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 March 31, 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 May 6,
1994:
Class A Common Stock 5,432,903
Class B Common Stock 23,431,789
<PAGE>
McCLATCHY NEWSPAPERS, INC.
INDEX TO FORM 10-Q
Page
Part I - FINANCIAL INFORMATION
Item 1 - Financial Statements:
Consolidated Balance Sheet - March 31, 1994
(unaudited) and December 31, 1993 3
Consolidated Statement of Income for the
Three Months Ended March 31, 1994
and 1993 (unaudited) 5
Consolidated Statement of Cash Flows for
the Three Months Ended March 31, 1994
and 1993 (unaudited) 6
Consolidated Statement of Stockholders'
Equity for the Period from January 1,
1993 to March 31, 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)
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 56,048 $ 42,326
Trade receivables (less
allowances of $2,038 in 1994
and $1,757 in 1993) 44,180 47,859
Other receivables 1,343 1,456
Newsprint, ink and other
inventories 7,336 10,033
Deferred income taxes 9,977 9,672
Other current assets 2,902 1,843
Total current assets 121,786 113,189
Property, plant and
equipment:
Land 18,623 18,057
Buildings and improvements 119,937 120,753
Equipment 291,826 282,082
Construction in progress 12,072 15,893
Total 442,458 436,785
Accumulated depreciation (171,453) (166,460)
Net property, plant and
equipment 271,005 270,325
Intangibles - net 122,141 124,662
Investment in newsprint
mill partnership 3,827 3,977
Other assets 11,434 13,010
Total assets $ 530,193 $ 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>
March 31, December 31,
1994 1993
(Unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable $ 11,852 $ 14,043
Accrued compensation 27,991 26,324
Income taxes 5,942 1,117
Unearned revenue 11,546 10,560
Carrier deposits 3,176 3,055
Other accrued liabilities 7,661 8,281
Total current liabilities 68,168 63,380
Long-term obligations 14,016 14,213
Deferred income taxes 60,616 64,047
Commitments and contingencies
(note 8)
Stockholders' equity:
Common stock $.01 par value:
Class A - authorized
50,000,000 shares, issued 5,388,706
in 1994 and 5,100,450 in 1993
54 51
Class B - authorized 30,000,000
shares, issued 24,231,789 in 1994
and 24,503,789 in 1993
235 238
Additional paid-in capital 39,753 39,472
Retained earnings 347,722 344,133
Treasury stock, 20,000 Class A
shares and 750,000 Class B shares
(371) (371)
Total stockholders' equity 387,393 383,523
Total liabilities and
stockholders' equity $ 530,193 $ 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
March 31,
1994 1993
(Unaudited)
<C> <S> <S>
Revenues - net:
Advertising $ 83,829 $ 80,955
Circulation 21,194 20,949
Other 3,901 3,378
Total 108,924 105,282
Operating expenses:
Compensation 50,198 49,692
Newsprint and supplements 14,708 14,189
Depreciation and amortization 9,520 8,665
Other operating expenses 22,893 22,190
Total 97,319 94,736
Operating income 11,605 10,546
Nonoperating expenses (income):
Interest expense 3 47
Interest income (354) (7)
Partnership losses 1,500 1,800
Other - net 20 264
Total 1,169 2,104
Income before income tax provision 10,436 8,442
Income tax provision 4,539 3,674
Net income $ 5,897 $ 4,768
Net income per common share $ 0.20 $ 0.17
Weighted average number
of common shares 28,937 28,833
</TABLE>
See notes to consolidated financial statements
<PAGE>
McCLATCHY NEWSPAPERS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1994 1993
(Unaudited)
<C> <S> <S>
Cash provided (used) by
operating activities:
Net income $ 5,897 $ 4,768
Reconciliation to net cash
provided:
Depreciation and amortization 9,563 8,711
Partnership losses 1,500 1,800
Changes in certain assets and
liabilities - net 10,218 10,270
Other (2,094) 808
Net cash provided by operating
activities 25,084 26,357
Cash provided (used) by
investing activities:
Purchase of property, plant and
equipment (7,865) (6,292)
Investment in newsprint mill
partnership (1,350) (1,418)
Other - net 51 50
Net cash used by investing
activities (9,164) (7,660)
Cash provided (used) by
financing activities:
Repayment of long-term debt - (10,012)
Payment of cash dividends (2,308) (1,799)
Other 110 289
Net cash used by financing
activities (2,198) (11,522)
Net change in cash and cash
equivalents 13,722 7,175
Cash and cash equivalents,
beginning of year 42,326 8,658
Cash and cash equivalents,
end of period $ 56,048 $ 15,833
Other cash flow information:
Cash paid during the period for:
Interest (net of amount
capitalized) $ 15 $ 92
Income taxes (net of refunds) 1,700 3,690
</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) $358,299
Net income (3 months) 4,768 4,768
Dividends paid ($.0625 per share) (1,799) (1,799)
Conversion of 80,000 Class B to
Class A 1 (1)
Issuance of 18,239 Class A under
employee stock plans 295 295
Balances, March 31, 1993 47 241 38,567 323,079 (371) 361,563
Net income (9 months) 27,030 27,030
Dividends paid ($.2075 per share) (5,976) (5,976)
Conversion of 363,000 Class B to
Class A 3 (3)
Issuance of 53,841 Class A under
employee stock plans 1 905 906
Balances, December 31, 1993 51 238 39,472 344,133 (371) 383,523
Net income (3 months) 5,897 5,897
Dividends paid ($.08 per share) (2,308) (2,308)
Conversion of 272,000 Class B to
Class A 3 (3)
Issuance of 16,256 Class A under
employee stock plans 281 281
Balances, March 31, 1994 $54 $235 $39,753 $347,722 $(371) $387,393
See notes to consolidated financial statements
</TABLE>
<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.
