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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

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

Securities registered pursuant to Section 12(b) of the Act:

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 (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [    ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

Yes [ X ]                 No [    ]

The aggregate market value of voting stock, which consists solely of shares of common stock held by non-affiliates of the registrant, was approximately $4.8 billion as of June 25, 2004 (computed by reference to the closing price as reported by the New York Stock Exchange).

The registrant had 75.5 million shares of common stock (par value $0.02 1/12 per share), net of treasury stock, issued and outstanding as of February 25, 2005.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of Registrant’s Proxy Statement for its Annual Meeting of Shareholders are incorporated by reference into Part III.

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PART I

FORWARD-LOOKING STATEMENTS

In addition to historical information, this Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act. In particular, these include statements related to future actions, future performance or results of current and anticipated initiatives and the outcome of contingencies and other uncertainties. We try, whenever possible, to identify such statements by using the words such as “anticipate,” “believe,” “estimate,” “expect,” “plan,” “project” and similar expressions. 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) our ability to attract and retain qualified employees, including senior management; (h) increases in health and welfare, pension and postretirement costs; (i) increases in business insurance costs; (j) a decline in the value of companies that we invest in that must be recorded as a charge to earnings; (k) acquisitions of new businesses or dispositions of existing businesses; (l) increases in interest or financing costs or availability of credit; (m) rapid technological changes and frequent new product introductions prevalent in electronic publishing, including the evolution of the Internet; and, (n) acts of war, terrorism, natural disaster or other events that may adversely affect our operations or the operations of our key suppliers.

Item 1. Business

GENERAL

Knight Ridder was formed in 1974 by a merger between Knight Newspapers, Inc. and Ridder Publications, Inc. Charles Landon Knight purchased the Akron Beacon Journal in 1903. John S. Knight, who inherited the Beacon Journal from his father in 1933, founded Knight Newspapers. Ridder Publications was founded in 1892 when Herman Ridder acquired the German-language Staats-Zeitung in New York. Both groups flourished, each taking its stock public in 1969. The 1974 merger created a company with operations coast-to-coast. Knight Ridder was reincorporated in Florida in 1976 and along with its consolidated subsidiaries is referred to collectively in this Report on Form 10-K as “we,” “our” and “us.”

We are the nation’s second-largest newspaper publisher based on circulation, with products in print and online. We publish 31 daily and 53 nondaily newspapers in 28 U.S. markets, with a readership of approximately 9.0 million daily and 12.7 million on Sunday. Our Internet operations develop and manage our online properties, including Real Cities (www.Realcities.com), the largest national network of city and regional Web sites in more than 105 U.S. markets. The online city sites for markets in which we have newspapers are highly integrated with the related newspaper operations. Financial information about our business segments is provided in “Note 5. Business Segments” in the “Notes to Consolidated Financial Statements” included in this Form 10-K. We also have investments in a variety of Internet and technology companies, and two newsprint companies.

Our executive offices are located at 50 West San Fernando Street, Suite 1500, San Jose, CA 95113, and our telephone number at this address is (408) 938-7700.

RECENT EVENTS

In February 2004, we completed the acquisition of Alliance Newspapers. Alliance is a group of seven weekly newspapers and one monthly newspaper serving the area north of Fort Worth in Denton and Northeast Tarrant Counties. Alliance offers total market coverage with circulation of approximately 25,000.

In April 2004, Broad Street Community Newspapers (BSCN) acquired certain assets of the News Star and Publiset. The Star products will help grow BSCN’s community newspapers in the Philadelphia metro area.

In May 2004, Knight Ridder, Gannett Co., Inc. and Tribune Company each acquired a one-third interest in CrossMedia Services, Inc., a provider of Web-based marketing solutions for national and local retailers. We also acquired the assets of four community newspapers and three shopper publications previously owned by Superior Publishing Corporation. The acquired newspapers include the (Duluth, MN) Budgeteer News, The (Cloquet, MN) Pine Journal, The Daily Telegram in Superior, WI, and the Lake County News-Chronicle in Two Harbors, MN. The purchase also included the Manney’s Shopper zones in Superior, Cloquet and Two Harbors.

In June 2004, we acquired a 35.6% undiluted ownership interest in CityXpress, a provider of online auctions for newspapers. The remaining interests are owned by Lee Enterprises, management and employees of CityXpress and other shareholders.

In August 2004, we acquired the assets of The (Flower Mound) Messenger, the leading bi-weekly in the Flower Mound suburb of Fort Worth. The paper is published every two weeks and mailed to approximately 28,500 households in Flower Mound and the surrounding communities of Highland Village, Copper Canyon, Double Oak and Lantana.

In November 2004, we issued $200 million of 10-year senior notes at a coupon rate of 4.625%. Proceeds were used to reduce the company’s outstanding commercial paper.

Also, in November 2004, we announced the following management changes, which became effective on January 1, 2005. Art Brisbane, formerly president & publisher of The Kansas City Star, and Hilary Schneider, formerly president and CEO of Knight Ridder Digital (KRD), became senior vice presidents of the company. Steve Rossi, formerly president of the Newspaper Division, became the senior vice president/CFO.

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In February 2005, we acquired the assets of Priceless, LLC, a group of five free-distribution newspapers with a combined daily circulation of more than 55,000, located in the Peninsula south of San Francisco, CA. The five newspapers are the Palo Alto Daily News, San Mateo Daily News, Redwood City Daily News, Burlingame Daily News and Los Gatos Daily News.

Today, our newspaper sales teams serve the needs of local advertisers by selling a rich mix of media products, including the newspaper, online, niche publications and direct mail. In the help-wanted arena, the vast majority of recruiters recognize the value of our joint print and online recruitment products in the local marketplace. This reflects the efforts of our sales teams to integrate print and online and our local sales approach. In the automotive category, we have seen similar gains from a focused sales effort across a portfolio of products, including print, Cars.com and niche publications. We closed 2004 with a 60% online market share in the important franchise dealer category. Another example of the power of local print and online is CityXpress. Working with this new print/online model, we implemented a unique event auction that drives advertising revenue and store traffic for participating merchants.

CrossMedia, a provider of Web-based marketing solutions for national and local retailers, provides online shopping with the ability to use the Web to find items to purchase in stores. CrossMedia, together with our project Catalyst, an online listings platform that offers person-to-person listings for merchandise, pets and other categories, are important vehicles to develop local opportunities and leverage our core assets in local sales, brands and marketing.

By leveraging our strong sales force with true local relationships and knowledge, and our investments to localize advertising, we are uniquely positioned to serve our advertisers, readers and online users by bringing extensive reach through our branded print and online products.

NEWSPAPERS

We are the nation’s second-largest newspaper publisher based on circulation. We have 31 daily and 53 nondaily newspapers in 28 U.S. markets, with a readership of approximately 9.0 million daily and 12.7 million on Sunday.

Approximately 78.0% of our newspaper operating revenue comes from the sale of newspaper advertising. The newspaper business is seasonal, with the strongest advertising revenue coming in the fourth quarter, followed by the second — and then by the remaining two.

Local management appointed by our executive management in San Jose operates each of our newspapers. Each newspaper manages its own news coverage, sets its own editorial policies and establishes local business practices. The corporate staff, however, sets the basic business, accounting, financial and reporting policies. The corporate staff also provides editorial services and quality control.

The company-owned news bureau in Washington, D.C., serves each newspaper. Supplemental news, graphic and photographic services are provided by Knight Ridder/Tribune.

All of our newspapers compete for advertising and readers’ time and attention with broadcast, satellite and cable television, the Internet and other computer services, radio, magazines, 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, we have joint operating agreements with a second newspaper. Our other newspapers are the only daily and Sunday papers of general circulation published in their communities.

Our newspapers rely on local sales operations for local retail and classified advertising. Our larger newspapers are assisted by our national sales team for retail and national advertising, the Newspaper National Network and by Newspapers First. Newspapers First, a national advertising sales cooperative, is the primary sales representative for many of our newspapers, many of the leading newspaper groups and several leading independent newspapers. It acts as an interface to national advertisers across the country. We own 27.5% of the voting stock of Newspapers First. Newspaper National Network, the sales arm of the Newspaper Association of America, was established in 1994 to focus national selling on behalf of the newspaper industry. It represents all our newspapers and more than 500 others. Like Newspapers First, it offers one-stop shopping and “one order, one bill.”

The following newspapers are our largest based on revenue:

THE PHILADELPHIA INQUIRER AND PHILADELPHIA DAILY NEWS

Philadelphia Newspapers, Inc. publishes two of the most respected and nationally acclaimed newspapers in the country: The Philadelphia Inquirer and the Philadelphia Daily News. The Inquirer, Philadelphia’s largest newspaper, is long renowned for its excellence in reporting and has won 18 Pulitzer Prizes. The Daily News, the city’s second largest paper, is embraced by readers for its in-depth sports coverage, local investigative reporting and editorial flair. Both newspapers are available on the Internet at www.philly.com.

The primary market area for these two papers spans nine counties throughout southeastern Pennsylvania and southwestern New Jersey. The Philadelphia region contains more than 2.9 million households, making it the nation’s fourth-largest Designated Market Area (DMA).

THE MIAMI HERALD AND EL NUEVO HERALD

The Miami Herald Publishing Co. is Florida’s largest newspaper company. It publishes The Miami Herald, el Nuevo Herald, in-flight magazines, hotel tourist books, real estate magazines, the Florida Keys Keynoter and The (Tavernier, FL) Reporter.

The Miami Herald has won 18 Pulitzer Prizes, and it is sold in South Florida. Its International Edition circulates in the Caribbean basin and is available in most Latin American capitals. El Nuevo Herald, serving the growing number of Spanish readers in South Florida, is one of the largest Spanish-language newspapers in the United States. Both newspapers are available worldwide through PEPC Worldwide, Newspapers Direct and the Internet at www.herald.com and www.elherald.com.

