<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: August 1, 1995
McCLATCHY NEWSPAPERS, INC.
-----------------------------------------
(Exact name of registrant as specified in its charter)
California 1-9824 94-0666175
--------------- ------------ ---------------
(State or Other (Commission (I.R.S. Employer
Jurisdiction of File Number) Identification)
Incorporation)
2100 "Q" Street, CA 95816
-------------------------------------- ---------------
(Address of principal executive offices) (Zip Code)
(916) 321-1846
-----------------------------
(Registrant's telephone number,
including area code)
Page 1 of 22
Exhibit Index
located on Page 21
<PAGE> 2
Item 7. Financial Statements and Exhibits.
(a) Financial statements of the businesses acquired, prepared pursuant
to Rule 3.05 of Regulation S-X and provided to McClatchy Newspapers, Inc. by
The News and Observer Publishing Company:
Item Page
Audited Financial Statements of
The News and Observer Publishing
Company for the years ended
December 31, 1994 and 1993:
Report of Independent Auditors 3
Balance Sheets 4
Statements of Income 6
Statements of Shareholders' Deficit 7
Statements of Cash Flows 8
Notes to Financial Statements 10
(b) 4.0 Interim financial statements for 1995 and proforma
combined financial statements of the Registrant and
N&O will be filed by amendment on a Form 8-K/A
on or about October 16, 1995.
(c) Exhibits
24.1 Consent of Independent Auditors
2
<PAGE> 3
Report of Independent Auditors
Board of Directors and Shareholders
The News And Observer Publishing Company
We have audited the accompanying balance sheets of The News And Observer
Publishing Company as of December 31, 1994 and 1993, and the related statements
of income, shareholders' deficit, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements 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, the financial statements referred to above present fairly, in
all material respects, the financial position of the News And Observer
Publishing Company at December 31, 1994 and 1993, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
-----------------------
Ernst & Young LLP
Raleigh, North Carolina
February 24, 1995
3
<PAGE> 4
The News And Observer Publishing Company
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1994 1993
-------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and temporary investments (including
restricted cash reserve of $5,338,443 in 1994) $ 8,406,338 $17,998,254
Accounts receivable, less allowance for
doubtful accounts (1994--$958,500; 1993--$849,300) 8,988,540 7,985,683
Inventories, newsprint and ink 754,610 758,378
Prepaid expenses 280,869 421,297
Deferred tax assets 1,766,000 1,500,000
Other assets 434,385 217,981
----------- -----------
Total current assets 20,630,742 28,881,593
Other assets:
Investments at cost (market 1994--$267,802;
1993--$258,863) 143,933 131,666
Notes receivable 568,293 604,122
Miscellaneous assets 967,636 788,487
----------- -----------
1,679,862 1,524,275
Deferred tax assets 1,886,000 1,937,000
Property and equipment:
Land 6,808,270 6,456,353
Buildings and components 17,348,189 17,180,317
Machinery, equipment and furniture 40,795,580 36,541,817
Construction in progress 21,401,644 1,679,617
----------- -----------
86,353,683 61,858,104
Less accumulated depreciation 41,741,317 39,553,579
----------- -----------
44,612,366 22,304,525
Intangible assets 2,320,002 2,581,889
----------- -----------
Total assets $71,128,972 $57,229,282
=========== ===========
</TABLE>
4
<PAGE> 5
<TABLE>
<CAPTION>
DECEMBER 31
1994 1993
-----------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 8,394,350 $ 7,001,602
Accrued expenses 6,671,450 6,359,095
Income taxes payable 455,544 880,786
Current portion of long-term debt 28,860 70,783
Current maturities of pension liability 1,043,114 749,229
------------ ------------
Total current liabilities 16,593,318 15,061,495
Long-term debt, less current portion 106,197,322 98,208,655
Non-current charitable pledges 652,671 779,671
Deferred compensation and retirement obligations 6,694,477 6,223,060
------------ ------------
Total liabilities 130,137,788 120,272,881
Commitments and contingencies
Shareholders' deficit:
Voting Common Stock, par value $.10 per share--
authorized 1,000,000 shares; issued 130,008 shares 13,001 13,001
Capital in excess of par value 312,019 312,019
------------ ------------
325,020 325,020
Non-Voting Class B Common Stock--authorized
15,000 shares; issued 14,225 shares in 1994 and
6,650 shares in 1993 3,641,555 1,343,300
Less notes receivable from shareholders (3,641,555) (1,343,300)
Retained deficit (59,333,836) (63,368,619)
------------ ------------
Total shareholders' deficit (59,008,816) (63,043,599)
------------ ------------
Total liabilities and shareholders' deficit $ 71,128,972 $ 57,229,282
============ ============
</TABLE>
See accompanying notes.
