KNIGHT RIDDER INC - 10-Q Quarterly Report

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: March 30, 2003

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-7553

KNIGHT-RIDDER, INC.

(Exact name of registrant as specified in its charter)

FLORIDA
(State or other jurisdiction of incorporation
or organization)

38-0723657
(I.R.S. Employer
Identification No.)

50 W. SAN FERNANDO ST., SUITE 1500, SAN JOSE, CA 95113
(Address of principal executive offices)
(Zip Code)

(408) 938-7700
(Registrant’s telephone number, including area code)

__________________________________________________________________
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).
Yes x No o

As of April 25, 2003, 81,700,926 shares of Common Stock, $.02 1/12 par value, were outstanding.

Table of Contents for Form 10Q

		Page
PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements
	Consolidated Balance Sheet	3
	Consolidated Statement of Income	5
	Consolidated Statement of Cash Flows	6
	Notes to Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Operations	16

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	22

Item 4.	Controls and Procedures	22

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	23

Item 2.	Changes in Securities and Use of Proceeds	23

Item 3.	Defaults Upon Senior Securities	23

Item 4.	Submission of Matters to a Vote of Security Holders	23

Item 5.	Other Information	23

Item 6.	Exhibits and Reports on Form 8-K	23

SIGNATURE	24

Certifications	25

Exhibit Index	27

PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEET
(In 000’s of dollars, except per share data)

	March 30, 2003 (unaudited)			December 29, 2002

ASSETS
Current Assets
Cash and short-term cash equivalents	$	33,320		$	39,330
Accounts receivable, net of allowances of $21,394 in 2003 and $21,085 in 2002		343,572			377,779
Inventories		42,828			43,931
Prepaid expense		20,938			21,716
Other current assets		29,082			56,397

Total Current Assets		469,740			539,153

Investments and Other Assets
Equity in unconsolidated companies and joint ventures		302,050			301,680
Other		261,448			262,611

Total Investments and Other Assets		563,498			564,291

Property, Plant and Equipment
Land and improvements		99,665			99,665
Buildings and improvements		498,164			498,581
Equipment		1,319,612			1,312,611
Construction and equipment installations in progress		43,329			45,344

		1,960,770			1,956,201
Less accumulated depreciation		(1,012,868	)		(990,159	)

Net Property, Plant and Equipment		947,902			966,042
Goodwill and Other Identified Intangible Assets
Goodwill		1,748,229			1,748,229
Newspaper mastheads		284,284			284,284
Other, less accumulated amortization of $44,755 in 2003 and $43,050 in 2002		60,954			62,659

Total Goodwill and Other Identified Intangible Assets, net		2,093,467			2,095,172

Total	$	4,074,607		$	4,164,658

See “Notes to Consolidated Financial Statements.”

	March 30, 2003 (unaudited)			December 29, 2002

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	80,776		$	116,382
Accrued expenses and other liabilities		123,758			113,718
Accrued compensation and amounts withheld from employees		68,167			118,823
Deferred revenue		81,662			77,946
Short-term borrowings and current portion of long-term debt		39,849			39,849

Total Current Liabilities		394,212			466,718

Noncurrent Liabilities
Long-term debt		1,509,065			1,521,008
Deferred Federal and state income taxes		296,359			295,641
Postretirement benefits other than pensions		118,951			120,767
Employment benefits and other noncurrent liabilities		296,866			295,754

Total Noncurrent Liabilities		2,221,241			2,233,170

Minority Interests in Consolidated Subsidiaries		5,251			3,291
Commitments and Contingencies
Shareholders’ Equity
Common stock, $.02 1/12 par value; shares authorized - 250,000,000; shares issued - 81,055,581 shares in 2003 and 81,817,410 shares in 2002		1,689			1,705
Additional capital		1,033,065			1,027,719
Retained earnings		524,433			549,509
Accumulated other comprehensive income		(103,667	)		(103,667	)
Treasury stock, at cost, 28,943 shares in 2003 and 223,833 shares in 2002		(1,617	)		(13,787	)

Total Shareholders’ Equity		1,453,903			1,461,479

Total	$	4,074,607		$	4,164,658

See “Notes to Consolidated Financial Statements.”

CONSOLIDATED STATEMENT OF INCOME
(Unaudited in thousands, except per share data)

	Quarter Ended

	March 30, 2003			March 31, 2002

OPERATING REVENUE
Advertising
Retail	$	249,991		$	243,631
General		75,726			74,883
Classified		195,724			201,533

Total		521,441			520,047
Circulation		120,013			126,425
Other		35,944			31,740

Total Operating Revenue		677,398			678,212

OPERATING COSTS
Labor and employee benefits		291,096			278,417
Newsprint, ink and supplements		88,596			90,671
Other operating costs		157,144			156,537
Depreciation and amortization		30,011			31,757

