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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended: March 28, 2004

OR

For the transition period from              to             

Commission file number 1-7553

Knight-Ridder, Inc.

(Exact name of registrant as specified in its charter)

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

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 whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).    Yes  x    No  ¨

The registrant had 78.7 million shares of common stock (par value $.02 1/12 per share), net of treasury stock, issued and outstanding as of April 20, 2004.

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Knight Ridder

Table of Contents for Form 10-Q

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Forward-Looking Statements

Certain statements in this quarterly report on 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 our ability to obtain these results include, without limitation, 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 our 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) increases in health and welfare, pension and postretirement costs; (h) increases in business insurance costs; (i) a decline in the value of companies that we invest in that must be recorded as a charge to earnings; (j) acquisitions of new businesses or dispositions of existing businesses; (k) increases in interest or financing costs or availability of credit; (l) rapid technological changes and frequent new product introductions prevalent in electronic publishing, including the evolution of the Internet; and, (m) acts of war, terrorism, natural disaster or other events that may adversely affect our operations or the operations of our key suppliers.

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

KNIGHT RIDDER

CONSOLIDATED BALANCE SHEET

(In thousands, except share data)

See “Notes to Consolidated Financial Statements.”

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KNIGHT RIDDER

CONSOLIDATED STATEMENT OF INCOME

(Unaudited—in thousands, except per share data)

See “Notes to Consolidated Financial Statements.”

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KNIGHT RIDDER

CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited - in thousands)

See “Notes to Consolidated Financial Statements.”

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1. BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of Knight Ridder, along with its consolidated subsidiaries is referred to collectively in this report on Form 10-Q as “we,” “our” and “us,” and have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the quarter ended March 28, 2004 are not necessarily indicative of the results that may be expected for the year ending December 26, 2004. For further information, refer to the consolidated financial statements and footnotes, as well as the critical accounting policies in Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in our Annual Report on Form 10-K for the year ended December 28, 2003.

Certain amounts in the prior year have been reclassified to conform to the 2003 year end presentation related primarily to advertising, circulation and online revenue. Beginning with our Annual Report on Form 10-K for the year ended December 28, 2003, we reported our print and online advertising revenue on a combined basis. Accordingly, last year’s information presented in this Quarterly Report on Form 10-Q reflect this reclassification. The change in the presentation of circulation revenue pertains to the recording of certain newspaper carrier delivery costs, which in the past were recorded as contra-revenue. The reclassification of this cost increased other operating costs with a corresponding increase in circulation revenue.

NOTE 2. COMPREHENSIVE INCOME

For all periods presented, there are no reconciling items for comprehensive income. Net income as presented on the Consolidated Income Statement is the same as total comprehensive income.

NOTE 3. EMPLOYEE AND NON-EMPLOYEE STOCK OPTIONS

In December 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS 148) – “Accounting for Stock-Based Compensation – Transition and Disclosure.” SFAS 148 amends SFAS 123 –“Accounting for Stock-Based Compensation” 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, we follow the disclosure requirements of FAS 123, but continue to account for our 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 stock options are issued at fair market value.

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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. Our reported and pro forma information follows (in thousands, except share data):

NOTE 4. EARNINGS PER SHARE

Basic earnings per share are computed based on the weighted average number of common shares outstanding. Diluted earnings per share are based on the sum of the weighted average number of common shares outstanding and common stock equivalents arising from stock options. Net income is the same for basic and diluted earnings per share calculations and is attributable to common shareholders.

Shares used to calculate earnings per share are as follows (in thousands):

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NOTE 5. BUSINESS SEGMENTS

Financial data for each of our business segments are as follows (in thousands):

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NOTE 6. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill and other intangible assets along with their weighted-average life, at March 28, 2004 consisted of the following (in thousands):

The following is a summary of the balances of goodwill and other identified intangible assets as of December 28, 2003 and March 28, 2004 (in thousands):

NOTE 7. RECENT ACCOUNTING PRONOUNCEMENTS

In December 2003, the FASB issued SFAS No. 132 (revised 2003) – “Employers’ Disclosures about Pensions and Other Postretirement Benefits.” This Statement revises employers’ disclosures about pension plans and other postretirement benefit plans. It does not change the measurement or recognition provisions of FASB Statements No. 87, Employers’ Accounting for Pensions, No. 88, Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits, and No. 106, Employers’ Accounting for Postretirement Benefits Other Than Pensions. This Statement retains the disclosure requirements contained in FASB Statement No. 132, Employers’ Disclosures about Pensions and Other Postretirement Benefits. It requires additional disclosures about the assets, obligations, cash flows and net periodic benefit cost of defined benefit pension plans and other postretirement benefit plans. It requires that information be provided separately for pension plans and for other postretirement benefit plans. The Statement is effective for financial statements with fiscal years ending after December 15, 2003. The adoption of SFAS No. 132 (revised 2003) did not have a material impact on our results of operations or financial position. See “Note 8. Pension and Other Postretirement Benefit Plans” for the interim disclosures required by this Statement.

