deferral Account assuming that the Deferral Account had been invested in accordance with the Participant's deemed investment election referred to above. The amount of the Participant's Deferral Account, as adjusted for deemed investment performance as provided above, is the amount to be paid to the Participant or his or her Beneficiary under the Plan, regardless of how Trust assets actually have been invested. 6. TIME AND FORM OF DISTRIBUTION OF DEFERRAL ACCOUNT. (a) Distribution Date and Events. Distribution of the amount of a Participant's Deferral Account shall be deferred until the earliest to occur of the following events: (i) as soon as practical following the date of the Participant's termination of employment before, at or after age 65, other than due to Disability, (ii) as soon as practical following the date of the Participant's death, (iii) six months after the date of the onset of the Participant's Disability, (iv) as soon as practical following the date of the Committee's determination of the Participant's financial hardship, as provided for in Section 8, or (v) as soon as practical following the April 15th selected by the Participant in his or her Deferral Election that occurs at least three years after the date that payment -4- of the Amount Deferred otherwise would have been paid to the Participant but for the Deferral Election. (b) Lump Sum Distribution Generally. Except as provided below, the Trustee shall distribute a Participant's Deferral Account in a lump sum cash payment, less withholding for applicable taxes, upon the Distribution Date following the occurrence of a Distribution Event with respect to a Participant. Any stock of the Company held in the Trust will be liquidated and the proceeds thereof used to make cash payments required hereunder. If assets of the Trust are insufficient to pay the value of a Participant's Deferral Account at the time the Participant is entitled to a distribution under the Plan, the Participant shall have the right to receive payment of such shortfall from the Employer. (c) Election of Installment Payments. Notwithstanding the foregoing, a Participant may elect to receive distribution of all, but not less than all, of his or her Deferral Accounts in up to five substantially equal annual installments, with the first payment to be made on the Distribution Date provided under subsection 6(a), above, with the remaining annual installments to be made as near as possible to the same date in each subsequent year until complete distribution of the Participant's Deferral Account. An election for distribution to occur in installments must be made in the form and manner provided by the Plan Administrator and at least one year before the Distribution Date that otherwise would apply under subsection 6(a), above, except for distribution resulting from the Participant's termination of employment due to Disability, in which case the election of installment payments must be made at least six months before the Distribution Date that otherwise would apply under subsection 6(a), above. A Participant's election to receive installment payments may be changed only if the revised election is made at least one year before the Distribution Date that otherwise would apply under subsection 6(a). (d) Limit on Nondeductible Distribution. Notwithstanding the foregoing provisions concerning distribution to a Participant, if the Plan Administrator reasonably determines that distribution to a Participant of any portion of the benefit due to the Participant hereunder will not be deductible by the Company for income tax purposes because of the limit imposed by Code Section 162(m), distribution of the excess amount will be deferred until the first date following termination of the Participant's employment on which the Plan Administrator reasonably determines that distribution of the excess amount will be deductible by the Company for income tax purposes. For purposes of this subsection, the term "excess amount" means the amount by which the limit on deductible payments under Code Section 162(m) would be exceeded by distribution to the Participant of the benefit due under the Plan, after first taking into consideration taxable compensation payments to the Participant under all other agreements or arrangements with the Company or any member of the Controlled Group. The excess amount shall remain credited to the Participant's Deferral Account and subject to all other terms and conditions of the Plan until distributed to the Participant or Beneficiary. -5- 7. DEATH BENEFIT. (a) Deferral Accounts Distributed in Lump Sum Upon Death. In the event of a Participant's death before total distribution of his or her Deferral Accounts, the amount of the Participant's Deferral Accounts shall be distributed in a lump sum to the Participant's Beneficiary. Distribution to the Participant's Beneficiary shall be made on the first Distribution Date following the Participant's death, or on such other date as prescribed by the Plan Administrator. (b) Beneficiary. Except as provided otherwise on a beneficiary designation form, the Participant's Beneficiary shall be the Participant's surviving spouse, if any, or, if there is no surviving spouse, the Beneficiary shall be the Participant's estate. The Participant may name a Beneficiary other than the Participant's surviving spouse or estate by designating a different person(s) on the beneficiary designation form provided by, and available upon the Participant's request from, the Plan Administrator. 