South Florida, which includes the Miami and Fort Lauderdale metropolitan areas, is one of the top retail markets in the United States. Total retail sales surpassed $57.5 billion in 2004 and on a per household basis exceeded those of many major markets, including Chicago, Washington, D.C. and New York. Tourism is a major driver of the economy in South Florida, attracting more than 20 million visitors a year from all over the world.

THE KANSAS CITY STAR

The Kansas City Star, founded in 1880 is one of the largest newspapers in the Midwest. The Star has won eight Pulitzer Prizes and serves the Kansas City metropolitan area,

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encompassing 11 counties in Missouri and Kansas. The Star is available on the Internet at www.KansasCity.com.

NEWSPRINT

We consumed approximately 641,000 metric tons of newsprint in 2004, excluding newsprint consumed by Detroit Newspapers (described below). Approximately 13.2% of our total operating expenses during the year were for newsprint. Purchases are made under long-term agreements with 14 newsprint producers, each having one or more newsprint mills. In 2004, we purchased approximately 60.8% of our newsprint consumption from eight mills in the United States, 33.8% from 13 mills in Canada and 5.5% from other offshore sources. We believe that the current sources for newsprint are adequate to meet our current and foreseeable demand.

Approximately 92% of the newsprint we consumed contained some recycled content. The average content was 56% recycled fiber, which translates into an overall recycled newsprint average of 52%.

Knight Ridder, Cox Enterprises and Media General, each owns a third interest in SP Newsprint Co. (SP Newsprint). SP Newsprint is the fifth-largest newsprint manufacturing company in North America. SP’s mill in Dublin, GA, produces more than 562,000 metric tons per year of 100% recycled-content newsprint. Its plant in Newberg, OR, produces more than 396,000 metric tons per year of newsprint with at least 40% of recycled content. SP Newsprint provides recycled-content newsprint to its owners and more than 250 publishers and commercial printers. Its SP Newsprint Recycling Corp. subsidiary recycles more than 1.1 million short tons of recovered material each year.

We also own a 13.5% equity interest in Ponderay Newsprint Company in Usk, WA, which produced more than 260,000 metric tons of newsprint in 2004.

Our ownership in SP Newsprint and Ponderay provides a natural hedge against price volatility for approximately 50% of our newsprint expense. In 2004, these two companies provided approximately 20% of our total newsprint consumption. We enter into firm purchase commitments annually with these two companies. We estimate these purchase commitments will total approximately $53 million of newsprint in 2005, at current market prices. We have included a hypothetical effect on newsprint expense from a 10% increase in the average price per ton of newsprint under the caption “Newsprint,” in Item 7A of this report.

SHARED SERVICES

We have a Shared Services Center located in Miami, FL. Through this operation, which reports directly to our corporate headquarters, we have centralized the maintenance of our financial systems and processing, purchasing and strategic sourcing activities as well as many internal consulting initiatives for all Knight Ridder companies. Centralized purchasing includes commodities such as newsprint, ink, computers/software, newspaper delivery bags, credit card processing, office supplies, travel, employee relocation and telecommunications.

TECHNOLOGY

We will continue to drive our systems and technology infrastructure toward the current state of the art, to remain competitive. Expense reduction initiatives helped reduce telecommunications and data transmission costs while increasing capacity. We continue to enhance the consumer experience and capabilities at KRD’s Web sites, including registration and email marketing, enhance online classified capabilities, an improved e-commerce engine, and a new retail shopping experience provided through CrossMedia Services. Ensuring our systems are compliant with the Sarbanes-Oxley 404 guidelines, where relevant, was a major focus at all our business units.

OWNERSHIP INTERESTS IN MINORITY INTEREST AND UNCONSOLIDATED COMPANIES, JOINT VENTURES AND PARTNERSHIPS

For strategic and operational reasons, we invest in various companies with ownership percentages ranging from 13.5% to 75%. Following are the more significant investments in unconsolidated companies, joint ventures and partnerships.

Knight Ridder, Tribune and Gannett own CareerBuilder, LLC, and CrossMedia Services, Inc. in equal parts. CareerBuilder is in the online recruitment and career development business. CrossMedia is a provider of Web-based marketing solutions for national and local retailers, effectively serving as an advertising and marketing service provider that enables us to localize the Internet. We also own 20.2% of Classified Ventures, a consortium of six newspaper publishing companies that provides online classified listing services.

We own a 50% equity interest in Detroit Newspapers, a joint operating agency for Detroit Free Press, Inc., our wholly-owned subsidiary, and The Detroit News, Inc., a wholly-owned subsidiary of Gannett. In 1989, business operations of the Detroit Free Press and The Detroit News were transferred to Detroit Newspapers under a joint operating agreement that expires in 2089. We show our share of revenue and expenses as a net amount in the “Other” line, under Operating Revenue in the Consolidated Income Statement. Under our agreement, we are committed to supply 50% of their annual newsprint requirements. We intend to fulfill this commitment and we have the necessary means and resources available to meet this obligation.

We own a 75% equity interest in the Fort Wayne Newspapers Agency and consolidate the results of its operations. The minority shareholders’ interest in the income has been reflected as an expense in the Consolidated Statement of Income in the caption “Minority interest in earnings of consolidated subsidiaries.” Also included in this caption is a contractual minority interest resulting from a joint operating agreement that runs through 2021 between The Miami Herald Publishing Co. and Cox Newspapers, Inc., covering the publication of The Miami Herald and The Miami News. The Miami News ceased publication in 1988.

We own a 49.5% equity interest in the voting stock of the Seattle Times Company, based in Seattle, WA. We also own a 65% interest in the nonvoting stock of the Seattle Times Company.

We are a one-third partner with Cox Enterprises and Media General in SP Newsprint Co. (SP Newsprint). SP Newsprint is the

fifth-largest newsprint manufacturing company in North America. We also own a 13.5% equity interest in Ponderay Newsprint Company in Usk, WA, which produced more than 260,000 metric tons of newsprint in 2004. We account for our investment in Ponderay under the equity

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method, since we exercise significant influence, as defined by generally accepted accounting principles. We purchase newsprint from these companies. Our investment in these newsprint mills provides a natural hedge for about 50% of our exposure to price changes.

Newspapers First, a national advertising sales cooperative, is the primary sales representative for many of our large newspapers, many of the leading newspaper groups and several leading independents, as described above. We own 27.5% of the voting stock of Newspapers First.

Knight Ridder/Tribune, a joint venture of Knight Ridder and Tribune, offers stories, graphics, illustrations, photos and paginated pages for print publishers and Web-ready content for online publishers. All our newspapers, our Washington, D.C. bureau and our foreign bureaus produce Knight Ridder/Tribune editorial material, which is also supplied by a number of other newspapers. The joint venture also includes the NewsCom e-commerce platform that licenses photos and other editorial material from more than 60 content providers to print, broadcast and other media organizations.

EMPLOYEES

We have approximately 18,000 full time equivalent employees (FTEs). Approximately 28% are represented by 67 local unions and work under multiyear collective bargaining agreements. Individual newspapers that have one or more collective bargaining agreements are in Akron, Detroit, Duluth, Fort Wayne, Grand Forks, Kansas City, Lexington, Monterey, Philadelphia, St. Paul, San Jose, State College, Superior and Wichita. These agreements are renegotiated in the years in which they expire. During 2005, there will be negotiations for new collective bargaining agreements in Grand Forks, Kansas City, Monterey, St. Paul, State College, Superior and Wichita, representing approximately 800 employees.

RISK FACTORS

Credit losses. We extend unsecured credit to most of our customers. We recognize that extending credit and setting appropriate reserves for receivables is largely a subjective decision based on knowledge of the customer and the industry. Credit exposure also includes the amount of estimated unbilled sales. Credit limits, setting and maintaining credit standards, and managing the overall quality of the credit portfolio is largely decentralized. The level of credit is influenced by the customer’s credit history with us and other available information, including industry-specific data.

We maintain a reserve account for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to pay, additional allowances might be required. We use a combination of the percentage-of-sales, specific identification and the aging-of-accounts-receivable methods to establish allowances for losses on accounts receivable. Payment in advance for some advertising and circulation revenue has assisted us in maintaining historical bad debt losses at less than 1% of revenue.

Newsprint. We consumed approximately 641,000 metric tons of newsprint in 2004, excluding Detroit. This expense represented 13.2% of our 2004 total operating expenses. A sustained increase in newsprint prices could adversely affect our profitability. Newsprint prices for the past five years have ranged from approximately $425 to $625 per metric ton. We anticipate a low double-digit increase in newsprint prices in 2005.

Debt. By balancing the mix of variable-versus fixed-rate borrowings, we manage the interest-rate risk of our debt. “Note 3. Debt” on pages 38 and 39 of this report includes information related to the contractual interest rates and fair value of the individual borrowings. At various times, we have entered into interest rate swap agreements to manage interest rate exposure in order to achieve a desired proportion of variable-rate versus fixed-rate debt. The fair value of the swaps at December 26, 2004 and December 28, 2003 was $34.2 million and $46.9 million, respectively. As of the end of fiscal 2004, approximately 60% of our borrowings were variable-rate. We do not trade or engage in hedging for speculative purposes and hedging activities are transacted only with highly rated financial institutions, reducing the exposure to credit risk.

A hypothetical 50 basis point increase in LIBOR would increase interest expense associated with variable-rate borrowings by approximately $5.3 million and $4.6 million in 2004 and 2005, respectively. The fair value of our fixed-rate debt and interest rate swaps is sensitive to changes in interest rates. A hypothetical 50 basis points increase in interest rates would decrease the fair value of the fixed-rate debt and interest rate swaps by $20.8 million in 2005. This change in fair value of debt obligations excludes commercial paper and other short-term variable-rate borrowings, as changes in interest rates would not significantly affect the fair market value of these instruments.

