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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 31, 1994
/ / 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)
<TABLE>
<S> <C>
DELAWARE 940666175
(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)
</TABLE>
Registrant's telephone number, including area code: (916) 321-1846
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Securities registered pursuant to Section 12(b) of the Act:
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<S> <C>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------------------- ---------------------------
Class A Common Stock, par value New York Stock Exchange
$.01 per share
</TABLE>
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 (sec.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 .
Aggregate market value of the Company's voting stock held by non-affiliates
on March 15, 1995, based on the closing price for the Company's Class A Common
Stock on the New York Stock Exchange on such date: approximately $359,145,458.
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 15, 1995:
Class A Common Stock -- 6,735,997 shares
Class B Common Stock -- 23,176,789 shares
Documents incorporated by reference:
Definitive Proxy Statement for the Company's May 17, 1995 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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INDEX TO MCCLATCHY NEWSPAPERS, INC.
1994 FORM 10-K
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ITEM NO. PAGE
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PART I
1. Business...................................................................... 1
Overview...................................................................... 1
The Sacramento Bee............................................................ 2
The Fresno Bee................................................................ 2
The Modesto Bee............................................................... 2
The News Tribune.............................................................. 3
Anchorage Daily News.......................................................... 3
Tri-City Herald............................................................... 4
The (Rock Hill) Herald........................................................ 4
Other Newspapers.............................................................. 4
Raw Materials................................................................. 5
Competition................................................................... 5
Employees -- Labor............................................................ 5
2. Properties.................................................................... 6
3. Legal Proceedings............................................................. 6
4. Submission of Matters to a Vote of Security Holders........................... 6
PART II
5. Market for the Registrant's Common Stock and Related Stockholder Matters...... 7
6. Selected Financial Data....................................................... 8
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations.................................................................... 9
8. Financial Statements and Supplementary Data................................... 12
9. Changes In and Disagreements With Accountants on Accounting and Financial
Disclosure.................................................................... 26
PART III
10. Directors and Executive Officers of the Registrant............................ 26
11. Executive Compensation........................................................ 26
12. Security Ownership of Certain Beneficial Owners and Management................ 27
13. Certain Relationships and Related Transactions................................ 27
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............... 27
</TABLE>
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PART I
ITEM 1. BUSINESS
OVERVIEW
McClatchy Newspapers, Inc. and subsidiaries (the Company), originally
incorporated in California in 1930 and reincorporated in Delaware on August 7,
1987, owns and publishes 20 newspapers in California, Washington, Alaska and
South Carolina, ranging from large daily newspapers serving metropolitan areas
to non-daily newspapers serving small communities. For the year ended December
31, 1994, the Company had average paid daily circulation of 825,784, Sunday
circulation of 977,206 and nondaily circulation of 30,560.
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, editors and general managers 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 smaller related businesses. Each of its seven major 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 78% of consolidated revenues
in both 1994 and 1993. Circulation revenues approximated 18% of consolidated
revenues in 1994 and 19% in 1993.
Three newsprint price increases were implemented by newsprint producers in
May, August and December of 1994 as increasing advertising lineage created a
greater demand for newsprint. The 1994 increases and recently announced price
increases in 1995 (if actually implemented) will affect the Company's 1995
operating income. Advertising and circulation volume and rate increases, coupled
with company-wide cost control programs focused on newsprint usage and all other
categories of expenses have, in the past, mitigated the impact of newsprint
price increases. The Company intends to continue to pursue all of these
measures, however, they may not have the same effect on future results. See Part
II, Item 7 for discussion of the impact of the price increases on 1994 results.
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.
Other businesses owned by the Company include Legi-Tech, an on-line
computer service which provides information to clients on legislative activity
in the California, Washington and New York state legislatures and in the United
States Congress and McClatchy Printing Co., a commercial printing operation,
located in Clovis, California. In 1993 the Company expanded Big Valley, a
previously West Coast based distributor of preprinted advertising inserts, to a
national operation under a newly formed subsidiary, The Newspaper Network, Inc.
(TNN). TNN is a marketing services company that specializes in securing
incremental advertising for newspapers. Revenues, operating income and assets
for each of these businesses are less than 10% of total consolidated revenues,
operating income and assets of the Company, respectively. In addition, the
Company is a partner (13.5% interest) in Ponderay Newsprint Company, a general
partnership that constructed and now operates a newsprint mill in Washington
state.
The Company also distributes information by electronic technology. The
Company believes that individual newspapers, as primary information providers in
their respective markets, will play a pivotal role in the potential growth of
this segment in the industry.
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THE SACRAMENTO BEE
The Sacramento Bee, the Company's largest newspaper, is a morning newspaper
serving the California state capital and its metropolitan area. Based on the
Company's records, The Sacramento Bee's average paid circulation was
approximately 277,600 daily and 348,500 Sunday in 1994 compared to 271,700 daily
and 341,000 Sunday in 1993.
The suggested home delivery price for The Sacramento Bee is $10.75 per
month. The newsstand price is $0.50 for the daily paper and $1.25 for the Sunday
paper. As of December 31, 1994, approximately 87% of the daily and 80% of the
Sunday circulation was home delivered.
The Sacramento Bee's advertising linage for the years ended December 31,
1994 and 1993 is set forth in the following table.
<TABLE>
<CAPTION>
1994 1993
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<S> <C> <C>
Advertising Linage (in thousands of six-column inches):
Full Run........................................................... 2,448 2,408
Part Run........................................................... 348 328
Total Market Coverage.............................................. 163 158
</TABLE>
Net revenues of The Sacramento Bee were $175,677,000 in 1994 and
$165,322,000 in 1993.
THE FRESNO BEE
The Fresno Bee is a morning newspaper serving the Fresno, California
metropolitan area. Based on the Company's records, The Fresno Bee's average paid
circulation was approximately 152,300 daily and 191,000 Sunday compared to
149,900 daily and 186,800 Sunday in 1993.
As of December 31, 1994, approximately 89% of The Fresno Bee's daily and
87% of the Sunday circulation was home delivered. The suggested home delivery
price is $10.95 per month. The newsstand price is $0.50 for the daily paper and
$1.25 for the Sunday paper.
The Fresno Bee's advertising linage for the years ended December 31, 1994
and 1993 is set forth in the following table.
<TABLE>
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1994 1993
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<S> <C> <C>
Advertising Linage (in thousands of six-column inches):
Full Run........................................................... 1,510 1,483
Part Run........................................................... 156 159
Total Market Coverage.............................................. 175 170
</TABLE>
Net revenues of The Fresno Bee were $80,982,000 in 1994 and $79,072,000 in
1993.
THE MODESTO BEE
The Modesto Bee is a morning newspaper serving the Modesto, California
metropolitan area. Based on the Company's records, The Modesto Bee's average
paid circulation was approximately 83,400 daily and 91,800 Sunday in 1994
compared to 83,000 daily and 91,900 Sunday in 1993.
The suggested home delivery price is $10.99 per month. The newsstand price
is $0.50 for the daily paper and $1.25 for the Sunday paper. As of December 31,
1994, approximately 89% of the daily and 87% of the Sunday circulation was home
delivered.
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The Modesto Bee's advertising linage for the years ended December 31, 1994
and 1993 is set forth in the following table.
<TABLE>
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1994 1993
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Advertising Linage (in thousands of six-column inches):
Full Run........................................................... 1,174 1,237
Part Run........................................................... 125 99
Total Market Coverage.............................................. 575 567
</TABLE>
Net revenues of The Modesto Bee were $43,788,000 in 1994 and $42,925,000 in
1993.
THE NEWS TRIBUNE
The News Tribune, a morning newspaper, primarily serves the Tacoma,
Washington metropolitan area. Based on the Company's records, the average paid
circulation of The News Tribune was approximately 129,800 daily and 150,000
Sunday in 1994 compared to 128,600 daily and 147,800 Sunday in 1993.
Tacoma is approximately 30 miles south of Seattle. The News Tribune
competes in the northern most fringes of its market with the major Seattle daily
newspapers. The suggested home delivery price of The News Tribune is $10.50 per
month. The newsstand price of The News Tribune is $0.35 for the daily paper and
$1.25 for the Sunday paper. As of December 31, 1994 approximately 86% of the
daily and 84% of the Sunday circulation was home delivered.
The Tacoma News Tribune's advertising linage for the years ended December
31, 1994 and 1993 is set forth in the following table.
<TABLE>
<CAPTION>
1994 1993
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<S> <C> <C>
Advertising Linage (in thousands of six-column inches):
Full Run........................................................... 1,339 1,291
Part Run........................................................... 30 28
Total Market Coverage.............................................. 30 31
</TABLE>
Net revenues of the News Tribune were $67,807,000 in 1994 and $64,324,000
in 1993.
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. Based on the Company's records, the Daily News'
average paid circulation was approximately 73,400 daily and 95,600 Sunday in
1994 compared to 73,400 daily and 97,100 Sunday in 1993.
The suggested home delivery price of the Anchorage Daily News is $11.50 per
month for city delivery. The newsstand price of the Anchorage Daily News is
$0.50 for the daily paper and $1.50 for the Sunday paper. As of December 31,
1994 approximately 72% of the daily and 62% of the Sunday circulation was home
delivered.
Comparative amounts of linage for the years ended December 31, 1994 and
1993 are set forth in the following table.
<TABLE>
<CAPTION>
1994 1993
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Advertising Linage (in thousands of six-column inches):
Full Run........................................................... 1,022 1,053
Total Market Coverage.............................................. 29 30
</TABLE>
Net revenues of the Anchorage Daily News were $44,514,000 in 1994 and
$41,923,000 in 1993.
3
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TRI-CITY HERALD
The Tri-City Herald is a morning newspaper serving the Tri-Cities of
Richland, Kennewick and Pasco in southeastern Washington. Efforts to diversify
the economic base of the area, which has depended in the past on energy
development and agriculture, are having a positive impact in the Tri-Cities. The
Tri-Cities economy has benefitted by the Department of Energy's efforts to clean
up nuclear waste at nearby Hanford Nuclear reservation. Since 1990, the clean-up
activity has contributed to revenue growth at the Tri-City Herald.
Based on the Company's records, the Tri-City Herald's average paid
circulation was approximately 39,700 daily and 43,000 Sunday in 1994 compared to
38,600 daily and 41,900 Sunday in 1993.
The suggested home delivery price of the Tri-City Herald is $10.00 per
month while the newsstand price for its daily paper is $0.50 and the newsstand
price for its Sunday paper is $1.25. As of December 31, 1994, approximately 92%
of the daily and 90% of the Sunday circulation was home delivered.
The Tri-City Herald's advertising linage for the years ended December 31,
1994 and 1993 is set forth in the following table.
<TABLE>
<CAPTION>
1994 1993
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<S> <C> <C>
Advertising Linage (in thousands of six-column inches):
Full Run.......................................................... 811 721
Total Market Coverage............................................. 24 20
</TABLE>
Net revenues of the Tri-City Herald were $17,668,000 in 1994 and
$15,626,000 in 1993.
THE (ROCK HILL) 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. The Herald's
average paid circulation as reported by the Company was 30,800 daily and 31,300
Sunday in 1994 compared to 31,000 daily and 30,700 Sunday in 1993.
The Herald's main competitor is a zoned edition of the Charlotte Observer,
whose circulation in the Herald's primary circulation area as reported by the
Audit Bureau of Circulation was 10,872 daily and 13,757 Sunday as of March 31,
1994 compared to 10,752 daily and 13,894 Sunday as of March 31, 1993. The
newsstand prices for the Herald are $0.35 daily and $0.75 Sunday and the
suggested home delivery price is $8.00 per month. As of December 31, 1994,
approximately 80% of the daily and 79% of the Sunday circulation was home
delivered.
