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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
- THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 26, 1999
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________.
Commission File Number 1-9824
The McClatchy Company
(Exact name of registrant as specified in its charter)
Delaware 52-2080478
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2100 "Q" Street, Sacramento, CA. 95816
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (916) 321-1846
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
Class A Common Stock, par value New York Stock Exchange
$.01 per share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K ((S)229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K X .
---
Aggregate market value of the Company's voting stock held by non-affiliates
on March 20, 2000, based on the closing price for the Company's Class A Common
Stock on the New York Stock Exchange on such date: approximately $767,291,873.
For purposes of the foregoing calculation only, required by Form 10-K, the
Registrant has included in the shares owned by affiliates the beneficial
ownership of Common Stock of officers and directors of the Registrant and
members of their families, and such inclusion shall not be construed as an
admission that any such person is an affiliate for any purpose.
Shares outstanding at March 20, 2000:
Class A Common Stock - 16,578,420 shares
Class B Common Stock - 28,451,912 shares
Documents incorporated by reference:
Definitive Proxy Statement for the Company's May 17, 2000 Annual Meeting of
Stockholders to be filed pursuant to Regulation 14A under the Securities
Exchange Act of 1934 (incorporated in Part III to the extent provided in Items
10, 11, 12 and 13 hereof).
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<PAGE>
INDEX TO THE McCLATCHY COMPANY
1999 FORM 10-K
<TABLE>
<CAPTION>
Item No. Page
- -------- ----
PART I
<C> <S> <C>
1. Business........................................................ 1
Star Tribune Newspaper.......................................... 2
California Newspapers........................................... 3
Carolinas Newspapers............................................ 4
Northwest Newspapers............................................ 7
Other Operations................................................ 9
Raw Materials................................................... 9
Competition..................................................... 10
Employees - Labor............................................... 10
2. Properties...................................................... 11
3. Legal Proceedings............................................... 11
4. Submission of Matters to a Vote of Security
Holders...................................................... 12
PART II
5. Market for the Registrant's Common Stock
and Related Stockholder Matters.............................. 12
6. Selected Financial Data......................................... 13
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations................ 14
7A. Quantitative and Qualitative Disclosures
About Market Risk............................................ 22
8. Financial Statements and Supplementary Data..................... 23
9. Changes In and Disagreements With Accountants
on Accounting and Financial Disclosure....................... 46
PART III
10. Directors and Executive Officers of the
Registrant................................................... 46
11. Executive Compensation.......................................... 47
12. Security Ownership of Certain Beneficial
Owners and Management........................................ 47
13. Certain Relationships and Related
Transactions................................................. 47
PART IV
14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K...................................... 47
</TABLE>
<PAGE>
PART I
ITEM 1. BUSINESS
Overview
The McClatchy Company, a Delaware corporation, is a successor in interest to
McClatchy Newspapers, Inc., a Delaware corporation, and was created as a result
of the Amended and Restated Agreement and Plan of Merger and Reorganization (the
"merger"), dated as of February 13, 1998, between (among others) McClatchy
Newspapers, Inc. and Cowles Media Company (nka, The Star Tribune Company), a
Delaware corporation ("Cowles"). Pursuant to the merger agreement, McClatchy
Newspapers, Inc. and Cowles each became wholly-owned subsidiaries of The
McClatchy Company. All references to the "Company" herein include the
predecessor in interest, McClatchy Newspapers, Inc. The Company owns and
publishes 24 newspapers in four regions of the Country - Minnesota, California,
the Carolinas and the Northwest (Alaska and Washington). These newspapers range
from large dailies serving metropolitan areas to non-daily newspapers serving
small communities. For the year ended December 31, 1999, the Company had an
average paid daily circulation of 1,375,179, Sunday circulation of 1,859,196 and
non-daily circulation of 65,391.
While newspaper publishing remains the Company's core business, it is
supplemented by a growing array of niche products and direct marketing
initiatives, including direct mail. The Company also publishes a leading local
website in each of its 11 daily newspaper markets offering readers information,
comprehensive news, advertising, e-commerce and other services.
Each of the Company's newspapers is semiautonomous in its business and
editorial operations so as to meet most effectively the needs of the communities
it serves. Publishers and editors of the newspapers make the day-to-day
decisions and within limits are responsible for their own budgeting and
planning. Policies on such matters as the amount and type of capital
expenditures, key personnel changes, and strategic planning and operating
budgets including wage and pricing matters, are approved or established by the
Company's senior management or Board of Directors.
The Company's overall strategy is to concentrate on developing its
newspapers and related businesses. Each of its eleven daily newspapers has the
largest circulation of any newspaper servicing its particular metropolitan area.
The Company believes that this circulation advantage is of primary importance in
attracting advertising, the principal source of revenues for the Company.
Advertising revenues approximated 80% of consolidated revenues in 1999 and 78%
of consolidated revenues in 1998. Circulation revenues approximated 16% of
consolidated revenues in 1999 and 17% in 1998.
The Company's newspaper business is somewhat seasonal, with peak revenues
and profits generally occurring in the second and fourth quarters of each year
as a result of increased advertising activity during the Easter holiday and
spring advertising season, and Thanksgiving and Christmas periods. The first
quarter is historically the weakest quarter for revenues and profits.
1
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Other businesses owned by the Company include Nando Media, the Company's
national on-line publishing operation, and The Newspaper Network (TNN), a
national sales and marketing company. In addition, the Company is a partner
(13.5% interest) in Ponderay Newsprint Company, a general partnership that owns
and operates a newsprint mill in Washington State. In 1998, the Company sold
two small commercial printing operations that were located in California and
North Carolina.
The Company has addressed Year 2000 computer compliance issues and, to
date, has experienced no significant interruptions of business. Please see the
"Year 2000 compliance" discussion in Part II, Item 7.
When used in this Report, the words "expect" and "project" and similar
expressions are generally intended to identify forward looking statements. Such
statements are subject to certain risks and uncertainties, including those
discussed under the heading "Forward Looking Information" in Part II, Item 7,
that could cause actual results to differ materially from those projected.
Readers are cautioned not to place undue reliance on these forward looking
statements, which speak only as of the date hereof.
Star Tribune
On March 19, 1998, the Company acquired all of the outstanding shares of
Cowles Media Company and its most significant business - the Star Tribune
newspaper (see note 2 to the consolidated financial statements in Part II, Item
8). The Star Tribune is now the Company's largest newspaper, contributing 36.4%
of 1999 revenues.
The Star Tribune's daily average paid circulation in 1999 increased 0.6% to
371,907 over 1998 average of 369,736, while Sunday average paid circulation was
up 0.2% to 673,438 in 1999 from 672,332 in 1998. As of December 31, 1999,
approximately 76% of the daily and 75% of Sunday circulation was home delivered.
The Star Tribune's advertising volumes for the year ended December 26, 1999
and for the period from March 20, 1998 to December 27, 1998 are set forth in the
following table:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Full Run advertising linage in thousands of six-column inches 2,079 1,635
Preprints distributed in millions 1,012 802
</TABLE>
The Star Tribune's net revenues increased 3.3% to $395,943,000, over pro
forma 1998 revenues (including a full year of Star Tribune's revenues and
restating to period reporting). Actual reported revenues of $305,905,000 in
1998 are from March 20 to December 27.
2
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California Newspapers
The three "Bee" newspapers have formed the core of the Company's operations
for many years and continue to have a significant influence on the civic,
political, economic and cultural life of California's Central Valley. These
newspapers are summarized below:
<TABLE>
<CAPTION>
1999 Circulation (1)
-----------------------------------
Newspaper Daily/Weekly Sunday 1999 Revenues 1998 Revenues
--------- ------------ ------ ------------- -------------
<S> <C> <C> <C> <C>
The Sacramento Bee 293,260 352,381 $207,311,000 $194,160,000
The Fresno Bee 159,467 194,145 87,040,000 84,324,000
The Modesto Bee 84,880 91,517 48,908,000 45,685,000
Clovis Independent 5,674 n/a 1,623,000 1,397,000
</TABLE>
(1) Based on calendar year average paid daily circulation.
The California newspapers produced approximately 31.7% of total Company
revenues in 1999, compared to 33.6% in 1998. Revenues at the California
newspapers increased 5.0% from pro forma 1998 revenues, which restate 1998
revenues to period reporting to be consistent with 1999 revenues.
The Sacramento Bee
The Sacramento Bee is a morning newspaper serving the California state
capital and the surrounding metropolitan area. In 1999, The Sacramento Bee's
average paid circulation increased 1.7% daily and 0.8% Sunday from 1998. As of
December 31, 1999, approximately 87% of the daily, and 82% of the Sunday
circulation was home delivered.
The Sacramento Bee's advertising volumes for the years ended December 26,
1999 and December 27, 1998, are set forth in the following table:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Full Run advertising linage in thousands of six-column inches 2,425 2,292
Preprints distributed in millions 628 545
</TABLE>
Net revenues of The Sacramento Bee increased 5.8% from pro forma 1998
revenues.
The Fresno Bee
The Fresno Bee is a morning newspaper serving the Fresno, California
metropolitan area. The Fresno Bee's average paid circulation increased 1.3%
daily and was up 0.9% on Sunday versus 1998. As of December 31, 1999,
approximately 89% of The Fresno Bee's daily and 87% of the Sunday circulation
was home delivered.
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The Fresno Bee's advertising volumes for the years ended December 26, 1999
and December 27, 1998, are set forth in the following table:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Full Run advertising linage in thousands of six-column inches 1,285 1,266
Preprints distributed in millions 252 261
</TABLE>
Net revenues of The Fresno Bee increased 2.7% from pro forma 1998.
The Modesto Bee
The Modesto Bee is a morning newspaper that serves the Modesto, California,
metropolitan area, located between Sacramento and Fresno. The Modesto Bee's
average paid circulation increased 1.0% daily and 0.6% Sunday versus 1998. As
of December 31, 1999, approximately 88% of the daily and 86% of the Sunday
circulation was home delivered.
The Modesto Bee's advertising volumes for the years ended December 26, 1999
and December 27, 1998, are set forth in the following table:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Full Run advertising linage in thousands of six-column inches 1,108 1,072
Preprints distributed in millions 160 161
</TABLE>
Net revenues of The Modesto Bee increased 5.8% from pro forma 1998.
The Clovis Independent is a weekly newspaper that circulates in Clovis, CA,
a community east of Fresno.
Carolinas Newspapers
In 1990, the Company purchased three daily and three non-daily newspapers
in South Carolina from The News and Observer Publishing Company (N&O), and
subsequently added a fourth non-daily in 1997. On August 1, 1995, the Company
purchased the remainder of N&O, which included The News & Observer newspaper and
six non-daily newspapers in North Carolina (and other businesses discussed
below). Several niche products, a commercial printing operation and one weekly
newspaper, all located in North Carolina, were sold in 1998.
4
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The Carolinas newspapers are summarized below:
<TABLE>
<CAPTION>
1999 Circulation (1)
---------------------------------
Newspaper Daily/Weekly Sunday 1999 Revenues 1998 Revenues
--------- ------------ ------ ------------- -------------
<S> <C> <C> <C> <C>
The News & Observer (Raleigh) 165,711 209,102 $135,520,000 $129,646,000
The Herald (Rock Hill) (2) 31,113 32,879 13,830,000 13,471,000
The Island Packet (Hilton Head) 16,079 18,030 11,825,000 10,897,000
Beaufort Gazette 11,525 11,093 5,891,000 5,534,000
Non-daily newspapers (2) 42,449 n/a 10,568,000 15,142,000
</TABLE>
(1) Based on calendar year average paid circulation.
(2) Four South Carolina non-daily newspapers' revenues are consolidated with
revenues of The (Rock Hill) Herald.
The Carolinas newspapers produced 16.3% of total Company revenues in 1999
versus 18.0% reported in 1998 Excluding the sale of the operations discussed
above and reflecting period reporting in 1998, total revenues from the Carolinas
newspapers increased 3.7% from pro forma 1998 revenues. (By the Company's
estimates, this growth would have been 4.1% if not for the revenues lost due to
Hurricane Floyd in September 1999.)
