Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 26, 1999
Commission file number 1-7553
KNIGHT-RIDDER, INC.
(Exact name of registrant as specified in its charter)
Florida 38-0723657
(State or other jurisdiction) (I.R.S. Employer Identification No.)
50 W. SAN FERNANDO ST., SAN JOSE, CA 95113
(Address of principal executive offices)
(408) 938-7700
(Registrant's telephone number, including area code)
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
Frankfurt Stock Exchange
Philadelphia Stock Exchange
Chicago Stock Exchange
Boston Stock Exchange
Pacific Exchange
Cincinnati 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 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 amendments to
this Form 10-K. [ ]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. The aggregate market value is computed by reference to the price
at which the stock was sold as of March 3, 2000: $3,681,884,942.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date: March 3, 2000 - 78,934,708 one
class Common Stock, $.02 1/12 Par Value
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of registrant's definitive Proxy Statement in connection with the
Annual Meeting of Shareholders to be held on April 25, 2000, to be filed with
the Securities and Exchange Commission, are incorporated by reference into Part
III.
Table of Contents for 1999 Form 10-K
Page
PART I
Item 1. Business 2
Item 2. Properties 6
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of Security Holders 7
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters 7
Item 6. Selected Financial Data 8
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Item 7A. Quantitative and Qualitative Disclosures About Market Risks 19
Item 8. Financial Statements and Supplementary Data 19
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 46
PART III
Item 10. Directors and Executive Officers of the Registrant 46
Item 11. Executive Compensation 49
Item 12. Security Ownership of Certain Beneficial Owners and
Management 49
Item 13. Certain Relationships and Related Transactions 49
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 50
SIGNATURES 53
SCHEDULES 56
EXHIBITS 56
1
PART I
Item 1. BUSINESS
THE COMPANY
Knight-Ridder, Inc., 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 StaatsZeitung 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, Inc., incorporated in Florida in 1976, is headquartered in San
Jose, California, and employs about 22,000 people.
NEWSPAPERS
Knight Ridder had 31 daily newspapers and 22 nondaily newspapers at the end of
1999.
Newspaper operating revenue is derived primarily from the sale of newspaper
advertising. Due to seasonal factors such as heavier retail selling during the
winter and spring holiday seasons, advertising income fluctuates significantly
throughout the year. 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 appointed by 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 services and
quality control also are provided by the corporate staff.
Each newspaper is served by the company-owned news bureau in Washington, D.C. A
supplemental news service provided by KRT Information Services, a partnership
between Knight Ridder and Tribune Co., distributes editorial material produced
by all Knight Ridder newspapers and by 15 foreign correspondents. The service
also distributes editorial computer graphics and deadline photos via the Knight
Ridder-owned PressLink Online.
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.
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 1999, 1998 and 1997. The
percentage contributions of each paper to operating revenue are not necessarily
indicative of contributions to operating profit.
2
1999 1998 1997
---- ---- ----
SOURCE OF KNIGHT RIDDER OPERATING REVENUE
The Philadelphia Inquirer and
Philadelphia Daily News 18.8% 18.8% 19.0%
The Miami Herald 10.4 10.6 11.4
San Jose Mercury News 9.5 9.3 10.4
The Kansas City Star(1) 8.5 8.7 6.1
Fort Worth Star-Telegram(1) 7.3 7.1 4.9
Detroit Free Press(2) 7.2 7.3 7.0
The Charlotte Observer 6.1 6.0 6.2
Contra Costa Newspapers 4.1 3.9 3.9
Saint Paul Pioneer Press 4.0 4.0 4.1
Akron Beacon Journal 3.3 3.3 3.6
All other 20.8 21.0 23.4
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
(1) The Kansas City Star and Fort Worth Star-Telegram were acquired on May 9,
1997. This table presents their part-year contribution percentage in 1997.
(2) Knight Ridder portion of Detroit Newspapers
NEWSPRINT
Knight Ridder consumed approximately 801,000 metric tons of newsprint in 1999.
Approximately 15.2% of the company's total operating expenses during the year
were for newsprint. Purchases are made under long-term agreements with 18
newsprint producers. Knight Ridder purchases approximately 60% of its annual
consumption from United States mills, with 35% purchased from 17 mills in Canada
and 5% 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% recycled fiber.
This translates into an overall recycled newsprint average of 39.2%.
Knight Ridder is a one-third partner with Cox Enterprises and Media General,
Inc., in SP Newsprint Co., formerly Southeast Paper Manufacturing Co. It is the
fifth-largest newsprint manufacturing company in North America. It recently
acquired Smurfit Newsprint Corporation's Newberg, Ore., mill.
3
SP's mill in Dublin, Ga., produces more than 500,000 metric tons per year of
100% recycled content newsprint. The Newberg plant produces more than 363,000
metric tons per year of newsprint with at least 55% recycled content.
SP provides recycled content newsprint to its owners and more than 200
publishers and commercial printers. Its SP Recycling Corp. subsidiary will
recycle more than 1.2 million short tons of recovered material annually.
Knight Ridder also owns a 13.5% equity share of Ponderay Newsprint Company in
Usk, Wash., which produced more than 242,000 metric tons in 1999.
Knight Ridder's purchases from these three newsprint companies will be
approximately 40% of its annual consumption for 2000, providing an important
hedge against price volatility and a secure source of supply.
TECHNOLOGY
YEAR 2000 READINESS: During 1999, the company focused on preparing its
technology infrastructure for the Year 2000. All significant operations were Y2K
capable by year end. For further information, see page 16, Year 2000 Readiness
Disclosure.
A major press replacement project was completed at the Fort Worth Star- Telegram
in 1999. Another, at The Miami Herald, is due for completion during 2000.
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, Detroit Newspapers and
several leading independents. It allows customers to place ads in a combination
of newspapers.
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 of the Knight Ridder newspapers and more than 500
others. Like Newspapers First, it makes the purchase of newspaper advertising a
"one-stop shopping," "one-order, one-bill" prospect.
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 daily Inquirer, Sunday Inquirer and the
Daily News is 66% of all adults in the region. Together, the papers have won 19
Pulitzer Prizes. Revenue in 1999 was $607.0 million.
The Philadelphia Primary Metropolitan Statistical Area (PMSA) population is
expected to decline 0.1% between 1999 and 2004, compared with an increase of
4.2% for the United States. In 1999, Philadelphia had income per capita 15.3%
above the U.S. average; by 2004 it is projected to be 16.2% above.
4
The Miami Herald/el Nuevo Herald
The Miami Herald, Florida's largest Sunday newspaper, is sold primarily in
Miami-Dade, Broward and Monroe counties. It is also distributed in 29 countries
in Latin America and the Caribbean, primarily through its International
Satellite Edition. El Nuevo Herald, one of the fastest-growing U.S. dailies,
serves the growing Spanish-speaking population of Miami-Dade and Broward
counties. It is the 12th-largest paper in Florida. Revenue in 1999 was $309.9
million for The Miami Herald and $26.8 million for the el Nuevo Herald. In 1999,
The Herald won its 16th Pulitzer Prize, for investigative journalism.
The Miami-Fort Lauderdale designated Market Area (DMA) population is expected to
grow 6.5% between 1999 and 2004, compared with 4.2% for the United States. In
1999, the DMA had income per capita 5.5% below the U.S. average; by 2004 it is
projected to be 11.1% below.
San Jose Mercury News
The San Jose Mercury News, the newspaper of Silicon Valley, reaches close to
800,000 readers daily and serves one of the most prosperous 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 second nationally in exports.
Revenue in 1999 was $306.3 million. The Mercury News recently was named one of
the nation's top 10 newspapers in a survey by the Columbia Journalism Review.
The population of the San Jose Primary Metropolitan Statistical Area, which
includes only Santa Clara County, is expected to grow 6.0% between 1999 and
2004; the U.S. average is 4.2%. In 1999, San Jose had income per capita that was
52.4% above the U.S. average; by 2004 it is projected to be 55.5% above.
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. Revenue in 1999
was $274.5 million.
The Kansas City Metropolitan Statistical Area population is expected to grow
4.4% between 1999 and 2004, compared with 4.2% for the United States. Kansas
City in 1999 had income per capita 7.8% above the U.S. average; by 2004 it is
projected to be 9.6% above.
Fort Worth Star-Telegram
The Star-Telegram serves the booming western portion of the Dallas/Fort Worth
market, the nation's ninth-largest metropolitan area. The four-county Fort
Worth/Arlington PMSA metropolitan area ranks as the third-largest in Texas.
Revenue in 1999 was $236.8 million.
Fort Worth/Arlington's population is expected to grow 8.9% between 1999 and
2004, compared with 4.2% for the United States. In 1999, Fort Worth/Arlington
had income per capita 4.5% above the U.S. average; by 2004 it is projected to be
4.8% above.
5
Detroit Free Press
The Detroit Free Press, Michigan's oldest daily newspaper, is sold primarily in
the six-county area surrounding Detroit. It covers and is sold throughout the
state, 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 an a.m. paper; The News, owned by Gannett, is p.m. On weekends, they publish
combined editions. Knight Ridder's share of revenue in 1999 was $232.1 million.
The population of the Detroit Primary Metropolitan Statistical Area is expected
to grow 1.8% between 1999 and 2004, compared with 4.2% for the United States.
Detroit in 1999 had income per capita 10.8% above the U.S. average; in 2004 it
is projected to be 11.5% above.
The Charlotte Observer
The Charlotte Observer, the largest-circulation daily in both Carolinas, is sold
primarily in a 15-county region across the two states. Revenue in 1999 was
$197.0 million.
Population in the Charlotte Metropolitan Statistical Area is projected to grow
8.2% between 1999 and 2004, compared with the U.S. average of 4.2%. Charlotte in
1999 had per capita income 9.3% above the U.S. average; in 2004 it is projected
to be 13.7% above.
Online Activities
The company announced in the fourth quarter of 1999 the creation of
KnightRidder.com, which will consolidate all of the company's Internet
operations as a separate business unit by the end of the first quarter of 2000.
Historically, Knight Ridder's Internet activities have been reported and managed
as a part of the company's newspaper operations, but once the transition to a
stand-alone business unit is made, they will be reported and managed separately.
KnightRidder.com will continue to operate and manage the Real Cities network,
which now consists of all Knight Ridder Web sites as well as those of several
other media affiliates. Revenue from Real Cities sites increased by 75.4% in
1999, to $31.4 million. The company expects significant growth from these
operations in 2000.
Item 2. PROPERTIES
Knight Ridder has daily newspaper facilities in 28 markets situated in 17
states. These facilities vary in size from 4,900 square feet at The Monterey
County Herald operation in Monterey, Calif., to 2.9 million square feet in
Philadelphia. In total, they occupy about 9.1 million square feet. Approximately
2.1 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, Ga., and Detroit.
Knight Ridder properties are maintained in excellent operating condition and are
suitable for present and foreseeable operations. During the three years ended
Dec. 26, 1999, the company spent approximately $331.2 million for capital
additions and improvements to its existing properties.
Item 3. LEGAL PROCEEDINGS
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 lengthy 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.
On Aug. 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. The case is
pending in the U.S. Court of Appeals. The case is currently being briefed and
oral argument has been set for May 2000.
Various libel actions and environmental and other legal proceedings that have
arisen in the ordinary course of business are pending against the company and
its subsidiaries. In the opinion of management, the ultimate liability to the
company and its subsidiaries as a result of all legal proceedings, including
Detroit, will not be material to its financial position or results of
operations, on a consolidated basis.
6
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the vote of security holders of Knight-Ridder, Inc.
during the three months ended December 26, 1999.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
KRI Stock
Knight Ridder common stock is listed on the New York Stock Exchange and the
Frankfurt Stock Exchange under the symbol KRI.
The stock is also traded in 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 79.6 million shares outstanding at December 26, 1999 were held in
all 50 states by 11,014 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 $47.0625 on March 3, 2000.
The average stock trading volume per day for the years 1999, 1998 and 1997 was
417,000, 242,000 and 271,000, respectively. The following table presents the
company's common stock market data:
1999 1998
---------------------- ----------------------
Quarter High Low High Low
- ------- -------- ------- ------ ------
1st 53 1/8 46 57 3/8 50 7/16
2nd 56 15/16 48 7/16 59 5/8 53 1/8
3rd 56 9/16 52 11/16 57 3/4 44
4th 65 52 5/8 54 15/16 40 1/2
Treasury Stock Purchases
The table below is a summary of treasury stock purchases since 1989:
Shares Cost
Purchased (000s)
- ---------------------------------------------------
1999 3,703,817 $ 210,141
1998 4,725,000 255,533
1997 13,824,300 643,375
1996 6,219,100 221,768
1995 11,508,600 319,363
1994 5,044,600 136,977
1993 1,500,000 40,693
1992
1991
1990 5,325,400 129,909
1989 5,522,200 131,885
Dividends
Common stock dividend history and policy appears in Item 6, "11 Year Financial
Highlights" and Item 8, "Financial Statements and Supplementary Data", Note 8 to
the consolidated financial statements.
7
Item 6. SELECTED FINANCIAL DATA
11-YEAR FINANCIAL HIGHLIGHTS
The following data were 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 Dec. 26, 1999 (pages 19 through
44 should be read in order to obtain a better understanding of this data.
