SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: March 19, 1998
THE MCCLATCHY COMPANY
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 1-9824 52-2080478
- ---------------------------- ------------------- ------------------------
(State or Other Jurisdiction (Commission (I.R.S. Employer
of Incorporation) File Number) Identification Number)
2100 "Q" STREET, SACRAMENTO, CA 95816
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(916) 321-1846
-------------------------------
(Registrant's telephone number,
including area code)
(Former name or former address,
if changed since last report)
<PAGE>
Item 2. Acquisition or Disposition of Assets.
------------------------------------
Effective March 19, 1998, McClatchy Newspapers, Inc. ("McClatchy"), a
Delaware corporation, merged with and into MNI Mergerco, Inc. ("MNI Merger
Sub"), a Delaware corporation and wholly owned subsidiary of The McClatchy
Company (formerly named MNI Newco, Inc.) ("New McClatchy"), a Delaware
corporation, and Cowles Media Company ("Cowles"), a Delaware corporation, merged
with and into CMC Mergerco, Inc. ("CMC Merger Sub"), a Delaware corporation and
wholly owned subsidiary of New McClatchy (collectively, the "Reorganization"),
pursuant to the Agreement and Plan of Merger and Reorganization (the
"Reorganization Agreement"), dated as of November 13, 1997 and amended and
restated as of February 13, 1998, by and among McClatchy, Cowles, New McClatchy,
MNI Merger Sub, and CMC Merger Sub. Pursuant to the terms of the Reorganization
Agreement, each outstanding share of McClatchy Class A common stock, par value
$0.01 per share, and McClatchy Class B common stock, par value $0.01 per share,
was converted, respectively, into shares of New McClatchy Class A common stock,
par value $0.01 per share (the "New McClatchy Class A Common Stock"), and New
McClatchy Class B common stock, par value $0.01 per share, and each outstanding
share of Cowles common stock was converted into $90.50 in cash, shares of New
McClatchy Class A Common Stock (based upon an exchange ratio of 3.01667 shares
of New McClatchy Class A Common Stock for each share of Cowles common stock) or
a combination of cash and New McClatchy Class A Common Stock. Based on elections
of Cowles stockholders, approximately 6.4 million shares of New McClatchy Class
A Common Stock were issued to Cowles stockholders and approximately $1.123
billion was paid to Cowles stockholders.
New McClatchy, the registrant for this Current Report on Form 8-K,
filed a Registration Statement on Form S-4 (Registration No. 333-46501) (the
"Registration Statement") with the Securities and Exchange Commission (the
"SEC") on February 18, 1998 which was declared effective by the SEC on February
19, 1998. The Registration Statement sets forth certain information regarding
the Reorganization, McClatchy, Cowles, and New McClatchy, including, but not
limited to, the date and manner of the Reorganization, a description of the
assets involved, the nature and amount of consideration paid by McClatchy to the
stockholders of Cowles, the principle followed in determining the amount of such
consideration, the nature of any material relationships between the stockholders
of Cowles and New McClatchy or any of its affiliates, any director or officer of
New McClatchy, or any associate of any such director or officer, and the source
of funds used for the consideration paid to Cowles stockholders.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired.
(i) Cowles Media Company Consolidated Balance Sheets as of
December 27, 1997 and December 28, 1996.
<PAGE>
(ii) Cowles Media Company Consolidated Statement of
Earnings for the Nine Months Ended December 27, 1997
and December 28, 1996.
(iii) Cowles Media Company Consolidated Statement of Cash
Flows For the Nine Months Ended December 27, 1997 and
December 28, 1996.
(iv) Cowles Media Company Notes to Interim Consolidated
Financial Statements.
(b) Pro Forma Financial Information.
(i) Pro Forma Condensed Combined Balance Sheet as of December
31, 1997.
(ii) Pro Forma Condensed Combined Statement of Operations for
the Twelve Months Ended December 31, 1997.
(iii) Notes to Pro Forma Condensed Combined Financial Statements.
<PAGE>
<TABLE>
COWLES MEDIA COMPANY
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 27, 1997 AND DECEMBER 28, 1996
(UNAUDITED)
ALL REFERENCES ARE TO INTERIM PERIODS.