The News & Observer
The News & Observer, the Company's third largest newspaper, is a morning
daily serving North Carolina's state capital, Raleigh, and the thriving Research
Triangle which includes Raleigh, Durham and Chapel Hill, North Carolina.
The News & Observer's average paid circulation in 1999 increased
approximately 0.9% daily and 0.5% Sunday over calendar year 1998. As of
December 31, 1999 approximately 77% of the daily and 72% of the Sunday
circulation was home delivered.
The News & Observer's advertising volumes for the years ended December 26,
1999 and December 27, 1998, are set forth in the following table:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Full Run advertising linage in thousands of six-column inches 2,054 2,027
Preprints distributed in millions 312 303
</TABLE>
The News & Observer's revenues for 1999 increased 3.8% over 1998 pro forma
1998.
The Herald
The Herald is a morning newspaper serving Rock Hill and surrounding
communities in York County, South Carolina. Rock Hill is a community
approximately 25 miles southwest of Charlotte, North Carolina. In 1999, The
Herald's average paid circulation increased 1.7% daily and 2.3% on Sunday from
1998.
5
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The Herald's main competitor is a zoned edition of the Charlotte Observer,
whose circulation in The Herald's primary circulation area is estimated to be
approximately a third of The Herald's circulation. As of December 31, 1999,
approximately 81% of the daily and 78% of the Sunday circulation was home
delivered.
Advertising volumes for the years ended December 26, 1999 and December 27,
1998, were as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Full Run advertising linage in thousands of six-column inches 1,087 907
Preprints distributed in millions 45 40
</TABLE>
Net revenues of The Herald increased 3.3% over pro forma 1998.
The Island Packet and The Beaufort Gazette
The Island Packet and The Beaufort Gazette serve Beaufort County in
southeastern South Carolina. The Island Packet serves Hilton Head Island and
the town of Bluffton where tourism, retirement communities and services are the
economic mainstays. The Gazette serves the city of Beaufort and northern
Beaufort County encompassing surrounding islands of Lady's, St. Helena, Fripp
and Paris.
The average paid circulation increased 5.9% daily and 2.8% Sunday at The
Island Packet and was up 2.1% daily and 2.3% Sunday at The Gazette.
As of December 31, 1999, approximately 66% of the daily and 59% of the
Sunday circulation of The Packet was home delivered. Comparable amounts for The
Gazette were 69% daily and 75% Sunday.
Advertising volumes for the years ended December 26, 1999, and December 27,
1998, for the newspapers were:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Packet Full Run advertising linage in thousands of six-column inches 747 744
Packet Preprints distributed in millions 12 12
Gazette Full Run advertising linage in thousands of six-column inches 411 439
Gazette Preprints distributed in millions 14 24
</TABLE>
Net revenues of The Packet increased 7.9% over pro forma 1998, while The
Gazette's net revenues were up 5.4%.
6
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Carolinas Non-daily Newspapers
The South Carolina non-daily newspapers include the Clover Herald, the
Yorkville Enquirer, the Lake Wylie Magazine and the Fort Mill Times, and serve
small communities in Chester and York counties.
The North Carolina non-dailies are newspapers that serve small communities
generally surrounding Raleigh. They are (paid circulation in parenthesis):
Chapel Hill News (21,000 primarily free distribution, 800 paid circulation),
Cary News (12,100), Zebulon Record (3,000), Wendall Clarion and Knightdale Times
(2,900) and Smithfield Herald (14,700). N&O also published Business North
Carolina, a monthly magazine and the Mount Olive Tribune, both of which were
sold in 1998.
Northwest Newspapers
The Company began to diversify geographically outside of California in 1979
when it purchased the Anchorage Daily News. Later that year, the Company
purchased the Tri-City Herald in Southeastern Washington. In 1986, the Company
purchased its fifth largest newspaper, The (Tacoma) News Tribune. The Company
now publishes four newspapers in Washington State and the largest daily
newspaper in Alaska. These newspapers are summarized below:
<TABLE>
<CAPTION>
1999 Circulation (1)
--------------------------------------
Newspaper Daily/Weekly Sunday 1999 Revenues 1998 Revenues
-------- ------------ ------ ------------- -------------
<S> <C> <C> <C> <C>
The News Tribune 128,402 145,327 $79,155,000 $73,867,000
Anchorage Daily News 72,086 87,013 55,350,000 53,499,000
Tri-City Herald 40,749 44,271 20,830,000 19,336,000
Other newspapers 17,268 n/a 3,829,000 3,953,000
</TABLE>
(1) Based on calendar year average paid circulation.
The Company's northwest newspapers produced approximately 14.6% of the
Company's total revenues in 1999 versus 15.6% in 1998. Revenues at the
Northwest newspapers increased 4.8% over proforma (restated for period
reporting) 1998.
The News Tribune
The News Tribune, a morning newspaper, primarily serves the Tacoma,
Washington metropolitan area in Pierce and South King Counties. It is the third
largest newspaper in the state. In 1999 the average paid circulation of The
News Tribune decreased 0.9% daily and 1.9% Sunday versus 1998.
Tacoma is approximately 30 miles south of Seattle. The News Tribune
competes in the northernmost fringes of its market with the major Seattle daily
newspapers. As of December 31, 1999 approximately 84% of the daily and 83% of
the Sunday circulation was home delivered.
The News Tribune's advertising volumes for the years ended December 26,
1999 and December 27, 1998, are set forth in the following table:
7
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<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Full Run advertising linage in thousands of six-column inches 1,387 1,084
Preprints distributed in millions 246 238
</TABLE>
Net revenues of The News Tribune increased 6.1% from pro forma 1998.
Anchorage Daily News
The Anchorage Daily News, a morning newspaper, is Alaska's largest
newspaper. The Anchorage Daily News circulates throughout the state of Alaska
but its primary circulation is concentrated in the south central region of the
state comprised of metropolitan Anchorage, the Kenai Peninsula and the
Matanuska-Susitna Valley.
The Daily News' average paid daily circulation declined 1.2% in 1999, while
Sunday circulation declined 2.0%. As of December 31, 1999, approximately 73% of
the daily and 69% of the Sunday circulation was home delivered.
Comparative amounts of volumes for the years ended December 26, 1999 and
December 27, 1998, are set forth in the following table:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Full Run advertising linage in thousands of six-column inches 1,087 1,101
Preprints distributed in millions 93 88
</TABLE>
Net revenues of the Anchorage Daily News increased 2.9% over pro forma
1998.
Tri-City Herald
The Tri-City Herald is a morning newspaper serving the Tri-Cities of
Richland, Kennewick and Pasco in southeastern Washington. The Tri-Cities
economy has benefited by the Department of Energy's (DOE) efforts to clean up
nuclear waste at nearby Hanford Nuclear reservation.
The Tri-City Herald's average paid circulation has increased 2.1% daily,
and 2.2% Sunday from 1998. As of December 31, 1999, approximately 93% of the
daily and 92% of the Sunday circulation was home delivered.
8
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The Tri-City Herald's advertising volumes for the years ended December 26, 1999
and December 27, 1998, are set forth in the following table:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Full Run advertising linage in thousands of six-column inches 786 804
Preprints distributed in millions 80 70
</TABLE>
Net revenues of the Tri-City Herald increased 7.1% over pro forma 1998.
Other Northwestern Newspapers
The Company's other non-daily newspapers include the Peninsula Gateway in
South Puget Sound and The Puyallup Herald which circulates weekly in South
Pierce County, near Tacoma.
Other Operations
The Company continues to grow its national sales and marketing company, The
Newspaper Network, Inc. (TNN). This separate subsidiary provides third-party
placement service with state-of-the-art one-order, one-bill service for the
distribution of preprinted advertising inserts and run-of-press advertising. It
also offers its clients sophisticated marketing analysis to profile and target
potential new customers. The company believes that this work is important to
McClatchy and the newspaper industry as we look for new ways to meet the growing
needs of our customers.
The Company's rapidly expanding Internet activities have produced robust
local websites at each of our 11 daily newspapers. These efforts are supported
by Nando Media, the Company's interactive media operation which has two primary
roles: First, as a stand-alone Internet publisher, it generates revenues based
on audience on its websites, Nando Times and Nando Sports Server. Secondly,
Nando Media serves as a technology partner to McClatchy and to other newspapers,
providing hosting, programming, and customized news services.
Commercial printing operations located in Clovis, California, and Benson,
North Carolina, were sold in 1998.
Revenues for all other operations, primarily TNN and Nando Media, were
$10.3 million, up 33.0% from pro forma 1998, and represent 0.9% of total
revenues.
Raw Materials
In 1999, the Company consumed approximately 267,000 metric tons of
newsprint compared to 242,500 metric tons in 1998, with the bulk of the increase
due to the addition of the Star Tribune. The Company currently obtains its
supply of newsprint from a number of suppliers under long-term contracts.
9
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Newsprint and supplement expense accounted for approximately 17.7% of
operating expenses in 1999 compared to 19.6% in 1998. Management believes its
newsprint sources of supply under existing arrangements are adequate for its
anticipated needs. Significant increases in the price of newsprint would
adversely affect the operating results of the Company to the extent that it was
not offset by advertising and circulation volume and/or rate increases.
The Company, through a wholly-owned subsidiary, Newsprint Ventures, Inc.,
and four other publishers and a major newsprint manufacturer are partners in
Ponderay Newsprint Company, a general partnership which owns and operates a
newsprint mill located sixty miles northeast of Spokane, Washington. The mill
became operational in late 1989 and has a production capacity in excess of
240,000 metric tons annually. The publisher partners have committed to take
126,000 metric tons of this anticipated production on a "take-if-tendered" basis
with the balance to be sold on the open market. The Company's annual commitment
is 28,400 metric tons. See Part II, Items 7 and 8 for further discussion of the
impact of this investment on the Company's business.
Competition
The Company's newspaper and Internet sites face competition for advertising
revenues from traditional media such as television, radio and direct mail
programs, suburban neighborhood and national newspapers and other publications,
and increasingly from other Internet or dot-com companies. Competition for
advertising is based upon circulation levels, readership demographics, price and
advertiser results, while competition for circulation is generally based upon
the content, journalistic quality and price of the newspaper. The Company's
major daily newspapers are well ahead of their newspaper competitors in both
advertising linage and general circulation in all of their markets, and its
Internet sites are the leading local sites in all but one of its 11 daily
newspaper markets.
Employees - Labor
As of December 26, 1999, the Company had 10,295 full and part-time
employees, of whom approximately 23% were represented by unions. Most of the
Company's union represented employees are currently working under labor
agreements expiring in various years.
While the Company's newspapers have not had a strike since 1980, and they
do not currently anticipate a strike occurring, the Company cannot preclude the
possibility that a strike may occur at one or more of its newspapers when future
negotiations occur. The Company believes that, in the event of a newspaper
strike, it would be able to continue to publish and deliver to subscribers, a
capability which is critical to retaining revenues from advertising and
circulation.
10
<PAGE>
ITEM 2. PROPERTIES
The corporate headquarters of the Company are located at 2100 "Q" Street,
Sacramento, California. The general character, location and approximate size of
the principal physical properties used by the Company at December 26, 1999, are
set forth below.
<TABLE>
<CAPTION>
Approximate Area
in Square Feet
---------------
Owned Leased
----------- ------------
<S> <C> <C>
Printing plants, business and editorial offices and
warehouse space located in:
Minneapolis, Minnesota (greater Minneapolis area) 931,075 331,721
Sacramento, California (greater Sacramento area) 685,914 175,767
Fresno, California 406,000 44,654
Tacoma, Washington 319,599
Raleigh, North Carolina 212,700 54,741
Modesto, California 148,816 25,974
Garner, North Carolina 131,500
Anchorage, Alaska 129,926
Kennewick, Washington 98,081
Rock Hill, South Carolina 49,000 5,194
Beaufort, South Carolina 16,500
Gig Harbor, Washington 13,200
Chapel Hill, North Carolina 23,084
Hilton Head, South Carolina 39,700
Puyallup, Washington 6,500 7,875
Durham, North Carolina - 20,700
Other 13,949 64,070
</TABLE>
The Company believes that its current facilities are adequate to meet the
present and immediately foreseeable needs of its newspapers.
