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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
For the quarterly period ended: |
June 27, 2004 |
|
or |
||
[ ] |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
For the transition period from ________________________________ to _______________________________ |
||
Commission file number: |
1-9824 |
The McClatchy Company |
(Exact name of registrant as specified in its charter) |
Delaware |
52-2080478 |
||
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
||
2100 "Q" Street, Sacramento, CA |
95816 |
||
(Address of principal executive offices) |
(Zip Code) |
916-321-1846 |
Registrant's telephone number, including area code |
Indicate by check mark whether the registrant has (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: [ X ] Yes [ ] No
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
[ X ] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: July 28, 2004:
Class A Common Stock |
20,139,180 |
Class B Common Stock |
26,274,147 |
THE McCLATCHY COMPANY
INDEX TO FORM 10-Q
Part I - FINANCIAL INFORMATION |
Page |
|||
Item 1 - Financial Statements (unaudited): |
||||
Consolidated Balance Sheet - June 27, 2004 and December 28, 2003 |
1 |
|||
Consolidated Statement of Income for the Three Months and Six Months ended June 27, 2004 and June 29, 2003 |
|
|||
Consolidated Statement of Cash Flows for the Six Months ended |
|
|||
Consolidated Statements of Stockholders' Equity for the Period |
|
|||
Notes to Consolidated Financial Statements |
6 |
|||
Item 2 - |
Management's Discussion and Analysis of Financial Condition and |
|
||
Item 3 - |
Quantitative and Qualitative Disclosures About Market Risk |
27 |
||
Item 4 - |
Controls and Procedures |
27 |
||
Part II - OTHER INFORMATION |
||||
Item 1 - |
Legal Proceedings |
29 |
||
Item 2 - |
Changes in Securities, Use of Proceeds and Issuer Purchases |
|
||
Item 3 - |
Default Upon Senior Securities |
29 |
||
Item 4 - |
Submission of Matters to a Vote of Security Holders |
29 |
||
Item 5 - |
Other Information |
30 |
||
Item 6 - |
Exhibits and Reports on Form 8-K |
30 |
||
Signature |
30 |
|||
Index of Exhibits |
31 |
PART I - FINANCIAL INFORMATION
Item 1 - FINANCIAL STATEMENTS
THE McCLATCHY COMPANY |
|||
CONSOLIDATED BALANCE SHEET (UNAUDITED) |
|||
(In thousands) |
|||
June 27, |
December 28, |
||
2004 |
2003 |
||
ASSETS |
|||
CURRENT ASSETS: |
|||
Cash and cash equivalents |
$ 3,782 |
$ 3,384 |
|
Trade receivables (less allowance of $2,452 |
|||
in 2004 and $3,084 in 2003) |
125,772 |
129,066 |
|
Other receivables |
3,534 |
3,859 |
|
Newsprint, ink and other inventories |
17,394 |
15,518 |
|
Deferred income taxes |
19,227 |
18,366 |
|
Prepaid income taxes |
- |
10,355 |
|
Other current assets |
11,269 |
7,910 |
|
180,978 |
188,458 |
||
PROPERTY, PLANT AND EQUIPMENT: |
|||
Building and improvements |
236,460 |
230,502 |
|
Equipment |
515,804 |
513,134 |
|
752,264 |
743,636 |
||
Less accumulated depreciation |
(457,752) |
(440,110) |
|
294,512 |
303,526 |
||
Land |
53,264 |
51,373 |
|
Construction in progress |
24,633 |
15,429 |
|
372,409 |
370,328 |
||
INTANGIBLE ASSETS: |
|||
Identifiable intangibles - net |
76,327 |
81,921 |
|
Goodwill - net |
1,249,213 |
1,218,047 |
|
1,325,540 |
1,299,968 |
||
PREPAID PENSION AND OTHER ASSETS |
58,769 |
16,544 |
|
TOTAL ASSETS |
$ 1,937,696 |
$ 1,875,298 |
|
See notes to consolidated financial statements. |
THE McCLATCHY COMPANY |
|||
CONSOLIDATED BALANCE SHEET (UNAUDITED) |
|||
(In thousands, except per share amounts) |
|||
June 27, |
December 28, |
||
2004 |
2003 |
||
LIABILITIES AND STOCKHOLDERS' EQUITY |
|||
CURRENT LIABILITIES: |
|||
Current portion of bank debt |
$ - |
$ 142,077 |
|
Accounts payable |
29,117 |
31,841 |
|
Accrued compensation |
61,689 |
60,833 |
|
Income taxes |
22,562 |
- |
|
Unearned revenue |
43,533 |
40,424 |
|
Carrier deposits |
1,813 |
2,435 |
|
Other accrued liabilities |
18,902 |
19,044 |
|
177,616 |
296,654 |
||
LONG-TERM DEBT |
333,830 |
204,923 |
|
OTHER LONG-TERM OBLIGATIONS |
44,123 |
58,702 |
|
DEFERRED INCOME TAXES |
102,404 |
99,002 |
|
COMMITMENTS AND CONTINGENCIES |
|||
STOCKHOLDERS' EQUITY: |
|||
Common stock $.01 par value: |
|||
Class A - authorized 100,000,000 shares, |
|||
issued 20,083,740 in 2004 and 19,896,011 in 2003 |
201 |
199 |
|
Class B - authorized 60,000,000 shares, |
|||
issued 26,294,147 in 2004 and 26,384,147 in 2003 |
263 |
264 |
|
Additional paid-in capital |
330,643 |
325,599 |
|
Retained earnings |
1,013,902 |
956,003 |
|
Accumulated other comprehensive loss |
(65,286) |
(66,048) |
|
1,279,723 |
1,216,017 |
||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
$ 1,937,696 |
$ 1,875,298 |
|
THE McCLATCHY COMPANY |
|||||||
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) |
|||||||
(In thousands, except per share amounts) |
|||||||
Three Months Ended |
Six Months Ended |
||||||
June 27, |
June 29, |
June 27, |
June 29, |
||||
2004 |
2003 |
2004 |
2003 |
||||
REVENUES - NET |
|||||||
Advertising |
$ 248,040 |
$ 229,539 |
$ 472,698 |
$ 439,961 |
|||
Circulation |
41,964 |
41,276 |
83,510 |
82,936 |
|||
Other |
6,266 |
5,555 |
12,345 |
11,354 |
|||
296,270 |
276,370 |
568,553 |
534,251 |
||||
OPERATING EXPENSES |
|||||||
Compensation |
118,304 |
110,799 |
236,407 |
222,622 |
|||
Newsprint and supplements |
38,220 |
34,239 |
73,189 |
65,805 |
|||
Depreciation and amortization |
16,410 |
17,142 |
33,024 |
35,353 |
|||
Other operating expenses |
51,210 |
48,095 |
102,008 |
97,115 |
|||
224,144 |
210,275 |
444,628 |
420,895 |
||||
|
|||||||
OPERATING INCOME |
72,126 |
66,095 |
123,925 |
113,356 |
|||
NON-OPERATING (EXPENSES) INCOME |
|||||||
Interest expense |
(2,309) |
(5,459) |
(5,948) |
(10,661) |
|||
Refinancing related charge |
(3,737) |
- |
(3,737) |
- |
|||
Partnership income (loss) |
419 |
161 |
312 |
(190) |
|||
Loss on Internet investment |
- |
(504) |
- |
(504) |
|||
Other - net |
(8) |
114 |
64 |
220 |
|||
(5,635) |
(5,688) |
(9,309) |
(11,135) |
||||
INCOME FROM CONTINUING OPERATIONS |
|||||||
BEFORE INCOME TAX PROVISION |
66,491 |
60,407 |
114,616 |
102,221 |
|||
INCOME TAX PROVISION |
26,396 |
22,941 |
45,592 |
39,457 |
|||
INCOME FROM CONTINUING OPERATIONS |
40,095 |
37,466 |
69,024 |
62,764 |
|||
DISCONTINUED OPERATION |
|||||||
Income from discontinued operation |
|||||||
(including $10,146 gain on disposal) |
- |
9,999 |
- |
10,020 |
|||
Income tax provision |
- |
4,017 |
- |
4,026 |
|||
Income from discontinued operation |
- |
5,982 |
- |
5,994 |
|||
NET INCOME |
$ 40,095 |
$ 43,448 |
$ 69,024 |
$ 68,758 |
|||
NET INCOME PER COMMON SHARE: |
|||||||
Basic: |
|||||||
Income from continuing operations |
$ 0.86 |
$ 0.81 |
$ 1.49 |
$ 1.36 |
|||
Income from discontinued operation |
$ - |
$ 0.13 |
- |
0.13 |
|||
Net income per share |
$ 0.86 |
$ 0.94 |
$ 1.49 |
$ 1.49 |
|||
Diluted: |
|||||||
Income from continuing operations |
$ 0.86 |
$ 0.81 |
$ 1.48 |
$ 1.35 |
|||
Income from discontinued operation |
$ - |
$ 0.13 |
- |
0.13 |
|||
Net income per share |
$ 0.86 |
$ 0.94 |
$ 1.48 |
$ 1.48 |
|||
WEIGHTED AVERAGE NUMBER OF COMMON SHARES: |
|||||||
Basic |
46,361 |
46,082 |
46,336 |
46,057 |
|||
Diluted |
46,803 |
46,404 |
46,776 |
46,357 |
|||
See notes to consolidated financial statements. |
THE McCLATCHY COMPANY |
|||
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) |
|||
(In thousands) |
|||
Six Months Ended |
|||
June 27, |
June 29, |
||
2004 |
2003 |
||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|||
Income from continuing operations |
$ 69,024 |
$ 62,764 |
|
Reconciliation to net cash provided: |
|||
Depreciation and amortization |
33,024 |
35,353 |
|
Deferred income taxes |
2,031 |
(6,066) |
|
Partnership (income) losses |
(312) |
190 |
|
Contribution to pension plans |
(60,000) |
(50,000) |
|
Refinancing related charge |
3,737 |
- |
|
Loss on Internet investments |
- |
504 |
|
Changes in certain assets and liabilities - net |
37,616 |
32,039 |
|
Other |
1,359 |
2,183 |
|
Net cash provided by continuing operations |
86,479 |
76,967 |
|
Income from discontinued operation |
- |
5,994 |
|
Reconciliation to net cash used: |
|||
Gain on sale of discontinued operation |
- |
(10,146) |
|
Other - net |
- |
1,577 |
|
Net cash used by discontinued operation |
- |
(2,575) |
|
Net cash provided by operating activities |
86,479 |
74,392 |
|
|
|||
CASH FLOWS FROM INVESTING ACTIVITIES: |
|||
Purchases of property, plant and equipment |
(23,067) |
(12,986) |
|
Purchase of Merced Group |
(40,984) |
- |
|
Proceeds from sale of discontinued operation |
- |
9,749 |
|
Other - net |
163 |
(79) |
|
Net cash used by investing activities |
(63,888) |
(3,316) |
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|||
Net proceeds of commercial paper |
333,830 |
- |
|
Repayment of debt |
(347,000) |
(67,000) |
|
Payment of financing costs |
(2,017) |
- |
|
Payment of cash dividends |
(11,125) |
(10,134) |
|
Other - principally stock issuances |
4,119 |
3,290 |
|
Net cash used by financing activities |
(22,193) |
(73,844) |
|
NET CHANGE IN CASH AND CASH EQUIVALENTS |
398 |
(2,768) |
|
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR |
3,384 |
5,357 |
|
CASH AND CASH EQUIVALENTS, END OF PERIOD |
$ 3,782 |
$ 2,589 |
|
OTHER CASH FLOW INFORMATION: |
|||
Cash paid during the period for: |
|||
Income taxes (net of refunds) |
$ 9,719 |
$ 15,086 |
|
Interest (net of capitalized interest) |
$ 5,786 |
$ 9,769 |
|
See notes to consolidated financial statements. |
THE McCLATCHY COMPANY |
|||||||||||
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED) |
|||||||||||
(In thousands, except per share amounts) |
|||||||||||
Par Value |
Additional |
Retained |
Accumulated |
Total |
|||||||
Class A |
Class B |
||||||||||
BALANCES, DECEMBER 28, 2003 |
$ 199 |
$ 264 |
$ 325,599 |
$ 956,003 |
$ (66,048) |
$ 1,216,017 |
|||||
Net Income |
69,024 |
69,024 |
|||||||||
Change in fair value of swaps |
782 |
||||||||||
Other |
(20) |
||||||||||
Other comprehensive income |
762 |
762 |
|||||||||
Total comprehensive income |
69,786 |
||||||||||
Dividends paid ($.24 per share) |
(11,125) |
(11,125) |
|||||||||
Conversion of 90,000 Class B shares |
|||||||||||
to Class A |
1 |
(1) |
- |
||||||||
Issuance of 97,729 Class A shares |
|||||||||||
under stock plans |
1 |
4,119 |
4,120 |
||||||||
Tax benefit from stock plans |
|
|
925 |
|
|
925 |
|||||
BALANCES, JUNE 27, 2004 |
$ 201 |
$ 263 |
$ 330,643 |
$ 1,013,902 |
$ (65,286) |
$ 1,279,723 |
|||||
See notes to consolidated financial statements. |
THE McCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The McClatchy Company (the Company) and its subsidiaries are engaged primarily in the publication of newspapers located in Minnesota, California, the Northwest (Washington and Alaska) and the Carolinas.
The consolidated financial statements include the Company and its subsidiaries. Significant inter-company items and transactions are eliminated. 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.
In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary (consisting of normal recurring items) to present fairly the Company's financial position, results of operations, and cash flows for the interim periods presented. The financial statements contained in this report are not necessarily indicative of the results to be expected for the full year.
Acquisition - On January 7, 2004, the Company purchased the assets of the Merced Sun-Star, a daily newspaper in Merced, California and five non-daily newspapers (Merced Group) for $41.0 million in cash. Revenues of the Merced Group in fiscal 2003 (year ended March 31, 2003) were $12.6 million. The purchase included $37.3 million in intangible assets, the most significant of which was $31.1 million of goodwill. Amortization of the goodwill and other identifiable intangibles will be deductible for tax purposes. The useful lives associated with the $6.2 million of identifiable intangible assets range from eight to 17 years. See the discussion of intangibles and goodwill below. The acquisition and results of the Merced Group are included in the Company's financial statements beginning on January 7, 2004. The results of the acquisition on the Company's pro forma combined results of operations for the fiscal year ended
December 28, 2003, or any interim period in the 2003 fiscal year (assuming the acquisition was made at the beginning of fiscal year 2003), was not material.
Discontinued operation - On June 10, 2003, the Company sold the assets of The Newspaper Network (TNN), a national sales and marketing company. The Associated Press purchased TNN's ad processing operations and, separately, Vertis, Inc. purchased TNN's sales and marketing assets. Total consideration from the sales was $14.2 million including the assumption of liabilities. The revenues and operating results of TNN are included in discontinued operations in the Consolidated Statement of Income in fiscal 2003.
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 primarily represent prepaid circulation subscriptions.
Cash equivalents are highly liquid debt investments with maturities of three months or less when acquired.
Concentrations of credit risks - Financial instruments that 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. 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 first-in, first-out method) or current market value.
