UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 1998
OR
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 of Incorporation) (IRS Employer
Identification Number)
2100 "Q" Street, Sacramento, CA. 95816
(Address of principal executive offices)
(916) 321-1846
(Registrant's telephone number)
Indicate by check mark whether the registrant has (1) 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 .
The number of shares of each class of common stock outstanding as
of August 7, 1998:
Class A Common Stock 15,949,695
Class B Common Stock 28,655,912
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements
THE McCLATCHY COMPANY
CONSOLIDATED BALANCE SHEET (UNAUDITED)
(In thousands)
June 30, December 31,
1998 1997
ASSETS Restated
CURRENT ASSETS
Cash $ 4,586 $ 8,671
Trade receivables (less allowances of
$4,157 in 1998 and $2,162 in 1997) 126,351 93,069
Other receivables 3,453 2,143
Newsprint, ink and other inventories 18,658 11,735
Deferred income taxes 22,510 8,477
Other current assets 5,119 2,717
180,677 126,812
PROPERTY, PLANT AND EQUIPMENT
Buildings and improvements 204,232 160,443
Equipment 439,538 371,312
643,770 531,755
Less accumulated depreciation (267,339) (246,236)
376,431 285,519
Land 57,024 34,199
Construction in progress 16,444 5,468
449,899 325,186
INTANGIBLES - NET 1,543,859 393,215
OTHER ASSETS 84,080 12,585
TOTAL ASSETS $ 2,258,515 $ 857,798
See notes to consolidated financial statements.
<PAGE>
THE McCLATCHY COMPANY
CONSOLIDATED BALANCE SHEET (UNAUDITED)
(In thousands, except share amounts)
June 30, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
Restated
CURRENT LIABILITIES
Current portion of bank debt $ 6,995 $ -
Accounts payable 42,747 35,613
Accrued compensation 66,028 27,956
Income taxes 46,342 1,877
Unearned revenue 32,949 19,308
Carrier deposits 4,310 3,980
Other accrued liabilities 28,407 9,709
227,778 98,443
LONG-TERM BANK DEBT 1,044,005 94,000
OTHER LONG-TERM OBLIGATIONS 69,974 40,406
DEFERRED INCOME TAXES 139,312 57,894
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Common stock $.01 par value:
Class A - authorized
100,000,000 shares, issued
15,875,850 in 1998 and 9,421,383 in
1997 158 94
Class B - authorized
60,000,000 shares, issued
28,675,912 in 1998 and 28,685,912 in
1997 287 287
Additional paid-in capital 266,607 74,354
Retained earnings 510,394 492,320
777,446 567,055
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,258,515 $ 857,798
<PAGE>
<TABLE>
THE McCLATCHY COMPANY
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
(In thousands, except per share amounts)
<CAPTION>
Three Months Ended June Six Months Ended June
30, 30,
1998 1997 1998 1997
<S> Restated Restated
REVENUES - NET <C> <C> <C> <C>
Newspapers:
Advertising $ 207,882 $ 128,317 $ 335,169 $ 244,960
Circulation 44,938 26,615 73,176 53,573
Other 10,852 4,401 16,418 8,634
263,672 159,333 424,763 307,167
Non-newspapers 3,335 2,947 6,207 5,734
267,007 162,280 430,970 312,901
OPERATING EXPENSES
Compensation 99,816 63,008 168,210 126,416
Newsprint and supplements 42,191 23,458 69,258 44,804
Depreciation and amortization 27,594 13,391 42,067 26,641
Other operating expenses 44,881 29,753 76,245 59,455
214,482 129,610 355,780 257,316
OPERATING INCOME 52,525 32,670 75,190 55,585
NONOPERATING (EXPENSES) INCOME
Interest expense (20,178) (2,333) (24,215) (5,001)
Partnership income (loss) 350 (300) 550 (700)
Gain on sale of certain
business operations - 109 - 6,703
Other - net 955 128 1,388 231
INCOME BEFORE INCOME TAX PROVISION 33,652 30,274 52,913 56,818
INCOME TAX PROVISION 16,970 12,606 26,986 23,719
NET INCOME $ 16,682 $ 17,668 $ 25,927 $ 33,099
NET INCOME PER COMMON SHARE:
Basic $ 0.37 $ 0.47 $ 0.62 $ 0.87
Diluted $ 0.37 $ 0.46 $ 0.62 $ 0.87
WEIGHTED AVERAGE
NUMBER OF COMMON SHARES:
Basic 44,528 37,929 41,774 37,876
Diluted 44,660 38,091 41,905 38,038
</TABLE>
See notes to consolidated financial statements
<PAGE>
<TABLE>
THE McCLATCHY COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(In thousands)
<CAPTION>
Six Months Ended June 30,
<S> 1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES: Restated
<C> <C>
Net income $ 25,927 $ 33,099
Reconciliation to net cash provided:
Depreciation and amortization 42,134 26,714
Partnership(income)losses (550) 700
Gain on sale of certain business operations - (6,703)
Changes in certain assets and liabilities - net (8,606) 2,971
Other (532) (2,002)
Net cash provided by operating activities 58,373 54,779
CASH FLOW FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (11,946) (12,707)
Merger of Cowles Media Company (1,099,070) -
Proceeds from sale of certain business operations 178,538 11,400
Other - net 133 6
Net cash used by investing activities (932,345) (1,301)
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 1,125,000 -
Repayment of long-term debt (249,370) (47,000)
Payment of cash dividends (7,853) (7,201)
Other - principally stock issuances in employee plans 2,110 3,101
Net cash provided (used) by financing activities 869,887 (51,100)
NET CHANGE IN CASH AND CASH EQUIVALENTS $ (4,085) $ 2,378
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 8,671 5,877
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,586 $ 8,255
OTHER CASH FLOW INFORMATION
Cash paid during the period for:
Income taxes (net of refunds) $ 10,283 $ 28,591
Interest paid (net of capitalized interest) $ 15,157 $ 5,475
MERGER
Fair value of assets acquired $ 1,544,531
Fair value of liabilities assumed (282,596)
Issuance of common stock (189,803)
Fees & expenses 29,067
Less cash acquired (2,129)
Net cash paid $ 1,099,070
</TABLE>
See notes to consolidated financial statements
<PAGE>
<TABLE>
THE McCLATCHY COMPANY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
(In thousands, except share and per share amounts)
<CAPTION>
Additional Restated Treasury
Par Value Paid-In Retained Stock Restated
Class B Capital Earnings At Cost Total
<S> <C> <C> <C> <C> <C> <C>
BALANCES, DECEMBER 31, 1996 $ 89 $ 288 $ 67,534 $ 437,527 $ (371) $ 505,067
Net income (6 months) 33,099 33,099
Dividends paid ($.19 per share) (7,201) (7,201)
Issuance of 194,302 Class A
shares under employee stock
plans 2 3,099 3,101
Conversion of 112,875 Class B
shares to Class A 1 (1)
Tax benefit from stock plans 616 616
Retirement of treasury stock (371) 371
BALANCES, June 30, 1997 92 287 70,878 463,425 - 534,682
Net income (6 months) 36,133 36,133
Dividends paid ($.19 per share) (7,238) (7,238)
Conversion of 43,592 Class B
shares to Class A
Issuance of 154,055 Class A
shares under employee stock
plans 2 2,706 2,708
Tax benefit from stock plans 770 770
BALANCES, DECEMBER 31, 1997 94 287 74,354 492,320 - 567,055
Net income 25,927 25,927
Dividends paid ($.095 per share) (7,853) (7,853)
Conversion of 10,000 Class B
shares to Class A -
Issuance of 117,692 Class A
Shares under employee stock
plans 1 2,109 2,110
Issuance of 6,326,775 Class A
shares for Cowles merger 63 189,740 189,803
Tax benefit from stock plans 404 404
BALANCES, June 30, 1998 $ 158 $ 287 $ 266,607 $ 510,394 $ - $ 777,446
</TABLE>
See notes to consolidated financial statements
<PAGE>
THE McCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The McClatchy Company (the "Company") and its subsidiaries are
engaged primarily in the publication of newspapers located in
Minnesota, California, Washington state, Alaska and North and
South Carolina.
