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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 10-K
(MARK ONE)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
- THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1997
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________.
Commission File Number 1-9824
THE MCCLATCHY COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 52-2080478
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2100 "Q" STREET, SACRAMENTO, CA. 95816
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (916) 321-1846
------------------------
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
Class A Common Stock, par value New York Stock Exchange
$.01 per share
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 (section 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 X .
---
Aggregate market value of the Company's voting stock held by
non-affiliates on March 26, 1998, based on the closing price for the Company's
Class A Common Stock on the New York Stock Exchange on such date: approximately
$653,878,909. For purposes of the foregoing calculation only, required by Form
10-K, the Registrant has included in the shares owned by affiliates the
beneficial ownership of Common Stock of officers and directors of the Registrant
and members of their families, and such inclusion shall not be construed as an
admission that any such person is an affiliate for any purpose.
Shares outstanding at March 27, 1998:
Class A Common Stock - 15,814,374 shares
Class B Common Stock - 28,675,912 shares
Documents incorporated by reference:
Definitive Proxy Statement for the Company's May 21, 1998 Annual
Meeting of Stockholders to be filed pursuant to Regulation 14A under the
Securities Exchange Act of 1934 (incorporated in Part III to the extent provided
in Items 10, 11, 12 and 13 hereof).
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INDEX TO THE McCLATCHY COMPANY
1997 FORM 10-K
Item No. Page
- -------- ----
PART I
1. Business............................................................... 1
Recent Event........................................................... 2
California Newspapers.................................................. 3
Northwest Newspapers................................................... 4
Carolinas Newspapers................................................... 6
Other Operations....................................................... 9
Raw Materials.......................................................... 9
Competition............................................................ 10
Employees - Labor...................................................... 10
2. Properties............................................................. 11
3. Legal Proceedings...................................................... 12
4. Submission of Matters to a Vote of Security
Holders............................................................ 12
PART II
5. Market for the Registrant's Common Stock
and Related Stockholder Matters.................................... 12
6. Selected Financial Data................................................ 13
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations...................... 14
8. Financial Statements and Supplementary Data............................ 21
9. Changes In and Disagreements With Accountants
on Accounting and Financial Disclosure............................. 42
PART III
10. Directors and Executive Officers of the
Registrant......................................................... 42
11. Executive Compensation................................................. 43
12. Security Ownership of Certain Beneficial
Owners and Management.............................................. 43
13. Certain Relationships and Related
Transactions....................................................... 43
PART IV
14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K............................................ 43
PART I
ITEM 1. BUSINESS
OVERVIEW
The McClatchy Company, a Delaware corporation, is a successor in
interest to McClatchy Newspapers, Inc., a Delaware corporation, and was created
as a result of the Amended and Restated Agreement and Plan of Merger and
Reorganization (the "merger"), dated as of February 13, 1998, between (among
others) McClatchy Newspapers, Inc. and Cowles Media Company, a Delaware
corporation ("Cowles"). Pursuant to the merger agreement, McClatchy Newspapers,
Inc. and Cowles each became wholly-owned subsidiaries of The McClatchy Company.
All references to the "Company" herein include the predecessor in interest,
McClatchy Newspapers, Inc. Prior to the merger, the Company owned and published
23 newspapers in three regions of the Country -- California, Northwest (Alaska
and Washington) and the Carolinas. These newspapers range from large dailies
serving metropolitan areas to non-daily newspapers serving small communities.
For the year ended December 31, 1997, the Company had an average paid daily
circulation of 979,900, Sunday circulation of 1,176,700 and non-daily
circulation of 69,400. The following discussion reviews the Company's existing
businesses prior to the merger. Please see the Recent Event section below for a
discussion of the merger.
Each of the Company's newspapers is semiautonomous in its business and
editorial operations so as to meet most effectively the needs of the communities
it serves. Publishers, editors and general managers of the newspapers make the
day-to-day decisions and within limits are responsible for their own budgeting
and planning. Policies on such matters as the amount and type of capital
expenditures, key personnel changes, and strategic planning and operating
budgets including wage and pricing matters, are approved or established by the
Company's senior management or Board of Directors.
The Company's overall strategy is to concentrate on developing its
newspapers and smaller related businesses. Each of its ten largest daily
newspapers has the largest circulation of any newspaper servicing its particular
metropolitan area. The Company believes that this circulation advantage is of
primary importance in attracting advertising, the principal source of revenues
for the Company. Advertising revenues approximated 79% of consolidated revenues
in 1997 and 78% of consolidated revenues in 1996. Circulation revenues
approximated 17% of consolidated revenues in 1997 and 18% of consolidated
revenues in 1996.
The Company's newspaper business is somewhat seasonal, with peak
revenues and profits generally occurring in the second and fourth quarters of
each year as a result of increased advertising activity during the Easter
holiday and spring advertising season, and Thanksgiving and Christmas periods.
The first quarter is historically the weakest quarter for revenues and profits.
Other businesses owned by the Company include Nando, the Company's
on-line publishing operation, and McClatchy Printing Company and Benson Printing
Company, commercial printing operations in California and North Carolina. The
Company also owns The Newspaper Network (TNN), a distributor of preprinted
advertising inserts and run-of-press advertising. In addition, the Company is a
partner (13.5% interest) in Ponderay Newsprint Company, a general partnership
that owns and operates a newsprint mill in Washington State.
1
The Company is in the process of addressing the issue that many
automated information systems may not operate effectively as of January 1, 2000.
Please see the discussion in Part II, Item 7 under the heading "Year 2000
Compliance".
When used in this Report, the words "expect" and "project" and similar
expressions are generally intended to identify forward looking statements. Such
statements are subject to certain risks and uncertainties, including those
discussed in "Forward Looking Information" in Part II, Item 7, that could cause
actual results to differ materially from those projected. Readers are cautioned
not to place undue reliance on these forward looking statements, which speak
only as of the date hereof.
RECENT EVENT
On February 13, 1998 the Company signed an amended and restated
agreement to acquire all of the outstanding shares of Cowles Media Company
(Cowles) in a transaction valued at $1.4 billion, including the assumption of
approximately $81 million in existing Cowles debt. Cowles publishes the STAR
TRIBUNE newspaper, which serves the Twin Cities of Minneapolis and St. Paul, and
also owns four separate subsidiaries that publish business magazines,
special-interest magazines and home improvement books. In January 1998, the
Company signed agreements to sell Cowles' magazine and book publishing
subsidiaries to two separate buyers. The combined proceeds plus debt and other
liabilities assumed by the buyers is valued in excess of $208 million and the
company used the proceeds to repay debt associated with the Cowles merger.
In connection with the merger, the Company issued approximately 6.4
million shares of Class A Common Stock and paid cash for the remainder of the
purchase price. The Class A shares were subject to an exchange ratio of 3.01667
shares of McClatchy Class A Common for each Cowles share (valued at $90.50 per
share). The Company obtained bank debt through a syndicate of banks and
financial institutions to finance the cash portion of the merger and to
refinance its existing debt, as well as Cowles existing debt. The merger and the
sales of the non-newspaper businesses closed on March 19, 1998.
The primary asset retained by the Company is the STAR TRIBUNE, the
leading newspaper in Minnesota with daily circulation of 373,000 and Sunday
circulation of 673,000. It is the 16th largest newspaper on a daily basis and
the 12th largest Sunday newspaper in the nation and is now the Company's largest
newspaper.
The merger will be accounted for as a purchase, and accordingly, assets
acquired and liabilities assumed will be recorded at their fair market values.
The Company will undertake an appraisal of substantially all assets and
liabilities as soon as possible. Cowles results of operations beginning as of
March 19, 1998, have been included in the Company's results. None of Cowles
results have been included in this Report. As a result of higher depreciation
and amortization, higher interest expense on the new debt, and the issuance of
additional stock, the acquisition is expected to be dilutive to the Company's
1998 net income and earnings per share.
2
CALIFORNIA NEWSPAPERS
The three "Bee" newspapers have formed the core of the Company's
operations for many years and continue to have a significant influence on the
civic, political, economic and cultural life of California's Central Valley.
These newspapers are summarized below:
1997 Circulation (1)
-----------------------------------------
Newspaper Daily/Weekly Sunday 1997 Revenues 1996 Revenues
--------- ------------ ------ ------------- -------------
The Sacramento Bee 284,200 349,100 $ 188,842,000 $ 178,801,000
The Fresno Bee 155,200 190,000 81,439,000 79,554,000
The Modesto Bee 83,300 90,400 45,319,000 43,332,000
Other newspapers 4,300 - 2,627,000 9,032,000
(1) Based on calendar year average paid daily circulation.
THE BEE newspapers and other California papers produced approximately
49.6% of the total Company revenues in 1997, about the same as 1996. In February
1997, the Company sold four of its California newspapers that had a combined
daily circulation of approximately 10,150 and weekly circulation of 12,800.
These newspapers generated $7.6 million in revenues in 1996.
THE SACRAMENTO BEE
THE SACRAMENTO BEE, the Company's largest newspaper in 1997, is a
morning newspaper serving the California state capital and its metropolitan
area. In 1997, THE SACRAMENTO BEE'S average paid circulation increased 0.8%
daily and decreased 0.3% Sunday from 1996. As of December 31, 1997,
approximately 87.0% of the daily, and 82.0% of the Sunday circulation was home
delivered.
THE SACRAMENTO BEE'S advertising linage for the years ended December
31, 1997 and 1996 is set forth in the following table:
1997 1996
---- ----
Advertising Linage (in thousands of six-column inches):
Full Run 2,284 2,237
Part Run 377 289
Total Market Coverage 132 151
Net revenues of THE SACRAMENTO BEE increased 5.6% from 1996.
THE FRESNO BEE
THE FRESNO BEE is a morning newspaper serving the Fresno, California
metropolitan area. THE FRESNO BEE'S average paid circulation increased 0.2%
daily and was up 0.7% on Sunday versus 1996. As of December 31, 1997,
approximately 88.2% of THE FRESNO BEE'S daily and 89.5% of the Sunday
circulation was home delivered.
THE FRESNO BEE'S advertising linage for the years ended December 31,
1997 and 1996 is set forth in the following table:
3
1997 1996
---- ----
Advertising Linage (in thousands of six-column inches):
Full Run 1,247 1,300
Part Run 192 138
Total Market Coverage 143 143
Net revenues of THE FRESNO BEE increased 2.4% from 1996.
THE MODESTO BEE
THE MODESTO BEE is a morning newspaper that serves the Modesto,
California metropolitan area, located between Sacramento and Fresno. THE MODESTO
BEE'S average paid circulation declined 1.0% daily and 0.2% Sunday versus 1996.
As of December 31, 1997, approximately 88.5% of the daily and 86.8% of the
Sunday circulation was home delivered.
THE MODESTO BEE'S advertising linage for the years ended December 31,
1997, and 1996 is set forth in the following table:
1997 1996
---- ----
Advertising Linage (in thousands of six-column inches):
Full Run 1,083 1,078
Part Run 72 54
Total Market Coverage 471 501
Net revenues of THE MODESTO BEE decreased 4.6% from 1996.
OTHER CALIFORNIA NEWSPAPER
In February 1997, the Company sold four of its nondaily California
newspapers, with the CLOVIS INDEPENDENT remaining its sole nondaily paper in the
region.
NORTHWEST NEWSPAPERS
The Company began to diversify geographically outside of California in
1979 when it purchased the ANCHORAGE DAILY NEWS. Later that year the Company
purchased the TRI-CITY HERALD in Southeastern Washington. In 1986, the Company
purchased its fourth (fifth after the Cowles merger) largest newspaper, THE
(Tacoma) NEWS TRIBUNE. In June 1995, the Company acquired the PENINSULA GATEWAY
in Gig Harbor, Washington, and in December 1996, the Company sold the Ellensburg
DAILY RECORD. The Company now publishes four newspapers in Washington State and
the largest daily newspaper in Alaska. These newspapers are summarized below:
4
1997 Circulation (1)
Newspaper Daily/Weekly Sunday 1997 Revenues 1996 Revenues
--------- ------------ ------ ------------- -------------
The News Tribune (Tacoma) 128,600 148,000 $ 70,561,000 $ 69,906,000
Anchorage Daily News 73,200 90,200 50,689,000 49,352,000
Tri-City Herald 39,600 43,500 18,939,000 18,708,000
Other newspapers 18,147 - 3,968,000 5,603,000
(1) Based on calendar year average paid circulation
The Company's northwest newspapers produced approximately 22.5% of the
Company's total revenues in 1997 versus 23.0% in 1996.