8. HARDSHIP DISTRIBUTION. If a Participant suffers an unforeseeable emergency (as hereinafter defined), the Plan Administrator may authorize a hardship distribution to the Participant from the Participant's Deferral Account. An unforeseeable emergency is an unanticipated emergency that is caused by an event beyond the control of the Participant and that would result in severe financial hardship to the Participant if early distribution is not permitted. Any distribution permitted under this Section shall be limited to the amount reasonably needed to satisfy the Participant's financial need. The amount of hardship distribution shall reduce the Participant's Deferral Account. 9. DISTRIBUTION UPON CHANGE IN CONTROL. (a) Lump Sum Distribution. Notwithstanding the provisions of Section 6, above, in the event of a Change of Control of the Company or a Change in Control of the Participant's Employer, as defined herein, the Trustee immediately shall distribute the Participant's Deferral Accounts held under the Trust to the Participant in a lump sum. (b) Change In Control of the Company. For purposes of this Plan, a "Change in Control of the Company" shall be deemed to have occurred if: (i) individuals who, as of the effective date of this Plan, constitute the entire Board ("Incumbent Directors") cease for any reason to constitute at least a majority of the Board (the "Board"); provided, however that any individual becoming a director subsequent to the date of this Plan whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the then Incumbent Directors (other than any such individual whose initial assumption of office is the result of an actual or threatened election contest relating to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Company) shall also be an Incumbent Director; -6- (ii) consummation of any merger, consolidation or reorganization of the Company (or, if the capital stock of the Company is affected, any Subsidiary (as defined below)) or any sale, lease, or other disposition (in one transaction or a series of transactions contemplated or arranged by any party as a single plan) of all or substantially all of the assets of the Company (each of the foregoing being an "Acquisition Transaction") where (A) the shareholders of the Company immediately prior to such Acquisition Transaction would not immediately after such Acquisition Transaction beneficially own, directly or indirectly, shares representing in the aggregate more than 65% of (I) the then outstanding common stock of the corporation surviving or resulting from such merger, consolidation or recapitalization or acquiring such assets of the Company, as the case may be (the "Surviving Corporation") (or of its ultimate parent corporation, if any) and (II) the Combined Voting Power (as defined below) of the then outstanding Voting Securities (as defined below) of the Surviving Corporation (or of its ultimate parent corporation, if any); (B) the Incumbent Directors at the time of the initial approval of such Acquisition Transaction would not immediately after such Acquisition Transaction constitute a majority of the Board of Directors of the Surviving Corporation (or of its ultimate parent corporation, if any); or (C) any Person (including any corporation resulting from such Acquisition Transaction and any employee benefit plan (or related trust) of such corporation) would beneficially own directly or indirectly, 20% or more of either (i) the then outstanding shares of common stock of the corporation resulting from such Acquisition Transaction or (ii) the Combined Voting Power of all then outstanding Voting Securities of such corporation except to the extent that such ownership existed prior to the Acquisition Transaction; or (iii) the shareholders of the Company shall approve any plan or proposal for the liquidation or dissolution of the Company; or (iv) any Person (as defined below) shall become the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934 (the "Exchange Act")), directly or indirectly, of securities of the Company representing in the aggregate 20% or more of either (i) the then outstanding shares of Company Common Stock ("Common Stock"), or (ii) the Combined Voting Power of all then outstanding Voting Securities of the Company; provided, however, that notwithstanding