According to the Herald's records, advertising linage for the years ended
December 31, 1994 and 1993 were as follows:
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1994 1993
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Advertising Linage (in thousands of six-column inches):
Full Run.......................................................... 778 725
Total Market Coverage............................................. 63 60
</TABLE>
Net revenues of the Herald were $10,062,000 in 1994 and $9,514,000 in 1993.
OTHER NEWSPAPERS
During 1994 the Company published five small daily and eight nondaily
community newspapers.
The five daily newspapers include two in South Carolina, the Island Packet
on Hilton Head Island and the Beaufort Gazette in Beaufort; two in California,
The Dispatch in Gilroy and the Free Lance in Hollister; and the Ellensburg Daily
Record, located in Central Washington. Combined average daily circulation for
these newspapers according to Company records was 38,800 in 1994 and 1993.
Average Sunday circulation at the two South Carolina newspapers was 26,100 in
1994 compared to 24,900 in 1993.
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The eight nondaily newspapers are generally published weekly or
twice-weekly. Four of the newspapers are located in California, three in South
Carolina and one in Washington state. Combined average paid circulation for this
group according to Company records was 30,600 at December 31, 1994.
RAW MATERIALS
In 1994 the Company consumed approximately 140,000 metric tons of newsprint
compared to 137,000 metric tons in 1993. The Company currently obtains its
supply of newsprint from a number of suppliers, both foreign and domestic, under
long-term contracts.
Newsprint and supplement expense accounted for approximately 17% of
operating expenses in 1994 compared to 16% in 1993. Management believes its
newsprint sources of supply under existing arrangements are adequate for its
anticipated needs. Strengthening demand for newsprint resulting from a pick-up
in advertising volumes caused three price increases in 1994 and may lead to
additional price increases in 1995. A substantial increase 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 Canadian newsprint manufacturer are partners in
Ponderay Newsprint Company, a general partnership formed to construct and
operate 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 225,000 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 faces competition for advertising revenues from television,
radio and direct mail programs, suburban neighborhood and national newspapers
and other publications. 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.
EMPLOYEES -- LABOR
As of December 31, 1994, the Company had 6,247 full and part-time
employees, of whom approximately 13% were represented by unions. Following the
expiration of contracts with certain unions at The Sacramento Bee, The Fresno
Bee and The Modesto Bee, negotiations between the newspapers and the affected
unions (which represent approximately 17% of the these newspapers' employees)
reached an impasse. In early 1987, final offers were "posted" to the unions at
the Sacramento and Fresno Bees. In 1990, a final offer to the union at The
Modesto Bee was posted. It is under these posted conditions that such union
employees have been working. Negotiations with the unions are ongoing.
While the Company's newspapers have not had a strike since 1978 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. 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.
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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 31, 1994, 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:
Sacramento, California........................................... 659,900 17,000
Fresno, California............................................... 386,000 9,100
Tacoma, Washington............................................... 246,000 5,400
Modesto, California.............................................. 164,000 5,600
Anchorage, Alaska................................................ 144,000
Kennewick, Washington............................................ 98,100
Rock Hill, South Carolina........................................ 49,000
Gilroy, California............................................... 27,400
Clovis, California............................................... 27,100
Ellensburg, Washington........................................... 24,000
Beaufort, South Carolina......................................... 16,500 450
Jackson, California.............................................. 12,900
Hilton Head, South Carolina...................................... 9,700
Puyallup, Washington............................................. 6,500
Morgan Hill, California.......................................... 4,500
Hollister, California............................................ 8,300
Federal Way, Washington.......................................... 4,400
York, South Carolina............................................. 3,300
Other -- principally northern California......................... 150,500
</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 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
McClatchy Newspapers, Inc. Class A Common Stock is listed on the New York
Stock Exchange (NYSE symbol -- MNI). 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 these
exchanges for 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
------------------------- -------------------------
HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
---- ---- --------- ---- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
1st Quarter....................... 24 1/4 22 1/8 $.08 23 18 1/2 $.0625
2nd Quarter....................... 24 21 5/8 $.08 23 20 3/8 $.0625
3rd Quarter....................... 27 1/4 23 1/2 $.085 20 7/8 18 1/8 $.0725
4th Quarter....................... 24 1/4 20 3/8 $.085 25 5/8 20 1/8 $.0725
</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
February 7, 1995 was approximately 1,326 and 23, respectively.
7
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ITEM 6. SELECTED FINANCIAL DATA
FIVE-YEAR FINANCIAL SUMMARY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1994 1993 1992 1991 1990
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<S> <C> <C> <C> <C> <C>
CONSOLIDATED INCOME STATEMENT DATA:
REVENUES -- NET:
Advertising........................................... $368,068 $350,046 $345,574 $337,372 $335,663
Circulation........................................... 85,017 83,729 80,318 74,770 70,266
Other................................................. 18,333 15,340 14,355 14,686 15,482
-------- -------- -------- -------- --------
TOTAL................................................. 471,418 449,115 440,247 426,828 421,411
OPERATING EXPENSES:
Depreciation and amortization......................... 38,140 35,583 33,560 29,929 30,316
Other costs and expenses.............................. 361,410 348,428 344,764 347,692 335,693
-------- -------- -------- -------- --------
TOTAL................................................. 399,550 384,011 378,324 377,621 366,009
-------- -------- -------- -------- --------
OPERATING INCOME...................................... 71,868 65,104 61,923 49,207 55,402
Partnership losses.................................... 5,469 6,171 6,674 4,193 6,366
Other nonoperating expenses (income).................. (3,166) 17 991 2,847 2,860
-------- -------- -------- -------- --------
INCOME BEFORE INCOME TAX PROVISION AND CUMULATIVE
EFFECTS OF ACCOUNTING CHANGES....................... 69,565 58,916 54,258 42,167 46,176
Income tax provision.................................. 22,920 27,118 24,087 18,438 19,731
-------- -------- -------- -------- --------
INCOME BEFORE CUMULATIVE EFFECTS OF ACCOUNTING
CHANGES............................................. 46,645 31,798 30,171 23,729 26,445
Cumulative effects of accounting
changes............................................. (341)
-------- -------- -------- -------- --------
Net income............................................ $ 46,645 $ 31,798 $ 29,830 $ 23,729 $ 26,445
======== ======== ======== ======== ========
Earnings per common share:
INCOME BEFORE CUMULATIVE EFFECTS OF ACCOUNTING
CHANGES............................................. $ 1.58 $ 1.10 $ 1.05 $ .83 $ .93
Cumulative effects of accounting changes.............. (.01)
-------- -------- -------- -------- --------
NET INCOME............................................ $ 1.58 $ 1.10 $ 1.04 $ .83 $ .93
======== ======== ======== ======== ========
DIVIDENDS PER COMMON SHARE............................ $ .33 $ .27 $ .215 $ .20 $ .16
======== ======== ======== ======== ========
CONSOLIDATED BALANCE SHEET DATA:
Total assets.......................................... $586,637 $525,163 $491,151 $477,076 $467,950
Long-term obligations................................. 14,961 14,213 23,901 38,618 55,196
Stockholders' equity.................................. 442,220 383,523 358,299 333,372 314,186
</TABLE>
Results for 1994 include a $6.0 million favorable adjustment (included in
the income tax provision) related to the resolution of income tax audits.
Results for 1992 include a $2.6 million pre-tax charge related to an early
retirement program. This summary should be read in conjunction with the
consolidated financial statements and notes thereto.
8
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RECENT EVENTS AND TRENDS
On May 9, 1994 the Company filed a registration statement with the
Securities and Exchange Commission registering 1,581,250 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 stockholders
converted 625,000 shares of Class B common into Class A common stock and the
Company converted 750,000 Class B shares held in treasury. In addition, 206,250
Class A shares were issued to cover over-allotments in the offering. As a result
of the offering, the number of outstanding common shares increased by 956,250.
In 1994, the Company settled disputes with the Internal Revenue Service and
the California Franchise Tax Board involving examinations of the Company's tax
returns. The principal issues related to losses from non-newspaper operations
from 1982 through 1987, and to the amortization of intangible assets acquired
from 1986 through 1991. The resolution of the audits resulted in a $6,003,000
increase in net earnings (recorded as a reduction to the 1994 income tax
provision).
Three newsprint price increases were implemented by newsprint producers in
May, August and December of 1994 as increasing advertising lineage created a
greater demand for newsprint. The 1994 increases and recently announced price
increases in 1995 (if actually implemented) will affect the Company's 1995
operating income. Advertising and circulation volume and rate increases, coupled
with company-wide cost control programs focused on newsprint usage and all other
categories of expenses have, in the past, mitigated the impact of newsprint
price increases. The Company intends to continue to pursue all of these
measures; however, they may not have the same effect on future results.
On August 2, 1993 new federal tax laws raised the corporate income tax rate
from 34% to 35% retroactive to January 1, 1993, and made other changes to the
deductibility of certain expenses. The liability method of income tax accounting
required that the Company revalue accumulated deferred taxes, and taxes on
earnings through the first half of 1993 to reflect the higher rate. Accordingly,
in the third quarter of 1993 the Company increased its tax provision by
$1,088,000 or four cents per share for these retroactive adjustments.
RESULTS OF OPERATIONS
1994 COMPARED TO 1993
Net income was $46.6 million or $1.58 per share. Excluding the $6.0 million
favorable tax adjustment discussed above, net income was a record $40.6 million,
up 27.8%. Operating income increased 10.4% to $71.9 million, primarily
reflecting greater contributions from The Sacramento Bee, two Washington
dailies -- The (Tacoma) News Tribune and the Tri-City Herald, and the Anchorage
Daily News. Net income also benefitted from higher investment income and
somewhat lower losses from the Company's joint venture in Ponderay Newsprint
Company, a newsprint producer.
Net revenues were up 5.0% to $471.4 million, mostly due to a $18.0 million
gain in advertising revenues. Rate increases implemented generally in the first
quarter of 1994 coupled with greater advertising volume produced a 5.1% increase
in advertising revenues.
Approximately ninety percent of the Company's advertising revenues are
produced by its seven largest daily newspapers, and most of the revenues are
derived from run-of-press (ROP) lineage (found in the body of the newspapers).
At the seven largest dailies, full run ROP linage, distributed in all editions
of the newspapers, increased 2.3%. This is the first year over year increase in
full run ROP for this group since 1990 as combined classified and national
linage gains offset a modest decline in retail ROP linage.
In other categories of advertising, part-run ROP, a smaller category of
linage included in zoned editions of the newspapers, increased 7.2%. Linage in
total market coverage (TMC) products (delivered to nonsubscribers) increased
2.3%, while the number of preprinted advertising inserts distributed in the
newspapers grew 2.7%. Advertising in the Company's 12 other newspapers increased
5.2%.
9
<PAGE> 12
The 1.5% increase in circulation revenue mirrors the increase in average
paid circulation, as most of the Company's newspapers chose not to increase
subscription prices for the second consecutive year. Combined average daily
circulation increased 1.3% and Sunday increased 1.6%.
The remaining $3.0 million in revenue increases resulted from a rise in
other revenues due largely to increased commercial printing at the Anchorage and
Tacoma newspapers and at McClatchy Printing Company.
Newsprint price increases in 1994 were major factors in the 4.0% increase
in operating expenses. Newsprint and supplement expense were up 11.3% due to the
price increases and, to a lesser degree, increased newsprint usage. Compensation
expenses were held to a 1.3% increase as lower headcounts partially offset wage
increases that ranged from about one to three percent. In addition, the cost of
fringe benefits were held to a 1.1% increase. Other operating expenses increased
4.0% and include the costs of closing most of the Company's Senior Spectrum
tabloids in March, volume related costs of higher advertising and circulation
activity and the general impact of inflation. Depreciation and amortization
increased 7.2%, due principally to new equipment added at The Sacramento Bee.
Nonoperating expenses declined $3.9 million as a result of a $2.8 million
increase in investment income and lower losses from the Company's investment in
the Ponderay newsprint mill.