THE NEWS TRIBUNE
THE NEWS TRIBUNE, a morning newspaper, primarily serves the Tacoma,
Washington metropolitan area in Pierce and South King Counties. It is the third
largest newspaper in the state. In 1996 the average paid circulation of THE NEWS
TRIBUNE declined 0.3% daily and increased 0.1% Sunday versus 1996.
Tacoma is approximately 30 miles south of Seattle. THE NEWS TRIBUNE
competes in the northern most fringes of its market with the major Seattle daily
newspapers. As of December 31, 1997 approximately 84.0% of the daily and 82.0%
of the Sunday circulation was home delivered.
THE NEWS TRIBUNE'S advertising linage for the years ended December 31,
1997 and 1996 is set forth in the following table:
1997 1996
---- ----
Advertising Linage (in thousands of six-column inches):
Full Run 1,080 1,138
Part Run 32 36
Total Market Coverage 75 93
Net revenues of THE NEWS TRIBUNE increased 0.9% from 1996.
ANCHORAGE DAILY NEWS
The ANCHORAGE DAILY NEWS, a morning newspaper, is Alaska's largest
newspaper. The ANCHORAGE DAILY NEWS circulates throughout the state of Alaska
but its primary circulation is concentrated in the south central region of the
state comprised of metropolitan Anchorage, the Kenai Peninsula and the
Matanuska-Susitna Valley.
The DAILY NEWS' average paid daily circulation declined 0.3% in 1997,
while Sunday circulation declined 1.5% from 1996. As of December 31, 1997
approximately 72.0% of the daily and 65.0% of the Sunday circulation was home
delivered.
Comparative amounts of linage for the years ended December 31, 1997 and
1996 are set forth in the following table:
5
1997 1996
---- ----
Advertising Linage (in thousands of six-column inches):
Full Run 1,100 1,108
Total Market Coverage 28 28
Net revenues of the ANCHORAGE DAILY NEWS increased 2.7% over 1996.
TRI-CITY HERALD
The TRI-CITY HERALD is a morning newspaper serving the Tri-Cities of
Richland, Kennewick and Pasco in southeastern Washington. The Tri-Cities economy
has benefited by the Department of Energy's (DOE) efforts to clean up nuclear
waste at nearby Hanford Nuclear reservation. However, recent layoffs by the DOE
at Hanford have begun to slow economic growth in the area.
The TRI-CITY HERALD'S average paid circulation has declined 1.3% daily
and 0.5% Sunday from 1996. As of December 31, 1997, approximately 91.0% of the
daily and 89.0% of the Sunday circulation was home delivered.
The TRI-CITY HERALD'S advertising linage for the years ended December
31, 1997 and 1996 is set forth in the following table:
1997 1996
---- ----
Advertising Linage (in thousands of six-column inches):
Full Run 860 853
Total Market Coverage 39 67
Net revenues of the TRI-CITY HERALD increased 1.2% over 1996.
OTHER NORTHWESTERN NEWSPAPERS
The Ellensburg DAILY RECORD was sold in December 1996. The Company's
other non-daily newspapers include the PENINSULA GATEWAY in South Puget Sound
and the PIERCE COUNTY HERALD which circulates twice a week in Puyallup, near
Tacoma. The combined net revenues of the other northwestern newspapers declined
29.2% mostly due to the sale of The DAILY RECORD whose revenues were $1.6
million in 1996.
CAROLINAS NEWSPAPERS
In 1990, the Company purchased three daily and three nondaily
newspapers in South Carolina from The News and Observer Publishing Company
(N&O). On August 1, 1995, the Company purchased the remainder of N&O which
included THE NEWS & OBSERVER newspaper and six non-daily newspapers (and other
businesses discussed below). In mid 1997, the FORT MILL TIMES, a weekly
newspaper, was purchased in South Carolina.
6
The Carolinas newspapers are summarized below:
1997 Circulation (1)
-----------------------------------------
Newspaper Daily/Weekly Sunday 1997 Revenues 1996 Revenues (2)
--------- ------------ ------ ------------- -----------------
The News & Observer (Raleigh) 160,200 206,700 $ 124,182,000 $ 112,023,000
The Herald (Rock Hill) 30,400 31,800 12,761,000 11,355,000
The Island Packet (Hilton Head) 14,500 16,600 10,041,000 9,068,000
Beaufort Gazette 10,800 10,400 4,924,000 4,389,000
Nondaily newspapers (2) 46,900 - 15,571,000 16,839,000
(1) Based on calendar year average paid circulation.
(2) Four South Carolina non-daily newspapers revenues are consolidated with
revenues of THE (Rock Hill) HERALD in 1997.
The Carolinas newspapers produced 26.1% of total Company revenues in
1997 versus 24.6% in 1996.
THE NEWS & OBSERVER
THE NEWS & OBSERVER, the Company's second largest newspaper in 1997, is
a morning daily serving North Carolina's state capital, Raleigh, and the
thriving Research Triangle which includes Raleigh, Durham and Chapel Hill, North
Carolina.
THE NEWS & OBSERVER'S average paid circulation in 1997 increased
approximately 2.2% daily and 1.1% Sunday over calendar year 1996. As of December
31, 1997 approximately 79.0% of the daily and 58.0% of the Sunday circulation
was home delivered.
THE NEWS & OBSERVER'S advertising linage for the year ended December
31, 1997 and December 31, 1996 is set forth in the following table:
1997 1996
---- ----
Advertising Linage (in thousands of six-column inches):
Full Run 2,019 1,868
Part Run 87 95
Total Market Coverage 9 8
THE NEWS & OBSERVER'S revenues for 1997 increased 10.9% over 1996.
THE HERALD
THE HERALD is a morning newspaper serving Rock Hill and surrounding
communities in York County, South Carolina. Rock Hill is a community
approximately 25 miles southwest of Charlotte, North Carolina. In 1997, THE
HERALD'S average paid circulation increased 0.4% daily and was up 1.0% Sunday
from 1996.
THE HERALD'S main competitor is a zoned edition of the CHARLOTTE
OBSERVER, whose circulation in THE HERALD'S primary circulation area is
estimated to be approximately a third of THE HERALD'S circulation.
7
As of December 31, 1997, approximately 80.0% of the daily and 77.0% of the
Sunday circulation was home delivered.
Advertising linage for the years ended December 31, 1997 and 1996 were
as follows:
1997 1996
---- ----
Advertising Linage (in thousands of six-column inches):
Full Run 945 910
Total Market Coverage 71 58
Net revenues of THE HERALD increased 6.2% over 1996.
THE ISLAND PACKET AND THE BEAUFORT GAZETTE
THE ISLAND PACKET and THE BEAUFORT GAZETTE serve Beaufort County in
southeastern South Carolina. THE ISLAND PACKET serves Hilton Head Island where
tourism and retirement communities and services are the economic mainstays. THE
GAZETTE serves the city of Beaufort and northern Beaufort County encompassing
surrounding islands of Lady's, St. Helena, Fripp and Paris.
The average paid circulation increased 5.4% daily and 0.2% Sunday at
THE ISLAND PACKET and was up 2.0% daily and declined 0.7% Sunday at THE GAZETTE.
As of December 31, 1997, approximately 67.0% of the daily and 59.0% of
the Sunday circulation of THE PACKET was home delivered. Comparable amounts for
THE GAZETTE were 70.0% daily and 72.0% Sunday.
Advertising linage for the years ended December 31, 1997 and 1996 for
the newspapers were:
1997 1996
---- ----
Advertising Linage (in thousands of six-column inches):
Packet Full Run 754 716
Packet Part Run 37 21
Packet Total Market Coverage 4 2
Gazette Full Run 547 409
Gazette Total Market Coverage 51 57
Net revenues of THE PACKET increased 10.7 % over 1996, while THE
GAZETTE'S net revenues were up 12.2%.
8
CAROLINAS NONDAILY NEWSPAPERS
The South Carolina nondaily newspapers include the CLOVER HERALD, the
YORKVILLE ENQUIRER, the LAKE WYLIE MAGAZINE and since mid 1997 the FORT MILL
TIMES, and serve small communities in Chester and York counties.
The North Carolina nondailies are newspapers that serve small
communities generally surrounding Raleigh. They are (circulation in
parenthesis): CHAPEL HILL NEWS (21,000 primarily free distribution), CARY NEWS
(12,300), ZEBULON RECORD (3,300), GOLD LEAF FARMER (3,300), MOUNT OLIVE TRIBUNE
(3,800) and SMITHFIELD HERALD (14,800). N&O also publishes Business North
Carolina, a monthly magazine distributed to approximately 24,000 homes
throughout North Carolina. Total net revenues for these operations for the year
ended December 31, 1997 were $15,571,000.
OTHER OPERATIONS
The Company continues to expand the distribution of preprinted
advertising inserts and run-of-press advertising nationally under The Newspaper
Network, Inc. The Newspaper Network has launched a national business of offering
advertisers one-order, one-bill sales of advertising in newspapers throughout
the country. The Company believes that this initiative is important for both
McClatchy and the newspaper industry in competing with direct mail on a national
basis.
As a result of the Company's continued research and development of new
technologies for its news and data, most of its larger papers are providing
subscriber and advertiser services through various forms of electronic
distribution. All ten of the Company's largest newspapers are available on-line
through the World Wide Web. In addition to business, sports, national and
international news and other information, Nando, the Company's on-line
publishing operations, includes classified advertising listings for the
Company's daily newspapers. As Nando continues to evolve, it has also become a
technology and content partner with other McClatchy newspapers' internet sites.
McClatchy Printing Company, located in Clovis, California and Benson
Printing, located in Benson, N.C. are commercial printers. They print various
commercial products and preprinted advertisements for third party customers and
also print various publications for some of the Company's newspapers.
Revenues for these other operations were $12,087,000, down 26.2% from
1996, and declined mostly due to the sale of Nando's internet access business in
1996 and a reorganization at McClatchy Printing in 1997. Revenues from these
ventures represent 1.8% of total revenues in 1997 and 2.6% in 1996.
RAW MATERIALS
In 1997, the Company consumed approximately 169,000 metric tons of
newsprint compared to 167,000 metric tons in 1996. The Company currently obtains
its supply of newsprint from a number of suppliers under long-term contracts.
Newsprint and supplement expense accounted for approximately 18.4% of
operating expenses in 1997 compared to 20.9% in 1996. Management believes its
newsprint sources of supply under existing
9
arrangements are adequate for its anticipated needs. A world-wide imbalance
between newsprint supply and demand caused significant fluctuations in newsprint
prices in 1995, 1996 and 1997. Significant increases in the price of newsprint
would adversely affect the operating results of the Company to the extent that
it was not offset by advertising and circulation volume and/or rate increases.
The Company, through a wholly-owned subsidiary, Newsprint Ventures,
Inc., and four other publishers and a Canadian newsprint manufacturer, are
partners in Ponderay Newsprint Company, a general partnership which owns and
operates a newsprint mill located sixty miles northeast of Spokane, Washington.
The mill became operational in late 1989 and has a production capacity in excess
of 225,000 metric tons annually. The publisher partners have committed to take
126,000 metric tons of this anticipated production on a "take-if-tendered" basis
with the balance to be sold on the open market. The Company's annual commitment
is 28,400 metric tons. See Part II, Items 7 and 8 for further discussion of the
impact of this investment on the Company's business.
COMPETITION
The Company faces competition for advertising revenues from television,
radio and direct mail programs, suburban neighborhood and national newspapers
and other publications. Competition for advertising is based upon circulation
levels, readership demographics, price and advertiser results, while competition
for circulation is generally based upon the content, journalistic quality and
price of the newspaper. The Company's major daily newspapers are well ahead of
their newspaper competitors in both advertising linage and general circulation
in all of their markets.