Compound
Growth Rate
(In thousands, except per ----------------------- Dec. 26 Dec. 27 Dec. 28
share data and ratios) 5-Year 10-Year 1999 1998 1997
------- ------- ----------- ----------- -----------
SUMMARY OF OPERATIONS
Operating Revenue
Advertising 9.3% 4.6% $ 2,468,903 $ 2,362,859 $ 2,202,251
Circulation 3.6 4.2 578,769 587,529 567,757
Other 21.9 18.8 180,553 141,531 106,777
----------- ----------- -----------
Total Operating Revenue 8.6 4.9 3,228,225 3,091,919 2,876,785
----------- ----------- -----------
Operating Costs
Labor, newsprint and other
operating costs 6.9 4.2 2,414,621 2,399,249 2,214,026
Depreciation and amortization 14.4 7.5 189,354 188,052 156,731
----------- ----------- -----------
Total Operating Costs 7.3 4.4 2,603,975 2,587,301 2,370,757
----------- ----------- -----------
Operating Income 15.2 7.3 624,250 504,618 506,028
Interest expense 17.1 1.4 (97.444) (105,936) (102,662)
Other, net(1) 87.0 (3.3) 41,209 109,234 290,486
Income taxes, net 16.5 7.7 (228,076) (202,285) (297,348)
Income from continuing operations(1) 16.4 6.9 339,939 305,631 396,504
Discontinued BIS operations(2) 60,226 16,511
Discontinued broadcast operations(2)
Cumulative effect of changes in
accounting principles(3)
----------- ----------- -----------
Net Income(1) 14.7 3.2 $ 339,939 $ 365,857 $ 413,015
====== ====== =========== =========== ===========
Operating income percentage
(profit margin) 19.3% 16.3% 17.6%
- -------------------------------------------------------------------------------------------------------------------------------
SHARE DATA(4)
Basic weighted-average number of
shares 80,025 78,882 88,475
Diluted weighted-average number
of shares 97,460 98,176 101,314
Earnings per share
Basic: Continuing operations(1) 22.4 9.2 $ 4.07 $ 3.70 $ 4.40
Discontinued BIS
operations(2) 0.77 0.19
Discontinued broadcast
operations (2)
Cumulative effect of
changes in accounting
principles(3)
Net income(1) 20.8 5.4 4.07 4.47 4.59
Diluted: Continuing operations(1) 18.9 7.7 $ 3.49 $ 3.11 $ 3.91
Discontinued BIS
operations(2) 0.62 0.17
Discontinued broadcast
operations(2)
Cumulative effect of
changes in accounting
principles(3)
Net income(1) 17.3 4.0 3.49 3.73 4.08
Dividends declared per common
share(5) 4.0 3.6 0.89 0.80 0.80
Common stock price: High 65 59 5/8 57 1/8
Low 46 40 1/2 35 3/4
Close 58 15/16 50 13/16 50 3/16
Shareholders' equity per
common share 10.5 7.9 $ 19.07 $ 17.33 $ 15.65
Price/earnings ratio(6) 16.9 13.6 12.3
Adjusted price/earnings ratio(7) 17.9 19.3 21.8
- -------------------------------------------------------------------------------------------------------------------------------
OTHER FINANCIAL DATA
Treasury Stock Purchases:
Number of shares 3,704 4,725 13,824
Cost $ 210,141 $ 255,533 $ 643,375
Payment of cash dividends 85,526 77,152 78,335
Ratio of earnings to fixed
charges(8) 6.2 5.3 7.1
At year end
Total assets $ 4,192,334 $ 4,257,097 $ 4,355,142
Long-term debt (excluding
current maturities) 1,260,814 1,329,001 1,599,133
Total debt 1,300,754 1,527,278 1,668,830
Shareholders' equity 1,780,684 1,662,731 1,551,673
Return on average shareholders'
equity(9) 19.8% 22.8% 30.8%
Current ratio 1.1 0.8 1.1
Total debt/total capital ratio 42.2% 47.9% 51.8%
8
11-YEAR FINANCIAL HIGHLIGHTS
(In thousands, except per Dec. 29 Dec. 31 Dec. 25 Dec. 26
share data and ratios) 1996 1995 1994 1993
----------- ----------- ----------- -----------
SUMMARY OF OPERATIONS
Operating Revenue
Advertising $ 1,793,424 $ 1,672,970 $ 1,583,373 $ 1,481,631
Circulation 501,826 495,315 484,581 474,420
Other 78,974 81,897 66,968 56,772
----------- ----------- ----------- -----------
Total Operating Revenue 2,374,224 2,250,182 2,134,922 2,012,823
----------- ----------- ----------- -----------
Operating Costs
Labor, newsprint and other
operating costs 1,920,444 1,923,179 1,730,158 1,655,138
Depreciation and amortization 120,647 98,741 96,613 96,233
----------- ----------- ----------- -----------
Total Operating Costs 2,041,091 2,021,920 1,826,771 1,751,371
----------- ----------- ----------- -----------
Operating Income 333,133 228,262 308,151 261,452
Interest expense (73,137) (59,512) (44,216) (44,403)
Other, net(1) 50,213 14,067 1,802 2,987
Income taxes, net (124,829) (72,861) (106,493) (83,281)
----------- ----------- ----------- -----------
Income from continuing operations(1) 185,380 109,956 159,244 136,755
Discontinued BIS operations(2) 82,493 57,426 11,656 11,334
Discontinued broadcast operations(2)
Cumulative effect of changes in
accounting principles(3) (7,320)
----------- ----------- ----------- -----------
Net Income(1) $ 267,873 $ 160,062 $ 170,900 $ 148,089
=========== =========== =========== ===========
Operating income percentage
(profit margin) 14.0% 10.1% 14.4% 13.0%
- ------------------------------------------------------------------------------------------------------------
SHARE DATA(4)
Basic weighted-average number of
shares 96,021 99,451 107,888 109,702
Diluted weighted-average number
of shares 97,420 100,196 108,551 110,663
Earnings per share
Basic: Continuing operations(1) $ 1.93 $ 1.11 $ 1.48 $ 1.25
Discontinued BIS operations(2) 0.86 0.57 0.10 0.10
Discontinued broadcast
operations(2)
Cumulative effect of changes
in accounting principles(3) (0.07)
Net income(1) 2.79 1.61 1.58 1.35
Diluted:Continuing operations(1) $ 1.90 $ 1.10 $ 1.47 $ 1.24
Discontinued BIS operations(2) 0.85 0.57 0.10 0.10
Discontinued broadcast
Cumulative effect of changes
in accounting
principles(3) (0.07)
Net income(1) 2.75 1.60 1.57 1.34
Dividends declared per common
share(5) 0.58 1/2 0.74 0.73 0.70
Common stock price: High 42 33 5/16 30 1/2 32 1/2
Low 29 7/8 25 1/8 23 1/4 25 5/16
Close 39 1/4 31 1/4 25 7/16 29 11/16
Shareholders' equity per common
share $ 12.12 $ 11.43 $ 11.58 $ 11.33
Price/earnings ratio(6) 14.3 19.5 16.2 22.2
Adjusted price/earnings ratio(7) 21.6 28.4 17.3 23.9
- ------------------------------------------------------------------------------------------------------------
OTHER FINANCIAL DATA
Treasury Stock Purchases:
Number of shares 6,219 11,509 5,045 1,500
Cost $ 221,768 $ 319,363 $ 136,977 $ 40,693
Payment of cash dividends 74,262 74,377 77,942 76,787
Ratio of earnings to fixed
charges(8) 4.0 3.2 5.2 4.4
At year end
Total assets $ 2,860,907 $ 2,966,321 $ 2,409,239 $ 2,399,067
Long-term debt (excluding
current maturities) 771,335 1,000,721 411,504 410,388
Total debt 821,335 1,013,850 411,504 451,075
Shareholders' equity 1,131,508 1,110,970 1,224,654 1,243,169
Return on average shareholders'
equity(9) 23.9% 14.3% 13.9% 12.2%
Current ratio 1.0 1.1 1.0 1.0
Total debt/total capital ratio 42.1% 47.7% 25.2% 26.6%
9
11-YEAR FINANCIAL HIGHLIGHTS (Continued)
(In thousands, except per Dec. 27 Dec. 29 Dec. 30 Dec. 31
share data and ratios) 1992 1991 1990 1989
----------- ----------- ----------- -----------
SUMMARY OF OPERATIONS
Operating Revenue
Advertising $ 1,444,144 $ 1,429,661 $ 1,556,932 $ 1,577,449
Circulation 460,014 439,029 403,188 385,214
Other 39,932 35,127 31,981 32,212
----------- ----------- ----------- -----------
Total Operating Revenue 1,944,090 1,903,817 1,992,101 1,994,875
----------- ----------- ----------- -----------
Operating Costs
Labor, newsprint and other
operating costs 1,597,983 1,593,847 1,617,138 1,593,186
Depreciation and amortization 89,665 86,896 91,553 91,780
----------- ----------- ----------- -----------
Total Operating Costs 1,687,648 1,680,743 1,708,691 1,684,966
----------- ----------- ----------- -----------
Operating Income 256,442 223,074 283,410 309,909
Interest expense (52,358) (68,806) (71,784) (84,492)
Other, net(1) 13,868 35,832 17,019 57,505
Income taxes, net (82,496) (67,965) (88,076) (108,883)
----------- ----------- ----------- -----------
Income from continuing operations(1) 135,456 122,135 140,569 174,039
Discontinued BIS operations(2) 10,630 9,933 8,476 5,797
Discontinued broadcast operations(2) 67,366
Cumulative effect of changes in
accounting principles(3) (105,200)
----------- ----------- ----------- -----------
Net Income(1) $ 40,886 $ 132,068 $ 149,045 $ 247,202
=========== =========== =========== ===========
Operating income percentage
(profit margin) 13.2% 11.7% 14.2% 15.5%
- ------------------------------------------------------------------------------------------------------------
SHARE DATA(4)
Basic weighted-average number of
shares 108,948 102,586 100,098 103,110
Diluted weighted-average number
of shares 110,356 103,594 101,366 104,878
Earnings per share
Basic: Continuing operations(1) $ 1.24 $ 1.19 $ 1.40 $ 1.69
Discontinued BIS operations(2) 0.11 0.10 0.09 0.06
Discontinued broadcast
operations(2) 0.65
Cumulative effect of changes
in accounting principles(3) (0.97)
Net income(1) 0.38 1.29 1.49 2.40
Diluted: Continuing operations(1) $ 1.22 $ 1.18 $ 1.39 $ 1.66
Discontinued BIS operations(2) 0.10 0.09 0.08 0.06
Discontinued broadcast 0.64
Cumulative effect of changes in
accounting principles(3) (0.95)
Net income(1) 0.37 1.27 1.47 2.36
Dividends declared per common
share(5) 0.70 0.70 0.67 0.62 1/4
Common stock price: High 32 1/16 28 3/4 29 29 3/16
Low 25 3/8 21 7/8 18 1/2 21 7/16
Close 29 1/16 25 3/8 22 15/16 29 3/16
Shareholders' equity per common
share $ 10.75 $ 10.72 $ 9.05 $ 8.92
Price/earnings ratio(6) 78.5 20.0 15.6 12.4
Adjusted price/earnings ratio(7) 23.8 21.5 16.5 21.2
- ------------------------------------------------------------------------------------------------------------
OTHER FINANCIAL DATA
Treasury Stock Purchases:
Number of shares 5,325 5,522
Cost $ 129,909 $ 131,885
Payment of cash dividends 75,992 71,087 66,422 63,260
Ratio of earnings to fixed
charges(8) 3.8 2.8 3.3 3.6
At year end
Total assets $ 2,431,307 $ 2,305,731 $ 2,244,919 $ 2,112,184
Long-term debt (excluding
current maturities) 495,941 556,797 803,914 660,900
Total debt 560,245 606,840 823,958 712,940
Shareholders' equity 1,181,812 1,148,620 894,913 917,145
Return on average shareholders'
equity(9) 12.0% 12.9% 16.5% 28.4%
Current ratio 1.1 1.1 1.2 1.2
Total debt/total capital ratio 32.2% 34.6% 47.9% 43.7%
10
(1) Other, net, Income from continuing operations and Net Income include: The
gain on sale of Zip2, AT&T and SportsLine stock during 1999; the gains from
the sales of the balance of TKR Cable Company, the newspaper in Gary, Ind.,
and final sales settlements in 1998; the gains from the sales of the
majority of TKR Cable Company and our newspapers in Long Beach, Calif., Boca
Raton, Fla., Milledgeville, Ga., and Newberry, S.C., as well as the gain on
the exchange of the Boulder, Colo., newspaper in 1997; the gain on Netscape
Communications Corporation in 1996; and the gain from the sale of the
Pasadena Star-News in 1989. Net Income also includes the gains on the sales
of Technimetrics in 1998, Knight-Ridder Information, Inc., in 1997,
Knight-Ridder Financial in 1996 and the Journal of Commerce in 1995.
(2) All years have been restated to present the Business Information Services
(BIS) Division and Broadcast Division as discontinued operations. Results of
operations of the company's BIS Division (discontinued in 1997) and
Broadcast Division (discontinued in 1989) and the gains on the sales of BIS
and broadcast assets are presented as "discontinued BIS operations" and
"discontinued broadcast operations," respectively.
(3) For 1995, the cumulative effect of change in accounting principle represents
an adjustment from the implementation of FAS 116-Accounting for
Contributions Received and Contributions Made. For 1992, the cumulative
effect of change in accounting principle represents adjustments from the
implementation of FAS 109-Accounting for Income Taxes and FAS 106-Accounting
for Postretirement Benefits Other than Pensions.
(4) In the second quarter of 1999, the Board of Directors increased the
quarterly dividend to $0.23 per share from $0.20 per share. All share data
prior to 1996 is restated for the 1996 stock split; Basic EPS for 1998 and
1997 has been restated to exclude preferred dividends from net income for
the purpose of calculating EPS attributable to common stock (see Note 1,
page 58).
(5) The Board of Directors declared a $.20 per share dividend on Jan. 28, 1997.
The quarterly dividend previously paid in January was paid in February.
(6) Price/earnings ratio is computed by dividing closing market price by diluted
earnings per share.
(7) 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 on one-time sales.
(8) 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.
(9) 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.
11
Item 7. MANAGEMENT'S DISCUSSION & ANALYSIS OF OPERATIONS
Knight Ridder is the nation's second-largest newspaper publisher, with products
in print and online. The company publishes 31 daily newspapers in 28 U.S.
markets, with a readership of 8.7 million daily and 12.9 million Sunday. Knight
Ridder also has investments in a variety of Internet and technology companies
and two newsprint production companies. The company's Internet operation,
KnightRidder.com, creates and maintains a variety of online services, including
RealCities.com, a national network of regional hubs in 31 U.S. markets. In 1999,
the gross revenue from these businesses was about $3.2 billion.
GLOSSARY OF NEWSPAPER ADVERTISING 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. Small, 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.
NEWSPAPER revenue is derived principally from advertising and newspaper copy
sales. Advertising revenue accounted for about 76.5% of consolidated revenue in
1999. 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 market segments.
Circulation revenue results from the sale of newspapers. Circulation of daily
and Sunday newspapers accounted for 17.9% of consolidated revenue in 1999. 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 delivery agents who are paid a fee for delivery of the
newspapers.
Other revenue comes from commercial job printing, alternate delivery services,
niche and book publications, online services, event marketing, newsprint waste
sales, audiotext and other miscellaneous sources.
12
RESULTS OF OPERATIONS: 1999, 1998 and 1997
The following table sets forth the results of operations for the periods ended
Dec. 26, 1999, Dec. 27, 1998, and Dec. 28, 1997.
Change
(In thousands of dollars, except ---------------------------
per share amounts) 1999 1998 1997 99-98 98-97
----------- ----------- ----------- ------- -------
Operating revenue $ 3,228,225 $ 3,091,919 $ 2,876,785 4.4% 7.5%
Operating income 624,250 504,618 506,028 23.7% (0.3)%
Income
Continuing operations
Before gains on investment
sales, severance and
relocation costs 321,146 273,162 233,319 17.6% 17.1%
Gains on investment sales,
severance and relocation
costs 18,793 32,469 163,185
Discontinued operations 60,226 16,511
----------- ----------- -----------
Net income $ 339,939 $ 365,857 $ 413,015 (7.1)% (11.4)%
=========== =========== ===========
Diluted earnings per share
Continuing operations
Before gains on investment
sales, severance and
relocation costs 3.30 2.78 2.30 18.7% 20.9%
Gains on investment sales,
severance and relocation
costs 0.19 0.33 1.61
Discontinued operations 0.62 0.17
----------- ----------- -----------
Net income $ 3.49 $ 3.73 $ 4.08 (6.4)% (8.6)%
=========== =========== ===========
Knight Ridder earned $3.30 per diluted share from continuing operations in 1999,
up $0.52, or 18.7%, from the $2.78 earned in 1998, excluding one-time gains and
severance from both years and excluding corporate relocation costs in 1998. On a
comparable basis, the company's earnings per diluted share was $2.78 in 1998, up
$.48, or 20.9%, from the $2.30 earned in 1997.