The effective tax rate in 1994 was 41.6% (excluding the $6.0 million tax
adjustment discussed above) compared to 46.0% in 1993. The higher rate last year
was due partially to federal tax laws passed in August 1993 which increased the
corporate tax rate to 35% retroactive to January 1993. The Company recorded tax
adjustments of $1,088,000 representing additional taxes on income in the first
half of 1993 and the revaluing of cumulative deferred taxes. The remaining
difference relates largely to higher deductibility of amortization in 1994.
1993 COMPARED TO 1992
Net income increased 6.6% to $31.8 million as strong performances at The
Fresno Bee and newspapers in Washington and South Carolina offset weaker results
at the Sacramento and Modesto Bees. Income also benefitted from improved
operating results at the Anchorage Daily News since the closure of the competing
Anchorage Times, stringent cost controls at all of the Company's newspapers and
a second year of low newsprint prices.
Net revenues increased 2.0% to $449.1 million compared to $440.2 million in
1992. Advertising rate increases at most of the Company's newspapers offset the
impact of lower volumes resulting in a modest 1.3% increase in consolidated
advertising revenues. While overall advertising volumes were down, gains were
reported at The Fresno Bee, the Tri-City Herald and The (Rock Hill) Herald. In
general, higher retail advertising linage was offset by declines in national and
classified linage.
At the Company's seven largest daily newspapers, full run ROP linage
declined 3.1% and part-run ROP linage declined 4.6%. These declines were
partially offset by gains in advertising in TMC products of 18.5% and a 5.9%
increase in the number of preprinted advertisements inserted into the daily
newspapers. Advertising volume in McClatchy's 13 other newspapers increased
3.3%.
Circulation revenue increased 4.2% as the combined number of daily and
Sunday subscribers increased 1.9% and 1.8%, respectively (average paid
circulation). With a slower economy impacting many of the Company's newspaper
readers, most of McClatchy's metropolitan newspapers opted to forego circulation
rate increases in 1993. The Anchorage Daily News and The (Rock Hill) Herald
increased home-delivery rates modestly in April and September, respectively.
Other revenues increased $985,000 or 6.9%, due principally to an increase
in commercial printing at McClatchy Printing Company.
10
<PAGE> 13
Operating expenses were held to a 1.5% increase over 1992 and were up 2.2%
after excluding the $2.6 million charge in 1992 for the early retirement program
at the Sacramento and Modesto Bees. Excluding the early retirement charge,
compensation costs increased 1.5% reflecting a 2.1% increase in salaries and a
nominal decline in the cost of employee benefits. The increase in salaries
generally reflects wage rate increases of 2% to 3%, partially offset by lower
headcounts. Newsprint and supplements and other operating expenses generally
increased 2.2% and reflect low newsprint prices, generally low inflation and the
impact of cost control programs at all of the Company's newspapers. Depreciation
and amortization was up 6.0% due primarily to the installation of new mailroom
equipment at The Sacramento Bee and presses at The (Tacoma) News Tribune.
Nonoperating expense declined $1.5 million primarily due to lower interest
expense as the Company repaid its bank debt, and higher investment income on
cash equivalents.
The Company's tax rate was 46.0% compared to 44.4% in 1992. The increase in
this rate primarily relates to new federal tax legislation which raised the
corporate tax rate from 34% to 35%, retroactive to January 1, 1993.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated $94.2 million of cash from operating activities in
1994 and has generated an aggregate of $260.9 million over the last three years.
The Company also received $20.0 million in net proceeds from the May stock
offering and received $26.3 million in proceeds from maturing debt securities.
The principal uses of cash over the three year period have been to repay bank
debt incurred to purchase the South Carolina-based newspapers, to invest in
capital expenditures and to purchase interest bearing securities. Cash has also
been used to fund its Ponderay newsprint mill investment and to pay dividends.
At year end cash and cash equivalents, and short and long-term investment
securities totalled $109.3 million.
A total of $34.4 million was expended in 1994 for capital projects and
equipment to improve productivity and keep pace with circulation growth,
primarily at The Sacramento Bee, The (Tacoma) News Tribune and the South
Carolina-based newspapers. Capital expenditures over the last three years have
totalled $99.8 million and planned expenditures in 1995 are estimated to be
$35.8 million.
The Company has a 13.5% interest in the Ponderay Newsprint Company, a
general partnership that operates a newsprint mill near Spokane, Washington. The
Company's share of the mill's losses over the last three years equaled $18.3
million. The Company has contributed $14.1 million to fund the mill's cash needs
over this period. Ponderay's losses are expected to diminish over the next
several years assuming newsprint prices continue to increase. The Company
presently intends, when necessary, to contribute funds to help finance a share
of the mill's cash needs. See note 3 to the consolidated financial statements.
The Company has an outstanding letter of credit for $4.9 million.
Management is of the opinion that operating cash flow is adequate to meet the
liquidity needs of the Company, including currently planned capital expenditures
and other investments.
11
<PAGE> 14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1994 1993
--------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.......................................... $ 68,574 $ 42,326
Short-term investments............................................. 29,448
Trade receivables (less allowances of $2,000 in 1994 and $1,757 in
1993)........................................................... 58,185 47,859
Other receivables.................................................. 1,704 1,456
Newsprint, ink and other inventories............................... 8,578 10,033
Deferred income taxes.............................................. 11,425 9,672
Other current assets............................................... 2,476 1,843
--------- ---------
TOTAL CURRENT ASSETS............................................ 180,390 113,189
PROPERTY, PLANT AND EQUIPMENT:
Land............................................................... 19,591 18,057
Buildings and improvements......................................... 126,055 120,753
Equipment.......................................................... 299,717 282,082
Construction in progress........................................... 9,885 15,893
--------- ---------
Total........................................................... 455,248 436,785
Accumulated depreciation........................................... (180,601) (166,460)
--------- ---------
NET PROPERTY, PLANT AND EQUIPMENT.................................... 274,647 270,325
INTANGIBLES -- NET................................................... 115,446 124,662
LONG-TERM INVESTMENTS................................................ 11,303 --
INVESTMENT IN NEWSPRINT MILL PARTNERSHIP............................. 4,111 3,977
OTHER ASSETS......................................................... 740 13,010
--------- ---------
TOTAL ASSETS.................................................... $ 586,637 $ 525,163
========= =========
</TABLE>
See notes to consolidated financial statements.
12
<PAGE> 15
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1993
-------- --------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable..................................................... $ 17,791 $ 14,043
Accrued compensation................................................. 32,253 26,324
Income taxes......................................................... 5,615 1,117
Unearned revenue..................................................... 12,096 10,560
Carrier deposits..................................................... 3,331 3,055
Other accrued liabilities............................................ 8,006 8,281
-------- --------
TOTAL CURRENT LIABILITIES......................................... 79,092 63,380
LONG-TERM OBLIGATIONS.................................................. 14,961 14,213
DEFERRED INCOME TAXES.................................................. 50,364 64,047
COMMITMENTS AND CONTINGENCIES (NOTE 9)
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value:
Class A -- authorized 50,000,000 shares, issued 6,638,022 in 1994
and 5,100,450 in 1993............................................ 66 51
Class B -- authorized 30,000,000 shares, issued 23,276,789 in 1994
and 24,503,789 in 1993........................................... 233 238
Additional paid-in capital........................................... 61,290 39,472
Retained earnings.................................................... 381,002 344,133
Treasury stock, 20,000 Class A shares in 1994 and 1993, and 750,000
Class B in 1993................................................... (371) (371)
-------- --------
TOTAL STOCKHOLDERS' EQUITY........................................ 442,220 383,523
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........................ $586,637 $525,163
======== ========
</TABLE>
13
<PAGE> 16
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
REVENUES -- NET:
Advertising.............................................. $368,068 $350,046 $345,574
Circulation.............................................. 85,017 83,729 80,318
Other.................................................... 18,333 15,340 14,355
-------- -------- --------
TOTAL................................................. 471,418 449,115 440,247
OPERATING EXPENSES:
Compensation............................................. 202,368 199,743 199,295
Newsprint and supplements................................ 67,505 60,639 59,501
Depreciation and amortization............................ 38,140 35,583 33,560
Other operating expenses................................. 91,537 88,046 85,968
-------- -------- --------
TOTAL................................................. 399,550 384,011 378,324
-------- -------- --------
OPERATING INCOME........................................... 71,868 65,104 61,923
NONOPERATING EXPENSES (INCOME):
Interest expense......................................... 33 118 920
Investment income........................................ (3,247) (461) (35)
Partnership losses....................................... 5,469 6,171 6,674
Other -- net............................................. 48 360 106
-------- -------- --------
TOTAL................................................. 2,303 6,188 7,665
-------- -------- --------
INCOME BEFORE INCOME TAX PROVISION AND CUMULATIVE EFFECTS
OF ACCOUNTING CHANGES.................................... 69,565 58,916 54,258
Income tax provision..................................... 22,920 27,118 24,087
-------- -------- --------
INCOME BEFORE CUMULATIVE EFFECTS OF ACCOUNTING CHANGES..... 46,645 31,798 30,171
Cumulative effects of accounting changes................. -- -- (341)
-------- -------- --------
NET INCOME................................................. $ 46,645 $ 31,798 $ 29,830
======== ======== ========
EARNINGS PER COMMON SHARE:
Income before cumulative effects of accounting changes... $ 1.58 $ 1.10 $ 1.05
Cumulative effects of accounting changes................. -- -- (.01)
-------- -------- --------
NET INCOME PER COMMON SHARE................................ $ 1.58 $ 1.10 $ 1.04
======== ======== ========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES................... 29,583 28,879 28,754
</TABLE>
See notes to consolidated financial statements.
14
<PAGE> 17
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
CASH PROVIDED (USED) BY OPERATING ACTIVITIES:
Net income............................................... $ 46,645 $ 31,798 $ 29,830
Reconciliation to net cash provided:
Depreciation and amortization......................... 38,294 35,778 33,751
Deferred income taxes................................. (15,435) 7,164 5,940
Partnership losses.................................... 5,469 6,171 6,674
Cumulative effect of changes in accounting:
Postretirement benefit.............................. -- -- 4,627
Income taxes........................................ -- -- (4,286)
Changes in certain assets and liabilities -- net...... 19,118 9,204 4,365
Other................................................. 84 599 (4,923)
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES.................. 94,175 90,714 75,978
CASH PROVIDED (USED) BY INVESTING ACTIVITIES:
Maturities of investments held to maturity............... 26,302 -- --
Purchases of investments held to maturity................ (50,151) -- --
Purchases of investments available for sale.............. (16,902) -- --
Purchases of property, plant and equipment............... (34,437) (35,851) (29,476)
Investment in newsprint mill partnership................. (5,603) (4,711) (3,780)
Acquisition of newspaper operations...................... -- -- (3,755)
Other -- net............................................. 812 188 (4,486)
-------- -------- --------
NET CASH USED BY INVESTING ACTIVITIES...................... (79,979) (40,374) (41,497)
CASH PROVIDED (USED) BY FINANCING ACTIVITIES:
Net proceeds from public offering........................ 20,001 -- --
Repayment of long-term debt.............................. -- (10,072) (25,092)
Payment of cash dividends................................ (9,776) (7,775) (6,182)
Other -- principally stock issuances..................... 1,827 1,175 1,249
-------- -------- --------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES........... 12,052 (16,672) (30,025)
-------- -------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS.................... 26,248 33,668 4,456
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR............... 42,326 8,658 4,202
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR..................... $ 68,574 $ 42,326 $ 8,658
======== ======== ========
OTHER CASH FLOW INFORMATION:
Cash paid during the year for:
Interest (net of amount capitalized).................. $ 19 $ 118 $ 1,086
Income taxes (net of refunds)......................... 29,524 18,448 20,625
</TABLE>
See notes to consolidated financial statements.