Related party transactions - The Company owns a 13.5% interest in Ponderay Newsprint Company ("Ponderay"), a general partnership, 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 guarantees certain bank debt used to construct the mill (see Note 2) and is required to purchase 28,400 metric tons of annual production on a "take-if-tendered" basis at prevailing market prices until the debt is repaid. The Company satisfies this obligation by direct purchase (payments made in the first six months of fiscal 2004 and 2003: $7,152,000 and $7,050,000, respectively) or reallocation to other buyers.
Property, plant and equipment are stated at cost. Major improvements, as well as interest incurred during construction, are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred.
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 and goodwill 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. Prior to the adoption of SFAS No. 142 in fiscal 2002, the excess of purchase prices over identifiable assets was amortized over forty years. Management periodically evaluates the recoverability of intangible assets by reviewing the current and projected cash flows of its newspaper operations. The increase in intangible assets and goodwill from December 28, 2003 largely resulted from the acquisition of the Merced Group as discussed above, offset by a reduction in capitalized loan origination fees related to the Company's previous debt agreement, which were written off when the debt was refinanced - see discussion at Note 2. Information regarding the Company's identifiable intangible assets as of June 27, 2004 is as follows (in thousands):
Average Useful Life |
Carrying Amount |
Accumulated Amortization |
Net |
||||
Advertiser and subscriber lists |
16 Years |
$ 256,150 |
$ 190,322 |
$ 65,828 |
|||
Other |
6 Years |
20,101 |
9,602 |
10,499 |
|||
Identifiable intangible assets |
$ 276,251 |
$ 199,924 |
$ 76,327 |
||||
Amortization expense was $9,129,000 for the six months ended June 27, 2004. The remaining expense for fiscal 2004 and for the five succeeding fiscal years for intangible assets owned as of June 27, 2004, is as follows (in thousands):
Estimated Amortization |
||
2004 (remaining) |
$ 9,142 |
|
2005 |
17,909 |
|
2006 |
7,601 |
|
2007 |
3,753 |
|
2008 |
3,743 |
|
2009 |
3,713 |
Stock-based compensation - At June 27, 2004, the Company had six stock-based compensation plans. 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." No material amounts of compensation have been recorded for these plans.
Had compensation costs for the Company's 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 SFAS Statement No. 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):
Three Months Ended |
Six Months Ended |
||||||
June 27, 2004 |
June 29, 2003 |
June 27, 2004 |
June 29, 2003 |
||||
Net Income: |
|||||||
As reported: |
$ 40,095 |
$ 43,448 |
$ 69,024 |
$ 68,758 |
|||
Deduct stock-based compensation |
|||||||
under SFAS No. 123, net of taxes |
(1,123) |
(1,071) |
(2,485) |
(2,338) |
|||
Pro forma |
$ 38,972 |
$ 42,377 |
$ 66,539 |
$ 66,420 |
|||
Earnings per common share: |
|||||||
As reported: |
|||||||
Basic |
$ 0.86 |
$ 0.94 |
$ 1.49 |
$ 1.49 |
|||
Diluted |
$ 0.86 |
$ 0.94 |
$ 1.48 |
$ 1.48 |
|||
Pro forma |
|||||||
Basic |
$ 0.84 |
$ 0.92 |
$ 1.44 |
$ 1.44 |
|||
Diluted |
$ 0.83 |
$ 0.91 |
$ 1.42 |
$ 1.43 |
|||
Derivative instruments - The Company records its derivative instruments, primarily interest rate protection agreements (swaps), at fair value in its financial statements. See Note 2.
Deferred income taxes result from temporary differences between amounts of assets and liabilities reported for financial and income tax reporting purposes.
Comprehensive income (loss) - The Company records changes in its net assets from non-owner sources in its Statement of Stockholders' Equity. Such changes relate primarily to valuing its pension liabilities and interest rate protection agreements, net of tax effects.
The following table summarizes the activity in other comprehensive income (loss) for the six months ended June 27, 2004 (in thousands):
Pre-Tax |
Tax |
Net Change |
|||
Fair value of swap |
$ 1,303 |
$ (521) |
$ 782 |
||
Other |
(33) |
13 |
(20) |
||
$ 1,270 |
$ (508) |
$ 762 |
|||
Segment reporting - The Company's primary business is the publication of newspapers. The Company aggregates its newspapers into a single segment because each has similar economic characteristics, products, customers and distribution methods.
Earnings per share (EPS) - Basic EPS excludes dilution from common stock equivalents and reflects income divided by the weighted average number of common shares outstanding for the period. Diluted EPS is based upon the weighted average number of outstanding shares of common stock and dilutive common stock equivalents in the period. Common stock equivalents arise from dilutive stock options and are computed using the treasury stock method. The antidilutive stock options that could potentially dilute basic EPS in the future, but were not included in the weighted average share calculation in the first six months were 586,560 in 2003. There were no antidilutive stock options for the first six months of 2004.
NOTE 2. LONG-TERM DEBT AND OTHER COMMITMENTS
Long-term debt consisted of (in thousands):
June 27, |
December 28, |
||
Unsecured promissory notes |
$ 333,830 |
$ - |
|
Term loans |
- |
329,000 |
|
Revolving credit line |
- |
18,000 |
|
Total indebtedness |
333,830 |
347,000 |
|
Less current portion |
- |
(142,077) |
|
Long-term indebtedness |
$ 333,830 |
$ 204,923 |
On May 10, 2004, the Company entered into a five-year, senior unsecured revolving credit facility (Credit Agreement), which provides for borrowings of up to $500 million from a syndicate of banks through May 11, 2009. The primary purpose of the Credit Agreement is to support the issuance of unsecured promissory notes under a commercial paper program (commercial paper) of up to $500 million and for general corporate purposes. Initially, however, the Company used the Credit Agreement to refinance all of its existing term debt and principal outstanding under the previous bank credit facility. This debt was subsequently retired with commercial paper during the second quarter of fiscal 2004. As a result of the refinancing, the Company wrote off capitalized loan fees of $3.7 million related to its previous bank credit facility.
Debt under the Credit Agreement bears interest at the London Interbank Offered Rate (LIBOR) plus a spread ranging from 29.5 basis points to 77.5 basis points plus a utilization fee of 12.5 basis points if borrowings exceed $250 million. Applicable rates are based upon the Company's ratings on its long-term debt from Moody's and Standard & Poor's. Interest on principal outstanding from May 10, 2004 through June 21, 2004 ranged from 1.60% to 1.63%. A facility fee for the Credit Agreement ranges from 8.0 basis points to 22.5 basis points depending on the Company's ratings, and such fees are currently at 12.5 basis points. No amounts were outstanding under the Credit Agreement at June 27, 2004.
The revolving credit facility contains financial covenants including a minimum interest coverage ratio (as defined) of 3:1 and a maximum leverage ratio (as defined) of 4:1.
The commercial paper outstanding at June 27, 2004 had maturities ranging from June 28, 2004 to September 15, 2004, with interest rates ranging from 1.11% to 1.60%. The weighted average interest rate on commercial paper outstanding through June 27, 2004 was 1.18%. Because the Company's Credit Agreement provides backup for its commercial paper, the commercial paper is classified as long-term debt.
The Company's previous bank credit facility included term loans and a revolving credit line, all of which were retired from proceeds under the new debt structure described above. Interest rates applicable to debt drawn down during fiscal 2004 but prior to the refinancing of the previous bank credit facility ranged from 1.7% to 2.7% (excluding the effect of the interest rate swap discussed below).
At June 27, 2004, the Company had outstanding letters of credit totaling $7.0 million securing estimated obligations stemming from workers' compensation claims under the Company's self-insurance plans and other contingent claims.
The Company does not have, nor does it intend to enter into, derivative contracts for trading purposes. The Company has not attempted to hedge fluctuations in the normal purchases of goods and services used to conduct its business operations. Currently there is no intent to hedge or enter into contracts with embedded derivatives for the purchase of newsprint, ink, and other inventories, leases of equipment and facilities, or its business insurance contracts.
The Company had one interest rate swap agreement designated as a cash flow hedge specifically designed to hedge the variability in the expected cash flows that were attributable to interest rate fluctuations on $100.0 million of its variable rate bank debt which expired in June 2004. The effect of this agreement was to fix the LIBOR interest rate exposure at approximately 3.8% on that portion of the Company's term loans.
As of June 27, 2004, the Company was a guarantor of $11.8 million of bank debt related to its interest in Ponderay, a general partnership that owns and operates a newsprint mill in Washington State. The guarantee amount represents the Company's pro rata portion of Ponderay debt, which is guaranteed by the general partners. The partnership was formed in 1985 and began operations in 1989. The debt is secured by the assets of Ponderay and matures on April 12, 2006.
The Company has purchase obligations primarily related to capital expenditures for property, plant and equipment expiring at various dates through 2011, totaling approximately $33 million.
NOTE 3. EMPLOYEE BENEFITS
The Company sponsors defined benefit pension plans (retirement plans), which cover a majority of its employees. Benefits are based on years of service and compensation. Contributions to the plans are made by the Company in amounts deemed necessary to provide the required benefits. The Company made $60.0 million in voluntary contributions to its plans in early 2004 and does not currently anticipate any additional contributions in the remainder of fiscal 2004.
The $60.0 million contribution exceeded the amount of net pension liabilities the Company had recognized for its qualified plans. Accordingly, $46.0 million was reclassified to Prepaid Pension and Other Assets in the first quarter to reflect the Company's pre-paid pension status.
The Company also has a limited number of supplemental retirement plans to provide key employees 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 them 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 largely included in other long-term obligations. The elements of pension costs are as follows (in thousands):
Three Months Ended |
Six Months Ended |
||||||
June 27, |
June 29, |
June 27, |
June 29, |
||||
Service Cost |
$ 4,510 |
$ 2,169 |
$ 9,709 |
$ 8,137 |
|||
Interest Cost |
7,705 |
4,028 |
16,321 |
15,107 |
|||
Expected return on plan assets |
(11,257) |
(5,590) |
(23,684) |
(20,967) |
|||
Prior service cost amortization |
207 |
84 |
335 |
316 |
|||
Actuarial loss |
1,347 |
100 |
|
2,983 |
374 |
||
Net pension expense |
$ 2,512 |
$ 791 |
|
$ 5,664 |
$ 2,967 |
||
The Company contributed $529,000 and $583,000 to multi-employer plans for the three months ended June 27, 2004 and June 29, 2003, respectively, and $1.0 million for the six-month periods in 2004 and 2003.
The Company also provides or subsidizes certain retiree health care and life insurance benefits under two plans, one for employees of McClatchy Newspapers, Inc. and one for employees of The Star Tribune Company. The elements of post-retirement expenses are as follows (in thousands):
Three Months Ended |
Six Months Ended |
||||||
June 27, |
June 29, |
June 27, |
June 29, |
||||
Service Cost |
$ 234 |
$ 418 |
$ 576 |
$ 614 |
|||
Interest Cost |
333 |
548 |
742 |
806 |
|||
Prior service cost amortization |
(33) |
(39) |
(59) |
(57) |
|||
Actuarial loss |
88 |
257 |
309 |
377 |
|||
Net post-retirement expense |
$ 622 |
$ 1,184 |
$ 1,568 |
$ 1,740 |
|||
NOTE 4. COMMON STOCK AND STOCK PLANS
The Company's Class A and Class B common stock participate equally in dividends. Holders of Class B common stock are entitled to one vote per share and to elect as a class 75% of the Board of Directors, rounded down to the nearest whole number. Holders of Class A common stock are entitled to one-tenth of a vote per share and to elect as a class 25% of the Board of Directors, rounded up to the nearest whole number. Class B common stock is convertible at the option of the holder into Class A common stock on a share-for-share basis.
The holders of shares of Class B Common Stock are parties to an agreement, the intent of which is to preserve control of the Company by the McClatchy family. Under the terms of the agreement, the Class B shareholders have agreed to restrict the transfer of any shares of Class B Common Stock to one or more "Permitted Transferees," subject to certain exceptions. A "Permitted Transferee" is any current holder of shares of Class B Common Stock of the Company; any lineal descendant of Charles K. McClatchy; or a trust for the exclusive benefit of, or in which all of the remainder beneficial interests are owned by, one or more lineal descendants of Charles K. McClatchy.
In the event that a Class B shareholder attempts to transfer any shares of Class B Common Stock in violation of the agreement, or upon the happening of certain other events enumerated in the agreement as "Option Events," each of the remaining Class B shareholders has an option to purchase a percentage of the total number of shares of Class B Common Stock proposed to be transferred equal to such remaining Class B shareholder's ownership percentage of the total number of outstanding shares of Class B Common Stock. If all the shares proposed to be transferred are not purchased by the remaining Class B shareholders, the Company has the option of purchasing the remaining shares. In general, any shares not purchased under this procedure will be converted into shares of Class A Common Stock and then transferred freely (unless, following conversion, the outstanding shares of Class B Common Stock would constitute less than 25% of the total number of all outstanding shares of common stock of the Company). The ag reement can be terminated by the vote of the holders of 80% of the outstanding shares of Class B Common Stock who are subject to the agreement. The agreement will terminate on September 17, 2047, unless terminated earlier in accordance with its terms.
Item 2 - |
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Overview
The Company owns and publishes 30 newspapers in four regions of the country - Minnesota, California, the Carolinas and the Northwest (Alaska and Washington). The Company's newspapers range from large dailies serving metropolitan areas to non-daily newspapers serving small communities. The Company supplements its newspaper publishing with an array of niche products and direct marketing initiatives, including direct mail. The Company also operates leading local websites in each of its daily newspaper markets offering users information, comprehensive news, advertising, e-commerce and other services. The Company also owns and operates Nando Media, an interactive media operation that provides newspapers with content, publishing tools and software development.
The Company's primary source of revenue is advertising. While percentages vary from year to year, and from newspaper to newspaper, local retail advertising carried as a part of newspapers ("run-of-press" or "ROP" advertising) or in advertising inserts placed in newspapers (preprint advertising), generally contributes roughly 40% of advertising revenues at the Company's newspapers. Recent trends have been for certain national or regional retailers to use greater preprint advertising and less ROP advertising, although that trend shifts from time to time. Nonetheless, ROP advertising still makes up the majority of retail advertising. Classified advertising, primarily in automotive, employment and real estate categories, generally contributes about 40% of advertising revenue and national advertising generally contributes about 10% of such advertising. Online advertising, direct marketing and other advertising make up the remainder of the Company's advertising revenues. Circulation revenues contribute ro ughly 15% of the Company's newspaper revenues, depending upon the size and locale of the newspaper. Most newspapers are delivered by independent contractors and circulation revenues are recorded net of direct delivery costs.
See the following Results of Operations for a discussion of the Company's revenue performance and contribution by categories for the first six months of 2004 and 2003.
Recent Events and Trends
Recent Acquisition and Divestiture:
On January 7, 2004, the Company purchased the assets of the Merced Sun-Star, a daily newspaper in Merced, California and five non-daily newspapers (Merced Group) for $41.0 million in cash. The purchase included $37.3 million in intangible assets, the most significant of which was $31.1 million of goodwill. The acquisition and results of the Merced Group are included in the Company's financial statements beginning on January 7, 2004. See Note 1 to the Consolidated Financial Statements.