5
<PAGE> 6
The News And Observer Publishing Company
Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1993
------------------------------
<S> <C> <C>
Revenue:
Advertising $ 82,929,437 $ 73,917,669
Circulation 18,728,216 17,968,257
Commercial printing 3,108,631 3,321,378
Other 2,388,193 1,749,660
------------- -------------
107,154,477 96,956,964
Operating expenses:
General and administrative 16,445,000 14,783,457
News and editorial 14,195,377 12,747,582
Production materials 16,772,172 16,327,184
Production costs 14,759,397 13,197,299
Sales and marketing 21,660,800 19,833,301
Distribution and storage 1,588,286 1,395,525
------------- -------------
85,421,032 78,284,348
------------- -------------
Operating income before depreciation 21,733,445 18,672,616
Depreciation expense 3,861,569 2,836,916
------------- -------------
Operating income 17,871,876 15,835,700
Other income (expense):
Interest and dividends 363,487 452,258
Interest expense (9,552,836) (9,541,646)
Amortization of intangible assets (343,858) (313,852)
Other, net 111,085 (10,550)
------------- -------------
(9,422,122) (9,413,790)
------------- -------------
Income before income taxes 8,449,754 6,421,910
Income taxes:
Current tax expense 3,639,000 2,847,000
Deferred tax benefit (215,000) (471,000)
------------- -------------
3,424,000 2,376,000
------------- -------------
Net income $ 5,025,754 $ 4,045,910
============= =============
Net income per share $ 36.66 $ 29.61
============= =============
</TABLE>
See accompanying notes.
6
<PAGE> 7
THE NEWS AND OBSERVER PUBLISHING COMPANY
Statements of Shareholders' Deficit
<TABLE>
<CAPTION>
NON-VOTING NOTES
CAPITAL IN CLASS B RECEIVABLE
COMMON EXCESS OF COMMON FROM RETAINED
STOCK PAR VALUE STOCK SHAREHOLDERS DEFICIT TOTAL
------- ---------- ---------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992............. $13,001 $312,019 $1,343,300 $(1,343,300) $(66,249,823) $(65,924,803)
Net income............................. 4,045,910 4,045,910
Dividends.............................. (1,093,260) (1,093,260)
Increase in minimum pension liability
in excess of allowable intangible
asset................................ (71,446) (71,446)
------- ---------- ---------- ------------ ----------- -----------
Balance at December 31, 1993............. 13,001 312,019 1,343,300 (1,343,300) (63,368,619) (63,043,599)
Net income 5,025,754 5,025,754
Dividends.............................. (1,016,816) (1,016,816)
Decrease in minimum pension liability
in excess of allowable intangible
asset................................ 25,845 25,845
Issuance of stock...................... 2,298,255 2,298,255
Notes receivable from shareholders..... (2,298,255) (2,298,255)
------- ---------- ---------- ------------ ----------- -----------
Balance at December 31, 1994............. $13,001 $312,019 $3,641,555 $(3,641,555) $(59,333,836) $(59,008,816)
========= ========== ============ ============ ============= =============
</TABLE>
See accompanying notes.