15
<PAGE> 18
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PAR VALUE ADDITIONAL TREASURY
----------------- PAID-IN RETAINED STOCK
CLASS A CLASS B CAPITAL EARNINGS AT COST TOTAL
------- ------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, DECEMBER 31, 1991.............. $45 $243 $36,993 $296,462 $ (371) $333,372
Net income............................. 29,830 29,830
Dividends paid ($.215 per share)....... (6,182) (6,182)
Conversion of 26,000 Class B shares to
Class A............................. 1 (1)
Issuance of 78,391 Class A shares under
employee stock plans................ 1,279 1,279
Receipt of 750,000 Class B treasury
shares from trust................... -- --
--- ---- ------- -------- ------ --------
BALANCES, DECEMBER 31, 1992.............. 46 242 38,272 320,110 (371) 358,299
Net income............................. 31,798 31,798
Dividends paid ($.27 per share)........ (7,775) (7,775)
Conversion of 443,000 Class B shares to
Class A............................. 4 (4)
Issuance of 72,080 Class A shares under
employee stock plans................ 1 1,200 1,201
--- ---- ------- -------- ------ --------
BALANCES, DECEMBER 31, 1993.............. 51 238 39,472 344,133 (371) 383,523
Net income............................. 46,645 46,645
Dividends paid ($.33 per share)........ (9,776) (9,776)
Conversion of 477,000 Class B shares to
Class A............................. 5 (5)
Issuance of 956,250 Class A shares to
public.............................. 9 19,992 20,001
Issuance of 104,322 Class A shares
under employee stock plans.......... 1 1,826 1,827
--- ---- ------- -------- ------ --------
BALANCES, DECEMBER 31, 1994.............. $66 $233 $61,290 $381,002 $ (371) $442,220
=== ==== ======= ======== ====== ========
</TABLE>
See notes to consolidated financial statements.
16
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
McClatchy Newspapers, Inc. and its subsidiaries are engaged primarily in
the publication of newspapers.
The consolidated financial statements include the Company and its
subsidiaries. Significant intercompany items and transactions are eliminated.
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.
Investments consist of the following classified as short-term securities:
$23,849,000 of commercial paper maturing through March 15, 1995 which will be
held to maturity, and are valued at amortized costs; and $5,599,000 of U.S. and
local government debt securities maturing through October 5, 1995, are available
for sale and recorded at amortized costs because the unrecognized loss to adjust
to market value is not significant by security or in total. Long-term
investments consist of U.S. and local government debt securities totalling
$11,303,000 maturing through November 15, 1997, which are classified as
available for sale and recorded at amortized cost because the unrecognized loss
to adjust to market value is not significant by security or in total. Costs for
investment securities are determined by specific identification. No gains or
losses were realized in 1994.
Concentrations of credit risks -- Financial instruments which potentially
subject the Company to concentrations of credit risks are principally cash and
cash equivalents, short and long-term investments and trade accounts
receivables. Cash and cash equivalents and investments are placed with major
financial institutions and are currently invested in the highest rated
commercial paper and U.S. and local 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 $2,856,000 at December 31, 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.
Such interest aggregated $5,000 in 1993 and $376,000 in 1992. No such interest
was capitalized in 1994.
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, covenants not to compete and
commercial printing contracts, 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 notes 2 and 5.
17
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Earnings per share are based upon the weighted average number of
outstanding shares of common stock and dilutive common stock equivalents (stock
options).
2. CUMULATIVE EFFECTS OF ACCOUNTING CHANGES
The Company adopted the provisions of SFAS No. 106 "Employers' Accounting
for Postretirement Benefits Other Than Pensions" effective January 1, 1992. The
Statement requires the accrual of postretirement health care and life insurance
benefits over employees' service periods. The cumulative effect of this change
reduced 1992 net income by $4,627,000 or $.16 per share.
Effective January 1, 1992, the Company also adopted the provisions of
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes". Under SFAS 109, deferred income tax assets and liabilities
reflect the future tax consequences, based on enacted tax laws, of temporary
differences between financial and tax reporting existing at the balance sheet
date. The actual effects of tax law changes are recognized when enacted. The
cumulative effect of this change increased 1992 net income by $4,286,000 or $.15
per share. The change had no significant impact on the income tax provision in
1992.
3. 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 construct and
operate a newsprint mill in the State of Washington. The Company guarantees
certain bank debt used to construct the mill (see note 9) and has committed to
purchase 28,400 metric tons of annual production on a "take-if-tendered" basis
until the debt is repaid. The Company purchased $13,083,000, $12,079,000, and
$12,700,000 of newsprint from Ponderay in 1994, 1993 and 1992, respectively.
Summarized financial data for the years ended December 31, 1994, 1993 and
1992 for Ponderay's operations are as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
FINANCIAL POSITION:
Current assets....................................... $ 19,484 $ 19,624 $ 18,361
Property, plant and equipment........................ 291,033 304,315 321,065
Other assets......................................... 1,654 5,690 10,075
-------- -------- --------
TOTAL ASSETS................................. $312,171 $329,629 $349,501
======== ======== ========
Current liabilities.................................. $ 34,010 $ 33,761 $ 27,516
Long-term liabilities................................ 248,633 267,331 282,636
Partners' capital.................................... 29,528 28,537 39,349
-------- -------- --------
TOTAL LIABILITIES AND PARTNERS' CAPITAL...... $312,171 $329,629 $349,501
======== ======== ========
RESULTS OF OPERATIONS:
Revenues............................................. $100,233 $ 94,375 $ 89,807
Net loss............................................. 40,509 45,713 49,435
</TABLE>
18
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. LONG-TERM OBLIGATIONS
Long-term obligations consist of (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1993
------- -------
<S> <C> <C>
Postretirement benefits obligation....................... $ 9,209 $ 9,142
Other long-term obligations.............................. 5,752 5,071
------- -------
Total long-term obligations.............................. $14,961 $14,213
======= =======
</TABLE>
Long-term obligations mature as follows (in thousands):
<TABLE>
<S> <C>
1996........................................... $ 1,294
1997........................................... 891
1998........................................... 719
1999........................................... 349
Thereafter..................................... 11,708
-------
Total.......................................... $14,961
=======
</TABLE>
The Company has an outstanding letter of credit for $4,861,000.
Other long-term obligations consist primarily of deferred compensation and
supplemental retirement benefits.
5. INCOME TAX PROVISIONS
On January 1, 1992 the Company adopted SFAS 109. The impact of this change
is discussed in note 2.
Income tax provisions consist of (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1993 1992
-------- ------- -------
<S> <C> <C> <C>
Current:
Federal............................................ $ 32,328 $16,212 $14,692
State.............................................. 6,027 3,742 3,455
Deferred:
Federal............................................ (15,279) 6,663 5,963
State.............................................. (156) 501 (23)
-------- ------- -------
Income tax provision................................. $ 22,920 $27,118 $24,087
======== ======= =======
</TABLE>
The effective tax rate and the statutory federal income tax rate are
reconciled as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Statutory rate...................................... 35% 35% 34%
State taxes, net of federal benefit................. 5 5 4
Amortization of intangibles......................... 2 4 4
Impact of retroactive tax rate adjustments.......... -- 1 --
Resolution of tax audits............................ (9) -- --
Other............................................... -- 1 2
---- ---- ----
Effective rate...................................... 33% 46% 44%
==== ==== ====
</TABLE>
19
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company settled disputes with the Internal Revenue Service and the
California Franchise Tax Board involving examinations of the Company's tax
returns. The principal issues related to losses from non-newspaper operations
from 1982 through 1987, and to the amortization of intangible assets acquired
from 1986 through 1991. The resolution of the audits resulted in a $6,003,000
increase in net earnings which was recorded as a reduction to the 1994 income
tax provision ($5,134,000 recognized in the third quarter).
On August 2, 1993 new federal tax legislation was enacted which, among
other things, increased the federal corporate tax rate to 35% from 34%,
retroactive to January 1, 1993. The liability method of accounting for taxes
requires that the effect of this rate increase on current and cumulative
deferred taxes be reflected in the period in which the law was enacted.
Accordingly, the Company recorded an adjustment of $1,088,000 in the third
quarter of 1993. Of this amount, $239,000 related to higher taxes on earnings
through June 30, 1993 and $849,000 was required to revalue deferred taxes at
January 1, 1993.
The components of deferred tax liabilities (benefits) recorded in the
Company's Consolidated Balance Sheet on December 31, 1994 and 1993 are (in
thousands):
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Depreciation and amortization.......................... $ 40,535 $ 45,517
Partnership losses..................................... 11,147 10,971
State taxes............................................ 201 1,689
Deferred compensation.................................. (13,085) (11,321)
Deductible deposits.................................... -- 3,954
Other.................................................. 142 3,565
-------- --------
Deferred tax liability (net of $11,425 in 1994 and
$9,672 in 1993 reported as current assets)........... $ 38,940 $ 54,375
======== ========
</TABLE>
6. INTANGIBLES
Intangibles consist of (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1993
-------- --------
<S> <C> <C>
Identifiable intangible assets, primarily customer
lists................................................ $125,511 $132,881
Excess purchase prices over identifiable assets........ 64,400 64,560
-------- --------
Total.................................................. 189,911 197,441
Less accumulated amortization.......................... 74,465 72,779
-------- --------
Intangibles -- net..................................... $115,446 $124,662
======== ========
</TABLE>
7. EMPLOYEE BENEFITS
RETIREMENT 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
investments in 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.
20
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The elements of pension costs are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1994 1993 1992
------- -------- -------
<S> <C> <C> <C>
Cost of benefits earned during the year.............. $ 6,430 $ 5,393 $ 5,282
Interest on projected benefit obligation............. 7,208 6,447 5,922
Return on plan assets -- (gain)...................... (77) (10,477) (7,253)
Deferred (loss) gain -- return on plan assets (less)
greater than assumed............................... (7,071) 4,033 1,098
Net amortization and other deferrals................. 15 2 (384)
------- -------- -------
Net pension cost..................................... $ 6,505 $ 5,398 $ 4,665
======= ======== =======
</TABLE>
The plans' funded status and amounts recognized in the Company's
Consolidated Balance Sheet at December 31, 1994 and 1993 are as follows (in
thousands):
<TABLE>
<CAPTION>
1994 1993
------------------------- -------------------------
SUPPLEMENTAL SUPPLEMENTAL
RETIREMENT RETIREMENT RETIREMENT RETIREMENT
PLAN PLAN PLAN PLAN
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Actuarial present value of:
Vested benefit obligation....................... $71,581 $ 3,013 $61,656 $ 2,834
======= ======= ======= =======
Accumulated benefit obligation.................. $75,692 $ 3,013 $65,278 $ 2,834
======= ======= ======= =======
Plan assets at fair value......................... $87,236 -- $89,219 --
Projected benefit obligation...................... 93,208 $ 4,429 94,378 $ 3,780
------- ------- ------- -------
Projected benefit over plan assets................ 5,972 4,429 5,159 3,780
Unrecognized net gains (losses)................... 2,892 843 (982) 427
Unrecognized prior service cost................... (2,648) (2,011) (3,274) (1,628)
Unrecognized net pension transition asset,
amortized over 15 years......................... 3,831 -- 4,378 --
Adjustment required to recognize minimum
liability....................................... -- -- -- 255
------- ------- ------- -------
Accrued pension obligation........................ $10,047 $ 3,261 $ 5,281 $ 2,834
======= ======= ======= =======
</TABLE>
Assumptions used for valuing defined benefit obligations were:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1994 1993
--------- ---------
<S> <C> <C>
Discount rate in determining benefit obligation............. 8.5% 7.3%
Expected long-term rate of return on assets................. 8.5% 8.5%
Rates of compensation increase.............................. 4.5%-5.5% 4.5%-5.5%
</TABLE>
The Company has a Deferred Compensation and Investment Plan (401(k) plan)
which enables qualified employees to voluntarily defer compensation. Company
contributions to the 401(k) plan were $3,838,000 in 1994, $3,751,000 in 1993,
and $3,455,000 in 1992.