Total Operating Costs		566,847			557,382

OPERATING INCOME		110,551			120,830

OTHER INCOME (EXPENSE)
Interest expense		(17,884	)		(19,873	)
Interest expense capitalized		60			279
Interest income		65			73
Equity in losses of unconsolidated companies and joint ventures		(10,424	)		(15,469	)
Minority interests		(2,695	)		(1,938	)
Other, net		1,015			(1,470	)

Total		(29,863	)		(38,398	)

Income before income taxes and cumulative effect of change in accounting principle of unconsolidated company		80,688			82,432
Income taxes		30,016			30,664

Net Income before cumulative effect of change in accounting principle of unconsolidated company	$	50,672		$	51,768

Cumulative effect of change in accounting principle of unconsolidated company	$			$	(24,279	)

Net Income	$	50,672		$	27,489

NET INCOME PER SHARE - BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE OF UNCONSOLIDATED COMPANY
Basic	$	0.62		$	0.62

Diluted	$	0.62		$	0.60

CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE OF UNCONSOLIDATED COMPANY - PER SHARE
Basic	$	—		$	(0.29	)

Diluted	$			$	(0.28	)

NET INCOME PER SHARE
Basic	$	0.62		$	0.33

Diluted	$	0.62		$	0.32

DIVIDENDS DECLARED PER COMMON SHARE	$	0.27		$	0.25

AVERAGE SHARES OUTSTANDING (000’s)
Basic		81,177			84,017

Diluted		82,075			86,076

See “Notes to Consolidated Financial Statements.”

CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited, in thousands)

	Quarter Ended

	March 30, 2003			March 31, 2002

CASH PROVIDED BY OPERATING ACTIVITIES
Net income	$	50,672		$	27,489
Noncash items deducted from (included in) income:
Depreciation		28,109			29,115
Amortization of other identified intangible assets		1,705			1,706
Amortization of other assets		197			936
Cumulative effect of change in accounting principle					24,279
(Gains) losses on sales and write-down of investments		(910	)		400
Provision (benefit) for deferred taxes		718			(3,671	)
Provision for bad debts		5,613			5,206
Minority interests in earnings of consolidated subsidiaries		2,695			1,938
Other items, net		2,019			2,588
Cash items not included in income:
Distributions in excess of earnings in investees		7,738			18,418
Contributions (in excess of) lower than pension and other post-retirement benefit plan expenses		401			(2,472	)
Change in certain assets and liabilities:
Accounts receivable		28,594			43,817
Inventories		1,103			(521	)
Other assets		29,483			(12,731	)
Accounts payable		(32,610	)		778
Federal and state income taxes					4,149
Other liabilities		(26,292	)		9,443

Net Cash Provided by Operating Activities		99,235			150,867

CASH REQUIRED FOR INVESTING ACTIVITIES
Proceeds from sales of investments		4,552			1,122
Additions to property, plant and equipment		(9,649	)		(12,976	)
Other investments, net		(11,717	)		(3,003	)

Net Cash Required for Investing Activities		(16,814	)		(14,857	)

CASH REQUIRED FOR FINANCING ACTIVITIES
Net decrease in commercial paper, net of unamortized discount		(10,440	)		(63,075	)
Repayment of term debt					(332	)
Payment of cash dividends		(21,963	)		(21,076	)
Issuance of common stock to employees		14,333			47,297
Purchase of treasury stock		(68,268	)		(81,774	)
Other items, net		(2,093	)		(7,572	)

Net Cash Required for Financing Activities		(88,431	)		(126,532	)

Net Increase (Decrease) in Cash		(6,010	)		9,478
Cash and short-term cash investments at beginning of the period		39,330			37,287

Cash and short-term cash investments at end of the period	$	33,320		$	46,765

SUPPLEMENTAL CASH FLOW INFORMATION:
Noncash investing activities:
Write down of investments	$	—		$	3,949
Noncash financing activities:
Issuance of treasury stock associated with Long-Term Incentive Plan
Treasury Stock	$	12,106
Issuance of common stock in exchange for treasury stock
Common Stock	$	—
Additional Capital		3,230
Treasury Stock		(3,230	)

See “Notes to Consolidated Financial Statements.”

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 1. BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of Knight-Ridder, Inc. (Knight Ridder or the company) have been prepared in accordance with generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the quarter ended March 30, 2003 are not necessarily indicative of the results that may be expected for the year ending December 28, 2003. For further information, refer to the consolidated financial statements and footnotes thereto included in the company’s annual report on Form 10-K for the year ended December 29, 2002.

Certain amounts in 2002 have been reclassified to conform to the 2003 presentation relating to certain items on the consolidated statement of cash flows.