On June 10, 2003, the Company sold the assets of The Newspaper Network (TNN), a national sales and marketing company. The Associated Press purchased TNN's ad processing operations and, separately, Vertis, Inc. purchased TNN's sales and marketing assets. Total consideration from the sales was $14.2 million including the assumption of liabilities. The revenues and operating results of TNN are included in discontinued operations in the Company's Consolidated Statement of Income.
Refinancing of Debt:
On May 10, 2004 the Company entered into a five-year, senior unsecured revolving credit facility (Credit Agreement), which provides borrowings of up to $500 million from a syndicate of banks through May 11, 2009. The primary purpose of the Credit Agreement is to support the issuance of unsecured promissory notes under a commercial paper program (commercial paper) of up to $500 million and for general corporate purposes. Initially, however, the Company used the Credit Agreement to refinance all of its existing term debt and principal outstanding under the previous bank credit facility. This debt was subsequently retired with commercial paper during the second quarter of fiscal 2004.
Debt under the Credit Agreement bears interest at the London Interbank Offered Rate (LIBOR) plus a spread ranging from 29.5 basis points to 77.5 basis points plus a utilization fee of 12.5 basis points if borrowings exceed $250 million. Applicable rates are based upon the Company's ratings on its long-term debt from Moody's and Standard & Poor's. Interest on principle outstanding from May 10, 2004 to June 21, 2004 ranged from 1.60% to 1.63%. A facility fee for the revolving credit ranges from 8.0 basis points to 22.5 basis points depending on the Company's ratings, and such fees are currently at 12.5 basis points. No debt was outstanding under the Credit Agreement at June 27, 2004.
The Company's commercial paper outstanding at June 27, 2004 had maturities ranging from June 28, 2004 to September 15, 2004, with interest rates ranging from 1.11% to 1.60%. The weighted average interest rate on commercial paper outstanding through June 27, 2004 was 1.18%. Because the Company's Credit Agreement provides backup for its commercial paper, the commercial paper is classified as long-term debt.
In the second quarter of fiscal 2004, the Company recognized a charge, primarily consisting of previously capitalized loan fees, of $3.7 million related to its previous debt agreement. The write-off equaled an after-tax charge of $2.25 million.
Advertising Revenues:
The most significant trend in revenues for the newspaper industry and the Company has been the decline in employment advertising revenues since 2000. The Company's employment advertising revenues, which reached $190.8 million annually in 2000, declined 41.6% to $111.4 million in 2002. Employment advertising revenues declined an additional 12.0% to $98.0 million in fiscal 2003, but the rate of decline slowed from the second quarter of 2003 through the end of the year, with the fourth quarter declining 6.6% from the fiscal 2002 fourth quarter. Employment advertising improved in 2004 as discussed below.
In the first half of fiscal 2004, total advertising revenues grew 7.4% from the first half of fiscal 2003 to $472.7 million. A rebound in employment revenues of 8.6% from the first half of 2003, together with growth in national revenue and continued growth of Internet revenues, contributed to the increase in advertising revenue for the first half of fiscal 2004. In addition, the Merced Group contributed $5.8 million in advertising revenues for the first half of fiscal 2004. Please see the revenue discussions below under Results of Operations.
Operating Expenses:
The Company incurred three newsprint price increases in 2003, and one in May 2004, resulting in higher prices in the first six months of 2004 compared to the first six months of 2003. In July, three of the Company's newsprint suppliers announced a $50 per metric ton price increase effective for September 1, 2004. It is uncertain whether the amount and/or timing of the newsprint price increase will be implemented as indicated by the announcements. Newsprint pricing is largely dependent on global demand and supply for newsprint. All other things being equal, a hypothetical $10 per metric ton change in newsprint prices affects earnings per share by three cents annually. The impact of newsprint price increases on the Company's expenses is discussed under Results of Operations below.
The Company's fringe benefit costs increased 14.3% over the first six months of fiscal 2003 due primarily to higher retirement and medical costs, and are expected to continue to increase over the remainder of fiscal 2004. With regard to the Company's retirement expenses, historically low long-term interest rates caused the Company to use a 6.25% discount rate to calculate its pension and post-retirement expenses in fiscal 2004 compared to a 6.75% rate used in fiscal 2003. In addition, with an economic recovery anticipated by many analysts over the next several years, the Company believes it is prudent to increase its assumed rate of salary increase from a range of 3.0% to 5.0% used in 2003 to a range of 3.5% to 5.0% in 2004 for its pension plans. These factors will increase the Company's pension expense in fiscal 2004 compared to 2003. (See Note 3 to the Consolidated Financial Statements.) The Company has contributed $60.0 million to its pension plans during the first six months of 2004, and expected earnings on this contribution will partially offset these increases. Nonetheless, the Company expects its pension and post-retirement expense to increase between $4.0 million and $6.0 million in fiscal 2004 compared to fiscal 2003. Medical costs are also expected to rise in fiscal 2004 between $4.0 million and $6.0 million from 2003 levels.
RESULTS OF OPERATIONS
Second Fiscal Quarter 2004 Compared To Second Fiscal Quarter 2003
The Company reported net income of $40.1 million or 86 cents per share for the second fiscal quarter of 2004, compared to $37.5 million or 81 cents per share from continuing operations in the second fiscal quarter 2003.
Earnings in the 2004 quarter included a charge related to the Company's recent debt refinancing of $2.25 million after taxes. Total earnings in the 2003 quarter include a gain on the sale of a discontinued operation of 13 cents per share, and were 94 cents including the discontinued operation.
Revenues:
Revenues in the second fiscal quarter, including $3.6 million from the Merced Group, were $296.3 million, up 7.2% from revenues from continuing operations in the second fiscal quarter 2003. Advertising revenues were up 8.1% to $248.0 million and circulation revenue was up 1.7% to $42.0 million.
The following table summarizes the Company's revenue by category for the second fiscal quarter 2004 compared to the second fiscal quarter 2003. In order to allow an analysis of the categories on a comparable basis to fiscal 2003 operations, advertising revenues from the Merced Group are excluded from the advertising categories, and are discussed separately below. Management believes such an analysis is helpful to enable investors to understand the underlying performance of the Company's historical business.
(Dollars in thousands) |
||||||
Quarter Ended |
||||||
June 27, |
June 29, |
% |
||||
2004 |
2003 |
Change |
||||
Advertising Revenues: |
||||||
Retail |
$ 100,586 |
$ 98,239 |
2.4 |
|||
National |
26,327 |
24,713 |
6.5 |
|||
Classified: |
||||||
Automotive |
30,267 |
30,306 |
(0.1) |
|||
Employment |
28,488 |
24,653 |
15.6 |
|||
Real estate |
24,879 |
22,838 |
8.9 |
|||
Other |
10,200 |
9,840 |
3.7 |
|||
Total classified |
93,834 |
87,637 |
7.1 |
|||
Other |
24,049 |
18,950 |
26.9 |
|||
Subtotal |
244,796 |
229,539 |
6.6 |
|||
Merced advertising |
3,244 |
- |
NM |
|||
Total advertising |
248,040 |
229,539 |
8.1 |
|||
Circulation |
41,964 |
41,276 |
1.7 |
|||
Other |
6,266 |
5,555 |
12.7 |
|||
Total Revenues |
$ 296,270 |
$ 276,370 |
7.2 |
|||
NM - Not Meaningful |
While the Company reviews and evaluates the operations of each individual newspaper, for purposes of organization and ease of understanding, the following table summarizes the second fiscal quarter 2004 revenues at its newspapers operations by region with quarter-over-quarter changes:
(Dollars in thousands) |
|||||||||||||||
Minnesota |
California (1) |
Carolinas |
Northwest |
||||||||||||
% |
% |
% |
% |
||||||||||||
Revenues |
Change |
Revenues |
Change |
Revenues |
Change |
Revenues |
Change |
||||||||
Advertising |
$ 78,819 |
7.4 |
$ 94,429 |
10.9 |
$ 39,723 |
7.0 |
$ 35,069 |
3.5 |
|||||||
Circulation |
16,839 |
3.2 |
12,742 |
(0.2) |
6,117 |
1.5 |
6,266 |
1.3 |
|||||||
Other |
1,157 |
61.4 |
1,604 |
21.4 |
1,493 |
12.5 |
1,769 |
(9.6) |
|||||||
Total |
$ 96,815 |
7.1 |
$108,775 |
9.6 |
$ 47,333 |
6.4 |
$ 43,104 |
2.6 |
|||||||
Retail advertising, excluding the Merced Group, grew $2.3 million over the second fiscal quarter 2003 with about half of the growth coming from preprint advertising inserts placed into the newspapers and half from ROP advertising. Preprint advertising was up $1.1 million, or 3.0% and ROP advertising increased $1.2 million or 2.0%. Much of the revenue increase was from the Company's three daily Bee newspapers in California ($1.2 million) and from the Star Tribune in Minneapolis ($1.6 million). Retail advertising declined in the Carolina and Northwest regions due primarily to cutbacks at major department stores in these regions.
National advertising, excluding the Merced Group, increased $1.6 million, reflecting strong advertising from the entertainment, airline and banking categories. Entertainment and airline advertising contributed $1.0 million of the increase in national advertising. The increase was generated by the Star Tribune in Minneapolis, the News & Observer in Raleigh, NC, and the Northwest regions. The California newspapers experienced relative declines in national advertising due to significant increases in telecommunications advertising in that region in 2003 that diminished in 2004.
Classified advertising, excluding the Merced Group, increased $6.2 million over the second fiscal quarter 2003, mostly from growth in employment and real estate advertising. Employment advertising was up $3.8 million or 15.6% and increased in all regions. The Star Tribune (up $1.5 million) and California region (up $1.1 million) led the Company in employment advertising growth in the second quarter of 2004 compared to the second quarter of 2003. Real estate advertising was up $2.0 million or 8.9% and was also up in all regions. The increase in real estate advertising in the second quarter continued to reflect the national trend in this category.
Other advertising revenues, excluding the Merced Group, increased $5.1 million and primarily consisted of direct marketing and Internet advertising revenues, two of the fastest growing revenue sources at the Company's newspapers. Direct marketing revenues increased $1.5 million with the growth coming primarily from the Company's three Bee newspapers, which have combined to offer direct mail programs to advertisers. Online advertising grew $3.6 million or 54.0% with strong growth in all regions. Employment advertising represents 51.4% of online advertising and increased $2.7 million in the quarter.
The Merced Group contributed $3.2 million in advertising revenues in the second fiscal quarter, including $1.6 million in retail advertising, $1.1 million in classified advertising and $412,000 in direct mail advertising revenues.
Circulation revenues increased $688,000. The Merced Group contributed $180,000 of this increase in the quarter. The remainder of the increase came primarily from the Star Tribune, where volumes increased and promotional discounts were down.
Operating Expenses:
Operating expenses increased 6.6% including $3.0 million from the Merced Group, and were up 5.2% excluding the expenses of the Merced Group. The following review of expense categories excludes the expenses of the Merced Group. Management believes such an analysis is helpful to enable investors to understand the underlying performance of the Company's historical business.
The 5.2% increase in expenses excluding the Merced Group primarily reflects higher newsprint, retirement and medical costs. Newsprint and supplement expense was up 10.5% with newsprint prices up 10.3% and newsprint consumption down 0.1%. Supplement costs were up $584,000. Compensation costs were up 5.5% reflecting salary increases, incentive pay and higher fringe benefit costs. Salaries and incentive pay increased 4.0%. Merit increases of about 3.0% were offset somewhat by a 1.7% decline in head count, but incentive pay and sales commissions increased as revenue and other target goals were met. Fringe benefit costs rose 11.9%, largely due to $2.4 million in additional retirement and medical costs. Other operating expenses increased 4.4% primarily due to increased postage costs associated with the Company's direct mail programs and higher bad debt reserves. Depreciation and amortization decreased $905,000, or 5.3%, largely reflecting lower capital expenditures over the last several years and the e xpiration of useful lives of certain intangible assets.
Non-Operating (Expenses) Income - Net:
Interest expense was $2.3 million for the second fiscal quarter 2004. This is a 57.7% decline from the second fiscal quarter 2003, as the Company benefited from lower interest rates, the expiration of three interest rate swap agreements in June 2003, and debt repayment from free cash flow. The Company also recorded $3.7 million as a pre-tax charge to write off costs associated with its recent debt refinancing. See Note 2 to the financial statements and "Refinancing of Debt" discussion under "Recent Events and Trends" above. The Company also recorded $419,000 as its share of Ponderay's income for the second fiscal quarter 2004 compared to $161,000 of income in the second fiscal quarter 2003. In the second quarter of fiscal 2003, the Company recorded a pre-tax charge of $504,000 to write down a certain Internet investment.
Income Taxes:
The Company's effective income tax rate was 39.7% for the second fiscal quarter 2004 compared to 38.0% in the second fiscal quarter 2003. The lower annual effective rate in 2003 reflects the successful resolution of certain state tax positions the Company took in connection with past acquisitions.
First Half of Fiscal 2004 Compared to First Half of Fiscal 2003
The Company reported net income of $69.0 million or $1.48 per share for the first half of fiscal 2004, which included the non-cash charge of $2.25 million after tax related to its debt refinancing. Earnings from continuing operations in the first half of fiscal 2003 were $62.8 million or $1.35 per share, and were $1.48 per share including income from a discontinued operation. Revenues and expenses in the six-month period were generally affected by the trends discussed in the quarterly comparison above, with exceptions noted below.
Revenues:
Revenues in the first half of fiscal 2004, including $6.7 million from the Merced Group, were $568.6 million, up 6.4% from revenues from continuing operations in the first half of fiscal 2003. Advertising revenues were up 7.4% to $472.7 million and circulation revenues were up 0.7% to $83.5 million.
The following table summarizes the Company's revenue by category for the first six months of 2004 compared to the first six months of 2003. In order to allow an analysis of the categories on a comparable basis to fiscal 2003 operations, advertising revenues from the Merced Group are excluded from the advertising categories, and are discussed separately below. Management believes such an analysis is helpful to enable investors to understand the underlying performance of the Company's historical business.