The consolidated financial statements include the accounts of
the Company and its subsidiaries. Significant intercompany items
and transactions have been eliminated. 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.
In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments
necessary to present fairly the Company's financial position,
results of operations, and cash flows for the interim periods
presented. All adjustments are normal recurring entries except
for the change in the method of accounting for inventories
discussed at note 3. Such financial statements are not
necessarily indicative of the results to be expected for the full
year.
During 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) 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.
The Company has no items of comprehensive income which differ
from its net income. Accordingly, adoption of this statement in
1998 has not impacted the Company's consolidated financial
position, results of operations or cash flows.
NOTE 2. MERGER WITH COWLES MEDIA COMPANY
On March 19, 1998 the Company acquired all of the
outstanding shares of Cowles Media Company (Cowles) in a
transaction valued at approximately $90.50 per Cowles share and
the assumption of $77,350,000 in existing Cowles debt. Cowles
publishes the Star Tribune newspaper, which serves the Twin
Cities of Minneapolis and St. Paul. Cowles also owned four
separate subsidiaries that publish business magazines, special-
interest magazines and home improvement books. Simultaneously
with the close of the merger, the Company sold the magazine and
book publishing subsidiaries. The combined proceeds, plus debt
and other liabilities assumed by the buyers in those
transactions, were $208.1 million. These proceeds were used to
repay debt associated with the Cowles merger.
In connection with the Cowles merger, the Company paid 15%
of the consideration by issuing 6,326,775 shares of Class A
Common Stock in exchange for Cowles shares and paid cash for the
remaining shares. The Class A shares were exchanged using a
ratio of 3.01667 shares of McClatchy Class A Common for each
Cowles share. The Company incurred bank debt through a syndicate
of banks and financial institutions to finance the cash
requirements of the merger and to refinance its existing debt
(see note 4). Results of the Star Tribune have been included in
the Company's results beginning March 20, 1998.
The non-newspaper businesses were valued at fair market
value based upon the net after-tax proceeds received by the
Company on March 19, 1998, and accordingly, no gain or loss was
realized on the sale.
The primary asset retained by the Company is the Star
Tribune, the largest newspaper in Minnesota with daily
circulation of 387,000 and Sunday circulation of 673,000 as of
March 19, 1998. The Star Tribune is now the Company's largest
newspaper.
The merger was accounted for as a purchase, and accordingly,
assets acquired and liabilities assumed have been recorded at
their fair market values. Assets retained by the Company
included approximately $54,350,000 of current assets,
$134,865,000 of property, plant and equipment, $1,171,242,000 of
intangible assets and $67,763,000 of other assets. Intangible
assets include approximately $1,038,000,000 of goodwill which is
being amortized over 40 years. In addition to assuming Cowles'
long-term debt, a total of $213,900,000 of deferred taxes and
other liabilities were assumed. The Company is continuing to
assess the value of certain assets and liabilities, including
identifiable intangible assets, severance and other liabilities
and will adjust its carrying values as final determinations are
made. The following table summarizes, on an unaudited pro forma basis,
the combined results of operations of the Company and its
subsidiaries for the six month periods ended June 30, 1998 and
1997, as though the Cowles merger had taken place on January 1,
1997 (in thousands, except per share amounts):
1998 1997
Revenues $ 513,659 $ 492,163
Net (loss) income (12,973) 16,206
Diluted (loss) earnings per share $ (0.29) $ 0.37
Cowles Media Company donated $10,000,000 to the Cowles Media
Foundation and incurred significant investment banking, legal and
other costs associated with the transaction in the first quarter
of 1998, contributing to a loss in the pro forma results for the
six months ended June 30, 1998.
NOTE 3. CHANGE IN METHOD OF ACCOUNTING FOR NEWSPRINT
INVENTORY
The Company has accounted for newsprint inventories by the
first-in, first-out (FIFO) method beginning January 1, 1998,
whereas in all prior years inventories were valued using the last-
in, first-out (LIFO) method. The new method of accounting for
newsprint inventory was adopted to provide for a better matching
of revenues and expenses. Additionally, the change will enable
the financial reporting to parallel the way management assesses
the financial and operational performance of its newspapers. The
financial statements of prior years have been restated to apply
the new method retroactively, and accordingly, retained earnings
as of December 31, 1996 have been increased by $1,953,000 to
reflect the restatement. The effect of the accounting change on
net income as previously reported for the quarter and six months
ended June 30, 1997 is as follows (in thousands):
Quarter Six months
ended June ended June
30, 1997 30, 1997
Net income as previously reported $ 17,592 $ 32,949
Adjustment for effect of change in
accounting for newsprint
inventories applied retroactively 76 150
Net income as adjusted $ 17,668 $ 33,099
The adjustment did not result in a change to basic or
diluted net income per share for the six-month period.
NOTE 4. LONG-TERM BANK DEBT AND OTHER LONG-TERM OBLIGATIONS
On July 28, 1995 the Company entered into a bank credit
agreement providing for borrowings up to $310,000,000. At
December 31, 1997, the Company had long-term bank debt of
$94,000,000 and the remaining balance of this debt was refinanced
with the new credit agreement obtained in connection with the
Cowles merger. See note 2 and the discussion below.
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 swap was terminated upon the closing of the Cowles
merger, with no significant loss to the Company.
The Company entered into a bank credit agreement (Credit
Agreement) with a syndicate of banks and financial institutions
providing for borrowings of up to $1,265,000,000 to finance the
Cowles merger and refinance its existing debt. The Credit
Agreement includes term loans consisting of Tranche A of $735
million bearing interest at the London Interbank Offered Rate
("LIBOR") plus 125 basis points, payable in increasing quarterly
installments from June 30, 1998 through March 31, 2005, and
Tranche B of $330 million bearing interest at LIBOR plus 175
basis points and payable in semi-annual installments from
September 30, 1998 through September 30, 2008. A revolving
credit line of up to $200 million bears interest at LIBOR plus
125 basis points and is payable by March 19, 2005. 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. Interest rates applicable to debt drawn down
at June 30, 1998, ranged from 6.9% to 7.4%. 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 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.
During the second quarter, the Company entered into interest
rate protection agreements to reduce the impact of changes in
interest rates on its floating rate debt. The Company is a party
to three interest rate swap agreements, expiring in 2002 to 2003,
with an aggregate notional amount of $300,000,000. The effect of
these agreements is to fix the LIBOR interest rate exposure at
5.9% on that portion of the Company's term loans. There was no
significant change in the fair value of these swaps as of June
30, 1998.
Also during the second quarter, the Company entered into an
interest rate collar with a $200,000,000 notional amount, and a
LIBOR ceiling rate of 6.5% and a floor of 5.3%. There was no
significant change in the fair value of this collar as of June
30, 1998.
The Company has outstanding letters of credit totaling
$29,154,372 securing estimated obligations stemming from workers'
compensation claims, pension liabilities and other contingent
claims.
At June 30, 1998, long-term debt consisted of (in
thousands):
June 30, December 31,
1998 1997
Credit Agreement:
Term loans $ 962,000
Revolving credit line 89,000 $ 94,000
Total indebtedness 1,051,000 94,000
Less current portion 6,995 -
Long-term indebtedness $ 1,044,005 94,000
Long-term debt matures, as of June 30 of each year, as follows
(in thousands):
2000 $ 37,167
2001 69,323
2002 87,698
2003 119,854
2004 184,167
Thereafter 545,796
$ 1,044,005
NOTE 5. INCOME TAXES
For the six-month periods ended June 30, the effective tax
rate and the statutory federal income tax rate are reconciled as
follows:
1998 1997
Statutory rate 35.0% 35.0%
State taxes, net of federal benefit 6.4 4.5
Amortization of intangibles 9.2 3.1
Tax basis adjustment of intangibles sold - (1.0)
Other 0.4 0.1
Effective tax rate 51.0% 41.7%
Item 2-MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Recent Events and Trends
On March 19, 1998 the Company acquired all of the
outstanding shares of Cowles Media Company (Cowles) in a
transaction valued at $90.50 per Cowles share and the assumption
of $77.4 million in existing Cowles debt. Cowles publishes the
Star Tribune newspaper, which serves the Twin Cities of
Minneapolis and St. Paul. Cowles also owned four separate
subsidiaries that publish business magazines, special-interest
magazines and home improvement books. Simultaneously with the
closing of the Cowles merger, the Company sold the magazine and
book publishing subsidiaries. The combined proceeds, plus debt
and other liabilities assumed by the buyers in those
transactions, were $208.1 million. These proceeds were used to
repay debt associated with the Cowles merger. See note 2 to the
consolidated financial statements.