POSTRETIREMENT BENEFITS:
The Company also provides or subsidizes certain retiree health care and
life insurance benefits. On January 1, 1992 the Company began accruing the cost
of these benefits over employee's service periods instead of recording them on a
pay-as-you-go basis. The impact of this change is discussed in note 2.
21
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The elements of postretirement expenses are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1994 1993 1992
---- ---- ------
<S> <C> <C> <C>
Service costs....................................... $173 $230 $ 233
Interest costs...................................... 542 649 645
Amortization........................................ (34) -- --
Transition obligation............................... -- -- 7,592
---- ---- ------
Total postretirement benefits costs................. $681 $879 $8,470
==== ==== ======
</TABLE>
The plan's funded status and amounts recognized in the Company's
Consolidated Balance Sheet at December 31, 1994 and 1993 are as follows (in
thousands):
<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
Accumulated postretirement benefit obligation (APBO):
Retirees................................................... $4,503 $5,250
Active eligible employees.................................. 666 789
Active ineligible employees................................ 2,240 3,343
------ ------
Total APBO................................................. 7,409 9,382
Unrecognized loss (gain)................................... 1,800 (80)
------ ------
Net postretirement benefit liability....................... $9,209 $9,302
====== ======
</TABLE>
Assumptions used for valuing postretirement obligations were:
<TABLE>
<S> <C> <C>
Discount rate in determining benefit
obligation................................. 8.5% 7.3%
Medical care cost trend rates................. 11.75%-12.5% 9.5%-13.25%
</TABLE>
The medical care cost trend rates are expected to decline to about 5.8% by
the year 2002. A 1.0% increase in the assumed health care cost trend rate would
have increased the APBO by 2.9% and the annual service and interest cost by
2.6%.
8. CASH FLOW INFORMATION
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 31,
-------------------------------
1994 1993 1992
-------- ------ -------
<S> <C> <C> <C>
Increase (decrease) in assets:
Trade receivables................................... $ 10,326 $1,345 $ (142)
Inventories......................................... (1,455) (97) 1,221
Other assets........................................ (11,274) (669) (1,795)
-------- ------ -------
Total....................................... (2,403) 579 (716)
Increase (decrease) in liabilities:
Accounts payable.................................... 3,748 3,569 2,103
Accrued compensation................................ 5,929 3,422 1,109
Income taxes........................................ 4,498 1,087 (2,112)
Other liabilities................................... 2,540 1,705 2,549
-------- ------ -------
Total....................................... 16,715 9,783 3,649
-------- ------ -------
Net cash increase from changes in assets and
liabilities......................................... $ 19,118 $9,204 $ 4,365
======== ====== =======
</TABLE>
22
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES
The Company guarantees $21,643,000 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 March 2000. Total
rental expense amounted to $2,009,000 in 1994, $1,618,000 in 1993, and
$1,596,000 in 1992. Minimum rental commitments under operating leases with
noncancelable terms in excess of one year are (in thousands):
<TABLE>
<S> <C>
1995........................................................ $1,701
1996........................................................ 1,348
1997........................................................ 910
1998........................................................ 589
1999........................................................ 160
Thereafter.................................................. 15
------
Total $4,723
======
</TABLE>
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.
10. COMMON STOCK AND STOCK PLANS
On May 9, 1994 the Company filed a registration statement with the
Securities and Exchange Commission registering 1,581,250 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 stockholders
converted 625,000 shares of Class B common stock into Class A common stock and
the Company converted 750,000 Class B shares held in treasury (at no cost). In
addition, 206,250 Class A shares were issued 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 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.
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 December 31, 1994, 444,690 shares
of Class A common stock have been issued under the Purchase Plan.
The Company's 1987 Stock Option Plan (the 1987 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 Plan
permits the Company, at its sole discretion, to settle unexercised options by
granting stock appreciation rights (SARS), the Company does not intend to avail
itself of this alternative except in limited circumstances.
On January 26, 1994 the Board of Directors adopted the 1994 Employee Stock
Option Plan (1994 Employee Plan) which was ratified by stockholders in May 1994
and reserves 650,000 Class A shares for
23
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
issuance to key employees. The terms of this plan are substantially the same as
the terms of the 1987 Employee Plan.
The Company's stock option plan for outside (nonemployee) directors (the
Directors' Plan) provides for the issuance of up to 150,000 shares of Class A
stock. Under the plan each outside director is granted an option at fair market
value at the conclusion of each regular annual meeting of stockholders for 1,500
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
------------------- ------------------
AVERAGE AVERAGE
OPTIONS PRICE OPTIONS PRICE
------- ------- ------- -------
<S> <C> <C> <C> <C>
Outstanding, December 31, 1991..................... 395,200 $ 16.99 21,000 $ 19.88
Granted............................................ 108,600 19.50 10,500 20.75
Exercised.......................................... (1,025) 16.00 -- --
Surrendered for SARS............................... (23,500) 15.66 -- --
Forfeited.......................................... (9,975) 22.66 -- --
------- -------
Outstanding, December 31, 1992..................... 469,300 17.52 31,500 20.17
Granted............................................ -- -- 10,500 22.38
Exercised.......................................... (4,425) 15.26 -- --
Forfeited.......................................... (3,575) 17.78 -- --
------- -------
Outstanding December 31, 1993...................... 461,300 17.54 42,000 20.72
Granted............................................ 237,900 22.06 13,500 22.50
Exercised.......................................... (45,150) 15.96 -- --
Forfeited.......................................... (1,950) 20.73 (1,500) 22.50
------- -------
Outstanding December 31, 1994...................... 652,100 19.29 54,000 21.11
======= =======
</TABLE>
In the 1987 Employee Plan, there are 261,725 options exercisable as of
December 31, 1994. In January 1994, the Company granted 104,500 options to
employees using substantially all shares reserved in the plan. In the 1994
Employee Plan 516,600 remain for future grants and none of the options are
exercisable. In the Directors' Plan 26,250 shares were exercisable at December
31, 1994 and 96,000 are available for future awards.
24
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. 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>
1994:
Revenues-net.......................................... $ 108,924 $ 118,643 $ 117,098 $ 126,753
Operating income...................................... 11,605 20,542 17,300 22,421
Net income............................................ 5,897 11,017 15,716 14,015
Net income per common share........................... .20 .37 .53 .47
1993:
Revenues-net.......................................... $ 105,282 $ 113,458 $ 111,282 $ 119,093
Operating income...................................... 10,546 16,962 16,396 21,200
Net income............................................ 4,768 8,514 7,341 11,175
Net income per common share........................... .17 .30 .25 .39
1992:
Revenues -- net....................................... $ 101,292 $ 111,169 $ 110,503 $ 117,283
Operating income...................................... 9,881 16,246 16,856 18,940
Income before cumulative effects of accounting
changes............................................. 4,488 7,831 8,699 9,153
Net income............................................ 4,147 7,831 8,699 9,153
Income per common share before cumulative effects of
accounting changes.................................. .15 .27 .30 .32
Net income per common share........................... .14 .27 .30 .32
</TABLE>
Please see note 5 for discussions of credits recorded in the third quarter
of 1994 and charges recorded in the third quarter of 1993. In the fourth quarter
of 1992 an early retirement expense of $2,593,000 was recorded.
25
<PAGE> 28
INDEPENDENT AUDITOR'S REPORT
McClatchy Newspapers, Inc.:
We have audited the accompanying consolidated balance sheets of McClatchy
Newspapers, Inc. and its subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of income, cash flows and stockholders' equity
for each of the three years in the period ended December 31, 1994. Our audits
also included the financial statement schedule listed in the Index at Item
14(a)(2). 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 McClatchy Newspapers, Inc. and
its subsidiaries at December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1994 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.
As discussed in note 2 to the consolidated financial statements, in 1992
the Company changed its method of accounting for income taxes to conform to
Statement of Financial Accounting Standards (SFAS) No. 109 and changed its
method of accounting for postretirement health care and life insurance benefits
to conform to SFAS No. 106.
DELOITTE & TOUCHE LLP
Sacramento, California
February 1, 1995
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 "Other Executive Officers"
under the heading "Election of Directors" in the definitive Proxy Statement for
the Company's 1995 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", and
"Pension Plans" in the definitive Proxy Statement for the Company's 1995 Annual
Meeting of Stockholders is incorporated herein by reference.
26
<PAGE> 29
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 1995 Annual Meeting of Stockholders
is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<C> <C> <S>
(a) (1) Financial statements and independent auditor's report on pages 12 through 26.
Consolidated Balance Sheet
Consolidated Statement of Income
Consolidated Statement of Cash Flows
Consolidated Statement of Stockholders' Equity
Notes to Consolidated Financial Statements
Independent Auditor's Report
(2) Financial Statement Schedule II, Valuation and Qualifying Accounts for the three
years ended December 31, 1994. All other schedules are omitted as not applicable
under the rules of Regulation S-X.
(3) Exhibits
3.1 The Company's Restated Certificate of Incorporation included in Exhibit 3.1
to the Company's 1988 Report on Form 10-K filed with the Securities and
Exchange Commission (the "Commission") on March 29, 1989 (incorporated
herein by reference).
3.2 The Company's By-laws included in Exhibit 6.2 to the Company's Registration
Statement on Form 8-A filed with the Commission on November 28, 1988
(incorporated herein by reference).
10.1 The Amended and Restated Agreement for Standby Letter of Credit dated
December 23, 1993.
10.2 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 the Company's
Registration Statement No. 33-17370 on Form S-1 (incorporated herein by
reference).
**10.3 The Company's Management by Objective Plan Description included in Exhibit
10.1 to the Company's Registration Statement No. 33-17270 on Form S-1
(incorporated herein by reference).
**10.4 The Company's Supplemental Executive Retirement Plan included in Exhibit
10.7 to the Company's 1988 Report on Form 10-K (incorporated herein by
reference).
**10.5 The Company's 1987 Stock Option Plan included in Exhibit 10.8 to the
Company's 1988 Report on Form 10-K and Amendment to the Plan included in
Exhibit 10.15 to the Company's 1990 Report on Form 10-K (incorporated
herein by reference).
**10.6 The Company's 1994 Stock Option Plan dated January 26, 1994.
</TABLE>
27
<PAGE> 30
<TABLE>
<C> <S>
**10.7 The Company's Group Executive Life Insurance Plan included in Exhibit 10.9
to the Company's Registration Statement No. 33-17270 on Form S-1
(incorporated herein by reference).
**10.8 The Company's Group Executive Long Term Disability Insurance Plan included
in Exhibit 10.8 to the Company's Registration Statement No. 33-17270 on
Form S-1 (incorporated herein by reference).
**10.9 Employment Agreement between the Company and Erwin Potts dated October 17,
1989 filed with the Commission in Exhibit 10.12 to the Company's 1989
Report on Form 10-K (incorporated herein by reference).
**10.10 The Company's Executive Performance Plan adopted by the Board of Directors
on January 1, 1990 filed with the Commission in Exhibit 10.13 to the
Company's 1989 Report on Form 10-K (incorporated herein by reference).
**10.11 The Company's 1990 Directors' Stock Option Plan executed on July 25, 1990
included in Exhibit 10.14 to the Company's 1990 Report on Form 10-K
(incorporated herein by reference).
21 Subsidiaries of the Company included in Exhibit 21 to the Company's 1993
Report on Form 10-K (incorporated herein by reference).
23 Consent of Deloitte & Touche LLP.
24 Power of Attorney on behalf of James B. McClatchy, Erwin Potts, William
Ellery McClatchy, William L. Honeysett, Betty Lou Maloney, James P. Smith,
William K. Coblentz, Joan F. Lane, S. Donley Ritchey, William M. Roth,
Frederick R. Ruiz, H. Roger Tatarian and Robert W. Berger.