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NOTE 8. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS

The following disclosure conforms to SFAS No. 132 (revised 2003) – “Employers’ Disclosures about Pensions and Other Postretirement Benefits.” Below is a summary of the components of net periodic benefit cost for the defined benefit plans and postretirement benefit plans (other benefits) (in thousands):

We previously disclosed in our Annual Report on Form 10-K for the year ended December 28, 2003, that we expected to contribute $6,792,000 to our pension plans in 2004. We presently anticipate contributing an additional $400,000 to fund our pension plans in 2004 for a total of $7,192,000. During the quarter ended March 28, 2004, we contributed $1,218,000 to our pension plans.

NOTE 9. COMMITMENTS AND CONTINGENCIES

We are involved in certain claims and litigation related to our operations, including ordinary routine litigation incidental to our business. There have been no material developments in these claims and litigation subsequent to those described under “Note 14. Commitments and Contingencies” in our Annual Report on Form 10-K for the year ended December 28, 2003.

We have future commitments for capital expenditures relating to our newspaper in Kansas City and our joint operating agreement in Detroit. There are commitments of approximately $93 million for building, plant and presses in Kansas City and commitments of approximately $26 million for presses and mailroom related equipment in Detroit. The Kansas City production plant is scheduled for completion in 2006, while the Detroit production plant is scheduled for completion in 2005.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the consolidated financial statements contained elsewhere in this Form 10-Q, as well as our Annual Report on Form 10-K for the year ended December 28, 2003.

Certain amounts in the prior year have been reclassified to conform to the 2003 year end presentation related primarily to advertising, circulation and online revenue. Beginning with our Annual Report on Form 10-K for the year ended December 28, 2003, we reported our print and online advertising revenue on a combined basis. Accordingly, last year’s information presented in this Quarterly Report on Form 10-Q reflect this reclassification. The change in the presentation of circulation revenue pertains to the recording of certain newspaper carrier delivery costs, which in the past were recorded as contra-revenue. The reclassification of this cost increased other operating costs with a corresponding increase in circulation revenue.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our 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 us to make estimates and judgments that affect the reported amounts in our consolidated financial statements. We evaluate our estimates on an on-going basis, including those related to our revenues, allowances for bad debts, asset impairments, pension and postretirement benefits, self-insurance and casualty insurance, income taxes and commitments and contingencies. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Although actual results have historically been reasonably consistent with management’s expectations, the actual results may differ from these estimates or our estimates may be affected by different assumptions or conditions.

We believe there have been no significant changes during the quarter ended March 28, 2004 to the items that we disclosed as our critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended December 28, 2003.

Business Summary

We report two operating business segments: Newspaper and Online. The Newspaper segment represented 96.6% of total operating revenue for the quarter just ended. Advertising revenue within this segment represented 73.8% of total operating revenue. Retail, classified and national advertising revenue represented 47.3%, 37.7% and 15.0%, respectively, of total advertising revenue. Circulation revenue comprised 19.5% of total operating revenue.

The following Business Summary discusses our consolidated results of operations, which includes print and online. Information and discussion on our business segments is included under the Newspaper Division and Online Division. Also, further information is available under “Note 4. Business Segments” of the consolidated financial statements contained in this report.

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Advertising revenue is primarily determined by the linage, rate and mix of advertisement. The advertising rate depends largely on our market reach, primarily through circulation, and market position. Circulation revenue is based on the number of copies sold and the subscription rate charged to customers.

Our overall circulation makes us the second largest newspaper company in the United States. We operate in several large metropolitan areas, and ours are the leading newspapers in most of the locations we serve.

Our retail category in 2004, compared with the same periods in 2003, was down 0.8% and 0.5% in January and February, respectively, but it rebounded in March, increasing 2.2% compared to March 2003. Favorable comparisons with last year were helped by this year’s earlier Easter and last year’s lower revenue due to the start of the war in Iraq. For the quarter, retail was positive in seven of our eight largest markets. The sporting goods and home furnishings categories were generally strong, with additional gains in financial, furniture, auto/supplies and healthcare categories, as well as a 2.8% increase in preprint revenue, on a 2.4% volume increase. Other bright spots were specialized publications, up over 15%, and non-subscriber TMC (Total Market Coverage), up over 7%. However, the department store category continued to be soft.

