ITEM 1. BUSINESS
Overview
McClatchy Newspapers, Inc. was originally incorporated in California in 1930 and reincorporated in Delaware on July 2, 1987. McClatchy Newspapers, Inc. and its subsidiaries (collectively the "Company") own and publish 22 newspapers in three regions of the Country -- California, Northwest (Alaska and Washington) and the Carolinas. Its newspapers range from large dailies serving metropolitan areas to non-daily newspapers serving small communities. For the year ended December 31, 1996, the Company had an average paid daily circulation of 972,600, Sunday circulation of 1,175,100 and non-daily circulation of 77,500.
On August 1, 1995 the Company purchased The News and Observer Publishing Company (N&O) for $374 million (see note 2 to the consolidated financial statements in Part II, Item 8 and Carolinas newspapers discussion below). N&O publishes The News & Observer (Raleigh, N.C.) newspaper, seven other non-daily publications in North Carolina and Nando, an online publishing company. The N&O newspaper has a daily circulation of approximately 157,000 and 205,000 on Sunday. The results of N&O have been included in the Company's consolidated results beginning on August 1, 1995.
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 ten largest 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 1996 and 77% of consolidated revenues in 1995. Circulation revenues approximated 17% of consolidated revenues in 1996 and 18% of consolidated revenues in 1995.
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 online computer service which provides information to clients on legislative activity in the California state legislature and in the United States Congress; Nando, the Company's online publishing operations, and McClatchy Printing Company and Benson Printing Company, commercial printing operations in California and North Carolina. The Company also owns The Newspaper Network (TNN), a distributor of preprinted advertising inserts and run-of-press advertising. In addition, the Company is a partner (13.5% interest) in Ponderay Newsprint Company, a general partnership that owns and operates a newsprint mill in Washington State.
When used in this Report, the words "expect" and "project" and similar expressions are generally intended to identify forward looking statements. Such statements are subject to certain risks and uncertainties, including those discussed below, that could cause actual results to differ materially from those projected. Readers are cautioned not to place undue reliance on these forward looking statements, which speak only as of the date hereof.
CALIFORNIA NEWSPAPERS:
The Bee newspapers and other California papers produced approximately 49.8% of the total Company revenues in 1996, versus 58.1% in 1995. In February 1997, the Company sold four of its California newspapers that had a combined daily circulation of approximately 10,150 and weekly circulation of 12,800. These newspapers generated $7.6 million in revenues in 1996.
The Sacramento Bee
The Sacramento Bee, the Company's largest newspaper, is a morning newspaper serving the California state capital and its metropolitan area. In 1996 The Sacramento Bee's average paid circulation increased 0.7% daily and decreased 0.1% Sunday from 1995. As of December 31, 1996, approximately 88.0% of the daily, and 80.0% of the Sunday circulation was home delivered.
The Sacramento Bee's advertising linage for the years ended December 31, 1996 and 1995 is set forth in the following table.
The Fresno Bee
The Fresno Bee is a morning newspaper serving the Fresno, California metropolitan area. The Fresno Bee's average paid circulation increased 0.5% daily and was flat Sunday versus 1995. As of December 31, 1996, approximately 86.9% of The Fresno Bee's daily and 89.1% of the Sunday circulation was home delivered.
The Fresno Bee's advertising linage for the years ended December 31, 1996 and 1995 is set forth in the following table:
The Modesto Bee
The Modesto Bee is a morning newspaper that serves the Modesto, California metropolitan area, located between Sacramento and Fresno. The Modesto Bee's average paid circulation declined 1.5% daily and 1.4% Sunday versus 1995. As of December 31, 1996, approximately 88.9% of the daily and 87.2% of the Sunday circulation was home delivered.
The Modesto Bee's advertising linage for the years ended December 31, 1996, and 1995 is set forth in the following table:
Other California Newspapers
In February 1997, the Company sold the following four of its nondaily California newspapers, with the Clovis Independent remaining its sole nondaily paper in the region. The Gilroy Dispatch and Hollister Free Lance, along with the weekly Morgan Hill Times, serve small rural communities south of San Jose. The Amador Dispatch and Murietta Times are nondaily newspapers that serve small communities in the Sierra foothills, east of Sacramento, while the Clovis Independent is a weekly newspaper serving a community north of Fresno. The combined net revenues of these newspapers declined 12.5% from 1995.
NORTHWEST NEWSPAPERS:
The Company began to diversify geographically outside of California in 1979 when it purchased the Anchorage Daily News. Later that year the Company purchased the Tri-City Herald in Southeastern Washington. In 1986, the Company purchased its fourth largest newspaper, The (Tacoma) News Tribune. In June 1995, the Company acquired the Peninsula Gateway in Gig Harbor, Washington, and in December 1996, the Company sold the Ellensburg Daily Record. The Company now publishes four newspapers in Washington State and the largest daily newspaper in Alaska. These newspapers are summarized below:
The Company's northwest newspapers produced approximately 23.0% of the Company's total revenues in 1996 versus 26.0% in 1995.
The News Tribune
The News Tribune, a morning newspaper, primarily serves the Tacoma, Washington metropolitan area in Pierce and South King Counties. It is the third largest newspaper in the state. In 1996 the average paid circulation of The News Tribune declined 0.4% daily and 0.1% Sunday versus 1995.
