UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 1-9824
McCLATCHY NEWSPAPERS, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-0666175
(State of Incorporation) (IRS Employer
Identification Number)
2100 "Q" Street, Sacramento, CA 95816
(Address of principal executive offices)
(916) 321-1846
(Registrant's telephone number)
Indicate by check mark whether the registrant has (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No .
The number of shares of each class of common stock outstanding as of August
8, 1994:
Class A Common Stock 6,484,084
Class B Common Stock
23,386,789
1 of 18
<PAGE>
McCLATCHY NEWSPAPERS, INC.
INDEX TO FORM 10-Q
Page
Part I - FINANCIAL INFORMATION
Item 1 - Financial Statements:
Consolidated Balance Sheet - June 30, 1994
(unaudited) and December 31, 1993 3
Consolidated Statement of Income for the
Three Months and Six Months Ended
June 30, 1994 and 1993 (unaudited) 5
Consolidated Statement of Cash Flows for
the Six Months Ended June 30, 1994
and 1993 (unaudited) 6
Consolidated Statement of Stockholders'
Equity for the Period from January 1,
1993 to June 30, 1994 (unaudited) 7
Notes to Consolidated Financial Statements
(unaudited) 8
Item 2 - Management's Discussion and Analysis of
Results of Operations and Financial Condition 16
Part II - OTHER INFORMATION 18
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
McCLATCHY NEWSPAPERS, INC.
CONSOLIDATED BALANCE SHEET
(In thousands)
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 59,911 $ 42,326
Short-term investments 21,521
Trade receivables (less
allowances of $1,977 in
1994 and $1,757 in 1993) 48,164 47,859
Other receivables 1,043 1,456
Newsprint, ink and other
inventories 7,749 10,033
Deferred income taxes 10,808 9,672
Other current assets 2,170 1,843
Total current assets 151,366 113,189
Property, plant and equipment:
Land 18,626 18,057
Buildings and improvements 120,020 120,753
Equipment 292,821 282,082
Construction in progress 16,677 15,893
Total 448,144 436,785
Accumulated depreciation (177,243) (166,460)
Net property, plant and
equipment 270,901 270,325
Intangibles - net 119,751 124,662
Investment in newsprint mill
partnership 3,542 3,977
Other assets 11,458 13,010
Total assets $ 557,018 $ 525,163
</TABLE>
See notes to consolidated financial statements
<PAGE>
McCLATCHY NEWSPAPERS, INC.
CONSOLIDATED BALANCE SHEET
(In thousands, except share amounts)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
(Unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable $ 8,906 $ 14,043
Accrued compensation 28,195 26,324
Income taxes 4,401 1,117
Unearned revenue 11,564 10,560
Carrier deposits 3,239 3,055
Other accrued liabilities 8,271 8,281
Total current liabilities 64,576 63,380
Long-term obligations 14,781 14,213
Deferred income taxes 61,340 64,047
Commitments and contingencies
(note 8)
Stockholders' equity:
Common stock $.01 par value:
Class A - authorized
50,000,000 shares, issued
6,456,153 in 1994 and
5,100,450 in 1993 64 51
Class B - authorized
30,000,000 shares, issued
23,386,789 in 1994 and
24,503,789 in 1993 234 238
Additional paid-in capital 60,041 39,472
Retained earnings 356,353 344,133
Treasury stock, 20,000 Class
A shares in 1994 and 1993
and 750,000 Class B shares
in 1993 (371) (371)
Total stockholders' equity 416,321 383,523
Total liabilities and
stockholders' equity $ 557,018 $ 525,163
</TABLE>
See notes to consolidated financial statements
<PAGE>
McCLATCHY NEWSPAPERS, INC.