Contributing to the nearly 6% rise in national in the first quarter were strong performances in the airline, automotive and financial categories along with gains in preprints. National advertising in 2004, compared to the same periods in 2003, went from a negative 0.4% in January to a positive 16.7% in March. For the quarter, national was positive in seven of our eight largest markets. The airline category was up nearly 30%, automotive was up 7.4% and the financial category was up 33%. An earlier Easter drove national preprints up over 12%. Declines in the pharmaceuticals, entertainment and computer categories partially offset the above-mentioned growth in national.

The classified category was up 2.8% for the quarter, driven by a positive employment category performance and strong real estate gains. Employment turned positive in February, up 5.4%, for the first time since December 2000, had nice sequential improvement in March, up 7.7%, and ended the quarter up 2%. This was the first quarter to show growth since the fourth quarter of 2000. Nearly all markets showed gains in the employment category with Fort Worth, Columbia and Lexington up in double-digits and San Jose increasing over 2% for the quarter. The weakest employment market during the quarter was Philadelphia, down 13%. Classified automotive was up slightly, 0.9% for the quarter, going against extremely strong comparables for the past two years in which this category was up over 8%. Again, nearly all markets showed growth. The real estate category remained strong, up 5.4%, and growth was positive in most of the large markets. This growth came on top of 12.3% growth in first quarter last year. For employment classified, we are projecting a modest increase for the year, and for total classified and total advertising revenue, we are projecting an increase in the mid single digits for the year.

We continue to expand our core revenue sources. We launched a Revenue Task Force in 2003 to identify new sources of revenue and are now implementing those initiatives that best fit our strategy and have the highest return. With a target of an incremental $30 million in revenue in 2004, we are 25% ahead of our goal as of the end of the first quarter. We continue to focus on the following areas: national, automotive and help wanted, sales force staffing, paid content, niche publications, retail majors and ROP zoning. We also have established a national marketing group in response to the rapidly evolving trends in the retail and national environments.

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Circulation growth continues to be challenging. However, we still expect circulation growth for the year, excluding Fort Wayne and Detroit, the two markets where we have joint operating agreements. Our plans during the remaining three quarters of 2004 include telemarketing and selective discounting, along with increased use of crew sales, kiosks, single-copy insert coupons and direct mail promotions. Recently enacted telemarketing rules adopted by the Federal Trade Commission and Federal Communications Commission, including the National Do-Not-Call Registry and regulations, will have an impact on our ability to source subscriptions through telemarketing. Based on six months of results since the new rules were enacted, it appears the impact of the list will be less than one-half of one percent in circulation copies. There are two mitigating factors: (a) not everyone will elect to be included on the register, and (b) our newspapers will still be able to contact persons with whom they have an established business relationship or from whom they obtained express consent.

In response to the economic downturn, newspapers have focused attention on cost reduction. In 2002, we launched an Operations Task Force to identify savings that could be applied companywide. The Task Force teams investigated opportunities in content, production, technology, people, administration, vendor management, smaller papers and circulation. We began implementing their recommendations in 2003. In total, we anticipate incremental savings in operating costs of more than $50 million in 2004.

During the first quarter of 2004, overall costs were up just 2.1%, despite a 6.4% rise in the average price per ton of newsprint and a 13.5% increase in benefits costs. The increase in benefit costs was largely due to pension and other postretirement benefits, up 47.8%. Full-time equivalent employees (FTEs) were down 2.4% from the first quarter of 2003. For the remaining three quarters of 2004, we anticipate increases in newsprint and benefits in the low double digits and high single digits, respectively. However, due to certain cost efficiencies, we expect the newsprint, ink and supplements line to only increase in the high single digits. Partially offsetting the pension and postretirement benefits increase are anticipated reductions in workers compensation and employee health insurance. FTEs should be down 0.5%, with the core down 1.0% but with 0.5% added back for various Revenue Task Force initiatives.

Our online segment performed well in the first quarter of 2004. Revenue of $24.5 million was up 42.6% and operating income of $6.7 million compared with $2.0 million the previous year. Knight Ridder Digital (KRD) unique visitors averaged 10.9 million per month, up 43.7%, primarily reflecting the recent AOL and MSN traffic agreements with CareerBuilder and enhancements to our local Web sites. We continue to project a solid trajectory of growth for this segment during the balance of 2004.

Corporate expenses increased $3.0 million for the comparable quarter due primarily to higher pension expense and property insurance.