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. As of December 31, 1996 approximately 84.0% of the daily and 82.0% of the Sunday circulation was home delivered.
The Tacoma News Tribune's advertising linage for the years ended December 31, 1996 and 1995 is set forth in the following table.
Anchorage Daily News
The Anchorage Daily News, a morning newspaper, is Alaska's largest newspaper. The Anchorage Daily News circulates throughout the state of Alaska but its primary circulation is concentrated in the south central region of the state comprised of metropolitan Anchorage, the Kenai Peninsula and the Matanuska-Susitna Valley.
The Daily News' average paid daily circulation was up 0.1% in 1996, while Sunday circulation declined 2.1% from 1995. As of December 31, 1996 approximately 73.5% of the daily and 65.0% of the Sunday circulation was home delivered.
Comparative amounts of linage for the years ended December 31, 1996 and 1995 are set forth in the following table:
Tri-City Herald
The Tri-City Herald is a morning newspaper serving the Tri-Cities of Richland, Kennewick and Pasco in southeastern Washington. The Tri-Cities economy has benefited by the Department of Energy's (DOE) efforts to clean up nuclear waste at nearby Hanford Nuclear reservation. However, recent layoffs by the DOE at Hanford have begun to slow economic growth in the area.
The Tri-City Herald's average paid circulation has declined 1.0% daily and 0.6% Sunday from 1995. As of December 31, 1996, approximately 91.3% of the daily and 89.6% of the Sunday circulation was home delivered.
The Tri-City Herald's advertising linage for the years ended December 31, 1996 and 1995 is set forth in the following table:
Other Northwestern Newspapers
The Ellensburg Daily Record was sold in December 1996. The Company's other non-daily newspapers include the Peninsula Gateway in South Puget Sound, which was purchased in July 1995, and the Pierce County Herald which circulates twice a week in Puyallup, near Tacoma. The combined net revenues of the other northwestern newspapers increased 31.0% over 1995. The Ellensburg Daily Record had revenues of $1.6 million in 1996.
CAROLINAS NEWSPAPERS:
In 1990, the Company purchased three daily and three nondaily newspapers in South Carolina from The News and Observer Publishing Company (N&O). On August 1, 1995, the Company purchased the remainder of N&O which included The News & Observer newspaper and six non-daily newspapers (and other businesses discussed below).
The Carolinas newspapers produced 24.6% of total Company revenues in 1996 versus 13.6% in 1995.
The News & Observer
The News & Observer, the Company's second largest newspaper, is a morning daily serving North Carolina's state capital, Raleigh, and the thriving Research Triangle which includes Raleigh, Durham and Chapel Hill, North Carolina.
The News & Observer's average paid circulation in 1996 increased approximately 2.0% daily and 2.3% Sunday over calendar year 1995. As of December 31, 1996 approximately 84.0% of the daily and 74.0% of the Sunday circulation was home delivered.
The News & Observer's advertising linage for the year ended December 31, 1996 and the five months ended December 31, 1995 is set forth in the following table.
On a pro forma basis (including seven months in 1995 when McClatchy did not own N&O), The News & Observer's revenues for 1996 increased 10.0% over 1995.
The Herald
The Herald is a morning newspaper serving Rock Hill and surrounding communities in York County, South Carolina. Rock Hill is a community approximately 25 miles southwest of Charlotte, North Carolina. In 1996 The Herald's average paid circulation decreased 1.0% daily and Sunday from 1995.
The Herald's main competitor is a zoned edition of the Charlotte Observer, whose circulation in The Herald's primary circulation area is estimated to be approximately a third of The Herald's circulation. As of December 31, 1996, approximately 81.0% of the daily and 78.0% of the Sunday circulation was home delivered.
The Island Packet and The Beaufort Gazette
The Island Packet and The Beaufort Gazette serve Beaufort County in southeastern South Carolina. The Island Packet serves Hilton Head Island where tourism, and retirement communities and services are the economic mainstays. The Gazette serves the city of Beaufort and northern Beaufort County encompassing surrounding islands of Lady's, St. Helena, Fripp and Paris.
Each of the newspapers added a Saturday edition in September 1995 making them seven-day-a-week publications. The average paid circulation increased 0.8% daily and 0.7% Sunday at The Island Packet and declined 0.1% daily and 2.4% Sunday at The Gazette.
As of December 31, 1996, approximately 62.0% of the daily and 51.0% of the Sunday circulation of The Packet was home delivered. Comparable amounts for The Gazette 72.0% daily and 74.0% Sunday.
Carolinas Nondaily Newspapers
The South Carolina nondaily newspapers include the Clover Herald, the Yorkville Enquirer and the Lake Wylie Magazine and serve small communities in Chester and York counties. Net revenues for these newspapers were $662,000, up 6.6% from 1995.
The North Carolina nondailies are newspapers that serve small communities generally surrounding Raleigh. They are (circulation in parenthesis): Chapel Hill News (21,000 primarily free distribution), Cary News (11,900), Zebulon Record (3,200), Gold Leaf Farmer (3,700), Mount Olive Tribune (3,800) and Smithfield Herald (14,700). N&O also publishes Business North Carolina, a monthly magazine distributed to approximately 24,000 homes throughout North Carolina. Total net revenues for these operations for the year ended December 31, 1996 were $16,177,000 and were $5,064,000 for the five months ended December 31, 1995.