27 Financial Data Schedule for the Year Ended December 31, 1994
</TABLE>
---------------
** Compensation plans or arrangements for the Company's executive officers and
directors.
(b) Reports on Form 8-K
Not applicable.
28
<PAGE> 31
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 29, 1995.
McCLATCHY NEWSPAPERS, INC.
By /s/ JAMES B. MCCLATCHY*
------------------------------------
James B. McClatchy
Chairman of the Board
*By: /s/ JAMES P. SMITH
-----------------------------------
(James P. Smith,
Attorney-in-Fact)
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
------------------------------------------ ------------------------------- ---------------
<C> <S> <C>
PRINCIPAL EXECUTIVE OFFICERS:
/s/ JAMES B. MCCLATCHY* Publisher and Chairman of the March 29, 1995
------------------------------------------ Board
(James B. McClatchy)
/s/ ERWIN POTTS* President, Chief Executive March 29, 1995
------------------------------------------ Officer and Director
(Erwin Potts)
PRINCIPAL FINANCIAL OFFICER:
/s/ JAMES P. SMITH* Vice President, Finance, March 29, 1995
------------------------------------------ Treasurer and Director
(James P. Smith)
PRINCIPAL ACCOUNTING OFFICER:
/s/ ROBERT W. BERGER* Controller March 29, 1995
------------------------------------------
(Robert W. Berger)
DIRECTORS:
/s/ WILLIAM K. COBLENTZ* Director March 29, 1995
------------------------------------------
(William K. Coblentz)
/s/ WILLIAM L. HONEYSETT* Executive Vice President, and March 29, 1995
------------------------------------------ Director
(William L. Honeysett)
/s/ JOAN F. LANE* Director March 29, 1995
------------------------------------------
(Joan F. Lane)
</TABLE>
29
<PAGE> 32
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
------------------------------------------ ------------------------------- ---------------
<C> <S> <C>
/s/ BETTY LOU MALONEY* Director March 29, 1995
------------------------------------------
(Betty Lou Maloney)
/s/ WILLIAM ELLERY MCCLATCHY* Director March 29, 1995
------------------------------------------
(William Ellery McClatchy)
/s/ S. DONLEY RITCHEY, JR.* Director March 29, 1995
------------------------------------------
(S. Donley Ritchey, Jr.)
/s/ WILLIAM M. ROTH* Director March 29, 1995
------------------------------------------
(William M. Roth)
/s/ FREDERICK R. RUIZ* Director March 29, 1995
------------------------------------------
(Frederick R. Ruiz)
/s/ H. ROGER TATARIAN* Director March 29, 1995
------------------------------------------
(H. Roger Tatarian)
</TABLE>
*By: JAMES P. SMITH
-------------------------------------
James P. Smith
(Attorney-in-Fact)
30
<PAGE> 33
SCHEDULE II
MCCLATCHY NEWSPAPERS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
--------- -------- ------------------------ ------------- ----------
ADDITIONS DEDUCTIONS(1)
------------------------ FOR PURPOSES
BALANCE CHARGED TO CHARGED TO FOR WHICH BALANCE AT
BEGINNING COSTS AND OTHER ACCOUNTS END OF
OF PERIOD EXPENSES ACCOUNTS WERE SET UP PERIOD
--------- ---------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1992:
Deducted from assets to which they
apply:
Uncollectible accounts.............. $(2,499) $(3,509) $ -- $3,908 $(2,100)
YEAR ENDED DECEMBER 31, 1993:
Deducted from assets to which they
apply:
Uncollectible accounts.............. $(2,100) $(3,567) $ -- $3,910 $(1,757)
YEAR ENDED DECEMBER 31, 1994:
Deduct from assets to which they
apply:
Uncollectible accounts.............. $(1,757) $(3,551) $ -- $3,308 $(2,000)
</TABLE>
---------------
(1) Amounts written off net of bad debt recoveries.
31
<PAGE> 34
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
--------
<C> <S>
3.1* The Company's Restated Certificate of Incorporation included in Exhibit 3.1 to the
Company's 1988 Report on Form 10-K filed with the Securities and Exchange
Commission (the "Commission") on March 29, 1989.
3.2* The Company's By-laws included in Exhibit 6.2 to the Company's Registration
Statement on Form 8-A filed with the Commission on November 28, 1988.
10.1 The Amended and Restated Agreement for Standby Letter of Credit dated December 23,
1994.
10.2* 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 the Company's Registration Statement No.
33-17370 on Form S-1.
**10.3* The Company's Management by Objective Plan Description included in Exhibit 10.1 to
the Company's Registration Statement No. 33-17270 on Form S-1.
**10.4* The Company's Supplemental Executive Retirement Plan included in Exhibit 10.7 to
the Company's 1988 Report on Form 10-K.
**10.5* The Company's 1987 Stock Option Plan included in Exhibit 10.8 to the Company's
1988 Report on Form 10-K and Amendment to the Plan included in Exhibit 10.15 to
the Company's 1990 Report on Form 10-K.
**10.6 The Company's 1994 Stock Option Plan dated January 26, 1994.
**10.7* The Company's Group Executive Life Insurance Plan included in Exhibit 10.9 to the
Company's Registration Statement No. 33-17270 on Form S-1.
**10.8* The Company's Group Executive Long Term Disability Insurance Plan included in
Exhibit 10.8 to the Company's Registration Statement No. 33-17270 on Form S-1.
**10.9* Employment Agreement between the Company and Erwin Potts dated October 17, 1989
included in Exhibit 10.12 to the Company's 1989 Report on Form 10-K.
**10.10* The Company's Executive Performance Plan adopted by the Board of Directors on
January 1, 1990 included in Exhibit 10.13 to the Company's 1989 Report on Form
10-K.
**10.11* The Company's 1990 Directors' Stock Option Plan included in Exhibit 10.14 to the
Company's 1990 Report on Form 10-K.
21* Subsidiaries of the Company included in Exhibit 21 to the Company's 1993 Report on
Form 10-K.
23 Consent of Deloitte & Touche LLP.
24 Power of Attorney on behalf of James B. McClatchy, Erwin Potts, William Ellery
McClatchy, William L. Honeysett, Betty Lou Maloney, James P. Smith, William K.
Coblentz, Joan F. Lane, S. Donley Ritchey, William M. Roth, Frederick R. Ruiz, H.
Roger Tatarian and Robert W. Berger.
27 Financial Data Schedule for the Year Ended December 31, 1994.
</TABLE>
---------------
* Incorporated by reference
** Compensation plans or arrangements for the Company's executive officers and
directors.
32
<PAGE> 1
EXHIBIT 10.1
AMENDED AND RESTATED AGREEMENT
FOR STANDBY LETTER OF CREDIT
This Agreement is entered into as of December 23, 1993, between Bank
of America National Trust and Savings Association ("Bank") and McClatchy
Newspapers, Inc. ("Borrower") with respect to the following:
A. Bank has issued standby letter of credit no. 124066 on behalf
of Borrower in the present amount of Five Million Eight Hundred Sixty
Thousand Two Hundred Eighty-Eight Dollars ($5,860,288) (Which,
together with any renewals or amendments thereto, is hereinafter
referred to as the "Letter of Credit")
B. The Letter of Credit was issued pursuant to the terms of an
Agreement for Standby Letter of Credit between Bank and Borrower dated
as of December 29, 1989 (the "Existing Agreement").
Bank and Borrower hereby agree as follows:
1. The Existing Agreement is replaced and superseded with this Agreement.
2. Borrower hereby requests and Bank agrees to make a loan to Borrower in
connection with the Letter of Credit. The amount of the loan will be equal to
the outstanding amount of the Letter of Credit. The loan will be disbursed
only to pay drawings under the Letter of Credit. (Each such disbursement is
referred to as an "advance").
3. Each advance will bear interest payable monthly at the Bank's
Reference Rate. The Reference Rate is the rate of interest publicly announced
from time to time by the Bank in San Francisco, California, as its Reference
Rate. The Reference Rate is set by the Bank based on various factors,
including the Bank's costs and desired return, general economic conditions and
other factors, and is used as a reference point for pricing some loans. The
Bank may price loans to its customers at, above, or below the Reference Rate.
Any change in the Reference Rate shall take effect at the opening of business
on the day specified in the public announcement of a change in the Bank's
Reference Rate.
Interest will be computed on the basis of a 360-day year and the actual number
of days elapsed. This results in more interest payable than if a 365-day year
were used.
Each advance will mature on the earlier of either (a) thirty (30) days from the
date it was disbursed, or (b) when any event specified in Paragraph 6 below
occurs. Upon the Bank's request, following any advance Borrower will execute
and deliver to Bank a promissory note which includes these terms.
<PAGE> 2
Page Two
4. So long as any undisbursed portion of the loan remains available,
Borrower will pay Bank a commitment fee. The fee is payable quarterly in
advance. It is computed from the issuance date of the Letter of Credit on the
undisbursed portion of the loan at the annual rate of three eighths (.375%) and
on the basis of a three hundred sixty (360) day year and actual days elapsed.
(This results in a higher fee payable than if a three hundred sixty-five (365)
day year were used.) The Borrower agrees that Bank will not refund any portion
of the commitment fee paid for any quarter during which (a) the Letter of
Credit expires or otherwise terminates, or (b) the undisbursed amount is
reduced by drawings or by amendment.
5. If the cost to Bank of issuing or maintaining the Letter of Credit
increases because of any reserves, special deposits, FDIC assessments or
similar requirements imposed on Bank, Borrower agrees to pay Bank on demand an
additional amount sufficient to compensate bank for the increased cost, as
determined by Bank.
6. Bank has the right to make all outstanding principal balances of
advances and interest on advances immediately due and payable if any of the
following events occurs:
(1) Borrower defaults on any payment of principal,
interest, or commitment fee under this agreement;
(2) Any bankruptcy or similar proceeding is filed by or
against Borrower.
If at the time any such event occurs any portion of the loan is still
undisbursed (that is, if the Letter of Credit is still in effect and has not
been completely drawn against) , Borrower will, upon Bank's demand, pay Bank
for application to drawings under the Letter of Credit the entire undisbursed
amount of the loan. Any amount so paid that has not been drawn on before the
expiration date of the Letter of Credit will be repaid to Borrower without
interest.
7. Neither Bank nor Bank's correspondents will be in any way responsible
for the beneficiary's performance of its obligations to Borrower, nor for the
form, sufficiency, correctness, genuineness, falsification or legal effect of
or authority of persons signing any documents called for under the Letter of
Credit if these documents appear on their fact to be in order.
Borrower understands that the risk to Borrower is greater if Borrower requests
a clean Standby Letter of Credit rather than a documentary Standby Letter of
Credit. With a clean Standby Letter of Credit, the beneficiary need not
provide support documents to receive payments.
<PAGE> 3
Page Three
8. Subject to the laws, customs and practices of the trade in the area
where the beneficiary is located, the Letter of Credit will be subject to, and
performance under the Letter of Credit by Bank, Bank's correspondents, and the
beneficiary will be governed by the "Uniform Customs and Practice for
Documentary Credits (1983 Revision), International Chamber of Commerce,
Publication No. 400," or by later Uniform Customs and Practice fixed by later
Congresses of the International Chamber of Commerce as in effect on the date
the Letter of Credit is issued.
9. Borrower agrees that all directions and correspondence regarding the
Letter of Credit will be sent at Borrower's risk. Bank is not responsible for
any inaccuracy, interruption, error or delay in transmission or delivery by
post, courier or teletransmission or for any inaccuracy of translation.