ITEM 3. LEGAL PROCEEDINGS
The Company becomes involved from time to time in claims and lawsuits
incidental to the ordinary course of its business, including such matters as
libel, invasion of privacy and wrongful termination actions, and complaints
alleging discrimination. In addition, the Company is involved from time to time
in governmental and administrative proceedings concerning employment, labor,
environmental and other claims. Management believes that the outcome of pending
claims or proceedings will not have a material adverse effect upon the Company's
consolidated results of operations or financial condition.
11
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The McClatchy Company's Class A Common Stock is listed on the New York
Stock Exchange (NYSE symbol - MNI). A small amount of Class A Stock is also
traded on the Midwest Stock Exchange and the Pacific Stock Exchange. The
Company's Class B Stock is not publicly traded. The following table lists
dividends paid on Common Stock and the prices of the Company's Class A Common
Stock as reported by the New York Stock Exchange for 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
--------------------------------------------- ---------------------------------------------
High Low Dividends High Low Dividends
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
1st Quarter $35.38 $29.00 $0.095 $30.44 $25.13 $.095
2nd Quarter $38.75 $30.50 $0.095 $35.88 $27.88 $.095
3rd Quarter $37.75 $33.38 $0.095 $39.56 $28.19 $.095
4th Quarter $43.75 $35.38 $0.095 $35.56 $24.94 $.095
</TABLE>
The Company's Board of Directors does not anticipate reducing the present
level of quarterly dividend payments. However, the payment and amount of future
dividends remain within the discretion of the Board of Directors and will depend
upon the Company's future earnings, financial condition and requirements, and
other factors considered relevant by the Board.
The number of record holders of Class A and Class B Common Stock at March
20, 2000, was 2,450 and 24, respectively.
ITEM 6. SELECTED FINANCIAL DATA
12
<PAGE>
FIVE-YEAR FINANCIAL SUMMARY
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Restated December 31,
December 26, December 27, -------------------------------------------------
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED INCOME STATEMENT DATA:
REVENUES - NET:
Advertising $ 875,299 $ 756,052 $504,745 $484,460 $418,841
Circulation 175,638 162,433 107,298 108,317 95,248
Other 37,010 50,166 29,907 31,456 26,790
------------ ------------ ------------ ------------ -----------
Total 1,087,947 968,651 641,950 624,233 540,879
OPERATING EXPENSES:
Depreciation and amortization 106,884 93,786 53,269 52,954 44,000
Other costs and expenses 756,364 694,007 472,195 490,224 429,935
------------ ------------ ------------ ------------ -----------
Total 863,248 787,793 525,464 543,178 473,935
------------ ------------ ------------ ------------ -----------
OPERATING INCOME 224,699 180,858 116,486 81,055 66,944
Partnership (losses) income (850) 1,450 (500) 3,024 (630)
Other non-operating (expenses) income (63,588) (60,205) 1,005 (10,344) (2,729)
------------ ------------ ------------ ------------ -----------
INCOME BEFORE INCOME TAX PROVISION 160,261 122,103 116,991 73,735 63,585
Income tax provision 77,729 61,052 47,759 31,629 27,362
------------ ------------ ------------ ------------ -----------
NET INCOME $ 82,532 $ 61,051 $ 69,232 $ 42,106 $ 36,223
============ ============ ============ ============ ===========
EARNINGS PER COMMON SHARE:
Basic $ 1.84 $ 1.41 $ 1.82 $ 1.12 $ 0.97
============ ============ ============ ============ ===========
Diluted $ 1.83 $ 1.41 $ 1.81 $ 1.11 $ 0.97
============ ============ ============ ============ ===========
DIVIDENDS PER COMMON SHARE $ 0.380 $ 0.380 $ 0.380 $ 0.323 $ 0.304
============ ============ ============ ============ ===========
CONSOLIDATED BALANCE SHEET DATA:
Total assets $2,204,028 $2,248,430 $857,798 $878,952 $900,424
Long-term bank debt 878,166 1,004,000 94,000 190,000 243,000
Stockholders' equity 879,666 807,005 567,055 505,067 470,034
</TABLE>
The Company changed its fiscal reporting to a 52/53 week year in 1998. This
change did not have a material impact on reported results. All earnings and
earnings per share amounts from 1995 through 1997 have been adjusted for a
change in the method of accounting for inventories. Results for 1997 include a
pre-tax gain of $9.3 million for the sale of certain business operations and
real estate. Results for 1996 include a pre-tax gain of $2.8 million on the
sale of a newspaper and other business operations. Results for 1995 include a
$2.7 million pre-tax charge related to early retirement programs. The financial
information also gives effect to the acquisitions of the Star Tribune in March
1998 and The News and Observer Publishing Company in August 1995. This summary
should be read in conjunction with the consolidated financial statements and
notes thereto.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
13
<PAGE>
RECENT EVENTS AND TRENDS
In 1998, the Company changed from a calendar year to a fiscal year ending
on the Sunday nearest December 31. Accordingly, the Company's 1999 and 1998
results are reported through December 26 and 27 respectively, versus December 31
for 1997.
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 those
subsidiaries. The combined proceeds, plus debt and other liabilities assumed by
the buyers in those transactions, were $208.1 million. The Company used these
proceeds to repay debt associated with the Cowles merger. See note 2 to the
consolidated financial statements. The Company valued the non-newspaper
businesses at fair market value based upon the net after-tax proceeds received
by the Company on March 19, 1998, and accordingly, did not realize a gain or
loss on the sale.
In connection with the merger, the Company paid 15% of the consideration by
issuing 6,330,548 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.
In the third and fourth quarters of 1998, the Company sold two commercial
printing operations, a weekly newspaper, a monthly magazine and two niche
publications with 1998 revenues totaling $8.7 million. The net gain on these
sales was not material to 1998 results.
During 1998, the FASB issued SFAS 133 (Accounting for Derivative
Instruments and Hedging Activities) which requires that all derivatives be
carried at fair value on the balance sheet. This statement will become
effective in the Company's fiscal year 2001. While adoption of this statement
is not expected to materially impact the Company's financial results, management
has not determined the impact on the Company's consolidated financial position.
14
<PAGE>
RESULTS OF OPERATIONS
1999 COMPARED TO 1998
Net income for 1999 was a record $82.5 million or $1.83 per share, up 35.2%
from 1998 net income of $61.1 million or $1.41 per share. The 1998 results
include the operations of the Star Tribune for only nine months and nine days,
versus a full year in 1999. The number of weighted average shares increased 1.7
million in fiscal 1999 due primarily to shares issued in March 1998 in
connection with the Star Tribune transaction.
Strong advertising revenue growth in the Company's California and Northwest
newspapers and lower newsprint prices contributed to the record earnings in
1999.
Revenues increased $119.3 million due largely to a full year of revenues
from the Star Tribune. On a pro forma basis, which reflects adjusting 1998
revenues to include a full year of Star Tribune's results, excluding revenues
from the operations that were sold in 1998, and restating to period reporting,
total revenues increased 4.4%, with advertising revenues up 5.1%.
The pro forma revenue growth reflects advertising rate increases, and to a
lesser extent, greater advertising volumes. These increases were offset
somewhat by lower circulation revenues largely reflecting no circulation rate
increases, increased discounting and higher payments to contract carriers at
certain newspapers in 1999 (recorded as a contra revenue).
OPERATING REVENUES (in thousands):
<TABLE>
<CAPTION>
1999 1998 % Change
------------- ------------- -------------
<S> <C> <C> <C>
Minnesota newspapers $ 395,943 $ 305,905 NM
California newspapers 344,882 325,566 5.9
Carolinas newspapers 177,634 274,690 1.7
Northwest newspapers 159,164 150,655 5.6
Non-newspaper operations 10,324 11,835 (12.8)
------------- -------------
$ 1,087,947 $ 968,651 NM
============= =============
</TABLE>
NM Not Meaningful
Minnesota - The Star Tribune contributed 36.4% of the Company's revenues in
1999. Revenues totaled $395.9 million with $320.6 million in advertising and
$70.1 million in circulation revenues. This represents an increase of 3.3% in
total revenues from pro forma 1998 and an increase of 4.3% in advertising
revenues. On a pro forma basis, circulation revenues declined 3.7% reflecting
no rate increase in 1999 and increased payments to contract carriers.
California - The California newspapers - primarily The Sacramento Bee, The
Fresno Bee, and The Modesto Bee -- contributed 31.7% of the Company's revenues.
Total revenues increased
15
<PAGE>
5.0% from pro forma 1998 to $344.9 million with advertising revenues up 6.0% to
$285.2 million at the California dailies. Circulation revenues declined 1.8% to
$54.6 million reflecting no rate increases, increased discounting and higher
payments to contract carriers.
Carolinas - The Company's Carolinas newspapers generated 16.3% of 1999
revenues. A majority of the newspaper operations sold in 1998 were in this
region, causing the pro forma comparisons to differ considerably from reported
results. On a pro forma basis, total revenues increased 3.7% to $177.6 million
in 1999, with advertising revenues at the daily newspapers increasing 4.7% to
$138.9 million. Circulation revenues increased nominally over pro forma 1998.
Northwest - The Northwest region - Washington state and Alaska - is the
Company's smallest, contributing 14.6% of 1999 revenues. Total revenues
increased 4.8% from pro forma 1998 to $159.2 million with advertising revenue of
$117.3 million at its daily newspapers, up 6.5%. Circulation revenues declined
2.4% to $26.2 million reflecting factors discussed above.
Non-Newspaper Operations - Non-newspaper revenues were affected by the sale
of The McClatchy Printing Company and Benson Printing Company, both commercial
printing operations, in late 1998. On a pro forma basis, non-newspaper revenues
increased 33.0% to $10.3 million, reflecting growth at The Newspaper Network,
the Company's national sales and marketing subsidiary, and Nando Media, its
stand-alone internet publishing operation.
OPERATING EXPENSES:
Total operating expenses increased 9.6%, primarily reflecting the partial
year of Star Tribune's expenses in 1998, but were up 1.5% from pro forma 1998.
A major factor in the relatively low increase in operating expenses was the
decline in average newsprint prices in 1999 compared to 1998. Newsprint and
supplement expenses declined 8.1% from pro forma 1998. Lower newsprint prices
were partially offset by greater newsprint usage and greater use of newspaper
supplements. All other operating expenses increased 3.8% from pro forma 1998,
primarily reflecting a 3.5% increase in compensation expense.
NON-OPERATING (EXPENSES) INCOME - NET:
Interest expense increased 4.7% to $65.7 million. The Company incurred
most of its debt on March 19, 1998 (closing date of the Cowles merger) paying
interest for roughly three-quarters of 1998 versus 12 months in 1999. However,
the full year interest burden in 1999 was lessened by the repayment of $106.0
million of principal throughout the year and lower average interest rates in
1999. The Company's share of losses from its joint venture in the Ponderay
Newsprint Company (Ponderay) was $850,000 versus income of $1.5 million in 1998.
16
<PAGE>
INCOME TAXES:
The Company's effective tax rate was 48.5% in 1999, down from a 50.0% rate
in 1998. The Company's effective tax rate declined as income before taxes
increased relative to a set amount of non-deductible expenses.
1998 COMPARED TO 1997
Net income was $61.1 million or $1.41 per share in 1998 compared to $69.2
million or $1.81 per share in 1997. Results in 1997 include a gain of 14 cents
per share on sales of operations. The 1998 results include the Star Tribune
newspaper's results and reflect dilution from acquisition-related expenses
including amortization of intangibles, depreciation, interest and higher income
taxes. Also, the number of weighted average shares outstanding increased in
1998, primarily as a result of Class A stock issued in connection with the
acquisition of the Star Tribune.
Revenues increased $326.7 million, with $305.9 million coming from the Star
Tribune (March 20 - December 27, 1998). Total revenues excluding the Star
Tribune increased 3.2%. However, management estimates that excluding operations
sold in 1998 and 1997, and giving effect to the four days of December 28 through
December 31, 1998, to make the years comparable, revenue would have increased
4.5 to 5.0% ("underlying revenue growth").