13
OPERATING REVENUE. The following table summarizes the results of Operating
Revenue and related full-run ROP linage statistics for the periods ended Dec.
26, 1999, Dec. 27, 1998, and Dec. 28, 1997.
Change
------------------------
In thousands 1999 1998 1997 99-98 98-97
----------- ----------- ----------- ----- -----
Operating revenue
Advertising
Retail $ 1,102,381 $ 1,089,273 $ 1,008,736 1.2% 8.0%
General 316,857 261,831 246,096 21.0% 6.4%
Classified 1,049,665 1,011,755 947,419 3.7% 6.8%
----------- ----------- -----------
Total 2,468,903 2,362,859 2,202,251 4.5% 7.3%
----------- ----------- -----------
Circulation 578,769 587,529 567,757 (1.5)% 3.5%
Other 180,553 141,531 106,777 27.6% 32.5%
----------- ----------- -----------
Total operating revenue $ 3,228,225 $ 3,091,919 $ 2,876,784 4.4% 7.5%
=========== =========== ===========
Average circulation
Daily 3,932 3,998 4,236 (1.7)% (5.6)%
Sunday 5,400 5,507 5,816 (1.9)% (5.3)%
Advertising linage
Full-run
Retail 18,876 19,254 19,090 (2.0)% 0.9%
General 2,896 2,327 2,271 24.5% 2.5%
Classified 20,470 19,952 19,726 2.6% 1.1%
----------- ----------- -----------
Total full-run 42,242 41,533 41,087 1.7% 1.1%
=========== =========== ===========
General advertising revenue had unprecedented growth in 1999, up 21.0% on a
full-run ROP linage increase of 24.5%. This increase was due largely to a surge
of e-commerce and Internet-related advertising and strength in
telecommunications, financial and travel advertising. In 1998, general
advertising was up 6.4% on a 2.5% increase in full-run ROP linage. Classified
advertising was up 3.7% in 1999 on a full-run ROP linage increase of 2.6%. This
increase reflected a relatively strong second half of 1999, up 5.8%. In 1998,
classified was up 6.8% on a 1.1% increase in full-run ROP linage. Help wanted
contributed significantly to the classified growth in both years. Retail was up
1.2% in 1999 on a full-run ROP linage decrease of 2.0%. The weak results were
due primarily to consolidations and bankruptcies in many major markets. In 1998,
retail was up 8.0% on a 0.9% increase in full-run ROP linage.
Circulation revenue decreased by 1.5% in 1999 on a 1.7% decrease in daily
circulation and a 1.9% decrease in Sunday circulation. The decline in
circulation came primarily from a few large markets, and the company anticipates
that these declines will reverse in 2000. In 1998, circulation revenue improved
by $19.8 million, or 3.5%, on a 5.6% decrease in daily circulation and a 5.3%
decrease in Sunday circulation. Including full-year results in 1997 for the
former Disney and Scripps newspapers but excluding the sold newspapers,
circulation revenue for 1998 compared to 1997 was essentially flat, on about
flat average daily circulation copy and an average Sunday circulation copy
decline of 1.1%.
14
OPERATING COSTS. The following table summarizes operating costs for the periods
ended Dec. 26, 1999, Dec. 27, 1998, and Dec. 28, 1997.
Change
------------------------
In thousands 1999 1998 1997 99-98 98-97
----------- ----------- ----------- ------- -----
Operating costs
Labor and employee benefits $ 1,246,491 $ 1,200,981 $ 1,132,227 3.8% 6.1%
----------- ----------- -----------
Newsprint, ink and
supplements 472,727 529,154 466,329 (10.7)% 13.5%
Other operating costs 695,403 669,114 615,470 3.9% 8.7%
Depreciation and
amortization 189,354 188,052 156,731 0.7% 20.0%
----------- ----------- -----------
Total operating costs $ 2,603,975 $ 2,587,301 $ 2,370,757 0.6% 9.1%
=========== =========== ===========
The increase in labor and employee benefits in 1999 resulted from a 3.8%
increase in the average wage per employee, offset by a 1.2% decrease in the
number of full-time equivalent employees. In addition, bonus and incentive costs
were up 16.3% and benefit costs were up 7.4% from 1998. During 1999, the company
incurred $4.7 million in severance costs. In 1998, the company incurred $23.9
million in newspaper severance and corporate relocation costs. The corporate
relocation costs resulted from the relocation of the company headquarters from
Miami to San Jose. Without these severance and corporate relocation costs, labor
and employee benefits increased 5.1% in 1999. On a comparable basis and
excluding corporate relocation and newspaper severance costs from 1998, labor
and employee benefits were up $27.1 million, or 2.3%, from 1997, on a 1.0%
increase in the work force and an average wage rate increase of 3.0%, offset by
a decline in employee benefit costs.
The decrease in the cost of newsprint, ink and supplements in 1999 was due
primarily to a 12.3% decrease in the average cost per ton of newsprint, offset
slightly by a 0.7% increase in newsprint consumption. For 1998 compared with
1997, the increase in newsprint, ink and supplements was due to a 7.0% increase
in the average cost per ton of newsprint and a 5.6% increase in newsprint
consumption.
The increase in other operating costs in 1999 resulted primarily from an
increase in the cost of contract services, legal fees, and an increase in the
reserve for bad debt expense. The increase in other operating expenses from 1997
to 1998 was due primarily to promotion costs and the changeover to circulation
agents in Detroit, which was offset by additional circulation revenue recorded
at the retail price for newspapers delivered. Previous circulation revenue in
Detroit was recorded at the net wholesale price.
For 1999, depreciation and amortization expense increased 0.7%. The increase in
depreciation resulted from a slightly larger asset base. The increase in
depreciation and amortization expense from 1997 to 1998 resulted primarily from
an increase in amortization expense associated with the acquisition of
newspapers from The Walt Disney Company and E.W. Scripps Company and
depreciation expense associated with major press projects.
NON-OPERATING ITEMS. Net interest expense decreased $8.2 million, or 8.4%, in
1999 as a result of lower debt levels. For 1998, net interest expense increased
$4.1 million, or 4.4%, due to higher debt levels associated with the Disney
acquisition and higher interest rates in the early part of 1998. The average
debt balance decreased $180.9 million in 1999 and increased $153.7 million from
1997 to 1998.
From 1998 to 1999, equity in earnings of unconsolidated companies and joint
ventures decreased by $10.7 million due to a decrease in earnings from
investments in newsprint mills, InfiNet Company, and various other investments.
From 1997 to 1998, equity in earnings of unconsolidated companies increased by
$12.5 million, due to improved results from newsprint mill investments and
InfiNet.
The "OTHER, NET" line of the non-operating section decreased by $55.7 million in
1999, due to the 1998 gains on the sale of the balance of the company's cable
systems, the Gary, Ind., newspaper, and final settlements on the 1997 newspaper
sales. Results in 1999 included a gain on the sale of AT&T, Zip2 and SportsLine
stock, offset by adjustments in the carrying value of certain other investments.
Results in 1997 included the sale of the majority of the TKR Cable Company, the
Boulder exchange and the sale of four newspapers.
15
On March 18, 1998, the company (through its wholly owned subsidiary Knight-
Ridder Cablevision, Inc.), completed the sale of its remaining jointly owned
cable television system to Tele-Communications, Inc. On Feb. 2, 1998, the
company completed the sale of the Post-Tribune in Gary, Ind., to Hollinger
International, Inc. The proceeds from these sales were $95.8 million, consisting
of $58.1 million in cash and TCI stock with an aggregate market value of $37.7
million. The pretax and after-tax gains on the sales were $75.3 million and
$45.0 million, respectively.
DISCONTINUED OPERATIONS. On April 13, 1998, the company closed on the sale of
Technimetrics, Inc., to an operating unit of the Thomson Corporation.
Technimetrics was a subsidiary that sold global shareholding and business
contact information. This sale fully divested the company of the discontinued
Business Information Services segment. The proceeds from the sale were $125.0
million and resulted in pretax and after-tax gains of $103.8 million and $60.0
million, respectively.
INCOME TAXES. The effective income tax rates on continuing operations for 1999,
1998 and 1997 were 40.2%, 39.8% and 42.9%, respectively. The effective tax rate
was higher in 1997 because of the sale of cable assets, which generated income
in states with higher tax rates. In addition, in 1998 certain prior year tax
matters were settled for amounts lower than originally estimated.
ONLINE ACTIVITIES. The company announced in the fourth quarter of 1999 the
creation of KnightRidder.com, which will consolidate all of the company's
Internet operations as a separate business unit by the end of the first quarter
of 2000. Historically, Knight Ridder's Internet activities have been reported
and managed as a part of the company's newspaper operations, but once the
transition to a stand-alone business unit is made, they will be reported and
managed separately. KnightRidder.com will reorganize, manage and control all of
Knight Ridder's online efforts, including the Web sites now operated by the
newspapers, as well as its current activities. KnightRidder.com will continue to
operate and manage the Real Cities network, which now consists of all Knight
Ridder Web sites as well as those of several other media affiliates. Revenue
from Real Cities sites increased by 75.4% in 1999, to $31.4 million. The company
expects significant growth from these operations in 2000.
A LOOK AHEAD
Looking ahead, the company expects another year of earnings growth in 2000.
Advertising revenue will likely increase between 4% and 5%, with general and
classified stronger than retail. As in 1999, the company believes some markets
will do considerably better than this, while others may lag. The company expects
the costs for newsprint to increase 4% to 5% in 2000.
YEAR 2000 READINESS DISCLOSURE
All Year 2000 statements in this annual report are Year 2000 Readiness
Disclosures under the Year 2000 Information and Readiness Disclosure Act. The
Year 2000 issue results from computer programs using two digits rather than four
to define the applicable year. Company computer programs that have time-
sensitive software may recognize a date using "00" as the year 1900 rather than
the year 2000. Failure to recognize the correct date may result in a system
failure, disruption of operations, and/or a temporary inability to conduct
normal business activities.
From the initiation of the Year 2000 project, the company has spent
approximately $60.0 million of which approximately 65% was related to the
purchase of hardware and software, which has been capitalized. The remainder was
expensed as incurred.
The company has not experienced any Year 2000-related problems. The company
believes all existing computer hardware, software and software conversions are
Year 2000 capable; however, there can be no assurance the company will not
experience Year 2000 problems in the future. The company continues to monitor
its hardware and software systems for any Year 2000-related problems and the
company continues to have contingency plans in place with alternative solutions
in the event that they are required.
16
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operations is the company's primary source of liquidity.
Management continues to have a strong orientation toward cash flows and the
effective management of cash generated. In addition, the company uses financial
leverage to minimize the overall cost of capital and maintain adequate operating
and financial flexibility.
Management monitors leverage through its interest coverage ratio, debt to equity
ratio and total debt to total capital ratio. The following schedule summarizes
these ratios for the periods ended Dec. 26, 1999, and Dec. 27, 1998:
1999 1998
----- -----
Current assets to current
liabilities 1.1:1 0.8:1
Interest coverage ratio(a) 8.3:1 6.5:1
Total debt to equity 73.0% 91.9%
Total debt to total capital 42.2% 47.9%
(a) Defined as operating income plus depreciation and amortization divided by
interest expense.
The company's financial position remained strong throughout 1999, with cash and
cash equivalents and short-term investments of $34.1 million at Dec. 26, 1999,
compared with $26.8 million at Dec. 27, 1998. During 1999, cash flows from
operating activity were used to fund treasury stock purchases of $210.1 million
and to reduce debt by $227.3 million. In addition, the company increased
dividends by $8.4 million from 1998 to 1999.
Cash provided by operating activities was $505.7 million in 1999, compared with
$297.2 million in 1998. The increase was partially attributed to higher net
income, exclusive of gains on sales of investments in both years and the gain on
sale of discontinued operations in 1998.
At Dec. 26, 1999, working capital was $73.2 million compared with a negative
$128.1 million at Dec. 27, 1998. The increase in working capital from 1998 to
1999 was due primarily to a $158.3 million decrease in short-term borrowings.
Cash required for investing activities was primarily for the purchase of $92.6
million of property, plant and equipment and $76.6 million for the acquisition
of businesses and other investments, offset by proceeds of $119.8 million from
the sale of investments. The proceeds from the sale of investments came from the
company's disposition of stock of AT&T, Zip2 and SportsLine.
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 $530.2 million, with an average effective interest
rate of 5.5%. At Dec. 26, 1999, the company's revolving credit and term loan
agreements, which back up the commercial paper outstanding, had a remaining
availability of $466.2 million. The 364-day revolving credit and term loan
portion of the facility matures in June 2000; however, the company has the
option and intention to renew this facility for an additional term through June
2001. At year end, Standard & Poor's, Moody's and Duff & Phelps continued to
rate the company's commercial paper A1, P2 and D1, and long-term debt A, A3 and
A, respectively. In February 2000, Moody's upgraded the company's short- and
long-term debt to P1 and A2, respectively.
During 1999, the company repurchased 3.7 million common shares at a total cost
of $210.1 million and an average cost of $56.74 per share. At year end, there
was authorization remaining 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, excluding the discontinued BIS operations, have totaled $331.2
million for additions and improvements to properties.
Additions to property, plant and equipment decreased by $39.4 million to $92.6
million in 1999 from $132.0 million in 1998, due primarily to higher
expenditures in 1998 for major Year 2000 projects.
17
Expenditures in 1999 included $16.8 million for the Fort Worth and Miami press
projects. The $37.8 million Fort Worth press expansion was completed during
1999, and the $108.0 million Miami press expansion is scheduled to be completed
in 2000.
In addition, The Wichita Eagle began a press project in 1999. The total project
cost is projected to be $27.7 million through 2002, with expenditures of $8.0
million in 1999. These press projects are replacement projects that are expected
to significantly improve reliability, speed, print quality and page and color
capacity, and reduce waste.
Also included in capital expenditures for 1999 was $3.2 million to complete the
Philadelphia Editorial System project, for a total project cost of $13.6
million. This project was completed at the end of 1999 and serves both The
Philadelphia Inquirer and the Philadelphia Daily News.
Capitalized Year 2000 costs were approximately $15.9 million in 1999. Spending
is estimated to be lower in 2000, partly due to the completion of Year 2000
capability and certain major projects.
On Jan. 31, 2000, Cadabra, Inc., an investment in which the company held a 19.5%
minority ownership position at Dec. 26, 1999, was purchased by GoTo.com, Inc.,
in exchange for $8.0 million in cash and 3.3 million shares of GoTo.com, Inc.,
stock. Knight Ridder now holds a minority ownership interest in GoTo.com of
1.57%. The market value of Cadabra was not readily available at Dec. 26, 1999,
and therefore was not included in comprehensive income at year end.