the foregoing, a Change in Control of the Company shall not be deemed to have occurred for purposes of this clause (d) solely as the result of: (1) an acquisition of securities by the Company which, by reducing the number of shares of Common Stock or other Voting Securities outstanding, increases (I) the proportionate number of shares of Common Stock beneficially owned by any Person to 20% or more of the shares of Common Stock then outstanding or (II) the proportionate voting power represented by the Voting Securities beneficially owned by any Person to 20% or more of the Combined Voting Power of all then outstanding Voting Securities; or (2) an acquisition of securities directly from the Company, except that this subsection shall not apply to: -7- a. any conversion of a security that was not acquired directly from the Company; or b. any acquisition of securities if the Incumbent Directors at the time of the initial approval of such acquisition would not immediately after (or otherwise as a result of) such acquisition constitute a majority of the Board; provided, however, that if any Person referred to in subsections (1) or (2) of this clause (iv) shall thereafter become the beneficial owner of any additional shares of Company Common Stock or other Voting Securities of the Company (other than pursuant to a stock split, stock dividend or similar transaction or an acquisition exempt under such subsection (B)), then a Change in Control of the Company shall be deemed to have occurred for purposes of this clause (iv). (v) For purposes of this Plan: (1) "Person" shall mean any individual, entity (including, without limitation, any corporation, partnership, trust, joint venture, association or governmental body and any successor to any such entity) or group (as defined in Sections 13(d)(3) or 14(d)(2) of the Exchange Act and the rules and regulations thereunder); provided, however, that Person shall not include a Participant, the Company, any of its Subsidiaries, any employee benefit plan (or related trust) of the Company or its Subsidiaries or any entity organized, appointed or established by the Participant, the Company or any of its Subsidiaries for or pursuant to the terms of any such plan, or any of their affiliates; (2) "Voting Securities" shall mean all securities of a corporation having the right under ordinary circumstances to vote in an election of the board of directors of such corporation; and (3) "Combined Voting Power" shall mean the aggregate votes entitled to be cast generally in the election of directors of a corporation by holders of then outstanding Voting Securities of such corporation. (4) "Third Party" shall mean a third party who has indicated an intention, or taken steps reasonably calculated, to effect a Change in Control of the Company. (c) Change In Control of the Participant's Employer. Change of Control with respect to the Participant's Employer means any transaction by which the Participant's Employer no longer is a member of the Controlled Group. 10. ADMINISTRATION OF PLAN. (a) Plan Administrator Appointment. The Plan shall be administered by the Committee, or such other persons or committee as the Board may appoint from time to time. -8- (b) Duties of Administrator. It shall be a principal duty of the Plan Administrator to see that the Plan is carried out, in accordance with its terms, for the exclusive benefit of Participants without discrimination among them. The Plan Administrator will have full power to administer the Plan in all of its details, subject to applicable requirements of law. For this purpose, the Plan Administrator's powers will include, but will not be limited to, the following authority, in addition to all other powers provided by this Plan: (i) To make and enforce such rules and regulations as it deems necessary or proper for the efficient administration of the Plan, including such rules pertaining to the claims procedures provided below; (ii) To interpret the Plan, its interpretation thereof in good faith to be final and conclusive on all persons claiming benefits under the Plan; (iii) To decide all questions concerning the Plan and the eligibility of any person to participate in the Plan; (iv) To appoint such agents, counsel, accountants, consultants and other persons as may be required to assist in administering the Plan; and (v) To allocate and delegate its responsibilities under the Plan and to designate other persons to carry out any of its responsibilities under the Plan, any such allocation, delegation or designation to be in writing. (c) Examination of Records. The Plan Administrator will make available to each Participant such of his or her records under the Plan as pertain to him or her, for examination at reasonable times during normal business hours. (d) Reliance on Tables, etc. In administering the Plan, the Plan Administrator will be entitled to the extent permitted by law to