Much of the underlying revenue growth at the Company's operations reflect
advertising rate increases at most newspapers and growth in other revenues such
as online services, direct mail, commercial printing and non-newspaper revenues
(primarily from The Newspaper Network).
OPERATING REVENUES (in thousands):
<TABLE>
<CAPTION>
1998 1997 % Change
---------- ---------- ------------
<S> <C> <C> <C>
California newspapers $325,566 $318,227 2.3
Minnesota newspaper 305,905 - NM
Carolinas newspapers 174,690 167,479 4.3
Northwest newspapers 150,655 144,157 4.5
Non-newspaper operations 11,835 12,087 (2.1)
---------- ----------
$968,651 $641,950 NM
========== ==========
</TABLE>
NM - Not Meaningful
California - The California newspapers generated 33.6% of 1998 revenues and
increased $7.3 million or 2.3%, and would have increased 2.6% excluding the four
community newspapers sold in February 1997. The Company's California dailies
recorded $8.3 million in higher advertising revenues. Circulation revenues
declined $1.1 million as the newspapers did not implement circulation price
increases in 1998, but rather discounted prices to increase subscriber volume.
Management estimates that revenues in the region would have increased in the 3%
range if it had not changed to fiscal year reporting.
17
<PAGE>
Minnesota - The Star Tribune's revenues of $305.9 million include
advertising revenues of $232.0 million and circulation revenues of $57.1
million. On a proforma basis, the Star Tribune's revenues were up 5.7%. The
change in the Company's period reporting had little effect on revenue
comparisons as the Star Tribune was on a similar fiscal period in 1997.
Carolinas - The Carolinas newspapers contributed 18.0% of total Company
revenue and reported a $7.2 million or 4.3% increase in total revenues. The
News & Observer in Raleigh and the Company's three smaller dailies in South
Carolina generate the majority of revenues in this region. Advertising revenues
were up $7.6 million or 5.7% in this region, and circulation revenues were down
nominally. Most of the 1998 sales of news operations affected this region.
Management estimates that excluding properties sold in 1998 and 1997, and giving
effect for the change in period reporting, revenues from the Carolinas
newspapers would have increased in the 5.0% range in 1998.
Northwest - The Northwest newspapers reported the strongest revenue growth
percentage of all regions in 1998, although it is the Company's smallest region
at 15.6% of total revenues. Revenues from the Anchorage and Washington State
newspapers increased $6.5 million or 4.5%. Advertising revenues increased $4.7
million or 4.4%, circulation revenues declined $465,000 or 1.7% and other
revenues, primarily commercial printing, increased $2.2 million or nearly 25.0%.
Management estimates that revenues adjusted for the change in period reporting
would have grown between 5.0% to 5.5%.
Non-newspaper - Non-newspaper revenues (1.2% of total revenues) were
primarily derived from The Newspaper Network (TNN), Nando Media, The McClatchy
Printing Company and Benson Printing Company. Both printing companies were sold
in late 1998. Revenues from ongoing operations were $7.5 million in 1998, up
39.2% from 1997 primarily due to higher revenues at TNN.
OPERATING EXPENSES:
Total operating expenses increased 49.9% and include Star Tribune's
expenses from March 20 through December 27, 1998. Excluding Star Tribune in
1998 and expenses from operations sold in 1998 and 1997, expenses from the
Company's ongoing businesses increased 2.4%. Compensation increased 3.1%,
newsprint and supplement expenses increased 1.3% (due mostly to higher newsprint
prices) and all other operating expenses, including depreciation and
amortization, increased less than 1.0%. Management estimates that, had it not
changed to period reporting, operating expenses would have risen between 2.0% to
4.0%, mostly reflecting general inflation.
NON-OPERATING (EXPENSE) INCOME - NET:
The Company's net interest expense increased to $62.2 million from $8.6
million in 1997, reflecting service on the debt incurred to complete the Star
Tribune transaction. Its share of the Ponderay income (see note 1 to the
consolidated financial statements) was $1.5 million versus a loss of $500,000 in
1997 when newsprint prices were lower.
The 1998 non-operating (expense) income-net includes gains on the sales of
certain investments and amortization of unearned covenant revenue (from the Star
Tribune) totaling $2.0
18
<PAGE>
million, while the 1997 results include pre-tax gains of $9.3 million on the
sale of business operations and real estate holdings.
INCOME TAXES:
The Company's effective tax rate was 50.0% in 1998, up from a 40.8% rate in
1997 due primarily to the non-deductible expenses associated with the Star
Tribune transaction. See note 5 to the consolidated financial statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents were $1.2 million at December 26,
1999 versus $9.7 million at the end of 1998. See notes 2 and 4 to the
consolidated financial statements (and below) for a discussion of the impact of
the acquisition of the Star Tribune on the Company's liquidity and capital
resources.
The Company generated $163.7 million of cash from operating activities in
1999 and has generated an aggregate of $415.6 million over the last three years.
During 1998, the Company received $184.3 million in proceeds from the sale of
businesses and assets, and $1.25 billion in proceeds from long-term debt
(discussed below). The major uses of cash over the three-year period have been
to consummate the Star Tribune acquisition ($1.1 billion), to purchase property,
plant and equipment (see below), and to repay debt. Cash has also been used to
pay dividends. In 1999, the Company repaid $106.0 million of bank debt and
repaid $296.4 million in 1998. The Company paid $17.0 million in dividends in
1999, while proceeds from issuing Class A stock under employee stock plans
totaled $6.1 million. See the Company's Statement of Cash Flows on page 28.
The Company expended a total of $49.7 million in 1999 for capital projects
and equipment to improve productivity and keep pace with growth and new
technology. Capital expenditures over the last three years have totaled $108.1
million and planned expenditures in 2000 are estimated to be approximately $47.0
million at existing operations.
See notes 1 and 9 to the consolidated financial statements for a discussion
of the Company's commitments to Ponderay.
A syndicate of banks and financial institutions provided the debt financing
of the Cowles merger under a Bank Credit Agreement (Credit Agreement). The
Credit Agreement consists of the following: A term loan consisting of Tranche A
of $735 million bearing interest at the London Interbank Offered Rate ("LIBOR")
plus 62.5 basis points, and is payable through 2005, and Tranche B of $330
million bearing interest at LIBOR plus 150 basis points and is payable through
2008. A revolving credit line of up to $200 million bearing interest at LIBOR
plus 62.5 basis points and is payable through 2005. The debt is secured by
certain assets of the Company (see below), and all of the debt is pre-payable
without penalty. The Company has continued to accelerate payments on this debt
as cash generation allows.
19
<PAGE>
The definitive terms of the Credit Agreement include certain operating and
financial restrictions, such as limits on the Company's ability to incur
additional debt, create liens, sell assets, engage in mergers, make investments
and pay dividends.
While the Company expects that most of its free cash flow generated from
operations in 2000 and in the foreseeable future will be used to repay debt,
management is of the opinion that operating cash flow and its credit facilities
as described above are adequate to meet the liquidity needs of the Company,
including currently planned capital expenditures and other investments.
The Company had $58.4 million of available credit under its current bank
credit agreement at December 26, 1999.
On February 8, 2000, Standard and Poor's assigned an investment grade
rating of triple "B" minus to the company's bank credit facilities. Under the
terms of the Credit Agreement, this rating will result in the security on its
assets, and associated liens, being removed, making the bank debt unsecured.
Also, as a result of this rating, certain outstanding letters of credit are not
required to be renewed and the Company's available credit under its Credit
Agreement will increase by approximately $20.0 million.
Year 2000 Compliance
The Company has completed its Year 2000 compliance audit and remediation
activities. To date, the Company has not experienced any material problems
attributed to the year 2000 date functions. However, it is possible that its
systems, or the products or systems of third parties on whom we rely, could
contain undetected errors or defects associated with Year 2000 date functions.
A corporate task force and task forces at each of our newspapers continue to
monitor the Company's systems and equipment for any necessary remediation.
To achieve Year 2000 compliance, a combination of internal effort, upgrades
from vendors, external programmers and consultants, replacement systems or, in a
few cases, retirement of systems were used. Our newspapers have developed
contingency plans to cope with the possibility that major systems, or those of
third parties on whom we rely, could develop problems. We have reciprocal
printing agreements with other newspapers in each geographic area in case of
power outages. Also, we maintain sufficient quantities of production supplies
to alleviate short-term delivery problems in case major third party suppliers
have Year 2000 issues. Our newspapers possess input, processing and output
capabilities that, in an emergency, could be used to complete an edition of the
newspapers. Advertising insertion orders; advertising, circulation and general
accounting; and automated human resource administration functions would be
manually performed. Such contingency plans, if required to be implemented, could
result in smaller newspapers with less advertising and circulation, and would
negatively impact the Company's revenues in the short-term.
Remediation costs incurred through December 26, 1999 were approximately
$1.6 million. Capital projects, previously budgeted for business reasons, which
include Year 2000 compliance, totaled approximately $13 million for the year.
Because the Company believes it has substantially completed its Year 2000
compliance activities, we do not anticipate that future Year 2000 related
expenditures will be significant.
20
<PAGE>
RISK FACTORS
We have made "forward-looking statements" in this document that are subject
to risks and uncertainties. Forward-looking statements include the information
concerning possible or assumed future results of operations of McClatchy.
Forward-looking statements are generally preceded by, followed by or are a part
of sentences that include the words "believes," "expects," "anticipates" or
similar expressions. For those statements, we claim the protection of the safe
harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995. You should understand that the following
important factors, in addition to those discussed elsewhere in this document and
in the documents which we incorporate by reference, could affect the future
results of McClatchy, and could cause those future results to differ materially
from those expressed in our forward-looking statements: general economic,
market or business conditions; the completeness of the Company's internal
efforts to identify and correct systems for Year 2000 date functions, reliance
on customer and vendor year 2000 remediation efforts; increases in newsprint
prices and/or printing and distribution costs over anticipated levels; increases
in interest rates; competition from other forms of media in our principal
markets; increased consolidation among major retailers in our newspaper markets
or other events depressing the level of advertising; an economic downturn in the
economies of Minnesota, California's Central Valley, the Carolinas, Washington
State and Alaska; changes in our ability to negotiate and obtain favorable terms
under collective bargaining arrangements with our employees; competitive actions
by other companies; other occurrences leading to decreased circulation and
diminished revenues from both display and classified advertising; and other
factors, many of which are beyond our control. Consequently, there can be no
assurance that the actual results or developments we anticipate will be realized
or that these results or developments will have the expected consequences.
Substantial Leverage; Negative Net Tangible Assets; Liquidity. On
March 19, 1998, we completed a reorganization (the "Reorganization") pursuant to
which we implemented a holding company structure and also acquired the Star
Tribune by way of a merger with Cowles Media Company (the "Cowles Merger"). To
finance the Reorganization, we borrowed enough cash to fund payment of the cash
due to Cowles stockholders, pay the fees and expenses incurred in connection
with the Reorganization and refinance debt assumed from Cowles and pre-existing
debt of McClatchy. As of December 26, 1999, we had $878.2 million of long-term
debt. Furthermore, because $1.2 billion of the purchase price of the Cowles
Merger was allocated to intangible assets, such as goodwill, we now have
negative net tangible assets. Our net tangible assets as of December 26, 1999,
were ($572.4) million.
This high leverage may have important consequences for us in the future,
including the following: (a) our ability to obtain additional financing for
future acquisitions (if any), working capital, capital expenditures or other
purposes may be impaired or, if we are able to obtain additional financing, it
may not be on favorable terms; (b) a substantial portion of our cash flow
available from operations, after satisfying certain liabilities arising in the
ordinary course of business, will be dedicated to the payment of principal and
interest on this indebtedness, thereby reducing funds that would otherwise be
available to us; (c) a substantial decrease in our net operating cash flows or a
substantial increase in our expenses could make it difficult for us to meet our
debt service
21
<PAGE>
requirements, or could force us to modify our operations; and (d) our leverage
may make us more vulnerable to a downturn in our business or the economy
generally. In addition, the terms of the Reorganization borrowing agreements
include operating and financial restrictions, such as limits on our ability to
incur indebtedness, create liens, sell assets, engage in mergers or
consolidations, make investments and pay dividends. The Reorganization debt is
secured by certain assets of McClatchy. All of the Reorganization debt is pre-
payable without penalty. Although we have no present plan in place for early
repayment of this debt, we intend to accelerate payments on this debt as cash
generation allows.