<CAPTION>
1997 1996
---------------- --------------
(In thousands)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 5,469 $ -
Receivables, less allowance for doubtful accounts of
$9,341 as of December 27, 1997 and
$10,353 as of December 28, 1996 71,511 62,571
Inventories 15,311 13,435
Deferred tax asset 5,479 5,979
Prepaid expenses and other 16,916 15,590
---------------- --------------
Total current assets 114,686 97,575
---------------- --------------
Property, plant and equipment, at cost:
Land and land improvements 10,261 10,731
Buildings 59,102 57,335
Machinery and equipment 184,245 172,854
Construction in progress 16,947 13,501
---------------- --------------
270,555 254,421
Less accumulated depreciation 154,458 139,974
---------------- --------------
Net property, plant and equipment 116,097 114,447
Intangible assets, net of accumulated amortization of $39,789
as of December 27, 1997 and $37,900 as of December 28, 1996 120,195 101,306
Other assets 6,827 7,194
---------------- --------------
Total $ 357,805 $ 320,522
================ ==============
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-term debt $ 8,841 6,085
Accounts payable 14,669 14,463
Accrued expenses and other liabilities 51,251 50,926
Unearned income, principally subscriptions paid in advance 49,090 51,233
Income taxes 3,723 6,385
---------------- --------------
Total current liabilities 127,574 129,092
Long-term debt, less current installments 82,993 85,368
Deferred income taxes 11,014 9,608
Deferred credit 1,875 3,375
Other liabilities 23,348 18,674
Stockholders' equity:
Voting common stock, $0.17 stated value; 4,000,000 shares authorized;
3,858,687 shares issued; and 3,837,006
and 3,827,920 shares outstanding 643 643
Non-voting common stock, $0.17 stated value; 10,600,000
shares authorized; 10,145,836 shares issued;
and 10,060,870 and 9,892,200 shares outstanding 1,691 1,691
Capital in excess of stated value 4,562 4,406
Retained earnings 107,000 75,320
---------------- --------------
113,896 82,060
Less:
Treasury stock at cost; 106,648 as of December 27, 1997
and 284,403 as of December 28, 1996 2,895 7,655
---------------- --------------
Total stockholders' equity 111,001 74,405
---------------- --------------
Commitments and contingent liabilities
Total $ 357,805 $ 320,522
================ ==============
SEE ACCOMPANYING NOTE TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
<TABLE>
COWLES MEDIA COMPANY
CONSOLIDATED STATEMENT OF EARNINGS
FOR THE NINE MONTHS ENDED DECEMBER 27, 1997
AND DECEMBER 28, 1996
(UNAUDITED)
ALL REFERENCES ARE TO INTERIM PERIODS.
<CAPTION>
1997 1996
--------------- --------------
(In thousands)
<S> <C> <C>
Operating Revenue $ 401,667 $ 387,359
Expenses:
Operating 327,009 327,132
Depreciation 12,852 11,864
Amortization of intangible assets 4,785 5,600
--------------- --------------
Operating earnings 57,021 42,763
--------------- --------------
Other income (expenses), net:
Investment income 406 202
Interest expense (4,708) (5,955)
Other, net 576 4,181
--------------- --------------
(3,726) (1,572)
--------------- --------------
Earnings before income taxes 53,295 41,191
Provision for income taxes 19,281 18,577
=============== ==============
Net earnings $ 34,014 $ 22,614
=============== ==============
Net earnings per share:
Basic $ 2.44 $ 1.63
Dilutive $ 2.41 $ 1.63
Average equivalent common shares:
Basic 13,922 13,884
Dilutive 14,121 13,897
SEE ACCOMPANYING NOTE TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
<TABLE>
COWLES MEDIA COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED DECEMBER 27, 1997
AND DECEMBER 28, 1996
(UNAUDITED)
ALL REFERENCES ARE TO INTERIM PERIODS.