(Dollars in thousands) |
||||||
Year to date |
||||||
June 27, |
June 29, |
% |
||||
2004 |
2003 |
Change |
||||
Advertising Revenues: |
||||||
Retail |
$ 190,491 |
$ 185,690 |
2.6 |
|||
National |
50,162 |
46,061 |
8.9 |
|||
Classified: |
||||||
Automotive |
59,810 |
58,891 |
1.6 |
|||
Employment |
55,293 |
50,899 |
8.6 |
|||
Real estate |
47,676 |
43,772 |
8.9 |
|||
Other |
18,818 |
19,204 |
(2.0) |
|||
Total classified |
181,597 |
172,766 |
5.1 |
|||
Other |
44,695 |
35,444 |
26.1 |
|||
Subtotal |
466,945 |
439,961 |
6.1 |
|||
Merced advertising |
5,753 |
- |
NM |
|||
Total advertising |
472,698 |
439,961 |
7.4 |
|||
Circulation |
83,510 |
82,936 |
0.7 |
|||
Other |
12,345 |
11,354 |
8.7 |
|||
Total Revenues |
$ 568,553 |
$ 534,251 |
6.4 |
|||
NM - Not Meaningful |
While the Company reviews and evaluates the operations of each individual newspaper, for purposes of organization and ease of understanding, the following table summarizes revenues for the first half of 2004 at its newspapers operations by region with year-over-year changes:
(Dollars in thousands) |
|||||||||||||||
Minnesota |
California (1) |
Carolinas |
Northwest |
||||||||||||
% |
% |
% |
% |
||||||||||||
Revenues |
Change |
Revenues |
Change |
Revenues |
Change |
Revenues |
Change |
||||||||
Advertising |
$ 151,415 |
6.6 |
$ 180,287 |
10.8 |
$ 75,469 |
5.6 |
$ 65,527 |
2.7 |
|||||||
Circulation |
33,010 |
0.6 |
25,713 |
0.3 |
12,327 |
1.5 |
12,460 |
0.8 |
|||||||
Other |
2,125 |
70.7 |
3,199 |
26.0 |
3,355 |
11.2 |
3,218 |
(19.1) |
|||||||
Total |
$ 186,550 |
6.0 |
$ 209,199 |
9.6 |
$ 91,151 |
5.2 |
$ 81,205 |
1.3 |
|||||||
Retail advertising, excluding the Merced Group, grew $4.8 million over the first half of 2003 due to growth in preprinted advertising inserts placed into the newspapers, which was up $2.5 million, or 3.5% and in ROP advertising, which increased $2.2 million or 2.0%. As was noted earlier, much of the revenue increase was from the Company's three daily Bee newspapers in California ($2.4 million) and from the Star Tribune in Minneapolis ($3.3 million), offset by declines in the Carolina and Northwest regions.
National advertising, excluding the Merced Group, increased $4.1 million, reflecting strong advertising from the automotive, banking, entertainment and airline categories, with a decline in telecommunications (primarily in the California region). Banking and airline contributed $2.2 million of the increase in national advertising. The net increase in national revenues was spread among the California, Minnesota and Carolinas regions, while the Northwest newspapers reported a decline in national advertising.
Classified advertising, excluding the Merced Group, increased $8.8 million over the first half of 2003, mostly from employment and real estate advertising growth. As previously discussed, employment advertising was up in all regions and gained momentum as the year has progressed. Real estate advertising was strong in all regions except for the Carolina region, where it declined nominally year-to-date, but was up in the second quarter. The increase in real estate advertising in the Company's other regions reflects the national trend in this category.
Other advertising revenues, excluding the Merced Group, increased $9.3 million and primarily consisted of direct marketing and Internet advertising revenues. Direct marketing revenues increased $2.4 million with most of the growth coming from the Company's three Bee newspapers. Online advertising grew $6.9 million or 55.9% with strong growth in all regions.
The Merced Group contributed $5.8 million in advertising revenues in the first half, including $2.8 million in retail advertising, $2.2 million in classified advertising and $727,000 in direct mail advertising revenues.
Consolidated circulation revenues increased $575,000 with much of the growth from the Merced Group. Circulation revenues at other newspapers increased nominally as increases at some newspapers were offset by declines at others.
Operating Expenses:
Operating expenses increased 5.6% including $5.6 million from the newly acquired Merced Group, and were up 4.3% excluding the expenses of the Merced Group. The following review of expense categories excludes the expenses of the Merced Group. Management believes such an analysis is helpful to enable investors to understand the underlying performance of the Company's historical business.
The 4.3% increase in expenses excluding the Merced Group generally reflects the same factors discussed in the second quarter review above. Newsprint and supplement expense was up 10.0% with newsprint prices up 8.8% and newsprint consumption down 0.9%. Supplement costs were up $1.6 million. Compensation costs were up 5.0%, primarily reflecting salary increases and higher fringe benefit costs. Salaries increased 3.0% reflecting merit increases, which were offset somewhat by a decline in head count. However, fringe benefit costs rose 13.3%, largely due to $5.4 million in additional retirement and medical costs. Other operating expenses increased 3.3% primarily due to increased postage costs associated with the Company's direct mail programs. Depreciation and amortization decreased $2.7 million, or 7.5%, largely reflecting lower capital expenditures over the last several years and the expiration of useful lives of certain intangible assets.
Non-Operating (Expenses) Income - Net:
Interest expense was $5.9 million for the first half of fiscal 2004. This is a 44.2% decline from the first half of fiscal 2003, as the Company benefited from lower interest rates, the expiration of three interest rate swap agreements in June 2003, and debt repayment from free cash flow. The Company also recorded $3.7 million as a pre-tax charge to write off costs associated with its recent debt refinancing. See Note 2 to the financial statements and "Refinancing of Debt" discussion under "Recent Events and Trends" above.
The Company also recorded $312,000 as its share of Ponderay's income for the first half of fiscal 2004 compared to $190,000 of loss in the first half of fiscal 2003. In 2003 the Company recorded a pre-tax charge of $504,000 to write down a certain Internet investment.
Income Taxes:
The Company's effective income tax rate was 39.8% for the first half of fiscal 2004 compared to 38.6% in the first half of fiscal 2003, when the Company recorded the effect of the successful resolution of certain state tax positions it had taken in connection with past acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
Sources and Uses of Liquidity and Capital Resources:
The Company's cash and cash equivalents were $3.8 million at June 27, 2004 versus $3.4 million at the end of fiscal 2003. The Company generated $86.5 million of cash from operating activities for the first six months of fiscal 2004. The major non-operating uses of cash for the first six months of fiscal 2004 have been to purchase the Merced Group, purchase property, plant and equipment, and pay dividends. The Company repaid $347 million of debt under its previous debt agreements and had net proceeds of $375 million for the issuance of debt under its new Credit Agreement. Debt under the Credit Agreement was subsequently retired with proceeds from issuing commercial paper. See discussion of debt refinancing below. The Company paid $11.1 million in dividends for the first half of fiscal 2004, an increase to 12 cents per share from 11 cents, while proceeds from issuing Class A stock under employee stock plans totaled $4.1 million. See the Company's Statement of Cash Flows on page 4.
During the first six months of 2004, the Company made voluntary contributions of $60.0 million to its defined benefit pension plans to reduce the unfunded liability of its qualified pension plans, which totaled $14.0 million at December 28, 2003, and to help reduce pension expense with the earnings on the contributions. Given the anticipated increase in its pension obligations in 2004 resulting from pension expense, and depending on the return on pension assets and the interest rate environment, management considered the $60.0 million contribution to be prudent. The Company may be required to, or may voluntarily opt to, make additional contributions to its pension plans in future years, but does not currently anticipate any additional contributions in fiscal 2004.
The Company expended a total of $23.1 million in the first half of fiscal 2004 for capital projects and equipment to improve productivity, keep pace with new technology and maintain existing operations. Planned expenditures in fiscal 2004 are estimated to be $48.0 million at existing facilities.
Debt and Related Matters:
On May 10, 2004 the Company entered into a five-year, senior unsecured revolving credit facility (Credit Agreement), which provides borrowings of up to $500 million from a syndicate of banks through May 11, 2009. The primary purpose of the Credit Agreement is to support the issuance of unsecured promissory notes under a commercial paper program (commercial paper) of up to $500 million and for general corporate purposes. Initially, however, the Company used the Credit Agreement to refinance all of its existing term debt and principal outstanding under the previous bank credit facility. This debt was subsequently retired with commercial paper during the second quarter of fiscal 2004.
Debt under the Credit Agreement bears interest at the London Interbank Offered Rate (LIBOR) plus a spread ranging from 29.5 basis points to 77.5 basis points plus a utilization fee of 12.5 basis points if borrowings exceed $250 million. Applicable rates are based upon the Company's ratings on its long-term debt from Moody's and Standard & Poor's. Interest on principle outstanding from May 10, 2004 to June 21, 2004 ranged from 1.60% to 1.63%. A facility fee for the revolving credit ranges from 8.0 basis points to 22.5 basis points depending on the Company's ratings, and such fees are currently at 12.5 basis points. No debt was outstanding under the Credit Agreement at June 27, 2004.
The revolving credit facility contains financial covenants including a minimum interest coverage ratio (as defined) of 3:1 and a maximum leverage ratio (as defined) of 4:1.
The Company's commercial paper outstanding at June 27, 2004 had maturities ranging from June 28, 2004 to September 15, 2004, with interest rates ranging from 1.11% to 1.60%. The weighted average interest rate on commercial paper outstanding through June 27, 2004 was 1.18%. Because the Company's Credit Agreement provides backup for its commercial paper, the commercial paper was classified as long-term debt.
The Company anticipates using cash generated from its operations to reduce its outstanding debt by retiring its commercial paper, until such times that additional liquidity is needed for working capital and other operating needs (such as tax payments and capital expenditures). In the event additional liquidity is needed for such purposes, the Company anticipates that it would increase debt through the issuance of additional commercial paper. The Company considers these fluctuations in its debt to be in the normal course of business and to be immaterial to its operations and financial position given its $500 million borrowing capacity under its Credit Agreement and commercial paper program.
The Company currently has outstanding letters of credit totaling $7.0 million securing estimated obligations stemming from workers' compensation claims under the Company's self-insurance plans and other contingent claims. The Company had $159.1 million of available credit under its current Credit Agreement at June 27, 2004.
The Company does not have, nor does it intend to enter into, derivative contracts for trading purposes. The Company has not attempted to hedge fluctuations in the normal purchases of goods and services used to conduct its business operations. Currently there is no intent to hedge or enter into contracts with embedded derivatives for the purchase of newsprint, ink, and other inventories, leases of equipment and facilities, or business insurance contracts.
The Company had one interest rate swap agreement designated as a cash flow hedge specifically designed to hedge the variability in the expected cash flows that were attributable to interest rate fluctuations on $100.0 million of its variable rate bank debt which expired in June 2004. The effect of this agreement was to fix the LIBOR interest rate exposure at approximately 3.8% on that portion of the Company's term loans.
Contractual Obligations:
As of June 27, 2004, the Company was a guarantor of $11.8 million of bank debt related to its interest in Ponderay, a general partnership that owns and operates a newsprint mill in Washington State. The guarantee amount represents the Company's pro rata portion of Ponderay debt, which is guaranteed by the general partners. The partnership was formed in 1985 and began operations in 1989. The debt is secured by the assets of Ponderay and matures on April 12, 2006.
The Company has purchase obligations primarily related to capital expenditures for property, plant and equipment expiring at various dates through 2011, totaling approximately $33 million.
Significant changes in the Company's contractual obligations since year-end 2003 include extending the maturity of its long-term debt to May 11, 2009, through its refinancing (discussed above) and the payment of pension obligations for its qualified plans through the voluntary $60 million contribution. Pension obligations now include $21.4 million of liabilities related to non-qualified plans while the qualified plans have a $41.9 million prepaid balance in other assets.
RISK FACTORS THAT COULD AFFECT OPERATING RESULTS
Forward-Looking Information:
This quarterly report on Form 10-Q contains forward-looking statements regarding the Company's actual and expected financial performance and operations. These statements are based upon our current expectations and knowledge of factors impacting our business, including, without limitation, statements about plans to further fund pension assets, return on pension plan assets and assumed salary increases, newsprint costs, pension, retirement and medical costs, amortization expense, use of derivative instruments, prepayment and refinancing of debt, capital expenditures, sufficiency of capital resources and possible acquisitions. Such statements are subject to risks, trends and uncertainties. Forward-looking statements are generally preceded by, followed by or are a part of sentences that include the words "believes," "expects," "anticipates," "estimates," or similar expressions. For those statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Secu rities Litigation Reform Act of 1995. You should understand that the following important factors, in addition to those discussed elsewhere in this document and in the documents which we incorporate by reference, could affect the future results of McClatchy, and could cause those future results to differ materially from those expressed in our forward-looking statements: general economic, market or business conditions, especially in any of the markets where we operate newspapers; geo-political uncertainties including those related to war; changes in newsprint prices and/or printing and distribution costs from anticipated levels; changes in interest rates or in the availability of capital; changes in pension assets and liabilities; increased competition from newspapers or other forms of media in our principal markets; increased consolidation among major retailers in our newspaper markets, increased volatility in retail advertising in our newspapers, or other events depressing the level of advertising; changes in our ability to negotiate and obtain favorable terms under collective bargaining arrangements with our employees; competitive actions by other companies; difficulties in servicing our debt obligations; other occurrences leading to decreased circulation and diminished revenues from both display and classified advertising; and other factors, many of which are beyond our control.
Additional Information Regarding Certain Risks:
Newsprint is the major component of our cost of raw materials. Newsprint accounted for 14.0% of McClatchy's operating expenses for the first half of fiscal 2004. Accordingly, our earnings are sensitive to changes in newsprint prices. We have not attempted to hedge fluctuations in the normal purchases of newsprint or enter into contracts with embedded derivatives for the purchase of newsprint. If the price of newsprint increases materially, our operating results could be adversely affected. For a discussion of the impact of a change in newsprint prices on the Company's earnings per share, please see the newsprint discussion above at "Recent Events and Trends." If our newsprint suppliers experience labor unrest, transportation difficulties or other supply disruptions, our ability to produce and deliver newspapers could be impaired and/or the cost of the newsprint could increase, both of which would negatively affect our operating results.
If McClatchy experiences labor unrest, our ability to produce and deliver newspapers would be impaired. The results of future labor negotiations could harm our operating results. Our newspapers have not endured a labor strike since 1980. However, we cannot ensure that a strike will not occur at one or more of our newspapers in the future. As of June 27, 2004, approximately a quarter of our full- and part-time employees were represented by unions including 58% at the Star Tribune and 23% at The Sacramento Bee, the Company's two largest newspapers. Most of the Company's union-represented employees are currently working under labor agreements, which expire at various times. McClatchy faces collective bargaining upon the expirations of these labor agreements. Even if our newspapers do not suffer a labor strike, the Company's operating results could be harmed if the results of labor negotiations restrict our ability to maximize the efficiency of our newspaper operations.
Changes in the regulatory and technological environment are bringing about consolidation of media companies and convergence among various forms of media. These changes are expected to continue or accelerate as a result of anticipated loosening of regulatory constraints by the Federal Communications Commission. The Company faces competition with larger and more diversified entities for circulation and advertising revenues and further industry consolidation will likely increase this competition. Such consolidation could also affect the Company's opportunities to make acquisitions.
Item 3 - |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
All things being equal, a hypothetical 25 basis point change in LIBOR for a fiscal year would have less than a $0.01 per share increase or decrease in the Company's annual results of operations.
Item 4 - |
CONTROLS AND PROCEDURES |
Evaluation of disclosure controls and procedures. Our management evaluated, with the participation of our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rules 13a - 15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, the Company's management, including the CEO and CFO, concluded at that time that the Company's disclosure controls and procedures were effective to ensure that information the Company is required to disclose in reports it files or submits, under the Securities Exchange Act of 1934, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms.