Our principal sources of liquidity are cash flow from operations and
borrowings under a revolving credit facility. Our principal uses of liquidity
will be to provide working capital, to meet debt service requirements and other
liabilities arising in the ordinary course and to finance our strategic plans.
A revolving credit facility is available for our working capital needs. A term
loan facility has been drawn in full.
Earnings Dilution as a Result of the Cowles Merger. Our net income and
earning per share for the next several years will be reduced due to increased
interest expense as a result of the incurrence of additional long-term debt in
the Cowles Merger, the amortization of the identifiable intangibles and goodwill
associated with the Cowles Merger, and the issuance of shares of our Class A
Common Stock in the Cowles Merger. Assuming that the Cowles Merger had occurred
on January 1, 1997, our pro forma income from continuing operations for the
fiscal year ended December 31, 1997 would have been approximately $32.5 million,
as compared to $69.2 million of income from continuing operations for McClatchy
Newspapers, Inc. for the same period on a historical basis (restated for a
change in inventory accounting - see note 3 to the consolidated financial
statements). Similarly, our pro forma interest expense for fiscal 1997 would
have been approximately $83.8 million, as compared to approximately $8.7 million
for McClatchy Newspapers, Inc. for the same period on a historical basis.
Assuming that the Cowles Merger had occurred on January 1, 1998, our pro forma
income from continuing operations for the year ended December 27, 1998, would
have been approximately $22.2 million as compared to $61.1 million of income
from continuing operations for The McClatchy Company for the same period on a
historical basis. Similarly, pro forma interest expense for 1998 would have
been approximately $78.6 million, as compared to approximately $62.8 million for
The McClatchy Company for the same period on a historical basis. There can be
no assurance that this reduction in earnings per share and net income from
continuing operations will not have a negative impact on the market price of our
Class A Common Stock.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In addition to normal business risks discussed above, the Company utilizes
interest rate protection agreements to help maintain the overall interest rate
parameters set by management. None of these agreements were entered into for
trading purposes. (See notes 4 and 11 to the consolidated financial
statements.) As a result of this interest rate mix, a hypothetical 10 percent
change in interest rates would have a $0.03 to $0.05 per share increase or
decrease in the Company's results of operations. It would also impact the fair
values of its market risk sensitive financial instruments, but would not
materially affect the Company's financial position taken as a whole.
22
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
<S> <C>
Report of Deloitte & Touche LLP 24
Consolidated Statement of Income 25
Consolidated Balance Sheet 26
Consolidated Statement of Cash Flows 28
Consolidated Statement of Stockholders' Equity 29
Notes to Consolidated Financial Statements 30
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts 51
All other schedules are omitted as not applicable under the rules of Regulation S-X.
</TABLE>
23
<PAGE>
INDEPENDENT AUDITORS' REPORT
The McClatchy Company:
We have audited the accompanying consolidated balance sheets of The
McClatchy Company and its subsidiaries as of December 26, 1999 and December 27,
1998, and the related consolidated statements of income, cash flows and
stockholders' equity for each of the three years in the period ended December
26, 1999. Our audits also included the financial statement schedule listed in
the Index to Financial Statements and Financial Statement Schedules at Item 8.
These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of The McClatchy Company and its
subsidiaries at December 26, 1999 and December 27, 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended December 26, 1999, in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
Deloitte & Touche LLP
Sacramento, California
January 24, 2000
24
<PAGE>
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended
-------------------------------------------
December 26, December 27, December 31,
1999 1998 1997
------------- ------------ ------------
Restated
<S> <C> <C> <C>
REVENUES - NET
Newspapers:
Advertising $ 875,299 $ 756,052 $ 504,745
Circulation 175,638 162,433 107,298
Other 26,686 38,331 17,820
---------- ---------- ----------
1,077,623 956,816 629,863
Non-newspapers 10,324 11,835 12,087
---------- ---------- ----------
1,087,947 968,651 641,950
OPERATING EXPENSES
Compensation 410,636 365,760 254,048
Newsprint and supplements 153,025 154,778 96,138
Depreciation and amortization 106,884 93,786 53,269
Other operating expenses 192,703 173,469 122,009
---------- ---------- ----------
863,248 787,793 525,464
---------- ---------- ----------
OPERATING INCOME 224,699 180,858 116,486
NON-OPERATING (EXPENSES) INCOME
Interest expense (65,742) (62,820) (8,698)
Investment income 699 651 83
Partnership (loss) income (850) 1,450 (500)
(Loss) gain on sale of newspaper operations and
other business operations/assets - (111) 9,254
Other - net 1,455 2,075 366
---------- ---------- ----------
(64,438) (58,755) 505
---------- ---------- ----------
INCOME BEFORE INCOME TAX PROVISION 160,261 122,103 116,991
INCOME TAX PROVISION 77,729 61,052 47,759
---------- --------- ---------
NET INCOME $ 82,532 $ 61,051 $ 69,232
========== ========= =========
NET INCOME PER COMMON SHARE:
Basic $ 1.84 $ 1.41 $ 1.82
Diluted $ 1.83 $ 1.41 $ 1.81
WEIGHTED AVERAGE NUMBER OF COMMON SHARES:
Basic 44,835 43,199 37,971
Diluted 45,015 43,349 38,155
</TABLE>
See notes to consolidated financial statements
25
<PAGE>
CONSOLIDATED BALANCE SHEET
(In thousands, except share amounts)
<TABLE>
<CAPTION>
December 26, December 27,
1999 1998
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 1,241 $ 9,650
Trade receivables (less allowances of $3,506 in 1999
and $3,130 in 1998) 169,923 151,390
Other receivables 3,616 2,762
Newsprint, ink and other inventories 14,776 16,587
Deferred income taxes 16,399 17,441
Other current assets 9,664 4,414
----------- -----------
215,619 202,244
PROPERTY, PLANT AND EQUIPMENT
Buildings and improvements 212,785 203,842
Equipment 477,924 446,236
----------- -----------
690,709 650,078
Less accumulated depreciation (318,591) (275,230)
----------- -----------
372,118 374,848
Land 57,141 56,593
Construction in progress 20,829 21,961
----------- -----------
450,088 453,402
INTANGIBLES - NET 1,452,079 1,510,954
OTHER ASSETS 86,242 81,830
----------- -----------
TOTAL ASSETS $ 2,204,028 $ 2,248,430
=========== ===========
</TABLE>
See notes to consolidated financial statements
26
<PAGE>
<TABLE>
<CAPTION>
December 26, December 27,
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES
Current portion of bank debt $ 19,834 $ -
Accounts payable 86,227 70,063
Accrued compensation 55,360 62,038
Income taxes 11,947 29,222
Unearned revenue 35,006 33,602
Carrier deposits 3,456 4,071
Other accrued liabilities 21,624 23,099
----------- ----------
233,454 222,095
LONG-TERM BANK DEBT 878,166 1,004,000
OTHER LONG-TERM OBLIGATIONS 80,040 75,274
DEFERRED INCOME TAXES 132,702 140,056
COMMITMENTS AND CONTINGENCIES (NOTE 9)
STOCKHOLDERS' EQUITY
Common stock $.01 par value:
Class A - authorized
100,000,000 shares, issued 16,468,502 in 1999 and
16,033,763 in 1998 164 160
Class B - authorized
60,000,000 shares, issued 28,489,412 in 1999 and
28,655,912 in 1998 285 287
Additional paid-in capital 276,693 269,523
Retained earnings 602,524 537,035
----------- ----------
879,666 807,005
----------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,204,028 $2,248,430
=========== ==========
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands) Year Ended
----------------------------------------------
December 26, December 27, December 31,
1999 1998 1997
------------- ------------ ------------
<S> <C> <C> <C>
Restated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 82,532 $ 61,051 $ 69,232
Reconciliation to net cash provided:
Depreciation and amortization 110,353 96,556 53,411
Deferred income taxes (6,312) 3,607 (2,031)
Partnership losses (income) 850 (1,450) 500
Loss (gain) on sale of newspaper operations
and other business operations/assets - 111 (9,254)
Changes in certain assets and liabilities - net (23,951) (25,646) 5,806
Other 187 249 (221)
--------- --------- ---------
Net cash provided by operating activities 163,659 134,478 117,443
CASH FLOWS FROM INVESTING ACTIVITIES:
Merger of Cowles Media Company - (1,099,518) -
Purchases of property, plant and equipment (49,724) (35,111) (23,243)
Sale of newspaper and other business operations - 184,290 14,340
Other - net (5,416) - (1,081)
--------- --------- ---------
Net cash used by investing activities (55,140) (950,339) (9,984)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt - 1,125,000 -
Repayment of long-term debt (106,000) (296,370) (96,000)
Payment of cash dividends (17,043) (16,336) (14,439)
Other - principally stock issuances 6,115 4,546 5,774
--------- --------- ---------
Net cash (used) provided by financing activities (116,928) (816,840 (104,665)
--------- --------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS (8,409) 979 2,794
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 9,650 8,671 5,877
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,241 $ 9,650 $ 8,671
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
28
<PAGE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Par Value Additional Restated Treasury
-------------------- Paid-In Retained Stock Restated
Class A 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 69,232 69,232
Dividends paid ($.38 per share) (14,439) (14,439)
Conversion of 156,375 Class B
shares to Class A 1 (1)
Issuance of 348,357 Class A shares
under employee stock plans 4 5,805 5,809
Tax benefit from stock plans 1,386 1,386
Retirement of treasury stock (371) 371
--------- ---------- ------------ -------------- ---------- --------------
BALANCES, DECEMBER 31, 1997 94 287 74,354 492,320 - 567,055
Net income 61,051 61,051
Dividends paid ($.38 per share) (16,336) (16,336)
Conversion of 30,000 Class B
shares to Class A
Issuance of 251,832 Class A shares
under employee stock plans 3 4,543 4,546
Issuance of 6,330,548 Class A shares
for Cowles merger 63 189,741 189,804
Tax benefit from stock plans 885 885
--------- ---------- ------------ -------------- ---------- --------------
BALANCES, DECEMBER 27, 1998 160 287 269,523 537,035 - 807,005
Net income 82,532 82,532
Dividends paid ($.38 share) (17,043) (17,043)
Conversion of 166,500 Class B
shares to Class A 2 (2)
Issuance of 268,239 Class A shares
under stock plans 2 6,113 6,115
Tax benefit from stock plans
1,057 1,057
--------- ---------- ------------ -------------- ---------- --------------
BALANCES, DECEMBER 26, 1999 $164 $ 285 $ 276,693 $ 602,524 $ - $ 879,666
========= ========== ============ ============== ========== ==============
</TABLE>
See notes to consolidated financial statements
29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
The McClatchy Company (the "Company") and its subsidiaries are engaged
primarily in the publication of newspapers located in Minnesota, California, the
Northwest (Washington and Alaska) and the Carolinas.
The consolidated financial statements include the Company and its
subsidiaries. Significant inter-company items and transactions are 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.
Fiscal year-end - In 1998, the Company changed from a calendar year to a
fiscal year ending on the Sunday nearest December 31. Accordingly, the
Company's results are reported through December 26 and 27 in 1999 and 1998,
respectively, and December 31, 1997.
Revenue recognition - Advertising revenues are recorded when advertisements
are placed in the newspaper and circulation revenues are recorded as newspapers
are delivered over the subscription term. Unearned revenues represent prepaid
circulation subscriptions.
Cash equivalents are highly liquid debt investments with maturities of
three months or less when acquired.
Concentrations of credit risks - Financial instruments which potentially
subject the Company to concentrations of credit risks are principally cash and
cash equivalents and trade accounts receivables. Cash and cash equivalents are
placed with major financial institutions. Accounts receivable are with
customers located primarily in the immediate area of each city of publication.
The Company routinely assesses the financial strength of significant customers
and this assessment, combined with the large number and geographic diversity of
its customers, limits the Company's concentration of risk with respect to trade
accounts receivable.