<CAPTION>
1997 1996
-------------- ------------
(In thousands)
<S> <C> <C>
Net cash from operating activities $ 37,487 $ 36,838
Cash Flows from Investing Activities:
Net cash outlay for acquisitions (15,176) (4,963)
Capital expenditures (12,857) (12,142)
Proceeds from sales of assets and businesses 144 5,704
Other (981) (1,165)
-------------- ------------
Net cash used by investing activities (28,870) (12,566)
-------------- ------------
Cash Flows from Financing Activities:
Preceeds from long-term debt - 20,000
Payments on long-term debt (5,672) (33,747)
Dividends paid (7,023) (6,627)
Proceeds from stock options exercised 4,660 165
Capital stock repurchased (959) (4,673)
Other (21) (64)
-------------- ------------
Net cash used by financing activities (9,015) (24,946)
-------------- ------------
Net Change in Cash and Cash Equivalents (398) (674)
Cash and cash equivalents at beginning of year 5,867 674
-------------- ------------
Cash and cash equivalents at end of period $ 5,469 $ -
============== ============
SEE ACCOMPANYING NOTE TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
COWLES MEDIA COMPANY
NOTE TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
December 27, 1997, December 28, 1996
ALL REFERENCES ARE TO INTERIM PERIODS UNLESS OTHERWISE NOTED.
The interim financial statements should be read in conjunction with the
audited consolidated financial statements of Cowles Media Company and related
notes thereto included in the filing of MNI Newco, Inc. on Form S-4 with the
U.S. Securities and Exchange Commission on February 17, 1998.
In the opinion of management, the interim financial statements contain
all adjustments necessary to present fairly the Company's balance sheets,
consolidated statement of earnings and cash flows for the interim periods
presented. All adjustments are normal recurring entries. These interim financial
statements are not necessarily indicative of the results to be expected for a
full year.
<PAGE>
<TABLE>
PRO FORMA CONDENSED COMBINED BALANCE SHEET (UNAUDITED)
DECEMBER 31, 1997
(In Thousands)
<CAPTION>
PRO FORMA
PRO FORMA COMBINED PRO FORMA
McCLATCHY COWLES PURCHASE PRIOR TO BUSINESSES
DECEMBER 31, DECEMBER 27, ACCOUNTING BUSINESSES DISPOSED PRO FORMA
1997 1997 ADJUSTMENTS DISPOSED ADJUSTMENTS COMBINED
------------ ------------ ------------- ------------- -------------- ----------
(See Note 1) (See Note 2)
<S> <C> <C> <C> <C> <C> <C>
Current assets $ 122,795 $ 114,686 $ 2,271 $ 239,752 $ (50,892) $ 188,860
Property, plant and equipment, net 325,186 116,097 71,436 512,719 (57,806) 454,913
Intangibles, net 393,215 120,195 1,173,646 1,687,056 (116,550) 1,570,506
Other assets 12,585 6,827 59,339 78,751 (736) 78,015
------------ ------------ ------------- ------------- ------------- ----------
Total assets $ 853,781 $ 357,805 $ 1,306,692 $ 2,518,278 $ (225,984) 2,292,294
============ ============ ============= ============= ============= ==========
Current liabilities, excluding the
current portion of long-term debt $ 98,443 $ 118,738 $ - $ 217,176 $ (50,984) $ 166,192
Long-term debt 94,000 91,834 1,122,312 1,308,146 (167,700) 1,140,446
Other long-term obligations 96,669 36,237 103,188 236,094 (7,300) 228,794
Stockholders' equity:
Common stock 381 2,334 (2,270) 445 - 445
Additional paid in capital 74,354 4,562 187,567 266,483 - 266,483
Retained earnings 489,934 104,105 (104,105) 489,934 - 489,934
------------ ------------ ------------- ------------- ------------- ----------
Total 564,669 111,001 81,192 756,862 - 756,862
------------ ------------ ------------- ------------- ------------- ----------
Total liabilities and
stockholders' equity $ 853,781 $ 357,805 $ 1,306,692 $ 2,518,278 $ (225,984) 2,292,294