Changes in internal control over financial reporting. There was no change in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
(Remainder of this page left intentionally blank)
PART II - OTHER INFORMATION
Item 1 |
Legal Proceedings - None |
Item 2 |
Changes in Securities, Use of Proceeds and Issuer Purchases |
Item 3 |
Default Upon Senior Securities - None |
Item 4 |
Submission of Matters to a Vote of Security Holders: |
The Company held its annual shareholders' meeting on May 19, 2004 to vote on three proposals. Shareholders approved all of the proposals by voting as follows:
VOTES |
||||
1. |
Election of Directors of the Board |
FOR |
WITHHELD |
|
Class A Common Stock |
||||
Elizabeth Ballantine |
16,532,804 |
47,765 |
||
Leroy Barnes, Jr. |
16,220,214 |
360,355 |
||
S. Donley Ritchey |
15,424,192 |
1,156,377 |
||
Maggie Wilderotter |
12,148,955 |
4,431,614 |
||
Class B Common Stock |
FOR |
WITHHELD |
||
William K. Coblentz |
25,999,647 |
-0- |
||
Molly Maloney Evangelisti |
25,999,647 |
-0- |
||
Larry Jinks |
25,999,647 |
-0- |
||
Joan F. Lane |
25,999,647 |
-0- |
||
James B. McClatchy |
25,999,647 |
-0- |
||
Kevin S. McClatchy |
25,999,647 |
-0- |
||
William Ellery McClatchy |
25,999,647 |
-0- |
||
Theodore Mitchell |
25,999,647 |
-0- |
||
Gary B. Pruitt |
25,999,647 |
-0- |
||
Frederick R. Ruiz |
25,999,647 |
-0- |
|
|
|
BROKER NON-VOTES |
|||||
2. |
To Approve McClatchy's 2004 Stock Incentive Plan |
|
|
|
|
|||
3. |
Ratification of Deloitte & Touche LLP as Auditors for 2004 |
|
|
|
|
Item 5 |
Other Information - None |
|
Item 6 (a) |
Exhibits filed as a part of this Report as listed in the Index of Exhibits, |
|
(b) |
Reports on Form 8-K - Filed on April 15, 2004, titled "McClatchy Reports Record First Quarter 2004 Earnings and Provides Second Quarter Outlook" and Form 8-K filed on May 10, 2004, titled "McClatchy Completes Debt Refinancing." |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
The McClatchy Company |
||
Registrant |
||
|
|
|
Date |
Gary B. Pruitt |
|
|
|
|
Date |
Patrick J. Talamantes Chief Financial Officer |
INDEX OF EXHIBITS
Exhibit |
Description |
|
3.1 |
* |
The Company's Restated Certificate of Incorporation dated March 18, 1998, included as Exhibit 3.1 in the Company's 1997 Form 10-K. |
3.2 |
* |
The Company's By-laws as amended on December 4, 2002 included as Exhibit 3.2 to the Company's 2002 Form 10-K. |
4.1 |
Form of Physical Note for the Company's Commercial Paper Program. |
|
10.1 |
|
Credit Agreement dated as of May 10, 2004 among The McClatchy Company and Bank of America, N.A. as Administrative Agent, Swing Line Lender and L/C Issuer and JPMorgan Chase Bank as Syndication agent and other Lenders Parties hereto. |
10.2 |
* |
Ponderay Newsprint Company Partnership Agreement dated as of September 12, 1985 between Lake Superior Forest Products, Inc., Central Newsprint Company, Inc., Bradley Paper Company, Copley Northwest, Inc., Puller Paper Company, Newsprint Ventures, Inc., Wingate Paper Company, Tribune Newsprint Company and Nimitz Paper Company included in Exhibit 10.10 to McClatchy Newspapers, Inc. Registration Statement No. 33-17270 on Form S-1. |
**10.3 |
* |
The McClatchy Company Management by Objective Plan Description included as Exhibit 10.4 in the Company's Report filed on Form 10-K for the Year ending December 31, 2000. |
**10.4 |
* |
Amended and Restated Supplemental Executive Retirement Plan effective January 1, 2002 included as Exhibit 10.4 to the Company's 2001 Form 10-K. |
**10.5 |
* |
Amended and Restated 1987 Stock Option Plan dated August 15, 1996 included as Exhibit 10.7 to the McClatchy Newspapers, Inc. 1996 Report on Form 10-K. |
**10.6 |
* |
Amended and Restated 1994 Stock Option Plan dated February 1, 1998 included as Exhibit 10.15 to the Company's Report on Form 10-Q filed for the Quarter Ending on July 1, 2001. |
**10.7 |
* |
Amended and Restated 1997 Stock Option Plan included as Exhibit 10.7 to the Company's 2002 Report on Form 10-K. |
**10.8 |
* |
Executive Performance Plan adopted on January 1, 1990 included in Exhibit 10.13 to McClatchy Newspapers, Inc. 1989 Report on Form 10-K. |
**10.9 |
* |
The Company's Amended and Restated 1990 Directors' Stock Option Plan dated February 1, 1998 included as Exhibit 10.12 to the Company's 1997 Form 10-K. |
**10.10 |
* |
Amended and Restated Employment Agreement between the Company and Gary B. Pruitt dated |
**10.11 |
* |
The Company's Long-Term Incentive Plan dated January 1, 1998 included as Exhibit 10.2 to the Company's Report on Form 10-Q for the Quarter Ending on June 30, 1998. |
**10.12 |
* |
The Company's Amended and Restated Chief Executive Bonus Plan, dated March 19, 2003 included as Exhibit 10.12 to the Company's Report on Form 10-Q for the Quarter Ending June 29, 2003. |
**10.13 |
* |
The Company's Amended and Restated 2001 Director Stock Option Plan included as Exhibit 10.13 to the Company's 2002 Report on Form 10-K. |
**10.14 |
The McClatchy Company 2004 Stock Incentive Plan. |
|
21 |
* |
Subsidiaries of the Company. |
31.1 |
Certification of the Chief Executive Officer of The McClatchy Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
31.2 |
Certification of the Chief Financial Officer of The McClatchy Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
32.1 |
Certification of the Chief Executive Officer of The McClatchy Company pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
32.2 |
Certification of the Chief Financial Officer of The McClatchy Company pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
* |
Incorporated by reference |
** |
Compensation plans or arrangements for the Company's executive officers and directors |
EXHIBIT 4.1
FORM OF PHYSICAL NOTE
THE MCCLATCHY COMPANY
Note Number: |
Issue Date: |
Maturity Date: |
Maturity Amount: |
ON THE MATURITY DATE, FOR VALUE RECEIVED, THE MCCLATCHY COMPANY PROMISES TO PAY TO THE ORDER OF:
THE SUM OF: |
PAYABLE AT: |
THE MCCLATCHY COMPANY By: ______________________________ Authorized Signature |
AUTHENTICATED By: ______________________________ Authorized Signature |
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY OTHER APPLICABLE SECURITIES LAW, AND OFFERS AND SALES THEREOF MAY BE MADE ONLY IN COMPLIANCE WITH AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. BY ITS ACCEPTANCE OF A NOTE, THE PURCHASER WILL BE DEEMED TO REPRESENT THAT IT HAS BEEN AFFORDED AN OPPORTUNITY TO INVESTIGATE MATTERS RELATING TO THE ISSUER AND THE NOTES, THAT IT IS NOT ACQUIRING SUCH NOTE WITH A VIEW TO ANY DISTRIBUTION THEREOF AND THAT IT IS EITHER (A) AN INSTITUTIONAL INVESTOR OR HIGHLY SOPHISTICATED INDIVIDUAL INVESTOR THAT IS AN ACCREDITED INVESTOR WITHIN THE MEANING OF RULE 501(a) UNDER THE ACT AND WHICH, IN THE CASE OF AN INDIVIDUAL, (I) POSSESSES SUCH KNOWLEDGE AND EXPERIENCE IN FINANCIAL AND BUSINESS MATTERS THAT HE OR SHE IS CAPABLE OF EVALUATING AND BEARING THE ECONOMIC RISK OF AN INVESTMENT IN THE NOTES AND (II) HAS AT LEAST $5 MILLION IN INVESTMENTS (AN "INSTITUTIONAL ACCREDITED INVESTOR" OR "SOPHISTICATED INDIVIDUAL ACCREDITED INVESTOR", RESPECTIVELY) AND THAT EITHER IS PURCHASING NOTES FOR ITS OWN ACCOUNT, IS A U.S. BANK (AS DEFINED IN SECTION 3(a)(2) OF THE ACT) OR A SAVINGS AND LOAN ASSOCIATION OR OTHER INSTITUTION (AS DEFINED IN SECTION 3(a)(5)(a) OF THE ACT) ACTING IN ITS INDIVIDUAL OR FIDUCIARY CAPACITY OR IS A FIDUCIARY OR AGENT (OTHER THAN SUCH A U.S. BANK OR SAVINGS AND LOAN) PURCHASING NOTES FOR ONE OR MORE ACCOUNTS EACH OF WHICH IS SUCH AN INSTITUTIONAL ACCREDITED INVESTOR OR SOPHISTICATED INDIVIDUAL ACCREDITED INVESTOR (i) WHICH ITSELF POSSESSES SUCH KNOWLEDGE AND EXPERIENCE OR (ii) WITH RESPECT TO WHICH SUCH PURCHASER HAS SOLE INVESTMENT DISCRETION; OR (B) A QUALIFIED INSTITUTIONAL BUYER ("QIB") WITHIN THE MEANING OF RULE 144A UNDER THE ACT WHICH IS ACQUIRING NOTES FOR ITS OWN ACCOUNT OR FOR ONE OR MORE ACCOUNTS, EACH OF WHICH IS A QIB AND WITH RESPECT TO EACH OF WHICH THE PURCHASER HAS SOLE INVESTMENT DISCRETION; AND THE PURCHASER ACKNOWLEDGE S THAT IT IS AWARE THAT THE SELLER MAY RELY UPON THE EXEMPTION FROM THE REGISTRATION PROVISIONS OF SECTION 5 OF THE ACT PROVIDED BY RULE 144A. BY ITS ACCEPTANCE OF A NOTE, THE PURCHASER THEREOF ALSO SHALL BE DEEMED TO AGREE THAT ANY RESALE OR OTHER TRANSFER THEREOF WILL BE MADE ONLY (A) IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE ACT, EITHER (1) TO THE ISSUER OR TO BANC OF AMERICA SECURITIES LLC OR ANOTHER PERSON DESIGNATED BY THE ISSUER AS A PLACEMENT AGENT FOR THE NOTES (COLLECTIVELY, THE "PLACEMENT AGENTS"), NONE OF WHICH SHALL HAVE ANY OBLIGATION TO ACQUIRE SUCH NOTE, (2) THROUGH A PLACEMENT AGENT TO AN INSTITUTIONAL ACCREDITED INVESTOR, SOPHISTICATED INDIVIDUAL ACCREDITED INVESTOR OR A QIB, OR (3) TO A QIB IN A TRANSACTION THAT MEETS THE REQUIREMENTS OF RULE 144A AND (B) IN MINIMUM AMOUNTS OF $250,000.
EXHIBIT 10.1
Published CUSIP Number: 57949BAE9
Dated as of May 10, 2004
among
THE MCCLATCHY COMPANY,
as the Borrower,
BANK OF AMERICA, N.A.,
as Administrative Agent, Swing Line Lender
and
L/C Issuer,
JPMORGAN CHASE BANK,
as
Syndication Agent
and
The Other Lenders Party Hereto
BANC OF AMERICA SECURITIES LLC
and J.P. MORGAN SECURITIES INC.,
as
Joint Lead Arrangers and Joint Book Managers
CREDIT AGREEMENT
This CREDIT AGREEMENT ("Agreement") is entered into as of May 10, 2004, among THE MCCLATCHY COMPANY, a Delaware corporation (the "Borrower"), each lender from time to time party hereto (collectively, the "Lenders" and individually, a "Lender"), BANK OF AMERICA, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, JPMORGAN CHASE BANK, as Syndication Agent and BANC OF AMERICA SECURITIES LLC and J.P. MORGAN SECURITIES INC., as Joint Lead Arrangers and Joint Book Managers.
The Borrower has requested that the Lenders provide a revolving credit facility, and the Lenders are willing to do so on the terms and conditions set forth herein.
In consideration of the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows:
"Administrative Agent" means Bank of America in its capacity as administrative agent under any of the Loan Documents, or any successor administrative agent.
"Administrative Agent's Office" means the Administrative Agent's address and, as appropriate, account as set forth on Schedule 10.02, or such other address or account as the Administrative Agent may from time to time notify the Borrower and the Lenders.
"Administrative Questionnaire" means an Administrative Questionnaire in a form supplied by the Administrative Agent.
"Affiliate" means, with respect to any Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified. "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. "Controlling" and "Controlled" have meanings correlative thereto.
"Agent-Related Persons" means the Administrative Agent, together with its Affiliates (including, in the case of Bank of America in its capacity as the Administrative Agent, Banc of America Securities LLC), and the officers, directors, employees, agents and attorneys-in-fact of such Persons and Affiliates.
"Aggregate Commitments" means the Commitments of all the Lenders.
"Agreement" means this Credit Agreement.
"Applicable Rate" means, from time to time, the following rates per annum (expressed in basis points), based upon the Debt Rating as set forth below:
Pricing Level |
Debt Ratings |
Facility Fee |
Eurodollar Rate + Letters of Credit |
|
1 |
A/A2 or better |
8.0 |
29.5 |
0.0 |
2 |
A-/A3 |
9.0 |
41.0 |
0.0 |
3 |
BBB+/Baa1 |
12.5 |
50.0 |
0.0 |
4 |
BBB/Baa2 |
15.0 |
60.0 |
0.0 |
5 |
BBB-/Baa3 |
17.5 |
70.0 |
0.0 |
6 |
worse than BBB-/Baa3 |
22.5 |
77.5 |
0.0 |
"Debt Rating" means, as of any date of determination, the rating as determined by either S&P or Moody's (collectively, the "Debt Ratings") of the Borrower's non-credit-enhanced, senior unsecured long-term debt; provided that if a Debt Rating is issued by each of the foregoing rating agencies, then the higher of such Debt Ratings shall apply (with the Debt Rating for Pricing Level 1 being the highest and the Debt Rating for Pricing Level 6 being the lowest), unless there is a split in Debt Ratings of more than one level, in which case the Pricing Level that is one level higher than the Pricing Level of the lower Debt Rating shall apply.
Initially, the Applicable Rate shall be determined based upon the Debt Rating specified in the certificate delivered pursuant to Section 4.01(a)(viii). Thereafter, each change in the Applicable Rate resulting from a publicly announced change in the Debt Rating shall be effective during the period commencing on the date of the public announcement thereof and ending on the date immediately preceding the effective date of the next such change.
"Arrangers" means each of Banc of America Securities LLC and J.P. Morgan Securities Inc., in its capacity as joint lead arranger and joint book manager.
"Assignment and Assumption" means an Assignment and Assumption substantially in the form of Exhibit E.
"Attorney Costs" means and includes all reasonable fees, expenses and disbursements of any law firm or other external counsel and, without duplication, the reasonable allocated cost of internal legal services and all reasonable expenses and disbursements of internal counsel.
"Attributable Indebtedness" means, on any date, (a) in respect of any capital lease of any Person, the capitalized amount thereof that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP, and (b) in respect of any Synthetic Lease Obligation, the capitalized amount of the remaining lease payments under the relevant lease that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP if such lease were accounted for as a capital lease.
"Audited Financial Statements" means the audited consolidated balance sheet of the Borrower and its Subsidiaries for the fiscal year ended December 28, 2003, and the related consolidated statements of income or operations, shareholders' equity and cash flows for such fiscal year of the Borrower and its Subsidiaries, including the notes thereto.