Inventories are stated at the lower of cost (based principally on the
first-in, first-out method) or current market value. See note 3 for a
discussion of a change in the method of accounting for newsprint inventory.
Related party transactions - The Company owns a 13.5% interest in Ponderay
Newsprint Company ("Ponderay") which owns and operates a newsprint mill in the
State of Washington. The investment is accounted for using the equity method,
under which the Company's share of earnings of Ponderay is reflected in income
as earned. The Company guarantees certain bank debt used to construct the mill
(see note 9) and is required to purchase 28,400 metric tons of annual production
on
30
<PAGE>
a "take-if-tendered" basis until the debt is repaid. The Company satisfies
this obligation by direct purchase (1999: $14,055,000, 1998: $16,732,000, and
1997: $18,221,000) or reallocation to other buyers.
Property, plant and equipment are stated at cost. Major renewals and
betterments, as well as interest incurred during construction, are capitalized.
Depreciation is computed generally on a straight-line basis over estimated
useful lives of:
- 10 to 60 years for buildings
- 9 to 25 years for presses
- 3 to 15 years for other equipment
Intangibles consist of the unamortized excess of the cost of acquiring
newspaper operations over the fair values of the newspapers' tangible assets at
the date of purchase. Identifiable intangible assets, consisting primarily of
lists of advertisers and subscribers, covenants not to compete and commercial
printing contracts, are amortized over three to forty years. The excess of
purchase prices over identifiable assets is amortized over forty years.
Management periodically evaluates the recoverability of intangible assets by
reviewing the current and projected cash flows of each of its newspaper
operations.
Stock-based compensation - The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with APB No. 25,
Accounting for Stock Issued to Employees.
Deferred income taxes result from temporary differences between amounts of
assets and liabilities reported for financial and income tax reporting purposes.
See note 5.
Comprehensive income - The Company has no changes in its net assets during
any period presented from non-owner sources. Hence, comprehensive income is
equal to net income.
Segment reporting - The Company's primary business is the publication of
newspapers. The Company aggregates its newspapers into a single segment because
each has similar economic characteristics, products, customers and distribution
methods.
Earnings per share (EPS) - Basic EPS excludes dilution and reflects income
divided by the weighted average number of common shares outstanding for the
period. Diluted EPS is based upon the weighted average number of outstanding
shares of common stock and dilutive common stock equivalents (stock options --
equivalents calculated using the treasury stock method, no adjustment to net
income required) in the period. See note 10.
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,
31
<PAGE>
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 6,330,548 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 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 include approximately $55,319,000 of current
assets, $143,978,000 of property, plant and equipment, $1,166,400,000 of
intangible assets and $63,267,000 of other assets. Intangible assets include
approximately $929,000,000 of goodwill which is being amortized over 40 years.
In addition to assuming Cowles' long-term debt, a total of $214,197,000 of
deferred taxes and other liabilities were assumed.
The following table summarizes, on an unaudited pro forma basis, the
combined results of operations of the Company and its subsidiaries for the years
ended December 27, 1998 and December 31, 1997, as though the Cowles merger had
taken place on January 1, 1997 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Revenues $1,051,340 $1,011,784
Net income 22,151 32,536
Diluted earnings per share $ 0.49 $ 0.73
</TABLE>
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 the dilution in
the pro forma results for the year ended December 27, 1998.
32
<PAGE>
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 year ended December 31, 1997 is as follows (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
Net income as previously reported $68,799
Adjustment for effect of change in
accounting for newsprint
inventories applied retroactively 433
Net income as adjusted $69,232
=================
</TABLE>
The adjustment resulted in an increase of $0.01 to basic and diluted net
income per share in 1997.
NOTE 4. LONG-TERM BANK DEBT AND OTHER LONG-TERM
OBLIGATIONS
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 $735,000,000
bearing interest at the London Interbank Offered Rate ("LIBOR") plus 125 basis
points in 1998 and 62.5 basis points in 1999, payable in increasing quarterly
installments from June 30, 1998 through March 31, 2005, and Tranche B of
$330,000,000 bearing interest at LIBOR plus 175 basis points in 1998 and 150
basis points in 1999, and payable in semi-annual installments from September 30,
1998 through September 30, 2008. A revolving credit line of up to $200,000,000
bears interest at LIBOR plus 125 basis points in 1998 and 62.5 basis points in
1999, and is payable by March 19, 2005. Interest rates applicable to debt drawn
down at December 26, 1999, ranged from 6.7% to 7.7%. The debt is secured by
certain assets of the Company, and all of the debt is pre-payable without
penalty.
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.
33
<PAGE>
The Company's Credit Agreement requires a minimum of $300,000,000 of debt
be subject to interest rate protection agreements. This requirement has been
satisfied by 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 approximately 5.9% on that portion of
the Company's term loans.
The Company also 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%. The
collar arrangement terminates in the fourth quarter of 2000. The fair value of
these instruments as of December 26, 1999 is summarized in note 11. Payments
and receipts under such agreements are recorded as adjustments to interest
expense.
At December 26 1999, the Company had outstanding letters of credit totaling
$31,622,000 securing estimated obligations stemming from workers' compensation
claims, pension liabilities and other contingent claims.
At the end of 1999 and 1998, long-term debt consisted of (in thousands):
<TABLE>
<CAPTION>
December 26, December 27,
1999 1998
------------- -------------
<S> <C> <C>
Credit Agreement:
Term loans $788,000 904,000
Revolving credit line 110,000 $ 100,000
------------- -------------
Total indebtedness 898,000 1,004,000
Less current portion 19,834 -
------------- -------------
Long-term indebtedness $878,166 $1,004,000
============= =============
Long-term debt matures, as of December of each year, as follows (in
thousands):
<CAPTION>
<S> <C>
2001 $ 53,958
2002 87,320
2003 125,862
2004 172,112
2005 221,464
Thereafter $217,450
--------
$878,166
========
</TABLE>
34
<PAGE>
Other long-term obligations consists of (in thousands):
<TABLE>
<CAPTION>
December 26, December 27,
1999 1998
----------------- ------------------
<S> <C> <C>
Pension obligations $ 49,261 $ 41,976
Post retirement benefits obligation 15,926 17,736
Deferred compensation and other 14,853 15,562
----------------- ------------------
Total other long-term obligations $ 80,040 $ 75,274
================= ==================
</TABLE>
NOTE 5. INCOME TAXES
Income tax provisions consist of (in thousands):
<TABLE>
<CAPTION>
Year Ended
-------------------------------------------------
December 26, December 27, December 31,
1999 1998 1997
------------ ------------ -----------
Restated
<S> <C> <C> <C>
Current:
Federal $ 72,306 $ 46,348 $ 42,994
State 16,433 11,097 6,796
Deferred:
Federal (9,855) 2,977 (2,084)
State (1,155) 630 53
------------ ------------ -----------
Income tax provision $ 77,729 $ 61,052 $ 47,759
============ ============= ===========
</TABLE>
35
<PAGE>
The effective tax rate and the statutory federal income tax rate are reconciled
as follows:
<TABLE>
<CAPTION>
Year Ended
-------------------------------------------------------------
December 26, December 27, December 31,
1999 1998 1997
------------------ ---------------------- ------------------
<S> <C> <C> <C>
Statutory rate 35% 35% 35%
State taxes, net of federal benefit 6 6 4
Amortization of intangibles 7 9 3
Other - - (1)
------------------ ---------------------- -------------------
Effective tax rate 48% 50% 41%
================== ===================== ===================
</TABLE>
The components of deferred tax liabilities (benefits) recorded in the
Company's Consolidated Balance sheet on December 26, 1999, and December 27,
1998, are (in thousands):
<TABLE>
<CAPTION>
1999 1998
--------------- ---------------
<S> <C> <C>
Depreciation and amortization $ 114,024 $ 115,030
Partnership losses 6,666 7,275
State taxes 10,126 8,871
Deferred compensation (14,376) (13,492)
Other (137) 4,931
---------------- ---------------
Deferred tax liability (net of $16,399
in 1999 and $17,441 in 1998 reported
as current assets) $ 116,303 $ 122,615
================ ===============
</TABLE>
36
<PAGE>
NOTE 6. INTANGIBLES
Intangibles consist of (in thousands):
<TABLE>
<CAPTION>
December 26, December 27,
1999 1998
------------------ -----------------
<S> <C> <C>
Identifiable intangible assets,
primarily customer lists $ 384,236 $ 385,073
Excess purchase prices over
identifiable intangible assets 1,290,383 1,290,291
------------------ -----------------
Total 1,674,619 1,675,364
Less accumulated amortization 222,540 164,410
------------------ -----------------
Intangibles - net $ 1,452,079 $ 1,510,954
================== =================
</TABLE>
NOTE 7. EMPLOYEE BENEFITS
Retirement Plans:
The Company sponsors defined benefit pension plans (retirement plans) which
cover a majority of its employees. Benefits are based on years of service and
compensation. Contributions to the plans are made by the Company in amounts
deemed necessary to provide benefits. Plan assets consist primarily of
investments in marketable securities including common stocks, bonds and U.S.
government obligations, and other interest bearing accounts. The Company
contributed $1.6 million in 1999 and $1.2 million in 1998 to multi-employer
plans.
The Company also has a number of supplemental retirement plans to provide
key employees with additional retirement benefits. The terms of the plans are
generally the same as those of the retirement plans, except that the
supplemental retirement plans are limited to key employees and benefits under
them are reduced by benefits received under the retirement plans. These plans
are funded on a pay-as-you-go basis and the accrued pension obligation is
included in other long-term obligations.
37
<PAGE>
The elements of pension costs are as follows (in thousands):
<TABLE>
<CAPTION>
December 26, December 27, December 31,
1999 1998 1997
----------------- ----------------- ------------------
<S> <C> <C> <C>
Cost of benefits earned during the year $ 14,710 $ 12,603 $ 7,409
Interest on projected benefit obligation 24,939 21,793 10,456
Expected return on plan assets (34,789) (30,818) (10,836)
Prior service cost amortization 742 741 558
Actuarial (gain) loss (24) (532) 11
Transition amount amortization (547) (547) (547)
----------------- ----------------- ------------------
Net pension cost $ 5,031 $ 3,240 $ 7,051
================= ================= ==================
</TABLE>
The Company also provides or subsidizes certain retiree health care and
life insurance benefits, under two plans - one for employees of McClatchy
Newspapers, Inc. and one for the Star Tribune Company's employees. In 1997, the
Company terminated certain life insurance benefits for McClatchy Newspapers,
Inc. employees retiring on or after January 1, 1998, and accordingly, recorded a
curtailment gain of $417,000. The elements of post-retirement expenses are as
follows (in thousands):
<TABLE>
<CAPTION>
December 26, December 27, December 31,
1999 1998 1997
------------------ -------------------- --------------------
<S> <C> <C> <C>
Service $ 469 $ 445 $ 3
Interest 876 890 351
Actuarial gain (806) (665) (654)
Curtailment gain - - (417)
------------------ -------------------- --------------------
Net post-retirement
benefit expense (income) $ 539 $ 670 $ (717)
================== ==================== ====================
</TABLE>
A reconciliation of the plans' benefit obligations, fair value of assets,
funded status and amounts recognized in the Company's Consolidated Balance Sheet
at December 26, 1999 and December 27, 1998, are as follows (in thousands):
38
<PAGE>
<TABLE>
<CAPTION>
Retirement Plans Post-retirement Plans
---------------- ---------------------
1999 1998 1999 1998
---- ---- ---- ----
Change in benefit obligations:
<S> <C> <C> <C> <C>
Beginning of year $367,950 $158,823 $ 14,749 $ 4,895
Service cost 14,710 12,579 469 445
Interest costs 24,939 21,817 876 890
Acquisition - 173,499 - 9,008
Plan amendments 246 2,506 - 142
Actuarial loss (gain) (57,751) 15,397 (3,072) 668
Participant contributions - - 292 -
Benefits paid (16,781) (16,671) (1,771) (1,299)
-------- -------- -------- --------
End of year 333,313 367,950 11,543 14,749
-------- -------- -------- --------
Change in fair market value of assets:
Beginning of year 408,893 150,582 - -
Acquisition - 225,250 - -
Return on assets 48,747 49,171 - -
Contributions 586 562 1,771 1,299
Benefit payments (16,781) (16,671) (1,771) (1,299)
-------- -------- -------- --------
End of year 441,445 408,894 - -
-------- -------- -------- --------
Funded status 108,132 40,944 (11,543) (14,749)
Unrecognized net gain (94,873) (23,191) (4,605) (3,222)
Transition asset (1,095) (1,642) - -
Prior service costs 4,231 4,727 (883) -
-------- -------- -------- --------
Prepaid (accrued ) cost $ 16,395 $ 20,838 $(17,031) $(17,971)
======== ======== ======== ========
Amounts recognized:
Prepaid benefit cost $ 65,360 $ 61,630
Accrued benefit liability (48,965) (40,792) $(17,031) $(17,971)
Additional liability (296) (1,184) - -
Intangible asset 296 1,184 - -
------- -------- -------- --------
Net amount recognized $ 16,395 $ 20,838 $(17,031) $(17,971)
======== ======== ======== ========
</TABLE>
39
<PAGE>
Weighted average assumptions used for valuing benefit obligations were:
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Retirement and Post-retirement Plans:
Discount rate in determining benefit 8.00% 6.75%
obligation
Retirement Plans:
Expected long-term rate of return 9.00% 9.00%
on assets
Rates of compensation increase 3.0% - 5.0% 3.5% - 5.0%
</TABLE>
For pension plans with accumulated benefit obligations in excess of plan
assets, the projected benefit obligation, the accumulated benefit obligation and
the fair value of plan assets were $20,100,000, $18,400,000 and $0,
respectively, as of December 26, 1999 and $20,300,000, $18,400,000 and $0,
respectively, as of December 27, 1998.