============ ============ ============= ============= ============= ==========
SEE ACCOMPANYING NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
<TABLE>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997
(In Thousands)
<CAPTION>
PRO FORMA
PRO FORMA COMBINED PRO FORMA
McCLATCHY COWLES PURCHASE PRIOR TO BUSINESSES
December 31, December 27, ACCOUNTING BUSINESSES DISPOSED PRO FORMA
1997 1997 ADJUSTMENTS DISPOSED ADJUSTMENTS COMBINED
------------- ------------- -------------- --------------- -------------- ------------
(See Note 3) (See Note 4)
<S> <C> <C> <C> <C> <C> <C>
Revenues - net $ 641,950 531,377 - $ 1,173,327 $ (161,543) $ 1,011,784
Operating expenses (472,926) (440,388) - $ (913,314) 150,557 (762,757)
Depreciation and amortization (53,269) (22,366) (49,051) $ (124,686) 9,169 (115,517)
------------ ------------- -------------- --------------- ------------ ------------
Total expenses (526,195) (462,754) (49,051) (1,038,000) 159,726 (878,274)
Operating income 115,755 68,623 (49,051) $ 135,327 (1,817) 133,510
Interest expense (8,698) (7,026) (83,051) $ (98,775) 14,965 (83,810)
Other 9,203 3,827 - $ 13,030 (670) 12,360
------------- ------------- -------------- -------------- ------------ ------------
Income before taxes 116,260 65,424 (132,102) $ 49,582 $ 12,478 $ 62,060
Income taxes (47,461) (24,532) 43,526 $ (28,467) $ (1,057) (29,524)
------------- ------------- -------------- -------------- ------------ ------------
Income from continuing operations $ 68,799 $ 40,892 $ (88,576) $ 21,115 $ 11,421 $ 32,536
============= ============= ============== ============== ============ ============
Weighted average shares 38,155 6,406 44,561
Diluted earnings per share $ 1.80 $ 0.73
SEE ACCOMPANYING NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED)
1. Pro Forma Adjustments to Reflect Purchase Accounting
The Following tables set forth the determination of the estimated purchase
price as of December 31, 1997 based on a market value of $30.00 per share
of McClatchy Common Stock, and assumes that 15% of the total consideration
in the Cowles Merger is paid in The McClatchy Company Class A Common Stock
(in thousands):
<TABLE>
<S> <C>
McClatchy Class A Common Stock (6,406,456 @ $30.00 per share) $ 192,193
Assumed debt
91,834
Cash paid including transaction costs 1,122,312
---------------
Estimated purchase price $ 1,406,339
===============
</TABLE>
The McClatchy Company funded the merger of Cowles using bank debt along
with issuing Class A Common Stock as discussed above. A syndicate of banks have
provided the debt in three tranches. The term loan facility consists of two
tranches: Tranche A, of $735 million, bears interest at LIBOR plus 125 basis
points and is 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. In addition, a revolving credit facility of up to $200 million bears
interest at LIBOR plus 125 basis points, is partially available for The
McClatchy Company's working capital needs and is payable in seven years. The
debt is secured by certain assets of The McClatchy Company, and all of the debt
is pre-payable without penalty. To the extent that the Company reduces
outstanding debt relative to its EBITDA, the interest rate spread over LIBOR on
the debt will decline. Although McClatchy has no present plan in place for early
repayment of this debt, the Company intends to accelerate payments on this debt
as cash generation allows.
The estimated transaction costs totaling $30 million include approximately
$20 million of bank fees and approximately $10 million in advisory, accounting
and legal fees, including costs of disposing of the Non-newspaper Subs (See note
2).