NOTE 2. COMPREHENSIVE INCOME

The following table sets forth the computation of comprehensive income (in thousands of dollars):

	Quarter Ended

		March 30, 2003		March 31, 2002

Net income	$	50,672	$	27,489


Change in accumulated other comprehensive income		—		—

Total comprehensive income	$	50,672	$	27,489

NOTE 3. DEBT

Debt consisted of the following (in thousands):

		Balance At

	Effective Interest Rate as of March 30, 2003	March 30, 2003		December 29, 2002

Commercial paper, net of discount (a)	1.3%	$	404,610	$	415,051
Debentures, net of discount (b)	6.1%		199,002		198,960
Debentures, net of discount (c)	7.8%		95,173		95,124
Debentures, net of discount (d)	7.1%		296,838		296,808
Notes payable, net of discount (e)	2.4%		98,952		98,895
Notes payable, net of discount (f)	5.7%		297,635		297,562
Senior notes, net of discount (g)	2.1%		99,729		99,705
Fair market value of interest swaps			56,975		58,752

Total Debt (h)	4.7%		1,548,914		1,560,857
Less amounts classified as current			39,849		39,849

Total long-term debt	4.7%	$	1,509,065	$	1,521,008

(a)

Commercial paper is supported by $895 million revolving credit facility which matures in 2006.

(b)

Represents $200 million of 9.875% debentures due in 2009.

(c)

Represents $100 million of 7.15% debentures due in 2027.

(d)

Represents $300 million of 6.875% debentures due in 2029.

(e)

Represents $100 million of 6.625% notes due in 2007.

(f)

Represents $300 million of 7.125% notes due in 2011.

(g)

Represents $100 million of 6.3% senior notes due in 2005.

(h)

Interest payments for the quarter ended March 30, 2003 and March 31, 2002 were $14.8 million and $15.3 million, respectively.

The company guarantees 13.5% of the debt of Ponderay Newsprint Company’s credit facility. The guarantee arose in April 2000 when Ponderay restated its credit agreement with a bank consortium that replaced a facility used to finance construction of a newsprint mill. The company guarantees the portion of the credit facility that matures in April 2006. The guarantee could be triggered by Ponderay’s failure to meet any or all of its bank covenants, at which time the company could be liable for the full portion of its guarantee. The company accounts for these guarantees as off-balance sheet instruments, that for the quarter ended March 30, 2003, and year ended December 29, 2002, totaled $16.2 million.

The company is a one-third partner of SP Newsprint Co. In November 2002, SP amended and restated its credit agreement with certain of its lenders. The agreement stipulates that should SP’s consolidated liquidity fall below $5 million, it would be in default of its covenant. The company, along with the other partners, would then be required to make an equity contribution in sufficient amount to cure the default. The company’s contribution is limited to approximately $6.7 million. The obligation ends when SP first meets certain conditions including, but not limited to, predetermined leverage and fixed-charge coverage ratios and certain liquidity requirements. The company also has a demand obligation to SP Newsprint Co. for $6.7 million. The obligation arose in August 1985 in connection with an advance to Knight Ridder (and the other partners) by SP. SP has the right to request repayment of these funds at any time for any reason. The advance has been reflected as a reduction in the investment on the company’s Balance Sheet and no interest expense is associated with the obligation.

NOTE 4. INCOME TAX PAYMENTS

Income tax payments for the quarter ended March 30, 2003 and March 31, 2002 were $1.6 million and $29.9 million, respectively.

NOTE 5. EQUITY

Earnings per Share:

The following table sets forth the computation of basic and diluted earnings per share in accordance with GAAP (in thousands, except per share data):

	Quarter Ended

	March 30, 2003		March 31, 2002

Net income before cumulative effect of change in accounting principle	$	50,672	$	51,768
Cumulative effect of change in accounting principle				(24,279	)

Net income attributable to common stock	$	50,672	$	27,489

Average shares outstanding (basic)		81,177		84,017
Effect of dilutive securities:
Stock options		898		2,059

Average shares outstanding (diluted)		82,075		86,076

Net income per share - before cumulative effect of change in accounting principle
Basic	$	0.62	$	0.62

Diluted	$	0.62	$	0.60

Cumulative effect of change in accounting principle
Basic	$	—	$	(0.29	)

Diluted	$		$	(0.28	)

Net income per share
Basic	$	0.62	$	0.33

Diluted	$	0.62	$	0.32

In December 2002, the FASB issued SFAS 148 – “Accounting for Stock-Based Compensation – Transition and Disclosure.” SFAS 148 amends SFAS 123 –“Accounting for Stock-Based Compensation,” to provide alternative methods of transition for a voluntary change to the fair-value for stock-based employee compensation. In addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. SFAS 148 is effective for financial statements issued for 2003. As allowed by FAS 123, the Company follows the disclosure requirements of FAS 123, but continues to account for its employee stock option plans in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” which results in no charge to earnings when options are issued at fair market value. Therefore, at this time, adoption of this statement will not have a material impact on the Company’s financial position or results of operations.

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 Employee Stock Purchase Plan is treated as compensation expense for pro forma purposes. The company’s GAAP and pro forma information follows (in thousands, except for earnings per share data):

	Quarter Ending

	March 30, 2003			March 31, 2002

Net Income	$	50,672		$	27,489
Less: Stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(3,790	)		(3,715	)

Pro forma net income	$	46,882		$	23,774

Basic earnings per share	$	0.62		$	0.33
Pro forma basic earnings per share		0.58			0.28

Diluted earnings per share	$	0.62		$	0.32
Pro forma diluted earnings per share		0.57			0.28

NOTE 6. BUSINESS SEGMENTS

FASB 131 requires disclosure of certain information about reportable operating segments management believes are important and allows users to assess the performance of individual operating segments in the same way that management reviews performance and makes decisions.