For the McClatchy Newspapers, Inc. post-retirement plan (benefit obligation
of $ 4.5 million, income of $294,000), the medical care cost trend rates are
estimated to decline from 8.75% in 1999 to 5.8% by the year 2002. A 1.0% change
in the assumed health care cost trend rate would have decreased or increased the
APBO by $4,500 and the annual service cost nominally. For the Star Tribune
post-retirement plan, the medical cost trend rates are expected to decline from
8.8% in 1999 to 5.5% by the year 2004. For the Star Tribune's plan (benefit
obligation of $9.8 million and expense of $833,000), a 1.0% change in the
assumed health care cost trend rate would have increased the benefit obligation
and expense by $719,000 and $128,000 respectively, and decreased each by
$630,000 and $110,000, respectively.
The Company has deferred compensation plans (401(k) plans and other savings
plans) which enable qualified employees to voluntarily defer compensation. The
Company's mandatory matching contributions to the 401(k) plans were $6,232,000
in 1999, $6,010,000 in 1998 and $5,123,000 in 1997.
NOTE 8. CASH FLOW INFORMATION
Net cash paid in connection with the Cowles merger in 1998 consists of (in
thousands):
<TABLE>
<S> <C>
Fair value of assets acquired $1,542,690
Fair value of liabilities assumed (282,893)
Issuance of Class A common stock (189,804)
Fees and expenses 31,654
Less cash acquired (2,129)
----------
$1,099,518
==========
</TABLE>
No significant acquisitions were made in 1999 or 1997.
40
<PAGE>
Cash paid during the years ended December 26, 1999, December 27, 1998 and
December 31, 1997, for interest and income taxes were (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
Interest paid
(net of amount capitalized) $ 63,003 $53,626 $ 9,225
Income taxes paid
(net of refunds) 100,258 47,508 51,262
</TABLE>
Cash provided or used by operations was affected by changes in certain
assets and liabilities, net of the effects of acquired newspaper operations, as
follows (in thousands):
<TABLE>
<CAPTION>
December 26, December 27, December 31,
1999 1998 1997
-------------- ------------- -------------
Restated
<S> <C> <C> <C>
Increase (decrease) in assets:
Trade receivables $ 20,238 $ 27,837 $ 11,875
Inventories (1,811) 2,066 738
Other assets 5,464 2,005 391
--------- -------- --------
Total 23,891 31,908 13,004
--------- -------- --------
Increase (decrease) in liabilities:
Accounts payable 17,869 11,985 12,831
Accrued compensation (7,132) (19,637) 5,408
Income taxes (17,275) 9,987 (1,474)
Other liabilities 6,478 3,927 2,045
--------- -------- --------
Total (60) 6,262 18,810
--------- -------- --------
Net cash (decrease) increase from changes
in certain assets and liabilities $ (23,951) $ (25,646) $ 5,806
========= ========= =======
</TABLE>
41
<PAGE>
NOTE 9. COMMITMENTS AND CONTINGENCIES
The Company guarantees $20,330,000 of bank debt related primarily to its
joint venture in the Ponderay newsprint mill.
The Company and its subsidiaries rent certain facilities and equipment
under operating leases expiring at various dates through January 2009. Total
rental expense amounted to $5,862,000 in 1999, $5,355,000 in 1998 and $2,838,000
in 1997. Minimum rental commitments under operating leases with non-cancelable
terms in excess of one year are (in thousands):
<TABLE>
<S> <C>
2000 $ 5,740
2001 3,663
2002 2,548
2003 1,784
2004 1,059
Thereafter 1,808
-------
Total $16,602
=======
</TABLE>
There are libel and other legal actions that have arisen in the ordinary
course of business and are pending against the Company. From time to time, the
Company is involved as a party in various governmental proceedings, including
environmental matters. Management believes, after reviewing such actions with
counsel, that the outcome of pending actions will not have a material adverse
effect on the Company's consolidated results of operations or financial
position.
NOTE 10. COMMON STOCK AND STOCK PLANS
The Company's Class A and Class B common stock participate equally in
dividends. Holders of Class B common stock are entitled to one vote per share
and to elect as a class 75% of the Board of Directors, rounded down to the
nearest whole number. Holders of Class A common stock are entitled to one-tenth
of a vote per share and to elect as a class 25% of the Board of Directors,
rounded up to the nearest whole number. Class B common stock is convertible at
the option of the holder into Class A common stock on a share-for-share basis.
At December 26, 1999 the Company has five stock-based compensation plans,
which are described below. The Company applies APB Opinion 25 and related
interpretations in accounting for its plans. No significant amounts of
compensation costs have been recognized for its fixed stock option plans and its
stock purchase plan.
The Company's Amended Employee Stock Purchase Plan (the Purchase Plan)
reserved 1,875,000 shares of Class A common stock for issuance to employees.
Eligible employees may purchase shares at 85% of "fair market value" (as
defined) through payroll deductions. The Purchase Plan can be automatically
terminated by the Company at any time. As of December 26, 1999, 967,265 shares
of Class A common stock have been issued under the Purchase Plan.
42
<PAGE>
The Company has three stock option plans which reserve 3,312,500 Class A
common shares for issuance to employees -- the 1987, 1994 and 1997 plans
("Employee Plans"). Terms of each of the Employee Plans are substantially the
same. Options are granted at the market price of the Class A common stock on
the date of grant. The options vest in installments over four years, and once
vested are exercisable up to 10 years from the date of grant. Although the
plans permit the Company, at its sole discretion, to settle unexercised options
by granting stock appreciation rights, the Company does not intend to avail
itself of this alternative except in limited circumstances.
The Company's amended and restated stock option plan for outside directors
(the Directors' Plan) provides for the issuance of up to 187,500 shares of Class
A stock. Under the plan each outside director was granted an option at fair
market value at the conclusion of each regular annual meeting of stockholders
for 2,500 shares. Terms of the Directors' Plan are similar to the terms of the
Employee Plans. Outstanding options are summarized as follows:
<TABLE>
<CAPTION>
Employee Plans Directors' Plan
---------------------------- ---------------------------
Weighted Weighted
Average Average
Exercise Exercise
Options Price Options Price
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
December 31, 1996 974,586 $ 18.29 84,375 $ 17.54
Granted 204,000 28.19 16,875 25.75
Exercised (270,307) 15.83 (7,500) 16.58
------------ -----------
Outstanding,
December 31, 1997 908,279 21.24 93,750 19.09
Granted 558,362 29.10 27,500 30.00
Exercised (175,955) 15.41 (1,875) 16.60
Forfeited (69,621) 23.84 -
------------ -----------
Outstanding,
December 27, 1998 1,221,065 25.48 119,375 21.64
Granted 390,000 40.31 27,500 36.94
Exercised (144,740) 17.48 (16,875) 18.28
Forfeited (10,091) 22.68 (2,500) 30.00
------------ -----------
Outstanding
December 26, 1999 1,456,234 30.29 127,500 25.22
============ ===========
Employee Directors'
Plans Plan
------------ ------------
Options exercisable:
December 31, 1997 298,834 55,792
December 27, 1998 337,494 71,260
December 26, 1999 376,530 70,478
</TABLE>
The following tables summarize information about fixed stock options
outstanding in the stock plans at December 26, 1999:
43
<PAGE>
<TABLE>
<CAPTION>
EMPLOYEE PLANS
- -----------------------------------------------------------------------------------------------------------
Average Weighted Weighted
Remaining Average Average
Range of Exercise Options Contractual Exercise Options Exercise
Prices Outstanding Life Price Exercisable Price
------ ----------- ---- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
$7.62 - $25.10 396,859 5.37 $19.78 290,280 $18.51
$26.19 - $30.63 308,375 7.88 $28.12 79,250 $28.12
$32.88 365,000 8.78 $32.88 7,000 $32.88
$40.38 386,000 9.97 $40.38 - -
</TABLE>
<TABLE>
<CAPTION>
DIRECTORS' PLAN
- -----------------------------------------------------------------------------------------------------------
Average Weighted Weighted
Remaining Average Average
Range of Exercise Options Contractual Exercise Options Exercise
Prices Outstanding Life Price Exercisable Price
------ ----------- ---- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
$14.60 - $18.40 46,875 3.42 $17.41 46,875 $17.41
$18.90 - $30.00 53,125 7.62 $26.06 23,603 $24.02
$36.94 27,500 9.39 $36.94 - -
</TABLE>
Had compensation costs for the Company's five stock-based compensation
plans been determined based upon the fair value at the grant dates for awards
under those plans consistent with the method of FASB Statement No. 123, the
Company's net income and earnings per share would have been reduced to the pro
forma amounts indicated below (in thousands, except per share amounts):
1999 1998 1997
---------- ----------- ------------
Net income: Restated
As reported $82,532 $61,051 $69,232
Pro forma $80,684 $59,402 $68,406
Earnings per common share:
As reported
Basic $ 1.84 $ 1.41 $ 1.82
Diluted $ 1.83 $ 1.41 $ 1.81
Pro forma
Basic $ 1.80 $ 1.38 $ 1.80
Diluted $ 1.79 $ 1.37 $ 1.79
The impact of outstanding non-vested stock options granted prior to 1995
has been excluded from the pro forma calculation; accordingly, the 1999, 1998
and 1997 pro forma adjustments are not
44
<PAGE>
indicative of future period pro forma adjustments, when the calculation will
apply to all applicable stock options.
Compensation costs are calculated for the fair value of the employees'
purchase rights, which was estimated using the Black-Scholes model with the
following assumptions for 1999, 1998, and 1997 respectively: dividend yield of
1.0% to 1.4% for all years; an expected life of one to seven years for all
years; expected volatility of .2862, .2868 and .2838; and risk-free interest
rates of 5.4% to 6.3% in 1999, 4.5% to 5.8% in 1998 and 5.72 % to 6.62 % in
1997. The weighted-average fair value of those purchase rights granted in 1999,
1998, and 1997 was $13.79, $9.58 and $8.99 , respectively for Employee Plans and
$11.07, $9.33 and $8.28, respectively for the Directors' Plan.