On Feb. 15, 2000, Prio, Inc., an investment in which the company held a 12.41%
minority ownership position at Dec. 26, 1999, was purchased by InfoSpace.com in
exchange for 5.4 million shares of InfoSpace.com, Inc., stock. The market value
of Prio was not readily available at Dec. 26, 1999, and therefore was not
included in comprehensive income at year end.
As of the date of these transactions, the company had an after-tax realized gain
on its investments in Cadabra and Prio of approximately $100 million.
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.
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 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 that may cause revenue declines or increased labor costs; (f)
acquisitions of new businesses or dispositions of existing businesses; (g)
increases in interest or financing costs; and (h) rapid technological changes
and frequent new product introductions prevalent in electronic publishing,
including the evolution of the Internet.
18
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
BORROWINGS. By balancing the mix of variable- versus fixed-rate borrowings, the
company manages the interest rate risk of its debt portfolio. Note 4 to the
consolidated financial statements includes information relating to the
contractual interest rates and fair value of the individual borrowings within
the portfolio. A hypothetical 10% change in interest rates would increase
interest expense associated with both fixed- and variable-rate borrowings by
approximately $9.1 million. This hypothetical interest rate change would also
decrease the fair value of the fixed debt by $80.0 million.
NEWSPRINT. The company consumed approximately 801,000 metric tons of newsprint
in 1999. This represents 15.2% of the company's 1999 total operating expenses.
Under the caption "NEWSPRINT" on page 32 of this annual report, 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. Approximately 37% of the company's 22,000
employees are represented by some 70 local unions and work under multiyear
collective bargaining agreements. These agreements are renegotiated in the years
in which they expire.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Selected quarterly financial data is presented in Note 8 of Notes to
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)
Dec. 26, 1999 Dec. 27, 1998
------------- -------------
ASSETS
CURRENT ASSETS
Cash, including short-term cash
investments of $5,598 in 1999 and
$4,159 in 1998 $ 34,084 $ 26,836
Accounts receivable, net of allowances
of $15,917 in 1999 and $15,738 in
1998 423,016 386,455
Inventories 39,238 59,109
Prepaid expense 32,246 14,078
Other current assets 41,720 39,213
---------- ----------
Total Current Assets $ 570,304 $ 525,691
---------- ----------
INVESTMENTS AND OTHER ASSETS
Equity in unconsolidated companies and
joint ventures 206,880 201,120
Other 181,583 243,586
---------- ----------
Total Investments and Other Assets 388,463 444,706
---------- ----------
PROPERTY, PLANT AND EQUIPMENT
Land and improvements 93,995 93,781
Buildings and improvements 484,163 484,367
Equipment 1,244,110 1,175,044
Construction and equipment
installations in progress 67,922 84,559
---------- ----------
1,890,190 1,837,751
Less accumulated depreciation (831,041) (764,750)
---------- ----------
Net Property, Plant and Equipment 1,059,149 1,073,001
---------- ----------
GOODWILL
Less accumulated amortization of
$331,504 in 1999 and $264,001 in 1998 2,174,418 2,213,699
---------- ----------
Total $4,192,334 $4,257,097
========== ==========
See "Notes to Consolidated Financial Statements."
19
CONSOLIDATED BALANCE SHEET (Continued)
Dec. 26, 1999 Dec. 27, 1998
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 142,460 $ 164,558
Accrued expenses and other liabilities 100,668 111,088
Accrued compensation and amounts
withheld from employees 126,529 112,827
Federal and state income taxes 16,039
Deferred revenue 71,505 67,006
Short-term borrowings and current
portion of long-term debt 39,940 198,277
---------- ----------
Total Current Liabilities 497,141 653,756
---------- ----------
NONCURRENT LIABILITIES
Long-term debt 1,260,814 1,329,001
Deferred Federal and state income taxes 306,636 293,015
Postretirement benefits other than
pensions 145,143 147,118
Employment benefits and other
noncurrent liabilities 197,045 168,974
---------- ----------
Total Noncurrent Liabilities 1,909,638 1,938,108
---------- ----------
MINORITY INTERESTS IN CONSOLIDATED
SUBSIDIARIES 4,871 2,502
COMMITMENTS AND CONTINGENCIES (Note 11)
SHAREHOLDERS' EQUITY
Preferred stock, $1.00 par value;
shares authorized - 2,000,000; shares
issued - 1,374,100 in 1999 and
1,754,930 in 1998 1,374 1,755
Common stock, $.02 1/12 par value;
shares authorized - 250,000,000;
shares issued - 79,654,493 in 1999
and 78,374,195 in 1998 1,659 1,633
Additional capital 938,969 908,078
Retained earnings 798,971 735,132
Accumulated other comprehensive income 42,084 18,738
Treasury stock, at cost; 42,510 shares
in 1999 and 46,667 shares in 1998 (2,373) (2,605)
---------- ----------
Total Shareholders' Equity 1,780,684 1,662,731
---------- ----------
Total $4,192,334 $4,257,097
========== ==========
See "Notes to Consolidated Financial Statements."
20
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share data)
Year Ended
---------------------------------------------
Dec. 26, 1999 Dec. 27, 1998 Dec. 28, 1997
------------- ------------- -------------
OPERATING REVENUE
Advertising
Retail $ 1,102,381 $ 1,089,273 $ 1,008,736
General 316,857 261,831 246,096
Classified 1,049,665 1,011,755 947,419
----------- ----------- -----------
Total 2,468,903 2,362,859 2,202,251
Circulation 578,769 587,529 567,757
Other 180,553 141,531 106,777
----------- ----------- -----------
Total Operating Revenue 3,228,225 3,091,919 2,876,785
----------- ----------- -----------
OPERATING COSTS
Labor and employee benefits 1,246,491 1,200,981 1,132,227
Newsprint, ink and
supplements 472,727 529,154 466,329
Other operating costs 695,403 669,114 615,470
Depreciation and
amortization 189,354 188,052 156,731
----------- ----------- -----------
Total Operating Costs 2,603,975 2,587,301 2,370,757
----------- ----------- -----------
OPERATING
INCOME 624,250 504,618 506,028
----------- ----------- -----------
OTHER INCOME (EXPENSE)
Interest expense (97,444) (105,936) (102,662)
Interest expense
capitalized 5,197 4,516 5,376
Interest income 2,429 3,416 3,404
Equity in earnings of
unconsolidated companies
and joint ventures 12,571 23,309 10,800
Minority interests in
earnings of consolidated
subsidiaries (11,984) (10,749) (11,503)
Other, net 32,996 88,742 282,409
----------- ----------- -----------
Total (56,235) 3,298 187,824
----------- ----------- -----------
Income before income taxes 568,015 507,916 693,852
Income taxes 228,076 202,285 297,348
----------- ----------- -----------
INCOME FROM CONTINUING
OPERATIONS 339,939 305,631 396,504
Net gain on sale of
discontinued BIS
operations, net of
applicable income taxes of
$43,752 in 1998 and $8,365
in 1997 60,042 15,261
Income from discontinued BIS
operations, net of
applicable income taxes of
$133 in 1998 and $1,119 in
1997 184 1,250
----------- ----------- -----------
Net Income $ 339,939 $ 365,857 $ 413,015
=========== =========== ===========
21
CONSOLIDATED STATEMENT OF INCOME (Continued)
(In thousands, except per share data)
Year Ended
---------------------------------------------
Dec. 26, 1999 Dec. 27, 1998 Dec. 28, 1997
------------- ------------- -------------
EARNINGS PER SHARE
Basic: (Note 1)
Income from continuing
operations $ 4.07 $ 3.70 $ 4.40
Net gain on sale of
discontinued BIS
operations .76 .17
Income from discontinued
BIS operations, net .01 .02
----------- ----------- -----------
Net Income $ 4.07 $ 4.47 $ 4.59
=========== =========== ===========
Diluted:
Income from continuing
operations $ 3.49 $ 3.11 $ 3.91
Net gain on sale of
discontinued BIS
operations .61 .15
Income from discontinued
BIS operations, net .01 .02
----------- ----------- -----------
Net Income $ 3.49 $ 3.73 $ 4.08
=========== =========== ===========
AVERAGE SHARES OUTSTANDING
(000S)
Basic 80,025 78,882 88,475
Diluted 97,460 98,176 101,314
See "Notes to Consolidated Financial Statements."
22
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands of dollars)
Year Ended
----------------------------------------------
Dec. 26, 1999 Dec. 27, 1998 Dec. 28, 1997
-------------- -------------- --------------
CASH PROVIDED BY (REQUIRED FOR)
OPERATING ACTIVITIES
Net income $ 339,939 $ 365,857 $ 413,015
Noncash items deducted from
(included in) income:
Gains on sales of
investments (37,655) (75,251) (283,126)
Net gain on sale of
discontinued BIS
operations (60,042) (15,261)
Depreciation 107,855 101,950 94,138
Amortization 81,499 86,102 62,593
Benefit for deferred taxes (1,895) (8,444) (14,750)
Provision for bad debts 25,135 20,854 23,332
Earnings from investees
less distributions 2,506 (21,856) (14,658)
Minority interests in
earnings of consolidated
subsidiaries 12,024 10,749 11,503
Other items, net 767 18,576 38,656
Change in certain assets and
liabilities:
Accounts receivable (64,221) (39,927) (57,185)
Inventories 19,871 (9,398) (326)
Other current assets (22,452) 3,296 380
Accounts payable (22,098) (20,299) (83,969)
Federal and state income
taxes 16,176 (52,234) 20,125
Other liabilities 48,253 (22,782) 47,724
--------- --------- ---------
Net Cash Provided by
Operating Activities 505,704 297,151 242,191
--------- --------- ---------
CASH PROVIDED BY (REQUIRED FOR)
INVESTING ACTIVITIES
Proceeds from sales of
investments 119,810 62,444 423,039
Proceeds from sale of
discontinued BIS operations 125,000 416,983
Change in net noncurrent
assets of discontinued BIS
operations 520 1,996
Acquisition of businesses (38,403)
Other investments (38,227)
Additions to property, plant
and equipment (92,563) (132,025) (106,614)
Other items, net 33,205 (35,642) (8,165)
--------- --------- ---------
Net Cash Provided by
(Required for)
Investing Activities (16,178) 20,297 727,239
--------- --------- ---------
CASH PROVIDED BY (REQUIRED FOR)
FINANCING ACTIVITIES
Proceeds from sale of
commercial paper, notes
payable and senior notes
payable 2,397,615 914,926 833,600
Payment of total debt (2,624,906) (1,057,186) (976,611)
--------- --------- ---------
Net Change in Total Debt
excluding amortization
of discounts (227,291) (142,260) (143,011)
Payment of cash dividends (85,526) (77,152) (78,335)
Issuance of common stock to
employees and directors 50,335 44,411 60,029
Purchase of treasury stock (210,141) (255,533) (643,375)
Other items, net (9,655) (20,369) (27,327)
--------- --------- ---------
Net Cash Required for
Financing Activities (482,278) (450,903) (832,019)
--------- --------- ---------
Net Increase (Decrease)
in Cash 7,248 (133,455) 137,411
Cash and short-term cash
investments at beginning of
the year 26,836 160,291 22,880
--------- --------- ---------
Cash and short-term cash
investments at end of the year $ 34,084 $ 26,836 $ 160,291
========= ========= =========
23
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
(In thousands of dollars)
Year Ended
----------------------------------------------
Dec. 26, 1999 Dec. 27, 1998 Dec. 28, 1997
-------------- -------------- --------------
SUPPLEMENTAL CASH FLOW
INFORMATION
Noncash investing activities
Securities received as
proceeds on the sale of
investee $ -- $ 37,678 $ 229,163
Unrealized gains (net of
tax) on investments
available for sale 23,346 18,738 1,671
Noncash financing activities
Conversion of preferred
stock held by Disney to
common stock
Preferred stock (381)
Additional capital (142,842)
Issuance of common stock
upon conversion to
preferred stock
Preferred stock 79
Additional capital 143,144
Issuance of preferred stock
for the acquisition of the
Disney newspapers
Preferred stock 1,755
Additional capital 658,245
Long-term debt assumed on
the acquisition of the
Disney newspapers 990,000
See "Notes to Consolidated Financial Statements."
24
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(In thousands of dollars, except share data)
Preferred Common Treasury
Shares Shares Shares
- ------------------------------------------------------------------------------
BALANCE AT DEC. 29, 1996 -- 93,340,652 --
Issuance of common shares under
stock option plan 89,318
Issuance of treasury shares under
stock option plan 1,604,447
Issuance of treasury shares under
stock purchase plan 387,514
Issuance of convertible preferred
shares 1,754,930
Purchase of treasury shares (13,824,300)
Retirement of treasury shares (11,832,339) 11,832,339
Tax benefits arising from
employee stock plans
Comprehensive income:
Net income
Change in unrealized gains on
securities available for
sale, net of tax of $1,210
Comprehensive income
Cash dividends declared
------------ ----------- ----------
BALANCE AT DEC. 28, 1997 1,754,930 81,597,631 --
Issuance of common shares under
stock option plan 369,372
Issuance of common shares under
stock purchase plan 81,672
Issuance of treasury shares under
stock option plan 638,420
Issuance of treasury shares under
stock purchase plan 267,927
Issuance of treasury shares to
nonemployee directors 3,333
Issuance of treasury shares 94,173
Purchase of treasury shares (4,725,000)
Retirement of treasury shares (3,674,480) 3,674,480
Tax benefits arising from
employee stock plans
Comprehensive income:
Net income
Change in unrealized gains on
securities available for
sale, net of tax of $12,492
Comprehensive income
Cash dividends declared
------------ ----------- ----------
BALANCE AT DEC. 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 DEC. 26, 1999 1,374,100 79,654,493 (42,510)
============ =========== ==========
See "Notes to Consolidated Financial Statements."