In connection with the merger, the Company paid 15% of the
consideration by issuing 6,326,775 shares of Class A Common Stock
in exchange for Cowles shares and paid cash for the remaining
shares. The Class A shares were exchanged using a ratio of
3.01667 shares of McClatchy Class A Common for each Cowles share.
The Company obtained bank debt through a syndicate of banks and
financial institutions to finance the cash requirements of the
merger and to refinance its existing debt (See note 4 to the
consolidated financial statements). Results of the Star Tribune
have been included in the Company's results beginning March 20,
1998.
The non-newspaper businesses were valued at fair market
value based upon the net after-tax proceeds received by the
Company on March 19, 1998, and accordingly, no gain or loss was
realized on the sale.
The primary asset retained by the Company following the
Cowles transaction is the Star Tribune, the largest newspaper in
Minnesota with daily circulation of 387,000 and Sunday
circulation of 673,000 as of March 19, 1998. It is now the
Company's largest newspaper.
The Company has accounted for newsprint inventories by the
first-in, first-out (FIFO) method beginning January 1, 1998,
whereas in all prior years inventories were valued using the last-
in, first-out (LIFO) method. This change is not expected to have
a material effect on 1998 results. The new method of accounting
for newsprint inventory was adopted to provide for a better
matching of revenues and expenses. Additionally, the change will
enable the financial reporting to parallel the way management
assesses the financial and operational performance of its
newspapers. The financial statements of prior years have been
restated to apply the new method retroactively and, accordingly,
retained earnings as of December 31, 1996 have been increased by
$1,953,000 to reflect the restatement. The effect of the
accounting change on net income as previously reported for the
quarter ended June 30, 1997 was not material. See note 3 to the
consolidated financial statements.
On February 28, 1997, the Company completed the sale of four
community newspapers and recorded a pre-tax gain of $6.7 million
in other non-operating (expenses) income. The after tax gain on
the 1997 sale was 10 cents per share.
During 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) 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.
The Company has no items of comprehensive income that differ from
its net income. Accordingly, adoption of this statement in 1998
has not impacted the Company's consolidated financial position,
results of operations or cash flows.
SFAS 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; and No. 132 (Employers' Disclosure
about Pensions and Other Postretirement Benefits), which revises
the disclosures about pension and other postretirement benefits,
will be adopted in 1998 and are not expected to have a material
impact on the Company's financial position, results of operations
or cash flows.
Second Quarter 1998 Compared to 1997
Net income was $16.7 million or 37 cents (basic and diluted)
per share in the second quarter of 1998, down from the $17.7
million or 46 cents (diluted) per share in the second quarter of
1997. Earnings include the results of the Star Tribune newspaper
in the 1998 quarter, and reflect acquisition related expenses
including intangible asset amortization, depreciation, interest
and taxes. Also, primarily as a result of Class A shares issued
in connection with the acquisition, the number of weighted
average outstanding shares increased 6.6 million from the 1997
quarter.
Revenues increased 64.5% to $267.0 million including $97.7
million of revenues from the Star Tribune. Excluding Star
Tribune revenues from the 1998 quarter and revenues from
operations that were sold from the 1997 quarter, revenues
increased 4.5%. The increase of 4.5% primarily reflects higher
advertising revenues generated mostly by rate increases and
relatively flat advertising volumes. Circulation revenues
declined nominally from the 1997 second quarter as no home-
delivery rate increases were implemented in 1998.
OPERATING REVENUES BY REGION:
(Amounts in thousands)
1998 1997 % Change
California newspapers $ 82,347 $ 80,339 2.5
Carolinas newspapers 44,785 42,224 6.1
Northwest newspapers 38,816 36,770 5.6
Minnesota newspaper 97,724 - NM
Non-newspaper operations 3,335 2,947 13.2
$ 267,007 $ 162,280 64.5
NM - not meaningful due to the addition of the Star Tribune on
March 20, 1998.
Revenues at the Company's California newspapers (primarily the
three "Bee" dailies in Sacramento, Fresno and Modesto)
represented 30.8% of total Company revenues and were up 2.5%.
Advertising revenues at the three Bee newspapers were up 2.8%,
primarily reflecting rate increases implemented in the first
quarter in Sacramento and Fresno, and in May at The Modesto Bee.
Circulation revenues declined nominally, and other revenues,
reflecting niche and on-line products, increased $345,000 or
41.6% at the three Bees.
The Carolinas newspapers contributed 16.8% of the second
quarter revenues and were up 6.1%, led by The News & Observer
newspaper in Raleigh, N.C. The Carolina newspapers' revenue
increase reflects strong growth in retail and classified
advertising revenue. In addition, circulation revenues increased
2.0% in the region reflecting increased daily and Sunday average
paid circulation.
The Northwest newspapers' revenues trends continued to improve
over a sluggish 1997 with revenue growth of 5.6%, led by
advertising revenues growth at The News Tribune (Tacoma, WA) and
Anchorage Daily News. The Daily News also had a resurgence of
commercial printing revenues which were up $335,000 or 27.6%.
Circulation revenues declined nominally at the three Northwest
dailies. The Northwest newspapers contributed 14.5% of total
second quarter revenues.
The Star Tribune contributed $97.7 million of revenues in the
second quarter, including $74.1 million of advertising revenues,
$18.4 million of circulation revenues and $5.3 million of other
revenues. The Star Tribune contributed 36.6% of total second
quarter revenues. Pro-forma newspaper advertising revenues were
up 3.2% in the second quarter and, helped by Metro Marketing, a
direct mail company purchased in August 1997, total revenues were
up 6.7% on a pro-forma basis.
The Company's non-newspaper revenues are primarily generated
by The Newspaper Network, Nando Media, and commercial printing
operations. These operations contributed approximately 1.0% of
total second quarter revenues.
OPERATING EXPENSES:
Operating expenses increased 65.5% and include the expenses of
the Star Tribune newspaper. Expenses excluding the Star Tribune
increased primarily due to higher newsprint costs. Newsprint and
supplement expenses increased 11.5% from second quarter 1997 due
primarily to higher newsprint prices. Non-newsprint expenses,
excluding the Star Tribune, were up 2.8%, mostly reflecting
higher compensation costs.
NON OPERATING (EXPENSES) INCOME - NET:
Interest expense increased $17.8 million reflecting the cost
of the new debt incurred in the Cowles merger (see Liquidity and
Capital Resources below). The Company's share of income from its
Ponderay newsprint mill joint venture was $350,000 versus a loss
of $300,000 in 1997 when newsprint prices were lower.
INCOME TAXES:
The Company's effective tax rate was 50.4% in the quarter
compared to 41.6% in the 1997 quarter. The higher rate reflects
the non-deductible amortization of intangibles created in the
Cowles merger.
Six-Month Period 1998 Compared to 1997
Earnings in the six-month period ending June 30, 1998, were
$25.9 million or 62 cents (diluted) per share compared to $33.1
million or 87 cents (diluted) in 1997. Revenues and expenses
generally reflect the same factors as described in the second
quarter comparisons, except for two factors:
1) The Cowles merger was completed late in the first quarter of
1998 and had less effect on the six-month period than the second
quarter.
2) Newsprint prices were substantially higher in the first
quarter of 1998 than 1997 reflecting a price increase in November
1997, while prices in the second quarter were up in the 10%
range.