"Availability Period" means the period from and including the Closing Date to the earliest of (a) the Maturity Date, (b) the date of termination of the Aggregate Commitments pursuant to Section 2.06, and (c) the date of termination of the commitment of each Lender to make Loans and of the obligation of the L/C Issuer to make L/C Credit Extensions pursuant to Section 8.02.
"Bank of America" means Bank of America, N.A. and its successors.
"Base Rate" means for any day a fluctuating rate per annum equal to the higher of (a) the Federal Funds Rate plus 1/2 of 1% and (b) the rate of interest in effect for such day as publicly announced from time to time by Bank of America as its "prime rate." The "prime rate" is a rate set by Bank of America based upon various factors including Bank of America's costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate. Any change in such rate announced by Bank of America shall take effect at the opening of business on the day specified in the public announcement of such change.
"Base Rate Committed Loan" means a Committed Loan that is a Base Rate Loan.
"Base Rate Loan" means a Loan that bears interest based on the Base Rate.
"Borrower" has the meaning specified in the introductory paragraph hereto.
"Borrowing" means a Committed Borrowing or a Swing Line Borrowing, as the context may require.
"Business Day" means any day other than a Saturday, Sunday or other day on which commercial banks are authorized to close under the Laws of, or are in fact closed in, the state where the Administrative Agent's Office is located and, if such day relates to any Eurodollar Rate Loan, means any such day on which dealings in Dollar deposits are conducted by and between banks in the London interbank eurodollar market.
"Capital Lease Obligations" of any Person shall mean the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP.
"Cash Collateralize" has the meaning specified in Section 2.03(g).
"Change of Control" means the occurrence of any of the following: (a) any Person or group (within the meaning of Rule 13d-5 of the Securities Exchange Act of 1934, as in effect on the date hereof) shall own directly or indirectly, beneficially of record, shares representing more than 50% of the aggregate ordinary voting power represented by the issued and outstanding capital stock of the Borrower; or (b) a majority of the seats (other than vacant seats) on the board of directors of the Borrower shall at any time be occupied by Persons who were neither (i) nominated by the board of directors of the Borrower, nor (ii) appointed by directors so nominated; provided, however, that neither the acquisitions of shares of the capital stock of the Borrower by, nor the transfers of shares of the capital stock of the Borrower between, Members of the McClatchy Family shall constitute a Change in Control.
"Closing Date" means the first date all the conditions precedent in Section 4.01 are satisfied or waived in accordance with Section 10.01.
"Code" means the Internal Revenue Code of 1986.
"Commitment" means, as to each Lender, its obligation to (a) make Committed Loans to the Borrower pursuant to Section 2.01, (b) purchase participations in L/C Obligations, and (c) purchase participations in Swing Line Loans, in an aggregate principal amount at any one time outstanding not to exceed the amount set forth opposite such Lender's name on Schedule 2.01 or in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, as applicable, as such amount may be adjusted from time to time in accordance with this Agreement. As of the Closing Date, the aggregate Commitments of the Lenders are $500,000,000.
"Committed Borrowing" means a borrowing consisting of simultaneous Committed Loans of the same Type and, in the case of Eurodollar Rate Loans, having the same Interest Period made by each of the Lenders pursuant to Section 2.01.
"Committed Loan" has the meaning specified in Section 2.01.
"Committed Loan Notice" means a notice of (a) a Committed Borrowing, (b) a conversion of Committed Loans from one Type to the other, or (c) a continuation of Eurodollar Rate Loans, pursuant to Section 2.02(a), which, if in writing, shall be substantially in the form of Exhibit A.
"Compliance Certificate" means a certificate substantially in the form of Exhibit D.
"Consolidated EBITDA" means, for any period, for the Borrower and its Subsidiaries on a consolidated basis, an amount equal to Consolidated Net Income for such period plus (a) the following to the extent deducted in calculating such Consolidated Net Income: (i) Consolidated Interest Charges for such period, (ii) the provision for federal, state, local and foreign income taxes payable by the Borrower and its Subsidiaries for such period, (iii) the amount of depreciation and amortization expense deducted in determining such Consolidated Net Income, (iv) the amount of stock option expense deducted in determining such Consolidated Net Income and (v) other non-recurring or non-cash charges or non-cash losses (as determined in the sole reasonable discretion of the Administrative Agent) of the Borrower and its Subsidiaries reducing Consolidated Net Income for such period and minus (b) all non-recurring or non-cash gains or other non-recurring or non-cash items (as determined in the sole re asonable discretion of the Administrative Agent) increasing Consolidated Net Income for such period.
"Consolidated Indebtedness" means, as of any date of determination, for the Borrower and its Subsidiaries on a consolidated basis, but without duplication, the sum of (a) the outstanding principal amount of all obligations, whether current or long-term, for borrowed money (including Obligations hereunder) and all obligations evidenced by bonds, debentures, notes, loan agreements or other similar instruments, (b) all purchase money Indebtedness, (c) all direct obligations arising under letters of credit (including standby), bankers' acceptances, bank guaranties, surety bonds and similar instruments, (d) Attributable Indebtedness in respect of capital leases and Synthetic Lease Obligations, (e) without duplication, all Guarantees with respect to outstanding Indebtedness of the types specified in clauses (a) through (d) above of Persons other than the Borrower or any Subsidiary, and (f) all Indebtedness of the types referred to in clauses (a) through (e) above of any partnership or joi nt venture (other than a joint venture that is itself a corporation or limited liability company) in which the Borrower or a Subsidiary is a general partner or joint venturer, unless such Indebtedness is expressly made non-recourse to the Borrower or such Subsidiary.
"Consolidated Interest Charges" means, for any period, the interest expense of the Borrower and its Subsidiaries for such period determined on a consolidated basis in accordance with GAAP, including but not limited to the portion of any payments or accruals with respect to Capital Lease Obligations that are allocable to interest expense (excluding any write offs of capitalized fees under the Existing Credit Agreement).
"Consolidated Interest Coverage Ratio" means, as of any date of determination, the ratio of (a) Consolidated EBITDA for the period of the four prior fiscal quarters ending on such date to (b) Consolidated Interest Charges for such period.
"Consolidated Leverage Ratio" means, as of any date of determination, the ratio of (a) Consolidated Indebtedness as of such date to (b) Consolidated EBITDA for the period of the four fiscal quarters most recently ended for which the Borrower has delivered financial statements pursuant to Section 6.01(a) or (b).
"Consolidated Net Income" means, for any period, for the Borrower and its Subsidiaries on a consolidated basis, the net income of the Borrower and its Subsidiaries (excluding extraordinary gains and extraordinary losses) for that period.
"Contractual Obligation" means, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound.
"Control" has the meaning specified in the definition of "Affiliate."
"Credit Extension" means each of the following: (a) a Borrowing and (b) an L/C Credit Extension.
"Debt Rating" has the meaning specified in the definition of "Applicable Rate."
"Debtor Relief Laws" means the Bankruptcy Code of the United States, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.
"Default" means any event or condition that constitutes an Event of Default or that, with the giving of any notice, the passage of time, or both, would be an Event of Default.
"Default Rate" means (a) when used with respect to Obligations other than Letter of Credit Fees, an interest rate equal to (i) the Base Rate plus (ii) the Applicable Rate, if any, applicable to Base Rate Loans plus (iii) 2% per annum; provided, however, that with respect to a Eurodollar Rate Loan, the Default Rate shall be an interest rate equal to the interest rate (including any Applicable Rate) otherwise applicable to such Loan plus 2% per annum, and (b) when used with respect to Letter of Credit Fees, a rate equal to the Applicable Rate plus 2% per annum, in all cases to the fullest extent permitted by applicable Laws.
"Defaulting Lender" means any Lender that (a) has failed to fund any portion of the Committed Loans, participations in L/C Obligations or participations in Swing Line Loans required to be funded by it hereunder within one Business Day of the date required to be funded by it hereunder, (b) has otherwise failed to pay over to the Administrative Agent or any other Lender any other amount required to be paid by it hereunder within one Business Day of the date when due, unless the subject of a good faith dispute, or (c) has been deemed insolvent or become the subject of a bankruptcy or insolvency proceeding.
"Disposition" or "Dispose" means the sale, transfer, license, lease or other disposition (including any sale and leaseback transaction) of any property by any Person, including any sale, assignment, transfer or other disposal, with or without recourse, of any notes or accounts receivable or any rights and claims associated therewith.
"Dollar" and "$" mean lawful money of the United States.
"Eligible Assignee" has the meaning specified in Section 10.07(g).
"Environmental Laws" means any and all Federal, state, local, and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to pollution and the protection of the environment or the release of any materials into the environment, including those related to hazardous substances or wastes, air emissions and discharges to waste or public systems.
"ERISA" means the Employee Retirement Income Security Act of 1974.
"ERISA Affiliate" means any trade or business (whether or not incorporated) under common control with the Borrower within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code).
"ERISA Event" means (a) a Reportable Event with respect to a Pension Plan; (b) a withdrawal by the Borrower or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by the Borrower or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate, the treatment of a Plan amendment as a termination under Sections 4041 or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan; (e) an event or condition which constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan or Multiemployer Plan; or (f) the i mposition of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon the Borrower or any ERISA Affiliate.
"Eurodollar Rate" means for any Interest Period with respect to a Eurodollar Rate Loan:
(a) the rate per annum equal to the rate determined by the Administrative Agent to be the offered rate that appears on the page of the Telerate screen (or any successor thereto) that displays an average British Bankers Association Interest Settlement Rate for deposits in Dollars (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period, determined as of approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period, or
(b) if the rate referenced in the preceding clause (a) does not appear on such page or service or such page or service shall not be available, the rate per annum equal to the rate determined by the Administrative Agent to be the offered rate on such other page or other service that displays an average British Bankers Association Interest Settlement Rate for deposits in Dollars (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period, determined as of approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period, or
(c) if the rates referenced in the preceding clauses (a) and (b) are not available, the rate per annum determined by the Administrative Agent as the rate of interest at which deposits in Dollars for delivery on the first day of such Interest Period in same day funds in the approximate amount of the Eurodollar Rate Loan being made, continued or converted by Bank of America and with a term equivalent to such Interest Period would be offered by Bank of America's London Branch to major banks in the London interbank eurodollar market at their request at approximately 4:00 p.m. (London time) two Business Days prior to the first day of such Interest Period.
"Eurodollar Rate Loan" means a Committed Loan that bears interest at a rate based on the Eurodollar Rate.
"Event of Default" has the meaning specified in Section 8.01.
"Existing Credit Agreement" means that certain Credit Agreement dated as of March 10, 1998 among the Borrower, Bank of America, as agent, and a syndicate of lenders, as the same has been amended.
"Existing Letters of Credit" means letters of credit issued and outstanding under the Existing Credit Agreement as set forth in Schedule 2.03, which shall be deemed outstanding as Letters of Credit hereunder as of the Closing Date pursuant to Section 2.03(a).
"Family Percentage Holding" means the aggregate percentage of the securities held by a Qualified Trust representing, directly or indirectly, an interest in voting shares or rights to voting shares of the Borrower, that it is reasonable, under all the circumstances, to regard as being held beneficially for Qualified Persons (or any class consisting of two or more Qualified Persons); provided, always that in calculating the Family Percentage Holding (A) in respect of any power of appointment or discretionary trust capable of being exercised in favor of any of the Qualified Persons such trust or power shall be deemed to have been exercised in favor of Qualified Persons until such trust or power has been otherwise exercised; (B) where any beneficiary of a Qualified Trust has assigned, transferred or conveyed, in any manner whatsoever, his or her beneficial interest to another Person, then, for the purpose of determining the Family Percentage Holding in respect of such Qualified T rust, the Person to whom such interest has been assigned, transferred or conveyed shall be regarded as the only Person beneficially interested in the Qualified Trust in respect of such interest but in the case where the interest so assigned, transferred or conveyed is an interest in a discretionary trust or is an interest which may arise as a result of the exercise in favor of the assignor of a discretionary power of appointment and such discretionary trust or power of appointment is also capable of being exercised in favor of a Member of McClatchy Family, such discretionary trust or power shall be deemed to have been so exercised in favor of Qualified Persons until it has in fact been otherwise exercised; and (C) the interest of any Permitted Residuary Beneficiary shall be ignored until its interest has indefeasibly vested.
"Federal Funds Rate" means, for any day, the rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate (rounded upward, if necessary, to a whole multiple of 1/100 of 1%) charged to Bank of America on such day on such transactions as determined by the Administrative Agent.
"Fee Letter" means the letter agreement, dated May 25, 2004, among the Borrower, the Administrative Agent and the Arrangers.
"Foreign Lender" has the meaning specified in Section 10.15(a)(i).
"FRB" means the Board of Governors of the Federal Reserve System of the United States.
"GAAP" means generally accepted accounting principles in the United States set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or such other principles as may be approved by a significant segment of the accounting profession in the United States, that are applicable to the circumstances as of the date of determination, consistently applied.
"Governmental Authority" means any nation or government, any state or other political subdivision thereof, any agency, authority, instrumentality, regulatory body, court, administrative tribunal, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.
"Granting Lender" has the meaning specified in Section 10.07(h).
"Guarantee" means, as to any Person, any (a) any obligation, contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation payable or performable by another Person (the "primary obligor") in any manner, whether directly or indirectly, and including any obligation of such Person, direct or indirect, (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation, (ii) to purchase or lease property, securities or services for the purpose of assuring the obligee in respect of such Indebtedness or other obligation of the payment or performance of such Indebtedness or other obligation, (iii) to maintain working capital, equity capital or any other financial statement condition or liquidity or level of income or cash flow of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation, or (iv) entered into for the purpos e of assuring in any other manner the obligee in respect of such Indebtedness or other obligation of the payment or performance thereof or to protect such obligee against loss in respect thereof (in whole or in part), or (b) any Lien on any assets of such Person securing any Indebtedness or other obligation of any other Person, whether or not such Indebtedness or other obligation is assumed by such Person. The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the related primary obligation, or portion thereof, in respect of which such Guarantee is made. The term "Guarantee" as a verb has a corresponding meaning.
"IBOR Rate" means the interest rate at which Bank of America's Grand Cayman Banking Center, Grand Cayman, British West Indies, would offer dollar deposits for the applicable interest period to other major banks in the offshore dollar interbank market.
"Indebtedness" means, as to any Person at a particular time, without duplication, all of the following, whether or not included as indebtedness or liabilities in accordance with GAAP:
(a) all obligations of such Person for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes, loan agreements or other similar instruments;
(b) all direct or contingent obligations of such Person arising under letters of credit (including standby and commercial), bankers' acceptances, bank guaranties, surety bonds and similar instruments;
(c) net obligations of such Person under any Swap Contract;
(d) all obligations of such Person to pay the deferred purchase price of property or services (other than trade accounts payable in the ordinary course of business);
(e) indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse;
(f) Capital Lease Obligations and Synthetic Lease Obligations; and
(g) all Guarantees of such Person in respect of any of the foregoing.
For all purposes hereof, the Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture (other than a joint venture that is itself a corporation or limited liability company) in which such Person is a general partner or a joint venturer, unless such Indebtedness is expressly made non-recourse to such Person. The amount of any net obligation of such Person under any Swap Contract on any date shall be deemed to be the Swap Termination Value thereof as of such date. The amount of any capital lease or Synthetic Lease Obligation as of any date shall be deemed to be the amount of Attributable Indebtedness in respect thereof as of such date.