	Quarter Ended

	March 30, 2003			March 31, 2002

Operating revenue
Newspapers	$	660,245		$	665,322
Online		17,153			12,890

	$	677,398		$	678,212

Operating income (loss)
Newspapers	$	117,583		$	132,535
Online		2,042			(3,902	)
Corporate		(9,074	)		(7,803	)

	$	110,551		$	120,830

Depreciation and amortization
Newspapers	$	27,545		$	29,581
Online		1,072			769
Corporate		1,394			1,407

	$	30,011		$	31,757

Capital Expenditures
Newspapers	$	8,700		$	11,924
Online		27			689
Corporate		922			363

	$	9,649		$	12,976

	As of

	March 30, 2003		December 29, 2002

Total Assets
Newspapers	$	3,607,413	$	3,673,374
Online		117,502		118,743
Corporate		349,692		372,541

	$	4,074,607	$	4,164,658

NOTE 7. GOODWILL AND OTHER INTANGIBLE ASSETS

In June 2001, the Financial Accountants Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 142 Goodwill and Other Intangible Assets. Under SFAS 142, goodwill and indefinite-lived intangible assets are no longer amortized but are reviewed at least annually for impairment. Separable intangible assets that are not deemed to have an indefinite life continue to be amortized over their useful lives. The amortization provisions of SFAS 142 apply to goodwill and intangible assets acquired after June 30, 2001. With respect to goodwill and intangible assets acquired prior to July 1, 2001 the company has applied the new accounting rules beginning December 31, 2001.

The company completed the initial evaluation of its goodwill and other intangible assets during the second quarter of 2002 and no impairment was indicated. As of October 1, 2002, the company performed its annual evaluation of goodwill and other intangibles and again no impairment was indicated. All goodwill and indefinite lived intangible assets are reported by the newspaper segment.

The company owned 50% of CareerBuilder (formerly Career Holdings, Inc.), when it completed its evaluation of goodwill in the second quarter of 2002. The company records its investments in CareerBuilder under the equity method of accounting. The company reflected its share of CareerBuilders’ impairment of goodwill, $24.3 million, or $.28 per diluted share, arising from its adoption of SFAS 142 in the second quarter ended June 30, 2002, as a year-to-date cumulative effect of a change in accounting principle consistent with CareerBuilders’ characterization of the write-down. No further impairment was identified as a result of CareerBuilder’s annual evaluation of goodwill and other intangible assets. The company will reassess the carrying value of its goodwill and intangible assets each year as of October 1, unless indicators of impairment become apparent earlier.

Goodwill and other intangible assets along with their weighted-average life, at March 30, 2003 consisted of the following (in thousands):

	Gross Amount		Accumulated Amortization		Net Amount		Weighted- Average Life

Intangible assets continuing to be amortized:
Advertiser lists	$	43,558	$	23,204	$	20,354	12.2
Subscriber lists		33,651		21,096		12,555	9.5
Other		702		455		247	10.0

Total	$	77,911	$	44,755	$	33,156	11.0

Goodwill and other intangible assets not being amortized:
Goodwill					$	1,748,229
Newspaper mastheads						284,284
Intangible pension asset						26,969
Other						829

Total						2,060,311

Total goodwill and other intangible assets					$	2,093,467

Estimated annual aggregate amortization expense will be approximately $6.8 million for 2003 through 2006 and $4.1 million in 2007.

During 2002, the defined benefit pension plans sponsored by the company were affected by losses in asset returns as well as increased benefit obligations due to declines in interest rates. As a result, at December 29, 2002, the accumulated benefit obligation exceeded the fair value of plan assets for many of the company’s pension plans. SFAS 87 – “Employers’ Accounting for Pension Plans,” required recognition of an additional minimum liability for those deficient plans and, as a part of the transaction, the company recorded, as an intangible pension asset, an increase in goodwill and other intangible assets no longer being amortized category of $27.0 million in December 2002.

A summary of the balances of goodwill, newspaper mastheads and other intangible assets as of December 29, 2002 and March 30, 2003 and the transactions for the quarter ended March 30, 2003 were (in thousands):

	December 29, 2002		Amortization of Other Intangibles			March 30, 2003

Goodwill	$	1,748,229	$	—		$	1,748,229
Newspaper Mastheads		284,284					284,284
Other		62,659		(1,705	)		60,954

Total	$	2,095,172	$	(1,705	)	$	2,093,467

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATIONS

FORWARD LOOKING STATEMENTS

Certain statements contained in this Form 10-Q are forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results and events to differ materially from those anticipated.