Senior management. Our ability to maintain our competitive position is dependent on the services of our senior management team. If we were unable to retain the existing senior management personnel, develop future senior management within our existing ranks or attract other qualified senior management personnel, our business would be adversely affected.

Employee benefits. Health insurance costs have increased significantly faster than inflation on an annual basis over the past few years. We also anticipate that in coming years, the cost of health care will continue to escalate, causing an increase to our expenses and employee contributions. In response to these trends, we have restructured and consolidated our health insurance plans.

Our pension and other retirement benefit costs have increased in recent years largely due to stock market and interest rate conditions. We will continue to reassess our benefits offering to remain competitive and manage our costs. Under our discussion of Critical Accounting Policies and Estimates in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, we provide an estimate of the impact from a change in the discount rate used in the valuation of our pension plans.

Competition and customer consolidation. We are subject to aggressive competition in all areas of our business. Our newspapers compete for advertising and readers with other newspapers, broadcast, satellite and cable television, the Internet and other computer services, radio, magazines, suburban newspapers, free shoppers, billboards and direct mail. We could also be adversely affected by continued customer consolidation in the retail and national sectors, where we have experienced increased merger activity.

Circulation. The newspaper publishing industry was widely affected this past year by the enacted do-not-call rules and a series of circulation copy count restatements, which were isolated to certain other newspaper companies, but affected the credibility

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of our industry. Moreover, the newspaper publishing industry has experienced difficulty in recent years in sustaining circulation copy and revenue growth. A prolonged decline in circulation copies could have a material effect on the rate and volume of advertising revenue. We have implemented and strengthened various actions aimed at compliance with industrywide accepted practices in accounting and reporting of circulation copies and revenue. We have also established a companywide circulation and content task force to find solutions to reverse industry trends.

Self-insurance and deductibles on casualty insurance. We are self-insured for the majority of our health insurance costs, including claims filed and claims incurred but not reported. We also have deductibles of up to $1 million on various casualty insurance programs, which we have determined to be adequate for the type of risk. We estimate the liability under our health insurance and casualty programs on an actuarial undiscounted basis using individual case-based valuations and statistical analysis that are based upon judgment and historical experience. The final cost of many of these claims may not be known for several years, however. We rely on the advice of consulting actuaries and administrators in determining an adequate liability for self-insurance claims. At December 26, 2004 and December 28, 2003, self-insurance and casualty insurance accruals totaled $72.6 million and $73.2 million, respectively. In connection with our insurance program, letters of credit totaling $56.5 million are required to support certain projected workers’ compensation obligations. We continuously review the adequacy of our insurance coverage.

WEB SITE ACCESS TO OUR REPORTS

Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports are available free of charge on our Web site, www.kri.com, as soon as reasonably practicable after such reports are electronically filed with or furnished to the Securities and Exchange Commission.

Information regarding corporate governance at Knight Ridder, including our corporate governance principles, code of business ethics and information regarding our officers, directors and board committees (including our Audit, Compensation, and Nominating and Corporate Governance committee charters) is also available on our Web site. The information on our Web site is not incorporated by reference into, or as part of, this Report on Form 10-K.

Item 2. Properties

We have newspaper facilities in 28 markets located in 17 states. These facilities vary in size from 39,300 square feet at State College, PA, to 1.8 million square feet in Philadelphia, PA. In total, they occupy about 11.0 million square feet. Approximately 2.3 million of the square feet are leased from others. All of the owned property is owned-in-fee. We own substantially all of our production equipment, although certain office equipment is leased. We also own land in Kansas City and Detroit, where new production plants are under construction.

In 2004, we listed for sale certain land adjacent to our facility in Miami. As a condition of the sale, the buyer agrees to provide parking and truck access sufficient to accommodate our operational needs. The sale of the land is expected to be completed in 2005.

The following table sets forth our principal properties by location:

* Expiration of leases range from 2005 to 2051.

Our facilities are maintained in good condition and are suitable for current and foreseeable operations. During the three years ended December 26, 2004, we spent $260.5 million (excluding Detroit) for additions to property, plant and equipment.

Item 3. Legal Proceedings

Knight Ridder’s wholly-owned subsidiary, MediaStream, Inc. (“MediaStream”), was named as one of a number of defendants in two separate class action lawsuits that have been consolidated with one other similar lawsuit by the Judicial Panel on Multi-District Litigation under the caption “In re Literary Works in Electronic Databases Copyright Litigation,” M.D.L. Docket No. 1379 (the “Multi-District Litigation”). The two lawsuits originally filed against MediaStream in September 2000 were: The Authors Guild, Inc. et al. v. The Dialog Corporation et al., and Posner et al. v. Gale Group Inc. et al. These lawsuits were brought by or on behalf of free-lance authors who allege that the defendants have infringed plaintiffs’ copyrights by making plaintiffs’ works available on databases operated by the defendants. The plaintiffs are seeking to be certified as class representatives of all similarly situated free-lance authors. In the Multi-District Litigation, plaintiffs seek actual damages, statutory damages and injunctive relief, among other remedies.

The two lawsuits were initially stayed pending disposition by the U.S. Supreme Court of New York Times Company et al. v. Tasini et al., No. 00-21. On June 25, 2001, the Supreme Court ruled that the defendants in Tasini did not have a privilege under Section 201 of the Copyright Act to republish articles previously appearing in print publications absent the author’s separate permission for electronic republication. The judge has ordered the parties in the Multi-District Litigation to

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try to resolve the claims through mediation, which commenced November 2001, and the parties have agreed to a limited stay to respond to the complaint during such mediation, which may be terminated by the plaintiffs upon 30-days prior written notice. In September 2001, the plaintiffs submitted an amended complaint, which named Knight Ridder as an additional defendant and made reference to Knight Ridder Digital.

Settlement discussions that originally commenced during the mediation are continuing, and plaintiffs and defendants in the Multi-District Litigation are in the process of obtaining and exchanging signatures to a proposed settlement agreement. In the event that the foregoing parties are unable to finally settle this matter and the litigation resumes, Knight Ridder and MediaStream intend to contest liability and vigorously defend their positions in the litigation, including opposing class certification. In addition, MediaStream has indemnity agreements from various content providers supplying articles to MediaStream’s databases that could mitigate its potential exposure. If the settlement agreement is not finally concluded and the litigation resumes, there can be no assurance that we will prevail in the above legal proceedings and management cannot estimate the exposure if we do not prevail. In such case, a ruling against us in the proceedings described above may have a material adverse effect on our financial condition and results of operation. In addition to the matters described above, we are also involved in litigation and administrative proceedings, primarily libel and copyright infringement actions, bankruptcy proceedings involving the company’s advertisers, and environmental and other legal proceedings that have arisen in the ordinary course of business. In the opinion of management, except as set forth above, our liability, if any, under any other pending litigation or administrative proceedings, will not materially affect our consolidated financial position or results of operations.

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

No matter was submitted to a vote of shareholders through the solicitation of proxies or otherwise during the fiscal quarter ended December 26, 2004.

PART II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters

Our common stock is listed on the New York Stock Exchange (NYSE) under the symbol KRI. Our stock is also traded on exchanges in Philadelphia, Chicago, Boston, San Francisco, Los Angeles and Cincinnati and through the Intermarket Trading System. Options are traded on the Philadelphia Exchange.

COMMON STOCK MARKET PRICE AND DIVIDENDS

The average daily stock trading volume for the years 2004 and 2003 was 422,000 and 429,000 shares, respectively. The following table presents the high and low sales price of our common stock (as reported by the NYSE) and the cash dividends declared on our common stock by fiscal quarter for the two most recent fiscal years:

During the fiscal years ended 2004 and 2003, we paid $103.6 million and $94.9 million, respectively, in cash dividends. We expect to continue our policy of paying regular cash dividends, although there is no assurance as to future dividends because they are dependent on future earnings, capital requirements and financial condition.

As of February 25, 2005, we had 75.5 million shares outstanding, net of treasury stock, which were held in all 50 states by 8,393 shareholders of record. The closing price of our common stock on February 25, 2005, was $65.79 as reported by the NYSE.

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PURCHASES OF EQUITY SECURITIES

On July 27, 2004, the Board of Directors approved the repurchase of up to 6 million shares of our common stock. The following sets forth our common stock repurchases, both open market and private transactions, for the fourth quarter of 2004:

(1) In December 2004, we repurchased 738,000 shares of our common stock pursuant to a contract, which will settle within nine months from the purchase date. The estimated cost of repurchasing the shares was paid in advance. We pay based on the closing price as reported by the NYSE at the beginning of the contract and the difference between that price and the volume weighted-average price (VWAP) over the life of the contract is settled at the end of the contract period in cash or shares, at our option (limited to the number of shares multiplied by the change in share price). Had we settled as of December 26, 2004, we would have received $4.7 million, or 71,202 shares of our common stock.

Outside of the stock repurchase program, we acquired 5,923 shares of our common stock in 2004 with an aggregate cost of $397,848 and an average price of $67.17 per share as a result of certain stock options exercised. The difference between the aggregate market value of the options exercised and the exercise value of the options was recorded in additional capital. The difference in the aggregate market value of the repurchased shares and the exercise price of the options was recorded in treasury stock in the accompanying Consolidated Balance Sheet.

COMMON STOCK GRANTS

During the fiscal years ended 2004, 2003 and 2002, we issued 4,739 shares, 5,429 shares and 4,666 shares, respectively, of our common stock to our nonemployee directors pursuant to an annual retainer fee payable half in common stock and half in cash or common stock, at a director’s election.