25
Preferred Common Additional Retained
Stock Stock Capital Earnings
- -----------------------------------------------------------------------------------------------------
BALANCE AT DEC. 29, 1996 $ -- $ 1,945 $ 308,320 $ 819,572
Issuance of common shares under
stock option plan 2 2,395
Issuance of treasury shares under
stock option plan (28,149)
Issuance of treasury shares under
stock purchase plan (2,222)
Issuance of convertible preferred
shares 1,755 658,245
Purchase of treasury shares
Retirement of treasury shares (247) (37,519) (517,606)
Tax benefits arising from
employee stock plans 10,502
Comprehensive income:
Net income 413,015
Change in unrealized gains on
securities available for
sale, net of tax of $1,210
Comprehensive income
Cash dividends declared (78,335)
------- ------- --------- ---------
BALANCE AT DEC. 28, 1997 $ 1,755 $ 1,700 $ 911,572 $ 636,646
Issuance of common shares under
stock option plan 7 10,185
Issuance of common shares under
stock purchase plan 2 3,966
Issuance of treasury shares under
stock option plan (14,422)
Issuance of treasury shares under
stock purchase plan (1,352)
Issuance of treasury shares to
nonemployee directors (13)
Issuance of treasury shares
Purchase of treasury shares
Retirement of treasury shares (76) (11,401) (190,219)
Tax benefits arising from
employee stock plans 9,543
Comprehensive income:
Net income 365,857
Change in unrealized gains on
securities available for
sale, net of tax of $12,492
Comprehensive income
Cash dividends declared (77,152)
------- ------- --------- ---------
BALANCE AT DEC. 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 DEC. 26, 1999 $ 1,374 $ 1,659 $ 938,969 $ 798,971
======= ======= ========= =========
26
Accumulated
Other Compre- Treasury
hensive Income Stock Total
- --------------------------------------------------------------------------------------
BALANCE AT DEC. 29, 1996 $ 1,671 $ -- $ 1,131,508
Issuance of common shares under
stock option plan 2,397
Issuance of treasury shares under
stock option plan 70,785 42,636
Issuance of treasury shares under
stock purchase plan 17,218 14,996
Issuance of convertible preferred
shares 660,000
Purchase of treasury shares (643,375) (643,375)
Retirement of treasury shares 555,372 --
Tax benefits arising from
employee stock plans 10,502
Comprehensive income:
Net income 413,015
Change in unrealized gains on
securities available for
sale, net of tax of $1,210 $ 1,671 (1,671)
-----------
Comprehensive income 411,344
-----------
Cash dividends declared (78,335)
-------- -------- -----------
BALANCE AT DEC. 28, 1997 $ -- $ -- $ 1,551,673
Issuance of common shares under
stock option plan 10,192
Issuance of common shares under
stock purchase plan 3,968
Issuance of treasury shares under
stock option plan 32,797 18,375
Issuance of treasury shares under
stock purchase plan 13,228 11,876
Issuance of treasury shares to
nonemployee directors 186 173
Issuance of treasury shares 5,021 5,021
Purchase of treasury shares (255,533) (255,533)
Retirement of treasury shares 201,696 --
Tax benefits arising from
employee stock plans 9,543
Comprehensive income:
Net income 365,857
Change in unrealized gains on
securities available for
sale, net of tax of $12,492 18,738 18,738
-----------
Comprehensive income 384,595
-----------
Cash dividends declared (77,152)
-------- -------- -----------
BALANCE AT DEC. 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 DEC. 26, 1999 $ 42,084 $ (2,373) $ 1,780,684
======== ======== ===========
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The company reports on a fiscal year, ending on the last Sunday in the calendar
year. Results for 1999, 1998 and 1997 are for the 52 weeks ended Dec. 26, Dec.
27 and Dec. 28, 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 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 is a 50% partner 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 Free Press and The Detroit News were
transferred to DN. Under the joint operating agreement that expires in the year
2089, as of Dec. 26, 1994, profits are split equally between the partners. The
Consolidated Statement of Income includes, on a line-by-line basis, the
company's pro rata share of the revenue and expense generated by the operation
of the agency.
INVESTMENTS in companies in which Knight Ridder has an equity interest of at
least 20% but not more than 50% are generally accounted for under the equity
method. Under this 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; the 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 allows newspapers to offer Internet access to subscribers;
TKR Cable Company and TKR Cable Partners, cable television joint ventures (all
but one of the cable companies jointly owned with Tele-Communications, Inc.
[TCI], were sold in January 1997 and the balance was sold in March 1998); and
Interealty, Inc. (formerly known as PRC Realty Systems, Inc., sold in September
1998), a software system producer for the real estate industry.
The company owns 49.5% of the voting common stock and 65% of the nonvoting
common stock of the SEATTLE TIMES COMPANY, owns 31.1% of the voting stock of
NEWSPAPERS FIRST, is a one-third partner in the SP NEWSPRINT CO., and an 18.7%
partner in CareerPath.com Inc. and owns a 13.5% equity share of PONDERAY
NEWSPRINT COMPANY. The company owns 33.3% of the voting stock and 50% of the
nonvoting stock of INFINET COMPANY.
FORT WAYNE NEWSPAPERS, INC. and THE PROFESSIONAL EXCHANGE LLC (a subsidiary of
Philadelphia Newspapers, Inc.) are the only consolidated subsidiaries that have
a minority ownership interest. The minority shareholders' interest in the net
income of these subsidiaries has been reflected as an expense in the
Consolidated Statement of Income in the caption "MINORITY INTERESTS IN EARNINGS
OF CONSOLIDATED SUBSIDIARIES." Also included in this caption is a contractual
minority interest resulting from a JOA that runs through the year 2021 between
The Miami Herald Publishing Company and Cox Newspapers, Inc., covering the
publication of The Herald and The Miami News, which ceased publication in 1988.
The company's liability to the minority interest shareholders is included in the
Consolidated Balance Sheet caption, "MINORITY INTERESTS IN CONSOLIDATED
SUBSIDIARIES."
28
"CASH AND 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.
The majority of the company's "ACCOUNTS RECEIVABLE" as of Dec. 26, 1999, and
Dec. 27, 1998, are 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 consistently have been within management's
expectations.
"INVENTORIES" are priced at the lower of cost (first-in, first-out FIFO method)
or market. Most of the inventory is newsprint, ink and other supplies used in
printing newspapers. "OTHER ASSETS" includes investments in companies in which
Knight Ridder owns less than an equity 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 INCOME," 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.
"GOODWILL" 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 arising from these acquisitions. The goodwill is being
amortized over a 40-year period on a straight-line basis, unless management
concludes that a shorter term is more appropriate. Identified intangibles of
approximately $400 million acquired through acquisitions consist of trademarks,
subscriber and advertiser lists and mastheads that are being amortized on a
straight-line basis over periods ranging from five to 40 years, with a
weighted-average life of 25.7 years. If, in the opinion of management, an
impairment in value occurs, based on the undiscounted cash flow method, any
necessary additional write-downs will be charged to expense.
"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 and which management does not intend
to refinance, and the portion of long-term debt payable within 12 months. The
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
two revolving credit and term loan agreements that management intends to
refinance at maturity. Fair values, disclosed in Note 4, are estimated using
discounted cash flow analyses based on the company's current incremental
borrowing rates for similar types of borrowing arrangements.
In accordance with FAS NO. 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 will 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 that will be used will contain management's best estimates, using
appropriate and customary assumptions and projections at the time.
In 1996, the company implemented FAS 123 - ACCOUNTING FOR STOCK-BASED
COMPENSATION. Under this statement, the company accounts for stock-based
compensation plans under the provisions of APB 25 - ACCOUNTING FOR STOCK ISSUED
TO EMPLOYEES and discloses the general and pro forma financial information
required by FAS 123. See Note 6.
29
In 1997, the company adopted FAS 128 - EARNINGS PER SHARE (EPS). FAS 128
replaced the calculation of primary and fully diluted EPS with basic and diluted
EPS. Basic EPS will typically be higher than primary EPS due to the exclusion of
any dilutive effects of options, warrants and convertible securities from the
calculation. Diluted EPS is very similar to the previously reported fully
diluted EPS. All EPS amounts for all earlier periods presented have been
restated to conform to the FAS 128 requirements.
"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 $325.7 million in 1999, $351.8 million in 1998 and $406.0 million in
1997. Basic EPS attributable to common shares was restated in 1998 and 1997 to
exclude preferred dividends from net income in the calculation of net income
attributable to common shares. Basic EPS decreased by $0.17 in 1998 and $0.08 in
1997 as a result of the restatement. "DILUTED EARNINGS PER SHARE" is computed by
dividing net income by the weighted-average number of common and common
equivalent shares outstanding.
In 1998, the company adopted FAS 130 - REPORTING COMPREHENSIVE INCOME. FAS 130
establishes new rules for the reporting and display of comprehensive income and
its components. FAS 130 requires that unrealized gains or losses on the
company's available-for-sale securities be included in "ACCUMULATED OTHER
COMPREHENSIVE INCOME," a separate component of shareholders' equity. Prior to
its adoption, unrealized gains or losses on available-for-sale securities were
separately identified as such in shareholders' equity. The adoption of FAS 130
expanded the disclosure provided in the statement of shareholders' equity. See
Note 9.
FAS 131 - DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
was effective in 1998. 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, Pa., Miami, Fla., San
Jose, Calif., Kansas City, Mo., Fort Worth, Texas, Detroit, Mich., and
Charlotte, N.C. Revenue is earned through the sale of advertising, circulation
and related activities. Newspapers are distributed in print through local
distribution channels, as well as online through Knight Ridder's Real Cities
network (see "Management's Discussion and Analysis of Operations: Online
Activities" on page 16).
Reportable online operations did not meet the definition of a segment per FAS
131. This assessment will be re-evaluated in 2000 as a result of the separation
of online activities into a separate business unit. During 1999, the company
conducted business as one operating segment. This determination was based on the
individual operations that the chief operating decision-maker reviewed for
purposes of assessing performance and making operating decisions.
In 1998, the company also adopted FAS 132 - EMPLOYERS' DISCLOSURES ABOUT
PENSIONS AND OTHER POSTRETIREMENT BENEFITS. FAS 132 standardizes the disclosure
requirements for pensions and other postretirement benefits, requires additional
information on changes in the benefit obligations and fair values of plan assets
and eliminates certain disclosures that are no longer considered useful. See
Note 7.
In 2001, the company plans to adopt FAS 133 - ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. Based on current circumstances, the company
does not believe the effect of adoption will be material.
The company adopted STATEMENT OF POSITION 98-5 - REPORTING ON THE COSTS OF
START-UP ACTIVITIES as of the beginning of 1999. The statement requires all
costs of start-up activities, including organization costs, to be charged to
operations as incurred. The adoption of this statement has not had a material
effect on the financial statements.
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.
30
2. INCOME TAXES
The company's income tax expense is determined under the provisions of Statement
of Financial Accounting Standards 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.
Federal, state and local income taxes (benefits) consist of the following (in
thousands):
1999 1998 1997
--------------------------- ------------------------- -------------------------
Current Deferred Current Deferred Current Deferred
--------- -------- --------- -------- --------- ---------
Federal income taxes $ 203,100 $ (6,447) $ 213,161 $ (4,479) $ 286,645 $ (33,176)
State and local income taxes 26,870 4,552 39,953 (2,465) 64,519 (11,156)
--------- -------- --------- -------- --------- ---------
Total $ 229,970 $ (1,895) $ 253,114 $ (6,944) $ 351,164 $ (44,332)
========= ======== ========= ======== ========= =========
Provision for:
Continuing operations $ 229,970 $ (1,895) $ 210,729 $ (8,444) $ 312,098 $ (14,750)
Discontinued operations 42,385 1,500 39,066 (29,582)
--------- -------- --------- -------- --------- ---------
Total $ 229,970 $ (1,895) $ 253,114 $ (6,944) $ 351,164 $ (44,332)
========= ======== ========= ======== ========= =========
Cash payments of income taxes for the years 1999, 1998 and 1997 were $213.1
million, $262.7 million and $278.5 million, respectively. Payments in 1998
included the tax impact resulting from the sale of the Gary paper and
Technimetrics. Payments in 1997 included the tax impact resulting from the gain
on the sale of Knight-Ridder Information, Inc., newspapers in Boca Raton and
Long Beach, and TKR Cable Company.
31
3. EFFECTIVE INCOME TAX RATES
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):
1999 1998 1997
--------- --------- ---------
Federal statutory income tax $ 198,805 $ 177,771 $ 242,848
State and local income taxes, net of
federal benefit 20,425 17,033 34,300
Statutory rate applied to
nondeductible amortization of the
excess of cost over net assets
acquired 15,016 15,123 13,482
Other items, net (6,170) (7,642) 6,718
--------- --------- ---------
Total $ 228,076 $ 202,285 $ 297,348
========= ========= =========
The deferred tax asset and liability at the fiscal year end consist of the
following components (in thousands):
1999 1998
--------- ---------
Deferred Tax Asset
Postretirement benefits other than
pensions (including amounts relating
to partnerships in which the company
participates) $ 84,286 $ 84,100
Accrued interest 6,476 7,175
Other nondeductible accruals 71,307 60,022
--------- ---------
Gross deferred tax asset $ 162,069 $ 151,297
========= =========
Deferred Tax Liability
Depreciation and amortization $(356,726) $(341,618)
Compensation and benefit accruals 965 (7,810)
Equity in partnerships and investees (55,408) (51,170)
Unrealized appreciation in equity
securities (28,056) (12,492)
Other (623) (3,361)
--------- ---------
Gross deferred tax liability $(439,848) $(416,451)
--------- ---------
Net deferred tax liability $(277,779) $(265,154)
========= =========
The components of deferred taxes included in the Consolidated Balance Sheet
are as follows (in thousands):
1999 1998
--------- ---------
Current asset $ 28,857 $ 27,861
Noncurrent liability (306,636) (293,015)
--------- ---------
Net deferred tax liability $(277,779) $(265,154)
========= =========
32
4. DEBT
Debt consisted of the following (in thousands):
Dec. 26 Dec. 27
1999 1998
----------- -----------
Commercial paper due at
various dates through June
20, 2000, at an effective
interest rate of 5.5% as of
Dec. 26, 1999. Amounts are
net of unamortized discounts
of $4,004 in 1999 and $9,639
in 1998(a) $ 433,796 $ 917,533
Debentures due on April 15,
2009, bearing interest at
9.875%, net of unamortized
discount of $1,536 in 1999
and $1,701 in 1998 198,464 198,299
Debentures due on Nov. 1,
2027, bearing interest at
7.15%, net of unamortized
discount of $5,466 in 1999
and $5,614 in 1998 94,534 94,386
Debentures due on March 15,
2029, bearing interest at
6.875%, net of unamortized
discount of $3,557 in 1999(b) 296,443
Notes payable, bearing
interest at 8.5%, subject to
mandatory pro rata
amortization of 25% annually
commencing Sept. 1, 1998,
through maturity on Sept. 1,
2001, net of unamortized
discount of $97 in 1999 and
$223 in 1998 79,903 119,777
Notes payable due on Nov. 1,
2007, bearing interest at
6.625%, net of unamortized
discount of $1,791 in 1999
and $2,022 in 1998 98,209 97,978
Senior notes payable due on
Dec. 15, 2005, bearing
interest at 6.3%, net of
unamortized discount of $595
in 1999 and $695 in 1998 99,405 99,305
----------- -----------
1,300,754 1,527,278
Less amounts payable in one
year(c) 39,940 198,277
----------- -----------
Total long-term debt $ 1,260,814 $ 1,329,001
=========== ===========
(a) Commercial paper is supported by $900 million of revolving credit and term
loan agreements, $500 million of which matures on June 22, 2003, and $400
million of which matures on June 20, 2000. The company has the option and
intention to renew the $400 million facility before June 22, 2000, for an
additional 364-day term through June 2001.
(b) During the first quarter 1999, the company issued $300 million of 6.875%
debentures under a shelf registration statement filed with the Securities
and Exchange Commission in November 1997. Proceeds from the issuance were
used to reduce borrowings under the company's commercial paper program in
April 1999.