Potential risks and uncertainties that could adversely affect the company’s ability to obtain these results include, without limitations, the following factors: (a) increased consolidation among major retailers or other events that may adversely affect business operations of major customers and depress the level of local and national advertising; (b) an accelerated economic downturn in some or all of the company’s principal newspaper markets that may lead to decreased circulation or decreased local or national advertising; (c) a decline in general newspaper readership patterns as a result of competitive alternative media or other factors; (d) an increase in newsprint costs over the levels anticipated; (e) labor disputes or shortages that may cause revenue declines or increased labor costs; (f) disruptions in electricity and natural gas supplies and increases in energy costs; (g) acquisitions of new businesses or dispositions of existing businesses; (h) increases in interest or financing costs or availability of credit; (i) rapid technological changes and frequent new product introductions prevalent in electronic publishing, including the evolution of the Internet; and (j) acts of war, terrorism, natural disaster or other events that may adversely affect the company’s operations or the operations of key suppliers to the company.

Critical Accounting Policies and Estimates

General. Management’s discussion and analysis of its financial condition and results of operations are based upon the company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, cash flows and related disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates its estimates, including those related to incentives, bad debts, inventories, investments, intangible assets, income taxes, financing arrangements, restructuring, long-term service contracts, pensions and other postretirement benefits, and contingencies and litigation. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Management believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.

Revenue recognition. Revenue recognition varies by source. Advertising revenue is recognized when advertisements 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. Revenue is recorded net of estimated incentive offerings, including special pricing agreements, promotions and other volume-based incentives. Revisions to these estimates are charged to income in the period in which the facts that give rise to the revision become known.

Bad debts. The company maintains a reserve account for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of the company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. The company uses a combination of the percentage-of-sales and the aging-of-accounts-receivable methods to establish allowances for losses on accounts receivable. Payment in advance for some advertising and circulation revenue and credit background checks, have assisted the company in maintaining historical bad debt losses to less than 1% of revenue.

Equity and cost method investment valuation and accounting. The company holds minority interests in companies having operations or technology in areas within its strategic focus and records these investments at cost. The company records an investment impairment charge when it believes an investment has experienced a decline in value that is other than temporary. Future adverse changes in market conditions or poor operating results of underlying investments could result in losses or an inability to recover the carrying value of the investments. In these cases, an impairment charge could be required in the future.

Goodwill and intangible impairment. The company must assess, at least annually, potential impairment of its goodwill and purchased intangible assets. This asset impairment review assesses the fair value of the assets based on the future cash flows the assets are expected to generate. An impairment loss is recognized when estimated undiscounted future cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset (if any) are less than the carrying value of the asset. This approach uses estimates of future market growth, forecasted revenue and costs, expected periods the assets will be utilized and appropriate discount rates. Such evaluations of impairment of long-lived assets including goodwill and purchased intangible assets are an integral part of, but not limited to, the company’s strategic reviews of the business and operations performed in conjunction with restructuring actions. If the estimated fair value of the asset is less than its carrying value, an impairment loss will be recognized in an amount equal to the difference. If these estimates or their related assumptions change in the future, the company may be required to record impairment charges for these assets. The company must also record its share of impairment charges recorded by its equity method investees.

Pension and postretirement benefits. The company has significant pension and postretirement benefit costs and credits that are developed from actuarial valuations. These valuation assumptions include health care cost trend rates, salary growth, long-term return on plan assets, discount rates and other factors. The company’s health care cost trend assumptions are developed based on historical cost data, the near-term outlook and an assessment of likely long-term trends. The salary growth assumptions reflect the company’s long-term actual experience and future and near-term outlook. Long-term return on plan assets is determined based on historical results of the portfolio and management’s expectation of the current economic environment. The discount rate assumption is based on current investment yields on AA-rated corporate long-term bond yields. Actual results that differ from these assumptions are accumulated and amortized over the future life of the plan participants. For an explanation of these assumptions, see “Note 11. Pension and Other Postretirement Benefit Plans” in the company’s Form 10-K for the year ended December 29, 2002. While the company believes that the assumptions used are appropriate, significant differences in actual experience or significant changes in assumptions would affect the company’s pension and other postretirement benefits costs and obligations.

Self-insurance. The company is self-insured for the majority of its group health insurance costs. The company relies on claims experience and the advice of consulting actuaries and administrators in determining an adequate liability for self-insurance claims.

Income taxes. The company records incomes taxes in accordance with SFAS 109 – “Accounting for Income Taxes.” The company maintains a liability to cover the cost of additional tax exposure items on the filing of federal and state income tax returns. The company files a federal consolidated income tax return and state consolidated, combined or separate returns depending upon the state requirements. Each of these filing jurisdictions may audit the tax returns filed and propose adjustments. Adjustments arise from a variety of factors, including different interpretation of statutes and regulations.

Legal. The company is involved in certain claims and litigation related to its operations, including ordinary routine litigation incidental to its business. See “Note 14. Commitments and Contingencies” in the company’s Form 10-K for the year ended December 29, 2002 for further information. Management reviews and determines which liabilities, if any, arising from these claims and litigation could have a material adverse effect on the company’s consolidated financial position, liquidity, results of operations or properties. Management assesses the likelihood of any adverse judgments or outcomes as well as potential ranges of probable losses. Determination of the amount of reserves required for these contingencies is made after analysis and discussion with counsel.