For information regarding our equity compensation plans, please refer to Item 12 — Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters, and Note 6, Capital Stock in our consolidated financial statements, included in this report.

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Item 6. Selected Financial Data

5–YEAR FINANCIAL HIGHLIGHTS

The following information was compiled from our audited consolidated financial statements. The accompanying consolidated financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended December 26, 2004 should be read to obtain a better understanding of this information. Amounts are in thousands, except per share data, ratios and 5-year compounded annual growth rate (1999 — 2004 CAGR).

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Notes to Selected Financial Data

Certain amounts presented as retail revenue in prior years have been reclassified as national revenue to conform to the 2004 presentation. We made this change in the second quarter of 2004 to make our reporting consistent with peer newspaper companies. Additionally, certain amounts presented in the 2003 Consolidated Balance Sheet have been reclassified to conform to the 2004 presentation, specifically related to the Annual Incentive Deferral Plan and to Pension assets and Employee benefits.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with Item 6. Selected Financial Data, and with the consolidated financial statements that appear elsewhere in this Form 10-K.

Certain amounts presented as retail revenue in prior years have been reclassified as national revenue to conform to the 2004 presentation. We made this change in the second quarter of 2004 to make our reporting consistent with peer newspaper companies. Additionally, certain amounts presented in the 2003 Consolidated Balance Sheet have been reclassified to conform to the 2004 presentation, specifically related to the Annual Incentive Deferral Plan and to Pension assets and Employee benefits.

GLOSSARY OF TERMS

The following defined terms are used in our Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Classified Locally placed advertisements listed together and organized by category, such as real estate sales, employment opportunities or automobile sales, and display-type advertisements in these same categories.

Content Syndication Revenue generated from the distribution of news and other content by third-party providers.

Full-run Advertising appearing in all editions of a newspaper.

Home Delivery Circulation newspapers sold by subscription and delivered to a specific address.

Linage A measure of the volume of space sold as newspaper advertising; refers to the number of column-inches in a six-column newspaper layout.

National Display advertising by national advertisers that promotes products or brand names on a nationwide basis.

News Hole The portion of the newspaper designated for editorial and news content.

Newspaper In Education (nie) A newspaper-sponsored program that recruits business sponsors to underwrite the cost of providing, at a discounted price, papers to be used in classrooms. Many programs also offer teacher training, ready-made curriculum and special-topic sections geared to particular age groups.

Part-run Advertising appearing in select editions or zones of a newspaper’s market. Part-run advertising is translated into full-run equivalent linage (also referred to as factored) based on the ratio of the circulation in a particular zone to the total circulation of a newspaper.

Preprint Advertising supplements prepared by advertisers and inserted into a newspaper.

Recruitment Packages Special help wanted advertising packages, often combining print and online, which offer a variety of features: in-newspaper advertisements, expanded listings on the Web, online or by-telephone job applications and screening of résumés.

Retail Display advertising from local merchants, such as department and grocery stores, selling goods and services to the public.

Run-Of-Press (ROP) All advertising printed on our presses and appearing within a newspaper.

Single Copy Circulation Newspapers sold by street vendors, in news racks or at stores and other businesses.

Supplements (as in Newsprint, Ink and Supplements) All special sections purchased for distribution in the newspaper, including TV books and Sunday magazines and comics.

Total Market Coverage Products (TMC) Advertising material packaged, often in special printed covers (also known as jackets) for delivery to non-subscribing households; especially appealing to advertisers who want high household penetration in specific neighborhoods, ZIP codes or zones.

Unique Visitors Number of persons who visited a Web site or network of sites at least once in the month. Visitors to multiple Web sites in a network in a given month are counted only once as a unique visitor for that network. In separate individual Web site totals, they are counted once as a unique visitor for each site visited.

Upsell Incremental advertising sold in conjunction with another product, such as primarily newspaper ads republished on the Web for an additional charge. An example of an upsell is a recruitment newspaper ad that is packaged with an online job posting.

Verticals All the advertising in print and online in a category (for example, recruitment, automotive or real estate). A variety of advertising products are offered within each vertical, including print classified listings and upsells to enhanced services, such as expanded information online, résumé databases or job fairs.

Web Width The width of the rolls of newsprint used on a printing press, which affects newsprint consumption.

Zoning Defining newspaper delivery areas in a way that allows customers to purchase advertising to be distributed only within a specified geographic area; zoned ads cost less than full-run advertising and are particularly attractive to businesses that draw their customers from specific neighborhoods. See “Part-Run.”

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

General. Management’s discussion and analysis of the financial condition and results of operations are based upon the 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 of assets, liabilities, revenue and expenses, cash flows and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to incentives, bad debts, inventories, investments, intangible assets, income taxes, financing arrangements, restructurings, long-term service contracts, pensions and other postretirement benefits, and contingencies and litigation. We base our 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.

We have identified the following accounting policies as critical to our business operations and the understanding of our results of operations. Refer to the Notes to the Consolidated Financial Statements included in Part IV, Item 15 of this Form 10-K, for a detailed description of our accounting policies.

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

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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.

Allowance for bad debts. We maintain a reserve account for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. We use a combination of the percentage-of-sales, specific identification 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 us in maintaining historical bad debt losses of less than 1% of revenue.

Barter Transactions. We enter into barter transactions with other businesses and we exchange our advertising and circulation for advertising products and distribution rights for our newspapers. We also donate space to nonprofit organizations as part of our community outreach commitment. The barter transactions, typically with terms of one year or less, are valued at fair market value based on our advertising rates for the particular type of advertisement.

At December 26, 2004, we had approximately $9.5 million of future media advertisement, products and services arising from bartered transactions in net accounts receivable, which will be charged to expense as they are used. We also have as of year end $20.6 million in deferred advertising and circulation revenue arising from bartered transactions, which will be recorded as revenue when the advertisements are published and/or the copies are delivered, respectively. During the fiscal years ended 2004, 2003 and 2002, we recognized $15.1 million, $8.9 million and $6.2 million, respectively, in bartered advertising and circulation revenue.

We periodically assess the recoverability of our barter credits and receivables. Factors considered in evaluating recoverability include management’s plans with respect to advertising, circulation and other expenditures for which barter credits and receivables can be used. Any impairment losses are charged to operations, as they are determined.

Equity and cost method investment valuation and accounting. We hold minority interests in companies having operations or technology in areas within our strategic focus and we record these investments at cost. We record an investment impairment charge when we believe 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 Other Identified Intangible Asset Impairment. Goodwill and other identified intangible assets arising from our acquisitions are subjected to periodic review for impairment. SFAS No. 142 requires an annual evaluation at the reporting unit level of the fair value of goodwill and compares the calculated fair value of the reporting unit to its book value to determine whether an impairment has occurred. Impairment is the condition that exists when the carrying amount of goodwill or other identified intangible asset exceeds its implied fair value. Any impairment charge would be based on the most recent estimates of the recoverability of the recorded goodwill and intangibles balances. If the remaining book value assigned to goodwill and other intangible assets acquired in an acquisition is higher than the amounts we currently would expect to realize based on updated financial and cash flow projections from the reporting unit, we would write down these assets. We also record our share of impairment charges recorded by our equity method investees. No impairment charges have been recorded to date relating to goodwill and other identified intangibles, except for an impairment recorded in 2002 for CareerBuilder, one of our equity method investee.

Pension and postretirement benefits. We have 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. Our 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 our 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 10. Pension and Other Postretirement Benefit Plans” on pages 45 through 48. While we believe that the assumptions used are appropriate, significant differences in actual experience or significant changes in assumptions would affect the pension and other postretirement benefits costs and obligations.

Self-insurance and deductibles on casualty insurance. We are self-insured for the majority of our health insurance costs, including claims filed and claims incurred but not reported. We also have deductibles of up to $1 million on various casualty insurance programs, which we have determined to be adequate for the type of risk. We estimate the liability under our health insurance and casualty programs on an actuarial undiscounted basis using individual case-based valuations and statistical analysis and are based upon judgment and historical experience; however, the final cost of many of these claims may not be known for several years. We also rely on the advice of consulting actuaries and administrators in determining an adequate liability for self-insurance claims. At December 26, 2004 and December 28, 2003, self-insurance and casualty insurance accruals totaled $72.6 million and $73.2 million, respectively. In connection with our insurance program, letters of credit totaling $56.5 million are required to support certain projected workers’ compensation obligations. We continuously review the adequacy of our insurance coverage.

Income taxes. Income taxes are accounted for in accordance with SFAS 109 — “Accounting for Income Taxes,” which

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requires the liability method of accounting for income taxes whereby deferred income taxes are recorded for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are determined using tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse. Deferred tax assets and liabilities are revalued to reflect new tax rates in the period changes are effective.

We file a federal consolidated income tax return and state consolidated, combined or separate income tax returns depending upon state requirements. Each of these filing jurisdictions may audit the tax returns filed and propose adjustments. We maintain a liability to cover the cost of additional tax exposures on the filing of federal and state income tax returns. Adjustments arise from a variety of factors, including different interpretation of statutes and regulations.

Legal. We are involved in certain claims and litigation related to our operations, including ordinary routine litigation incidental to our business. See “Note 13. Commitments and Contingencies” on pages 49 through 51 for further information. Our management reviews and determines which liabilities, if any, arising from these claims and litigation could have a material adverse effect on our 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 legal counsel.

Commitments and contingencies. We have ongoing purchase commitments with SP Newsprint and Ponderay, our two newsprint mill investments. These future commitments are for the purchase of a minimum of $37.9 million and $15.8 million of newsprint in 2005 with SP Newsprint and Ponderay, respectively, at current market prices. We also have a sales commitment with Detroit Newspapers to supply 50% of their newsprint requirements, which in 2005 will be approximately $24.8 million. We have the resources necessary to fulfill these commitments in 2005.