OTHER OPERATIONS
The Company continues to expand the distribution of preprinted advertising inserts and run-of-press advertising nationally under The Newspaper Network, Inc. The Newspaper Network has launched a national business of offering advertisers one-order, one-bill sales of advertising in newspapers throughout the country. The Company believes that this initiative is important for both McClatchy and the newspaper industry in competing with direct mail on a national basis.
Legi-Tech is an online computer service which provides information to clients on legislative activity in the California legislature and in the United States Congress. Legi-Tech also provides the Sacramento Bee online to its customers and sells historical legislative information, as well as The Sacramento and Fresno Bees on CD-ROM.
As a result of the Company's continued research and development of new technologies for its news and data, most of its larger papers are providing subscriber and advertiser services through various forms of electronic distribution. Six of the Company's largest newspapers are available online through the World Wide Web. The Company's online services were expanded greatly with the purchase of N&O's Nando, an online publishing operation. In addition to business, sports, national and international news and other information, Nando includes The News & Observer's and The Sacramento Bee's classified advertising listings. As Nando continues to evolve, it has also become a technology and content partner with other McClatchy newspapers' internet sites.
McClatchy Printing Company, located in Clovis, California and Benson Printing, located in Benson, N.C. are commercial printers. They print various commercial products and preprinted advertisements for third party customers and also print television guides for some of the Company's newspapers.
Revenues for these operations were $16,271,000, up 27.1% over 1995, and were up 9.5% excluding new operations added in the acquisition of N&O. Revenues from these ventures represent 2.6% of total revenues in 1996 and 2.4% in 1995.
Raw Materials
In 1996 the Company consumed approximately 165,000 metric tons of newsprint (33,000 from N&O) compared to 149,000 metric tons in 1995 (13,000 from N&O). The Company currently obtains its supply of newsprint from a number of suppliers under long-term contracts.
Newsprint and supplement expense accounted for approximately 20.9% of operating expenses in 1996 compared to 21.9% in 1995. Management believes its newsprint sources of supply under existing arrangements are adequate for its anticipated needs. A world-wide imbalance between newsprint supply and demand caused significant fluctuations in newsprint prices in 1994, 1995 and 1996. Significant increases in the price of newsprint would adversely affect the operating results of the Company to the extent that it was not offset by advertising and circulation volume and/or rate increases. However, the Company expects average newsprint prices in 1997 to remain below 1996 levels.
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 which owns and operates a newsprint mill located sixty miles northeast of Spokane, Washington. The mill became operational in late 1989 and has a production capacity in excess of 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. The Company negotiated to purchase an additional 10,000 metric tons in 1996 and 8,000 in 1997 from the mill. 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, 1996, the Company had 7,590 full and part-time employees, of whom approximately 9.0% were represented by unions.
In 1996, The Fresno Bee and The Modesto Bee signed two-year and eighteen-month contracts, respectively, with certain unions, leaving no open labor negotiations at these newspapers.
Following the expiration of contracts with certain unions at The Sacramento Bee, negotiations between the newspaper and the affected unions (which represent approximately 15.5% of The Sacramento Bee's employees) reached an impasse. In early 1987, final offers were "posted" to the unions at The Sacramento Bee. 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.
ITEM 2.
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, 1996, are set forth below. Facilities at the four California newspapers that were sold in February 1997 are excluded from this table.
The Company believes that its current facilities are adequate to meet the present and immediately foreseeable needs of its newspapers.
ITEM 3.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
PART II
ITEM 5.
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 1996 and 1995:
The high and low sales prices and dividends per share have been adjusted for 1996 and 1995 to reflect the impact of a five-for-four split declared by the Company's Board of Directors on December 4, 1996, paid on January 2, 1997.
The Company's Board of Directors does not anticipate reducing the present level of quarterly dividend payments. However, the payment and amount of future dividends remain within the discretion of the Board of Directors and will depend upon the Company's future earnings, financial condition and requirements, and other factors considered relevant by the Board.
The number of record holders of Class A and Class B Common Stock at March 17, 1997 was 1,430 and 27, respectively.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Recent Events and Trends
On December 4, 1996 the Company declared a five-for-four stock split in the form of a 25% stock dividend which was paid on January 2, 1997. All outstanding shares and per share amounts have been restated in this discussion to reflect the stock dividend.
In October 1996, the Company announced that it had entered into agreements in principle to sell five community newspapers. In December, the Company completed the sale of the Ellensburg Daily Record and recorded a pre-tax gain of $3.2 million in other nonoperating (expenses) income. The sale of the remaining four newspapers was completed in the first quarter of 1997 and the Company expects to record a nonrecurring gain which will be material to its 1997 annual results.
On August 1, 1995 the Company purchased The News and Observer Publishing Company (N&O) (see note 2 to the consolidated financial statements). N&O publishes The News and Observer (Raleigh, N.C.) newspaper, seven other non-daily publications in North Carolina and Nando, an online publishing company. The N&O newspaper has a daily circulation of approximately 157,000 and 205,000 on Sunday. The results of N&O have been included in the Company's consolidated results beginning on August 1, 1995. Cash and investments together with bank borrowings were used to consummate the purchase of N&O. As a result, investment income is not expected to be significant over the next few years.