10. So long as the Letter of Credit is issued and outstanding, and until
full and final payment of the principal and interest of any loan disbursed to
pay drawings under the Letter of Credit, Borrower shall provide the following
financial information and statements and such additional information as
requested by the Bank from time to time:
(a) Within 120 days of Borrower's fiscal year-end, Borrower's
annual consolidated financial statements. These financial
statements must be audited (with an unqualified opinion) by a
Certified Public Accountant acceptable to the Bank.
(b) Within 45 days of the period's end, Borrower's consolidated
quarterly statements. These financial statements may be
Borrower-prepared.
This Agreement is executed as of the date stated at the top of the first page.
<TABLE>
<CAPTION>
Bank of America National Trust McClatchy Newspapers, Inc.
and Savings Association
<S> <C> <C> <C>
By: /s/ John Grauten By: /s/ James P. Smith
---------------- -----------------------
John Grauten James P. Smith
Vice President Vice President, Finance
</TABLE>
<PAGE> 1
EXHIBIT 10.6
McCLATCHY NEWSPAPERS, INC.
1994 STOCK OPTION PLAN
SECTION 1. ESTABLISHMENT AND PURPOSE.
The Plan was established in 1994 to offer selected employees of the
Company or of a Subsidiary an opportunity to acquire a proprietary interest in
the success of the Company, or to increase such interest, by purchasing Shares
of the Company's Class A Common Stock. The Plan provides for the grant of
Options to purchase Shares, which may include Nonstatutory Options as wells as
ISOs intended to qualify under section 422 of the Code.
SECTION 2. DEFINITIONS.
(a) "Board" shall mean the Board of Directors of the Company, as
constituted from time to time.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "Committee" shall mean a committee appointed by the Board, as
described in Section 3(a).
(d) "Company" shall mean McClatchy Newspapers, Inc., a Delaware
corporation.
(e) "Employee" shall mean any individual who is an employee
(within the meaning of section 3401(c) of the Code and the regulations
thereunder) of the Company or a Subsidiary, including officers and directors of
the Company who are also employees.
- 1 -
<PAGE> 2
(f) "Exercise Price" shall mean the amount for which one Share may
be purchased upon exercise of an Option, as specified by the Committee in the
applicable Stock Option Agreement.
(g) "Fair Market Value" shall mean the market price of a Share,
determined by the Committee as follows:
(i) If the Share was traded on a stock exchange on the
date in question, then the Fair Market Value shall be equal to the
closing price reported by the applicable composite-transactions
report for such date;
(ii) If the Share was traded over-the-counter on the
date in question and was traded on the Nasdaq system or the Nasdaq
National Market, then the Fair Market Value shall be equal to the
last-transaction price quoted for such date by the Nasdaq system
or the Nasdaq National Market;
(iii) If the Share was traded over-the-counter on the
date in question but was not traded on the Nasdaq system or the
Nasdaq National Market, then the Fair Market Value shall be equal
to the mean between the last reported representative bid and asked
prices quoted for such date by the principal automated
inter-dealer quotation system on which Stock is quoted or, if the
Stock is not quoted on any such system, by the "Pink Sheets"
published by the National Quotation Bureau, Inc.; and
(iv) If none of the foregoing provisions is applicable,
then the Fair Market Value shall be
- 2 -
<PAGE> 3
determined by the Committee in good faith on such basis as it
deems appropriate.
(h) "ISO" shall mean an employee incentive stock option described
in section 422(b) of the Code.
(i) "Nonstatutory Option" shall mean an employee stock option not
described in sections 422 or 423 of the Code.
(j) "Option" shall mean an ISO or Nonstatutory Option granted
under the Plan and entitling the holder to purchase Shares.
(k) "Optionee" shall mean an individual who holds an Option.
(l) "Plan" shall mean this McClatchy Newspapers, Inc. 1994 Stock
Option Plan, as it may be amended.
(m) "Service" shall mean service as an Employee.
(n) "Share" shall mean one share of Stock, as adjusted in
accordance with Section 8 (if applicable).
(o) "Stock" shall mean the Class A Common Stock of the Company.
(p) "Stock Option Agreement" shall mean the agreement between the
Company and an Optionee which contains the terms, conditions and restrictions
pertaining to his or her Option.
(q) "Subsidiary" shall mean any corporation, if the Company and/or
one or more other Subsidiaries own not less than 50 percent of the total
combined voting power of all classes of outstanding stock of such corporation.
A corporation that attains the status of a Subsidiary on a date after the
adoption
- 3 -
<PAGE> 4
of the Plan shall be considered a Subsidiary commencing as of such date.
(r) "Total and Permanent Disability" shall mean that the Optionee
is unable to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment which has lasted, or can
be expected to last, for a continuous period of not less than twelve months or
which can be expected to result in death.
SECTION 3. ADMINISTRATION.
(a) Committee Membership. The Plan shall be administered by the
Committee. The Committee shall consist of two or more disinterested persons,
who shall be appointed by the Board. A person shall be deemed to be
"disinterested" only if he or she satisfies (a) such requirements as the
Securities and Exchange Commission may establish for disinterested
administrators acting under plans intended to qualify for exemption under Rule
16b-3 (or its successor) under the Securities Exchange Act of 1934, as amended
and (b) such requirements as the Internal Revenue service may establish for
outside directors acting under plans intended to qualify for exemption under
section 162(m)(4)(C) of the Code.
(b) Committee Procedures. The Board shall designate one of the
members of the Committee as chairman. The Committee may hold meetings at such
times and places as it shall determine. The acts of a majority of the
Committee members present at meetings at which a quorum exists, or acts reduced
to or approved
- 4 -
<PAGE> 5
in writing by all Committee members, shall be valid acts of the Committee.
(c) Committee Responsibilities. Subject to the provisions of the
Plan, the Committee shall have full authority and discretion to take the
following actions:
(i) To interpret the Plan and to apply its provisions;
(ii) To adopt, amend or rescind rules, procedures and
forms relating to the Plan;
(iii) To authorize any person to execute, on behalf of
the Company, any instrument required to carry out the purposes of
the Plan;
(iv) To determine when Options are to be granted under
the Plan;
(v) To select the Optionees;
(vi) To determine the number of Shares to be made
subject to each Option;
(vii) To prescribe the terms and conditions of each
Option, including (without limitation) the Exercise Price, to
determine whether such Option is to be classified as an ISO or as
a Nonstatutory Option, to specify the provisions of the Stock
Option Agreement relating to such Option, and to determine whether
an Option should be settled under Section 7(c) and the form of
settlement;
- 5 -
<PAGE> 6
(viii) To amend any outstanding Stock Option Agreement,
subject to applicable legal restrictions and to the consent of the
Optionee who entered into such agreement; and
(ix) To take any other actions deemed necessary or
advisable for the administration of the Plan.
All decisions, interpretations and other actions of the Committee shall
be final and binding on all Optionees and all persons deriving their rights
from an Optionee. No member of the Committee shall be liable for any action
that he or she has taken or has failed to take in good faith with respect to
the Plan or any Option.
SECTION 4. ELIGIBILITY.
(a) General Rule. Only Employees shall be eligible for
designation as Optionees by the Committee.
(b) Ten-Percent Shareholders. An Employee who owns more than 10
percent of the total combined voting power of all classes of outstanding stock
of the Company or any of its Subsidiaries shall not be eligible for the grant
of an ISO unless (i) the Exercise Price under such ISO is at least 110 percent
of the Fair Market Value of a Share on the date of grant and (ii) such ISO by
its terms is not exercisable after the expiration of five years from the date
of grant.
(c) Attribution Rules. For purposes of Subsection (b)
above, in determining stock ownership, an Employee shall be
- 6 -
<PAGE> 7
deemed to own the stock owned, directly or indirectly, by or for his brothers,
sisters, spouse, ancestors and lineal descendants. Stock owned, directly or
indirectly, by or for a corporation, partnership, estate or trust shall be
deemed to be owned proportionately by or for its shareholders, partners or
beneficiaries. Stock with respect to which such Employee holds an option shall
not be counted.
(d) Outstanding Stock. For purposes of Subsection (b) above,
"outstanding stock" shall include all stock actually issued and outstanding at
the time of the grant of the ISO to the Optionee. "Outstanding stock" shall
not include treasury shares or shares authorized for issuance under outstanding
options held by the Optionee or by any other person.
SECTION 5. STOCK SUBJECT TO PLAN.
(a) Basic Limitation. Shares offered under the Plan shall be
authorized but unissued Shares or treasury Shares. The aggregate number of
Shares which may be issued under the Plan shall not exceed 650,000 Shares,
subject to adjustment pursuant to Section 8. The number of Shares which are
subject to Options at any time under the Plan shall not exceed the number of
Shares which then remain available for issuance under the Plan. The Company,
during the term of the Plan, shall at all times reserve and keep available
sufficient Shares to satisfy the requirements of the Plan.
- 7 -
<PAGE> 8
(b) Additional Shares. In the event that any outstanding Option
for any reason expires or is cancelled or otherwise terminated (except as
provided in Section 7 (c)), the Shares allocable to the unexercised portion of
such Option shall again be available for the purposes of the Plan.
SECTION 6. TERMS AND CONDITIONS OF OPTIONS.
(a) Stock Option Agreement. Each grant of an Option under the
Plan shall be evidenced by a Stock Option Agreement between the Optionee and
the Company. Such Option shall be subject to all applicable terms and
conditions of the Plan and may be subject to any other terms and conditions
which are not inconsistent with the Plan and which the Committee deems
appropriate for inclusion in a Stock Option Agreement. The provisions of the
various Stock Option Agreements entered into under the Plan need not be
identical.
(b) Number of Shares. Each Stock Option Agreement shall specify
the number of Shares that are subject to the Option and shall provide for the
adjustment of such number in accordance with Section 8. Options granted to any
Optionee in a single calendar year shall in no event cover more than 150,000
Shares, subject to adjustment in accordance with Section 8. The Stock Option
Agreement shall also specify whether the Option is an ISO or a Nonstatutory
Option.
(c) Exercise Price. Each Stock Option Agreement shall
specify the Exercise Price. The Exercise Price of an Option
- 8 -
<PAGE> 9
shall not be less than 100 percent of the Fair Market Value of a Share on the
date of grant, except as otherwise provided in Section 4(b). Subject to the
preceding sentence, the Exercise Price under any Option shall be determined by
the Committee at its sole discretion. The Exercise Price shall be payable in
accordance with Section 7.
(d) Exercisability and Term. Each Stock Option Agreement shall
specify the date when all or any installment of the Option is to become
exercisable. The Stock Option Agreement shall also specify the term of the
Option. The term shall not exceed 10 years from the date of grant, except as
otherwise provided in Section 4(b). Subject to the preceding sentence, the
Committee at its sole discretion shall determine when all or any part of an
Option is to become exercisable and when such Option is to expire.
(e) Nontransferability. During an Optionee's lifetime, his or her
Option(s) shall be exercisable only by him or her and shall not be
transferable. In the event of an Optionee's death, his or her Option(s) shall
not be transferable other than by will or by the laws of descent and
distribution.
(f) Termination of Service (Except by Death). If an Optionee's
Service terminates for any reason other than death, then his or her Option(s)
shall expire on the earliest of the following occasions:
(i) The expiration date determined pursuant to
Subsection (d) above;
- 9 -
<PAGE> 10
(ii) The date 90 days after the termination of the
Optionee's Service, if the termination occurs on or after the
earliest date when he or she is eligible for early or normal
retirement under the Restated Retirement Plan for Employees of
McClatchy Newspapers;
(iii) The date one year after the termination of the
Optionee's Service, if the termination occurs
because of his or her Total and Permanent Disability; or
(iv) The date 30 days after the termination of the
Optionee's Service, if the termination is not described in
Paragraphs (ii) or (iii) above.