(c) In 1999, this represents $39.9 million for the 8.5% notes payable due on
Sept. 1, 2000. Interest payments during 1999 and 1998 were $90.6 million
and $118.4 million, respectively.
33
The carrying amounts and fair values of debt as of Dec. 26, 1999, are as
follows (in thousands):
Carrying Fair
Amount Value
----------- -----------
Commercial paper $ 433,796 $ 433,796
9.875% Debentures 198,464 228,536
7.15% Debentures 94,534 90,660
6.875% Debentures 296,443 262,338
8.5% Notes payable 79,903 81,754
6.625% Notes payable 98,209 94,360
6.3% Senior notes payable 99,405 94,446
----------- -----------
Total $ 1,300,754 $ 1,285,890
=========== ===========
The following table presents the approximate annual maturities of debt for
the years after 1999 (in thousands):
2000 $ 39,940
2001 39,963
2003 433,796
2005 and thereafter 787,055
-----------
Total $ 1,300,754
===========
5. 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):
1999 1998 1997
---------- ---------- ----------
Current assets $ 226,155 $ 246,940 $ 212,939
Property, plant and equipment
and other assets 1,458,029 1,260,996 1,158,224
Current liabilities 199,114 170,856 143,683
Long-term debt and other
noncurrent liabilities 645,555 518,560 394,253
Net sales 807,825 782,893 806,587
Gross profit 20,627 90,719 62,426
Net income (loss) (8,899) 56,201 24,428
Company's share of:
Net assets 206,880 201,120 197,585
Net income 12,571 23,309 10,800
In 1989, the Detroit Free Press and The Detroit News began operating under a
joint operating agreement as the Detroit Newspaper (DN). Balance sheet amounts
for DN at Dec. 26, 1999, Dec. 27, 1998, and Dec. 28, 1997, are included above,
and the net assets contributed to DN are included in "Equity in unconsolidated
companies and joint ventures" in the Consolidated Balance Sheet. Excluding DN,
the company's investment in unconsolidated subsidiaries includes $180.8 million
of undistributed earnings accumulated since the investment dates. Dividends and
cash distributions received from unconsolidated companies and joint ventures
(excluding DN) were $10.8 million in 1999, $6.6 million in 1998 and $3.1 million
in 1997.
In January 1997, the company and Tele-Communications, Inc., closed on the sale
of the company's interest in all but one of their jointly owned cable systems.
The sale of the balance of the cable system was completed in March 1998.
34
6. CAPITAL STOCK
In 1991, shareholders authorized 2 million shares of Series B preferred stock
for future issuance (which is convertible into 20 million shares of common
stock).
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 May 9, 1997, acquisition of four newspapers that
were indirectly owned by The Walt Disney Company. Each share of Series B
preferred stock is convertible into 10 shares of common stock. During 1999,
380,830 shares of preferred stock were converted into 3.8 million common shares.
If and when dividends and other distributions are declared by the Board of
Directors, holders of the Series B preferred stock are entitled to receive the
dividends or other distribution paid on the number of shares of the
corporation's common stock into which such share of this series is convertible.
Each holder of this series is entitled to vote with respect to all matters upon
which holders of the corporation's common stock are entitled to vote. The holder
of Series B preferred stock has two votes for each preferred share.
Concurrent with the 1996 stock split, the company executed a rights agreement to
replace a similar agreement that expired on July 10, 1996. 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.
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 1999, 1998 and 1997, the Series B preferred stock, each share of which is
convertible into 10 shares of common stock, and shares of common stock issuable
upon exercise of stock options are included in the diluted EPS calculation, but
excluded from the basic EPS calculation. The 1999, 1998 and 1997 diluted EPS
calculations include 15,947,916, 17,549,300 and 10,968,313 weighted-average
shares of Series B convertible preferred stock, respectively, and 1,487,231,
1,744,887 and 1,870,340 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 336,001 shares in 1999, 349,599 shares in 1998, and 387,514 shares in
1997. The purchase price of shares issued in 1999 under this plan ranged between
$42.47 and $45.95, and the market value on the purchase dates of such shares
ranged from $49.97 to $54.06.
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
market value at date of grant. Options granted vest in three equal installments
over a three-year period from the date of grant. 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:
Number of Weighted-Average
Shares Exercise Price Per Share
--------- ------------------------
Outstanding
Dec. 29, 1996 6,904,845 $ 29.89
Exercised (1,693,765) 26.54
Expired (340,341) 29.00
Forfeited (25,873) 32.55
Granted 1,412,668 51.65
Outstanding
Dec. 28, 1997 6,257,534 35.74
Exercised (1,007,792) 28.35
Expired (25,230) 33.88
Forfeited (90,224) 55.61
Granted 1,481,750 49.72
Outstanding
Dec. 27, 1998 6,616,038 39.74
Exercised (840,375) 30.88
Expired (24,907) 43.38
Forfeited (140,295) 45.55
Granted 1,652,850 57.82
Outstanding
Dec. 26, 1999 7,263,311 44.75
In 1997, the company established the Long-Term Incentive Plan. The plan rewards
participants whose leadership helps the company reach levels of total
shareholder return, as defined. The plan originally covered a three-year
performance period from Jan. 1, 1997, through Dec. 31, 1999. Participants
received an aggregate initial grant of 347,218 shares of restricted Knight
Ridder common stock. Additional grants, net of forfeitures, resulted in
restricted shares outstanding of 314,925 at Dec. 26, 1999, and Dec. 27, 1998,
and 322,286 at Dec. 28, 1997. There were no shares vested as of Dec. 26, 1999,
since the company's total shareholder return did not reach the performance
goals. The plan was extended for an additional three-year period beginning on
Jan. 1, 2000, with an initial grant of 342,012 shares, and ending on Dec. 31,
2002. The grants of common stock are restricted, as the vesting of these shares
is triggered upon the occurrence of certain performance goals.
In 1997, the company established the 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 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,
200,000 shares were authorized for issuance as options under the plan.
Participants were granted 20,000, 24,000 and 26,000 options in 1999, 1998 and
1997, respectively. In addition, 4,157 and 3,333 shares were awarded under the
plan as retainer payments to nonemployee directors in 1999 and 1998,
respectively.
Proceeds from the issuance of shares under these plans are included in
shareholders' equity and do not affect income.
At Dec. 27, 1999, shares of the company's authorized but unissued common stock
were reserved and available for issuance as follows:
Shares
---------
Employee Stock Option Plan 6,322,817
Employees Stock Purchase Plan 1,735,506
Nonemployee Directors Plan 122,510
---------
Total 8,180,833
=========
36
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. The fair value for these
options was estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted-average assumptions for 1999, 1998 and 1997,
respectively: risk-free rates of 6.2%, 4.7% and 5.7%; dividend yields of 1.5%,
1.6% and 1.6%; volatility factors of the expected market price of the company's
common stock of 0.16, 0.17 and 0.14; and a weighted-average expected life of the
option of 5.6, 6.4 and 6.4 years. The weighted-average fair values of the stock
options for 1999, 1998 and 1997 were $14.67, $11.58 and $12.44, respectively.
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 1999, 1998 and 1997
pro forma information follows (in thousands, except for earnings per share
information):
1999 1998 1997
--------- --------- ---------
Pro forma net income $ 329,689 $ 356,777 $ 407,274
Pro forma basic earnings per
share 3.94 4.35 4.52
Pro forma diluted earnings
per share 3.38 3.63 4.02
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.
The exercise price of options outstanding at Dec. 26, 1999, ranged between
$22.66 and $57.97. The weighted-average remaining contractual life of those
options for 1999, 1998 and 1997 is 7.5, 7.3 and 6.9 years, respectively. The
weighted-average exercise price of those options for 1999, 1998 and 1997 is
$44.75, $39.74 and $35.74, respectively. 4,262,694, 3,882,661 and 3,643,950
options were exercisable at the end of 1999, 1998 and 1997, respectively.
37
7. 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 multiemployer union
defined benefit plans, defined contribution plans and other agreements (in
thousands):
Pension Benefits Other Benefits
------------------------------------------- ---------------------------------------
1999 1998 1997 1999 1998 1997
-------- -------- -------- ------- ------- -------
Defined benefit plans:
Service cost $ 37,421 $ 41,994 $ 30,116 $ 4,368 $ 3,390 $ 3,524
Interest cost 74,264 67,864 61,458 10,876 10,380 10,988
Expected return on plan
assets (98,064) (89,264) (75,151) (805) (778) (753)
Recognized net actuarial
(gain) loss 989 (1,095) 57 (541) (829) (324)
Amortization of prior
service cost 6,788 6,418 5,990 (4,597) (4,649) (4,508)
Amortization of transition
asset (4,157) (3,999) (4,516)
-------- -------- -------- ------- ------- -------
Net 17,241 21,918 17,954 9,301 7,514 8,927
Multiemployer union plans 15,120 11,731 11,125
Defined contribution plans 11,889 11,681 10,742
Other 3,799 1,695 1,968
-------- -------- -------- ------- ------- -------
Net periodic benefit cost $ 48,049 $ 47,025 $ 41,789 $ 9,301 $ 7,514 $ 8,927
======== ======== ======== ======= ======= =======
Service cost in 1998 included approximately $7.0 million related to accelerating
the retirement of certain employees.
Weighted-average assumptions used each year in accounting for defined benefit
plans and postretirement benefits were:
Pension Benefits Other Benefits
-------------------------------- --------------------------------
1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
Discount rate as of year end 7.8% 6.8% 7.0% 7.8% 6.8% 7.0%
Return on plan assets 9.0 8.8 8.5 6.5 6.5 6.5
Rate of compensation increase 3.5 4.5 4.5 3.5 4.5 4.5
Medical trend rate:
Projected 6.0 7.0 8.0
Reducing to this percentage
in 2001 and thereafter 5.5 5.5 5.5
38
The assumed health care cost trend rate has a significant effect on the amounts
reported. A 1-percentage-point change in the assumed health care cost trend rate
would have the following effects:
1-Percentage- 1-Percentage-
Point Increase Point Decrease
-------------- --------------
Effect on total of service and
interest cost components in 1999 $ 672 $ (573)
Effect on postretirement benefit
obligation as of Dec. 26, 1999 $ 4,492 $ (3,943)
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 DN 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
--------------------------------------------- -------------------------------------------
1999 1998 1997 1999 1998 1997
----------- ----------- ----------- --------- --------- ---------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at
beginning of year $ 1,053,899 $ 955,332 $ 796,879 $ 121,229 $ 132,618 $ 121,488
Service cost 36,144 38,230 27,423 2,516 2,266 2,316
Interest cost 74,264 67,864 61,458 7,812 7,114 7,987
Plan participants'
contributions 1,102 1,216 1,653
Amendments 4,361 5,666 4,483 (868)
Actuarial (gains) losses (139,871) 35,582 57,444 (1,575) (11,788) 2,695
Net acquisitions 51,384 6,931
Benefits paid (54,995) (48,775) (43,739) (10,265) (9,329) (10,452)
----------- ----------- ----------- --------- --------- ---------
Benefit obligation at end of
year $ 973,802 $ 1,053,899 $ 955,332 $ 120,819 $ 121,229 $ 132,618
=========== =========== =========== ========= ========= =========
CHANGE IN PLAN ASSETS
Fair value of plan assets at
beginning of year $ 1,149,173 $ 1,058,759 $ 859,911 $ 12,701 $ 12,386 $ 12,400
Actual return on plan assets 127,641 130,259 173,445 520 916 843
Acquisitions 59,495
Company contributions 15,570 8,930 9,647 7,565 7,512 7,942
Plan participants'
contributions 1,102 1,216 1,653
Benefits paid (56,659) (48,775) (43,739) (10,265) (9,329) (10,452)
----------- ----------- ----------- --------- --------- ---------
Fair value of plan assets at
end of year $ 1,235,725 $ 1,149,173 $ 1,058,759 $ 11,623 $ 12,701 $ 12,386
=========== =========== =========== ========= ========= =========
Funded status of plan
(underfunded) $ 261,923 $ 95,274 $ 103,427 $(109,196) $(108,528) $ (120,232)
Unrecognized net actuarial
gain (292,022) (120,239) (126,768) (19,758) (18,297) (6,724)
Unrecognized prior service
cost 41,395 42,159 42,911 (16,189) (20,293) (23,529)
Unrecognized transition asset (4,501) (8,480) (12,576)
----------- ----------- ----------- --------- --------- ----------
Net prepaid (accrued) benefit
cost $ 6,795 $ 8,714 $ 6,994 $(145,143) $(147,118) $ (150,485)
=========== =========== =========== ========= ========= ==========
39
Amounts recognized in the Consolidated Balance Sheet consist of:
Pension Benefits Other Benefits
------------------------------------------ -------------------------------------------
1999 1998 1997 1999 1998 1997
-------- -------- -------- --------- --------- ---------
Prepaid benefit cost $ 56,547 $ 51,636 $ 56,504
Accrued benefit liability (49,752) (42,922) (49,510) $(145,143) $(147,118) $(150,485)
Additional minimum liability (9,200) (5,922)
Intangible asset 9,200 5,922
-------- -------- -------- --------- --------- ---------
Net prepaid (accrued) benefit
cost $ 6,795 $ 8,714 $ 6,994 $(145,143) $(147,118) $(150,485)
======== ======== ======== ========= ========= =========
Amounts applicable to the company's pension plans with accumulated benefit
obligations in excess of plan assets are as follows:
1999 1998 1997
--------- ---------- ---------
Projected benefit obligation $ (37,666) $ (119,794) $ (43,497)
--------- ---------- ---------
Accumulated benefit obligation (26,462) (106,092) (32,484)
Fair value of plan assets 68,988 2,529
--------- ---------- ---------
Unfunded accumulated benefit
obligation $ (26,462) $ (37,104) $ (29,955)
========= ========== =========
Of the plans whose accumulated benefit obligations exceed plan assets, the
amounts applicable to qualified plans are as follows (none in 1999):
1999 1998 1997
--------- ---------- ---------
Projected benefit obligation $ -- $ (79,800) $ (2,934)
--------- ---------- ---------
Accumulated benefit obligation (75,211) (2,934)
Fair value of plan assets 68,988 2,529
--------- ---------- ---------
Unfunded accumulated benefit
obligation $ -- $ (6,223) $ (405)
========= ========== =========
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.
In the fourth quarter of 1998, the company changed the method of accounting used
to determine the market-related value of pension plan assets, effective Dec. 29,
1997. The method was changed to: (1) align the method of calculating the return
component of net periodic pension costs with the related plans' investment
strategy, and (2) to minimize significant year-to-year fluctuations in pension
cost caused by financial market volatility. The effect of this change on results
of operations, including the cumulative effect of prior years, was not material.
40
EMPLOYEE LABOR ARRANGEMENTS
Approximately 37% of the company's 22,000 employees are represented by some 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 2000
and ratified by all unions shortly thereafter. During 2000, there will be
negotiations to extend collective bargaining agreements with the Newspaper Guild
in Akron and with a single union at each of six other newspapers.