Newsprint prices fluctuated substantially during 1995 and 1996, reaching all-time highs in early 1996. Prices began declining during the second quarter of 1996 and are now below 1995 levels. During the period of increasing prices, the Company increased its inventory levels to minimize the effect of expected further increases. As prices began to decline in 1996, the Company began reducing its inventory levels in anticipation of further price decreases. Accordingly, the Company's LIFO reserve in 1996 has declined $4.2 million. Management expects average newsprint prices in 1997 to be below 1996 average prices which should positively impact operating income for the year.
Results of Operations
1996 COMPARED TO 1995
Net income was $44.5 million, or $1.18 per share, and included a net-after-tax gain of $1.6 million on the sale of the Ellensburg Daily Record and various other non-newspaper business operations. Net income in 1995 was $33.6 million, or $0.90 per share, and included an after-tax charge of $1.5 million for the cost of early retirement programs at The Sacramento Bee and The (Tacoma) News Tribune.
The earnings improvement in 1996 is largely due to strong revenue growth at the Company's Carolinas newspapers, declining newsprint prices and cost controls throughout the Company.
Revenues at the Company's California newspapers declined $3.6 million, with advertising revenues down $4.3 million, offset partially by a $1.0 million gain in circulation revenues. Advertising revenues declined primarily due to a lackluster retail advertising climate at the Company's three Bee newspapers located in Sacramento, Fresno and Modesto. These newspapers were also affected by the consolidation of Macy's and Weinstocks department stores, previously their two largest advertisers. Full run "run-of-press" (ROP) advertising linage, which is found in the body of the newspaper and is the largest contributor to advertising revenues, was down 5.6% at the three Bee newspapers. This decline was partially offset by rate increases implemented in the first quarter of 1996.
The Company's Northwestern newspapers, located in the states of Alaska and Washington, contributed 23.0% of its net revenues and posted a $2.7 million increase over 1995. Advertising revenues increased $3.0 million, largely from gains at the Anchorage Daily News where advertising revenues increased $2.8 million. Full run ROP advertising linage declined 2.8% at the three larger daily newspapers in the region. Circulation revenues increased $306,000, while other revenues declined $538,000. The decline in other revenues was primarily attributable to a decline in commercial printing at the Anchorage Daily News.
Revenues at the Company's Carolina newspapers increased $80.7 million. Revenues from The News & Observer and its sister non-daily newspapers were up $78.2 million from inclusion of a full twelve months in 1996 versus five months (August through December) in 1995. On a pro forma basis, i.e. including the seven months prior to the Company's acquisition of N&O, revenues were up approximately 10.0%. Meanwhile, revenues at the Company's South Carolina newspapers were up 11.2% with strong growth in both advertising and circulation revenues. Full run ROP advertising linage was up 9.7% at the South Carolina dailies.
Revenues from non-newspaper operations increased $3.5 million. These operations include McClatchy Printing Company, Benson Printing Company, Legi-Tech, The Newspaper Network and N&O's New Media Division (primarily Nando, the Company's online publishing company).
Operating Expenses:
Operating expenses increased 12.6%, due primarily to including a full year of N&O expenses in 1996 versus only five months in 1995. Compensation costs were up 12.3%, but after excluding N&O expenses from both periods and the early retirement charges from 1995, compensation expenses declined 0.7%. Excluding N&O costs from both periods, newsprint and supplement costs declined 11.4%, owing to falling newsprint prices in the second half of 1996. All other operating expenses, including depreciation and amortization, and excluding N&O from both periods, increased only 0.7%, reflecting ongoing cost controls in place throughout the Company.
Non-Operating Income (Expenses) - Net:
The Company incurred $13.3 million in interest expense in 1996 on debt incurred in 1995 to complete the N&O acquisition (see notes 2 and 3 to the consolidated financial statements). In 1995 the Company earned $3.9 million in investment income through July 31 and incurred $7.0 million in interest expense from August through year-end.
The Company's share of income in 1996 from its investment in the Ponderay Newsprint Mill (Ponderay) totaled $3.0 million versus a loss of $630,000 in 1995. Also included in nonoperating income (expense) is a net pre-tax gain of $2.8 million related to the sale of the Ellensburg Daily Record and various small business operations.
The Company's effective tax rate was 42.9% in 1996 versus 43.0% in 1995. See note 4 to the consolidated financial statements for a discussion of taxes.
1995 COMPARED TO 1994
Net income was $33.6 million, or $0.90 per share, and included a pre-tax charge of $2.7 million (four cents per share after-tax) for the cost of early retirement programs at The Sacramento Bee and The (Tacoma) News Tribune. Net income in 1994 was $46.6 million, or $1.26 per share, and included a $6.0 million or 16 cents per share favorable adjustment related to the resolution of tax matters. Earnings were lowered by the impact of continued newsprint price increases (three in 1995), financing costs of the N&O acquisition and a sluggish economy in Northern California, home to the Company's three Bee newspapers.
At the Company's California newspapers, total revenues increased $4.6 million with advertising revenues up $3.4 million or 1.4% and circulation revenues up $797,000 or 1.5%. Advertising revenues largely reflect a $4.4 million increase at The Sacramento Bee, offset partially by revenue declines of $933,000 at The Fresno Bee. Revenues at The Modesto Bee were up nominally.
Full run "run-of-press" (ROP) linage, which generates a majority of advertising revenues, declined 4.7% at the three Bee newspapers. This decline was offset by rate increases implemented in the first quarter by all three Bees and again in September at The Modesto Bee.