rely conclusively on all tables, valuations, certificates, opinions and reports which are furnished by accountants, counsel or other experts employed or engaged by the Plan Administrator. (e) Nondiscriminatory Exercise of Authority. Whenever, in the administration of the Plan, any discretionary action by the Plan Administrator is required, the Plan Administrator shall exercise its authority in a nondiscriminatory manner so that all persons similarly situated will receive substantially the same treatment. (f) Indemnification of Plan Administrator. The Company agrees to indemnify and to defend to the fullest extent permitted by law any Employee serving as the Plan Administrator or as a member of a committee designated as Plan Administrator (including any Employee or former Employee who formerly served as Plan Administrator or as a member of such committee) against all liabilities, damages, costs and expenses (including attorneys' fees and amounts paid in settlement of -9- any claims approved by the Company) occasioned by any act or omission to act in connection with the Plan, if such act or omission is in good faith. (g) Claims Procedure. A Participant or Beneficiary who believes that he or she is being denied a benefit to which he is entitled under the Plan (hereinafter referred to as a "Claimant") may file a written request for such benefit with the Plan Administrator, setting forth the claim. (i) Upon receipt of a claim, the Plan Administrator shall advise the Claimant that a reply will be forthcoming within ninety (90) days and shall, in fact, deliver such reply within such period. The Plan Administrator may, however, extend the reply period for an additional ninety (90) days for reasonable cause. If the claim is denied in whole or in part, the Plan Administrator shall advise the Claimant in writing of its determination, using language calculated to be understood by the Claimant, setting forth: (1) the specific reason or reasons for such denial; (2) the specific reference to pertinent provisions of this Plan on which such denial is based; (3) a description of any additional material or information necessary for the Claimant to perfect his claim and an explanation why such material or such information is necessary; (4) appropriate information as to the steps to be taken if the Claimant wishes to submit the claim for review; and (5) the time limits for requesting a review under subsection (ii). (ii) Within sixty (60) days after the receipt by the Claimant of the written determination described above, the Claimant may request in writing that the Plan Administrator review the determination. The Claimant or his or her duly authorized representative may, but need not, review the pertinent documents and submit issues and comments in writing for consideration by the Plan Administrator. If the Claimant does not request a review of the determination within such sixty (60) day period, the Claimant shall be barred and estopped from challenging the Plan Administrator's determination. (iii) Within sixty (60) days after receipt of a request for review, the Plan Administrator will review its previous determination. After consideration of all materials presented by the Claimant, the Plan Administrator will render a written determination, written in a manner calculated to be understood by the Claimant, setting forth the specific reasons for the decision and containing specific references to the pertinent provisions of the Plan on which the determination is based. If special circumstances require that the sixty (60) day time period be extended, the Plan Administrator will so notify the Claimant and will render the decision as soon as possible, but no later than one hundred twenty (120) days after receipt of the request for review. 11. INTENDED TAX CONSEQUENCES. The parties acknowledge that it is their intent that the Participant's Amount Deferred and any earnings thereon while held by the Trust will not be subject to income taxes to the Participant until the Participant (or his or her Beneficiary) receives any amount hereunder and will not be deductible by the Company until payment hereunder. The Participant's Amount Deferred will be subject to employment taxes, with respect to which the Employer shall report and withhold appropriately. However, if any portion of an Amount Deferred is found in a "determination" (within the meaning of Section 1313(a) of the Code) to have been -10- includable in gross income by a Participant before distribution of such amounts to the Participant under the Plan, such amounts shall be immediately paid to the Participant, notwithstanding any other provision of the Plan or of the Participant's Deferral Election. The amount of any such payment shall reduce the Participant's Deferral Account. 