OPERATING REVENUES BY REGION:
(Amounts in thousands)
1998 1997 % Change
California newspapers $ 158,708 $ 155,894 1.8
Carolinas newspapers 86,303 81,293 6.2
Northwest newspapers 73,105 69,980 4.5
Minnesota newspaper 106,647 - NM
Non-newspaper operations 6,207 5,734 8.2
$ 430,970 $ 312,901 37.7
NM - not meaningful due to the addition of the Star Tribune on
March 20, 1998.
The California newspaper revenue growth was 1.8% for the six-
month period versus 2.5% in the second quarter and was slowed by
prolonged rainy weather throughout most of the first quarter of
1998. Also, 1997 revenues include $1.1 million of revenues from
four community newspapers that were sold in February 1997.
Excluding them, revenues were up 2.5%, with advertising revenues
at the three Bee newspapers up 2.7%.
The Carolinas and Northwest newspapers' revenues were
generally up for the same factors discussed above, and the Star
Tribune's revenues reflect nine days in the month of March and
all of the second quarter.
OPERATING EXPENSES:
Operating expenses were up 35.3%, but were up 5.2% after
excluding the Star Tribune's expense from 1998 and sold
operations from 1997. Excluding those operations, newsprint and
supplement costs were higher by 15.9% reflecting higher prices in
1998 and an approximate one percent increase in newsprint usage.
All other operating expenses, including depreciation and
amortization, were up 2.9%, in line with inflation.
NON OPERATING (EXPENSE) INCOME - NET:
Interest expense increased $19.2 million reflecting the
higher debt level, and the Company's share of Ponderay's income
was $550,000 versus a $700,000 loss in 1997. The 1997 non-
operating income included a $6.7 million pre-tax gain on the sale
of four community newspapers.
INCOME TAXES:
The company's effective tax rate was 51.0% for the six-month
period in 1998 compared to 41.7% in 1997, primarily reflecting
non-deductible expenses associated with the Cowles merger. See
note 5 to the consolidated financial statements.
Liquidity & Capital Resources
Operations generated $58.4 million in cash, and the Company
received $178.5 million in cash proceeds from the sale of Cowles'
non-newspaper subsidiaries. Additionally, the Company borrowed
$1.125 billion to finance the cash requirements of the Cowles
merger. In addition to the Cowles merger, cash was used
primarily to pay for capital expenditures and pay dividends.
Capital expenditures are projected to be $40.0 million in 1998.
The Company entered into a bank credit agreement (Credit
Agreement) with a syndicate of banks and financial institutions
providing for borrowings of up to $1,265,000,000 to finance the
Cowles merger and refinance its existing debt. The Credit
Agreement includes term loans consisting of Tranche A of $735
million bearing interest at the London Interbank Offered Rate
("LIBOR") plus 125 basis points, payable in increasing quarterly
installments from June 30, 1998 through March 31, 2005, and
Tranche B of $330 million bearing interest at LIBOR plus 175
basis points and payable in increasing semi-annual installments
from September 30, 1998 through September 30, 2008. A revolving
credit line of up to $200 million bears interest at LIBOR plus
125 basis points and is payable by March 19, 2005. 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 Company has $81.8 million of available
credit at June 30, 1998 (see note 4 to the consolidated financial
statements). 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 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.
During the second quarter, the Company entered into interest
rate protection agreements to reduce the impact of changes in
interest rates on its floating rate debt. The Company is a party
to three interest rate swap agreements, expiring in 2002 to 2003,
with an aggregate notional amount of $300,000,000. The effect of
these agreements is to fix the LIBOR interest rate exposure at
5.9% on that portion of the Company's term loans. There was no
significant change in the fair value of these swaps as of June
30, 1998.
Also during the second quarter, the Company entered into an
interest rate collar with a $200,000,000 notional amount, and a
LIBOR ceiling rate of 6.5% and a floor of 5.3%. There was no
significant change in the fair value of this collar as of June
30, 1998.
The Company has outstanding letters of credit totaling $29.2
million securing estimated obligations stemming from workers'
compensation claims, pension liabilities and other contingent
claims.
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 present and future credit lines 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 a
potential 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 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 and task forces at the Company's
individual newspapers are in place to assess the needed changes
to the Company's many different information systems. An
implementation plan has been developed which includes contacting
the Company's material vendors and customers to verify that they
are addressing this issue. A dedicated Year 2000 Compliance
Coordinator has been named to monitor the Company's progress in
meeting its own internal deadlines for compliance. Many of the
necessary changes in computer instructional code are expected to
be accomplished 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 estimates the total cost of evaluating and
making required changes will be between $1 million and $2 million
over the next eighteen months. The costs incurred in addressing
the Year 2000 issue will be expensed as incurred, in compliance
with generally accepted accounting principles.
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 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.
Item 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK: NOT REQUIRED
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Default Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders:
The Company held its annual shareholders meeting on May 21, 1998 to vote
on several proposals. Shareholders approved all of the proposals by voting
as follows:
1. Election of Directors of the Board
VOTES
FOR WITHHELD
Nominees for Class A Directors voted
by Class A Stockholders
Elizabeth Ballantine 11,106,750 142,177
Larry Jinks 11,093,786 155,141
S. Donley Ritchey, Jr. 11,089,217 159,710
Frederick R. Ruiz 11,097,405 151,522
Nominees for Class B Directors voted
by Class B Stockholders
William K. Coblentz 27,047,455 0
Molly Maloney Evangelisti 27,047,455 0
Joan F. Lane 27,047,455 0
Betty Lou Maloney 27,047,455 0
James B. McClatchy 27,047,455 0
William Ellery McClatchy 27,047,455 0
Erwin Potts 27,047,455 0
Gary B. Pruitt 27,047,455 0
William M. Roth 27,047,455 0
2. To approve the Company's Amended and Restated 1994 Stock
Option Plan voted by All Stockholders
FOR AGAINST ABSTAIN BROKER NON-VOTED
27,576,027 437,847 21,468 137,005
3. To approve the Company's 1998 Long-Term Incentive Plan voted
by All Stockholders
FOR AGAINST ABSTAIN BROKER NON-VOTED
28,122,134 26,925 23,288 0
4. To approve the Company's Chief Executive Bonus Plan voted by
All Stockholders
FOR AGAINST ABSTAIN BROKER NON-VOTED
28,065,287 79,605 27,455 0
5. To ratify the appointment of Deloitte & Touche LLP as the
Company's Independent Auditors for the 1998 Fiscal Year
FOR AGAINST ABSTAIN BROKER NON-VOTED
28,160,294 1,926 10,127 0
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K:
a) Exhibits:
10.1 The McClatchy Company Amended and Restated 1994 Stock Option
Plan dated January 1, 1998
10.2 McClatchy Newspapers, Inc., Long-Term Incentive Plan dated
January 1, 1998
10.3 The McClatchy Company Chief Executive Officer Bonus Plan
dated January 1, 1998
27.1 Financial Data Schedule for the six-months ended June 30,
1998
27.2 Restated Financial Data Schedule for the three-months ended
March 31, 1997.
b) Reports on Form 8-K:
The Company filed Amendment No. 1 Current Report on
Form 8-K/A dated March 19, 1998, to report under Item
2 and Item 7 of Form 8-K the closing of the Cowles
merger transaction and financial statements of
businesses acquired.
SIGNATURES
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 thereto duly authorized.
The McClatchy Company
Registrant
Date: August 11, 1998 /s/ James P. Smith
James P. Smith
Vice President, Finance and
Treasurer
THE McCLATCHY COMPANY
AMENDED AND RESTATED 1994 STOCK OPTION PLAN
(effective February 1, 1998)
SECTION 1. ESTABLISHMENT AND PURPOSE.
The Plan was established in 1994 to offer selected employees
of the Company or of a Subsidiary an opportunity to acquire a
proprietary interest in the success of the Company, or to
increase such interest, by purchasing Shares of the Company's
Class A Common Stock. The Plan provides for the grant of Options
to purchase Shares, which may include Nonstatutory Options as
wells as ISOs intended to qualify under section 422 of the Code.