CONSOLIDATED RESULTS OF OPERATIONS: FIRST QUARTER ENDED MARCH 30, 2003 COMPARED TO FIRST QUARTER ENDED MARCH 31, 2002:

The following table sets forth the consolidated results of operations for the quarters ended March 30, 2003 and March 31, 2002 (in thousands, except per share amounts):

	Quarter Ended

	March 30, 2003		March 31, 2002		% Change

Operating Revenue	$	677,398	$	678,212	-0.1	%
Operating Income		110,551		120,830	-8.5	%
Net Income		50,672		27,489	84.3	%

Net Income includes the following expense:
Cumulative effect of change in accounting principle	$	—	$	24,279

Diluted Earnings per Share	$	0.62	$	0.32	93.8	%

Diluted Earnings per Share includes the following expense:
Cumulative effect of change in accounting principle		—		0.28

NEWSPAPER DIVISION

Operating Revenue

The table below presents operating revenue and related statistics for newspaper operations for the quarter ended March 30, 2003 compared to the quarter ended March 31, 2002 (in thousands):

	Quarter Ended

	March 30, 2003		March 31, 2002		Variance			% Change

Operating revenues
Advertising
Retail	$	249,991	$	243,631	$	6,360		2.6	%
General		75,726		74,883		843		1.1	%
Classified		195,723		201,533		(5,810	)	-2.9	%

Total		521,440		520,047		1,393		0.3	%

Circulation		120,013		126,425		(6,412	)	-5.1	%
Other		18,792		18,850		(58	)	-0.3	%

Total operating revenue	$	660,245	$	665,322	$	(5,077	)	-0.8	%

Average daily circulation
Daily		3,877		3,858		19		0.5	%
Sunday		5,189		5,166		24		0.5	%
Advertising linage
Full run
Retail		3,527.0		3,643.6		(116.6	)	-3.2	%
General		603.6		602.0		1.6		0.3	%
Classified		4,363.9		4,253.7		110.2		2.6	%

Total full run		8,494.5		8,499.3		(4.8	)	-0.1	%

Factored part-run		556.0		521.0		35.0		6.7	%

Total preprints inserted		1,787.3		1,579.8		207.5		13.1	%

Advertising revenue for the quarter ended March 30, 2003 was up $1.4 million, or 0.3%, compared to the same quarter of the prior year. The most significant increases were in Miami ($3.7 million or 5.3%), Akron ($1.4 million or 8.2%) and Fort Wayne ($881,000 or 9.5%). Philadelphia had the largest decrease ($1.8 million or 1.9%), followed by San Jose ($1.3 million or 2.8%).

Retail advertising increased $6.4 million, or 2.6%, during the quarter ended March 30, 2003 compared to the same period last year, on a 10.7% increase in preprint advertising revenue, partially offset by a 3.2% decrease in full run linage. The largest increases were in Miami ($1.5 million or 5.1%), San Jose ($1.3 million or 7.2%), Charlotte ($926,000 or 6.1%), Akron ($544,000 or 7.3%) and Biloxi ($450,000 or 12.2%).

General advertising revenue for the quarter ended March 30, 2003 increased $843,000, or 1.1%, compared to the same quarter in 2002, on a 23.7% increase in preprint advertising revenue and a 0.3% increase in full run linage. The largest increases were in San Jose ($1.6 million or 19.2%), Kansas City ($516,000 or 8.0%) and Akron ($413,000 or 28.3%). Telecommunications was responsible for most of the growth. San Jose also benefited from increases in automotive and travel, while Kansas City had gains from electronics. Philadelphia had the largest shortfall ($1.5 million or 6.5%), followed by Miami ($813,000 or 5.3%).

Classified revenue was down $5.8 million, or 2.9%, in the first quarter of 2003, compared to the first quarter of 2002, due to classified recruitment, down $10.7 million, or 16.6%. Increases in real estate of $2.7 million, or 6.8%, other classified revenue of $2.2 million, or 5.3%, and automotive of $48,000, or 0.1%, partially offset this decline. The largest decreases were in San Jose ($4.2 million or 18.8%), Charlotte ($1.6 million or 10.8%), Kansas City ($1.6 million or 9.4%) and Fort Worth ($1.2 million or 6.1%), all due to shortfalls in employment and automotive. San Jose also had shortfalls in real estate. Offsetting these shortfalls, Miami was over the prior year ($3.0 million or 12.5%) due to automotive, real estate and other classified revenue.

Circulation revenue declined $6.4 million, or 5.1%, in the quarter ended March 30, 2003 compared to the same period last year, while average daily copies increased from the prior year’s first quarter by 18,544, or 0.5%, and Sunday copies increased by 23,516, or 0.5%. The decrease in revenue was due to (a) increased discounting of subscription rates, (b) reduced rates for Newspaper in Education (NIE) and (c) Sunday single copy price rollbacks in five markets.