EMPLOYEES - LABOR
As of December 31, 1997, the Company had 7,461 full and part-time
employees, of whom approximately 9.4% were represented by unions. All union
represented employees are currently working under labor agreements, the majority
of which will expire on December 31, 1998.
While the Company's newspapers have not had a strike since 1978 and
they do not currently anticipate a strike occurring, the Company cannot preclude
the possibility that a strike may occur at one or more of its newspapers when
future negotiations occur. The Company believes that, in the event of a
newspaper strike, it would be able to continue to publish and deliver to
subscribers, a capability which is critical to retaining revenues from
advertising and circulation.
10
ITEM 2. PROPERTIES
The corporate headquarters of the Company are located at 2100 "Q"
Street, Sacramento, California. The general character, location and approximate
size of the principal physical properties used by the Company at December 31,
1997, are set forth below.
Approximate Area
in Square Feet
---------------
Owned Leased
----- ------
Printing plants, business and editorial
offices and warehouse space located in:
Sacramento, California 685,914 22,367
Fresno, California 406,000 8,015
Tacoma, Washington 319,599 5,544
Raleigh, North Carolina 212,700 52,060
Modesto, California 153,603 19,574
Anchorage, Alaska 129,926
Garner, North Carolina 131,500
Kennewick, Washington 98,081
Rock Hill, South Carolina 49,000
Clovis, California 27,100 9,900
Beaufort, South Carolina 16,500 450
Gig Harbor, Washington 13,200
Mount Olive, North Carolina 13,200
Smithfield, North Carolina 11,149
Benson, North Carolina 10,700
Chapel Hill, North Carolina 10,504
Hilton Head, South Carolina 9,700
Puyallup, Washington 6,500 1,606
Durham, North Carolina 21,000
Cary, North Carolina 10,539
Federal Way, Washington 3,008
York, South Carolina 3,694
Other--principally northern California 2,800 177,368
The Company believes that its current facilities are adequate to meet
the present and immediately foreseeable needs of its newspapers.
11
ITEM 3. LEGAL PROCEEDINGS
The Company becomes involved from time to time in claims and lawsuits
incidental to the ordinary course of its business, including such matters as
libel, invasion of privacy and wrongful termination actions, and complaints
alleging discrimination. In addition, the Company is involved from time to time
in governmental and administrative proceedings concerning labor, environmental
and other claims. Management believes that the outcome of pending claims or
proceedings will not have a material adverse effect upon the Company's
consolidated results of operations or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The Company's Class A Common Stock is listed on the New York Stock
Exchange (NYSE symbol - MNI). Class A Stock is also traded on the Midwest Stock
Exchange and the Pacific Stock Exchange. The Company's Class B Stock is not
publicly traded. The following table lists dividends paid on Common Stock and
the prices of the Company's Class A Common Stock as reported by these exchanges
for 1997 and 1996:
1997 1996
----------------------------- -----------------------------
HIGH LOW DIVIDENDS High Low Dividends
-------- -------- ----------- -------- -------- -----------
1st Quarter $28.00 $23.75 $0.95 $19.70 $17.40 $.076
2nd Quarter $30.50 $23.38 $0.95 $22.10 $18.60 $.076
3rd Quarter $35.19 $29.25 $0.95 $22.80 $19.50 $.076
4th Quarter $34.69 $26.50 $0.95 $28.10 $21.90 $.095
The high and low sales prices and dividends per share have been adjusted
for 1996 to reflect the impact of a five-for-four stock split paid on
January 2, 1997.
The Company's Board of Directors does not anticipate reducing the
present level of quarterly dividend payments. However, the payment and amount of
future dividends remain within the discretion of the Board of Directors and
will depend upon the Company's future earnings, financial condition and
requirements, and other factors considered relevant by the Board.
The number of record holders of Class A and Class B Common Stock at
March 27, 1998 was 1,774 and 24, respectively.
12
ITEM 6. SELECTED FINANCIAL DATA
FIVE-YEAR FINANCIAL SUMMARY
(Dollars in thousands, except per share amounts)
1997 1996 1995 1994 1993
-------------- -------------- ------------- -------------- --------------
CONSOLIDATED INCOME STATEMENT DATA:
REVENUES - NET:
Advertising $504,745 $484,460 $418,841 $368,068 $350,046
Circulation 107,298 108,317 95,248 85,017 83,729
Other 29,907 31,456 26,790 18,333 15,340
-------------- -------------- ------------- -------------- --------------
Total 641,950 624,233 540,879 471,418 449,115
OPERATING EXPENSES:
Depreciation and amortization 53,269 52,954 44,000 38,140 35,583
Other costs and expenses 472,926 486,044 434,505 361,410 348,428
-------------- -------------- ------------- -------------- --------------
Total 526,195 538,998 478,505 399,550 384,011
-------------- -------------- ------------- -------------- --------------
OPERATING INCOME 115,755 85,235 62,374 71,868 65,104
Partnership (income) losses 500 (3,024) 630 5,469 6,171
Other nonoperating expenses (income) (1,005) 10,344 2,729 (3,166) 17
-------------- -------------- ------------- -------------- --------------
INCOME BEFORE INCOME TAX PROVISION 116,260 77,915 59,015 69,565 58,916
Income tax provision 47,461 33,422 25,397 22,920 27,118
-------------- -------------- ------------- -------------- --------------
NET INCOME $68,799 $44,493 $33,618 $46,645 $31,798
============== ============== ============= ============== ==============
EARNINGS PER DILUTED COMMON SHARE:
Basic $1.81 $1.18 $0.90 $1.26 $0.88
============== ============== ============= ============== ==============
Diluted $1.80 $1.18 $0.90 $1.26 $0.88
============== ============== ============= ============== ==============
DIVIDENDS PER COMMON SHARE $0.380 $0.323 $0.304 $0.264 $0.216
============== ============== ============= ============== ==============
CONSOLIDATED BALANCE SHEET DATA:
Total assets $853,781 $875,666 $892,958 $586,637 $525,163
Long-term bank debt 94,000 190,000 243,000 - -
Stockholders' equity 564,669 503,114 465,694 442,220 383,523
All per share amounts have been adjusted for a five-for-four stock split paid on
January 2, 1997. Results for 1997 include a pre-tax gain of $9.3 million for the
sale of certain business operations and real estate. Results for 1996 include a
pre-tax gain of $2.8 million on the sale of a newspaper and other business
operations. Results for 1995 include a $2.7 million pre-tax charge related to
early retirement programs while 1994 includes a $6.0 million favorable
adjustment (included in the income tax provision) related to the resolution of
income tax audits. This summary should be read in conjunction with the
consolidated financial statements and notes thereto.
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RECENT EVENTS AND TRENDS
On December 4, 1996 the Company declared a five-for-four stock split in
the form of a 25% stock dividend which was paid on January 2, 1997. All
outstanding shares and per share amounts have been restated in this discussion
to reflect the stock dividend.
On February 13, 1998 the Company signed an amended and restated
agreement to acquire all of the outstanding shares of Cowles Media Company
(Cowles) in a transaction valued at $1.4 billion, including the assumption of
approximately $81 million in existing Cowles debt. Cowles publishes the STAR
TRIBUNE newspaper, which serves the Twin Cities of Minneapolis and St. Paul, and
also owns four separate subsidiaries that publish business magazines,
special-interest magazines and home improvement books. On January 9, 1998, the
Company announced that definitive agreements had been reached to sell the
Cowles' magazine publishing subsidiaries to PRIMEDIA Inc. and to sell the book
publishing subsidiary to a management group led by the subsidiary's president.
The combined proceeds plus debt and other liabilities assumed by the buyers is
valued in excess of $208 million and the Company used the proceeds to repay debt
associated with the Cowles merger. All three transactions closed on March 19,
1998. The STAR TRIBUNE is Minnesota's largest newspaper with daily circulation
of 387,000 and 673,000 on Sunday and is now the Company's largest newspaper. The
results of Cowles operations have not been included in the Company's results for
the year ended December 31, 1997 and were included beginning on March 19, 1998.
Because of the stock issued in the merger, interest expense related to the debt
incurred and amortization of intangible assets created by the merger, the
Company expects to report substantially lower income and earnings per share in
1998. See note 2 to the consolidated financial statements and the "Recent Event"
section of Item I of this Report.
In October 1996, the Company announced that it had entered into
agreements in principle to sell five community newspapers. In December 1996, the
Company completed the sale of the Ellensburg DAILY RECORD and recorded a pre-tax
gain of $3.2 million in other nonoperating (expenses) income. In February 1997,
the sale of the remaining four newspapers was completed and in the fourth
quarter, the Company sold Legi-Tech, its on-line legislative tracking company
and other non-strategic real estate assets. The Company recorded a nonrecurring
pre-tax gain of $9.3 million in nonoperating (expenses) income for its 1997
dispositions.
On August 1, 1995 the Company purchased The News and Observer
Publishing Company (N&O) (see note 3 to the consolidated financial statements).
N&O publishes THE NEWS AND OBSERVER (Raleigh, N.C.) newspaper, seven other
non-daily publications in North Carolina and Nando, an on-line publishing
company. The N&O newspaper has a daily circulation of approximately 160,000 and
207,000 on Sunday. The results of N&O have been included in the Company's
consolidated results beginning on August 1, 1995.
Newsprint prices fluctuated substantially during 1995 and 1996,
reaching an all-time high in early 1996. Prices began declining during the
second quarter of 1996 and the Company's newsprint purchases in the first nine
months of 1997 were made at average newsprint prices that were below the 1996
levels. While newsprint prices in the fourth quarter exceeded those paid in
1996, average newsprint prices in 1997 were below 1996 average prices. During
the period of increasing prices, the
14
Company increased its inventory levels to minimize the effect of expected
further increases. As prices began to decline in 1996, the Company began
reducing its inventory levels in anticipation of further price decreases.
Accordingly, the Company's LIFO reserve in 1996 declined $4.2 million. The
change in the LIFO reserve in 1997 was not material to 1997 newsprint expense.
In September 1997, the Financial Accounting Standards Board adopted
Statements of Financial Accounting Standards No. 130 (REPORTING COMPREHENSIVE
INCOME), which requires that an enterprise report, by major components and as a
single total, the change in its net assets during the period from nonowner
sources; and No. 131 (DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION), which establishes annual and interim reporting standards for an
enterprise's business segments and related disclosures about its products,
services, geographic area, and major customers. Adoption of these statements is
not expected to impact the Company's consolidated financial position, results of
operations or cash flows or manner of reporting its financial results. Both
statements are effective in 1998.
RESULTS OF OPERATIONS
1997 COMPARED TO 1996
Net income was $68.8 million or $1.80 per share in 1997 compared to
$44.5 million or $1.18 per share in 1996. Net income from ongoing operations --
excluding the gains on the sales of community newspapers, other businesses and
non-strategic assets in 1997 and 1996 -- was $63.3 million or $1.66 per share in
1997 versus $42.9 million or $1.14 per share in 1996.
Much of the increase in earnings reflect higher revenues at the
Company's newspapers in the Carolinas, THE SACRAMENTO BEE and THE MODESTO BEE,
and lower average newsprint prices in 1997 than 1996. Net income also benefited
from lower interest expense as the Company repaid debt.
Revenues increased $17.7 million to $641.9 million, up 2.8% in 1997,
but were up $26.1 million excluding the sold community newspapers from the
comparisons. At ongoing operations, advertising revenues increased 5.6% --
mostly reflecting rate increases. Circulation revenues were up nominally as only
one of the Company's newspapers implemented a home delivery rate increase in
1997.
OPERATING REVENUES (in thousands):
1997 1996 % Change
------------------ ------------------ ------------------
California newspapers $ 318,227 $310,719 2.4%
Carolinas newspapers 167,479 153,674 9.0
Northwest newspapers 144,157 143,569 0.4
Non-newspaper operations 12,087 16,271 (25.7)
------------------ ------------------
$ 641,950 $624,233 2.8%
================== ==================
The California newspapers generated 49.6% of total revenues in 1997 and
revenues increased $7.5 million over 1996. Revenues were up $14.1 million or
4.7% excluding the four community
15
newspapers sold in February 1997. The three Bee newspapers, located in
Sacramento, Fresno and Modesto, California are the Company's primary businesses
in this region and recorded $12.0 million in higher advertising revenues.