Circulation revenues at the California newspapers reflect gains in average paid daily circulation coupled with home delivery rate increases primarily at The Fresno and Modesto Bees in January 1995. Other revenues were up $439,000 or 25.3% due mainly to sales of used newsprint at The Sacramento Bee.
In the Northwest region (Washington State and Anchorage, Alaska) newspaper revenues increased $7.8 million, led by the Anchorage Daily News. Advertising revenues grew $5.5 million or 5.6% while circulation revenues were up $1.3 million or 4.9%. The Peninsula Gateway, a weekly newspaper in Gig Harbor, Washington was purchased at the end of June 1995 and contributed $1.3 million in additional revenues in 1995.
Full run ROP advertising linage declines at The News Tribune were offset by gains at the Anchorage Daily News. Advertising revenue increases largely reflect rate increases implemented in November 1994 at the Tri-City Herald and in January 1995 at The News Tribune and Anchorage Daily News. The News Tribune raised home delivery circulation rates in December 1994 and the Daily News followed suit in April 1995, accounting for much of the increase in circulation revenues in the region. Other revenues increased about $1.0 million due mostly to commercial printing.
Revenues in the Carolinas newspapers increased $52.1 million reflecting $50.0 million from the newly purchased News & Observer in Raleigh, North Carolina and its six non-daily sister newspapers; and a $2.1 million or 10.2% increase in revenues at the Company's South Carolina newspapers. The increase in the South Carolina newspapers' revenues reflect strong growth in both advertising and circulation volumes, along with advertising rate increases in January 1995 at The (Rock Hill) Herald and Beaufort Gazette and in July 1995 at The (Hilton Head) Island Packet.
The Company's non-newspaper operations, consisting of McClatchy Printing Company, Benson Printing Company, Legi-Tech, The Newspaper Network and N&O's New Media Division (primarily the Nando.net online service), contributed $4.9 million in additional revenues.
Operating Expenses:
Operating expenses increased 19.8%, primarily from the addition of N&O in August 1995, the addition of The Peninsula Gateway in June 1995, escalation of newsprint prices and the early retirement charges of $2.7 million. Compensation costs increased 11.4%, primarily reflecting the addition of N&O. Excluding N&O and the $2.7 million for early retirement programs, compensation increased only 0.5%.
Newsprint and supplement costs reflect the newsprint price increases discussed above, offset by reduced newsprint usage. Excluding N&O, newsprint usage was down approximately 3% from 1994 while newsprint and supplement costs rose 39.3%. Other operating expenses were up 14.1% and in addition to N&O's costs, includes a $1.5 million charge to write off obsolete equipment at The Sacramento Bee. The increase in depreciation and amortization was due to the addition of N&O.
Non-Operating Income (Expense) - Net:
Non-operating items reflect an increase in net interest costs of $6.3 million, as debt was incurred and excess cash was used to complete the N&O acquisition. The Company's share of losses from its newsprint mill investment declined $4.8 million as the mill benefited from higher newsprint prices.
The Company's effective tax rate in 1995 was 43.0% versus 32.9% in 1994. Higher non-deductible expenses (principally amortization) due to the N&O acquisition in 1995 and the favorable tax settlements in 1994 account for most of the difference. See note 4 to the consolidated financial statements.
Liquidity and Capital Resources
The Company's cash and cash equivalents were $5.9 million at December 31, 1996 versus $3.3 million at the end of 1995. See notes 2 and 3 to the financial statements for a discussion of the impact of the acquisition of N&O on the Company's liquidity and capital resources.
The Company generated $99.6 million of cash from operating activities in 1996 and has generated an aggregate of $262.9 million over the last three years. The major uses of cash over the three year period have been to consummate the N&O acquisition, to purchase property, plant and equipment, to invest in interest bearing securities and to repay debt. Cash has also been used to fund its Ponderay newsprint mill investment and to pay dividends. See the Company's Statement of Cash Flows included in the index at Item 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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, 1996 and 1995, and the related consolidated statements of income, cash flows and stockholders' equity for each of the three years in the period ended December 31, 1996. Our audits also included the financial statement schedule listed in the Index to Financial Statements and Financial Statement Schedules at Item 8. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of McClatchy Newspapers, Inc. and its subsidiaries at December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 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.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP Sacramento, California February 6, 1997
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
McClatchy Newspapers, Inc. and its subsidiaries are engaged primarily in the publication of newspapers located in California, the Northwest (Washington and Alaska) and the Carolinas.
The consolidated financial statements include the Company and its subsidiaries. Significant intercompany items and transactions are eliminated. All share and per share amounts have been adjusted to reflect a five-for-four stock split. See note 9. Certain amounts have been reclassified to conform to the 1996 presentation. In preparing the financial statements, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
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 - All of the Company's investments were liquidated in 1995. Costs for investment securities sold were determined by specific identification. No gains or losses were realized in 1995 or 1994.
Concentrations of credit risks - Financial instruments which potentially subject the Company to concentrations of credit risks are principally cash and cash equivalents and trade accounts receivables. Cash and cash equivalents are placed with major financial institutions. Accounts receivable are with customers located primarily in the immediate area of each city of publication. The Company routinely assesses the financial strength of significant customers and this assessment, combined with the large number and geographic diversity of its customers, limits the Company's concentration of risk with respect to trade accounts receivable.