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 various high-credit-quality institutions and are
currently invested in the highest rated commercial paper 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 $1,460,000 at March 31, 1994 and 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 ended March 31, 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 - see note 9). Upon the dissolution of a trust in 1992, 750,000
shares of Class B stock were returned to the Company and included in
treasury stock at no cost. These shares have been excluded from weighted
average shares outstanding for all periods.
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 $3,185,000 and $2,815,000 of newsprint from Ponderay
in the three months ended March 31, 1994 and 1993, respectively. For the
three months ended March 31, Ponderay net revenues and net losses were
$23,118,000 and $11,556,000 in 1994 and $22,257,000 and $12,884,000 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>
March 31, December 31,
1994 1993
<S> <C> <C>
Long-term debt:
Installment note $ 60 $ 60
Less current portion 60 60
Total long-term debt - -
Postretirement benefits
obligation 9,342 9,142
Other long-term obligations 4,674 5,071
Total long-term obligations $ 14,016 $ 14,213
</TABLE>
<TABLE>
Long-term obligations mature as follows (in thousands):
Year Ending March 31,
<S> <C>
1996 $ 1,163
1997 808
1998 525
1999 325
Thereafter 11,195
Total $ 14,016
</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
March 31,
1994 1993
<S> <C> <C>
Current:
Federal $ 7,482 $ 2,700
State 793 572
Deferred:
Federal (3,708) 358
State (28) 44
Income tax provision $ 4,539 $ 3,674
Deferred income tax provisions result from (in thousands):
Depreciation and amortization $(3,333) $ 408
Partnership losses (97) 273
State taxes (73) (147)
Deferred compensation (290) (215)
Other 57 83
Total $(3,736) $ 402
The effective tax rate and the statutory federal income
tax rate are reconciled as follows:
Statutory rate 35.0% 34.0%
State taxes, net of federal benefit 5.0 4.8
Amortization of intangibles 2.5 3.4
Other 1.0 1.3
Effective rate 43.5% 43.5%
</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 March 31, 1994 and December 31, 1993 are (in
thousands):
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Depreciation and amortization $ 42,184 $ 45,517
Partnership losses 10,874 10,971
Deductible deposits 3,954 3,954
State taxes 1,616 1,689
Deferred compensation (11,611) (11,321)
Other 3,622 3,565
Deferred tax liability (net of $9,977 in
1994 and $9,672 in 1993 reported as
current assets) $ 50,639 $ 54,375
</TABLE>
See note 8 for a discussion of tax assessments.
5. INTANGIBLES
Intangibles consist of (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
<S> <C> <C>
Identifiable intangible assets,
primarily customer lists $ 131,522 $ 132,881
Excess purchase prices over
identifiable intangible 64,456 64,560
assets
Total 195,978 197,441
Less accumulated amortization 73,837 72,779
Intangibles - net $ 122,141 $ 124,662
</TABLE>
<PAGE>
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
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 March 31, 1994 and
1993 were $1,408,000 and $1,326,000, 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
March 31, 1994 and 1993 were $968,000 and $835,000, respectively.
The Company also provides or subsidizes certain retiree health care and
life insurance benefits. For the three months ended March 31, 1994 and
1993, postretirement benefit expenses were $225,000.
7. CASH FLOW INFORMATION
Cash provided or used by operations in the three months ended March 31,
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 $ (3,792) $ (5,185)
Inventories (2,697) 2,404
Other current assets 1,059 502
Total (5,430) (2,279)
Increase (decrease) in
liabilities:
Accounts payable (2,191) 2,612
Accrued compensation 1,667 2,032
Income taxes 4,825 2,191
Other current liabilities 487 1,156
Total 4,788 7,991
Net cash increase from changes in
current assets and liabilities $ 10,218 $ 10,270
</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 5, 1994 the Company filed Amendment No. 2 to Form S-3 with the
Securities and Exchange Commission registering 1,375,000 shares of Class A
common stock to be sold by the Company and certain selling 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 to be
sold in the offering.
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 March 31, 1994, 401,774 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 March
31, 1994 there were 565,800 options outstanding to purchase Class A common
stock at an average price of $18.75 per share. There are 306,975 options
exercisable and 150 shares are available for future awards.