Circulation revenues declined nominally, while revenues from non-traditional
sources, i.e. niche products, on-line services, etc., increased $2.0 million
(primarily at The Sacramento Bee).
Full run, run-of-press (ROP) advertising linage, which is found in the
body of the newspaper and generates a majority of advertising revenues,
increased 1.6% at the three Bees, but most of the revenue growth resulted from
advertising rate increases implemented in the first quarter of 1997. Daily
circulation was up 0.7% and Sunday was up 0.1% at the three Bees.
The Carolina newspapers generated 26.1% of total revenues in 1997 and
increased $13.8 million, with $12.2 million from the North Carolina newspapers
- -- primarily The News & Observer in Raleigh, and the remainder from the
Company's three South Carolina dailies. Advertising revenues increased $12.2
million while circulation revenues were up $918,000. Full run ROP advertising
linage increased 7.1%, and advertising rates were increased generally in the
first quarter of 1997. Daily circulation was up 2.1% and Sunday circulation
increased 0.9% in 1997.
The Northwest newspapers generated 22.5% of total revenues and reported
a $588,000 increase in revenues. Operating revenues were up $2.2 million or 1.6%
excluding the Ellensburg Daily Record which was sold in December 1996. Retailer
consolidation in the two Washington markets, Tacoma and Tri-Cities, and lower
commercial printing revenues at the Anchorage Daily News slowed the growth in
revenues in this region. Advertising revenues increased $2.1 million (excluding
Ellensburg) while circulation revenues declined $446,000 at the ongoing
operations. Full run ROP advertising linage was down 1.9%. Daily and Sunday
circulation declined 0.3% and 0.5%, respectively.
Revenues at the Company's non-newspaper operations declined $4.2
million. These operations which account for 1.8% of total company revenues
included The Newspaper Network, N&O's New Media Division (primarily Nando, the
Company's on-line publishing company), McClatchy Printing Company, Benson
Printing Company, and Legi-Tech. Revenues declined due mostly to the sale of
Nando's internet access business and a reorganization at McClatchy Printing
Company.
OPERATING EXPENSES:
Operating expenses were down 2.4% in 1997. However, excluding the
operating expenses of the sold newspapers, expenses were down 0.7%. At the
Company's ongoing operations, newsprint and supplement cost declined 13.4% due
primarily to lower average newsprint prices. Excluding newsprint and supplement
cost and expenses of the sold newspapers, total other operating expenses were up
2.7% reflecting increased costs associated with new product development and
promotions in 1997. Other expense increases were tempered by the low rate of
inflation in 1997.
NON-OPERATING (EXPENSES) INCOME - NET:
Interest expense declined $4.6 million as the Company paid down debt.
The Ponderay Newsprint Company (Ponderay) in which the Company owns a 13.5%
interest (see note 1 to the consolidated financial statements) reported a loss
in 1997 due to lower newsprint prices. Hence, the Company recorded a loss of
$500,000 in 1997 versus income of $3.0 million in 1996 as its share of
Ponderay's results.
16
A pre-tax gain of $6.7 million was realized on the sale of four
community newspapers in 1997 versus a pre-tax gain of $2.8 million on the sale
of the Ellensburg Daily Record in 1996. Also, a pre-tax gain of $2.5 million was
recorded on the sale of Legi-Tech and other non-strategic real estate assets.
The Company's effective tax rate was 40.8% in 1997 versus 42.9% in
1996. The tax rate was lower primarily because of a difference in the book and
tax basis of intangibles at some of the sold operations -- see note 5 to the
consolidated financial statements.
1996 COMPARED TO 1995
Net income was $44.5 million, or $1.18 per share, and included a
net-after-tax gain of $1.6 million on the sale of the Ellensburg Daily Record
and various other non-newspaper business operations. Net income in 1995 was
$33.6 million, or $0.90 per share, and included an after-tax charge of $1.5
million for the cost of early retirement programs at THE SACRAMENTO BEE and THE
(Tacoma) NEWS TRIBUNE.
The earnings improvement in 1996 was largely due to strong revenue
growth at the Company's Carolinas newspapers, declining newsprint prices and
cost controls throughout the Company.
OPERATING REVENUES (in thousands):
1996 1995 % Change
------------------ ------------------ ------------------
California newspapers $ 310,719 $ 314,293 (1.1)%
Carolinas newspapers 153,674 72,944 NM
Northwest newspapers 143,569 140,839 1.9
Non-newspaper operations 16,271 12,803 27.1
------------------ ------------------
$ 624,233 $ 540,879 NM
================== ==================
NM - Not meaningful due to N&O acquisition on August 1, 1995.
Revenues at the Company's California newspapers declined $3.6 million,
with advertising revenues down $4.3 million, offset partially by a $1.0 million
gain in circulation revenues. Advertising revenues declined primarily due to a
lackluster retail advertising climate at the Company's three Bee newspapers
located in Sacramento, Fresno and Modesto. These newspapers were also affected
by the consolidation of Macy's and Weinstocks department stores, previously
their two largest advertisers. Full run ROP advertising linage was down 5.6% at
the three Bee newspapers. This decline was partially offset by rate increases
implemented in the first quarter of 1996.
The Company's Northwestern newspapers, located in the states of Alaska
and Washington, contributed 23.0% of its net revenues and posted a $2.7 million
increase over 1995. Advertising revenues increased $3.0 million, largely from
gains at the ANCHORAGE DAILY NEWS where advertising revenues increased $2.8
million. Full run ROP advertising linage declined 2.8% at the three larger daily
newspapers in the region. Circulation revenues increased $306,000, while other
revenues declined $538,000. The decline in other revenues was primarily
attributable to a decline in commercial printing at the ANCHORAGE DAILY NEWS.
17
Revenues at the Company's Carolina newspapers increased $80.7 million.
Revenues from THE NEWS & OBSERVER and its sister non-daily newspapers were up
$78.2 million from inclusion of a full twelve months in 1996 versus five months
(August through December) in 1995. On a pro forma basis, i.e. including the
seven months prior to the Company's acquisition of N&O, revenues were up
approximately 10.0%. Meanwhile, revenues at the Company's South Carolina
newspapers were up 11.2% with strong growth in both advertising and circulation
revenues. Full run ROP advertising linage was up 9.7% at the South Carolina
dailies.
Revenues from the Company's non-newspaper operations increased $3.5
million. The increases were primarily at Benson Printing Company, The Newspaper
Network and N&O's New Media Division.
OPERATING EXPENSES:
Operating expenses increased 12.6%, due primarily to including a full
year of N&O expenses in 1996 versus only five months in 1995. Compensation costs
were up 12.3%, but after excluding N&O expenses from both periods and the early
retirement charges from 1995, compensation expenses declined 0.7%. Excluding N&O
costs from both periods, newsprint and supplement costs declined 11.4%, owing to
falling newsprint prices in the second half of 1996. All other operating
expenses, including depreciation and amortization, and excluding N&O from both
periods, increased only 0.7%, reflecting ongoing cost controls in place
throughout the Company.
NONOPERATING INCOME (EXPENSES) - NET:
The Company incurred $13.3 million in interest expense in 1996 on debt
incurred in 1995 to complete the N&O acquisition (see notes 2 and 3 to the
consolidated financial statements). In 1995 the Company earned $3.9 million in
investment income through July 31 and incurred $7.0 million in interest expense
from August through year-end.
The Company's share of income in 1996 from its investment in
Ponderay totaled $3.0 million versus a loss of $630,000 in 1995. Also included
in nonoperating income (expense) is a net pre-tax gain of $2.8 million related
to the sale of the Ellensburg DAILY RECORD and various small business
operations.
The Company's effective tax rate was 42.9% in 1996 versus 43.0% in
1995. See note 5 to the consolidated financial statements for a discussion of
taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents were $8.7 million at December
31, 1997 versus $5.9 million at the end of 1996. See notes 3 and 4 to the
consolidated financial statements for a discussion of the impact of the
acquisition of N&O on the Company's liquidity and capital resources, and notes 2
and 4 to the consolidated financial statements (and below) for a discussion of
the Cowles merger.
The Company generated $117.4 million of cash from operating activities
in 1997 and has generated an aggregate of $286.2 million over the last three
years. During 1997, the Company received $14.3 million in proceeds from the sale
of businesses and assets. The major uses of cash over the three year period have
been to consummate the N&O acquisition ($241.4 million in 1995 - see note 8 to
the consolidated financial statements for a discussion of this amount), to
purchase property, plant and
18
equipment (see below), to invest in interest bearing securities and to repay
debt. Cash has also been used to pay dividends. In 1997, the Company repaid
$96.0 million of bank debt and paid $14.4 million in dividends. Proceeds from
issuing Class A stock under employee stock plans totaled $5.8 million in 1997.
See the Company's Statement of Cash Flows on page 26.
A total of $23.2 million was expended in 1997 for capital projects and
equipment to improve productivity and keep pace with growth and new technology.
Capital expenditures over the last three years have totaled $90.0 million and
planned expenditures in 1998 are estimated to be approximately $31 million at
existing operations (estimated $40 million post Cowles merger).
See notes 1 and 9 to the consolidated financial statements for a
discussion of the Company's commitments to Ponderay.
The Company had $216 million of available credit under its current bank
credit agreement at December 31, 1997; however, it replaced this credit line
under a new bank agreement obtained to finance the Cowles merger (see below).
The Company also had an interest rate swap that effectively converted
$50.0 million of its debt to fixed rate debt at a rate of 6.0%, which the
Company terminated upon the closing of the Cowles merger, with no significant
loss to the Company.
A syndicate of banks and financial institutions have provided the debt
financing of the Cowles merger under a new Bank Credit Agreement (Credit
Agreement). The Credit Agreement consists of the following: A term loan
consisting of Tranche A of $735 million bears interest at the London Interbank
Offered Rate ("LIBOR") plus 125 basis points, and will be payable in seven
years, and Tranche B of $330 million bears interest at LIBOR plus 175 basis
points and is payable in nine and one-half years. A revolving credit line of up
to $200 million bears interest at LIBOR plus 125 basis points and will be
payable in seven years. As the Company reduces the outstanding debt relative to
cash flow (as defined in the Credit Agreement), the interest rate spread over
LIBOR will decline. The debt is secured by certain assets of the Company, and
all of the debt is pre-payable without penalty. The Company intends to
accelerate payments on this debt as cash generation allows.
The definitive terms of the Credit Agreement include certain operating
and financial restrictions, such as limits on the Company's ability to incur
additional debt, create liens, sell assets, engage in mergers, make investments
and pay dividends.
While the Company expects that most of its free cash flow generated
from operations in 1998 and in the foreseeable future will be used to repay
debt, management is of the opinion that operating cash flow and its credit
facilities as described above are adequate to meet the liquidity needs of the
Company, including currently planned capital expenditures and other investments.
YEAR 2000 COMPLIANCE
The Company is currently in the process of addressing an issue that is
facing all users of automated information systems. The issue is that many
computer systems process transactions based on two digits for the year of the
transaction (for example, "97" for 1997), rather than a full four digits. These
computer systems may not operate effectively when the last two digits become
"00", as occurs on
19
January 1, 2000. In some cases the new date will cause computers to stop
operating, while in other cases incorrect output may result. The issue could
affect a wide variety of automated information systems, such as mainframe
applications, personal computers and communications systems. A corporate task
force is in place to assess the needed changes to the Company's many different
information systems and an implementation plan is expected to be completed in
1998. A dedicated Year 2000 Compliance Coordinator will be named in early 1998
to ensure the Company meets its own internal deadlines for compliance. Many of
the necessary changes in computer instructional code are expected to be acquired
during the course of normal upgrading of systems that are budgeted between now
and the year 2000, and in the course of normal maintenance. Other changes will
necessitate re-writing of computer instructional code, the majority of which is
expected to occur in 1998 and the first half of 1999. At present, the Company
does not have an estimate of the total cost of evaluating and making required
changes. The costs incurred in addressing the Year 2000 issue will be expensed
as incurred, in compliance with generally accepted accounting principles. The
project may also impact capital expenditure budgets, through increased
expenditures for vendor-supplied software and computer hardware.