Inventories are stated at the lower of cost (based principally on the 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 $3,246,000 at December 31, 1996 and $7,426,000 at December 31, 1995.
Related party transactions - The Company owns a 13.5% interest in Ponderay Newsprint Company ("Ponderay") which owns and operates a newsprint mill in the State of Washington. The investment is accounted for using the equity method, under which the Company's share of earnings of Ponderay is reflected in income as earned. The Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (cont.)
guarantees certain bank debt used to construct the mill (see note 8) and is required to purchase 28,400 metric tons of annual production on a "take-if-tendered" basis until the debt is repaid. The Company satisfies this obligation by direct purchase (1996: $20,714,000, 1995: $18,414,000, and 1994: $13,083,000) or reallocation to other buyers. To secure additional newsprint, the Company has arranged to purchase an additional 8,000 metric tons from Ponderay in 1997.
Property, plant and equipment are stated at cost. Major renewals and betterments, as well as interest incurred during construction, are capitalized. Such interest aggregated $536,000 in 1996, $708,000 in 1995 and none in 1994.
Depreciation is computed generally on a straight-line basis over estimated useful lives of:
- 10 to 60 years for buildings - 9 to 25 years for presses - 3 to 15 years for other equipment
Intangibles consist of the unamortized excess of the cost of acquiring newspaper operations over the fair values of the newspapers' tangible assets at the date of purchase. Identifiable intangible assets, consisting primarily of lists of advertisers and subscribers, covenants not to compete and commercial printing contracts, are amortized over three to forty years. The excess of purchase prices over identifiable assets is amortized over forty years. Management periodically evaluates the recoverability of intangible assets by reviewing the current and projected cash flows of each of its newspaper operations.
Stock-based compensation - The Company accounts for stock-based awards to employees using the intrinsic value method in accordance with APB No. 25, Accounting for Stock Issued to Employees.
Deferred income taxes result from temporary differences between amounts of assets and liabilities reported for financial and income tax reporting purposes. See note 4.
Earnings per share are based upon the weighted average number of outstanding shares of common stock and dilutive common stock equivalents (stock options). All share and per share amounts have been adjusted to reflect a five-for-four stock split. See note 9.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. ACQUISITION
On August 1, 1995, the Company purchased The News and Observer Publishing Company (N&O) for which it paid $247,000,000 in cash for all the outstanding common stock of N&O and assumed $117,000,000 of pre-existing N&O funded debt. An additional $10,000,000 was paid upon the resolution of certain contingencies (N&O holdback). The cash portion of the purchase price was financed with $138,000,000 in new long-term bank debt and $109,000,000 from existing Company cash and investments. The Company refinanced the N&O funded debt and recorded a prepayment penalty of $12,194,000 as part of N&O acquisition costs. See note 3 for discussion of the Company's long-term debt.
N&O publishes The News & Observer newspaper in Raleigh, N.C., seven other non-daily publications in North Carolina and the Nando.net online service. The News & Observer had a daily circulation of about 154,000 and 200,000 Sunday at August 1, 1995.
The acquisition was accounted for as a purchase, and accordingly, assets acquired and liabilities assumed were recorded at their estimated fair values at the date of acquisition. Assets of N&O included approximately $1,500,000 of working capital, $72,600,000 of property, plant and equipment and $323,100,000 of intangible assets. Intangible assets include approximately $299,100,000 of goodwill which is being amortized over a 40-year period. In addition to the $117,000,000 of N&O long-term debt, the Company assumed deferred income tax and other liabilities totaling $11,500,000.
The N&O operations have been included in the Company's consolidated results beginning on August 1, 1995. The following table summarizes, on an unaudited pro forma basis, the combined results of operations of the Company and its subsidiaries as though the acquisition had taken place on January 1, 1995 and 1994 (in thousands, except per share amounts):
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. LONG-TERM BANK DEBT AND OTHER LONG-TERM OBLIGATIONS
In addition, the Company also has an outstanding letter of credit for $4,309,000 securing estimated obligations from workers' compensation claims.
On July 28, 1995 the Company entered into a bank credit agreement (Credit Agreement) providing for borrowings up to $310,000,000. In connection with the August 1, 1995 acquisition of N&O, the Company drew down $138,000,000 of borrowings and the bank issued a $10,000,000 letter of credit on behalf of the Company to support the acquisition holdback (see note 2). The N&O holdback was paid in August 1996.
Among the liabilities assumed in acquiring the stock of N&O were long-term notes payable consisting of $98,000,000 face value of unsecured senior notes bearing interest at 9.65% to 9.76% and a $19,000,000 unsecured variable rate note. The Company has refinanced N&O's debt and incurred a refinancing penalty of $12,194,000 in accordance with the terms of the note agreements which has been included in the purchase price.
Under the Credit Agreement, interest only is payable through July 1, 2000. A total of $20,000,000 of principal is due on July 1, 2002 and the remaining principal matures in increasing annual amounts until it is paid in full by July 1, 2005. The Company may select between alternative floating interest rates for each drawdown. On December 31, 1996, the interest rate applicable to the amounts drawn ranged from 5.4% to 7.1%. Such debt is unsecured and the related agreement contains covenants requiring, among other things, maintenance of cash flow and limitations on debt-to-equity ratios, with which the Company was in compliance at December 31, 1996.