On January 26, 1994 the Board of Directors adopted the 1994 Employee
Stock Option Plan, subject to stockholder approval, 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 March 31, 1994 options for 42,000 shares at an
average of $20.72 per share had been granted. There are 26,250 options
exercisable as of March 31, 1994.
<PAGE>
Item 2 - Management's Discussion And Analysis Of Results Of Operations And
Financial Condition
Recent Events
The Company's earnings improved in the first quarter of 1994 as most of
its newspapers reported increased revenues. Quarterly results benefitted
from Easter advertising which occurred predominately in the first quarter of
1994 versus the second quarter 1993.
First quarter earnings also reflect a pretax charge of $768,000 for
closing many of the Company's Senior Spectrum tabloids which served readers
over age 55. Two Sacramento area weekly tabloids will continue to be
published. However, monthly tabloids outside of the Sacramento area were
not profitable as advertisers, pressured by the recent recession, reduced
expenditures in niche publications.
First Quarter 1994 Compared to 1993
Earnings improved 23.7% to $5.9 million over first quarter 1993, largely
reflecting higher advertising rates and the shift in Easter advertising to
March 1994 versus April 1993. The quarter also benefitted by improvement in
national and classified categories of advertising.
The 3.6% increase in advertising revenues, up to $83.8 million from
$81.0 million in the 1993 first quarter, is attributable to advertising rate
increases in January and February at six of the Company's seven largest
daily newspapers and, to a lesser degree, to increased in advertising
activity.
At the Company's seven largest newspapers (generating in excess of 90%
of advertising revenues) full run "run-of-press" (ROP) advertising linage,
which is found in the body of a newspaper and is the source of a majority of
newspaper advertising revenues, declined 0.2%. Part run ROP linage, found
in zoned editions of the newspapers targeted to specific areas of a
community, declined 2.5% while ROP linage in total market coverage products,
distributed to nonsubscribers, increased 14.1%. The number of preprinted
advertisements distributed through the Company's seven largest newspapers
increased 5.7%. Advertising linage in the Company's 13 other newspapers
increased 10.3%.
Circulation revenues increased 1.2% to $21.2 million. This increase is
largely attributable to the increase in the number of subscribers to the
Company's newspapers. Company-wide average paid circulation increased 1.7%
for daily and 1.8% for Sunday newspapers over the 1993 quarter. Circulation
rates were generally flat as many of the Company's newspapers decided not to
raise subscription rates in a recessionary environment.
<PAGE>
Additional commercial printing was the major factor in the 15.5%
increase in other revenues.
Operating expenses increased 2.7%. However excluding the Spectrum
charge (which affected a number of cost components as discussed below)
expenses increased 1.9%.
Compensation costs increased 1.0%. Reduced personnel partially offset
wage rate increases ranging between 2% and 3%. Newsprint and supplements
increased 3.7% due largely to increased usage from growth in newspaper
subscribers and increased advertising linage, while other operating expenses
increased 3.2%. Excluding Spectrum closing costs, other operating expenses
increased 1.6%. Depreciation and amortization increased 9.9% due mostly to
greater depreciation of equipment at The Sacramento Bee and the writedown of
certain Spectrum intangibles.
Earnings also benefitted from greater investment income and smaller
losses from the Ponderay newsprint mill joint venture. While newsprint
prices remain low, the mill has improved operating efficiencies and cut
costs to reduce its losses.
The tax rate remained unchanged from the first quarter 1993. Pursuant
to tax legislation enacted in July 1993, the federal tax rate increased from
34% to 35%, however, this increase was partially offset in 1994 by the
deductibility of previously nondeductible intangibles. See note 4 to the
consolidated financial statements. An adjustment was made in the third
quarter of 1993 to raise the federal rate to 35% for the first two quarters
of 1993, as the July rate increase was retroactive to the beginning of the
year.
Liquidity & Capital Resources
The Company's cash and cash equivalent position improved $13.7 million
from year-end 1993 to $56.0 million at March 31, 1994. While $25.1 million
of cash was generated by operations, a portion of the funds were used for
capital expenditures, contributions to Ponderay newsprint mill and to pay
dividends. Capital expenditures are projected to be $38.3 million in 1994.
The Company has a partnership interest in a newsprint mill which is
expected to incur losses over the next several years assuming newsprint
prices remain depressed. 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.
<PAGE>
On May 5, 1994 the Company filed Amendment No. 2 to Form S-3 with the
Securities and Exchange Commission registering 1,375,000 shares of Class A
common stock to be sold by the Company and certain selling 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 to be
sold in the offering.
See note 3 for a discussion of the Company's long-term obligations.
Management is of the opinion that operating cash flow and cash and cash
equivalent balances 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 - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K:
A current report on Form 8-K was filed with the Securities and
Exchange Commission on April 22, 1994 to report unaudited first
quarter 1994 financial results.
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: May 9, 1994 /s/ James P. Smith
James P. Smith
Vice President,
Finance and Treasurer
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