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1994 1993 1994 1993
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues - net:
Advertising $ 92,978 $ 88,626 $176,807 $169,581
Circulation 21,196 20,870 42,390 41,819
Other 4,469 3,962 8,370 7,340
Total 118,643 113,458 227,567 218,740
Operating expenses:
Compensation 50,879 50,282 101,077 99,974
Newsprint and
supplements 15,866 15,409 30,574 29,598
Depreciation and
amortization 9,511 8,742 19,031 17,407
Other operating
expenses 21,845 22,063 44,738 44,253
Total 98,101 96,496 195,420 191,232
Operating income 20,542 16,962 32,147 27,508
Nonoperating
expenses (income):
Interest expense 2 28 5 75
Interest income (610) (67) (964) (74)
Partnership losses 1,500 1,450 3,000 3,250
Other - net 11 74 31 338
Total 903 1,485 2,072 3,589
Income before
income tax
provision 19,639 15,477 30,075 23,919
Income tax
provision 8,622 6,963 13,161 10,637
Net income $ 11,017 $ 8,514 $ 16,914 $ 13,282
Net income per
common share $ 0.37 $ 0.30 $ 0.58 $ 0.46
Weighted average
number of common
shares 29,512 28,829 29,232 28,833
</TABLE>
See notes to consolidated financial statements
<PAGE>
McCLATCHY NEWSPAPERS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1994 1993
(Unaudited)
<S> <C> <C>
Cash provided (used) by
operating activities:
Net income $ 16,914 $ 13,282
Reconciliation to net cash
provided:
Depreciation and amortization 19,112 17,502
Partnership losses 3,000 3,250
Changes in certain assets and
liabilities - net 3,261 6,162
Other (1,350) 2,781
Net cash provided by operating
activities 40,937 42,977
Cash provided (used) by
investing
activities:
Purchase of short-term
investments (21,521)
Purchase of property, plant and
equipment (15,127) (16,325)
Investment in newsprint mill
partnership (2,565) (2,363)
Other - net (15) 59
Net cash used by investing
activities (39,228) (18,629)
Cash provided (used) by
financing activities:
Proceeds from public offering 20,010
Repayment of long-term debt (10,072)
Payment of cash dividends (4,694) (3,599)
Other 560 564
Net cash provided (used) by
financing activities 15,876 (13,107)
Net change in cash and cash
equivalents 17,585 11,241
Cash and cash equivalents,
beginning of year 42,326 8,658
Cash and cash equivalents,
end of period $ 59,911 $ 19,899
Other cash flow information:
Cash paid during the period
for:
Interest (net of amount
capitalized) $ 16 $ 126
Income taxes (net of refunds) 11,971 6,741
</TABLE>
See notes to consolidated financial statements
<PAGE>
<TABLE>
McCLATCHY NEWSPAPERS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
(In thousands, except share and per share amounts)
<CAPTION>
Par Value Additional Treasury
Class A Class B Paid-In Retained Stock
Common Common Capital Earnings At Cost Total
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1992 $46 $242 $38,272 $320,110 $(371) $358,299
Net income (6 months) 13,282 13,282
Dividends paid ($.125 per share) (3,599) (3,599)
Conversion of 100,000 Class B to
Class A 1 (1)
Issuance of 35,000 Class A under
employee stock plans 564 564
Balances, June 30, 1993 47 241 38,836 329,793 (371) 368,546
Net income (6 months) 18,516 18,516
Dividends paid ($.145 per share) (4,176) (4,176)
Conversion of 343,000 Class B to
Class A 3 (3)
Issuance of 37,080 Class A under
employee stock plans 1 636 637
Balances, December 31, 1993 51 238 39,472 344,133 (371) 383,523
Net income (6 months) 16,914 16,914
Dividends paid ($.16 per share) (4,694) (4,694)
Conversion of 367,000 Class B to
Class A 4 (4)
Issuance of 956,250 Class A to
public 9 20,001 20,010
Issuance of 32,453 Class A under
employee stock plans 568 568
Balances, June 30, 1994 $64 $234 $60,041 $356,353 $(371) $416,321
</TABLE>
See notes to consolidated financial statements
<PAGE>
McCLATCHY NEWSPAPERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
McClatchy Newspapers, Inc. (the Company) and its subsidiaries are
engaged primarily in the publication of newspapers.