12. INTENDED ERISA CONSEQUENCES. If it is determined, as defined below, that the Plan does not qualify as an unfunded deferred compensation plan maintained primarily to provide deferred compensation for eligible Participants, all of whom are members of a select group of management or highly compensated employees of the Employer for purposes of ERISA, then the Company may terminate the entire Plan or discontinue the participation of those Participants with respect to whom such determination is made. In that case, the Deferral Accounts of all such Participants shall be immediately paid to such Participants, notwithstanding any other provision of the Plan or of the Participant's Deferral Election. For purposes of this Section, the term "determined" means determined by the Company or the Plan Administrator in the sole discretion of either or determined by a court of competent jurisdiction the decision of which cannot be appealed or with respect to which the appeal period has expired without any party filing a notice of appeal. 13. AMENDMENT OR TERMINATION. The Company may amend the Plan in whole or in part, at any time or from time to time. The Company also reserves the right to terminate the Plan in whole or in part at any time. Any such amendment or termination may apply to all or any designated classes of Participants. If the Company terminates the Plan in full or in part, it shall so advise the Plan Administrator and the Plan Administrator shall direct that all Deferral Accounts held under the Trust for Participants affected by such termination be distributed in lump sums as soon as practical following the effective date of such termination. Alternatively, the Company may cease deferrals under the Plan but permit the Trust under the Plan to continue in existence as long as is necessary to pay all Deferral Accounts in accordance with the Plan. On or after the effective date of termination, no MBO bonus or Compensation or amounts may be deferred hereunder. 14. MISCELLANEOUS. (a) Non-assignability of Benefits. Neither the Participant, his designated beneficiary nor any other beneficiary under this Plan shall have any power or right to transfer, assign, anticipate, hypothecate or otherwise encumber any part or all of the amounts payable hereunder, which are expressly declared to be unassignable and non-transferable. Any such attempted assignment or transfer shall be void. No amount payable hereunder shall, before actual payment thereof, be subject to seizure by any creditor of any such beneficiary for the payment of any debt, judgment or other obligation, by a proceeding at law or in equity, nor transferable by operation of law in the event of the bankruptcy, insolvency or death of the Participant, his designated beneficiary or any other beneficiary hereunder. (b) Information to be Furnished. Participants shall provide the Plan Administrator with such information and evidence, and shall sign such documents, as may reasonably be requested from time to time for purposes of administration of the Plan. -11- (c) Non-Guarantee of Employment. The establishment of the Plan shall not be construed to confer upon an Employee or Participant any legal right to be retained in the employ of any Employer. All employees will remain subject to discharge, with or without cause, to the same extent as if the Plan had never been adopted, and may be treated without regard to the effect such treatment might have upon them under the Plan. Nothing in the Plan shall be deemed to be an agreement, consideration, inducement, or condition of employment. (d) Successors. The obligations of any Employer under the Plan shall be binding and enforceable upon any successor entity. (e) Governing Law; Venue; Limitations Period. The Plan shall be construed in accordance with the laws of the State of Florida to the extent not preempted by ERISA. Any legal action or proceeding hereunder may be brought only following exhaustion of the Participant's administrative remedies and within a period of three years from the date the claim was incurred, unless other applicable law would permit a longer period of time within which to bring an action. Any such legal action or proceeding may be initiated only in Dade County, Florida or the county in which the Employer of the Participant has its principal place of business. IN WITNESS WHEREOF, the Company has caused this Knight-Ridder, Inc. Annual Incentive Deferral Plan to be signed effective as provided above. KNIGHT-RIDDER, INC. By:_____________________________________ EX-10 6 kri_ex10h.txt EXHIBIT 10(H) Exhibit 10 (h) FIRST AMENDMENT TO THE KNIGHT-RIDDER, INC. ANNUAL INCENTIVE DEFERRAL PLAN This First Amendment to the Knight-Ridder, Inc. Annual Incentive Deferral Plan (the "Plan") is adopted by Knight-Ridder, Inc. (the "Employer") effective as provided herein. WHEREAS, the Employer adopted the Plan effective November 1, 1996 as an unfunded deferred compensation plan maintained primarily to provide deferred compensation for eligible Participants, all of whom are members of a select group