FORWARD LOOKING INFORMATION
The preceding management discussion contains estimates and other
forward-looking statements covering subjects related to financial operating
results. These forward-looking statements, and any other statements going beyond
historical facts that McClatchy management has discussed, are subject to risks
and uncertainties that could cause actual results to differ. These include
changes in interest rates to be paid on the Company's debt facilities, increases
in newsprint prices and/or printing and distribution costs over anticipated
levels, competition from other forms of media in the Company's principal
markets, increased consolidation among major retailers in the Company's
newspaper markets or other events depressing the level of advertising, an
economic downturn in the local economies of California's Central Valley,
Washington state, Alaska, the Carolinas or Minnesota; or other occurrences
leading to decreased circulation and diminished revenues from both display and
classified advertising.
20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
Report of Deloitte & Touche LLP 22
Consolidated Statement of Income 23
Consolidated Balance Sheet 24
Consolidated Statement of Cash Flows 26
Consolidated Statement of Stockholders' Equity 27
Notes to Consolidated Financial Statements 28
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts 47
All other schedules are omitted as not applicable under the rules of Regulation
S-X.
21
INDEPENDENT AUDITORS' REPORT
McClatchy Newspapers, Inc.:
We have audited the accompanying consolidated balance sheets of
McClatchy Newspapers, Inc. and its subsidiaries as of December 31, 1997 and
1996, and the related consolidated statements of income, cash flows and
stockholders' equity for each of the three years in the period ended December
31, 1997. Our audits also included the financial statement schedule listed in
the Index to Financial Statements and Financial Statement Schedules at Item 8.
These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of McClatchy Newspapers, Inc.
and its subsidiaries at December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
Sacramento, California
February 20, 1998
22
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share amounts)
Year Ended
December 31,
-----------------------------------------------------------
1997 1996 1995
---------------- ----------------- -----------------
REVENUES - NET
Newspapers:
Advertising $ 504,745 $ 484,460 $ 418,841
Circulation 107,298 108,317 95,248
Other 17,820 15,185 13,987
---------------- ----------------- -----------------
629,863 607,962 528,076
Non-newspapers 12,087 16,271 12,803
---------------- ----------------- -----------------
641,950 624,233 540,879
OPERATING EXPENSES
Compensation 254,048 253,327 225,505
Newsprint and supplements 96,869 112,716 104,587
Depreciation and amortization 53,269 52,954 44,000
Other operating expenses 122,009 120,001 104,413
---------------- ----------------- -----------------
526,195 538,998 478,505
---------------- ----------------- -----------------
OPERATING INCOME 115,755 85,235 62,374
NONOPERATING (EXPENSES) INCOME
Interest expense (8,698) (13,321) (7,014)
Investment income 83 102 3,925
Partnership income (loss) (500) 3,024 (630)
Gain on sale of newspaper operations and
other business operations/assets 9,254 2,840 -
Other - net 366 35 360
---------------- ----------------- -----------------
505 (7,320) (3,359)
---------------- ----------------- -----------------
INCOME BEFORE INCOME TAX PROVISION 116,260 77,915 59,015
INCOME TAX PROVISION 47,461 33,422 25,397
---------------- ----------------- -----------------
NET INCOME $ 68,799 $ 44,493 $ 33,618
================ ================= =================
NET INCOME PER COMMON SHARE:
Basic $1.81 $1.18 $0.90
Diluted $1.80 $1.18 $0.90
WEIGHTED AVERAGE
NUMBER OF COMMON SHARES:
Basic 37,971 37,593 37,420
Diluted 38,155 37,812 37,529
See notes to consolidated financial statements
23
CONSOLIDATED BALANCE SHEET
(In thousands, except share amounts)
December 31,
--------------------------------------
1997 1996
----------------- -----------------
ASSETS
CURRENT ASSETS
Cash $ 8,671 $ 5,877
Trade receivables (less allowances of $2,162 in 1997 and $2,440 in 1996) 93,069 81,791
Other receivables 2,143 1,911
Newsprint, ink and other inventories 7,758 8,015
Deferred income taxes 8,437 10,223
Other current assets 2,717 3,193
----------------- -----------------
122,795 111,010
PROPERTY, PLANT AND EQUIPMENT
Buildings and improvements 160,443 157,741
Equipment 371,312 369,346
----------------- -----------------
531,755 527,087
Less accumulated depreciation (246,236) (226,420)
----------------- -----------------
285,519 300,667
Land 34,199 32,591
Construction in progress 5,468 8,532
----------------- -----------------
325,186 341,790
INTANGIBLES - NET 393,215 411,393
NEWSPRINT MILL INVESTMENT 8,489 8,989
OTHER ASSETS 4,096 2,484
----------------- -----------------
TOTAL ASSETS $ 853,781 $ 875,666
================= =================
See notes to consolidated financial statements
24
December 31,
--------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
----------------- ------------------
CURRENT LIABILITIES
Accounts payable $35,613 $22,806
Accrued compensation 27,956 33,567
Income taxes 1,877 4,737
Unearned revenue 19,308 18,103
Carrier deposits 3,980 4,149
Other accrued liabilities 9,709 8,998
----------------- ------------------
98,443 92,360
LONG-TERM BANK DEBT 94,000 190,000
OTHER LONG-TERM OBLIGATIONS 40,406 29,814
DEFERRED INCOME TAXES 56,263 60,378
COMMITMENTS AND CONTINGENCIES (NOTE 9)
STOCKHOLDERS' EQUITY Common stock $.01 par value:
Class A - authorized
100,000,000 shares, issued
9,421,383 in 1997 and 8,941,651 in 1996 94 89
Class B - authorized
60,000,000 shares, issued
28,685,912 in 1997 and 28,842,287 in 1996 287 288
Additional paid-in capital 74,354 67,534
Retained earnings 489,934 435,574
Treasury stock, 25,003 Class A shares in 1996 - (371)
----------------- ------------------
564,669 503,114
----------------- ------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $853,781 $875,666
================= ==================
25
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
Year Ended December 31,
--------------------------------------------------------
1997 1996 1995
----------------- ----------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 68,799 $ 44,493 $ 33,618
Reconciliation to net cash provided:
Depreciation and amortization 53,411 53,110 44,146
Deferred income taxes (2,329) (1,648) 7,079
Partnership (income) losses 500 (3,024) 630
Gain on sale of newspaper operations
and other business operations/assets (9,254) (2,840) -
Changes in certain assets and liabilities - net 6,537 8,880 (17,931)
Other (221) 585 1,637
----------------- ----------------- -----------------
Net cash provided by operating activities 117,443 99,556 69,179
CASH FLOW FROM INVESTING ACTIVITIES:
Maturities of investments held to maturity - - 29,789
Proceeds from investments available for sale - - 20,539
Purchases of investments held to maturity - - (5,940)
Purchases of investments available for sale - - (3,637)
Purchases of property, plant and equipment (23,243) (31,737) (34,988)
Acquisition of newspaper and other operations (1,813) (1,844) (241,442)
Sale of newspaper and other business operations 14,340 6,808 -
Other - net 732 (85) (2,484)
----------------- ----------------- -----------------
Net cash used by investing activities (9,984) (26,858) (238,163)
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from long-term debt - - 243,000
Repayment of long-term debt (96,000) (63,000) (129,194)
Payment of cash dividends (14,439) (12,163) (11,376)
Other - principally stock issuances 5,774 5,090 1,232
----------------- ----------------- -----------------
Net cash (used) provided by financing activities (104,665) (70,073) 103,662
----------------- ----------------- -----------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 2,794 2,625 (65,322)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 5,877 3,252 68,574
----------------- ----------------- -----------------
CASH AND CASH EQUIVALENTS, END OF YEAR $8,671 $5,877 $3,252
================= ================= =================
See notes to consolidated financial statements.
26
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands, except share and per share amounts)
Par Value Additional Treasury
------------------- Paid-In Retained Stock
Class A Class B Capital Earnings At Cost Total
-------- ------- -------- ---------- --------- ---------
BALANCES, DECEMBER 31, 1994 $82 $291 $61,216 $381,002 $(371) $442,220
Net income 33,618 33,618
Dividends paid ($.304 per share) (11,376) (11,376)
Conversion of 181,819 Class B
shares to Class A 2 (2)
Issuance of 83,548 shares
under employee stock plans 1 1,231 1,232
-------- ------- -------- ---------- --------- ---------
BALANCES, DECEMBER 31, 1995 85 289 62,447 403,244 (371) 465,694
Net income 44,493 44,493
Dividends paid ($.323 per share) (12,163) (12,163)
Issuance of 71,875 Class B
shares to Class A 1 (1)
Issuance of 307,376 Class A shares
under employee stock plans 3 4,453 4,456
Tax benefit from stock plans 634 634
-------- ------- -------- ---------- --------- ---------
BALANCES, DECEMBER 31, 1996 89 288 67,534 435,574 (371) 503,114
Net income 68,799 68,799
Dividends paid ($.38 per share) (14,439) (14,439)
Issuance of 156,375 Class B
shares to Class A 1 (1)
Issuance of 348,357 Class A shares
under employee stock plans 4 5,805 5,809
Tax benefit from stock plans 1,386 1,386
Retirement of treasury stock (371) 371
-------- ------- -------- ---------- --------- ---------
BALANCES, DECEMBER 31, 1997 $94 $287 $74,354 $489,934 $ - $564,669
======== ======= ======== ========== ========= =========
See notes to consolidated financial statements
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------------
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
McClatchy Newspapers, Inc. and its subsidiaries are engaged primarily
in the publication of newspapers located in California, the Northwest
(Washington and Alaska) and the Carolinas.
THE CONSOLIDATED FINANCIAL STATEMENTS include the Company and its
subsidiaries. Significant intercompany items and transactions are eliminated.
All share and per share amounts have been adjusted to reflect a five-for-four
stock split. See note 10. Certain amounts have been reclassified to conform to
the 1997 presentation. In preparing the financial statements, management makes
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION - Advertising revenues are recorded when
advertisements are placed in the newspaper and circulation revenues are recorded
as newspapers are delivered over the subscription term. Unearned revenues
represent prepaid circulation subscriptions.
CASH EQUIVALENTS are highly liquid debt investments with maturities of
three months or less when acquired.
CONCENTRATIONS OF CREDIT RISKS - Financial instruments which
potentially subject the Company to concentrations of credit risks are
principally cash and cash equivalents and trade accounts receivables. Cash and
cash equivalents are placed with major financial institutions. Accounts
receivable are with customers located primarily in the immediate area of each
city of publication. The Company routinely assesses the financial strength of
significant customers and this assessment, combined with the large number and
geographic diversity of its customers, limits the Company's concentration of
risk with respect to trade accounts receivable.
INVENTORIES are stated at the lower of cost (based principally on the
last-in, first-out method) or current market value. If the first-in, first-out
method of inventory accounting had been used, inventories would have increased
by $3,977,000 at December 31, 1997 and $3,246,000 at December 31, 1996.
RELATED PARTY TRANSACTIONS - The Company owns a 13.5% interest in
Ponderay Newsprint Company ("Ponderay") which owns and operates a newsprint mill
in the State of Washington. The investment is accounted for using the equity
method, under which the Company's share of earnings of Ponderay is reflected in
income as earned. The Company guarantees certain bank debt used to construct the
mill (see note 9) and is required to purchase 28,400 metric tons of annual
production on a "take-if-tendered" basis until the debt is repaid. The Company
satisfies this obligation by direct purchase (1997: $18,221,000, 1996:
$20,714,000 and 1995: $18,414,000) or reallocation to other buyers.
PROPERTY, PLANT AND EQUIPMENT are stated at cost. Major renewals and
betterments, as well as interest incurred during construction, are capitalized.
Such interest aggregated $36,000 in 1997, $536,000 in 1996 and $708,000 in 1995.
DEPRECIATION is computed generally on a straight-line basis over
estimated useful lives of:
- 10 to 60 years for buildings
- 9 to 25 years for presses
28
- 3 to 15 years for other equipment
INTANGIBLES consist of the unamortized excess of the cost of acquiring
newspaper operations over the fair values of the newspapers' tangible assets at
the date of purchase. Identifiable intangible assets, consisting primarily of
lists of advertisers and subscribers, covenants not to compete and commercial
printing contracts, are amortized over three to forty years. The excess of
purchase prices over identifiable assets is amortized over forty years.