7
<PAGE> 8
The News And Observer Publishing Company
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1993
----------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 5,025,754 $ 4,045,910
Adjustments to reconcile net income to net cash provided by
operations:
Depreciation 3,861,569 2,836,916
Amortization 312,719 313,852
Provision for deferred income tax benefit (215,000) (471,000)
Net provision for deferred employee benefit plans 840,970 1,142,562
Increase in miscellaneous assets (179,149) (33,957)
Loss on disposal of property and equipment 127,647 68,268
Changes in operating assets and liabilities:
Account receivables (1,002,857) (908,038)
Inventories 3,768 344,081
Prepaid expenses 140,428 (59,878)
Income taxes recoverable -- 168,638
Other assets (216,404) (217,981)
Accounts payable 1,392,748 671,480
Accrued expenses 312,355 538,807
Income taxes payable (425,242) 880,786
Current portion of long-term debt (41,923) (21,656)
Non-current charitable pledges (127,000) (51,673)
------------ ------------
Net cash provided by operating activities 9,810,383 9,247,117
INVESTING ACTIVITIES
Purchases of property and equipment (26,566,526) (6,012,692)
Proceeds from sale of property and equipment 269,469 25,502
Purchases of investments, net (12,267) (22,824)
Increase in intangible assets (100,655) (90,827)
Decrease in notes receivable, net 35,829 93,943
------------ ------------
Net cash used in investing activities (26,374,150) (6,006,898)
FINANCING ACTIVITIES
Proceeds from borrowings 8,000,000 --
Payments on long-term debt (11,333) (91,809)
Dividends paid (1,016,816) (1,093,260)
------------ ------------
Net cash provided by (used in) financing activities 6,971,851 (1,185,069)
------------ ------------
(Decrease) increase in cash and temporary investments (9,591,916) 2,055,150
Cash and temporary investments at beginning of year 17,998,254 15,943,104
------------ ------------
Cash and temporary investments at end of year $ 8,406,338 $ 17,998,254
============ ============
</TABLE>
8
<PAGE> 9
SUPPLEMENTAL CASH FLOW DISCLOSURE INFORMATION
During 1994, the Company issued 7,575 shares of its Non-Voting Class B Common
Stock in exchange for $2,298,255 of notes receivable from shareholders in
noncash transactions.
See accompanying notes.
9
<PAGE> 10
The News And Observer Publishing Company
Notes to Financial Statements
December 31, 1994
1. ACCOUNTING POLICIES
CASH AND TEMPORARY INVESTMENTS
The Company considers all highly liquid investments with maturities of less than
one year when purchased to be cash and temporary investments. Approximately
$2,415,000 of the Company's cash and temporary investments at December 31, 1994
is invested in mutual funds and a checking account with NationsBank.
RESTRICTED CASH RESERVE
Pursuant to amendments dated January 25, 1994 to the Note Purchase Agreement and
the Loan Agreement, the Company has escrowed approximately six months of
interest on outstanding debt into a cash reserve account (see Note 3).
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined using
primarily the last-in, first-out (LIFO) method. The use of the LIFO method of
determining the cost of newsprint inventory had the effect of decreasing the
inventories by $250,000 and $378,000 at December 31, 1994 and 1993,
respectively. The Company had 1,911,000 lbs. and 2,901,000 lbs. of newsprint
inventory on hand at December 31, 1994 and 1993, respectively.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation. The
Company provides depreciation using various accelerated methods over the
estimated useful lives of the assets except for assets acquired between
January 1, 1981 and December 31, 1987.
The Company computes depreciation of property and equipment acquired between
January 1, 1981 and December 31, 1987, using asset lives that are substantially
shorter than their useful lives. If generally accepted accounting principles had
been followed, net income would have been decreased by $128,000 and $209,000 and
retained deficit would have decreased by $1,742,000 and $1,870,000 for 1994 and
1993, respectively. The Company s management believes that the differences
resulting from the estimated useful lives is not material to the financial
position of the Company for 1994 and 1993.