The consolidated financial statements include the accounts of the
Company and its subsidiaries. Significant intercompany items and
transactions have been eliminated. In the opinion of management, the
accompanying unaudited consolidated financial statements contain all
adjustments necessary to present fairly the Company's financial position,
results of operations, and cash flows for the interim periods presented.
All adjustments are normal recurring entries except for the recording of
$768,000 of costs associated with the closure of the Company's monthly
Spectrum tabloids in March 1994. Such financial statements are not
necessarily indicative of the results to be expected for the full year.
Revenue recognition - Advertising revenues are recorded when the
advertisement is 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 investments with maturities of three
months or less when acquired.
Short-term investments consist of certificates of deposit maturing
through September 15, 1994 and will be held to maturity.
Concentrations of credit risks - Financial instruments which potentially
subject the Company to concentrations of credit risks are principally cash
and cash equivalents, short-term investments and trade accounts receivables.
Cash and cash equivalents and short-term investments are placed with various
high-credit-quality institutions and are currently invested in the highest
rated commercial paper, certificates of deposit and government securities.
Accounts receivable are with customers located primarily in the immediate
area of each city of publication. The Company routinely assesses the
financial strength of significant customers and this assessment, combined
with the large number and geographic diversity of its customers, limits the
Company's concentration of risk with respect to trade accounts receivable.
Inventories are stated at the lower of cost (based principally on the
last-in, first-out method) or current market value. If the first-in, first-
out method of inventory accounting had been used, inventories would have
increased by $1,828,000 at June 30, 1994 and $1,460,000 at December 31,
1993.
Property, plant and equipment are stated at cost. Major renewals and
betterments, as well as interest incurred during construction, are
capitalized. For three months and six months ended June 30, 1994 and 1993
such interest was nominal.
<PAGE>
McCLATCHY NEWSPAPERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES - Continued
Depreciation is computed generally on a straight-line basis over
estimated useful lives of:
- 10 to 60 years for buildings
- 9 to 20 years for presses
- 3 to 10 years for other equipment
Intangibles consist of the unamortized excess of the cost of acquiring
newspaper operations over the fair market values of the newspapers' tangible
assets at the date of purchase. Identifiable intangible assets, consisting
primarily of lists of advertisers and subscribers and covenants not to
compete, are amortized over periods ranging from three to twenty-five 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 profitability of
each of its newspaper operations.
Deferred income taxes result from temporary differences between amounts
reported for financial and income tax reporting purposes. See note 4.
Earnings per share are based on the weighted average number of
outstanding shares of common stock and common stock equivalents (stock
options). In May 1994, the number of outstanding shares increased by
956,250 shares as a result of a stock offering to the public. See note 9.
2. INVESTMENT IN NEWSPRINT MILL PARTNERSHIP
A wholly-owned subsidiary of the Company owns a 13.5% interest in
Ponderay Newsprint Company ("Ponderay"), a general partnership formed to own
and operate a newsprint mill in the State of Washington. The Company has
guaranteed certain debt (see note 8) and has committed to take 28,400 metric
tons of annual production on a "take-if-tendered" basis until March 1, 2001.
The Company purchased $6,007,308 and $5,789,000 of newsprint from Ponderay
in the six months ended June 30, 1994 and 1993, respectively. For the three
months ended June 30, Ponderay net revenues and net losses were $23,862,000
and $10,597,000 in 1994 and $23,551,000 and $11,220,000 in 1993. For the
six months ended June 30, net revenues and net losses were $46,980,000 and
$22,153,000 in 1994 and $45,808,000 and $24,104,000 in 1993.
<PAGE>
McCLATCHY NEWSPAPERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. LONG-TERM OBLIGATIONS
Long-term obligations consist of (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
<S> <C> <C>
Long-term debt:
Installment note $ 60
Less current portion 60
Total long-term debt -
Postretirement benefits
obligation $ 9,592 9,142
Other long-term obligations 5,189 5,071
Total long-term obligations $ 14,781 $ 14,213
</TABLE>
Long-term obligations mature as follows (in thousands):
<TABLE>
Year Ending June 30,
<S> <C>
1996 $ 1,065
1997 744
1998 517
1999 329
Thereafter 12,126
Total $ 14,781
</TABLE>
The Company has an outstanding letter of credit for $5,860,000.