"Indemnified Liabilities" has the meaning specified in Section 10.05.
"Indemnitees" has the meaning specified in Section 10.05.
"Interest Payment Date" means, (a) as to any Loan other than a Base Rate Loan, the last day of each Interest Period applicable to such Loan and the Maturity Date; provided, however, that if any Interest Period for a Eurodollar Rate Loan exceeds three months, the respective dates that fall every three months after the beginning of such Interest Period shall also be Interest Payment Dates; and (b) as to any Base Rate Loan, the last Business Day of each March, June, September and December and the Maturity Date.
"Interest Period" means, as to each Eurodollar Rate Loan, the period commencing on the date such Eurodollar Rate Loan is disbursed or converted to or continued as a Eurodollar Rate Loan and ending on the date one, two, three or six months thereafter, or, subject to availability, for the Eurodollar Rate Loans made on the Closing Date or within fourteen days thereafter, ending on the date one through fourteen days thereafter, in either case as selected by the Borrower in its Committed Loan Notice; provided that:
(i) any Interest Period that would otherwise end on a day that is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day;
(ii) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period; and
(iii) no Interest Period shall extend beyond the Maturity Date.
"Investment" means, as to any Person, any direct or indirect acquisition or investment by such Person, whether by means of (a) the purchase or other acquisition of capital stock or other securities of another Person, (b) a loan, advance or capital contribution to, Guarantee or assumption of debt of, or purchase or other acquisition of any other debt or equity participation or interest in, another Person, including any partnership or joint venture interest in such other Person, or (c) the purchase or other acquisition (in one transaction or a series of transactions) of assets of another Person that constitute a business unit. For purposes of covenant compliance, the amount of any Investment shall be the amount actually invested, without adjustment for subsequent increases or decreases in the value of such Investment.
"IRS" means the United States Internal Revenue Service.
"ISP" means, with respect to any Letter of Credit, the "International Standby Practices 1998" published by the Institute of International Banking Law & Practice (or such later version thereof as may be in effect at the time of issuance).
"Issuer Documents" means with respect to any Letter of Credit, the Letter Credit Application, and any other document, agreement and instrument entered into by the L/C Issuer and the Borrower (or any Subsidiary) or in favor the L/C Issuer and relating to any such Letter of Credit.
"Laws" means, collectively, all international, foreign, Federal, state and local statutes, treaties, rules, guidelines, regulations, ordinances, codes and administrative or judicial precedents or authorities, including the interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or administration thereof, and all applicable administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authority, in each case whether or not having the force of law.
"L/C Advance" means, with respect to each Lender, such Lender's funding of its participation in any L/C Borrowing in accordance with its Pro Rata Share.
"L/C Borrowing" means an extension of credit resulting from a drawing under any Letter of Credit which has not been reimbursed on the date when made or refinanced as a Committed Borrowing.
"L/C Credit Extension" means, with respect to any Letter of Credit, the issuance thereof or extension of the expiry date thereof, or the increase of the amount thereof.
"L/C Issuer" means Bank of America in its capacity as issuer of Letters of Credit hereunder, or any successor issuer of Letters of Credit hereunder.
"L/C Obligations" means, as at any date of determination, the aggregate undrawn amount of all outstanding Letters of Credit plus the aggregate of all Unreimbursed Amounts, including all L/C Borrowings. For all purposes of this Agreement, if on any date of determination a Letter of Credit has expired by its terms but any amount may still be drawn thereunder by reason of the operation of Rule 3.14 of the ISP, such Letter of Credit shall be deemed to be "outstanding" in the amount so remaining available to be drawn.
"Lender" has the meaning specified in the introductory paragraph hereto and, as the context requires, includes the L/C Issuer and the Swing Line Lender.
"Lending Office" means, as to any Lender, the office or offices of such Lender described as such in such Lender's Administrative Questionnaire, or such other office or offices as a Lender may from time to time notify the Borrower and the Administrative Agent.
"Letter of Credit" means any standby letter of credit issued hereunder and shall include the Existing Letters of Credit.
"Letter of Credit Application" means an application and agreement for the issuance or amendment of a Letter of Credit in the form from time to time in use by the L/C Issuer.
"Letter of Credit Expiration Date" means the day that is seven days prior to the Maturity Date then in effect (or, if such day is not a Business Day, the next preceding Business Day).
"Letter of Credit Fee" has the meaning specified in Section 2.03(i).
"Letter of Credit Sublimit" means an amount equal to $25,000,000. The Letter of Credit Sublimit is part of, and not in addition to, the Aggregate Commitments.
"Lien" means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge, or preference, priority or other security interest or preferential arrangement in the nature of a security interest of any kind or nature whatsoever (including any conditional sale or other title retention agreement, and any financing lease having substantially the same economic effect as any of the foregoing).
"Loan" means an extension of credit by a Lender to the Borrower under Article II in the form of a Committed Loan or a Swing Line Loan.
"Loan Documents" means this Agreement, each Note, each Issuer Document, and the Fee Letter.
"Material Adverse Effect" means (a) a material adverse change in, or a material adverse effect upon, the operations, business, liabilities (actual or contingent), financial condition of the Borrower and its Subsidiaries taken as a whole; (b) a material impairment of the ability of the Borrower to perform its obligations under any Loan Document to which it is a party; or (c) a material adverse effect upon the legality, validity, binding effect or enforceability against the Borrower of any Loan Document to which it is a party.
"Maturity Date" means May 11, 2009.
"Member of the McClatchy Family" shall mean:
(i) the Persons listed on Schedule 1.01;
(ii) the spouse, for the time being and from time to time, of any Person listed on Schedule 1.01;
(iii) after the death of any Person listed on Schedule 1.01, the widow or widower, if any, of any Person listed on Schedule 1.01;
(iv) the issue of any Person listed on Schedule 1.01;
(v) individuals adopted by any Person listed on Schedule 1.01 or adopted by any of the issue of any Person listed on Schedule 1.01, provided, that such individuals have not attained the age of majority at the date of such adoption, together with the issue of any such adopted individuals;
provided that if any Person is born out of wedlock he shall not be deemed to be the issue of another Person for the purposes hereof unless and until he is proven or acknowledged to be the issue of such Person; or
(vi) a Qualified Trust, but only to the extent of its Family Percentage Holding of voting shares or rights to voting shares of the capital stock of the Borrower at such time.
"Moody's" means Moody's Investors Service, Inc. and any successor thereto.
"Multiemployer Plan" means any employee benefit plan of the type described in Section 4001(a)(3) of ERISA, to which the Borrower or any ERISA Affiliate makes or is obligated to make contributions, or during the preceding five plan years, has made or been obligated to make contributions.
"Note" means a promissory note made by the Borrower in favor of a Lender evidencing Loans made by such Lender, substantially in the form of Exhibit C.
"Obligations" means all advances to, and debts, liabilities, obligations, covenants and duties of, the Borrower arising under any Loan Document or otherwise with respect to any Loan or Letter of Credit, whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising and including interest and fees that accrue after the commencement by or against the Borrower or any of its Affiliates of any proceeding under any Debtor Relief Laws naming such Person as the debtor in such proceeding, regardless of whether such interest and fees are allowed claims in such proceeding.
"Organization Documents" means, (a) with respect to any corporation, the certificate or articles of incorporation and the bylaws (or equivalent or comparable constitutive documents with respect to any non-U.S. jurisdiction); (b) with respect to any limited liability company, the certificate or articles of formation or organization and operating agreement; and (c) with respect to any partnership, joint venture, trust or other form of business entity, the partnership, joint venture or other applicable agreement of formation or organization and any agreement, instrument, filing or notice with respect thereto filed in connection with its formation or organization with the applicable Governmental Authority in the jurisdiction of its formation or organization and, if applicable, any certificate or articles of formation or organization of such entity.
"Outstanding Amount" means (i) with respect to Committed Loans and Swing Line Loans on any date, the aggregate outstanding principal amount thereof after giving effect to any borrowings and prepayments or repayments of Committed Loans and Swing Line Loans, as the case may be, occurring on such date; and (ii) with respect to any L/C Obligations on any date, the amount of such L/C Obligations on such date after giving effect to any L/C Credit Extension occurring on such date and any other changes in the aggregate amount of the L/C Obligations as of such date, including as a result of any reimbursements of outstanding unpaid drawings under any Letters of Credit or any reductions in the maximum amount available for drawing under Letters of Credit taking effect on such date.
"Participant" has the meaning specified in Section 10.07(d).
"PBGC" means the Pension Benefit Guaranty Corporation.
"Pension Plan" means any "employee pension benefit plan" (as such term is defined in Section 3(2) of ERISA), other than a Multiemployer Plan, that is subject to Title IV of ERISA and is sponsored or maintained by the Borrower or any ERISA Affiliate or to which the Borrower or any ERISA Affiliate contributes or has an obligation to contribute, or in the case of a multiple employer or other plan described in Section 4064(a) of ERISA, has made contributions at any time during the immediately preceding five plan years.
"Permitted Residuary Beneficiary" means any Person who is a beneficiary of a Qualified Trust and, under the terms of the Qualified Trust, is entitled to distributions out of the capital of such Qualified Trust only after the death of all of the Qualified Persons who are beneficiaries of such Qualified Trust.
"Person" means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.
"Plan" means any "employee benefit plan" (as such term is defined in Section 3(3) of ERISA) established by the Borrower or, with respect to any such plan that is subject to Section 412 of the Code or Title IV of ERISA, any ERISA Affiliate.
"Pro Rata Share" means, with respect to each Lender at any time, a fraction (expressed as a percentage, carried out to the ninth decimal place), the numerator of which is the amount of the Commitment of such Lender at such time and the denominator of which is the amount of the Aggregate Commitments at such time; provided that if the commitment of each Lender to make Loans and the obligation of the L/C Issuer to make L/C Credit Extensions have been terminated pursuant to Section 8.02, then the Pro Rata Share of each Lender shall be determined based on the Pro Rata Share of such Lender immediately prior to such termination and after giving effect to any subsequent assignments made pursuant to the terms hereof. The initial Pro Rata Share of each Lender is set forth opposite the name of such Lender on Schedule 2.01 or in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, as applicable.
"Qualified Person" means a Person referred to in clauses (i) through (v) of the definition of "Member of the McClatchy Family" or the spouse, widow or widower for the time being and from time to time of any Person described in clauses (iv) or (v) of the definition of the "Member of the McClatchy Family".
"Qualified Trust" means a trust (whether testamentary or inter vivos) any beneficiary of which is a Qualified Person.
"Register" has the meaning specified in Section 10.07(c).
"Reportable Event" means any of the events set forth in Section 4043(c) of ERISA, other than events for which the 30 day notice period has been waived.
"Request for Credit Extension" means (a) with respect to a Borrowing, conversion or continuation of Committed Loans, a Committed Loan Notice, (b) with respect to an L/C Credit Extension, a Letter of Credit Application, and (c) with respect to a Swing Line Loan, a Swing Line Loan Notice.
"Required Lenders" means, as of any date of determination, Lenders having more than 50% of the Aggregate Commitments or, if the commitment of each Lender to make Loans and the obligation of the L/C Issuer to make L/C Credit Extensions have been terminated pursuant to Section 8.02, Lenders holding in the aggregate more than 50% of the Total Outstandings (with the aggregate amount of each Lender's risk participation and funded participation in L/C Obligations and Swing Line Loans being deemed "held" by such Lender for purposes of this definition); provided that the Commitment of, and the portion of the Total Outstandings held or deemed held by, any Defaulting Lender shall be excluded for purposes of making a determination of Required Lenders.
"Responsible Officer" means the chief executive officer, president, chief financial officer, treasurer or assistant treasurer of the Borrower. Any document delivered hereunder that is signed by a Responsible Officer of the Borrower shall be conclusively presumed to have been authorized by all necessary corporate, partnership and/or other action on the part of the Borrower and such Responsible Officer shall be conclusively presumed to have acted on behalf of the Borrower.
"S&P" means Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc. and any successor thereto.
"SEC" means the Securities and Exchange Commission, or any Governmental Authority succeeding to any of its principal functions.
"SPC" has the meaning specified in Section 10.07(h).
"Subsidiary" of a Person means a corporation, partnership, joint venture, limited liability company or other business entity of which a majority of the shares of securities or other interests having ordinary voting power for the election of directors or other governing body (other than securities or interests having such power only by reason of the happening of a contingency) are at the time beneficially owned directly, or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise specified, all references herein to a "Subsidiary" or to "Subsidiaries" shall refer to a Subsidiary or Subsidiaries of the Borrower.
"Swap Contract" means (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by th e International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such master agreement, together with any related schedules, a "Master Agreement"), including any such obligations or liabilities under any Master Agreement.
"Swap Termination Value" means, in respect of any one or more Swap Contracts, after taking into account the effect of any legally enforceable netting agreement relating to such Swap Contracts, (a) for any date on or after the date such Swap Contracts have been closed out and termination value(s) determined in accordance therewith, such termination value(s), and (b) for any date prior to the date referenced in clause (a), the amount(s) determined as the mark-to-market value(s) for such Swap Contracts, as determined based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Swap Contracts (which may include a Lender or any Affiliate of a Lender).
"Swing Line" means the revolving credit facility made available by the Swing Line Lender pursuant to Section 2.04.
"Swing Line Borrowing" means a borrowing of a Swing Line Loan pursuant to Section 2.04.
"Swing Line Lender" means Bank of America in its capacity as provider of Swing Line Loans, or any successor swing line lender hereunder.
"Swing Line Loan" has the meaning specified in Section 2.04(a).
"Swing Line Loan Notice" means a notice of a Swing Line Borrowing pursuant to Section 2.04(b), which, if in writing, shall be substantially in the form of Exhibit B.
"Swing Line Sublimit" means an amount equal to the lesser of (a) $30,000,000 and (b) the Aggregate Commitments. The Swing Line Sublimit is part of, and not in addition to, the Aggregate Commitments.
"Syndication Agent" means JPMorgan Chase Bank.
"Synthetic Lease Obligation" means the monetary obligation of a Person under (a) a so-called synthetic, off-balance sheet or tax retention lease, or (b) an agreement for the use or possession of property creating obligations that do not appear on the balance sheet of such Person but which, in the case of (a) or (b), upon the insolvency or bankruptcy of such Person, would be characterized as the indebtedness of such Person (without regard to accounting treatment).
"Threshold Amount" means $50,000,000.
"Total Outstandings" means the aggregate Outstanding Amount of all Loans and all L/C Obligations.
"Type" means, with respect to a Committed Loan, its character as a Base Rate Loan or a Eurodollar Rate Loan.
"United States" and "U.S." mean the United States of America.
"Unreimbursed Amount" has the meaning specified in Section 2.03(c)(i).
The Borrower shall promptly examine a copy of each Letter of Credit and each amendment thereto that is delivered to it and, in the event of any claim of noncompliance with the Borrower's instructions or other irregularity, the Borrower will promptly notify the L/C Issuer. The Borrower shall be conclusively deemed to have waived any such claim against the L/C Issuer and its correspondents unless such notice is given as aforesaid.