10
<PAGE> 11
The News And Observer Publishing Company
Notes to Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Interest costs for the construction of certain assets are capitalized and
amortized over the related assets estimated useful lives. Total interest
incurred in 1994 was $10,294,000 of which $741,000 was capitalized to
construction in progress related to qualifying construction projects. Total
interest incurred and expensed in 1993 was $9,598,000.
INTANGIBLE ASSETS
Goodwill, covenants not-to-compete and other intangibles are amortized over
three to eighteen year periods on a straight-line basis. Also included in
intangible assets is an intangible pension asset recorded under the provisions
of Financial Accounting Standards Board ("FASB") Statement No. 87, "Employers
Accounting for Pensions" (see Note 6).
INCOME TAXES
The liability method is used in accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse.
EARNINGS PER SHARE
Earnings per share have been computed using the weighted average number of
voting and non-voting common shares outstanding during each year. The weighted
average number of shares outstanding was 137,101 and 136,658 for the years ended
December 31, 1994 and 1993, respectively.
2. INTANGIBLE ASSETS
Intangible assets, net of amortization, consist of the following at December 31:
<TABLE>
<CAPTION>
1994 1993
---------------------------
<S> <C> <C>
Goodwill $ 140,403 $ 272,107
Subscriber lists and other 199,094 319,548
Deferred pension asset 966,900 1,016,723
Deferred loan origination costs 1,013,605 973,511
---------- ----------
$2,320,002 $2,581,889
========== ==========
</TABLE>
11
<PAGE> 12
The News And Observer Publishing Company
Notes to Financial Statements (continued)
3. LONG-TERM DEBT
Long-term debt consisted of the following at December 31:
<TABLE>
<CAPTION>
1994 1993
------------------------------
<S> <C> <C>
9.65% unsecured Series A Senior Notes Payable, interest due
monthly, principal due in semi-annual installments of
$6,000,000 beginning March 1, 1997 $ 50,000,000 $ 50,000,000
9.76% unsecured Series B Senior Notes Payable, interest due
monthly, principal due in semi-annual installments of
$8,000,000 beginning March 1, 2001 48,000,000 48,000,000
Variable rate unsecured note payable, interest due monthly,
maximum availability of $20 million, subject to quarterly
reductions in availability of $500,000 each quarter,
beginning January 1, 1996 and continuing until the
maturity date of December 31, 2004 8,000,000 --
Other long-term debt 226,182 279,438
------------- -------------
106,226,182 98,279,438
Less current maturities (28,860) (70,783)
------------- -------------
$ 106,197,322 $ 98,208,655
============= =============
</TABLE>
Repayments of long-term debt are as follows:
<TABLE>
<S> <C>
1995 $ 28,860
1996 2,026,494
1997 14,028,885
1998 14,031,488
1999 14,034,326
Thereafter 62,076,129
------------
$106,226,182
============
</TABLE>
12
<PAGE> 13
The News And Observer Publishing Company
Notes to Financial Statements (continued)
3. LONG-TERM DEBT (CONTINUED)
The Series A and B Senior Notes Payable were issued under a Note Purchase
Agreement related to the acquisition of shares in March 1990. The Note Purchase
Agreement was modified in January, 1994 to allow the Company to incur additional
debt for the purchase and installation of the new presses. The Company also
executed a modification to their line of credit Loan Agreement for a $20 million
note payable to finance the new presses and an additional general line of credit
of $10 million which was unused as of December 30, 1994. The Note Purchase
Agreement provides for certain financial and operational restrictions; covenants
include levels of working capital, incurrence of additional debt and payment of
dividends and require six months of interest to be escrowed into a cash reserve
account.
These Agreements also contain certain prepayment restrictions that limit the
amount of prepayments without significant prepayment penalties. The prepayment
penalties are graduated over the term of the agreement and are based on market
interest rates.
The Company paid interest in the amount of $9,765,000 and $9,521,000 for the
years ended December 31, 1994 and 1993, respectively.