Effective as of February 1, 1998, the Plan is amended and
restated as set forth herein.
SECTION 2. DEFINITIONS.
(a) "Board" shall mean the Board of Directors of the
Company, as constituted from time to time.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "Committee" shall mean a committee appointed by the
Board, as described in Section 3(a); provided, however, grants of
Options to Employees who are nonemployee Directors shall be made
by the full Board which shall act as the Committee for that
purpose.
(d) "Company" shall mean The McClatchy Company, a Delaware
corporation.
(e) "Employee" shall mean (i) any individual who is an
employee (within the meaning of section 3401(c) of the Code and
the regulations thereunder) of the Company or a Subsidiary and
(ii) directors of the Company, including nonemployee directors.
(f) "Exercise Price" shall mean the amount for which one
Share may be purchased upon exercise of an Option, as specified
by the Committee in the applicable Stock Option Agreement.
(g) "Fair Market Value" shall mean the market price of a
Share, determined by the Committee as follows:
(i) If the Share was traded on a stock exchange on
the date in question, then the Fair Market Value shall be equal
to the closing price reported by the applicable
composite-transactions report for such date;
(ii) If the Share was traded over-the-counter on the
date in question and was traded on the Nasdaq system or the
Nasdaq National Market, then the Fair Market Value shall be
equal to the last-transaction price quoted for such date by the
Nasdaq system or the Nasdaq National Market;
(iii) If the Share was traded over-the-counter on the
date in question but was not traded on the Nasdaq system or the
Nasdaq National Market, then the Fair Market Value shall be
equal to the mean between the last reported representative bid
and asked prices quoted for such date by the principal automated
inter-dealer quotation system on which Stock is quoted or, if
the Stock is not quoted on any such system, by the "Pink Sheets"
published by the National Quotation Bureau, Inc.; and
(iv) If none of the foregoing provisions is applicable,
then the Fair Market Value shall be determined by the Committee
in good faith on such basis as it deems appropriate.
(h) "ISO" shall mean an employee incentive stock option
described in section 422(b) of the Code.
(i) "Nonstatutory Option" shall mean a stock option not
described in sections 422 or 423 of the Code.
(j) "Option" shall mean an ISO or Nonstatutory Option
granted under the Plan and entitling the holder to purchase
Shares.
(k) "Optionee" shall mean an individual who holds an Option.
(l) "Plan" shall mean this McClatchy Newspapers, Inc.
Amended and Restated 1994 Stock Option Plan, as it may be
amended.
(m) "Service" shall mean service as an Employee.
(n) "Share" shall mean one share of Stock, as adjusted in
accordance with Section 8 (if applicable).
(o) "Stock" shall mean the Class A Common Stock of the
Company.
(p) "Stock Option Agreement" shall mean the agreement
between the Company and an Optionee which contains the terms,
conditions and restrictions pertaining to his or her Option.
(q) "Subsidiary" shall mean any corporation, if the Company
and/or one or more other Subsidiaries own not less than 50
percent of the total combined voting power of all classes of
outstanding stock of such corporation. A corporation that
attains the status of a Subsidiary on a date after the adoption
of the Plan shall be considered a Subsidiary commencing as of
such date.
(r) "Total and Permanent Disability" shall mean that the
Optionee is unable to engage in any substantial gainful activity
by reason of any medically determinable physical or mental
impairment which has lasted, or can be expected to last, for a
continuous period of not less than twelve months or which can be
expected to result in death.
SECTION 3. ADMINISTRATION.
(a) Committee Membership. The Plan shall be administered
by the Committee which shall consist of not less than two
directors appointed by the Board each of whom shall satisfy the
requirements of Rule 16b-3, as amended of the Securities Exchange
Act of 1934, as amended and (b) such requirements as the Internal
Revenue service may establish for outside directors acting under
plans intended to qualify for exemption under section
162(m)(4)(C) of the Code.
(b) Committee Procedures. The Board shall designate one of
the members of the Committee as chairman. The Committee may hold
meetings at such times and places as it shall determine. The
acts of a majority of the Committee members present at meetings
at which a quorum exists, or acts reduced to or approved in
writing by all Committee members, shall be valid acts of the
Committee.
(c) Committee Responsibilities. Subject to the provisions
of the Plan, the Committee shall have full authority and
discretion to take the following actions:
(i) To interpret the Plan and to apply its provisions;
(ii) To adopt, amend or rescind rules, procedures and
forms relating to the Plan;
(iii) To authorize any person to execute, on behalf of the
Company, any instrument required to carry out the purposes of the
Plan;
(iv) To determine when Options are to be granted under the
Plan;
(v) To select the Optionees;
(vi) To determine the number of Shares to be made subject
to each Option;
(vii) To prescribe the terms and conditions of each
Option, including (without limitation) the Exercise Price, to
determine whether such Option is to be classified as an ISO or as
a Nonstatutory Option, to specify the provisions of the Stock
Option Agreement relating to such Option, and to determine
whether an Option should be settled under Section 7(c) and the
form of settlement;
(viii) To amend any outstanding Stock Option Agreement,
subject to applicable legal restrictions and to the consent of
the Optionee who entered into such agreement; and
(ix) To take any other actions deemed necessary or
advisable for the administration of the Plan.
All decisions, interpretations and other actions of the Committee
shall be final and binding on all Optionees and all persons
deriving their rights from an Optionee. No member of the
Committee shall be liable for any action that he or she has taken
or has failed to take in good faith with respect to the Plan or
any Option.
SECTION 4. ELIGIBILITY.
(a) General Rule. Only Employees shall be eligible for
designation as Optionees by the Committee.
(b) Ten-Percent Shareholders. An Employee who owns more
than 10 percent of the total combined voting power of all classes
of outstanding stock of the Company or any of its Subsidiaries
shall not be eligible for the grant of an ISO unless (i) the
Exercise Price under such ISO is at least 110 percent of the Fair
Market Value of a Share on the date of grant and (ii) such ISO by
its terms is not exercisable after the expiration of five years
from the date of grant.
(c) Attribution Rules. For purposes of Subsection (b)
above, in determining stock ownership, an Employee shall be
deemed to own the stock owned, directly or indirectly, by or for
his brothers, sisters, spouse, ancestors and lineal descendants.
Stock owned, directly or indirectly, by or for a corporation,
partnership, estate or trust shall be deemed to be owned
proportionately by or for its shareholders, partners or
beneficiaries. Stock with respect to which such Employee holds
an option shall not be counted.
(d) Outstanding Stock. For purposes of Subsection (b)
above, "outstanding stock" shall include all stock actually
issued and outstanding at the time of the grant of the ISO to the
Optionee. "Outstanding stock" shall not include treasury shares
or shares authorized for issuance under outstanding options held
by the Optionee or by any other person.
SECTION 5. STOCK SUBJECT TO PLAN.
(a) Basic Limitation. Shares offered under the Plan shall
be authorized but unissued Shares or treasury Shares. The
aggregate number of Shares which may be issued under the Plan
shall not exceed 1,812,500 Shares, subject to adjustment pursuant
to Section 8. The number of Shares which are subject to Options
at any time under the Plan shall not exceed the number of Shares
which then remain available for issuance under the Plan. The
Company, during the term of the Plan, shall at all times reserve
and keep available sufficient Shares to satisfy the requirements
of the Plan.
(b) Additional Shares. In the event that any outstanding
Option for any reason expires or is canceled or otherwise
terminated (except as provided in Section 7 (c)), the Shares
allocable to the unexercised portion of such Option shall again
be available for the purposes of the Plan.
SECTION 6. TERMS AND CONDITIONS OF OPTIONS.
(a) Stock Option Agreement. Each grant of an Option under
the Plan shall be evidenced by a Stock Option Agreement between
the Optionee and the Company. Such Option shall be subject to
all applicable terms and conditions of the Plan and may be
subject to any other terms and conditions which are not
inconsistent with the Plan and which the Committee deems
appropriate for inclusion in a Stock Option Agreement. The
provisions of the various Stock Option Agreements entered into
under the Plan need not be identical.