Management periodically evaluates the recoverability of intangible assets by
reviewing the current and projected cash flows of each of its newspaper
operations.
STOCK-BASED COMPENSATION - The Company accounts for stock-based awards
to employees using the intrinsic value method in accordance with APB No. 25,
Accounting for Stock Issued to Employees.
DEFERRED INCOME TAXES result from temporary differences between amounts
of assets and liabilities reported for financial and income tax reporting
purposes. See note 5.
EARNINGS PER SHARE (EPS) In the fourth quarter of 1997 the Company
adopted Statement of Financial Accounting Standard No. 128 ("Earnings Per
Share") which required the disclosure of Basic EPS and Diluted EPS. Basic EPS
excludes dilution and reflects income divided by the weighted average number of
common shares outstanding for the period. Diluted EPS is based upon the weighted
average number of outstanding shares of common stock and dilutive common stock
equivalents (stock options -- equivalents calculated using the treasury stock
method, no adjustment to net income required) in the period. All share and per
share amounts have been adjusted to reflect a five-for-four stock split. See
note 10.
NOTE 2. PROPOSED COWLES MEDIA COMPANY MERGER
On November 13, 1997 the Company signed a definitive agreement to
acquire all of the outstanding shares of Cowles Media Company (Cowles) in a
transaction valued at $1.4 billion, including the assumption of approximately
$91 million in existing Cowles debt. Cowles publishes the STAR TRIBUNE
newspaper, which serves the Twin Cities of Minneapolis and St. Paul, and also
owns four separate subsidiaries that publish business magazines,
special-interest magazines and home improvement books. In January 1998, the
Company signed agreements to sell Cowles' magazine and book publishing
subsidiaries. The combined proceeds plus debt and other liabilities assumed by
the buyers is valued in excess of $208 million and the company expects to use
the proceeds to repay debt associated with the Cowles merger.
The Company has agreed to issue Class A Common Stock for between 15% to
25% of the equity value and to pay cash for the remainder of the purchase price.
The Class A shares are subject to a minimum exchange ratio of 2.68820 and a
maximum exchange ratio of 3.01667 shares of McClatchy Class A Common for each
Cowles share (valued at $90.50 per share). The Company has obtained bank debt
agreements through a syndicate of banks and financial institutions to finance
the cash portion of the merger and to refinance its existing debt (see note 4)
as well as Cowles existing debt upon closing of the transaction. All three of
these transactions are expected to close in March 1998 and are subject to
regulatory approvals and shareholder approvals for the McClatchy/Cowles merger.
The primary asset to be retained by the Company is the STAR TRIBUNE,
the leading newspaper in Minnesota with daily circulation of 373,000 and Sunday
circulation of 673,000. It is the 16th
29
largest newspaper on a daily basis and the 12th largest Sunday newspaper in the
nation and will become the Company's largest newspaper.
The merger will be accounted for as a purchase, and accordingly, assets
acquired and liabilities assumed will be recorded at their fair market values.
The Company will undertake an appraisal of all assets and liabilities as soon
after closing as possible. Cowles results of operations beginning as of the date
of closing will be included in the Company's results. As a result of higher
depreciation and amortization, higher interest expense on the new debt, and the
issuance of additional stock, the acquisition is expected to be dilutive to the
Company's 1998 net income and earnings per share.
NOTE 3. ACQUISITION
On August 1, 1995, the Company purchased The News and Observer
Publishing Company (N&O) for which it paid $247,000,000 in cash for all the
outstanding common stock of N&O and assumed $117,000,000 of pre-existing N&O
funded debt. An additional $10,000,000 was paid upon the resolution of certain
contingencies (N&O holdback). The cash portion of the purchase price was
financed with $138,000,000 in new long-term bank debt and $109,000,000 from
existing Company cash and investments. The Company refinanced the N&O funded
debt and recorded a prepayment penalty of $12,194,000 as part of N&O acquisition
costs. See note 4 for discussion of the Company's long-term debt.
N&O publishes THE NEWS & OBSERVER newspaper in Raleigh, N.C., seven
other non-daily publications in North Carolina and the Nando.net on-line
service. THE NEWS & OBSERVER had a daily circulation of about 154,000 and
200,000 Sunday at August 1, 1995.
The acquisition was accounted for as a purchase, and accordingly,
assets acquired and liabilities assumed were recorded at their estimated fair
values at the date of acquisition. Assets of N&O included approximately
$1,500,000 of working capital, $72,600,000 of property, plant and equipment and
$323,100,000 of intangible assets. Intangible assets include approximately
$299,100,000 of goodwill which is being amortized over a 40-year period. In
addition to the $117,000,000 of N&O long-term debt, the Company assumed deferred
income tax and other liabilities totaling $11,500,000.
The N&O operations have been included in the Company's consolidated
results beginning on August 1, 1995. The following table summarizes, on an
unaudited pro forma basis, the combined results of operations of the Company and
its subsidiaries as though the acquisition had taken place on January 1, 1995
(in thousands, except per share amounts):
Revenues $ 608,272
Net income 26,445
Diluted earnings per common share 0.70
NOTE 4. LONG-TERM BANK DEBT AND
OTHER LONG-TERM OBLIGATIONS
On July 28, 1995 the Company entered into a bank credit agreement
(Credit Agreement) providing for borrowings up to $310,000,000. At December 31,
1997 and December 31, 1996 the Company had long-term bank debt of $94,000,000
and $190,000,000, respectively. In addition, the Company also has an outstanding
letter of credit for $4,309,000 securing estimated obligations from
30
workers' compensation claims. This debt is expected to be refinanced with the
new credit agreement resulting from the Cowles merger. See note 2 and the
discussion below.
Under the Credit Agreement, interest only is payable through July 1,
2000. The Company may select between alternative floating interest rates for
each drawdown. On December 31, 1997 the interest rate applicable to the amount
drawn ranged from 6.2% to 7.0%.
At December 31, 1997 the Company had an outstanding interest rate swap
that effectively converted $50,000,000 of debt under its Credit Agreement to a
fixed rate debt at a rate of 6.0%. The Company makes payments to a counterparty
depending on the change in variable interest rates which are recorded as
additions to or reductions of interest expense. The swap is expected to be
terminated upon the closing of the Cowles merger, with no significant loss to
the Company.
A syndicate of banks and financial institutions have committed to
provide the debt financing of the Cowles merger. A term loan consisting of
Tranche A of $735 million will bear interest at the London Interbank Offered
Rate ("LIBOR") plus 125 basis points, will be payable in seven years, and
Tranche B of up to $330 million will bear interest at LIBOR plus 175 basis
points and will be payable in nine and one-half years. A revolving credit line
of up to $200 million will bear interest at LIBOR plus 125 basis points and will
be payable in seven years. As the Company reduces the outstanding debt relative
to cash flow (as defined in the proposed debt agreement), the interest rate
spread over LIBOR will decline. The debt is expected to be secured by certain
assets of the Company, and all of the debt will be pre-payable without penalty.
The Company intends to accelerate payments on this debt as cash generation
allows.
An additional $170 million of financing will be added to Tranche B in
the event that the sales of Cowles magazine and book publishing businesses do
not close simultaneously with the closing of the Cowles merger.
The definitive terms of the debt agreement are expected to include
certain operating and financial restrictions, such as limits on the Company's
ability to incur additional debt, create liens, sell assets, engage in mergers,
make investments and pay dividends.
Other long-term obligations consist of (in thousands):
December 31,
---------------- -----------------
1997 1996
---------------- -----------------
Pension obligations $28,639 $17,272
Post retirement benefits obligation 7,895 9,058
Deferred compensation and other 3,872 3,484
---------------- -----------------
Total other long-term obligations $40,406 $29,814
================ =================
31
NOTE 5. INCOME TAXES
Income tax provisions consist of (in thousands):
Year Ended December 31,
---------------------------------------------------------
1997 1996 1995
----------------- ----------------- -----------------
Current:
Federal $42,994 $31,449 $15,870
State 6,796 3,621 2,448
Deferred:
Federal (2,342) (4,379) 6,332
State 13 2,731 747
----------------- ----------------- -----------------
Income tax provision $47,461 $33,422 $25,397
================= ================= =================
The effective tax rate and the statutory federal income tax rate are
reconciled as follows:
Year Ended December 31,
-----------------------------------------------------------
1997 1996 1995
---------------- ----------------- -----------------
Statutory rate 35% 35% 35%
State taxes, net of federal benefit 4 5 4
Amortization of intangibles 3 4 4
Tax basis adjustment of intangibles sold (1) - -
Other - (1) -
---------------- ----------------- -----------------
Effective tax rate 41% 43% 43%
================ ================= =================
The components of deferred tax liabilities (benefits) recorded in the
Company's Consolidated Balance Sheet on December 31, 1997 and 1996 are (in
thousands):
1997 1996
----------------- ------------------
Depreciation and amortization $ 55,571 $ 55,649
Partnership losses 7,897 8,283
State taxes 762 1,310
Deferred compensation (18,630) (16,540)
Other 2,226 1,453
----------------- ------------------
Deferred tax liability (net of $8,437
in 1997 and $10,223 in 1996 reported
as current assets) $ 47,826 $ 50,155
================= ==================
32
NOTE 6. INTANGIBLES
Intangibles consist of (in thousands):
December 31,
------------------------------------------
1997 1996
------------------- --------------------
Identifiable intangible assets,
primarily customer lists $ 147,196 $ 148,692
Excess purchase prices over
identifiable intangible assets 362,098 365,604
------------------- --------------------
Total 509,294 514,296
Less accumulated amortization 116,079 102,903
------------------- --------------------
Intangibles - net $ 393,215 $ 411,393
=================== ====================
NOTE 7. EMPLOYEE BENEFITS
Early Retirement Charge:
THE SACRAMENTO BEE and THE (Tacoma) NEWS TRIBUNE made early retirement
programs available to certain employees. Pre-tax charges of $2,318,000 and
$390,000 were recorded in September 1995 and December 1995, respectively, for
these programs.
Retirement Plans:
The Company has two defined benefit pension plans (retirement plans)
which together cover a majority of its employees. Benefits are based on years of
service and compensation. Contributions to the plans are made by the Company in
amounts deemed necessary to provide benefits. Plan assets consist primarily of
investments in marketable securities including common stocks, bonds and U.S.
government obligations, and other interest bearing accounts.
The Company also has three supplemental retirement plans to provide key
employees with additional retirement benefits. The terms of the plans are
generally the same as those of the retirement plans, except that the
supplemental retirement plans are limited to key employees and benefits under it
are reduced by benefits received under the retirement plans. These plans are
funded on a pay-as-you-go basis and the accrued pension obligation is included
in other long-term obligations.
33
The elements of pension costs are as follows (in thousands):
December 31,
-----------------------------------------------------------
1997 1996 1995
----------------- ------------------ ------------------
Cost of benefits earned during the year $ 7,409 $ 7,451 $ 6,031
Interest on projected benefit obligation 10,456 9,367 8,461
Return on plan assets - (gain) (24,145) (17,843) (20,897)
Deferred gain - return on plan assets
greater than assumed 13,309 8,128 12,948
Net amortization and other deferrals 22 (8) (13)
----------------- ------------------ ------------------
Net pension cost $ 7,051 $ 7,095 $6,530
================= ================== ==================
The plans' funded status and amounts recognized in the Company's
Consolidated Balance Sheet at December 31, 1997 and 1996 are as follows (in
thousands):
1997 1996
------------------------------ -------------------------------
Supplemental Supplemental
Retirement Retirement Retirement Retirement
Plans Plans Plans Plans
------------- -------------- -------------- --------------
Actuarial present value of:
Vested benefit obligation $ 117,282 $ 8,976 $ 102,825 $ 7,237
============= ============== ============== ==============
Accumulated benefit obligation 126,156 9,032 108,216 7,283
============= ============== ============== ==============
Plan assets at fair value 150,582 131,371
Projected benefit obligation 147,864 10,958 127,669 8,822
------------- -------------- -------------- --------------
Plan assets over (under) projected benefit 2,718 (10,958) 3,702 (8,822)
Unrecognized losses (gains) net (20,817) 48 (16,597) (1,145)
Unrecognized prior service cost 1,559 1,403 1,920 1,600
Unrecognized net pension transition asset,
amortized over 15 years (2,189) - (2,736) -
------------- -------------- -------------- -------------
Accrued pension obligation $ (18,729) $ (9,507) $ (13,711) $ (8,367)
============= ============== ============== ==============
Assumptions used for valuing defined benefit obligations were:
December 31,
--------------------------------
1997 1996
----------- ------------
Discount rate in determining
benefit obligation 7.25% 7.50%
Expected long-term rate of
return on assets 9.00% 9.00%
Rates of compensation increase 3.5% - 5.0% 3.5% - 5.0%
34
The Company has two deferred Compensation and Investment Plans (401(k)
plans) which enable qualified employees (including N&O since 1995) to
voluntarily defer compensation. The Company's mandatory matching contributions
to the 401(k) plans were $5,123,000 in 1997, $4,704,000 in 1996, and $4,203,000
in 1995.