4. DEFERRED COMPENSATION PLANS
The Company sponsors a deferred compensation plan for certain key employees.
This plan is unfunded and costs are accrued for financial statement purposes
over the remaining service life of the covered individuals. For income tax
purposes, expense is recognized as payments are made. The Company is the
beneficiary under life insurance policies it has purchased for each individual
included in the plan.
Under this plan, the employees or their beneficiaries are provided specific
amounts of annual retirement income for a minimum period of 10 years following
retirement. Minimum payments for the next 5 years and thereafter to participants
are as follows:
<TABLE>
<S> <C>
1995 $ 30,000
1996 30,000
1997 15,000
1998 15,000
1999 and thereafter 169,236
-----------
$ 259,236
===========
</TABLE>
13
<PAGE> 14
The News And Observer Publishing Company
Notes to Financial Statements (continued)
5. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company s deferred tax assets as of December 31 are as follows:
<TABLE>
<CAPTION>
1994 1993
---------------------------
<S> <C> <C>
Deferred tax assets:
Allowance for bad debts $ 395,000 $ 345,000
Accrued vacation pay 613,000 554,000
Accrued charitable contributions 256,000 306,000
Accrued employee benefit contributions 2,312,000 2,110,000
Accrued environmental remediation costs 128,000 122,000
---------------------------
3,704,000 3,437,000
Valuation allowance for deferred tax assets - -
---------------------------
Total deferred tax assets 3,704,000 3,437,000
- -
Deferred tax liabilities:
Excess tax depreciation 52,000 -
---------------------------
Total deferred tax liabilities 52,000 -
---------------------------
Net deferred tax assets $3,652,000 $3,437,000
===========================
</TABLE>
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1993
---------------------------
<S> <C> <C>
Current:
Federal $2,915,000 $2,266,000
State 724,000 581,000
---------------------------
Total current 3,639,000 2,847,000
Deferred:
Federal (186,000) (415,000)
State (29,000) (56,000)
---------------------------
Total deferred (215,000) (471,000)
---------------------------
$3,424,000 $2,376,000
===========================
</TABLE>
14
<PAGE> 15
The News And Observer Publishing Company
Notes to Financial Statements (continued)
5. INCOME TAXES (CONTINUED)
The difference between income tax expense and the amount computed by applying
the statutory federal income tax rate to income before income tax for the year
ended December 31, 1994 and 1993 arises primarily from state income taxes (net
of federal benefit), municipal interest income, goodwill amortization.
The Company paid income taxes of $4,050,000 and $1,828,000 for 1994 and 1993,
respectively.
6. EMPLOYEE BENEFIT PLANS
The Company's Qualified Defined Benefit Pension Plan ("Qualified Plan") is open
to substantially all full-time employees. The actuarial cost method used to
value the plan is the projected unit credit method. The Company's policy is to
fund the maximum allowable tax deductible contribution. Contributions totaling
$573,602 were made to the Plan in 1994. The Company did not contribute to the
Plan in 1993. The plan's assets consist primarily of listed common stocks and
long-term United States Government securities.