(b) Number of Shares. Each Stock Option Agreement shall
specify the number of Shares that are subject to the Option and
shall provide for the adjustment of such number in accordance
with Section 8. Options granted to any Optionee in a single
calendar year shall in no event cover more than 187,500 Shares,
subject to adjustment in accordance with Section 8. The Stock
Option Agreement shall also specify whether the Option is an ISO
or a Nonstatutory Option.
(c) Exercise Price. Each Stock Option Agreement shall
specify the Exercise Price. The Exercise Price of an Option
shall not be less than 100 percent of the Fair Market Value of a
Share on the date of grant, except as otherwise provided in
Section 4(b). Subject to the preceding sentence, the Exercise
Price under any Option shall be determined by the Committee at
its sole discretion. The Exercise Price shall be payable in
accordance with Section 7.
(d) Exercisability and Term. Each Stock Option Agreement
shall specify the date when all or any installment of the Option
is to become exercisable. The Stock Option Agreement shall also
specify the term of the Option. The term shall not exceed 10
years from the date of grant, except as otherwise provided in
Section 4(b). Subject to the preceding sentence, the Committee
at its sole discretion shall determine when all or any part of an
Option is to become exercisable and when such Option is to
expire.
(e) Nontransferability. During an Optionee's lifetime, and
unless his or her Stock Option Agreement otherwise provides, his
or her Option(s) shall be exercisable only by him or her and
shall not be transferable. In the event of an Optionee's death,
his or her nontransferable Option(s) shall not be transferable
other than by beneficiary designation, will or by the laws of
descent and distribution.
(f) Termination of Service (Except by Death). If an
Optionee's Service terminates for any reason other than death,
then his or her Option(s) shall expire on the earliest of the
following occasions:
(i) The expiration date determined pursuant to Subsection
(d) above;
(ii) The date 90 days after the termination of the
Optionee's Service, if the termination occurs on or after the
earliest date when he or she is eligible for early or normal
retirement under the Restated Retirement Plan for Employees of
McClatchy Newspapers;
(iii) The date one year after the termination of the
Optionee's Service, if the termination occurs because of his or
her Total and Permanent Disability; or
(iv) The date 30 days after the termination of the
Optionee's Service, if the termination is not described in
Paragraphs (ii) or (iii) above.
Notwithstanding the above, the Committee may agree to alternative
expiration periods in any applicable Stock Option Agreement, so
long as such alternative periods do not exceed 10 years from the
date of grant as set forth in Subsection (d) above. The
Optionee may exercise all or part of his or her Option(s) at any
time before the expiration of such Option(s) under the preceding
sentence, but only to the extent that such Option(s) had become
exercisable before his or her service terminated or became
exercisable as a result of the termination. The balance of such
Option(s) shall lapse when the Optionee's Service terminates. In
the event that the Optionee dies after the termination of his or
her Service but before the expiration of his or her Option(s),
all or part of such Option(s) may be exercised (prior to
expiration) by the executors or administrators of the Optionee's
estate or by any person who has acquired such Option(s) directly
from him or her by bequest or inheritance, but only to the extent
that such Option(s) had become exercisable before his or her
Service terminated or became exercisable as a result of the
termination.
(g) Leaves of Absence. For purposes of Subsection (f)
above, Service shall be deemed to continue while the Optionee is
on military leave, sick leave or other bona fide leave of absence
(as determined by the Committee). The foregoing notwithstanding,
in the case of an ISO granted under the Plan, Service shall not
be deemed to continue beyond the first 90 days of such leave,
unless the Optionee's reemployment rights are guaranteed by
statute or by contract.
(h) Death of Optionee. If an Optionee dies while he or she
is in service, then his or her Option(s) shall expire on the
earlier of the following dates:
(i)The expiration date determined pursuant to Subsection
(d) above; or
(ii)The date 12 months after his or her death.
All or part of the Optionee's Option(s) may be
exercised at any time before the expiration of such Option(s)
under the preceding sentence by the executors or administrators
of his or her estate or by any person who has acquired such
Option(s) directly from him or her by bequest or inheritance.
(i) No Rights as a Stockholder. An Optionee, or a
transferee of an Optionee, shall have no rights as a shareholder
with respect to any Shares covered by his or her Option until the
date of the issuance of a stock certificate for such Shares. No
adjustment shall be made except as provided in Section 8.
(j) Modification, Extension and Renewal of Options.
Within the limitations of the Plan, the Committee may modify,
extend or renew outstanding Options or may accept the
cancellation of outstanding Options (to the extent not previously
exercised) for the granting of new Options in substitution
therefor. The foregoing notwithstanding, no modification of an
Option shall, without the consent of the Optionee, impair his or
her rights or increase his or her obligations under such Option.
(k) Restrictions on Transfer of Shares. Any Shares
issued upon exercise of an Option shall be subject to such
special rights of repurchase, rights of first refusal and other
transfer restrictions as the Committee may determine. Such
restrictions shall be set forth in the applicable Stock Option
Agreement and shall apply in addition to any general restrictions
that may apply to all holders of Shares.
SECTION 7. PAYMENT FOR SHARES.
(a) General Rule. The entire Exercise Price of Shares
issued under the Plan shall be payable in cash at the time when
such Shares are purchased, except as follows:
(b) Surrender of Stock. To the extent that the Stock
Option Agreement so provides, payment may be made with Shares
which have already been owned by the Optionee for more than 12
months and which are surrendered to the Company in good form for
transfer. Such Shares shall be valued at their Fair Market Value
on the date when the new Shares are purchased under the Plan.
(c) Settlement in Cash and/or Shares. To the extent that
the Stock Option Agreement so provides, the Committee shall have
the authority, in its sole discretion, to settle all or any part
of an exercisable Option or installment of any Option by offering
payment in Shares or in cash, or in any combination of Shares and
cash, in exchange for the surrender of that Option, installment
or partial installment of the Option by the Optionee. The amount
offered by the Committee shall not exceed the difference between
the Exercise Price of the Option and the Fair Market Value of the
Shares on the date of the offer. In no event shall Options be
settled under this Subsection (c) if the Fair Market Value of the
Shares subject to the cancelled Options does not exceed the
Exercise Price of such Options. Options shall not be settled for
cash under this Subsection (c) unless they have been outstanding
for not less than six months. Shares as to which Options have
been settled shall not be available for further Option grants
under the Plan.
(d) Cashless Exercises. Payment may be made all or in part
by delivery (on a form prescribed by the Committee) of an
irrevocable direction to a securities broker to sell Shares and
to deliver all or part of the sale proceeds to the Company in
payment of the aggregate Exercise Price.
SECTION 8. ADJUSTMENT OF SHARES.
(a) General. In the event of a subdivision of the
outstanding Stock, a declaration of a dividend payable in Shares,
a declaration of a dividend payable in cash in an amount that has
a material effect on the price of Shares, a combination or
consolidation of the outstanding Stock (by reclassification or
otherwise) into a lesser number of Shares, a spinoff or a similar
occurrence, the Committee shall make appropriate adjustments in
one or more of (i) the number of Options available for future
grants under Section 5, (ii) the number of Shares covered by each
outstanding Option or (iii) the Exercise Price under each
outstanding Option.
(b) Reorganizations. In the event that the Company is a
party to a merger or other reorganization, outstanding Options
shall be subject to the agreement of merger or reorganization.
Such agreement may provide, without limitation, for the
assumption of outstanding Options by the surviving corporation or
its parent, for their continuation by the Company (if the Company
is a surviving corporation) or for settlement in cash.
(c) Reservation of Rights. Except as provided in this
Section 8, an Optionee shall have no rights by reason of any
subdivision or consolidation of shares of stock of any class, the
payment of any stock dividend or any other increase or decrease
in the number of shares of stock of any class. Any issue by the
Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall not affect,
and no adjustment by reason thereof shall be made with respect
to, the number or Exercise Price of Shares subject to an Option.
The grant of an Option pursuant to the Plan shall not affect in
any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or
business structure, to merge or consolidate or to dissolve,
liquidate, sell or transfer all or any part of its business or
assets.