At December 31, 1996 the Company had an outstanding interest rate swap that effectively converted $50,000,000 of debt under its Credit Agreement to a fixed rate debt at a rate of 6.0%. The swap expires in November 1998. The Company makes payments under the Credit Agreement and receives or makes payments to a counterparty depending on the change in variable interest rates which are recorded as additions to or reductions of interest expense.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. LONG-TERM BANK DEBT AND OTHER LONG-TERM OBLIGATIONS (cont.)
NOTE 4. INCOME TAX PROVISIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. INCOME TAX PROVISIONS (cont.)
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 which was recorded as a reduction to the 1994 income tax provision ($5,134,000 recognized in the third quarter).
NOTE 5. INTANGIBLES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. EMPLOYEE BENEFITS
Early Retirement Charge:
The Sacramento Bee and The (Tacoma) News Tribune made early retirement programs available to certain employees. Pre-tax charges of $2,318,000 and $390,000 were recorded in September 1995 and December 1995, respectively, for these programs.
Retirement Plans:
The Company has two defined benefit pension plans (retirement plans) which together cover a majority of its employees including employees of the recently acquired N&O. Benefits are based on years of service and compensation. Contributions to the plans are made by the Company in amounts deemed necessary to provide benefits. Plan assets consist primarily of investments in marketable securities including common stocks, bonds and U.S. government obligations, and other interest bearing accounts.
The Company also has three supplemental retirement plans to provide key employees (including N&O since 1995) with additional retirement benefits. The terms of the plans are generally the same as those of the retirement plans, except that the supplemental retirement plans are limited to key employees and benefits under it are reduced by benefits received under the retirement plans. These plans are funded on a pay-as-you-go basis and the accrued pension obligation is included in other long-term obligations.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. EMPLOYEE BENEFITS (cont.)
The Company has two deferred Compensation and Investment Plans (401(k) plans) which enable qualified employees (including N&O since 1995) to voluntarily defer compensation. The Company's mandatory matching contributions to the 401(k) plans were $4,704,000 in 1996, $4,203,000 in 1995, and $3,838,000 in 1994.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. EMPLOYEE BENEFITS (cont.)
Postretirement Benefits:
The plan's funded status and amounts recognized in the Company's Consolidated Balance Sheet at December 31, 1996 and 1995 are as follows (in thousands):
The medical care cost trend rates are estimated to decline to 5.8% by the year 2002. A 1.0% increase in the assumed health care cost trend rate would have increased the APBO and the annual service cost by 1.4%.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. CASH FLOW INFORMATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. CASH FLOW INFORMATION (cont.)
NOTE 8. COMMITMENTS AND CONTINGENCIES
The Company guarantees $20,922,000 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 October 2001. Total rental expense amounted to
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. COMMITMENTS AND CONTINGENCIES (cont.)
$2,584,000 in 1996, $2,027,000 in 1995 and $2,009,000 in 1994. Minimum rental commitments under operating leases with noncancelable terms in excess of one year are (in thousands):
There are libel and other legal actions that have arisen in the ordinary course of business and are pending against the Company. From time to time, the Company is involved as a party in various governmental proceedings, including environmental matters. Management believes, after reviewing such actions with counsel, that the outcome of pending actions will not have a material adverse effect on the Company's consolidated results of operations or financial position.
NOTE 9. COMMON STOCK AND STOCK PLANS
On December 4, 1996, the Board of Directors of the Company declared a five-for-four split on its Class A and Class B common stock in the form of a special a 25% stock dividend, which was paid on January 2, 1997 to the holders of record of the common stock as of the close of business on December 16, 1996. All share and per share amounts have been adjusted in the financial statements to reflect the stock split.
In 1994, the Company raised $20,001,000 through the sale of 1,195,312 Class A shares to the public.
The Company's Class A and Class B common stock participate equally in dividends. Holders of Class B common stock are entitled to one vote per share and to elect as a class 75% of the Board of Directors, rounded down to the nearest whole number. Holders of Class A common stock are entitled to one-tenth of a vote per share and to elect as a class 25% of the Board of Directors, rounded up to the nearest whole number. Class B common stock is convertible at the option of the holder into Class A common stock on a share-for-share basis.
At December 31, 1996 the Company has four stock-based compensation plans, which are described below. The Company applies APB Opinion 25 and related interpretations in accounting for its plans. No significant amounts of compensation costs have been recognized for its fixed stock option plans and its stock purchase plan.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. COMMON STOCK AND STOCK PLANS (cont.)
The Company's Amended Employee Stock Purchase Plan (the Purchase Plan) reserved 1,875,000 shares of Class A common stock for issuance to employees. Eligible employees may purchase shares at 85% of "fair market value" (as defined) through payroll deductions. The Purchase Plan can be automatically terminated by the Company at any time. As of December 31, 1996, 722,595 shares of Class A common stock have been issued under the Purchase Plan.
The Company's Amended and Restated 1987 Stock Option Plan (the 1987 Employee Plan) reserved 750,000 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.
The Company's Amended and Restated 1994 Employee Stock Option Plan (1994 Employee Plan) reserves 812,500 Class A shares for issuance to key employees. The terms of this plan are substantially the same as the terms of the 1987 Employee Plan.