BUSINESS SUMMARY

We report two operating business segments: Newspaper and Online. The Newspaper segment represented 96.2% of total operating revenue. Advertising revenue within this segment represented 74.5% of total operating revenue. Retail, Classified and National advertising revenue represented 46.3%, 36.9% and 16.8%, respectively, of total advertising revenue. Circulation revenue comprised 18.0% of total operating revenue. For further information, please refer to “Note 5. Business Segments” under the Consolidated Financial Statements contained in this report.

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 competitive factors. 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.

To expand our core revenue sources we launched a Revenue Task Force in 2003 to identify new sources of revenue. We have been implementing those initiatives that we believe best fit our strategy and have the highest return. We focused on the following areas: national, automotive and help wanted, sales force staffing, paid content, niche publications, retail majors and ROP zoning. We also established a national marketing group in response to the rapidly evolving retail and national environments. Together, these initiatives added over $55 million of advertising revenue in 2004.

From 2001 through 2003, our larger markets were particularly hard hit in the classified employment category, the result of the nationwide downturn in hiring. In 2004, classified employment revenue was up 12.5%. The major increases compared to 2003 were in Contra Costa 23.1%, St. Paul 20.8%, San Jose 17.5%, Miami 13.5% and Fort Worth 13.4%.

Our Retail category increased 1.2% compared to last year. Department store advertising was soft. Traditional department stores, like Macy’s and Dillard’s face strong competition from large department stores and they are working hard to realign and redefine their business strategies.

National advertising increased 2.9% compared to the prior year. The largest increase was in telecommunications, up 2.9% for the year. Telecommunications was up 20.4% in 2003 and its only real strength was a 7.4% increase in the fourth quarter of 2004. National auto, the second largest segment, was up slightly. Entertainment, computers, airlines and travel were soft. Pharmaceuticals, a relatively small segment, was up 90.2%.

During 2005, we expect advertising revenue to grow in the mid single digits, with half of this increase coming from core business and the other half from new initiatives. We expect national and classified revenue to be somewhat stronger than retail revenue. Retail revenue is generally healthy, with the exception of department stores. National revenue continues to be solid. Classified revenue assumes some rebound in auto revenue and sustained strength in employment and real estate revenue.

In recent years, many newspapers nationwide have experienced declines in circulation copies. Increased competition, particularly from the Internet, has caused the decline in copies. We have increased discounting as a primary tactic to grow circulation, which caused our revenue to decline. Nevertheless, growing both circulation copies and growing revenue remains a challenge to our industry and us.

Our plans for the coming year include telemarketing and selective discounting, along with increased use of crew sales, kiosks, single-copy insert coupons and direct mail promotions. Telemarketing rules adopted by the Federal Trade Commission and Federal Communications Commission, including the National Do-Not-Call Registry and regulations, have had an impact on our ability to source subscriptions through telemarketing, but we have expanded our use of other sources of new subscribers to offset much of that impact. There are two favorable factors: (a) not everyone elected 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 2001, we implemented a work force reduction program. In 2002, we launched an Operations Task Force to identify savings that could be applied companywide. The Task Force teams investigated opportunities for cost reductions throughout the company in content, production, technology, people, administration, vendor

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management, smaller papers and circulation. We began implementing their recommendations in 2003. To date, we have realized incremental savings of more than $100 million.

In 2004, overall operating costs were up 2.1%, due to a 3.4% rise in newsprint, ink and supplement costs and a 2.6% increase in labor and employee benefits. FTEs were down 1.2% in 2004, following declines of 5.6% and 1.8% in 2002 and 2003, respectively. For the coming year, we anticipate increases in newsprint and benefits (primarily pension and postretirement benefits) in the low double digits. During 2005, we expect health care costs to be up and we anticipate an increase in pension costs due to a lower discount rate. FTEs should be down about 1%, despite additions for various Revenue Task Force initiatives. During 2005, we expect the price of newsprint to rise in the low double digits, but we expect the newsprint, ink and supplements line will increase only in the high single digits due to decreases in consumption and lower increases in ink and supplements.

Our online segment performed very well in 2004. Revenue of $114.6 million was up 43.7% and operating income of $36.0 million was up 136.7% from 2003. KRD unique visitors averaged 9.9 million per month, up 23.6%. The strong results reflect increases in all of KRD’s revenue streams. KRD management is focused on growing revenue, expanding product offerings, managing costs and increasing unique visitors. The team is also focused on maximizing the benefit of the recent AOL and MSN traffic agreements with CareerBuilder. We project a solid trajectory of growth for online in 2005.

We have entered into interest rate swap agreements to adjust the mix of fixed and floating rate debt. Our weighted-average cost of debt, including the benefit of swaps, was 4.3% at the end of fiscal 2004. Our debt balance increased by $44.3 million from $1.454 billion in 2003 to $1.498 billion in 2004.

Losses from investees decreased over the past year and we expect further improvement in 2005 as the price per ton of newsprint is projected to increase, benefiting our newsprint mill investees.

Our effective tax rate was lower in 2004 than in 2003, mainly due to the favorable resolution of tax matters from prior years. We anticipate our effective tax rate to be in the 36% to 37% range in 2005.

Our shares outstanding decreased in 2004, the result of our continued commitment to allocate free cash flow to share repurchases.

Our businesses continue to provide sufficient cash for our operations and capital expenditures. Moreover, we intend to use future cash flow for the payment of dividends and repurchase of shares, as well as strategic acquisitions.

CONSOLIDATED RESULTS OF OPERATIONS: FOR THE FISCAL YEARS ENDED DECEMBER 26, 2004, DECEMBER 28, 2003 AND DECEMBER 29, 2002:

Our fiscal year ends on the last Sunday of the calendar year. The following table sets forth the consolidated results of operations for the 52-week periods ended December 26, 2004, December 28, 2003 and December 29, 2002 (in thousands, except per share data):

* Percent not meaningful

Diluted earnings per share for 2002 included charges of $0.29 per share for the cumulative effect of change in accounting principle of Career Holdings, an equity method investee, related to its adoption of SFAS 142.

In 2004, we earned $4.13 per diluted share, up 13.8% from the $3.63 per diluted share earning in 2003. Included in this year’s earnings per share was $0.26 from the favorable resolution of tax matters from prior years, including interest. Net income for the year was $326.2 million, up 10.2% from the previous year. Overall operating costs in 2004 rose just 2.1%, with FTEs down 1.2% for the year. The price per ton of newsprint was up 5.0% over the previous year, less than anticipated and reflecting our implementation of lighter-weight newsprint across most of our newspapers. In addition, we benefited from reduced interest expense and lower weighted average shares outstanding.

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NEWSPAPER DIVISION

Operating Revenue. The following table summarizes the results of the Newspaper Division for the fiscal years ended December 26, 2004, December 28, 2003 and December 29, 2002 (in thousands):

Total advertising revenue for 2004 was 1.7% higher than for 2003. All advertising revenue categories increased: a 2.4% increase in classified revenue, a 0.9% increase in retail revenue and a 2.4% increase in national revenue. Total advertising revenue for 2003 was 0.1% higher than for 2002. A 15.6% increase in national revenue in 2003 compared to 2002 was offset by a 4.0% decline in classified revenue and a 1.6% decline in retail revenue.

Retail revenue increased 0.9% from 2003 to 2004 due to an 8.3% increase in part-run retail revenue and a 2.1% increase in preprint revenue, partially offset by a 2.5% decrease in full-run linage. Specialized publications revenue, up 7.3%, and alternative distribution revenue, up 4.5%, also contributed to the increase in retail revenue. Contra Costa, Charlotte, Kansas City, Philadelphia and Fort Worth were responsible for most of the increase, up 5.5%, 4.4%, 2.9%, 1.6% and 1.1%, respectively. Compared with 2002, retail advertising revenue in 2003 decreased 1.6% due to an 8.0% full-run retail revenue decrease, a 5.3% decrease in part-run retail revenue and a 30.9% decrease in database marketing revenue, partially offset by a 10.1% increase in preprint revenue. Philadelphia, Contra Costa and San Jose were responsible for most of the decrease, down 11.5%, 3.7% and 1.6%, respectively.

National revenue increased primarily in Akron, Charlotte, St. Paul, Fort Worth and Miami in 2004 compared to 2003, up 6.7%, 6.5%, 5.3%, 5.2% and 3.9%, respectively. An 18.4% increase in preprint revenue and a 24.5% increase in part-run ROP linage drove the 2004 increase over 2003. The increase in national was due to telecommunication, travel, health, automotive, entertainment and financial. National advertising revenue increased 15.6% in 2003 from 2002 due to a 26.0% increase in preprint revenue and a 349.4% increase in database marketing revenue. Akron, Contra Costa, Philadelphia, San Jose and Charlotte had the largest increases, up 50.1%, 43.9%, 30.3%, 23.1% and 11.0%, respectively.

Classified revenue increased 2.4% in 2004 compared to 2003. Increases in classified real estate and employment drove the overall increase in classified revenue, up 6.6% and 5.4%, respectively, partially offset by classified auto, down 4.8%. St. Paul, Miami, Contra Costa, Philadelphia and Akron were responsible for most of the increase in classified real estate, up 33.2%, 15.9%, 14.9%, 14.1% and 13.1%, respectively. Contra Costa, St. Paul, San Jose, Miami, Fort Worth and Charlotte were responsible for most of the increase in classified employment, up 23.1%, 20.8%, 17.5%, 13.5%, 13.4% and 12.1%, respectively. Classified other revenue also drove the increase in classified revenue, increasing 5.6%, with Miami up 7.6%, Fort Worth up 6.8%, Kansas City up 5.1%, Philadelphia up 4.3% and Akron up 3.8%.