Other long-term obligations consist primarily of deferred compensation
and supplemental retirement benefits.
<PAGE>
McCLATCHY NEWSPAPERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. INCOME TAX PROVISIONS
Income tax provisions consist of (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Current:
Federal $ 7,178 $ 4,457 $14,660 $ 7,157
State 1,551 1,039 2,344 1,611
Deferred:
Federal (15) 1,359 (3,723) 1,717
State (92) 108 (120) 152
Income tax
provision $ 8,622 $ 6,963 $13,161 $10,637
Deferred income tax provisions result from (in thousands):
Depreciation and
amortization $ 898 $ 981 $(2,435) $ 1,389
Partnership losses (171) 655 (268) 928
State taxes (212) 144 (285) (3)
Deferred
compensation (723) (503) (1,013) (718)
Other 101 190 158 273
Total $ (107) $ 1,467 $(3,843) $ 1,869
The effective tax rate and the statutory federal income tax
rate are reconciled as follows:
Statutory rate 35.0% 34.0% 35.0% 34.0%
State taxes, net of
federal benefit 5.0 4.9 5.5 4.9
Amortization of
intangibles 2.8 4.1 2.8 4.0
Other 1.0 2.0 .6 1.6
Effective rate 43.8% 45.0% 43.9% 44.5%
</TABLE>
<PAGE>
McCLATCHY NEWSPAPERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. INCOME TAX PROVISIONS - Continued
The components of deferred taxes recorded in the Company's
Balance Sheet on June 30, 1994 and December 31, 1993 are (in
thousands):
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Depreciation and amortization $ 43,082 $ 45,517
Partnership losses 10,703 10,971
Deductible deposits 3,954 3,954
State taxes 1,404 1,689
Deferred compensation (12,334) (11,321)
Other 3,723 3,565
Deferred tax liability (net of $10,808
in 1994 and $9,672 in 1993 reported as
current assets) $ 50,532 $ 54,375
</TABLE>
See note 8 for a discussion of tax assessments.
5. INTANGIBLES
Intangibles consist of (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
<S> <C> <C>
Identifiable intangible assets, $ 130,086 $ 132,881
primarily customer lists
Excess purchase prices over
identifiable intangible
assets 64,456 64,560
Total 194,542 197,441
Less accumulated amortization 74,791 72,779
Intangibles - net $ 119,751 $ 124,662
</TABLE>
6. EMPLOYEE BENEFIT PLANS
The Company has a defined benefit pension plan (the retirement plan) for
a majority of its employees. Benefits are based on years of service and
compensation. Contributions to the plan are made by the Company in amounts
deemed necessary to provide benefits. Plan assets consist primarily of
marketable securities including common stocks, bonds and U.S. government
obligations, and other interest bearing accounts.
The Company also has a supplemental retirement plan to provide key
employees with additional retirement benefits. The terms of the plan are
generally the same as those of the retirement plan, except that the
<PAGE>
supplemental retirement plan is limited to key employees and benefits under
it are reduced by benefits received under the retirement plan. The accrued
pension obligation for the supplemental retirement plan is included in other
long-term obligations.
<PAGE>
McCLATCHY NEWSPAPERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. EMPLOYEE BENEFIT PLANS - Continued
Expenses of these plans for the three months ended June 30, 1994 and 1993
were $1,480,000 and $1,441,000, respectively. Expenses for the six months
then ended were $2,888,000 and $2,767,000 in 1994 and 1993, respectively.
The Company also has a Deferred Compensation and Investment Plan (401(k)
plan) which enables qualified employees voluntarily to defer compensation.
Company contributions to the 401(k) plan for the three months then ended
June 30, 1994 and 1993 were $972,000 and $850,000, respectively.
Contributions for the six months then ended were $1,940,000 and $1,685,000
in 1994 and 1993, respectively.