Other revenue was essentially flat against prior year.

Operating Costs

The table below presents operating costs for newspaper operations for the quarter ended March 30, 2003 compared to the quarter ended March 31, 2002 (in thousands):

	Quarter Ended

	March 30, 2003		March 31, 2002		Variance			% Change

Operating costs
Labor and employee benefits	$	280,636	$	266,205	$	14,431		5.4	%
Newsprint, ink and supplements		91,252		93,279		(2,027	)	-2.2	%
Other operating costs		143,229		143,722		(493	)	-0.3	%
Depreciation and amortization		27,545		29,581		(2,036	)	-6.9	%

Total operating costs	$	542,662	$	532,787	$	9,875		1.9	%

Total operating costs were up $9.9 million, or 1.9%, in the first quarter of 2003 compared to the first quarter of 2002.

Labor and employee benefits increased $14.4 million, or 5.4%, in the first quarter of 2003 from the first quarter of 2002 due to increases in healthcare costs ($7.4 million or 37.4%), pension expense ($3.4 million or 30.2%), payroll tax expense ($1.3 million or 7.0%) and a 3.9% increase in the average wage rate. These increases were partially offset by a 594, or 3.3%, decrease in the number of full-time equivalent employees (FTEs).

Newsprint, ink and supplements decreased in the first quarter of 2003 from the first quarter of 2002 by $2.0 million, or 2.2%, due to a 5.1% decrease in the price per ton of newsprint, partially offset by a 2.2% increase in consumption.

Other operating costs decreased in the first quarter of 2003 from the first quarter of 2002 by $493,000, or 0.3%, due to circulation promotion expense ($952,000 or 1.7%) and production costs ($791,000 or 3.0%), partially offset by higher general and administrative expenses ($1.2 million or 2.1%).

Depreciation and amortization declined $2.0 million, or 6.9%, in the first quarter of 2003 compared to the first quarter of 2002, with depreciation expense down $1.3 million, or 4.8%, and amortization expense down $735,000, or 27.9%.

ONLINE DIVISION

The table below presents the operating results and related statistics for online operations for the quarter ended March 30, 2003 compared to the quarter ended March 31, 2002 (in thousands):

	Quarter Ended

	March 30, 2003		March 31, 2002			Variance			% Change

Operating revenue	$	17,153	$	12,890		$	4,263		33.1	%
Operating costs
Labor and employee benefits		6,165		6,942		$	(777	)	-11.2	%
Other operating costs		7,874		9,081			(1,207	)	-13.3	%
Depreciation and amortization		1,072		769			303		39.4	%

Total operating costs	$	15,111	$	16,792		$	(1,681	)	-10.0	%

Operating income (loss)	$	2,042	$	(3,902	)	$	5,944		152.3	%

Average monthly unique visitors		7,581		6,828			754		11.0	%

Operating revenue increased $4.3 million, or 33.1%, from the first quarter of 2002 due to increases in non-recruitment upsell revenue resulting from the implementation of new upsell pricing strategies and increases in CareerBuilder product revenue. Average monthly unique visitors, as reported by Nielsen//NetRatings, increased 11.0% from 6.8 million in the first quarter of 2002 to 7.6 million in the first quarter of 2003.

The decrease in labor and employee benefits for the first quarter of 2003 compared to the same quarter last year was primarily due to an FTE reduction of 48.4, or 18.7%. Other operating costs for the first quarter of 2003 decreased $1.2 million, or 13.3%, from the same quarter last year due to reductions in promotion, bad debt expense and legal fees. Depreciation and amortization expense in the first quarter of 2003 increased due to write-offs of server licenses no longer in use.

CORPORATE AND OTHER NON-OPERATING ITEMS

Interest expense, net of interest income and capitalized interest, decreased $1.8 million, or 9.0%, in the quarter ended March 30, 2003 from the first quarter ended March 31, 2002 due to a lower average debt balance and a lower weighted-average interest rate. Weighted-average interest rates were lower due to a general decline in the U.S. economy’s short-term interest rates.

Equity in losses of unconsolidated companies and joint ventures for the quarter ended March 30, 2003 decreased by $5.0 million from the comparable period in 2002. The 2002 loss included $7.5 million charge for severance expense and other costs resulting from the relocation of offices and abandonment of certain assets at CareerBuilder. Increased current year losses from our newsprint mill investments and from the Seattle Times offset the prior year CareerBuilder charge.

“Other, net” items for the first quarter ended March 30, 2003 increased $2.5 million, or 169.2% from the comparable period in 2002 primarily due to other-than-temporary losses recorded on certain investments in the prior year.

The effective tax rate was 37.2% for the first quarters ended March 30, 2003 and March 31, 2002.

LIQUIDITY & CAPITAL RESOURCES

Cash flow from operations is the company’s primary source of liquidity. Management is focused on growing cash flow and on managing cash effectively. In addition, the company uses financial leverage to minimize the overall cost of capital and maintain adequate operating and financial flexibility.