Classified advertising revenue decreased 4.0% in 2003 from 2002 due to a full-run ROP classified revenue decrease of 6.4%, driven by declines in the recruitment category. San Jose, Contra Costa, Philadelphia, St. Paul and Kansas City were responsible for most of the decrease in classified employment, down 33.1%, 24.0%, 19.2%, 17.2% and 16.2%. Declines in classified auto in our largest markets were responsible for most of the decrease, with Charlotte down 7.4%, Fort Worth down 3.3% and Akron down 2.8%.

Circulation revenue declined by 2.7% in 2004 compared with 2003 largely due to a 1.9% reduction in the average subscription rate resulting from increased discounts. Including Detroit and Fort Wayne, circulation copies decreased 0.9% for both daily and Sunday. The increase in Kansas City, St. Paul, Fort Worth, Akron and Contra Costa were more than offset by decreases in Philadelphia and San Jose for daily circulation, while increases in St. Paul, Miami, Fort Worth and Akron were more than offset by decreases in San Jose and Philadelphia for Sunday circulation. Circulation revenue decreased 2.4% in 2003 from 2002 due to a 3.3% reduction in the average subscription rate resulting from increased discounts on subscription rates. Circulation copies were

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down 0.8% daily and down 0.1% Sunday. Increases in St. Paul, Fort Worth, Kansas City, Miami and Akron were more than offset by decreases in Philadelphia and Charlotte for daily circulation. Increases in Fort Worth, Contra Costa, St. Paul and Kansas City were offset by decreases in Charlotte for Sunday circulation.

From 2003 to 2004, other revenue increased by 11.2% as a result of increases in augmentation, alternate distribution revenue, earnings from Detroit, newsprint waste and photo reprint revenue. Other revenue increased 7.4% in 2003 from 2002 due to an increase in augmentation, alternate distribution, commercial print and newsprint waste revenue.

Operating Costs. The following table summarizes operating costs for the periods ended December 26, 2004, December 28, 2003 and December 29, 2002 (in thousands):

Labor and employee benefits increased 2.1% in 2004 compared with 2003. A 2.3% increase in the average wage rate per employee was partially offset by a 1.7% reduction in FTEs. In addition, employee benefits increased by 1.4%. Pension costs increased by 18.2% ($10.7 million) and health insurance expenses decreased by 10.1% ($11.0 million). The increase in pension cost was due to a lower discount rate and a decline in the market value of pension plan assets.

Labor and employee benefits increased 4.8% in 2003 compared with 2002. A 1.1% increase in the average wage rate per employee was partially offset by a 1.8% reduction in FTEs. In addition, employee benefits increased by 19.6% due to a $15.4 million favorable adjustment in 2002 to postretirement benefit expenses in Philadelphia related to a structural change in the Guild’s severance plan. Within employee benefits, pension costs increased by 21.9% ($10.6 million) and health insurance expenses increased by 13.3% ($12.8 million). The increase in pension cost was due to declines in market value of pension plan assets.

Newsprint, ink and supplements expense increased 3.3% in 2004 compared with 2003. This increase was driven largely by a 4.9% increase in the average cost per ton of newsprint. The increase in 2003 from 2002 resulted from a 5.4% increase in the average cost per ton of newsprint and a 1.5% increase in ink expense.

Other operating costs increased 0.6% in 2004 when compared with 2003, due to tight cost controls in all areas. Other operating costs decreased by 1.0% in 2003 from 2002.

Depreciation and amortization expense decreased 10.6% in 2004 compared with 2003 due to lower levels of capital spending in recent years. Depreciation and amortization expense decreased 9.1% in 2003 compared to 2002.

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ONLINE DIVISION

Operating Revenue and Costs. The following table summarizes operating revenue and costs for the periods ended December 26, 2004, December 28, 2003 and December 29, 2002 (in thousands):

* Percent not meaningful

Revenue for the Online Division was up 43.7% in 2004 compared with 2003, driven largely by increases in recruitment and upsell revenue categories. Revenue in 2003 compared with 2002 was up 44.2%, driven by increases all upsell revenue categories, resulting from the implementation of a new upsell strategy and launching of retail upsell packages. Reach for KRD properties, defined as the percentage of all online users in the nation who used any of KRD’s Web sites, increased from 5.5% in 2002 to 5.9% in 2003 and to 6.6% in 2004. Average monthly unique visitors increased from 6.7 million in 2002 to 8.0 million in 2003 and to 9.9 million in 2004. Our audience grew by 29% in our top markets in 2004 and by 9% in all of our other markets compared with 2003. The growth resulted from enhancements to our local Web sites, making them more user-friendly to our advertisers and readers. Highly valuable and frequently updated content increased visibility of our sites in Web search engines. Strategies that combined print with online ads drew people to classifieds and other areas of our sites.

The cost of labor and employee benefits increased by 14.6% in 2004 compared with 2003, driven largely by a 12.8% increase in FTEs. Labor and employee benefits expenses declined 2.7% in 2003 from 2002 due to a 5.8% reduction in FTEs. Other operating costs increased 30.6% in 2004 compared with 2003 as a result of fees for sales, other professional fees, and technology consultants. In 2003 other operating costs increased from 2002 due to fees for sales, technology consultants and other professional fees. The decrease in depreciation and amortization expense in 2004 was due to write-offs of assets in 2003. Depreciation and amortization expense decreased in 2003 from 2002 due to write-offs of certain assets, including a significant amount of outdated software, in the second half of 2002.

CORPORATE EXPENSES AND OTHER NON-OPERATING ITEMS

Interest expense decreased $16.2 million, or 22.9%, in 2004 compared with 2003 and by $4.2 million, or 5.6%, in 2003 from 2002. The decrease in each year was due primarily to lower weighted-average interest rates and a decline in the average debt balance in 2003 compared to 2002. During 2003 interest rates were at historically low levels and it is anticipated that as the U.S. economy improves, interest rates will increase, resulting in higher interest expense in the future. Capitalized interest expense, which reduced net interest expense for 2004, increased by $2.7 million in 2004 over 2003 due largely to the construction of our new Kansas City production plant.

For the year 2004, losses from equity investments decreased slightly to $23.9 million from $24.1 million in 2003. Income from newsprint mill investments, due to the increase in the cost per ton of newsprint, was offset by increased losses from our investment in the Seattle Times and CareerBuilder.

For the year 2003, losses from equity investments declined to $24.1 million from $62.3 million in 2002. The improved results in 2003 were attributable to an $8.3 million reduction in losses from our newsprint mill investments due to the increase in the cost per ton of newsprint that began in the latter part of 2003. In addition, our loss from our equity investment in CareerBuilder declined by $27.5 million as one-time charges, described below for 2002, did not recur in 2003. The Seattle Times also added to the losses from equity investments in 2003, offset somewhat by income from Classified Ventures and Knight Ridder/Tribune Information Services.

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One-time charges in 2002 related to our investment in CareerBuilder LLC were: (a) a $7.5 million charge in the first quarter for severance expense and other costs resulting from the relocation of offices and abandonment of certain assets, and (b) an $18 million charge ($0.13 per share after tax) associated with the conversion of CareerBuilder from a corporation into a limited liability company. The conversion resulted in a taxable gain to CareerBuilder to the extent the fair value of its assets was greater than the tax basis on the date of the conversion. There was no gain recognized for financial accounting purposes upon this conversion. Accordingly, CareerBuilder recorded a tax expense and paid taxes of approximately $36.0 million. We recorded our 50% share of this expense as part of the loss from equity investments.

CareerBuilder’s conversion to an LLC also triggered the recognition of a tax loss in 2002. Since the acquisition of our interest in CareerBuilder, we had recorded tax benefits in the form of deferred taxes for our share of the losses arising from CareerBuilder’s operating results. The conversion allowed us to recognize these losses for income tax purposes as the conversion was treated as a sale of the stock of CareerBuilder for its fair market value. This capital loss was carried back and applied against taxes paid in prior years. We received a tax refund of $36.0 million related to the loss carry-back claim. Because we had previously recorded the losses for financial statement reporting, the recognition of the tax loss did not affect our results of operations. Following the conversion to an LLC, our share of CareerBuilder’s operating results is included in our consolidated tax returns. Unlike “C” corporations, which are separate entities subject to income tax, LLCs generally are not taxable entities, and their operating results are included in those of its members.

ACQUISITIONS AND DISPOSITIONS

In November 2001, CareerBuilder acquired Headhunter.net, an online recruitment and career development business, for $9.25 per share in cash, or approximately $217 million. The acquisition was funded by capital contributions from both Knight Ridder and Tribune. Our share was $108.5 million. On October 2, 2002, we and Tribune each sold one-third of our respective interest in CareerBuilder to Gannett for $98.2 million. Our share of the proceeds was approximately $49 million. The sale price was equal to our carrying value and no gain or loss was recorded on the sale. We currently own a 33.3% interest in CareerBuilder, through KRD.

On January 8, 2002, we sold our stock in MatchNet plc, realizing proceeds of $651,000 and recording an aggregate pre-tax loss of approximately $4.3 million. Additionally, we recorded other-than-temporary declines in a number of other cost-basis Internet-related investments of $3.1 million in 2002. As of December 29, 2002, the carrying value of the remaining cost-basis investments was $1.6 million.

On March 3, 2003, we sold our one-third share of InfiNet Company to Gannett for approximately $4.5 million, and recorded a $1.0 million pre-tax gain on the sale.