of management or highly compensated employees of the Employer; and WHEREAS, the Employer desires to amend the Plan concerning the installment payments provided under the Plan; and WHEREAS, Section 13 of the Plan permits amendment of the Plan by the Employer. NOW, THEREFORE, this First Amendment is executed effective with respect to elections made on or after May 15, 1998 to receive installment payments under the Plan: Section 6(c) of the Plan is amended to read as follows: (c) Election of Installment Payments. Notwithstanding the foregoing, a Participant may elect to receive distribution of all, but not less than all, of his or her Deferral Accounts in up to five substantially equal annual installments, with the first payment to be made on the Distribution Date provided under subsection 6(a), above, with the remaining annual installments to be made as near as possible to the same date in each subsequent year until complete distribution of the Participant's Deferral Account. An election for distribution to occur in installments must be made in the form and manner provided by the Plan Administrator and at least six months before the Distribution Date that otherwise would apply under subsection 6(a). A Participant's election to receive installment payments may be changed only if the revised election is made at least six months before the Distribution Date that otherwise would apply under subsection 6(a). KNIGHT-RIDDER, INC. has caused this First Amendment to the Knight-Ridder, Inc. Annual Incentive Deferral Plan, to be executed effective as provided above. KNIGHT-RIDDER, INC. By: Name and Title: EX-10 7 kri_ex10i.txt EXHIBIT 10(I) Exhibit 10 (i) SECOND AMENDMENT TO THE KNIGHT-RIDDER, INC. ANNUAL INCENTIVE DEFERRAL PLAN This Second Amendment to the Knight-Ridder, Inc. Annual Incentive Deferral Plan (the "Plan") is adopted by Knight-Ridder, Inc. (the "Employer") effective as provided herein. WHEREAS, the Employer adopted the Plan effective November 1, 1996 as an unfunded deferred compensation plan maintained primarily to provide deferred compensation for eligible Participants, all of whom are members of a select group of management or highly compensated employees of the Employer, and adopted one amendment thereto; and WHEREAS, the Employer desires to amend the Plan generally concerning the deferral of an employee's compensation and concerning a contribution to the Plan by the Employer; and WHEREAS, Section 13 of the Plan permits amendment of the Plan by the Employer. NOW, THEREFORE, this Second Amendment is adopted effective January 1, 2000: 1. Section 3(b) of the Plan is amended to read as follows: (b) 1997 and Subsequent Elections. Except as provided in the following sentence, during November 1997 and in each subsequent year that this Plan remains in effect in accordance with procedures that the Committee develops, each Participant shall be entitled to elect to defer receipt of any percentage of the MBO Bonus or any percentage of Compensation established by the Committee as eligible for deferral hereunder that the Participant otherwise would be entitled to receive from the Employer for services performed in the calendar year immediately following the year of election. Notwithstanding the foregoing, within 30 days after the date the Participant first becomes eligible to participate in the Plan and at such other dates as the Committee may permit, a Participant may make an election to defer Compensation for services to be performed after, and during the Plan Year of, the election. 2. Section 4 of the Plan is amended to read as follows: TRANSFER TO TRUSTEE. In order to assist the Company in providing for the payment of deferred compensation under the Plan, the Company will establish the Knight-Ridder, Inc. Annual Incentive Deferral Plan Trust (the "Trust") and shall transfer to the then acting trustee of the Trust (the "Trustee") on behalf of each Employer an amount equal to each Participant's Amount Deferred, within 15 business days following the close of the month during which the Amount Deferred otherwise would have been paid to the Participant but for the Participant's Deferral Election. From time to time and as determined by the Company in its sole discretion, the Company may contribute an additional amount to the Trust on behalf of any Participant. Any such additional amount shall be considered as an "Amount Deferred" for the Participant for all purposes of the Plan and Trust. Thereafter, all such amounts shall be invested and reinvested as determined by such Trustee, as permitted by the Plan, and, so long as not otherwise prohibited by the terms of the Trust, paid from the Trust to each Participant or his Beneficiary in satisfaction of the Plan's payment obligation hereunder. The Trust and any assets held by the Trust to assist the Plan in meeting its obligations hereunder will conform to the substantive terms of the trust described in