8. 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
---------- ---------- ---------- ----------
1999 Operating revenue $ 770,799 $ 809,666 $ 784,739 $ 863,021
Operating income 125,662 155,485 150,977 192,125
Income from continuing
operations 62,867 86,586 76,209 114,278
Net income 62,867(a) 86,586(b) 76,209 114,278(c)
Earnings per share
Basic: Net income (1) 0.76 1.04 0.90 1.37
Diluted: Net income 0.65 0.88 0.78 1.18
Dividends declared per common
share (3) 0.20 0.23 0.23 0.23
- ---------------------------------------------------------------------------------------------------------------------------
1998 Operating revenue $ 743,883 $ 779,292 $ 752,778 $ 815,966
Operating income 113,187 127,125 111,629 152,677
Income from continuing
operations 101,437(d) 66,925(e) 56,983(g) 80,286(h)
Net gain on sale of BIS
operations 60,042(f)
Income from BIS operations, net 184
Net income 101,621 126,967 56,983 80,286
Earnings per share
Basic: Income from continuing
operations (1) 1.22 0.81 0.68 0.98
Net gain on sale of
BIS operations 0.76
Income from BIS
operations, net 0.01
Net income (1) 1.23 1.57 0.68 0.98
Diluted: Income from continuing
operations 1.02 0.68 0.58 0.83
Net gain on sale of
BIS operations 0.61
Income from BIS
operations, net
Net income 1.02 1.29 0.58 0.83
Dividends declared per common
share 0.20 0.20 0.20 0.20
- ---------------------------------------------------------------------------------------------------------------------------
1997 Operating revenue (2) $ 600,830 $ 711,656 $ 748,704 $ 815,595
Operating income 98,169 136,977 107,936 162,946
Income from continuing
operations 175,458(i) 60,950 73,467(j) 86,629(k)
Net gain on sale of BIS
operations 15,261(l)
Income (loss) from BIS
operations, net (726) 350 545 1,081
Net income 174,732 61,300 74,012 102,971
Earnings per share
Basic: Income from continuing
operations (1) 1.88 0.67 0.81 1.00
Net gain on sale of
BIS operations 0.18
Income from BIS
operations, net 0.01 0.01
Net income (1) 1.88 0.68 0.81 1.19
Diluted: Income from continuing
operations 1.85 0.60 0.69 0.84
Net gain on sale of
BIS operations 0.15
Income from BIS
operations, net 0.01 0.01
Net income 1.85 0.61 0.69 1.00
Dividends declared per common
share 0.20 0.20 0.20 0.20
41
(1) Basic EPS has been restated for the last two quarters of 1997 through the
first quarter of 1999 to exclude preferred dividends from the numerator in
the calculation of income attributable to common shares. As a result of the
restatements, basic EPS decreased by the following amounts in the years
indicated for the first, second, third and fourth quarters, respectively:
1999 - $0.04, N/A, N/A, N/A; 1998 - $0.04, $0.04, $0.04, $0.05; and 1997 -
N/A, N/A, $0.04, $0.04.
(2) Certain amounts in 1997 have been reclassified to conform to the 1998
presentation.
(3) The Board of Directors declared a $.23 per share dividend on Jan. 25, 1999,
payable on Feb. 21, 2000, to shareholders of record on Feb. 9, 2000.
(a) Includes after-tax severance costs of $1.3 million and an after-tax
gain of $2.3 million on the sale of SportsLine.
(b) Includes after-tax severance costs of $1.4 million and after-tax gains
on the sale of Zip2 and AT&T stock (net of adjustments to certain
investments to write down permanent declines in their market value) of
$6.7 million.
(c) Includes an after-tax gain of $14.7 million on the sale of AT&T stock.
(d) Includes an after-tax gain of $45.0 million on the sales of the balance
of our jointly owned cable systems with Tele-Communications, Inc., and
the newspaper in Gary, Ind.
(e) Includes after-tax corporate relocation costs, net of settlement
adjustments on 1997 newspaper sales totaling $5.1 million.
(f) Gain on the sale of Technimetrics, Inc.
(g) Includes after-tax corporate relocation costs of $4.4 million.
(h) Includes after-tax corporate relocation costs and other severance costs
of $3.2 million.
(i) Includes the after-tax gain of $128.3 million on the sale of the
majority of TKR Cable Company.
(j) Includes the after-tax gain of $24.5 million on the Boulder, Colo.,
exchange.
(k) Includes the after-tax gain of $10.3 million on the sale of four
newspapers.
(l) Gain on the sale of KRII.
9. COMPREHENSIVE INCOME
The following table presents the components of other comprehensive income for
1999, 1998 and 1997 as shown in the Statement of Shareholders' Equity (in
thousands):
1999 1998 1997
--------- --------- ---------
Net income $ 339,939 $ 365,857 $ 413,015
Total gains on securities available
for sale, net of taxes 47,462 18,738 (1,086)
Less: reclassification adjustment for
realized gains, net of taxes (24,116) 0 (585)
--------- --------- ---------
Change in accumulated comprehensive
income 23,346 18,738 (1,671)
--------- --------- ---------
Comprehensive income $ 363,285 $ 384,595 $ 411,344
========= ========= =========
(Unaudited) On Jan. 31, 2000, Cadabra, Inc., an investment in which the company
held a 19.5% minority ownership position at Dec. 26, 1999, was purchased by
GoTo.com, Inc., in exchange for $8.0 million in cash and 3.3 million shares of
GoTo.com, Inc., stock. Knight Ridder now holds a minority ownership interest in
GoTo.com of 1.57%. The market value of Cadabra was not readily available at Dec.
26, 1999, and therefore was not included in comprehensive income at year end.
On Feb. 15, 2000, Prio, Inc., an investment in which the company held a 12.41%
minority ownership position at Dec. 26, 1999, was purchased by InfoSpace.com in
exchange for 5.4 million shares of InfoSpace.com, Inc., stock. The market value
of Prio was not readily available at Dec. 26, 1999, and therefore was not
included in comprehensive income at year end.
As of the date of these transactions, the company had an after-tax realized gain
on its investments in Cadabra and Prio totaling approximately $100 million.
42
10. ACQUISITIONS AND DISPOSITIONS
ACQUISITIONS
On May 9, 1997, the company completed the acquisition for $1.65 billion of four
newspapers indirectly owned by The Walt Disney Company. The acquisition was
accomplished through the merger of a wholly owned subsidiary with and into
Cypress Media, Inc. ("Media"), formerly known as ABC Media, Inc., the owner of
the four newspapers. Media owns newspapers in Kansas City, Mo., Fort Worth,
Texas, Belleville, Ill., and Wilkes-Barre, Pa. The company intends to continue
to manage and operate Media as a newspaper company.
The acquisition was accounted for under the purchase method. The purchase price
was allocated based on the estimated fair market value of net tangible and
intangible assets acquired. The fair market value of the net tangible and
intangible assets of Media was approximately $317.3 million at date of purchase,
including $351.6 million of intangible assets, which are being amortized on a
straight-line basis over periods ranging from 10 years to 40 years. The
intangible assets acquired primarily represent mastheads, which have an
indefinite life, but are being amortized over 40 years. The excess of purchase
price over these net assets, approximately $1.33 billion, has been recorded as
goodwill and is being amortized on a straight-line basis over 40 years.
Pursuant to the merger, the company issued 1,754,930 shares of its Series B
convertible preferred stock. Each share of preferred stock is convertible into
10 shares of common stock. At the effective time of the merger, Media had $990
million of bank debt, which was assumed by the company. The company's results of
operations include Media from May 9, 1997.
On Aug. 24, 1997, the company exchanged its newspaper in Boulder, Colo., for two
newspapers in California owned by the E.W. Scripps Company, The Monterey County
Herald and the San Luis Obispo County Telegram-Tribune.
The exchange was accounted for under the purchase method. The fair market value
of the two newspapers received in the exchange was approximately $55.8 million,
and that value was allocated to the net tangible and intangible assets of these
newspapers. The fair market value of the identified tangible and intangible
assets was approximately $50.3 million at date of exchange, including $17.7
million of intangible assets, which are being amortized on a straight-line basis
over periods ranging from 10 years to 40 years. The excess of the fair value of
these newspapers over their net assets, of approximately $5.5 million, has been
recorded as goodwill and is being amortized on a straight-line basis over 40
years. The company's results of operations include Boulder through Aug. 24,
1997, and Monterey and San Luis Obispo from that same date forward.
DISPOSITIONS
RELATED TO CONTINUING OPERATIONS:
On March 18, 1998, the company closed on the sale of its remaining interest in a
jointly owned cable system with Tele-Communications, Inc. (TCI). On Feb. 2,
1998, the company sold the Post-Tribune in Gary, Ind., to Hollinger
International, Inc. The proceeds from these sales were $95.8 million, consisting
of $58.1 million in cash and TCI stock with an aggregate market value of $37.7
million. The pretax and after-tax gains on the sales were $75.3 million and
$45.0 million, respectively.
In December 1997, the company sold its newspapers in Boca Raton, Fla., Long
Beach, Calif., Milledgeville, Ga., and Newberry, S.C. The sale of the Boca
Raton, Newberry and Milledgeville newspapers to Community Newspaper Holdings,
Inc., also included the transfer to the company of The Daily Sun and The Buyer's
Guide, a shopper, in Warner Robins, Ga., and The Byron (Ga.) Gazette, a weekly
newspaper. The Long Beach newspaper was sold to Garden State Newspapers, Inc.,
an affiliate of Media News Group. The proceeds from the sale of the four
newspapers were $50.7 million. The pretax and after-tax gains from their sale
were $18.1 million and $10.3 million, respectively.
On Aug. 24, 1997, the company exchanged its newspaper in Boulder, Colo., for two
newspapers in California owned by the E.W. Scripps Company. The exchange
resulted in pretax and after-tax gains of $43.2 million and $24.5 million,
respectively.
In January 1997, the company and TCI closed on the sale of the company's
interest in all but one of their jointly owned cable systems. As noted above,
the balance of the cable system was sold in March 1998. The total sale price was
$377.6 million and resulted in pretax and after-tax gains of $221.8 million and
$128.3 million, respectively.
43
RELATED TO DISCONTINUED OPERATIONS:
In 1997, the company announced its intention to sell the remaining Business
Information Services (BIS) subsidiaries. This decision resulted in the
reclassification of the former BIS segment as discontinued operations. The
company fully divested the BIS segment with the sale of Technimetrics, Inc., its
global diversified information subsidiary, in 1998.
On April 13, 1998, the company closed on the sale of Technimetrics to an
operating unit of The Thomson Corporation. The proceeds from the sale were
$125.0 million and resulted in pretax and after-tax gains of $103.8 million and
$60.0 million, respectively.
On Nov. 14, 1997, the company sold Knight-Ridder Information, Inc., to M.A.I.D
plc for $420 million plus a working capital purchase price adjustment of
approximately $15 million. The sale resulted in a pretax gain of $23.6 million
and an after-tax gain of $15.3 million.
11. COMMITMENTS AND CONTINGENCIES
At Dec. 26, 1999, the company had lease commitments currently estimated to
aggregate approximately $77.6 million that expire from 2000 through 2051 as
follows (in thousands):
2000 $ 16,397
2001 14,128
2002 11,252
2003 9,245
2004 7,460
2005 and thereafter 19,078
--------
Total $ 77,560
========
Payments under the lease contracts were $24.7 million in 1999, $19.3 million in
1998 and $15.6 million in 1997.
In connection with the company's insurance program, letters of credit are
required to support certain projected worker compensation obligations. At Dec.
26, 1999, the company had approximately $45 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 lengthy 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.
On Aug. 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. The case is
pending in the U.S. Court of Appeals. The case is currently being briefed and
oral argument has been set for May 2000.
Various libel actions and environmental and other legal proceedings that have
arisen in the ordinary course of business are pending against the company and
its subsidiaries. In the opinion of management, the ultimate liability to the
company and its subsidiaries as a result of all legal proceedings, including
Detroit, will not be material to its financial position or results of
operations, on a consolidated basis.
44
REPORT OF INDEPENDENT AUDITORS
Shareholders
Knight-Ridder, Inc.
We have audited the accompanying consolidated balance sheets of Knight-Ridder,
Inc., as of December 26, 1999 and December 27, 1998, and the related
consolidated statements of income, cash flows and shareholders' equity for each
of the three years in the period ended December 26, 1999. Our audits also
included the financial statement schedule listed in the index of Item 14(a).
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements 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 26, 1999, and December 27, 1998, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended Dec. 26, 1999, 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.
As discussed in Note 7 to the consolidated financial statements, in 1998 the
company changed its method of accounting for certain postretirement benefits.
/s/ Ernst & Young LLP
---------------------
San Jose, California
Jan. 18, 2000
45
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Except for the information regarding the company's executive officers of the
company set forth below, the information called for by this item is incorporated
by reference to the company's definitive Proxy Statement for the 1999 Annual
Meeting of Shareholders to be held on April 25, 2000.
MANAGEMENT COMMITTEE
ROSS JONES, 57
Senior vice president and CFO since 1993. Served as vice president/finance in
1993; vice president and treasurer of Reader's Digest Association, Inc., 1985 to
1993 and in other positions there 1977 to 1985. Served as manager at Brown
Brothers Harriman & Co. 1970 to 1977. Advanced Management Program, Harvard
Business School, 1988; M.B.A., finance, Columbia University Business School,
1970; B.A., classics, Brown University, 1965.
ALVAH H. CHAPMAN JR., 78
Served as chairman of the Management (formerly Executive) Committee 1984 to
1995; chairman of the Board 1982 to 1989; CEO 1976 to 1988; president 1973 to
1982; executive vice president 1967 to 1973; vice president 1966 to 1967; The
Miami Herald general manager 1962 to 1969. B.S., business administration, The
Citadel, 1942.
MARY JEAN CONNORS, 47
Senior vice president/human resources since 1996; vice president/human resources
1989 to 1996. Served as Philadelphia Newspapers, Inc., vice president/human
resources 1988 to 1989; assistant to the senior vice president/news for Knight
Ridder 1988; The Miami Herald assistant managing editor/personnel 1985 to 1988;
held various editing positions at The Miami Herald 1980 to 1985. Stanford
Executive Program, Stanford University, 1999; B.A., English, Miami University in
Oxford, Ohio, 1973.
P. ANTHONY RIDDER, 59
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; chairman of the Operating Committee since 1985. Served as
publisher of the San Jose Mercury News 1977 to 1986; general manager 1975 to
1977; business manager 1969 to 1975. B.A., economics, University of Michigan,
1962.
FRANK McCOMAS, 54
Senior vice president/operations since 1996; vice president/operations 1995 to
1996. Served as publisher, The (Columbia) State, 1988 to 1995; publisher,
Bradenton Herald, 1980 to 1988; held various positions at The Miami Herald and
The Charlotte Observer, 1970 to 1980. Advanced Management Program, Harvard
Business School, 1994; B.B.A. in business administration, Kent State University,
1968.