The following table sets forth the Qualified Plan's funded status as of
December 31:
<TABLE>
<CAPTION>
1994 1993
----------------------------
<S> <C> <C>
QUALIFIED PLAN
Actuarial present value of benefits obligations:
Vested benefits $ 6,397,577 $ 5,378,497
Nonvested benefits 459,702 367,185
----------------------------
Accumulated benefits $ 6,857,279 $ 5,745,682
============================
Projected benefit obligation $(10,207,065) $ (9,197,326)
Plan assets at fair value 6,410,524 6,183,381
----------------------------
Projected benefit obligation greater than plan assets (3,796,541) (3,013,945)
Unrecognized prior service cost (42,362) 78,973
Unrecognized net gain (loss) 316,985 (221,248)
Unrecognized net transition assets (341,412) (398,313)
----------------------------
Deferred pension liability $ (3,863,330) $ (3,554,533)
============================
</TABLE>
15
<PAGE> 16
The News And Observer Publishing Company
Notes to Financial Statements (continued)
6. EMPLOYEE BENEFIT PLANS (CONTINUED)
The components of the net pension cost charged to expense consisted of the
following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1993
------------------------
<S> <C> <C>
Service cost $ 858,542 $ 769,469
Interest cost on projected benefit obligation 623,831 570,544
Actual loss (return) on plan assets 140,563 (319,741)
Net amortization and deferral (740,537) (250,526)
------------------------
Net pension cost $ 882,399 $ 769,746
========================
</TABLE>
Under the Company's Supplemental Executive Benefit Plan ("Supplemental Plan"),
the pension benefits provided by the Company's Qualified Plan are supplemented
for certain key employees. The plan is not funded; however, the Company is
beneficiary under life insurance policies it has purchased for each individual
included in the plan. The plan's status is set forth in the following table as
of December 31:
<TABLE>
<CAPTION>
1994 1993
----------------------------
<S> <C> <C>
SUPPLEMENTAL PLAN
Actuarial present value of benefits obligations:
Vested benefits $ 2,715,456 $ 2,404,890
Nonvested benefits 107,248 35,831
----------------------------
Accumulated benefits $ 2,822,704 $ 2,440,721
============================
Projected benefit obligation $(3,118,283) $(2,595,177)
Plan assets at fair value - -
----------------------------
Projected benefit obligation greater than plan assets (3,118,283) (2,595,177)
Unrecognized prior service cost 434,671 395,790
Unrecognized net loss 755,529 640,251
Unrecognized net transition obligation 532,229 620,933
----------------------------
Deferred pension liability $(1,395,854) $ (938,203)
============================
</TABLE>
16
<PAGE> 17
The News And Observer Publishing Company
Notes to Financial Statements (continued)
6. EMPLOYEE BENEFIT PLANS (CONTINUED)
As required by FASB Statement No. 87, "Employer's Accounting for Pensions", the
Company has recorded at December 31, 1994 an intangible asset of $966,900, an
additional minimum liability $1,426,850 and a cumulative charge to equity of
$459,950. At December 31, 1993, the Company had an intangible asset of
$1,016,723, an additional minimum liability of $1,502,518, and a charge to
equity of $485,795.
The components of the net pension cost charged to expense consisted of the
following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1993
----------------------
<S> <C> <C>
Service cost $ 91,190 $ 52,717
Interest cost on projected benefit obligation 202,307 170,602
Net amortization and deferral 294,781 271,491
----------------------
Net pension cost $588,278 $494,810
======================
</TABLE>
For both plans, the weighted-average discount rate and rate of increase in
future compensation levels used in determining the actuarial present value of
the benefit obligations were 7% at December 31, 1994 and 1993. The expected
long-term rate of return on plan assets was 8.5% at December 31, 1994 and 1993.
The unrecognized prior service cost is being amortized using the optional
straight-line method over 13 years.
Under another plan, pension benefits provided by the Company's defined benefit
pension plan are supplemented for the Company s president. Actuarial information
related to this plan at or for the years ended December 31, 1994 and 1993,
respectively, includes: deferred pension liability of $792,321 and $696,025;
pension expense of $96,296 and $28,428; accumulated benefit obligation and
projected benefit obligation of $761,153 and $593,622; and a net transition
obligation of $28,334 and $42,500.
The Company also sponsors a 401(k) matching savings plan open to substantially
all employees. For the years ended December 31, 1994 and 1993, the Company made
participating contributions to this plan of $736,609 and $608,744, respectively.