The Optionee may exercise all or part of his or her Option(s) at any time before
the expiration of such Option(s) under the preceding sentence, but only to the
extent that such Option(s) had become exercisable before his or her service
terminated or became exercisable as a result of the termination. The balance of
such Option(s) shall lapse when the Optionee's Service terminates. In the event
that the Optionee dies after the termination of his or her Service but before
the expiration of his or her Option(s), all or part of such Option(s) may be
exercised (prior to expiration) by the executors or administrators of the
Optionee's estate or by any person who has acquired such Option(s) directly from
him or her by bequest or inheritance, but only to the extent that such Option(s)
had become exercisable before his or her Service terminated or became
exercisable as a result of the termination. The Committee, at
- 10 -
<PAGE> 11
the time of granting a Nonstatutory Option, may extend the 90-day period
described in Paragraph (ii) above to any greater period selected by the
Committee. Such an extension shall be effective only if it is expressly set
forth in the applicable Stock Option Agreement.
(g) Leaves of Absence. For purposes of Subsection (f) above,
Service shall be deemed to continue while the Optionee is on military leave,
sick leave or other bona fide leave of absence (as determined by the
Committee). The foregoing notwithstanding, in the case of an ISO granted under
the Plan, Service shall not be deemed to continue beyond the first 90 days of
such leave, unless the Optionee's reemployment rights are guaranteed by statute
or by contract.
(h) Death of Optionee. If an Optionee dies while he or she is in
service, then his or her Option(s) shall expire on the earlier of the following
dates:
(i) The expiration date determined pursuant to
Subsection (d) above; or
(ii) The date 12 months after his or her death. All or
part of the Optionee's Option(s) may be exercised at any time
before the expiration of such Option(s) under the preceding
sentence by the executors or administrators of his or her estate or
by any person who has acquired such Option(s) directly from him or
her by bequest or inheritance.
(i) No Rights as a Stockholder. An Optionee, or a transferee of
an Optionee, shall have no rights as a shareholder
- 11 -
<PAGE> 12
with respect to any Shares covered by his or her Option until the date of the
issuance of a stock certificate for such Shares. No adjustment shall be made
except as provided in Section 8.
(j) Modification, Extension and Renewal of Options. Within the
limitations of the Plan, the Committee may modify, extend or renew outstanding
Options or may accept the cancellation of outstanding Options (to the extent
not previously exercised) for the granting of new Options in substitution
therefor. The foregoing notwithstanding, no modification of an Option shall,
without the consent of the Optionee, impair his or her rights or increase his
or her obligations under such Option.
(k) Restrictions on Transfer of Shares. Any Shares issued upon
exercise of an Option shall be subject to such special rights of repurchase,
rights of first refusal and other transfer restrictions as the Committee may
determine. Such restrictions shall be set forth in the applicable Stock Option
Agreement and shall apply in addition to any general restrictions that may
apply to all holders of Shares.
SECTION 7. PAYMENT FOR SHARES.
(a) General Rule. The entire Exercise Price of Shares issued
under the Plan shall be payable in cash at the time when such Shares are
purchased, except as follows:
(b) Surrender of Stock. To the extent that the Stock Option
Agreement so provides, payment may be made with Shares which have already been
owned by the Optionee for more than 12
- 12 -
<PAGE> 13
months and which are surrendered to the Company in good form for transfer.
Such Shares shall be valued at their Fair Market Value on the date when the new
Shares are purchased under the Plan.
(c) Settlement in Cash and/or Shares. To the extent that the
Stock Option Agreement so provides, the Committee shall have the authority, in
its sole discretion, to settle all or any part of an exercisable Option or
installment of any Option by offering payment in Shares or in cash, or in any
combination of Shares and cash, in exchange for the surrender of that Option,
installment or partial installment of the Option by the Optionee. However,
offers to settle all or part of an Option for cash may be made only during a
period which (i) begins on the third business day following a date when the
Company's quarterly summary statement of sales and earnings is released to the
public and (ii) ends on the 12th business day following such date. The amount
offered by the Committee shall not exceed the difference between the Exercise
Price of the Option and the Fair Market Value of the Shares on the date of the
offer. In no event shall Options be settled under this Subsection (c) if the
Fair Market Value of the Shares subject to the cancelled Options does not
exceed the Exercise Price of such Options. Options shall not be settled for
cash under this Subsection (c) unless they have been outstanding for not less
than six months. Shares as to which Options have been settled shall not be
available for further Option grants under the Plan.
- 13 -
<PAGE> 14
SECTION 8. ADJUSTMENT OF SHARES.
(a) General. In the event of a subdivision of the outstanding
Stock, a declaration of a dividend payable in Shares, a declaration of a
dividend payable in cash in an amount that has a material effect on the price
of Shares, a combination or consolidation of the outstanding Stock (by
reclassification or otherwise) into a lesser number of Shares, a spinoff or a
similar occurrence, the Committee shall make appropriate adjustments in one or
more of (i) the number of Options available for future grants under Section 5,
(ii) the number of Shares covered by each outstanding Option or (iii) the
Exercise Price under each outstanding Option.
(b) Reorganizations. In the event that the Company is a party to
a merger or other reorganization, outstanding Options shall be subject to the
agreement of merger or reorganization. Such agreement may provide, without
limitation, for the assumption of outstanding Options by the surviving
corporation or its parent, for their continuation by the Company (if the
Company is a surviving corporation) or for settlement in cash.
(c) Reservation of Rights. Except as provided in this Section 8,
an Optionee shall have no rights by reason of any subdivision or consolidation
of shares of stock of any class, the payment of any stock dividend or any other
increase or decrease in the number of shares of stock of any class. Any issue
by the Company of shares of stock of any class, or securities convertible into
shares of stock of any class, shall not affect,
- 14 -
<PAGE> 15
and no adjustment by reason thereof shall be made with respect to, the number
or Exercise Price of Shares subject to an Option. The grant of an Option
pursuant to the Plan shall not affect in any way the right or power of the
Company to make adjustments, reclassifications, reorganizations or changes of
its capital or business structure, to merge or consolidate or to dissolve,
liquidate, sell or transfer all or any part of its business or assets.
SECTION 9. LEGAL REQUIREMENTS.
Shares shall not be issued under the Plan unless the issuance and
delivery of such Shares complies with (or is exempt from) all applicable
requirements of law, including (without limitation) the Securities Act of 1933,
as amended, the rules and regulations promulgated thereunder, state securities
laws and regulations, and the regulations of any stock exchange on which the
Company's securities may then be listed.
SECTION 10. N0 EMPLOYMENT RIGHTS.
No provision of the Plan, nor any Option granted under the Plan,
shall be construed as giving any person the right to become or to be treated as
an Employee or to remain an Employee. The Company and its Subsidiaries reserve
the right to terminate any person's Service at any time and for any reason.
- 15 -
<PAGE> 16
SECTION 11. DURATION AND AMENDMENTS.
(a) Term of the Plan. The Plan, as set forth herein, shall
become effective on January 26, 1994, subject to approval of the Company's
shareholders. In the event that the Company's shareholders fail to approve the
Plan before January 26, 1995, any Option grants made prior to such date shall
be null and void, and no additional Option grants shall be made after such
date. The Plan shall terminate automatically on January 25, 2004, and may be
terminated on any earlier date pursuant to Subsection (b) below.
(b) Right to Amend or Terminate the Plan. The Board may amend,
suspend or terminate the Plan at any time and for any reason; provided,
however, that any amendment of the Plan which increases the number of Shares
available for issuance under the Plan (except as provided in Section 8) or
which materially changes the class of persons who are eligible for the grant of
ISOs shall be subject to the approval of the Company's shareholders.
Shareholder approval shall not be required for any other amendment of the Plan,
except as may be required by Rule 16b-3 of the Securities and Exchange
Commission (or any successor rule) or any other law or regulation.
(c) Effect of Amendment or Termination. No Shares shall be
issued or sold under the Plan after the termination thereof, except upon
exercise of an Option granted prior to such termination. The termination of
the Plan, or any amendment
- 16 -
<PAGE> 17
thereof, shall not affect any Option previously granted under the Plan.
SECTION 12. WITHHOLDING TAXES.
To the extent required by applicable federal, state, local or
foreign law, the recipient of any payment or distribution under the Plan shall
make arrangements satisfactory to the Company for the satisfaction of any
withholding tax obligations that arise by reason of such payment or
distribution. The Company shall not be required to make such payment or
distribution until such obligations are satisfied.
SECTION 13. EXECUTION.
To record the adoption of the Plan by the Board on January 26,
1994, the Company has caused its authorized officer to execute the same.
McCLATCHY NEWSPAPERS, INC.
By /s/ Erwin Potts
-----------------------
As its President
- 17 -
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in Registration Statements No.
33-21704, No. 33-24096, No. 33-37300, No. 33-65104 and No. 33-56717 of
McClatchy Newspapers, Inc. on Form S-8 of our report dated February 1, 1995,
appearing in this Annual Report on Form 10-K of McClatchy Newspapers, Inc. for
the year ended December 31, 1994.
DELOITTE & TOUCHE LLP
Sacramento, California
March 29, 1995
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, McCLATCHY NEWSPAPERS, INC., a Delaware corporation (the
"Company"), contemplates filing with the Securities and Exchange Commission at
Washington, D.C., under the provisions of the Securities Exchange Act of 1934,
as amended, and the regulations promulgated thereunder, an Annual Report on
Form 10-K; and
WHEREAS, the undersigned is an officer or director, or both, of the
Company;
NOW, THEREFORE, the undersigned hereby constitutes and appoints ERWIN
POTTS, WILLIAM L. HONEYSETT, JAMES P. SMITH and GARY B. PRUITT, or any of them,
his/her attorneys-in-fact and agents, with full power of substitution and
resubstitution, for such person and in his/her name, place and stead, in any
and all capacities, to sign the aforementioned Annual Report on Form 10-K (and
any and all amendments thereto) and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully as to all intents and
purposes he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or their substitutes, may lawfully do
and cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his/her hand this
21st day of February, 1995.
<TABLE>
<S> <C>
/s/ James B. McClatchy /s/ Erwin Potts
----------------------------- ------------------------------
James B. McClatchy Erwin Potts
/s/ William Ellery McClatchy /s/ William L. Honeysett
----------------------------- ------------------------------
William Ellery McClatchy William L. Honeysett
/s/ Betty Lou Maloney /s/ James P. Smith
----------------------------- ------------------------------
Betty Lou Maloney James P. Smith
/s/ William K. Coblentz /s/ Joan F. Lane
----------------------------- ------------------------------
William K. Coblentz Joan F. Lane
</TABLE>
Page 1 of 2
<PAGE> 2
<TABLE>
<S> <C>
/s/ S. Donley Ritchey /s/ William M. Roth
----------------------------- ------------------------------
S. Donley Ritchey William M. Roth
/s/ Frederick R. Ruiz /s/ H. Roger Tatarian
----------------------------- ------------------------------
Frederick R. Ruiz H. Roger Tatarian
/s/ Robert W. Berger
-----------------------------
Robert W. Berger
</TABLE>
Page 2 of 2
<TABLE> <S> <C>
<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-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 68,574
<SECURITIES> 29,448
<RECEIVABLES> 61,889
<ALLOWANCES> 2,000
<INVENTORY> 8,578
<CURRENT-ASSETS> 180,390
<PP&E> 455,248
<DEPRECIATION> 180,601
<TOTAL-ASSETS> 586,637
<CURRENT-LIABILITIES> 79,092
<BONDS> 0
<COMMON> 299
0
0
<OTHER-SE> 441,921
<TOTAL-LIABILITY-AND-EQUITY> 586,637
<SALES> 471,418
<TOTAL-REVENUES> 471,418
<CGS> 0
<TOTAL-COSTS> 399,550
<OTHER-EXPENSES> 2,270
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33
<INCOME-PRETAX> 69,565
<INCOME-TAX> 22,920
<INCOME-CONTINUING> 46,645
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 46,645
<EPS-PRIMARY> 1.58
<EPS-DILUTED> 1.58
</TABLE>