STEVEN B. ROSSI, 50
Senior vice president/operations since 1998. Served as executive vice president
and general manager, Philadelphia Newspapers, Inc., 1992 to 1998; executive vice
president 1991 to 1992; senior vice president 1988 to 1991; vice
president/finance and CFO 1987 to 1988. Served as vice president and divisional
general manager of Amerigas, Inc., 1981 to 1987. M.B.A., The Wharton School of
the University of Pennsylvania, 1974; B.A., economics, Ursinus College, 1971.
KAREN STEVENSON, 49
Vice president and general counsel since 1998. Served as executive vice
president, general counsel and secretary of TELE-TV in New York, 1995 to 1997;
member of the San Francisco law firm of Howard, Rice, Nemerovski, Canady, Falk &
Rabkin, 1990 to 1995; vice president/law and secretary, Transamerica
Corporation, 1988 to 1990. J.D., Boalt Hall School of Law, University of
California, 1980; B.A., sociology, University of California, Los Angeles, 1971.
46
OFFICERS
MIKE ROGERS, 48
Vice president/marketing since June 1999. Served in various capacities,
including president and publisher of Computerworld, Inc., executive vice
president of IDG Marketing Services Division, and corporate senior vice
president and publisher of Windows NT World, at International Data Group (IDG)
in Boston, 1992 to 1999; senior vice president for Ammirati Puris Lintas
advertising agency in New York, 1986 to 1992, senior vice president for
Campbell-Ewald advertising in Detroit, 1981 to 1986. M.B.A. marketing,
University of Denver, 1978; B.S., management, New Mexico State University; 1973.
VIRGINIA DODGE FIELDER, 51
Vice president/research since 1989. 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; held
various positions at Lexington Herald-Leader 1976 to 1979. Ph.D., mass
communications, Indiana University, 1976; M.A., journalism, Indiana University,
1974; B.A., psychology, Transylvania University, 1970.
JACQUI LOVE MARSHALL, 51
Assistant vice president/human resources since 1996. Served as vice president,
human resources, Miami Herald Publishing Company, 1993 to 1996; various human
resources roles and assistant to the publisher, The Washington Post, 1986 to
1993; human resources roles and assistant to the president, Times Mirror
Publishing Company, 1983 to 1986; teaching and counseling jobs, 1970 to 1983.
Ed.M, educational counseling, Harvard University, 1970; B.A., education, Trenton
State College, 1969.
LARRY D. MARBERT, 46
Vice president/production and facilities since 1998. Served as Knight Ridder
vice president/technology 1994 to 1998; Philadelphia Newspapers, Inc., senior
vice president/operations 1991 to 1994; vice president/operations research and
planning 1988 to 1991; vice president/production 1986 to 1988; various
production positions, Knight Ridder and The Miami Herald, 1977 to 1986. M.S.,
management science, Auburn University, 1977; B.S., University of North Carolina,
business administration, 1976.
POLK LAFFOON IV, 54
Vice president/corporate relations since 1994 and corporate secretary since
January 1999. Served as assistant to the president 1992 to 1994; assistant
circulation director/distribution, The Miami Herald, 1991 to 1992; executive
assistant to the vice president/marketing 1989 to 1991; Living Today editor 1987
to 1989. 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.
DAN FINNIGAN, 36
Vice president since July 1999 and president of KnightRidder.com, (formerly
Knight Ridder New Media). Served as president and CEO of SBC Interactive from
1998 to 1999; held various positions at SBC Communications, Inc., 1995 to 1998;
group manager for product development for 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, the University of California,
Los Angeles, 1984.
ALAN G. SILVERGLAT, 53
Vice president/treasurer since 1995. Served as senior vice president/finance and
planning for Business Information Services Division 1983 to 1995; other BIS
positions 1980 to 1983. Formerly with Ernst & Young. B.S., business
administration, University of Missouri, 1968; CPA.
MARTY CLAUS, 51
Vice president/news since 1993. Served as Detroit Free Press managing editor/
business and features 1987 to 1992; held various editing positions at the Free
Press 1977 to 1987. Held various writing and editing positions at the San
Bernardino (Calif.) Sun-Telegram 1970 to 1977. B.A., journalism, Michigan State
University Honors College, 1970.
47
OFFICERS (Continued)
TALLY C. LIU, 49
Vice president/finance and advanced technology since 1998. Served as vice
president/finance and administration 1994 to 1998; vice president/finance and
controller 1993 to 1994; vice president and controller 1990 to 1993. Served as
San Jose Mercury News vice president and CFO 1987 to 1990 and in various roles
1983 to 1987. Advanced Management Program, Harvard Business School, 1998;
M.B.A., Florida Atlantic University, 1977; B.S., business administration,
National Chen-Chi University, 1973; CPA.
MARSHALL ANSTANDIG, 51
Vice president/senior labor and employment counsel since 1998. Served as partner
in the law firm of Brown & Bain, P.A., 1996 to 1998; managing partner in 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.
GARY R. EFFREN, 43
Vice president/controller since 1995. Served as 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 of Viewdata Corporation of America 1984 to 1986; manager of financial
reporting 1983 to 1984. M.B.A., University of Miami, 1989; B.S., accounting,
Rider College, 1978; CPA.
LYNDA HAUSWIRTH, 37
Assistant vice president/taxation since 1998. Served as senior tax manager,
Ernst & Young LLP 1996 to 1998; senior associate, BDO Seidman 1995 to 1996;
various other tax positions 1987 to 1995. B.S., business administration/
accounting, University of Vermont, 1983; CPA.
JOSEPH (CHIP) VISCI, 46
Assistant vice president/operations since September 1999 and assistant to the
chairman and CEO since 1996. Served as Detroit Free Press managing editor 1996
and held various editing positions 1978 to 1996. Served in various roles at
Columbus (Ohio) Citizen-Journal 1977 to 1978 and Naples (Fla.) Daily News 1975
to 1976. M.A., journalism, Ohio State University, 1977; B.A., journalism, Ohio
Wesleyan University, 1975.
STEVEN J. STEIN, 46
Assistant vice president/human resources since 1995. Served as vice president/
human resources for Knight Ridder Business Information Services 1989 to 1995;
Knight Ridder director/human resources from 1983 to 1989; director, Hay
Consulting from 1981 to 1983. Ph.D. psychology, University of Florida, 1981;
B.A. psychology, George Washington University, 1974.
MARIO R. LOPEZ, 60
Assistant vice president/internal audit since 1993. Served as partner at
Deloitte & Touche 1978 to 1993 and in other positions there from 1964 to 1978.
B.S., business administration, Saint Joseph's University, 1962; CPA.
JERRY CEPPOS, 53
Vice president/news since May 1999. 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.
48
Item 11. EXECUTIVE COMPENSATION
The information regarding executive compensation and related matters is
incorporated by reference to the company's Proxy Statement for the 1999 Annual
Meeting of Shareholders.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to the
company's Proxy Statement for the 1999 Annual Meeting of Shareholders.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to the
company's Proxy Statement for the 1999 Annual Meeting of Shareholders.
49
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 26, 1999, are included in Item 8:
Consolidated Balance Sheet - December 26, 1999 and December
27, 1998
Consolidated Statement of Income - Years ended December 26,
1999, December 27, 1998, and December 28, 1997
Consolidated Statement of Cash Flows - Years ended December
26, 1999, December 27, 1998, and December 28, 1997
Consolidated Statement of Shareholders' Equity - Years ended
December 26, 1999, December 27, 1998, and December 28, 1997
Notes to consolidated financial statements - December 26, 1999
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
No. 2 - Disposition of Assets is incorporated by
reference to the Company's Form 8-K dated as
of March 18, 1998, filed March 31, 1998.
No. 3(i) - Amended and Restated Articles of
Incorporation of Knight-Ridder, Inc.
(totally amended and restated as of
February, 1998) are incorporated by
reference to the Company's Form 10-K filed
March 13, 1998.
(ii) - Bylaws of Knight-Ridder, Inc. (As Amended
Through January 28, 1997), are incorporated
by reference to the Company's Form 10-Q
filed May 9, 1997.
No. 4 - Indenture, dated as of April 6, 1989, is
incorporated by reference to the Company's
Registration Statement on Form S-3,
effective April 7, 1989. (No. 33-28010)
50
Rights Agreement, dated as of June 21, 1996,
is incorporated by reference to the
Company's Form 8-K filed July 9, 1996.
Indenture, dated as of October 9, 1997, is
Incorporated by reference to the Company's
Registration Statement on Form S-3,
effective October 10, 1997 (No. 333-37603).
No. 10 (a) - Knight-Ridder, Inc. Employee Stock Option
Plan (As amended through January 26, 1999)
is incorporated by reference to the
Company's Form 10-K filed March 19, 1999.
(b) - Knight-Ridder, Inc. Compensation Plan for
Nonemployee Directors effective July 1, 1997
(As amended through January 26, 1999)
incorporated by reference to the Company's
Form 10-K filed March 19, 1999.
(c) - Knight Ridder Annual Incentive Plan
incorporated by reference to the Company's
Form 10-K filed March 19, 1999.
(d) - Consulting Agreement incorporated by
reference to the Company's Form 10-K filed
March 19, 1999.
(e) - Stock Purchase Agreement between
Knight-Ridder Business Information Services,
Inc. and M.A.I.D. plc, dated as of October
1, 1997 is incorporated by reference to the
Company's Form 10-Q filed November 12, 1997.
(f) - Knight-Ridder, Inc. Long-Term Incentive Plan
is incorporated by reference to the
Company's Form 10-Q filed on May 9, 1997.
(g) - Knight-Ridder Local Incentive Plan is
incorporated by reference to the Company's
Form 10-K filed on March 20, 1996.
(h) - Executive Officer's Retirement Agreement
dated December 19, 1991, is incorporated by
reference to the Company's Form 10-K filed
on March 23, 1994.
(i) - Purchase Agreement dated as of October 19,
1999, between Northwest Publications, Inc.
and Spieker Properties, L.P., is filed
herein.
No. 11 - Statement re Computation of Per Share
Earnings is filed herein.
No. 12 - Statement re Computation of Earnings to
Fixed Charges Ratio From Continuing
Operations is filed herein.
No. 21 - Subsidiaries of the Registrant is filed
herein.
51
No. 23 - "Consent of Independent Auditors" is filed
herein.
No. 24 - "Powers of Attorney" for Thomas P. Gerrity
and Kathleen Foley Feldstein are
incorporated by reference to the Company's
Form 10-K filed on March 19, 1999. "Power of
Attorney" for M. Kenneth Oshman is
incorporated by reference to the Company's
Form 10-K filed on March 10, 1997. "Power of
Attorney" for James I. Cash, Jr. is
incorporated by reference to the Company's
Form 10-K filed on March 20, 1996. "Powers
of Attorney" for all other members of the
Board of Directors are incorporated by
reference to the Company's Form 10-K filed
on March 24, 1995.
No. 27 - "Financial Data Schedule" is filed herein.
(b) Reports on Form 8-K filed during the fourth quarter of 1999:
There were no reports on Form 8-K filed during the quarter ended
December 26, 1999.
(c) Exhibits
The response to this portion of Item 14 is submitted as a separate
section of this report.
(d) Financial Statement Schedules
The response to this portion of Item 14 is submitted as a separate
section of this report.
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 March 21, 2000
- ----------------------------- ------------------------------------
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 March 21, 2000
- ----------------------------- ------------------------------------
P. Anthony Ridder
Chairman and
Chief Executive Officer
Dated March 21, 2000
- ----------------------------- ------------------------------------
Ross Jones
Chief Financial Officer and
Senior Vice President/Finance
Dated March 21, 2000
- ----------------------------- ------------------------------------
Gary R. Effren
Vice President/Controller
(Chief Accounting Officer)
53
/s/ James I. Cash, Jr.*
------------------------------------
James I. Cash, Jr.
Director
/s/ Alvah H. Chapman, Jr.*
------------------------------------
Alvah H. Chapman, Jr.
Director
/s/ Joan Ridder Challinor*
------------------------------------
Joan Ridder Challinor
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/ Jesse Hill, Jr.*
------------------------------------
Jesse Hill, Jr.
Director
/s/ M. Kenneth Oshman*
------------------------------------
M. Kenneth Oshman
Director
/s/ Thomas L. Phillips*
------------------------------------
Thomas L. Phillips
Director
/s/ P. Anthony Ridder*
------------------------------------
P. Anthony Ridder
Director
/s/ Randall L. Tobias*
------------------------------------
Randall L. Tobias
Director
54
/s/ Gonzalo F. Valdes-Fauli*
------------------------------------
Gonzalo F. Valdes-Fauli
Director
/s/John L. Weinberg*
------------------------------------
John L. Weinberg
Director
Dated March 21, 2000 * By Ross Jones
- ------------------------------ ------------------------------------
Ross Jones
Attorney-in-fact
55
ANNUAL REPORT ON FORM 10-K
ITEM 14 (a) (2), (c) and (d)
SUPPLEMENTARY DATA
CERTAIN EXHIBITS
YEAR ENDED DECEMBER 26, 1999
KNIGHT-RIDDER, INC. AND SUBSIDIARIES
SAN JOSE, CALIFORNIA
56
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 26, 1999:
RESERVES AND ALLOWANCES
DEDUCTED FROM ASSET ACCOUNT:
ACCOUNTS RECEIVABLE
ALLOWANCES $15,738 $25,135 $24,956 (2) $15,917
VALUATION ALLOWANCE FOR
DEFERRED TAXES 1,357 1,357
---------- ---------- ------------- --------- ----------
$17,095 $25,135 $0 $24,956 $17,274
========== ========== ============= ========= ==========
YEAR ENDED DECEMBER 27, 1998:
RESERVES AND ALLOWANCES
DEDUCTED FROM ASSET ACCOUNT:
ACCOUNTS RECEIVABLE
ALLOWANCES $14,963 $20,854 (9)(1) $20,070 (2) $15,738
VALUATION ALLOWANCE FOR
DEFERRED TAXES 1,357 1,357
---------- ---------- ------------- --------- ----------
$16,320 $20,854 ($9) $20,070 $17,095
========== ========== ============= ========= ==========
YEAR ENDED DECEMBER 28, 1997:
RESERVES AND ALLOWANCES
DEDUCTED FROM ASSET ACCOUNT:
ACCOUNTS RECEIVABLE
ALLOWANCES $12,685 $23,332 $752 (1) $21,806 (2) $14,963
VALUATION ALLOWANCE FOR
DEFERRED TAXES 1,357 1,357
---------- ---------- ------------- ---------- ----------
$14,042 $23,332 $752 $21,806 $16,320
========== ========== ============= ========= ==========
(1) Represents amounts from the former BIS division included under "Income
(loss) from discontinued BIS operations" in the Consolidated Statement of
Income.
(2) Represents uncollectible accounts written-off, net of recoveries,
and dispositions of subsidiaries' balances.
57