On May 5, 2003, we amended our agreement with the Journal Gazette Company to extend our joint operating agreement in Fort Wayne, IN, to the year 2050. Under the amended terms, we increased our partnership interest from 55% to 75%. The joint operating agreement governs the partnership and operation of Fort Wayne Newspapers, the agency that handles advertising sales, printing, distribution and administration of the two daily newspapers. The transaction resulted in a $42 million increase in our goodwill balance on the Consolidated Balance Sheet.

During 2004, we made $43.7 million in acquisitions consisting of the following:

In February 2004, we completed the acquisition of Alliance Newspapers. Alliance is a group of seven weekly newspapers and one monthly newspaper serving the area north of Fort Worth in Denton and Northeast Tarrant Counties. Alliance offers total market coverage with circulation of approximately 25,000.

In April 2004, Broad Street Community Newspapers (BSCN) acquired certain assets of the News Star and Publiset. The Star products will help grow BSCN’s community newspapers in the Philadelphia metro area.

In May 2004, Knight Ridder, Gannett and Tribune each acquired a one-third interest in CrossMedia Services, Inc., a provider of Web-based marketing solutions for national and local retailers. We also acquired the assets of four community newspapers and three shopper publications previously owned by Superior Publishing Corporation. The acquired newspapers include the (Duluth MN) Budgeteer News, The (Cloquet MN) Pine Journal, The Daily Telegram in Superior, WI, and the Lake County News-Chronicle in Two Harbors, MN. The purchase also included the Manney’s Shopper zones in Superior, Cloquet and Two Harbors.

In June 2004, we acquired a 35.6% undiluted ownership interest in CityXpress, a provider of online auctions for newspapers. The remaining is owned by Lee Enterprises, management and employees of CityXpress and other shareholders.

In August 2004, we acquired the assets of The (Flower Mound) Messenger, the leading bi-weekly in the Flower Mound suburb of Fort Worth. The paper is published every two weeks and mailed to approximately 28,500 households in Flower Mound and the surrounding communities of Highland Village, Copper Canyon, Double Oak and Lantana.

LIQUIDITY AND CAPITAL RESOURCES

Cash was $24.5 million at December 26, 2004, compared with $33.5 million at December 28, 2003. During 2004, cash flows from operating activities were used to fund treasury stock purchases of $305.2 million and pay dividends of $103.6 million. During 2003, cash flows from operating activities were used to fund treasury stock purchases of $286.0 million and pay dividends of $94.9 million and to reduce debt by $49.6 million.

Cash provided by operating activities was $457.5 million in 2004, compared with $443.5 million in 2003. The increase was due to lower cash contributions in excess of pension and other retirement benefit plan expenses, lower change in accounts receivable and higher net income. Cash provided by operating activities was $443.5 million in 2003, compared with $409.6 million in 2002. The increase was due to contribution in excess of pension and other postretirement benefit expenses and an increase in other assets and accounts payable.

At December 26, 2004, working capital was $70.0 million, compared with $71.0 million at December 28, 2003. Increases in net accounts receivable, inventories, prepaid expenses and other current assets (primarily the recording of the land held

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for sale in Miami, FL) and a decrease in the current portion of long-term debt, were essentially offset by increases in accrued expenses and other liabilities, accrued compensation and withholdings, deferred circulation revenue and income taxes payable. The increase in working capital from 2003 to 2004 was due primarily to an increase in prepaid expenses of $11.3 million, an increase in accounts receivable of $9.7 million and an increase in inventory of $6.2 million, partially offset by an increase in federal and state income taxes payable of $14.5 million and an increase in other current liabilities of $13.8 million. At December 26, 2003, working capital was $71.0 million, compared with $72.4 million at December 28, 2002. The decrease in working capital from 2002 to 2003 was due primarily to a decline in accrued compensation of $30.3 million and a decline in short-term borrowings of $19.8 million, partially offset by an increase in federal and state income taxes payable of $16.4 million.

During 2004, cash required for investing activities was primarily for the purchase of $117.3 million of property, plant and equipment, and the acquisition and additional investment in businesses of $43.7 million. During 2003, cash required for investing activities was primarily for the purchase of $73.2 million of property, plant and equipment, and the acquisition and additional investment in businesses of $44.5 million.

We invest excess cash in short-term investments, depending on projected cash needs from operations, capital expenditures and other business purposes. We supplement our internally generated cash flow with a combination of short- and long-term borrowings. Average outstanding commercial paper during the year was $210.7 million, with an average effective interest rate of 1.9%. At December 2004, our $1 billion revolving credit agreement, which supports the commercial paper and our letters of credit outstanding, had remaining availability of $789 million. The revolving credit facility matures in 2009.

In 2001, 2002 and 2004, we entered into certain interest rate swap agreements. We entered into these agreements to manage interest rate exposure by achieving a desired proportion of fixed rate versus variable rate debt. The swap agreements expire at various dates in 2005, 2007, 2009 and 2011 and effectively convert an aggregate principal amount of $700 million of fixed-rate long-term debt into variable-rate borrowings. The variable interest rates are based on the three- or six-month London InterBank Offering Rate (LIBOR) plus a rate spread. For the year ended December 26, 2004, the weighted-average variable interest rates under these agreements were 4.3% versus the fixed rates of 8.0%. The fair value of the swap agreements at December 26, 2004 and December 28, 2003, totaled $34.2 million and $46.9 million, respectively, recorded on the consolidated balance sheet as other noncurrent assets, with the offsetting adjustment to the carrying value of the long-term debt. We do not trade or engage in hedging for speculative or trading purposes, and hedging activities are transacted only with highly rated financial institutions, reducing the exposure to credit risk.

In 2004, we issued $200 million in 10-year fixed rate senior notes, which we used to pay down our outstanding commercial paper. As of the end of December 26, 2004, our percentage of variable rate borrowings stands at approximately 60%.

At December 26, 2004, our short- and long-term debt was rated by the three major credit-rating agencies listed below. There was no change from 2003:

We have a $1 billion revolving credit facility and term loan agreement, which support our commercial paper. We also have $200 million in extendable commercial notes. Our future ability to borrow funds and the interest rates on those funds could be adversely impacted by a decline in our debt ratings and by negative conditions in the debt capital markets.

During 2004, we repurchased 4.3 million common shares at a total cost of $305.2 million and an average cost of $71.30 per share. At the end of fiscal 2004, authorization remained to purchase 4.9 million shares.

Our operations have historically generated strong positive cash flow that along with our commercial paper program, revolving credit lines and our ability to issue public debt, have provided adequate liquidity to meet short- and long-term cash requirements, including requirements for working capital and capital expenditures.

The following table summarizes our contractual obligations and other commercial commitments as of December 26, 2004 (in thousands):

(a) Commercial paper is supported by $1 billion revolving credit facility, which matures in 2009.

(b) In connection with our insurance program, letters of credit are required to support certain projected workers’ compensation obligations.

(c) We guarantee 13.5% of the debt of Ponderay Newsprint Company, a newsprint mill investment. For the years ended December 26, 2004 and December 28, 2003, these guarantees totaled $9.7 million and $13.2 million, respectively.

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We have ongoing purchase commitments with SP Newsprint and Ponderay, our two newsprint mill partnership investments. These future commitments are for the purchase of a minimum of 77,000 metric tons and 28,400 metric tons of newsprint annually with SP Newsprint and Ponderay, respectively. In 2004 and 2003, we paid SP Newsprint $60.4 million and $62.4 million, respectively, and paid Ponderay $15.7 million and $14.9 million, respectively.

Our capital-spending program includes normal replacements, productivity improvements, capacity increases, building construction and expansion and purchase of printing press equipment. Over the past three years, capital expenditures have totaled $260.5 million (excluding Detroit) for additions and improvements to properties.

Additions to property, plant and equipment amounted to $117.3 million ($145.6 million, including Detroit) in 2004. This was a $44.1 million increase over the $73.2 million ($99.2 million, including Detroit) we spent in 2003. Expenditures in 2004 included $74.1 million for a new production plant in Kansas City scheduled for completion in 2006, $29.7 million for our share of the cost of the new production plant in Detroit scheduled for completion in 2005, $3.7 million for production equipment replacement in Philadelphia, $2.3 million for a cart loading system in San Jose and $2.2 million for an inserting machine in Akron. In 2005, we expect approximately $111.2 million ($132.6 million, including Detroit) in capital expenditures, primarily for the new plant in Kansas City and our share of the Detroit plant investment.

OFF-BALANCE SHEET ARRANGEMENTS

We guarantee 13.5% of the debt of Ponderay Newsprint Company’s credit facility in connection with a 2000 restatement of Ponderay’s credit facility. We guarantee the portion of the credit facility that matures in April 2006. The guarantee could be triggered by Ponderay’s failure to meet any of its bank covenants, at which time we could be liable for the full portion of this guarantee. We account for these guarantees as off-balance sheet instruments, that for 2004 and 2003 totaled $9.7 million and $13.2 million, respectively.

We are a one-third partner of SP Newsprint Co. In November 2002, SP Newsprint amended and restated its credit agreement with certain lenders. The agreement stipulates that if SP’s consolidated liquidity falls below $5 million, it would be in default of the agreement. We and the other partners would be required to make an equity contribution, in sufficient amount to cure the default. Our contribution is limited to approximately $6.7 million. The obligation ends when SP Newsprint first meets certain conditions including, but not limited to, predetermined leverage and fixed-charge coverage ratios and certain liquidity requirements. We also had a demand obligation to SP Newsprint Co. for $6.7 million. The obligation arose in August 1985 in connection with an advance to us (and the other partners) by SP. In 2003, SP Newsprint requested and we repaid this obligation.

RECENT PRONOUNCEMENTS

In June 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations” (SFAS 143). Under these rules, a liability for a long-lived asset retirement obligation should be recognized in the period in which it is incurred and should be initially measured at its fair value. Changes in the liability due to the passage of time are recognized as operating expenses in the income statement and referred to as accretion expenses. SFAS 143 is required to be implemented for fiscal years beginning after June 15, 2002. The adoption of SFAS 143 did not have a material impact on our results of operations or financial position.