SECTION 9. LEGAL REQUIREMENTS.
Shares shall not be issued under the Plan unless the
issuance and delivery of such Shares complies with (or is exempt
from) all applicable requirements of law, including (without
limitation) the Securities Act of 1933, as amended, the rules and
regulations promulgated thereunder, state securities laws and
regulations, and the regulations of any stock exchange on which
the Company's securities may then be listed.
SECTION 10. NO EMPLOYMENT RIGHTS.
No provision of the Plan, nor any Option granted under the
Plan, shall be construed as giving any person the right to become
or to be treated as an Employee or to remain an Employee. The
Company and its Subsidiaries reserve the right to terminate any
person's Service at any time and for any reason.
SECTION 11. DURATION AND AMENDMENTS.
(a) Term of the Plan. The Plan, as set forth herein, shall
become effective on February 1, 1998, subject to approval of the
Company's shareholders. In the event that the Company's
shareholders fail to approve the Plan before February 1, 1999,
any Option grants from the increased number of available Shares
made prior to such date shall be null and void, and no such
additional Option grants shall be made after such date. The Plan
shall terminate automatically on January 25, 2004, and may be
terminated on any earlier date pursuant to Subsection (b) below.
(b) Right to Amend or Terminate the Plan. The Board may
amend, suspend or terminate the Plan at any time and for any
reason. Shareholder approval shall not be required for any
amendment of the Plan, except as may be required by applicable
law or regulation.
(c) Effect of Amendment or Termination. No Shares shall be
issued or sold under the Plan after the termination thereof,
except upon exercise of an Option granted prior to such
termination. The termination of the Plan, or any amendment
thereof, shall not affect any Option previously granted under the
Plan.
SECTION 12. WITHHOLDING TAXES.
To the extent required by applicable federal, state, local
or foreign law, the recipient of any payment or distribution
under the Plan shall make arrangements satisfactory to the
Company for the satisfaction of any withholding tax obligations
that arise by reason of such payment or distribution. The
Company shall not be required to make such payment or
distribution until such obligations are satisfied.
SECTION 13. EXECUTION.
To record the adoption of the Plan by the Board on January
21, 1998, as amended and restated effective February 1, 1998, the
Company has caused its authorized officer to execute the same.
THE McCLATCHY COMPANY
/s/ Karole Morgan-Prager
Karole Morgan-Prager
Vice President and Corporate
Secretary
McCLATCHY NEWSPAPERS, INC.
LONG-TERM INCENTIVE PLAN
(Adopted Effective as of January 1, 1998)
TABLE OF CONTENTS
Page
SECTION 1. PURPOSE 1
SECTION 2. DEFINITIONS 1
SECTION 3. ELIGIBILITY FOR, GRANT AND CONVERSION OF UNITS 3
(a) Eligibility and Grant of Units 3
(b) Conversion of Units 4
SECTION 4. FORFEITURE OF AWARDS 4
SECTION 5. FORM AND TIME OF PAYMENT OF AWARDS 5
SECTION 6. EFFECT OF DEATH OF PARTICIPANT 5
(a) Distribution and Beneficiary Designation 5
(b) Change of Beneficiary 5
SECTION 7. PARTICIPANT'S RIGHTS UNSECURED 5
SECTION 8. NONASSIGNABILITY OF INTERESTS 6
SECTION 9. LIMITATION OF RIGHTS 6
(a) Units 6
(b) Employment 6
SECTION 10. ADMINISTRATION 6
SECTION 11. AMENDMENT OR TERMINATION 7
SECTION 12. CHOICE OF LAW 7
SECTION 13. EXECUTION 8
McCLATCHY NEWSPAPERS, INC.
LONG-TERM INCENTIVE PLAN
(Adopted Effective as of January 1, 1998)
SECTION 1. PURPOSE.
This Plan is intended to provide a means to pay long-term
incentive compensation to Executives who contribute materially to
the success of the Company. The Awards will be based on the
growth of the Pre-Tax Earnings of the Company. It is expected
that the Plan will assist the Company in attracting and retaining
Executives of outstanding achievement and ability and will
encourage Executives to use their best efforts on behalf of the
Company. The Plan was adopted effective as of January 1, 1998;
provided, however, that no Award shall be paid hereunder unless
and until the stockholders of the Company approve the material
terms of the Plan. The Plan is designed to ensure that Awards
paid hereunder to Participants are deductible under Section
162(m) of the Internal Revenue Code as amended, and the
regulations and interpretations promulgated thereunder (the
"Code").
SECTION 2. DEFINITIONS.
(a) "Award" means a Long-Term Incentive Award.
(b) "Beneficiary" means the person or persons designated
by the Participant in writing pursuant to Section 6 to receive
payment of an Award of the Participant in the event of his or her
death.
(c) "Board" means the Board of Directors of the Company,
as constituted from time to time.
(d) "Committee" means the Compensation Committee of the
Board, that shall satisfy the requirements of Code Section
162(m).
(e) "Company" means McClatchy Newspapers, Inc., a Delaware
corporation.
(f) "Early Retirement" means a Participant's early
retirement under the terms of the Restated Retirement Plan for
Employees of McClatchy Newspapers, Inc.
(g) "Executive" means an executive or key employee of the
Company, or a subsidiary of the Company, who is determined by the
Committee to be eligible to receive Units under Section 3(a).
(h) "Long-Term Incentive Award" means incentive compen
sation which is based on Long-Term Incentive Units.
(i) "Long-Term Incentive Unit" means a contingent right to
receive $1 times the number of percentage points by which Pre-Tax
Earnings increase from Performance Period to Performance Period.
Each grant of Long-Term Incentive Units shall specify the
Performance Period for which such grant is made.
(j) "Normal Retirement" means a Participant's normal
retirement under the terms of the Restated Retirement Plan for
Employees of McClatchy Newspapers, Inc.
(k) "Participant" means an Executive who is granted Units
that have not been fully distributed, forfeited or otherwise
terminated or satisfied under this Plan.
(l) "Performance Period" shall be a period consisting of
three (3) calendar years.
(m) "Plan" means this McClatchy Newspapers, Inc. Long-Term
Incentive Plan, as amended from time to time.
(n) "Pre-Tax Earnings" means the Company's consolidated
earnings before taxes, as reported in the Company's audited
financial statements but adjusted to exclude the gain or loss on
the sale of a major asset of the Company.
(o) "Total and Permanent Disability" means that the
Executive is unable to engage in any substantial gainful activity
by reason of any medically determinable physical or mental
impairment which has lasted, or can be expected to last, for a
continuous period of not less than six months or which can be
expected to result in death.
(p) "Unit" means a Long-Term Incentive Unit.
SECTION 3. ELIGIBILITY FOR, GRANT AND CONVERSION OF UNITS.
(a) Eligibility and Grant of Units. The Committee, acting
on the advice of the Chief Executive Officer of the Company or on
its own motion, shall from time to time designate the Executives
who will be granted Units. The Committee shall also determine
the number of Units that will be granted to each of such
Executives. The Performance Period will be determined and the
Units will be granted by the Committee no later than the time
prescribed by applicable law for the Awards to qualify under
Section 162(m) of the Internal Revenue Code.
(b) Conversion of Units. The Units granted to an
Executive for a Performance Period shall be converted into his or
her Award as of the March 1 next following the close of such
Performance Period. The Award shall be equal to the number of
the Executive's Units times $1 times the number of percentage
points (including fractions but not to exceed 100) by which the
Pre-Tax Earnings increase from Performance Period to Performance
Period. In no event shall an Award exceed $1 million for any
Performance Period.
If a Participant separates from the employ of the Company
and its subsidiaries prior to the end of a calendar year in a
Performance Period by reason of Normal Retirement, Early
Retirement, Death or Total and Permanent Disability, Units shall
be converted into an Award and paid as soon as practicable. The
Award shall be valued based on 100% of the increase in Pre-Tax
Earnings for the calendar year immediately prior to the calendar
year in which the separation occurs.
SECTION 4. FORFEITURE OF AWARDS.