POSTRETIREMENT BENEFITS:
The Company also provides or subsidizes certain retiree health care and
life insurance benefits. In 1997, the Company terminated certain life insurance
benefits for employees retiring on or after January 1, 1998, and accordingly,
recorded a curtailment gain of $417,000 which is included in 1997 amortization.
The elements of postretirement expenses are as follows (in thousands):
December 31,
-----------------------------------------------------------
1997 1996 1995
----------------- ------------------ ------------------
Service costs $ 3 $ 22 $ 144
Interest costs 351 401 552
Amortization (1,071) (184) (105)
----------------- ------------------ ------------------
Total postretirement benefit costs $ (717) $ 239 $ 591
================= ================== ==================
The plan's funded status and amounts recognized in the Company's
Consolidated Balance Sheet at December 31, 1997 and 1996 are as follows (in
thousands):
1997 1996
----------------- ------------------
Accumulated postretirement
benefit obligation (APBO):
Retirees $ 4,761 $ 4,454
Active eligible employees 30 158
Active ineligible employees 104 923
----------------- ------------------
Total APBO 4,895 5,535
Unrecognized gains 3,215 3,757
----------------- ------------------
Net postretirement benefit liability $ 8,110 $ 9,292
================= ==================
Assumptions used for valuing postretirement obligations were:
December 31,
------------------
1997 1996
------ ------
Discount rate in determining
benefit obligation 7.25% 7.50%
Medical care cost trend rate 9.50% 8.50%
The medical care cost trend rates are estimated to decline to 5.8% by
the year 2002. A 1.0% increase in the assumed health care cost trend rate would
have increased the APBO and the annual service cost by 1.4 %.
35
NOTE 8. CASH FLOW INFORMATION
No significant acquisitions were made in 1997 and 1996. See note 2 for
a discussion of the proposed merger of Cowles. Net cash paid for the acquisition
of newspapers and other operations in 1995 consists of (in thousands):
N&O Other
Acquisition Acquisitions Total
----------------- ----------------- ------------------
Assets acquired $ 418,011 $ 2,971 $ 420,982
Liabilities assumed (161,120) (822) (161,942)
Holdback payable (10,000) - (10,000)
Cash paid 246,891 2,149 249,040
Fees and expenses 644 - 644
Less cash acquired (8,182) (60) (8,242)
----------------- ----------------- ------------------
Net cash paid $ 239,353 $ 2,089 $ 241,442
================= ================= ==================
Cash paid during the years ended December 31, 1997, 1996 and 1995 for
interest and income taxes were (in thousands):
1997 1996 1995
---------------- --------------- --------------
Interest paid
(net of amount capitalized) $ 9,255 $ 13,699 $ 9,856
Income taxes paid
(net of refunds) 51,262 27,543 26,167
36
Cash provided or used by operations was affected by changes in certain
assets and liabilities, net of the effects of acquired newspaper operations, as
follows (in thousands):
December 31,
----------------------------------------------------------
1997 1996 1995
----------------- ----------------- -----------------
Increase (decrease) in assets:
Trade receivables $ 11,875 $ 12,419 $ 1,303
Inventories 7 (5,658) 4,175
Other assets 391 (5,895) 5,199
----------------- ----------------- -----------------
Total 12,273 866 10,677
----------------- ----------------- -----------------
Increase (decrease) in liabilities:
Accounts payable 12,831 2,656 (2,013)
Accrued compensation 5,408 6,024 1,730
Income taxes (1,474) 4,737 (5,698)
Other liabilities 2,045 (3,671) (1,273)
----------------- ----------------- -----------------
Total 18,810 9,746 (7,254)
----------------- ----------------- -----------------
Net cash increase (decrease) from changes in
certain assets and liabilities $ 6,537 $ 8,880 $ (17,931)
================= ================= =================
NOTE 9. COMMITMENTS AND CONTINGENCIES
The Company guarantees $20,736,000 of bank debt related primarily to
its joint venture in the Ponderay newsprint mill.
The Company and its subsidiaries rent certain facilities and equipment
under operating leases expiring at various dates through August 2003. Total
rental expense amounted to $2,838,000 in 1997, $2,584,000 in 1996, and
$2,027,000 in 1995. Minimum rental commitments under operating leases with
noncancelable terms in excess of one year are (in thousands):
1998 $2,488
1999 1,386
2000 897
2001 528
2002 145
Thereafter 10
--------------
Total $5,454
==============
There are libel and other legal actions that have arisen in the
ordinary course of business and are pending against the Company. From time to
time, the Company is involved as a party in various governmental proceedings,
including environmental matters. Management believes, after reviewing such
actions with counsel, that the outcome of pending actions will not have a
material adverse effect on the Company's consolidated results of operations or
financial position.
37
NOTE 10. COMMON STOCK AND STOCK PLANS
On December 4, 1996, the Board of Directors of the Company declared a
five-for-four split on its Class A and Class B common stock in the form of a
special 25% stock dividend, which was paid on January 2, 1997 to the holders
of record of the common stock as of the close of business on December 16, 1996.
All share and per share amounts have been adjusted in the financial statements
to reflect the stock split.
The Company's Class A and Class B common stock participate equally in
dividends. Holders of Class B common stock are entitled to one vote per share
and to elect as a class 75% of the Board of Directors, rounded down to the
nearest whole number. Holders of Class A common stock are entitled to one-tenth
of a vote per share and to elect as a class 25% of the Board of Directors,
rounded up to the nearest whole number. Class B common stock is convertible at
the option of the holder into Class A common stock on a share-for-share basis.
At December 31, 1997 the Company has five stock-based compensation
plans, which are described below. The Company applies APB Opinion 25 and related
interpretations in accounting for its plans. No significant amounts of
compensation costs have been recognized for its fixed stock option plans and its
stock purchase plan.
The Company's Amended Employee Stock Purchase Plan (the Purchase Plan)
reserved 1,875,000 shares of Class A common stock for issuance to employees.
Eligible employees may purchase shares at 85% of "fair market value" (as
defined) through payroll deductions. The Purchase Plan can be automatically
terminated by the Company at any time. As of December 31, 1997, 793,148 shares
of Class A common stock have been issued under the Purchase Plan.
The Company has three stock option plans which reserve 2,312,500 Class
A common shares for issuance to key employees -- the 1987, 1994 and 1997 plans
("Employee Plans"). Terms of each of the Employee Plans are substantially the
same. Options are granted at the market price of the Class A common stock on the
date of grant. The options vest in installments over four years, and once vested
are exercisable up to 10 years from the date of grant. Although the plans permit
the Company, at its sole discretion, to settle unexercised options by granting
stock appreciation rights, the Company does not intend to avail itself of this
alternative except in limited circumstances.
The Company's amended and restated stock option plan for outside
directors (the Directors' Plan) provides for the issuance of up to 187,500
shares of Class A stock. Under the plan each outside director was granted an
option at fair market value at the conclusion of each regular annual meeting of
stockholders for 1,875 shares. Going forward, the annual grant will be 2,500
shares. Terms of the Directors' Plan are similar to the terms of the Employee
Plans. Outstanding options are summarized as follows:
38
Employee Plans Directors' Plan
-------------------------------------- --------------------------------------
Weighted Weighted
Average Average
Exercise Exercise
Options Price Options Price
------------------ ------------------ ----------------- ------------------
December 31, 1994 815,125 $15.43 67,500 $16.89
Granted 184,875 17.80 15,000 18.40
Exercised (6,125) 13.78 (5,625) 16.14
Forfeited (4,875) 16.58 (1,875) 18.40
------------------ -----------------
Outstanding,
December 31, 1995 989,000 15.88 75,000 17.22
Granted 203,000 25.10 15,000 18.90
Exercised (215,382) 13.77 (5,625) 16.83
Forfeited (2,032) 16.94 - -
------------------ -----------------
Outstanding,
December 31, 1996 974,586 18.29 84,375 17.54
Granted 204,000 28.19 16,875 25.75
Exercised (270,307) 15.83 (7,500) 16.58
------------------ -----------------
Outstanding,
December 31, 1997 908,279 $21.24 93,750 $19.09
================== =================
Employee Directors'
Plans Plans
-------- ----------
Options exercisable:
December 31, 1995 439,156 43,594
December 31, 1996 367,737 50,166
December 31, 1997 298,834 55,792
The following tables summarize information about fixed stock options
outstanding in the Stock Plans at December 31, 1997:
EMPLOYEE PLANS
- ---------------------------------------------------------------------------------------------------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF EXERCISE OPTIONS CONTRACTUAL LIFE EXERCISE OPTIONS EXERCISE
PRICES OUTSTANDING PRICE EXERCISABLE PRICE
------ ----------- ---------------- ----- ----------- -----
$ 11.50 - $ 17.30 247,531 5.21 $ 15.51 182,290 $ 14.87
$ 17.80 - $ 19.20 253,748 6.61 $ 18.06 116,544 $ 18.30
$ 25.10 203,000 8.95 $ 25.10 - -
$ 28.19 204,000 9.96 $ 28.19 - -
39
DIRECTORS' PLAN
- ---------------------------------------------------------------------------------------------------------------
AVERAGE WEIGHTED WEIGHTED
RANGE OF EXERCISE REMAINING AVERAGE AVERAGE
PRICES OPTIONS CONTRACTUAL EXERCISE OPTIONS EXERCISE
OUTSTANDING LIFE PRICE EXERCISABLE PRICE
------ ----------- ---------------- ----- ----------- -----
$ 14.60 - $ 17.20 26,250 3.51 $ 16.24 26,250 $ 16.24
$ 17.90 - $ 18.40 35,625 6.48 $ 18.12 25,790 $ 18.07
$ 18.90 15,000 8.37 $ 18.90 3,752 $ 18.90
$ 25.75 16,875 9.39 $ 25.75 - -
Had compensation costs for the Company's four stock-based compensation
plans been determined based upon the fair value at the grant dates for awards
under those plans consistent with the method of FASB Statement No. 123, the
Company's net income and earnings per share would have been reduced to the pro
forma amounts indicated below (in thousands, except per share amounts):
1997 1996 1995
----------------- ----------------- ------------------
Net income:
As reported $ 68,799 $ 44,493 $33,618
Pro forma $ 67,973 $ 44,242 $33,449
Earnings per common share:
As reported:
Basic $ 1.81 $ 1.18 $ 0.90
Diluted $ 1.80 $ 1.18 $ 0.90
Pro forma
Basic $ 1.79 $ 1.17 $ 0.89
Diluted $ 1.78 $ 1.17 $ 0.89
The impact of outstanding non-vested stock options granted prior to
1995 has been excluded from the pro forma calculation; accordingly, the 1997,
1996, and 1995 pro forma adjustments are not indicative of future period pro
forma adjustments, when the calculation will apply to all applicable stock
options.