Internal Revenue Service Revenue Procedure 92-64. KNIGHT-RIDDER, INC. has executed this Second Amendment to the Knight-Ridder, Inc. Annual Incentive Deferral Plan effective January 1, 2000. KNIGHT-RIDDER, INC. By:_____________________________________ Mary Jean Connors, Senior Vice President Date:___________________________________ 2 EX-10 8 kri_ex10j.txt EXHIBIT 10(J) Exhibit 10 (j) THIRD AMENDMENT TO THE KNIGHT-RIDDER, INC. ANNUAL INCENTIVE DEFERRAL PLAN This Third Amendment to the Knight-Ridder, Inc. Annual Incentive Deferral Plan (the "Plan") is adopted by Knight-Ridder, Inc. (the "Employer") effective as provided herein. WHEREAS, the Employer adopted the Plan effective November 1, 1996 as an unfunded deferred compensation plan maintained primarily to provide deferred compensation for eligible Participants, all of whom are members of a select group of management or highly compensated employees of the Employer, and adopted two amendments thereto; and WHEREAS, the Plan provides that only employees who are eligible to participate in the Knight Ridder Annual Incentive Plan (MBO) may participate; and WHEREAS, the Employer desires to permit participation by designated employees in addition to those who are eligible to participate in the Annual Incentive (MBO) Plan ; and WHEREAS, Section 13 of the Plan permits amendment of the Plan by the Employer. NOW, THEREFORE, Section 2(s) of the Plan is amended to read as follows, effective October 1, 2001: (s) "Participant" means each Employee who (i) is eligible to participate in the Knight Ridder Annual Incentive (MBO) Plan or (ii) is designated by the Company from time to time, in its sole discretion, as eligible to participate and is a member of a select group of management or highly compensated Employees. KNIGHT-RIDDER, INC. has caused this Third Amendment to the Knight-Ridder, Inc. Annual Incentive Deferral Plan, to be executed effective as provided above. KNIGHT-RIDDER, INC. By:_____________________________________ Its:____________________________________ Date: __________________________________ EX-12 9 knight-ex12.txt EXHIBIT 12 Exhibit 12 COMPUTATION OF EARNINGS TO FIXED CHARGES RATIO Exhibit 12 FROM CONTINUING OPERATIONS (IN THOUSANDS OF DOLLARS, EXCEPT RATIO DATA)
YEAR ENDED -------------------------------------------------------------------------------- December 30, December 31, December 26, December 27, December 28, 2001 2000 1999 1998 1997 ------------ ------------ ------------ ------------ ------------ FIXED CHARGES COMPUTATION INTEREST EXPENSE: NET INTEREST EXPENSE $ 98,872 $ 114,422 $ 92,247 $ 101,420 $ 97,286 PLUS CAPITALIZED INTEREST 1,961 2,230 5,197 4,516 5,376 ------------ ------------ ------------ ------------ ------------ GROSS INTEREST EXPENSE 100,833 116,652 97,444 105,936 102,662 PROPORTIONATE SHARE OF INTEREST EXPENSE OF 50% OWNED PERSONS 1,948 INTEREST COMPONENT OF RENT EXPENSE 8,641 8,774 8,229 7,688 6,671 ------------ ------------ ------------ ------------ ------------ TOTAL FIXED CHARGES $ 109,474 $ 125,426 $ 105,673 $ 113,624 $ 111,281 ============ ============ ============ ============ ============ EARNINGS COMPUTATION PRETAX EARNINGS $ 307,399 $ 525,290 $ 568,015 $ 507,916 $ 693,852 ADD: FIXED CHARGES 109,474 125,426 105,673 113,624 111,281 LESS: CAPITALIZED INTEREST (1,961) (2,230) (5,197) (4,516) (5,376) ADD: DISTRIBUTIONS IN EXCESS OF (LESS THAN) EARNINGS OF INVESTEES 32,519 1,505 2,506 (21,856) (7,675) ------------ ------------ ------------ ------------ ------------ TOTAL EARNINGS AS ADJUSTED $ 447,431 $ 649,991 $ 670,997 $ 595,168 $ 792,082 ============ ============ ============ ============ ============ RATIO OF EARNINGS TO FIXED CHARGES 4.1:1 5.2:1 6.3:1 5.2:1 7.1:1 ============ ============ ============ ============ ============
EX-21 10 kri_ex21.txt EXHIBIT 21 EXHIBIT 21 SUBSIDIARIES OF KNIGHT-RIDDER, INC.
Company Name State of Incorporation Aberdeen News Company Delaware Bay Area Media, Inc. Delaware The Beacon Journal Publishing Company Ohio Biscayne Bay Publishing, Inc. Florida Aboard Publishing, Inc. Florida The Bradenton Herald, Inc. Florida Circom Corporation Pennsylvania Contra Costa Newspapers, Inc. California Cypress Media, Inc. New York Cypress Media, LLC Delaware Mail Advertising Corporation of Abilene Texas Belleville News-Democrat * HLB Newspapers, Inc. Missouri Belton Publishing Company, Inc. Missouri Cass County Publishing Company, Inc. Missouri Lee's Summit Journal, Inc. Missouri Kansas City Star * Keltatim Publishing Company, Inc. Kansas Nor-Tex Publishing, Inc. Texas Quad County Publishing, Inc. Illinois Star-Telegram Operating, Ltd. Texas Fort Worth Star-Telegram * Sales Results, Inc. Illinois Wilkes-Barre Times Leader * Dagren, Inc. Florida Daily Sun, Inc. dba The Warner Robins Daily Sun Georgia Detroit Free Press, Incorporated Michigan Double A Publishing, Inc. Florida The Gables Publishing Company, Inc. Florida Grand Forks Herald, Incorporated