A Participant shall forfeit to the Company any Award for a
Performance Period if he or she separates from employment with
the Company and its subsidiaries prior to the end of the
Performance Period for any reason other than Normal Retirement,
Early Retirement, death or Total and Permanent Disability.
SECTION 5. FORM AND TIME OF PAYMENT OF AWARDS.
Except as provided in Section 3(b), Awards for each
Performance Period shall be paid in cash in a lump sum by the
March 15 following the end of the Performance Period.
SECTION 6. EFFECT OF DEATH OF PARTICIPANT.
(a) Distribution and Beneficiary Designation. On the
death of a Participant, the Award the Participant shall be
distributed to the Beneficiary designated by the Participant in
writing on the form prescribed by, and filed with, the Company.
If no Beneficiary designation has been made, payment shall be
made to the Participant's estate. If a designated Beneficiary
does not survive the Participant or dies before receiving payment
of an Account, payment shall be made to the estate of the last to
die of the Participant or the designated Beneficiary.
(b) Change of Beneficiary. A Participant may elect to
change his or her beneficiary designation at any time. Any such
change shall be in writing on the prescribed form and shall be
effective on receipt by the Company prior to the death of the
Participant.
SECTION 7. PARTICIPANT'S RIGHTS UNSECURED.
A Participant's interest under the Plan and the right to
receive a distribution of his or her Award shall be an unsecured
claim against the Company's general assets. The Awards shall be
bookkeeping entries only, and no Participant shall have an
interest in or claim against any specific asset of the Company
pursuant to the Plan.
SECTION 8. NONASSIGNABILITY OF INTERESTS.
The interest and property rights of any Participant under
the Plan shall not be subject to option nor be assignable either
by voluntary or involuntary assignment or by operation of law,
including (without limitation) bankruptcy, garnishment,
attachment or other creditor's process, and any act in violation
of this Section 8 shall be void.
SECTION 9. LIMITATION OF RIGHTS.
(a) Units. Nothing in the Plan shall be construed to give
any Executive any right to be granted Units.
(b) Employment. The Plan, the grant or deferral of Units,
or any other action taken pursuant to the Plan shall not
constitute or be evidence of any agreement or understanding,
express or implied, that the Company will employ a Participant
for any particular period of time, in any particular position or
at any particular rate of compensation. The Plan shall not limit
the Company's right to terminate a Participant's employment at
any time or for any reason.
SECTION 10. ADMINISTRATION.
The Plan shall be administered by the Committee. The
Committee shall have full discretionary power and authority to
administer and interpret the Plan, to establish procedures for
administering the Plan and to take any and all necessary actions
in connection therewith, all in accordance with Code Section
162(m). The Committee's interpretation and construction of the
Plan shall be conclusive and binding on all persons.
SECTION 11. AMENDMENT OR TERMINATION.
The Board may amend, suspend or terminate the Plan at any
time and for any reason, without the consent of any person. In
the event of a termination, the Awards of a Participant shall be
paid at such time and in such form as shall be determined
pursuant to Section 5, unless the Board prescribes an earlier
time or different form for payment of such Accounts.
SECTION 12. CHOICE OF LAW.
The validity, interpretation, construction and performance
of the Plan shall be governed by the laws of the State of
California.
SECTION 13. EXECUTION.
To record the adoption of the Plan the Company has caused
its duly authorized officer to affix the corporate name hereto.
McCLATCHY NEWSPAPERS, INC.
/s/ Karole Morgan-Prager
Karole Morgan-Prager
Secretary and General Counsel
THE McCLATCHY COMPANY
CHIEF EXECUTIVE OFFICER BONUS PLAN
(As adopted and effective January 1, 1998)
Purpose. The purpose of The McClatchy Company's Chief
Executive Officer Bonus Plan (the "Plan") is to motivate and
reward the chief executive officer ("CEO") for exceptional
performance by making a portion of his cash compensation directly
dependent on The McClatchy Company's ("McClatchy") growth in
Earnings Before Interest, Taxes, Depreciation and Amortization
("EBITDA"), EBITDA as a percentage of Revenue, Revenue, Operating
Income, Operating Income as a percentage of Revenue, Pretax
Income, Pretax Income as a percentage of Revenue, Net Income, Net
Income as a percentage of Revenue and/or Circulation. The Plan
is designed to ensure that the bonus paid hereunder to the CEO of
McClatchy is deductible under Section 162(m) of the Internal
Revenue Code of 1986, as amended, and the regulations and
interpretations promulgated thereunder (the "Code"). The
material terms of this Plan are subject to stockholder approval.
Covered Individuals. The individual entitled to bonus
payments hereunder shall be the CEO of McClatchy.
The Committee. The Committee shall consist of at least two
outside directors of McClatchy that satisfy the requirements of
Code Section 162(m). The Committee shall have the sole
discretion and authority to administer and interpret the Plan in
accordance with Code Section 162(m).
Amount of Bonus. The bonus payment for the CEO shall be
determined based on an objective formula(e) established by the
Committee in writing with respect to each performance period no
later than the latest time permitted by the Code. The formula(e)
shall incorporate one or more of the objective business criteria
identified in the Purpose paragraph above, and the objective
financial business criteria shall be determined by the Committee
in accordance with generally accepted accounting principles. The
term "performance period" shall mean the service period for which
the bonuses are payable. The maximum aggregate bonus payable to
the CEO for any performance period shall not exceed $2,000,000.
The Committee may also, in its sole discretion, reduce any bonus
payable to the CEO for any reason.
Payment of Bonus. Annual bonus payments are made in cash.
Each annual bonus is not considered earned until the last
business day of the performance period, and payment of a given
year's bonus requires that the CEO be on McClatchy's payroll as
of such date. The Committee may make exceptions to these
requirements in the case of retirement, death or disability, as
determined by the Committee in its sole discretion. No bonus
shall be paid unless and until the Committee makes a
certification in writing required by Code Section 162(m).
Amendment and Termination. McClatchy reserves the right to
amend or terminate this Plan at any time. Plan amendments will
require stockholder approval only to the extent required by
applicable law.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains financial information extracted from SEC filing Form 10-Q
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 4,586
<SECURITIES> 0
<RECEIVABLES> 130,506
<ALLOWANCES> 4,157
<INVENTORY> 18,658
<CURRENT-ASSETS> 180,677
<PP&E> 717,238
<DEPRECIATION> 267,339
<TOTAL-ASSETS> 2,258,515
<CURRENT-LIABILITIES> 227,778
<BONDS> 0
0
0
<COMMON> 445
<OTHER-SE> 777,001
<TOTAL-LIABILITY-AND-EQUITY> 2,258,515
<SALES> 430,970
<TOTAL-REVENUES> 430,970
<CGS> 0
<TOTAL-COSTS> 355,780
<OTHER-EXPENSES> (1,938)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,215
<INCOME-PRETAX> 52,913
<INCOME-TAX> 26,986
<INCOME-CONTINUING> 25,927
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,927
<EPS-PRIMARY> 0.62
<EPS-DILUTED> 0.62
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This restated schedule contains financial information extracted from the
Company's first quarter 1997 financial statements which are restated to
the FIFO inventory method of accounting.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 7,323
<SECURITIES> 0
<RECEIVABLES> 74,478
<ALLOWANCES> 2,264
<INVENTORY> 11,041
<CURRENT-ASSETS> 107,171
<PP&E> 568,460
<DEPRECIATION> 231,031
<TOTAL-ASSETS> 861,399
<CURRENT-LIABILITIES> 97,471
<BONDS> 0
0
0
<COMMON> 378
<OTHER-SE> 518,450
<TOTAL-LIABILITY-AND-EQUITY> 861,399
<SALES> 150,621
<TOTAL-REVENUES> 150,621
<CGS> 0
<TOTAL-COSTS> 127,706
<OTHER-EXPENSES> (6,297)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,668
<INCOME-PRETAX> 26,544
<INCOME-TAX> 11,113
<INCOME-CONTINUING> 15,431
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,431
<EPS-PRIMARY> 0.41
<EPS-DILUTED> 0.41
</TABLE>