The Company's amended and restated stock option plan for outside directors (the Directors' Plan) provides for the issuance of up to 187,500 shares of Class A stock. Under the plan each outside director is granted an option at fair market value at the conclusion of each regular annual meeting of stockholders for 1,875 shares. Terms of the Directors' Plan are similar to the terms of the Employee Plans. Outstanding options are summarized as follows:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. COMMON STOCK AND STOCK PLANS (cont.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. COMMON STOCK AND STOCK PLANS (cont.)
Had compensation costs for the Company's four stock-based compensation plans been determined based upon the fair value at the grant dates for awards under those plans consistent with the method of FASB Statement 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below (in thousands, except per share amounts):
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. COMMON STOCK AND STOCK PLANS (cont.)
The impact of outstanding non-vested stock options granted prior to 1995 has been excluded from the pro forma calculation; accordingly, the 1995 and 1996 pro forma adjustments are not indicative of future period pro forma adjustments, when the calculation will apply to all applicable stock options.
Compensation costs are calculated for the fair value of the participants' purchase rights, which was estimated using the Black-Scholes model with the following average assumptions for 1996 and 1995, respectively: dividend yield of 1.3% for both years; an expected life of one to seven years from vest date for both years; expected volatility of .2791 and .2860; and risk-free interest rates of 6.0% and 5.9%. The weighted-average fair value per share of those purchase rights granted in 1996 and 1995 was $8.31 and $5.78, respectively for Employee Plans and $5.61 and $5.52, respectively for the Directors' Plan.
NOTE 10. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS 107, "Disclosures about Fair Value of Financial Instruments", requires the determination of fair value for certain of the Company's assets, liabilities and contingent liabilities. The following methods and assumptions were used to estimate the fair value of those financial instruments included in the following categories:
Cash and cash equivalents - The carrying amount approximates fair value based on quoted market prices.
Long-Term Bank Debt - The carrying value approximates fair value based on interest rates available to the Company on debt instruments with similar terms.
Interest Rate Swap Agreement - When considering interest rates at December 31, 1996, it is estimated that the Company could terminate the interest rate swap agreement with only a nominal gain or loss.
NOTE 11. SALE OF NEWSPAPER AND OTHER BUSINESS OPERATIONS
In October 1996, the Company announced that it had entered into agreements in principle to sell five of its community newspapers. The Ellensburg Daily Record in Washington state was purchased by Pioneer Newspapers, Inc. in December 1996 and a pre-tax gain of $3,218,000 was recorded in nonoperating income.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. SALE OF NEWSPAPER AND OTHER BUSINESS OPERATIONS (cont.)
The Company also sold Nando's internet access operations and Legi-Tech's Florida operations and recorded a pre-tax loss of $378,000 on the sales.
NOTE 12. 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):
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10.
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 1997 Annual Meeting of Stockholders is incorporated herein by reference.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information contained under the headings "Compensation", "Executive Compensation", "Stock Option Awards", "Option Exercises and Holdings", "Pension Plans" and "Employment Agreement" in the definitive Proxy Statement for the Company's 1997 Annual Meeting of Stockholders is incorporated herein by reference.
ITEM 12.
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 1997 Annual Meeting of Stockholders is incorporated herein by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
a) (1)&(2) Financial Statements and Financial Statement Schedules filed as a part of this Report as listed in the Index to Financial Statements and Financial Statement Schedules on page 21 hereof.
(3) Exhibits filed as part of this Report as listed in the Exhibit Index beginning on page 51 hereof.
b) Reports on Form 8-K: None.
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 28, 1997.
McCLATCHY NEWSPAPERS, INC.
By /s/ GARY B. PRUITT ------------------------------------- Gary B. Pruitt President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SCHEDULE II
INDEX OF EXHIBITS
Exhibit - -------
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 as amended on July 25, 1995. 10.1* Merger Agreement by and among McClatchy Newspapers, Inc.; MNI Merger Sub, Inc.; and The News and Observer Publishing Company dated May 16, 1995, as amended included as Exhibit 10.1 to the Company's June 30, 1995 Form 10-Q filed with the Commission on August 14, 1995. 10.2* Credit Agreement between McClatchy Newspapers, Inc. and Bank of America National Trust and Savings Association dated July 28, 1995 included as Exhibit 10.2 to the Company's June 30, 1995 Form 10-Q. 10.3* The Amended and Restated Agreement for Standby Letter of Credit dated December 23, 1993 included as Exhibit 10.1 to the Company's 1994 Report on Form 10-K filed with the Commission on March 29, 1995. 10.4* 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. **10.5* 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. **10.6* The Company's Supplemental Executive Retirement Plan included in Exhibit 10.7 to the Company's 1988 Report on Form 10-K. **10.7 The Company's Amended and Restated 1987 Stock Option Plan dated August 15, 1996. **10.8 The Company's Amended and Restated 1994 Stock Option Plan dated August 15, 1996. **10.9* 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. **10.10* 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. **10.11* 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. **10.12 The Company's Amended and Restated 1990 Directors' Stock Option Plan dated January 22, 1997. **10.13 Employment Agreement between the Company and Gary B. Pruitt dated June 1, 1996. 21* Subsidiaries of the Company included as Exhibit 21 to the Company's 1995 Report on Form 10-K. 23 Consent of Deloitte & Touche LLP. 27 Financial Data Schedule for the Year Ended December 31, 1996.
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* Incorporated by reference
** Compensation plans or arrangements for the Company's executive officers and directors.