Our net income and diluted earnings per share were favorably impacted by the level of interest expense, losses from investees, effective tax rate and the number of shares repurchased (net of the shares issued pursuant to stock option and purchase plans).

Net interest expense decreased $4.6 million, or 25.8%, in the first quarter of 2004 compared with the same period in 2003. The decrease was due primarily to a lower weighted-average interest rate. Additionally, capitalized interest expense associated with the construction of our new Kansas City production plant increased by $914,000 from the comparable quarter in the prior year.

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Losses from investees declined $2.4 million during the first quarter and we expect further improvement throughout the remainder of 2004 as the price per ton of newsprint is projected to increase, benefiting our newsprint mill investees.

Our effective tax rate was lower in the first quarter of 2004 compared to the same period in 2003, mainly due to favorable state tax settlements during the quarter. We anticipate the effective tax rate for the year to be in the 37% to 38% range.

CONSOLIDATED RESULTS OF OPERATIONS: FIRST QUARTER ENDED MARCH 28, 2004 COMPARED TO FIRST QUARTER ENDED MARCH 30, 2003:

NEWSPAPER DIVISION

Operating Revenue

The table below presents operating revenue and related statistics for our newspaper operations for the comparable quarters (in thousands):

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Retail revenue decreased slightly during the quarter ended March 28, 2004 compared to March 30, 2003. San Jose had the largest unfavorable variance, down 13.1%. The largest increases were in Philadelphia, up 3.1%, Kansas City, up 3.6%, Charlotte, up 3.9%, and Miami, up 1.8%.

National revenue increased $4.0 million, or 5.2%, with the largest favorable variances in Miami, up 10.1%, Philadelphia, up 6.7%, Saint Paul, up 17.8%, and Charlotte, up 11.1%. San Jose had the largest unfavorable variance, down 7.6%, due to shortfalls in telecom and technology.

Classified revenue increased $580,000, or 0.3%, with the largest increases in Fort Worth, up 5.3%, Miami, up 3.4%, Saint Paul, up 11.6%, Kansas City, up 4.9%, and Lexington, up 12.0%. Fort Worth and Miami had increases in real estate, employment and other classified, while Saint Paul, Kansas City and Lexington had increases in all categories of classified revenue. All classified categories increased versus last year, with real estate, up 5.4%, employment, up 2.0%, automotive, up 0.9%, and other classified, up 3.9%. Philadelphia had the largest unfavorable variance in classified revenue, down 2.8%, due to employment and other classified revenue.

Circulation revenue decreased $2.7 million, or 1.9%, as eighteen of twenty-seven newspapers were below the comparable quarter in the prior year. The largest decreases were in Philadelphia, down 2.9%, Miami, down 4.8%, Kansas City, down 2.6%, and Columbia, down 6.0%. Fort Worth had the largest favorable variance, up 5.3%, due to a price increase. Average daily copies were down 0.9% and average Sunday copies were down 0.3%, against the prior year. The combination of discounting and a decline in circulation copies caused the overall circulation revenue decline.

Other revenue increased by $4.1 million, or 22.0%, from the comparable quarter in the prior year. The favorable variance was due to increases in earnings from Detroit and increases in alternate distribution revenue and commercial printing.

Operating Costs

The table below presents operating costs for our newspaper operations for the comparable quarters (in thousands):

Labor and employee benefits increased $11.3 million, or 4.0%, in the first quarter of 2004 from the first quarter of 2003 due to higher pension expense and other postretirement benefits ($4.6 million or 28.5%), payroll taxes ($2.2 million or 11.4%), bonus and incentive expense ($1.2 million or 6.7%) and a 3.6% increase in the average wage rate. These increases were partially offset by a 477, or 2.7%, decrease in the number of full-time equivalent employees (FTEs) and a $1.1 million, or 4.7%, decline in health insurance cost.

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Newsprint, ink and supplements increased in the first quarter of 2004 from the first quarter of 2003 by $3.8 million, or 4.0%, due to a 6.4% increase in the average price per ton of newsprint, partially offset by a 1.4% decrease in ink and supplements and a 0.8% decrease in consumption.

Other operating costs decreased by $4.8 million, or 2.9%, for the comparable quarters. We experienced decreases in numerous categories of expenses, including legal, telecommunication, postage and express delivery, equipment repair and maintenance, travel and bank fees.

Depreciation and amortization declined $3.4 million, or 12.3%, in the first quarter of 2004 compared to the first quarter of 2003, due to lower capital spending in recent years.

ONLINE DIVISION

The table below presents the operating results and related statistics for our online operations for the comparable quarters (in thousands):