Compensation costs are calculated for the fair value of the employees'
purchase rights, which was estimated using the Black-Scholes model with the
following assumptions for 1997, 1996 and 1995, respectively: dividend yield of
1.2% to 1.4% for all years; an expected life of one to seven years for all
years; expected volatility of .2838, .2791 and .2860; and risk-free interest
rates of 5.72 % to 6.62 % in 1997 and 5.4% to 6.4% in 1996 and 1995,
respectively. The weighted-average fair value of those purchase rights granted
in 1997, 1996 and 1995 was $8.99, $8.31 and $5.78, respectively for Employee
Plans and $8.28, $5.61 and $5.52, respectively for the Directors' Plan.
NOTE 11. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS 107, "Disclosures about Fair Value of Financial Instruments",
requires the determination of fair value for certain of the Company's assets,
liabilities and contingent liabilities. The following methods
40
and assumptions were used to estimate the fair value of those financial
instruments included in the following categories:
Cash and Cash Equivalents - The carrying amount approximates fair value
based on quoted market prices.
Long-Term Bank Debt - The carrying value approximates fair value based
on interest rates available to the Company on debt instruments with
similar terms.
Interest Rate Swap Agreement - When considering interest rates at
December 31, 1997, it is estimated that the Company could terminate the
interest rate swap agreement with only a nominal loss, which is its
intent, upon closing of the Cowles merger (see note 2).
NOTE 12. SALE OF NEWSPAPER AND
OTHER BUSINESS OPERATIONS
On February 28, 1997, the Company completed the sale of the GILROY
DISPATCH, THE HOLLISTER FREE LANCE, the MORGAN HILL TIMES and the AMADOR LEDGER
DISPATCH. These newspapers had combined daily circulation of approximately
10,150 and weekly circulation of 12,800, and generated $7,574,000 in revenues in
1996. The Company reported a $6,748,000 pre-tax gain on the sale which is
included in nonoperating (expenses) income. The Company sold Legi-Tech, its
on-line legislative tracking company and certain real estate and recorded a
$2,506,000 pre-tax gain in this area.
The Ellensburg DAILY RECORD in Washington state was sold in December
1996 and a pre-tax gain of $3,218,000 was recorded in nonoperating income. The
Company also sold Nando's internet access operations and Legi-Tech's Florida
operations in 1996 and recorded a pre-tax loss of $378,000 on the sales.
NOTE 13. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The Company's business is somewhat seasonal, with peak revenues and
profits generally occurring in the second and fourth quarters of each year as a
result of increased advertising activity during the spring holiday and Christmas
periods. The first quarter is historically the weakest quarter for revenues and
profits. The Company's quarterly results are summarized as follows (in
thousands, except per share amounts):
41
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
------------- -------------- ------------- --------------
1997:
Revenues-net $ 150,621 $ 162,280 $ 159,600 $ 169,449
Operating income 22,790 32,542 26,926 33,497
Net income 15,357 17,592 15,525 20,325
Net income per common share (1) .40 .46 .41 .53
1996:
Revenues-net $ 146,303 $ 156,919 $ 155,543 $ 165,468
Operating income 10,097 22,195 22,639 30,304
Net income 4,386 11,205 11,442 17,460
Net income per common share (1) .12 .30 .30 .46
1995:
Revenues-net $ 113,798 $ 124,648 $ 141,961 $ 160,472
Operating income 10,358 19,734 11,030 21,252
Net income 6,642 12,531 4,449 9,996
Net income per common share (1) .18 .33 .12 .27
(1) All earnings per share (EPS) amounts have been adjusted to reflect
a five-for-four stock split paid on January 2, 1997 and reflect basic and
diluted EPS, except the first quarter 1997 when basic EPS is $0.41 and diluted
EPS is $0.40.
In February 1997, the Company recorded an after-tax gain of $3,995,000
on the sale of four community newspapers, while in the third and fourth quarters
of 1997 the Company recorded an after-tax gain of $298,000 and $1,178,000,
respectively, on the sale of a non-newspaper business and certain real estate
assets.
In December 1996, the Company recorded an after-tax gain of $1,623,000
on the sale of various small business operations. In the third quarter of 1995,
the Company acquired The News and Observer Publishing Company and separately,
recorded an early retirement expense of $2,318,000.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Biographical information for Class A Directors, Class B Directors and
executive officers contained under the captions "Nominees for Class A
Directors", "Nominees for Class B Directors" and "Other Executive Officers"
under the heading "Election of Directors" in the definitive Proxy Statement for
the Company's 1998 Annual Meeting of Stockholders is incorporated herein by
reference.
42
ITEM 11. EXECUTIVE COMPENSATION
The information contained under the headings "Compensation", "Executive
Compensation", "Stock Option Awards", "Option Exercises and Holdings", "Pension
Plans" and "Employment Agreement" in the definitive Proxy Statement for the
Company's 1998 Annual Meeting of Stockholders is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The information contained under the heading "Stock Ownership" in the
definitive Proxy Statement for the Company's 1998 Annual Meeting of Stockholders
is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
a) (1)&(2) Financial Statements and Financial Statement
Schedules filed as a part of this Report as listed in the
Index to Financial Statements and Financial Statement
Schedules on page 21 hereof.
(3) Exhibits filed as part of this Report as listed in the
Exhibit Index beginning on page 48 hereof.
b) Reports on Form 8-K
The Company's filed a Current Report on Form 8-K dated
November 13, 1997, to report under Item 5 of Form 8-K the
execution of a definitive agreement in connection with the
Cowles merger.
43
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED ON MARCH 30, 1998.
THE McCLATCHY COMPANY
By /s/ GARY B. PRUITT
---------------------------------------
Gary B. Pruitt
President and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
--------- ----- ----
PRINCIPAL EXECUTIVE OFFICERS:
/s/ GARY B. PRUITT President, Chief Executive March 30, 1998
- -------------------------------------------------- Officer and Director
(Gary B. Pruitt)
PRINCIPAL FINANCIAL OFFICER:
/s/ JAMES P. SMITH Vice President, March 30, 1998
- -------------------------------------------------- Finance, Treasurer
(James P. Smith) and Director
PRINCIPAL ACCOUNTING OFFICER:
/s/ ROBERT W. BERGER Controller March 30, 1998
- --------------------------------------------------
(Robert W. Berger)
44
SIGNATURES-(CONTINUED)
SIGNATURE TITLE DATE
--------- ----- ----
DIRECTORS:
/s/ ELIZABETH BALLANTINE Director March 30, 1998
- --------------------------------------------------
(Elizabeth Ballantine))
/s/ WILLIAM K. COBLENTZ Director March 30, 1998
- --------------------------------------------------
(William K. Coblentz)
/s/ MOLLY MALONEY EVANGELISTI Director March 30, 1998
- --------------------------------------------------
(Molly Maloney Evangelisti)
/s/ JOAN F. LANE Director March 30, 1998
- --------------------------------------------------
(Joan F. Lane)
/s/ R. LARRY JINKS Director March 30, 1998
- --------------------------------------------------
(R. Larry Jinks)
/s/ BETTY LOU MALONEY Director March 30, 1998
- --------------------------------------------------
(Betty Lou Maloney)
/s/ JAMES B. McCLATCHY Publisher and March 30, 1998
- --------------------------------------------------
(James B. McClatchy) Director
Director
- --------------------------------------------------
(William Ellery McClatchy)
45
SIGNATURES-(CONTINUED)
SIGNATURE TITLE DATE
--------- ----- ----
DIRECTORS:
/s/ ERWIN POTTS Chairman of the Board and March 30, 1998
- -------------------------------------------------- Director
(Erwin Potts)
/s/ S. DONLEY RITCHEY, JR. Director March 30, 1998
- --------------------------------------------------
(S. Donley Ritchey, Jr.)
/s/ WILLIAM M. ROTH Director March 30, 1998
- --------------------------------------------------
(William M. Roth)
/s/ FREDERICK R. RUIZ Director March 30, 1998
- --------------------------------------------------
(Frederick R. Ruiz)
46
SCHEDULE II
MCCLATCHY NEWSPAPERS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1997
(in thousands)
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Deductions
Additions (1) for
------------------------------ Purposes
Balance Charged to Charged to for Which Balance at End
Beginning Costs and Other Accounts Were of Period
of Period Expenses Accounts Set Up
------------- -------------- -------------- --------------- ----------------
YEAR ENDED DECEMBER 31, 1995:
Deduct from assets to which
they apply:
Uncollectible accounts $ (2,000) $ (3,688) $ - $ 3,361 $ (2,327)
YEAR ENDED DECEMBER 31, 1996:
Deduct from assets to which
they apply:
Uncollectible accounts $ (2,327) $ (5,567) $ - $ 5,454 $ (2,440)
YEAR ENDED DECEMBER 31, 1997:
Deduct from assets to which
they apply:
Uncollectible accounts $ (2,440) $ (4,793) $ - $ 5,071 $ (2,162)
(1) Amounts written off net of bad debt recoveries.
47
INDEX OF EXHIBITS
EXHIBIT
-------
3.1 The Company's Restated Certificate of Incorporation dated
March 18, 1998.
3.2* The Company's By-laws included as an Exhibit 3.2 in the
Company's Registration Statement No. 333-46501 on Form S-4.
10.1* Amended and Restated Agreement and Plan of Merger and
Reorganization between The McClatchy Company and Cowles
Media Company dated February 13, 1998 included as an Exhibit
2.1 in the Company's Registration Statement No. 333-46501 on
Form S-4.
10.2 Credit Agreement dated March 10, 1998 between The McClatchy
Company (formerly MNI Newco, Inc.), the lenders party
thereto, Salomon Brothers, Inc., as Arranger and Syndication
Agent and Bank of America National Trust and Savings
Association as Swingline Lender, Administrative Agent and
Collateral Agent.
10.3* Ponderay Newsprint Company Partnership Agreement dated as of
September 12, 1985 between Lake Superior Forest Products,
Inc., Central Newsprint Company, Inc., Bradley Paper
Company, Copley Northwest, Inc., Puller Paper Company,
Newsprint Ventures, Inc., Wingate Paper Company, Tribune
Newsprint Company and Nimitz Paper Company included in
Exhibit 10.10 to McClatchy Newspapers, Inc. Registration
Statement No. 33-17370 on Form S-1.
**10.4* McClatchy Newspapers, Inc. Management by Objective Plan
Description included in Exhibit 10.1 to McClatchy
Newspapers, Inc. Registration Statement No. 33-17270 on Form
S-1.
**10.5* Supplemental Executive Retirement Plan included in Exhibit
10.7 to McClatchy Newspapers, Inc. 1988 Report on Form 10-K.
**10.6*+ Amended and Restated 1987 Stock Option Plan dated August 15,
1996 included as Exhibit 10.7 to the McClatchy Newspapers,
Inc. 1996 Report on Form 10-K.
**10.7*+ Amended and Restated 1994 Stock Option Plan dated August 15,
1996 included as Exhibit 10.8 to the McClatchy Newspapers,
Inc. 1996 Report on Form 10-K.
10.8+ 1997 Stock Option Plan dated December 10, 1997.
**10.9* Group Executive Life Insurance Plan included in Exhibit 10.9
to McClatchy Newspapers, Inc. Registration Statement No.
33-17270 on Form S-1.
**10.10* Group Executive Long Term Disability Insurance Plan included
in Exhibit 10.8 to McClatchy Newspapers, Inc. Registration
Statement No. 33-17270 on Form S-1.
**10.11* Executive Performance Plan adopted on January 1, 1990,
included in Exhibit 10.13 to McClatchy Newspapers, Inc. 1989
Report on Form 10-K.
**10.12+ Amended and Restated 1990 Directors' Stock
Option Plan dated February 1, 1998.
**10.13+ Employment Agreement between the Company and Gary B. Pruitt
dated June 1, 1996 included as Exhibit 10.13 to the
McClatchy Newspapers, Inc. 1996 Report on Form 10-K.
21 Subsidiaries of the Company.
23 Consent of Deloitte & Touche LLP.
27.1 Financial Data Schedule for the Year Ended December 31,
1997.
27.2 Restated Financial Data Schedule for the Quarter Ended
March 31, 1997.
- ---------------
* Incorporated by reference
** Compensation plans or arrangements for the Company's executive officers
and directors.
+ Assumed by the Company from McClatchy Newspapers, Inc. on March 19, 1998.
48