The Company also provides or subsidizes certain retiree health care and
life insurance benefits. For the three months ended June 30, 1994 and 1993,
postretirement benefit expenses were $225,000, and for the six months then
ended were $450,000.
7. CASH FLOW INFORMATION
Cash provided or used by operations in the six months ended June 30, 1994
and 1993 was affected by changes in certain current assets and liabilities
as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Increase (decrease) in assets:
Receivables $ (108) $ (2,563)
Inventories (2,284) 1,379
Other current assets 327 322
Total (2,065) (862)
Increase (decrease) in
liabilities:
Accounts payable (5,137) 43
Accrued compensation 1,871 (1,581)
Income taxes 3,284 5,069
Other current liabilities 1,178 1,769
Total 1,196 5,300
Net cash increase from changes
in current assets and
liabilities $ 3,261 $ 6,162
</TABLE>
<PAGE>
McCLATCHY NEWSPAPERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
8. COMMITMENTS AND CONTINGENCIES
The Company guarantees $21,875,000 of bank debt related primarily to its
joint venture in the Ponderay newsprint mill.
State and federal taxing authorities have audited the Company's tax
returns for 1982-1987, and have made assessments or proposed adjustments
primarily related to the deduction of certain intangible assets and
deductions related to discontinued and other non-newspaper operations. The
total amount of the proposed adjustments, including interest thereon, is
approximately $25,000,000. The Company is protesting the adjustments
through the appropriate authorities. While this process is expected to
extend over several years and additional assessments for like issues are
expected to be forthcoming, the Company believes these adjustments will be
reduced in the appeals processes. At March 31, 1994, other assets included
$10,634,000 of deposits which the Company has made with the applicable tax
authorities to stop interest accrual on a portion of the adjustments,
pending final resolution. In the opinion of management, adequate provision
has been made for any taxes and interest resulting from these assessments
and the ultimate outcome of these matters will not have a material adverse
effect on the Company's consolidated results of operation or financial
position.
There are libel and other legal actions that have arisen in the ordinary
course of business and are pending against the Company. 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.
9. COMMON STOCK AND STOCK PLANS
On May 9, 1994 the Company filed a Form S-3 with the Securities and
Exchange Commission registering 1,375,000 (before over-allotments) shares of
Class A common stock which were sold by the Company and certain stockholders
in a combined primary and secondary offering to the public. Selling
shareholders converted 625,000 shares of Class B common to Class A common
stock which were sold in the offering. The Company converted 750,000 Class
B shares held in treasury to Class A shares and sold them, along with an
additional 206,250 Class A shares to cover over-allotments in the offering.
As a result of the offering, the number of outstanding common shares
increased by 956,250.
The Company's Class A and Class B common stock participate equally in
dividends. 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. 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. Class B common stock
is convertible at the option of the holder into Class A common stock on a
share-for-share basis.
<PAGE>
McCLATCHY NEWSPAPERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
9. COMMON STOCK AND STOCK PLANS - Continued
The Company's Amended Employee Stock Purchase Plan (the Purchase Plan)
reserved 1,500,000 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 June 30, 1994, 415,971 shares
of Class A common stock have been issued under the Purchase Plan.
The Company's 1987 Stock Option Plan (the Employee Plan), as amended,
reserved 600,000 shares of Class A common stock for issuance to key
employees. Options are granted at the market price of the Class A common
stock on the date of the grant. The options vest in installments over four
years, and once vested are exercisable up to ten years from the date of
award. Although the Employee Plan permits the Company, at its sole
discretion, to settle unexercised options by making payments to the option
holder of stock appreciation rights (SARs), the Company does not intend to
avail itself of this alternative except in limited circumstances. At June
30, 1994 there were 563,800 options outstanding to purchase Class A common
stock at an average price of $18.77 per share. There are 304,975 options
exercisable and 650 shares are available for future awards.
On January 26, 1994 the Board of Directors adopted the 1994 Employee
Stock Option Plan reserving 650,000 Class A shares for issuance to key
employees. The terms of this plan are substantially the same as the terms
of the Employee Plan and no shares have been granted under the new plan.