17
<PAGE> 18
The News And Observer Publishing Company
Notes to Financial Statements (continued)
7. COMMITMENTS AND CONTINGENCIES
The Company is a party to a civil lawsuit which seeks substantial damages. By
order dated July, 1992 in the General Court of Justice, Superior Court Division,
County of Wake, State of North Carolina, the Company was granted summary
judgment dismissing plaintiff's action against it. In January 1994, this order
was unanimously upheld by the North Carolina Court of Appeals. The Case was
reviewed by the North Carolina State Supreme Court in January, 1994. A decision
is expected in early 1995. It is the opinion of management and the Company s
legal counsel that the Company s position is defensible. It is management s
belief that in the event that the Company is determined to have any liability,
the damages will not exceed insurance coverages.
During 1992, the Company experienced a release of solvent/cleaning agents at a
warehouse location. The Company engaged an independent consultant to evaluate
the potential ground and soil contamination and to develop a plan to clean up
the contamination on site. The resulting interim corrective action plan was
approved by the State of North Carolina, and the Company entered into an
agreement with the independent consultant to implement the approved plan.
Management has estimated and accrued preliminary site clean up costs of $325,000
as of December 31, 1994 and 1993, which are included in accrued expenses;
however, additional costs may be incurred given the preliminary nature of the
estimate.
Certain other claims and suits arising in the ordinary course of business have
been filed against the Company. In the opinion of management, resolution of
these matters will not have a material effect on the financial condition of the
Company.
During 1994, the Company entered into contracts to purchase eighteen new
technologically advanced flexographic printing press units to replace its
existing letterpress printing presses. Of the original purchase contract price
of these presses of $28 million, the Company has remaining commitments of
approximately $12 million. The completion of the installation is expected to be
in phases with the first phase (one line of nine press units) scheduled for
operation in the fall of 1995, and the final phase due to be operational in mid
1996.
The Company has certain operating lease agreements with terms of three to five
years. Lease expense related to these agreements was $1,167,074 and $1,028,900
in 1994 and 1993, respectively.
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<PAGE> 19
The News And Observer Publishing Company
Notes to Financial Statements (continued)
8. SHAREHOLDERS EQUITY
In August 1992, the Company implemented an executive stock purchase plan for
certain key executives of the Company. In connection with the plan, the Company
offered for sale shares of its Non-Voting Class B Common Stock at $202 per
share. Eligible Company executives purchased 6,650 shares by signing 6.49%
promissory notes due July 15, 2001, secured by a pledge of the shares purchased.
During 1994, eligible executives purchased 5,050 shares by signing 6.34%
promissory notes due November 15, 1997 and 2,525 shares by signing 7.50%
promissory notes due October 31, 2003. The plan provides for a pricing formula
based on performance cash flows and net book value at which the Company has the
option to repurchase shares. At December 31, 1994 and 1993, the price factor
resulting from the plan pricing formula was $303 and $368 per share,
respectively. The plan also provides for certain restrictions that govern the
sale of shares outside of the Company.
9. DIVISION ACQUISITION
On July 30, 1993, the Company acquired, for a purchase price of $1,000,000, the
assets of The Chapel Hill News, a 25,000 free- distribution tri-weekly newspaper
located in Chapel Hill, NC. The purchase price was allocated to land and
buildings in the amount of $520,833 and to tangible fixed assets in the amount
of $479,167.
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<PAGE> 20
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
McClatchy Newspapers, Inc.
--------------------------------
(Registrant)
By /s/ Karole Morgan-Prager
--------------------------------
Karole Morgan-Prager
General Counsel and Secretary
Date: August 24, 1995
20
<PAGE> 21
EXHIBIT INDEX
Sequentially
Exhibit No. Description Numbered Page
----------- ----------- -------------
24.1 Consent of Independent Auditors 22
21
<PAGE> 1
Exhibit 24.1
Consent of Independent Auditors
We consent to the use of our report dated February 24, 1995, with respect to
the financial statements of The News And Observer Publishing Company included
in the Current Report on Form 8-K/A Amendment No. 1 of McClatchy Newspapers,
Inc.
Ernst & Young LLP
/s/ Ernst & Young LLP
Raleigh, North Carolina
August 22, 1995
22