NOTE 11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimates were developed using available market data for
instruments held as of December 26, 1999 and December 27, 1998, (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------------------------- -----------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------------ ------------- ------------- --------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 1,241 $ 1,241 $ 9,650 $ 9,650
Long-term debt 878,166 878,166 1,004,000 1,004,000
Interest rate protection
agreements - 6,775 - (8,009)
</TABLE>
NOTE 12. SALE OF NEWSPAPER AND OTHER BUSINESS
OPERATIONS
In 1998, the Company sold The McClatchy Printing Company, Benson Printing
Company, the Mount Olive Tribune (a twice-weekly newspaper in North Carolina)
and several niche publications. Total revenues for the sold businesses were
$8,700,000 in 1998, and the Company reported a net pre-tax loss of $111,000 in
non-operating income - (expense) - net.
On February 28, 1997, the Company completed the sale of the Gilroy
Dispatch, The Hollister Free Lance, the Morgan Hill Times and the Amador Ledger
Dispatch. These newspapers had combined daily circulation of approximately
10,150 and weekly circulation of 12,800, and generated $7.6 million in revenues
in 1996. The Company reported a $6,748,000 pre-tax gain on the sale which is
included in non-operating (expenses) income. The Company sold Legi-Tech, its
on-line legislative tracking company and certain real estate and recorded a
$2,506,000 pre-tax gain.
45
<PAGE>
NOTE 13. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The Company's business is somewhat seasonal, with peak revenues and profits
generally occurring in the second and fourth quarters of each year as a result
of increased advertising activity during the spring holiday and Christmas
periods. The first quarter is historically the weakest quarter for revenues and
profits. The Company's quarterly results are summarized as follows (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1999:
Revenues-net $258,435 $273,575 $269,269 $286,668
Operating income 43,286 59,369 55,459 66,585
Net income 13,591 22,037 20,372 26,532
Net income per common share 0.30 0.49 0.45 0.59
1998:
Revenues-net $163,963 $267,007 $263,129 $274,552
Operating income 22,665 52,525 48,863 56,805
Net income 9,245 16,682 14,026 21,098
Net income per common share 0.24 0.37 0.31 0.47
</TABLE>
On March 19, 1998 the Company acquired all of the outstanding shares of
Cowles Media Company, owner of the Star Tribune newspaper. See note 2 to the
consolidated financial statements. Accordingly, the results of Star Tribune's
operations are included in the Company's results beginning on March 20,
1998. In 1998, the Company sold operations and recorded a one cent per share
loss in the third quarter and a one cent per share gain in the fourth quarter in
connection with those sales.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Biographical information for Class A Directors, Class B Directors and
executive officers contained under the captions "Nominees for Class A
Directors", "Nominees for Class B Directors" and
46
<PAGE>
"Other Executive Officers" under the heading "Election of Directors" in the
definitive Proxy Statement for the Company's 2000 Annual Meeting of Stockholders
is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information contained under the headings "Compensation", "Executive
Compensation", "Stock Option Awards", "Option Exercises and Holdings", "Pension
Plans" and "Employment Agreement" in the definitive Proxy Statement for the
Company's 2000 Annual Meeting of Stockholders is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information contained under the heading "Stock Ownership" in the
definitive Proxy Statement for the Company's 2000 Annual Meeting of Stockholders
is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained under the headings "Certain Relationships and
Related Transactions" in the definitive Proxy Statement for the Company's 2000
Annual Meeting of Stockholders is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
a)(1)&(2) Financial Statements and Financial Statement
Schedules filed as a part of this Report as listed in the Index to
Financial Statements and
Financial Statement Schedules on page 23 hereof.
(3) Exhibits filed as part of this Report as listed in the Exhibit Index
beginning on page 52 hereof.
b) Reports on Form 8-K - None.
47
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on March 24. 2000.
THE McCLATCHY COMPANY
By /s/ GARY B. PRUITT
--------------------------------------
Gary B. Pruitt
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Principal Executive Officers:
/s/ GARY B. PRUITT President, Chief Executive March 24, 2000
- ------------------------- Officer and Director
(Gary B. Pruitt)
Principal Financial Officer:
/s/ DORETHA CHRISTOPH Vice President, March 24, 2000
- ------------------------- Finance, Chief Financial Officer
(Doretha Christoph)
Principal Accounting Officer:
/s/ ROBERT W. BERGER Controller March 24, 2000
- ------------------------
(Robert W. Berger)
</TABLE>
48
<PAGE>
SIGNATURES-(Continued)
<TABLE>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Directors:
/s/ ELIZABETH BALLANTINE Director March 24, 2000
- ----------------------------
(Elizabeth Ballantine)
/s/ WILLIAM K. COBLENTZ Director March 24, 2000
- ----------------------------
(William K. Coblentz)
/s/ MOLLY MALONEY EVANGELISTI Director March 24, 2000
- ------------------------------
(Molly Maloney Evangelisti)
/s/ JOAN F. LANE Director March 24, 2000
- ------------------------------
(Joan F. Lane)
/s/ R. LARRY JINKS Director March 24, 2000
- ------------------------------
(R. Larry Jinks)
/s/ JAMES B. McCLATCHY Publisher and March 24, 2000
- ------------------------------ Director
(James B. McClatchy)
/s/ KEVIN McCLATCHY Director March 24, 2000
- ------------------------------
(Kevin McClatchy)
/s/ WILLIAM ELLERY McCLATCHY Director March 24, 2000
- ------------------------------
(William Ellery McClatchy)
</TABLE>
49
<PAGE>
SIGNATURES-(Continued)
<TABLE>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Directors:
/s/ ERWIN POTTS Chairman of the Board and March 24, 2000
- ------------------------------ Director
(Erwin Potts)
/s/ S. DONLEY RITCHEY, JR. Director March 24, 2000
- ------------------------------
(S. Donley Ritchey, Jr.)
/s/ WILLIAM M. ROTH Director March 24, 2000
- ------------------------------
(William M. Roth)
/s/ FREDERICK R. RUIZ Director March 24, 2000
- ------------------------------
(Frederick R. Ruiz)
</TABLE>
50
<PAGE>
SCHEDULE II
McCLATCHY NEWSPAPERS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For the Three Years Ended December 26, 1999
(in thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
--------- --------- ---------- -------- --------
Deductions
Additions (1) for
---------------------------------- Purposes
Balance Charged to Charged to for Which Balance at End
Beginning of Costs and Other Accounts Were of Period
Period Expenses Accounts Set Up
------------ ---------- --------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1997:
Deduct from assets to which
they apply:
Uncollectible accounts $(2,440) $(4,793) $ - $ 5,071 $(2,162)
Year Ended December 27, 1998:
Deduct from assets to which
they apply:
Uncollectible accounts $(2,162) $(4,281) $ (245) $ 3,558 $(3,130)
Year Ended December 26, 1999
Deduct from assets to which $(3,130) $(3,598) $ 3,222 $(3,506)
they apply:
Uncollectible accounts
</TABLE>
- ---------------------
(1) Amounts written off net of bad debt recoveries.
51
<PAGE>
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit
-------
<S> <C>
3.1* The Company's Restated Certificate of Incorporation dated March
18, 1998, included as Exhibit 3.1 in the Company's 1997 Form
10-K.
3.2* The Company's By-laws included as Exhibit 3.2 in the Company's
Registration Statement No. 333-46501 on Form S-4.
10.1* Amended and Restated Agreement and Plan of Merger and
Reorganization between The McClatchy Company and Cowles Media
Company dated February 13, 1998 included as Exhibit 2.1 in the
Company's Registration Statement No. 333-46501 on Form S-4.
10.2* Credit Agreement dated March 10, 1998 between The McClatchy
Company (formerly MNI Newco, Inc.), the lenders party thereto,
Salomon Brothers, Inc., as Arranger and Syndication Agent and
Bank of America National Trust and Savings Association as
Swingline Lender, Administrative Agent and Collateral Agent,
included as Exhibit 10.2 in the Company's 1997 Form 10-K.
10.3* Ponderay Newsprint Company Partnership Agreement dated as of
September 12, 1985 between Lake Superior Forest Products, Inc.,
Central Newsprint Company, Inc., Bradley Paper Company, Copley
Northwest, Inc., Puller Paper Company, Newsprint Ventures, Inc.,
Wingate Paper Company, Tribune Newsprint Company and Nimitz
Paper Company included in Exhibit 10.10 to McClatchy Newspapers,
Inc. Registration Statement No. 33-17270 on Form S-1.
**10.4* McClatchy Newspapers, Inc. Management by Objective Plan
Description included in Exhibit 10.1 to McClatchy Newspapers,
Inc. Registration Statement No. 33-17270 on Form S-1.
**10.5* Supplemental Executive Retirement Plan included in Exhibit 10.7
to McClatchy Newspapers, Inc. 1988 Report on Form 10-K.
**10.6* Amended and Restated 1987 Stock Option Plan dated August 15,
1996 included as Exhibit 10.7 to the McClatchy Newspapers, Inc.
1996 Report on Form 10-K.
**10.7* Amended and Restated 1994 Stock Option Plan dated February 1,
1998 included as Exhibit 10.8 to the Company's Report on Form
10-Q filed for the Quarter Ending on June 30, 1998.
10.8* 1997 Stock Option Plan dated December 10, 1997 included as
Exhibit 10.8 in the Company's 1997 Form 10-K.
**10.9* Group Executive Life Insurance Plan included in Exhibit 10.9 to
McClatchy Newspapers, Inc. Registration Statement No. 33-17270
on Form S-1.
**10.10* Group Executive Long Term Disability Insurance Plan included in
Exhibit 10.8 to McClatchy Newspapers, Inc. Registration
Statement No. 33-17270 on Form S-1.
**10.11* Executive Performance Plan adopted on January 1, 1990 included
in Exhibit 10.13 to McClatchy Newspapers, Inc. 1989 Report on
Form 10-K.
**10.12* The Company's Amended and Restated 1990 Directors' Stock Option
Plan dated February 1, 1998 included as Exhibit 10.12 in the
Company's 1997 Form 10-K.
**10.13 Employment Agreement between the Company and Gary B. Pruitt
dated June 1, 1996 included as Exhibit 10.13 to the McClatchy
Newspapers, Inc. 1996 Report on Form 10-K.
**10.14* The Company's Long-Term Incentive Plan, dated January 1, 1998
included as Exhibit 10.2 to the Company's Report on Form 10-Q
for the Quarter Ending on June 30, 1998.
**10.15* The Company's Chief Executive Bonus Plan, dated January 1, 1998
included as Exhibit 10.3 to the Company's Report on Form 10-Q
for the Quarter Ending on June 30, 1998.
21* Subsidiaries of the Company included as Exhibit 21 in the
Company's 1997 Form 10-K.
23 Consent of Deloitte & Touche LLP.
27 Financial Data Schedule for the Year Ended December 26, 1999.
</TABLE>
- ------------
* Incorporated by reference
** Compensation plans or arrangements for the Company's executive officers and
directors.
52
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in The McClatchy Company's
Registration Statements No. 33-21704, No. 33-24096, No. 33-37300, No. 33-65104,
No. 33-56717, No. 333-42903, and No. 333-59811 on Form S-8 and No. 333-47909 on
Form S-3 of our report dated January 24, 2000 (which expresses an unqualified
opinion), appearing in this Annual Report on Form 10-K of The McClatchy Company
for the year ended December 26, 1999.
Deloitte & Touche LLP
Sacramento, California
March 22, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM SEC FILING FORM 10-K
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-26-1999
<PERIOD-START> DEC-28-1998
<PERIOD-END> DEC-26-1999
<CASH> 1,241
<SECURITIES> 0
<RECEIVABLES> 173,429
<ALLOWANCES> 3,506
<INVENTORY> 14,776
<CURRENT-ASSETS> 215,619
<PP&E> 768,679
<DEPRECIATION> 318,591
<TOTAL-ASSETS> 2,204,028
<CURRENT-LIABILITIES> 233,454
<BONDS> 0
0
0
<COMMON> 449
<OTHER-SE> 879,217
<TOTAL-LIABILITY-AND-EQUITY> 2,204,028
<SALES> 1,087,947
<TOTAL-REVENUES> 1,087,947
<CGS> 0
<TOTAL-COSTS> 863,248
<OTHER-EXPENSES> (1,304)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 65,742
<INCOME-PRETAX> 160,261
<INCOME-TAX> 77,729
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 82,532
<EPS-BASIC> 1.84
<EPS-DILUTED> 1.83
</TABLE>