In June 2002, the FASB issued SFAS No. 146 — “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS 146 requires recording costs associated with exit or disposal activities at fair value when a liability has been incurred. Under previous guidance, certain exit costs were accrued upon our commitment to an exit plan, which is generally before an actual liability has been incurred. The requirements of SFAS 146 are effective prospectively for exit or disposal activities initiated after December 31, 2002. The adoption of SFAS 146 did not have a material impact on our results of operations or financial position.

In April 2003, the FASB issued SFAS No. 149 — “Amendment of Statement No. 133 on Derivative Instruments and Hedging Activities.” SFAS 149 is effective for contracts with derivative instruments and hedging relationships entered into or modified after June 30, 2003. SFAS 149 requires that contracts with comparable characteristics be accounted for similarly. This statement also amends the definition of an underlying security to conform it to language used in the FASB’s Financial Interpretation (FIN) 45 — “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” We account for our hedges with comparable characteristics similarly; accordingly, the adoption of SFAS 149 did not have a material impact on our results of operations or financial position.

In May 2003, the FASB issued SFAS No. 150 — “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity,” which addresses how to classify and measure certain financial instruments with characteristics of both liabilities (or an asset, in some circumstances) and equity. SFAS 150 requirements apply to issuers’ classification and measurement of freestanding financial instruments, including those that comprise more than one option or forward contract. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS 150 did not have a material impact on our results of operations or financial position.

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 SFAS 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 the original version of SFAS Statement No. 132, Employers’ Disclosures about Pensions and Other Postretirement Benefits. It requires additional disclosures about the assets, obligations,

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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 revised 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.

In November 2002, the FASB issued FASB Interpretation No. 45 — “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (FIN 45). FIN 45 requires that upon issuance of a guarantee, a guarantor must recognize a liability for the fair value of an obligation assumed under a guarantee. FIN 45 also requires additional disclosures by a guarantor in its interim and annual financial statements about the obligations associated with guarantees issued. The recognition provisions of FIN 45 are effective for any guarantees issued or modified after December 31, 2002. The disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002. We have certain existing guarantees that when modified will require us to record a liability on our balance sheet for the fair market value of the guarantee. The adoption of FIN 45 did not have a material impact on our results of operations or financial condition.

In January 2003, the FASB issued FIN No. 46 — “Consolidation of Variable Interest Entities.” In December 2003, the FASB issued Interpretation No. 46 (revised December 2003) (FIN 46R), which replaces FIN 46. This interpretation of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” defines what these variable interest entities are and provides guidelines on identifying them and assessing an enterprise’s interests in a variable interest entity to decide whether to consolidate that entity. Generally, application of FIN 46R is required in financial statements of public entities that have interests in variable interest entities or potential variable interest entities commonly referred to as special-purpose entities for periods ending after December 15, 2003. Application by public entities for all other types of entities is required in financial statements for periods ending after March 15, 2004. The adoption of FIN 46 or FIN 46R did not have a material impact on our results of operations or financial condition.

In May 2004, the FASB issued FASB Staff Position (FSP) 106-2 — “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act.” which provides guidance on how companies should account for the impact of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”) on its postretirement health care plans. To encourage employers to retain or provide postretirement drug benefits, beginning in 2006 the federal government will provide non-taxable subsidy payments to employers that sponsor prescription drug benefits to retirees that are “actuarially equivalent” to the Medicare benefit. Although formal guidance in determining actuarial equivalence has not been provided, we expect that our prescription drug plan will qualify for the government subsidy. Effective July 1, 2004, Knight Ridder prospectively adopted FSP 106-2. Adoption of FSP 106-2 reduced the accumulated postretirement benefit obligation by approximately $9.2 million and resulted in an unrecognized actuarial gain of a similar amount. The unrecognized actuarial gain will be amortized over the estimated expected service life of the participants. Adoption resulted in a $600,000 reduction in postretirement benefits cost for the two fiscal quarters ended December 26, 2004.

On December 16, 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment, which is a revision of SFAS 123, Accounting for Stock-Based Compensation. Generally, the approach in SFAS 123(R) is similar to the approach described in SFAS 123. However, SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. The new standard will be effective for public entities (excluding small business issuers) in the first interim or annual reporting period beginning after June 15, 2005, irrespective of the entity’s fiscal year. Early adoption is permitted in periods in which financial statements have not yet been issued. SFAS 123(R) allows for two transition alternatives for public companies: (a) modified-prospective transition or (b) modified-retrospective transition. Under the modified-prospective transition method, companies are required to recognize compensation cost for share-based payments to employees based on their grant-date fair value from the beginning of the fiscal period in which the recognition provisions are first applied. Measurement and attribution of compensation cost for awards that were granted prior to, but not vested as of the date SFAS 123(R) is adopted would be based on the same estimate of the grant-date fair value and the same attribution method used previously under SFAS 123 (either for financial statement recognition or pro forma disclosure purposes). Prior periods are not restated. For periods prior to adoption, the financial statements are unchanged (and the pro forma disclosures previously required by SFAS 123 continue to be required under the new Standard to the extent those amounts differ from those in the income statement). For periods subsequent to adoption, the impact of this transition method generally is the same as if the modified-retrospective method were applied. Accordingly, pro forma disclosure will not be necessary for periods after the adoption of the new Standard. Under the modified-retrospective transition method, companies are allowed to restate prior periods by recognizing compensation cost in the amounts previously reported in the pro forma footnote disclosure under the provisions of SFAS 123. New awards and unvested awards would be accounted for in the same manner as the modified-prospective method. Because of the mid-year effective date, companies are permitted to apply the modified-retrospective transition alternative either (a) to all periods presented or (b) to the start of the fiscal year in which SFAS 123(R) is adopted. We are currently evaluating the alternative transition methods and expect to adopt SFAS 123(R), as required, for our third quarter beginning June 27, 2005. Had we adopted SFAS 123 in 2004, our diluted earnings per share would have been $0.19 lower.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Borrowings. By balancing the mix of variable- versus fixed-rate borrowings, we manage the interest-rate risk of our debt. “Note 3. Debt” on pages 38 and 39 of this report includes information related to the contractual interest rates and fair value of the individual borrowings. At various times, we have entered into interest rate swap agreements to manage interest rate exposure in order to achieve a desired proportion of variable-rate versus

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fixed-rate debt. The fair value of the swaps at December 26, 2004 and December 28, 2003 was $34.2 million and $46.9 million, respectively. As of the end of fiscal 2004, approximately 60% of our borrowings were variable-rate. We do not trade or engage in hedging for speculative purposes and hedging activities are transacted only with highly rated financial institutions, reducing the exposure to credit risk.

A hypothetical 50 basis point increase in LIBOR would increase interest expense associated with variable-rate borrowings by approximately $5.3 million and $4.6 million in 2004 and 2005, respectively. The fair value of our fixed-rate debt and interest rate swaps is sensitive to changes in interest rates. A hypothetical 50 basis points increase in interest rates would decrease the fair value of the fixed-rate debt and interest rate swaps by $20.8 million in 2005. This change in fair value of debt obligations excludes commercial paper and other short-term variable-rate borrowings as changes in interest rates would not significantly affect the fair market value of these instruments.

Newsprint. We consumed approximately 641,000 metric tons of newsprint in 2004, excluding Detroit. This represented 13.2% of our 2004 total operating expenses. Under the caption “Newsprint” on page 3 of this report, we have included information on our suppliers, the long-term purchase agreements used to manage the related risk of price increases, and natural hedges we have in place through our investment in newsprint mills. We have also in the past entered into newsprint hedges to take advantage of market conditions and further manage the risk of price increases. As of the end of fiscal 2004, we do not have any outstanding newsprint hedges.

A hypothetical 10% increase in newsprint costs would increase newsprint expense by approximately $36 million. Our ownership in SP Newsprint and Ponderay provide a hedge against price volatility for approximately 50% of our newsprint expense. This $36 million increase in newsprint costs would be partially offset by $18 million in earnings from our newsprint mill investments, and would increase our Earnings from Equity Investees on our Consolidated Statement of Income. Therefore, our pre-tax earnings would decrease by approximately $18 million.

Item 8. Financial Statements and Supplementary Data

The consolidated financial statements, together with the report thereon of our Independent Registered Public Accounting Firm, Ernst & Young, LLP, dated February 21, 2005, the Selected Quarterly Financial Data (unaudited) and Schedule II — Valuation and Qualifying Accounts are set forth in Item 15 of this Form 10-K.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

CONCLUSION REGARDING THE EFFECTIVENESS OF DISCLOSURES CONTROLS AND PROCEDURES

As of the end of the period covered by this report, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15, under the supervision and with the participation of management, including the chief executive officer and chief financial officer. That evaluation revealed no significant deficiencies or material weaknesses in our disclosure controls and procedures. It confirmed that these current practices are effective in alerting us, within the time periods specified by the Securities and Exchange Commission, to any material information regarding Knight Ridder and its consolidated subsidiaries. Moreover, it confirmed our ability to record, process, summarize and report such information on an equally timely basis. Our management, including the chief executive officer and chief financial officer, also conducted an evaluation of our internal control over financial reporting to determine whether any changes occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, the chief executive officer and chief financial officer concluded that there has been no such change during the period covered by this report.

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control — Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 26, 2004.

Our management’s assessment of the effectiveness of our internal control over financial reporting as of December 26, 2004 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included herein.

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of Knight-Ridder, Inc.

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that Knight-Ridder, Inc. maintained effective internal control over financial reporting as of December 26, 2004, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Knight-Ridder, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.