Delaware Gulf Publishing Company, Inc. Mississippi Hills Publications, Inc. California Keynoter Publishing Company, Inc. Florida Knight News Services, Inc. Michigan The Knight Publishing Co. Delaware Knight Ridder Digital Delaware Career Holdings, Inc. - 50% Interest Delaware Knight-Ridder Financial/Japan, Inc. Delaware Knight-Ridder International, Inc. Delaware KR U.S.A., Inc. Delaware Knight-Ridder Investment Company Delaware Knight-Ridder Leasing Company Florida Knight-Ridder Newspaper Sales, Inc. New York Knight-Ridder Shared Services, Inc. Florida Knight Ridder Resources, Inc. Florida Knight Ridder Ventures, LLC Delaware KR Net Ventures, Inc. Delaware KR Newsprint Company Florida KR Publication Services, Inc. Delaware KR Video, Inc. Delaware KRI Property, Inc. Florida Lexington H-L Services, Inc. Kentucky LEXHL Ltd. Partnership Kentucky Lexington Press Inc. Kentucky The Macon Telegraph Publishing Company Georgia MediaStream, Inc. Delaware MHPC International, Inc. Florida The Miami Herald Publishing Company * Monterey Newspapers, Inc. Colorado The Monterey County Herald * San Luis Obispo Telegraph-Tribune * News Publishing Company Indiana Fort Wayne Newspapers, Inc. Indiana Nittany Printing and Publishing Company Pennsylvania Northwest Publications, Inc. Delaware Duluth News-Tribune & Herald * Saint Paul Pioneer Press * Twin Cities Shopper, Inc. Delaware The Observer Transportation Company North Carolina Philadelphia Newspapers, Inc. Pennsylvania IT-HR, Inc. Delaware Marketplace Advertising, Inc. Pennsylvania Phillytech, Inc. Pennsylvania ProMedia Publishing Company dba Broadstreet Community Delaware Newspapers, Inc. Philadelphia Online, Inc. Delaware Richwood, Inc. Florida Ridder Publications, Inc. Delaware KR Land Holding Corporation Delaware Runways Pub., Inc. Delaware The R.W. Page Corporation Georgia San Jose Mercury News, Inc. California Silicon Valley D.A.T.A., Inc. California The State-Record Company, Inc. Delaware Sun Publishing Company, Inc. South Carolina Tallahassee Democrat, Inc. Florida Tribune Newsprint Company Utah Twin Cities Newspaper Services, Inc. Minnesota Warner Robins Shopper, Inc. South Carolina Wichita Eagle and Beacon Publishing Company, Inc. Kansas
* The entity listed is a division, not a legal entity. EX-23 11 ex_23.txt EXHIBIT 23 Exhibit 23 Consent of Independent Auditors We consent to the incorporation by reference in Registration Statement No. 333-68171 on Form S-8 dated December 1, 1998, in the Registration Statement No. 333-80163 on Form S-8 dated June 8, 1999, in Registration Statement No. 333-64286 on Form S-3 dated June 29, 2001, in Registration Statement No. 333-89016 on Form S-8 dated May 24, 2002 of Knight-Ridder, Inc. and in the related Prospectuses, of our report dated January 18, 2002, with respect to the consolidated financial statements and schedule of Knight-Ridder, Inc. included in this Annual Report (Form 10-K/A) for the year ended December 30, 2001. /s/ Ernst & Young LLP San Jose, California December 11, 2002 EX-24 12 ex_24.txt EXHIBIT 24 EXHIBIT 24 POWER OF ATTORNEY The undersigned member of the Board of Directors of Knight-Ridder, Inc., does hereby constitute and appoint Gary R. Effren, Gordon Yamate and Polk Laffoon, and each of them, his/her true and lawful attorney-in-fact and agents, with full power of substitution and resubstitution for him/her in his/her name, place and stead in any and all capacities to sign any and all Reports on Form 10-K for the fiscal year ended December 30, 2001 (Annual Report pursuant to the Securities Exchange Act of 1934) and any amendments thereto and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission granting unto said attorneys-in-fact and agents and each of them full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or the undersigned substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEROF, the undersigned has signed his/her name hereto on the date set forth opposite his or her name. March 20, 2002 James I. Cash, Jr.* ------------------------------------ James I. Cash, Jr. March 20, 2002 Kathleen Foley Feldstein* ------------------------------------ Kathleen Foley Feldstein March 20, 2002 Thomas P. Gerrity* ------------------------------------ Thomas P. Gerrity March 20, 2002 Barbara Barnes Hauptfuhrer* ------------------------------------ Barbara Barnes Hauptfuhrer March 20, 2002 Pat Mitchell * ------------------------------------ Pat Mitchell March 20, 2002 M. Kenneth Oshman* ------------------------------------ M. Kenneth Oshman March 20, 2002 P. Anthony Ridder* ------------------------------------ P. Anthony Ridder March 20, 2002 Randall L. Tobias* ------------------------------------ Randall L. Tobias March 20, 2002 Gonzalo F. Valdes-Fauli* ------------------------------------ Gonzalo F. Valdes-Fauli March 20, 2002 John L. Weinberg* ------------------------------------ John L. Weinberg -----END PRIVACY-ENHANCED MESSAGE-----