<PAGE>
The preliminary allocation of the estimated purchase price is as follows
(in thousands):
<TABLE>
<S> <C>
Cowles shareholder equity as reported $ 111,001
Cowles debt as reported 91,834
Increases to assets and liabilities:
Newsprint inventory at fair market price 2,271
Star Tribune property 22,000
Non-newspaper net assets 49,436
Star Tribune identifiable intangible assets 136,000
Pension and other assets 59,339
Deferred income taxes payable (103,188)
Goodwill 1,037,646
----------------
Investment in Cowles $ 1,406,339
================
</TABLE>
2. Pro Forma Adjustments for Businesses Disposed
McClatchy and Cowles executed definitive agreements in January 1998 to sell
Cowles magazine subsidiaries to PRIMEDIA, Inc., and to sell its book publishing
subsidiary to a management group led by the subsidiary's president. The sales of
the non-newspaper subsidiaries, valued at $208.1 million including the
assumption of $29.4 million in debt and other liabilities, closed on March
19,1998. Accordingly, the pro forma financial statements reflect these
businesses as a discontinued operating segment. The following adjustments are in
thousands:
<PAGE>
<TABLE>
<CAPTION>
Pro Forma
To reclassify assets and liabilities of segment sold: Businesses
Cowles Pro Forma Disposed
December 27, 1997 Adjustments Adjustments
----------------- ------------ -----------
<S> <C> <C> <C>
Current assets $ 50,892 $ - 50,892
Net property, plant & equipment
including increase in carrying value 8,370 49,436 57,806
Net intangibles 116,550 - 116,550
Other assets 736 - 736
Current liabilities (50,984) - (50,984)
Long-term debt (21,767) (333) (22,100)
Other obligations (5,228) (2,072) (7,300)
---------------- ------------- -----------
Net reduction in New McClatchy debt $ 98,569 47,031 $ 145,600
================ ============= ===========
</TABLE>
The carrying value of the net assets sold represents McClatchy's best
estimate of the after-tax proceeds expected to reduce debt. McClatchy did not
have a gain or loss on the sale of these assets. The after-tax proceeds are net
of $3 million in costs ($2 million in advisor fees and $1 million in legal and
accounting fees). McClatchy's debt and other obligations are reduced by $175
million (debt assumed by buyers $22.1 million, other obligations assumed of $7.3
million and after-tax proceeds of $145.6 million applied to new debt).
<PAGE>
3. Pro Forma Adjustments to Combined Statement of Operations (excluding assets
to be sold) for the year ended December 31, 1997:
<TABLE>
<S> <C>
Increase in depreciation and amortization
on carrying value of property, plant and
equipment and identifiable intangible assets of
Star Tribune $ (23,110)
Increase in amortization of goodwill (25,941)
Interest charges on new debt @ 7.4% (83,051)
Tax effect of pro forma adjustments 43,526
--------------------
$ (88,576)
====================
The tax effects are calculated as follows:
Additional depreciation and amortization $ (49,051)
Additional interest (83,051)
--------------------
Net income adjustments (132,102)
Non taxable goodwill amortization 25,941
--------------------
Net taxable adjustments (106,161)
Statutory rate 41%
--------------------
Taxes $ (43,526)
====================
</TABLE>
<PAGE>
4. Pro Forma Adjustments for Businesses Disposed
<TABLE>
To reclassify operating results of discontinued operations (in thousands):
<CAPTION>
Cowles Businesses
December 31, Pro Forma Disposed
1997 Adjustments Adjustments
----------- ----------- ------------
<S> <C> <C> <C>
Revenues $ (161,543) $ - $ (161,543)
Operating expenses (150,557) - (150,557)
Depreciation and amortization 9,169 - 9,169
Operating income (1,817) - (1,817)
Interest expense (2,015) (12,950) (14,965)
Other non-operating expense (670) - (670)
Earnings before taxes (472) 12,950 12,478
Taxes (4,253) 5,310 1,057
Adjustment to income from continuing operations $ 3,781 7,640 11,421
Pro forma adjustments to remove interest on debt repaid with net proceeds of
sales of non-newspaper businesses and related tax effect.
</TABLE>
<PAGE>
(c) Exhibits.
2.1 Agreement and Plan of Merger and Reorganization (the
"Reorganization Agreement"), dated as of November 13, 1997 and
amended and restated as of February 13, 1998, by and among
McClatchy, Cowles, New McClatchy, MNI Merger Sub, and CMC
Merger Sub. (Attached as Annex A to the Joint Proxy/Prospectus
included in the Registrant's Registration Statement on Form
S-4 (File No. 233-46501) and incorporated by reference
herein.)
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: May 26, 1998
The McClatchy Company
By /s/ Karole Morgan-Prager
--------------------------------
Karole Morgan-Prager
Vice President, General Counsel
and Corporate Secretary
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Description
- ----------- -----------
2.1 Agreement and Plan of Merger and Reorganization (the
"Reorganization Agreement"), dated as of November 13, 1997 and
amended and restated as of February 13, 1998, by and among
McClatchy, Cowles, New McClatchy, MNI Merger Sub, and CMC
Merger Sub. (Attached as Annex A to the Joint Proxy/Prospectus
included in the Registrant's Registration Statement on Form S-4 (File
No. 233-46501) and incorporated by reference herein.)