The company invests excess cash in short-term investments to meet projected cash needs from operations, capital expenditures and other business purposes. The company supplements internally generated cash with a combination of short-term and long-term borrowings. Commercial paper outstanding at March 30, 2003 was $404.6 million, with an average effective interest rate of 1.3%. As of March 30, 2003, the company’s $895 million revolving credit agreement, which backs up the commercial paper outstanding, had remaining availability of $433.6 million.

During the second quarter of 2001 and the first quarter of 2002, the company entered into certain interest rate swap agreements. The principal objective of such agreements is to maintain a roughly equal balance between fixed and floating interest rates in the company’s debt structure. The swap agreements expire at various dates in 2005, 2007, 2009 and 2011 and convert an aggregate principal amount of $500 million of fixed rate, long-term debt into variable rate borrowings. The variable interest rates are based on 3- or 6-month LIBOR plus a rate spread. As of March 30, 2003 the weighted average variable interest rates under these agreements were 3.6% versus the fixed rates of 8.1%. The market value of the swap agreements as of March 30, 2003 and December 30, 2002 totaled $57.0 million and $58.8 million, respectively. The fair value of the swaps is shown within long-term debt on the balance sheet.

Cash provided by operating activities was $99.2 million for the quarter ended March 30, 2003 compared to $150.9 million for the quarter ended March 31, 2002. The decrease in cash provided by operating activities was primarily due to reductions in accounts payable and other current liabilities, lower distributions in excess of earnings of investees and the timing of payments on certain other assets and liabilities.

Cash required for investing activities in the quarter ended March 30, 2003 was $16.8 million compared to $14.9 million in the quarter ended March 31, 2002. The increase in cash required was due to increased funding to Career Holdings, Inc. of $2.7 million and to SP Newsprint of $6 million, partially offset by lower capital expenditures.

Cash required for financing activities for the quarter ended March 30, 2003 was $88.4 million compared to $126.5 million for the quarter ended March 31, 2002. The decrease in cash required for financing activities was due to decreased purchases of treasury stock, the decreased reduction of commercial paper and the lower issuance of common stock to employees. During the quarter ended March 30, 2003 the company repurchased a total of 1.1 million common shares at a total cost of $68.3 million. At March 30, 2003, the company has remaining authorization to repurchase 6.4 million shares of its common stock. The company received $14.3 million from the issuance of shares to employees under the company’s stock option and stock purchase plans.

The company’s operations have historically generated strong positive cash flow, which, along with the company’s commercial paper program, revolving credit line and ability to issue public debt, have provided adequate liquidity to meet the company’s short-term and long-term cash requirements, including requirements for working capital and capital expenditures.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The company has no material changes to the disclosure made on this matter in the company’s annual report on Form 10-K for the year ended December 29, 2002.

ITEM 4. CONTROLS AND PROCEDURES

Within the 90 days prior to the date of this report, the company carried out an evaluation, under the supervision and with the participation of the company’s management, including the company’s chief executive officer and chief financial officer, of the effectiveness of the design and operation of the company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the chief executive officer and chief financial officer concluded that the company’s disclosure controls and procedures are effective in alerting them in a timely manner to material information relating to the company (including its consolidated subsidiaries) required to be included in the company’s periodic filings with the SEC. No significant changes were made in the company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of the company’s most recent evaluation.

PART II - OTHER INFORMATION

Item 1.

Legal Proceedings

Refer to the company’s annual report on Form 10-K for the year ended December 29, 2002.

Item 2.

Changes in Securities and Use of Proceeds

None.

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

Submission of Matters to a Vote of Security Holders

None.

Item 5.

Other Information

None.

Item 6.

Exhibits and Reports on Form 8-K

(a)

Exhibits

99.1

Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350

99.2

Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350

(b)

Reports on Form 8-K

During the quarter ended March 30, 2003, the Company filed a Report on Form 8-K dated March 5, 2002 under Item 9 reporting the submission of the written statements of the company’s Principal Executive Officer, P. Anthony Ridder, and Principal Financial Officer, Gary R. Effren, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

			KNIGHT-RIDDER, INC. (Registrant)
Date: May 1, 2003			/s/ Gary R. Effren

			Gary R. Effren Senior Vice President/Finance and Chief Financial Officer (Chief Accounting Officer and Duly Authorized Officer of Registrant)

Certification Required by Rules 13a-14 and 15d-14

under the Securities Exchange Act of 1934

I, P. Anthony Ridder, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Knight-Ridder, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: May 1, 2003.
				/s/ P. Anthony Ridder

				P. Anthony Ridder, Chief Executive Officer

Certification Required by Rules 13a-14 and 15d-14

under the Securities Exchange Act of 1934

I, Gary R. Effren, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Knight-Ridder, Inc.;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

Date: May 1, 2003.
				/s/ Gary R. Effren

				Gary R. Effren, Chief Financial Officer

Exhibit Index

Exhibit Number		Description
99.1		Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350
99.2		Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350