In July 1990, the Company adopted a stock option plan for outside
(nonemployee) directors (the Directors' Plan) providing for the issuance of
up to 150,000 shares of Class A common stock. Under the Directors' Plan
each outside director is granted an option at fair market value for 1,500
shares annually. Terms of the Directors' Plan are similar to the terms of
the Employee Plan and as of June 30, 1994 options for 55,500 shares at an
average of $21.15 per share had been granted. There are 26,250 options
exercisable as of June 30, 1994.
<PAGE>
Item 2 - Management's Discussion And Analysis Of Results Of Operations And
Financial Condition
Recent Events
On May 9, 1994 the Company filed a Form S-3 with the Securities and
Exchange Commission registering 1,375,000 (before over-allotments) shares of
Class A common stock which were sold by the Company and certain stockholders
in a combined primary and secondary offering to the public. Selling
shareholders converted 625,000 shares of Class B common to Class A common
stock which were sold in the offering. The Company converted 750,000 Class
B shares held in treasury to Class A shares and sold them, along with an
additional 206,250 Class A shares to cover over-allotments in the offering.
As a result of the offering, the number of outstanding common shares
increased by 956,250.
Second Quarter Comparisons
Led by the Company's three Bee newspapers in Sacramento, Fresno and
Modesto, California, earnings increased 29.4% to $11.0 million in the second
quarter of 1994. An improving economy in Northern California, coupled with
continued cost controls throughout the Company, produced record second
quarter earnings.
Total revenues increased 4.6% to $118.6 million. Advertising revenues
increased 4.9% to $93.0 millon and circulation revenues were up 1.6% to
$21.2 million.
The improvement in advertising revenues reflects rate increases at six
of the Company's seven largest newspapers in January and February 1994 and,
to a lesser degree, an increase in advertising activity. Additionally,
these seven newspapers generate in excess of ninety percent of advertising
revenues and for the first time since 1992 reported a quarterly increase in
combined full run "run-of-press" (ROP) advertising linage. Full run ROP
advertising, found inside of the newspaper and the major contributor to
advertising revenues, increased 1.3% over the 1993 quarter. Increased
classified advertising, particularly employment and automotive advertising
in the California newspapers, offset declines in retail advertising.
In other categories of advertising, part-run ROP linage, found in zoned
editions of newspapers, increased 4.4% and linage in total market coverage
(TMC) products distributed to nonsubscribers increased 4.2%. The number of
preprinted advertisements distributed (inserted into the newspapers)
increased 8.4%.
The increase in circulation revenues is primarily volume driven as most
of the Company's newspapers decided to forgo price increases to subscribers
in 1994. On a combined basis the number of daily subscribers (average paid
circulation) increased 1.4% over the 1993 quarter and Sunday increased 1.6%.
<PAGE>
Other revenues increased 12.8% due primarily to increased commercial
printing.
With continued emphasis on cost controls throughout the Company,
operating expenses were held to a 1.7% increase over second quarter 1993.
Compensation increased 1.2% representing a 0.7% increase in salaries and a
2.9% increase in the cost of fringe benefits. Reductions in headcounts have
generally offset wage rate increases of 2% to 3%. Newsprint and supplement
costs increased 3.0% due primarily to greater newsprint usage stemming from
greater advertising volumes and circulation growth. Depreciation and
amortization were up 8.8%, primarily due to greater depreciation on
inserting equipment at The Sacramento Bee, and other operating expenses
declined 1.0% as cost savings programs offset the impact of inflation.
Nonoperating expenses declined $582,000 due primarily to higher interest
income earned on cash equivalents and short term investments.
The effective tax rate was 43.9% compared to 45.0% in the 1993 quarter.
See note 4 to the consolidated financial statements.
Six Month Comparisons
Earnings in the six month period ending June 30, 1994 were $16.9
million, up 27.3% over 1993 earnings of $13.3 millon and were generally
affected by the same factors discussed in the second quarter comparisons.
Net revenues increased 4.0% to $227.6 million including a 4.3% increase
in advertising revenues to $176.8 million and a 1.4% increase in circulation
revenues to $42.4 million.
Advertising volumes began gaining momentum in March and continued
through June 1994. At the seven largest daily newspapers linage and
preprint volumes increased as follows: full run ROP up 0.6%, part-run ROP
up 1.2%, TMC linage increased 8.6% and the number of preprints distributed
gained 7.1%.
The number of daily newspaper subscribers increased 1.6% over 1993 and
Sunday subscribers were up 1.7%.
Operating expenses increased 2.2% over 1993 and include a charge of
$768,000 to close most of the Company's Senior Spectrum tabloids which
served readers over age 50. Excluding this charge operating expenses
increased 1.8% and were generally affected by those factors discussed in the
second quarter comparisons.
<PAGE>
Nonoperating expenses declined $1.5 million from 1993. Interest income
earned on cash equivalents and short-term investments increased $900,000 and
the Company's share of losses from the Ponderay newsprint mill declined
$250,000. Given the Company's higher cash and investment balances, and a
recent increase in newsprint prices, the improving trends in investment
income and Ponderay losses are expected to continue through the remainder of
1994.
See note 4 to the consolidated financial statements for a discussion of
the effective tax rates of 43.8% in 1994 and 44.5% in 1993.
Liquidity & Capital Resources
The Company generated $40.9 million of cash from operations and received
$20.0 million in proceeds from the May 9, 1994 offering discussed above.
Cash was partially used to purchase short-term investments of $21.5 million,
purchase plant and equipment of $15.1 million and to fund advances to
Ponderay and dividends to stockholders. Total expenditures for property,
plant and equipment in 1994 are expected to approximate $38.0 million.
The Company has a partnership interest in a newsprint mill (Ponderay)
which is expected to incur losses over the next several years. These losses
are expected to diminish as, and if, newsprint prices increase. The Company
presently intends, when necessary, to contribute funds to help finance its
share of these losses. See notes 2 and 8 to the consolidated financial
statements for a discussion of the Company's commitments to the joint
venture.
See note 3 for a discussion of the Company's long-term obligations.
Management is of the opinion that operating cash flow, cash and cash
equivalent balances and short-term investments are adequate to meet the
liquidity needs of the Company, including currently planned capital
expenditures and other investments.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Default Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders:
<PAGE>
The Annual meeting of Stockholders of McClatchy Newspapers, Inc. was
held on May 18, 1994 and stockholders of record on March 21, 1994 approved
all matters submitted for voting as follows:
<TABLE>
<CAPTION>
Votes
For Withheld
<S> <C> <C>
Election of Directors
of the Board:
Nominees for Class A
Directors voted by
Class A stockholders:
Joan F. Lane 4,127,969 21,429
S. Donley Ritchey, Jr. 4,127,635 21,763
William M. Roth 4,127,656 21,742
Frederick R. Ruiz 4,059,869 89,529
Nominees for Class B
Directors voted by
Class B
stockholders:
William K. Coblentz 21,459,548 0
Booth Gardner 21,459,548 0
William L. Honeysett 21,459,548 0
Betty Lou Maloney 21,459,548 0
James B. McClatchy 21,459,548 0
William E. McClatchy 21,459,548 0
Erwin Potts 21,459,548 0
James P. Smith 21,459,548 0
H. Roger Tatarian 21,459,548 0
</TABLE>
<TABLE>
<CAPTION>
Votes
Broker
Non-
For Against Abstentions Votes
<S> <C> <C> <C> <C>
Adoption of McClatchy
Newspapers, Inc.
Employee Stock Option
Plan to reserve
650,000 Class A
shares for issuance
to key employees. 21,753,292 55,762 9,007 56,427
<PAGE>
Ratification of
appointment of
Deloitte & Touche as
the Company's
independent auditors 21,486,883 389 387,216 0
for 1994.
</TABLE>
<PAGE>
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K - None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
McClatchy Newspapers, Inc.
Registrant
Date: August 8, 1994 /s/ James P. Smith
James P. Smith
Vice President,
Finance and Treasurer
<PAGE>