A notice of the Administrative Agent to any Lender or the Borrower with respect to any amount owing under this subsection (c) shall be conclusive, absent manifest error.
Each Lender that sells or grants a participation shall (i) withhold or deduct from each payment to a Participant the amount of any tax required under applicable law to be withheld or deducted from such payment and not withheld or deducted therefrom by the Borrower or the Administrative Agent, (ii) pay any tax so withheld or deducted by it to the appropriate taxation authority or other authority in accordance with applicable Laws and (iii) indemnify the Borrower and the Administrative Agent for any losses, costs and expenses that may incur as a result of any failure to withhold or deduct and pay any tax to the extent the amount of such tax and losses, costs and expenses exceeds the amount of tax and losses, costs and expenses that would have been imposed in the absence of such participation.
including any loss of anticipated profits solely attributable to a decline in the Eurodollar Rate after the date such Loan was made and any loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain such Loan or from fees payable to terminate the deposits from which such funds were obtained. The Borrower shall also pay any customary administrative fees charged by such Lender in connection with the foregoing.
For purposes of calculating amounts payable by the Borrower to the Lenders under this Section 3.05, each Lender shall be deemed to have funded each Eurodollar Rate Loan made by it at the Eurodollar Rate for such Loan by a matching deposit or other borrowing in the London interbank eurodollar market for a comparable amount and for a comparable period, whether or not such Eurodollar Rate Loan was in fact so funded.
Each Request for Credit Extension (other than a Committed Loan Notice requesting only a conversion of Committed Loans to the other Type or a continuation of Eurodollar Rate Loans) submitted by the Borrower shall be deemed to be a representation and warranty that the conditions specified in Sections 4.02(a) and (b) have been satisfied on and as of the date of the applicable Credit Extension.
The Borrower represents and warrants to the Administrative Agent and the Lenders that:
So long as any Lender shall have any Commitment hereunder, any Loan or other Obligation hereunder shall remain unpaid or unsatisfied, or any Letter of Credit shall remain outstanding, the Borrower shall, and shall (except in the case of the covenants set forth in Sections 6.01, 6.02, 6.03 and 6.11) cause each Subsidiary to:
So long as the Borrower furnishes the materials required pursuant to Section 6.02(b), the Borrower shall not be separately required to furnish any information under clause (a) or (b) above.
Documents required to be delivered pursuant to Section 6.01(a) or (b) or Section 6.02(b) (to the extent any such documents are included in materials otherwise filed with the SEC) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date (i) on which the Borrower posts such documents, or provides a link thereto on the Borrower's website on the Internet at the website address listed on Schedule 10.02; or (ii) on which such documents are posted on the Borrower's behalf on an Internet or intranet website, if any, to which each Lender and the Administrative Agent have access (whether a commercial, third-party website or whether sponsored by the Administrative Agent); provided that: (i) the Borrower shall deliver paper copies of such documents to the Administrative Agent or any Lender that requests the Borrower to deliver such paper copies until a written request to cease delivering paper copies is gi ven by the Administrative Agent or such Lender and (ii) the Borrower shall notify (which may be by facsimile or electronic mail) the Administrative Agent and each Lender of the posting of any such documents and provide to the Administrative Agent by electronic mail electronic versions (i.e., soft copies) of such documents. Notwithstanding anything contained herein, in every instance the Borrower shall be required to provide paper copies of the Compliance Certificates required by Section 6.02(b) to the Administrative Agent. Except for such Compliance Certificates, the Administrative Agent shall have no obligation to request the delivery or to maintain copies of the documents referred to above, and in any event shall have no responsibility to monitor compliance by the Borrower with any such request for delivery, and each Lender shall be solely responsible for requesting delivery to it or maintaining its copies of such documents.
Each notice pursuant to this Section shall be accompanied by a statement of a Responsible Officer of the Borrower setting forth details of the occurrence referred to therein and stating what action the Borrower has taken and proposes to take with respect thereto. Each notice pursuant to Section 6.03(a) shall describe with particularity any and all provisions of this Agreement and any other Loan Document that have been breached.
So long as any Lender shall have any Commitment hereunder, any Loan or other Obligation hereunder shall remain unpaid or unsatisfied, or any Letter of Credit shall remain outstanding:
provided, however, that upon the occurrence of any Event of Default pursuant to clauses (f) or (g) of Section 8.01, the obligation of each Lender to make Loans and any obligation of the L/C Issuer to make L/C Credit Extensions shall automatically terminate, the unpaid principal amount of all outstanding Loans and all interest and other amounts as aforesaid shall automatically become due and payable, and the obligation of the Borrower to Cash Collateralize the L/C Obligations as aforesaid shall automatically become effective, in each case without further act of the Administrative Agent or any Lender.
First, to payment of that portion of the Obligations constituting fees, indemnities, expenses and other amounts (including Attorney Costs and amounts payable under Article III) payable to the Administrative Agent in its capacity as such;
Second, to payment of that portion of the Obligations constituting fees, indemnities and other amounts (other than principal and interest) payable to the Lenders (including Attorney Costs and amounts payable under Article III), ratably among them in proportion to the amounts described in this clause Second payable to them;
Third, to payment of that portion of the Obligations constituting accrued and unpaid interest on the Loans, L/C Borrowings and other Obligations, ratably among the Lenders in proportion to the respective amounts described in this clause Third payable to them;
Fourth, to payment of that portion of the Obligations constituting unpaid principal of the Loans and L/C Borrowings, ratably among the Lenders in proportion to the respective amounts described in this clause Fourth held by them;
Fifth, to the Administrative Agent for the account of the L/C Issuer, to Cash Collateralize that portion of L/C Obligations comprised of the aggregate undrawn amount of Letters of Credit; and
Last, the balance, if any, after all of the Obligations have been indefeasibly paid in full, to the Borrower or as otherwise required by Law.
Subject to Section 2.03(c), amounts used to Cash Collateralize the aggregate undrawn amount of Letters of Credit pursuant to clause Fifth above shall be applied to satisfy drawings under such Letters of Credit as they occur. If any amount remains on deposit as Cash Collateral after all Letters of Credit have either been fully drawn or expired, such remaining amount shall be applied to the other Obligations, if any, in the order set forth above.
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender to make such payments to the Administrative Agent and, in the event that the Administrative Agent shall consent to the making of such payments directly to the Lenders, to pay to the Administrative Agent any amount due for the reasonable compensation, expenses, disbursements and advances of the Administrative Agent and its agents and counsel, and any other amounts due the Administrative Agent under Sections 2.09 and 10.04.
Nothing contained herein shall be deemed to authorize the Administrative Agent to authorize or consent to or accept or adopt on behalf of any Lender any plan of reorganization, arrangement, adjustment or composition affecting the Obligations or the rights of any Lender or to authorize the Administrative Agent to vote in respect of the claim of any Lender in any such proceeding.
and, provided further, that (i) no amendment, waiver or consent shall, unless in writing and signed by the L/C Issuer in addition to the Lenders required above, affect the rights or duties of the L/C Issuer under this Agreement or any Letter of Credit Application relating to any Letter of Credit issued or to be issued by it; (ii) no amendment, waiver or consent shall, unless in writing and signed by the Swing Line Lender in addition to the Lenders required above, affect the rights or duties of the Swing Line Lender under this Agreement; (iii) no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent in addition to the Lenders required above, affect the rights or duties of the Administrative Agent under this Agreement or any other Loan Document; (iv) Section 10.07(h) may not be amended, waived or otherwise modified without the consent of each Granting Lender all or any part of whose Loans are being funded by an SPC at the time of such amendment, waiver or other modification; and (v) the Fee Letter may be amended, or rights or privileges thereunder waived, in a writing executed only by the parties thereto. Notwithstanding anything to the contrary herein, no Defaulting Lender shall have any right to approve or disapprove any amendment, waiver or consent hereunder, except that the Commitment of such Lender may not be increased or extended without the consent of such Lender.
Notices sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices sent by facsimile shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next business day for the recipient). Notices delivered through electronic communications to the extent provided in subsection (b) below, shall be effective as provided in such subsection (b).
"Eligible Assignee" means (a) a Lender; (b) an Affiliate of a Lender; (c) an Approved Fund; and (d) any other Person (other than a natural person) approved by (i) the Administrative Agent, the L/C Issuer and the Swing Line Lender, and (ii) unless an Event of Default has occurred and is continuing, the Borrower (each such approval not to be unreasonably withheld or delayed); provided that notwithstanding the foregoing, "Eligible Assignee" shall not include the Borrower or any of the Borrower's Affiliates or Subsidiaries.
"Fund" means any Person (other than a natural person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business.
"Approved Fund" means any Fund that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written.
THE MCCLATCHY COMPANY
By: /s/ Patrick J. Talamantes
Name: Patrick J. Talamantes
Title: Vice President, Finance
1.01 Defined Terms 1
1.02 Other Interpretive Provisions 17
1.03 Accounting Terms 17
1.04 Rounding 18
1.05 References to Agreements and Laws 18
1.06 Times of Day 18
1.07 Letter of Credit Amounts 18
ARTICLE II the COMMITMENTS and Credit Extensions 18
2.01 Committed Loans 18
2.02 Borrowings, Conversions and Continuations of Committed Loans 19
2.03 Letters of Credit 20
2.04 Swing Line Loans 28
2.05 Prepayments 31
2.06 Termination or Reduction of Commitments 32
2.07 Repayment of Loans 32
2.08 Interest 32
2.09 Fees 33
2.10 Computation of Interest and Fees 34
2.11 Evidence of Debt 34
2.12 Payments Generally 35
2.13 Sharing of Payments 36
2.14 Increase in Commitments 37
ARTICLE III TAXES, YIELD PROTECTION AND ILLEGALITY 38
3.01 Taxes 38
3.02 Illegality 40
3.03 Inability to Determine Rates 40
3.04 Increased Cost and Reduced Return; Capital Adequacy; Reserves on Eurodollar Rate Loans 40
3.05 Compensation for Losses 41
3.06 Matters Applicable to all Requests for Compensation 42
3.07 Survival 42
ARTICLE IV CONDITIONS PRECEDENT TO Credit Extensions 42
4.01 Conditions of Initial Credit Extension 42
4.02 Conditions to all Credit Extensions 44
ARTICLE V REPRESENTATIONS AND WARRANTIES 44
5.01 Existence, Qualification and Power; Compliance with Laws 44
5.02 Authorization; No Contravention 45
5.03 Governmental Authorization; Other Consents 45
5.04 Binding Effect 45
5.05 Financial Statements; No Material Adverse Effect 45
5.06 Litigation 46
5.07 No Default 46
5.08 Ownership of Property; Liens 46
5.09 Environmental Compliance 46
5.10 Insurance 46
5.11 Taxes 46
5.12 ERISA Compliance 46
5.13 Subsidiaries 47
5.14 Margin Regulations; Investment Company Act; Public Utility Holding Company Act 47
5.15 Disclosure 47
5.16 Compliance with Laws 48
ARTICLE VI AFFIRMATIVE COVENANTS 48
6.01 Financial Statements 48
6.02 Certificates; Other Information 49
6.03 Notices 50
6.04 Payment of Obligations 50
6.05 Preservation of Existence, Etc 50
6.06 Maintenance of Properties 51
6.07 Maintenance of Insurance 51
6.08 Compliance with Laws 51
6.09 Books and Records 51
6.10 Inspection Rights 51
6.11 Use of Proceeds 52
ARTICLE VII NEGATIVE COVENANTS 52
7.01 Liens 52
7.02 Indebtedness 53
7.03 Fundamental Changes 53
7.04 Change in Nature of Business 53
7.05 Transactions with Affiliates 53
7.06 Use of Proceeds 54
7.07 Financial Covenants 54
ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES 54
8.01 Events of Default 54
8.02 Remedies Upon Event of Default 56
8.03 Application of Funds 56
ARTICLE IX ADMINISTRATIVE AGENT 57
9.01 Appointment and Authorization of Administrative Agent 57
9.02 Delegation of Duties 58
9.03 Liability of Administrative Agent 58
9.04 Reliance by Administrative Agent 59
9.05 Notice of Default 59
9.06 Credit Decision; Disclosure of Information by Administrative Agent 59
9.07 Indemnification of Administrative Agent 60
9.08 Administrative Agent in its Individual Capacity 60
9.09 Successor Administrative Agent 61
9.10 Administrative Agent May File Proofs of Claim 61
9.11 Other Agents; Arrangers and Managers 62
ARTICLE X MISCELLANEOUS 62
10.01 Amendments, Etc 62
10.02 Notices and Other Communications; Facsimile Copies. 63
10.03 No Waiver; Cumulative Remedies 65
10.04 Attorney Costs, Expenses and Taxes 65
10.05 Indemnification by the Borrower 65
10.06 Payments Set Aside 66
10.07 Successors and Assigns 66
10.08 Confidentiality 70
10.09 Set-off 71
10.10 Interest Rate Limitation 71
10.11 Counterparts 71
10.12 Integration 71
10.13 Survival of Representations and Warranties 72
10.14 Severability 72
10.15 Tax Forms 72
10.16 Replacement of Lenders 74
10.17 Governing Law 74
10.18 Waiver of Right to Trial by Jury 75
10.19 USA PATRIOT Act Notice 75
SCHEDULES
1.01 McClatchy Family Members
2.01 Commitments and Pro Rata Shares
2.03 Existing Letters of Credit
5.06 Litigation
5.09 Environmental Matters
5.13 Subsidiaries
7.01 Existing Liens
7.02 Existing Indebtedness
10.02 Administrative Agent's Office, Certain Addresses for Notices
EXHIBITS
Form of
A Committed Loan Notice
B Swing Line Loan Notice
C Note
D Compliance Certificate
E Assignment and Assumption
F Opinion Matters
__________________________________________________________________
THE MCCLATCHY COMPANY
2004 STOCK INCENTIVE PLAN
__________________________________________________________________
TABLE OF CONTENTS
Page
2. DEFINITIONS *
3. ADMINISTRATION OF THE PLAN *
3.1. Board. *
3.2. Committee. *
3.3. Terms of Awards. *
3.4. Deferral Arrangement. *
3.5. No Liability. *
4. STOCK SUBJECT TO THE PLAN *
5. DURATION AND AMENDMENTS *
5.1. Term. *
5.2. Amendment and Termination of the Plan *
6. AWARD eligibility AND LIMITATIONS *
6.1. Designated Participants and Other Persons *
6.2. Successive Awards. *
6.3. Limitation on Shares of Stock Subject to Awards. *
6.4. Limitations on Incentive Stock Options. *
6.5. Stand-Alone, Additional, Tandem, and Substitute Awards. *
7. AWARD AGREEMENT *
8. TERMS AND CONDITIONS OF OPTIONS *
8.1. Option Price. *
8.2. Vesting. *
8.3. Term. *
8.4. Termination of Service. *
8.5. Limitations on Exercise of Option. *
8.6. Method of Exercise. *
8.7. Rights of Holders of Options *
8.8. Delivery of Stock Certificates. *
9. NON-TRANSFERABILITY OF OPTION *
10. Stock Appreciation Rights *
10.1. Right to Payment. *
10.2. Other Terms. *
11. RESTRICTED STOCK and stock units *
11.1. Grant and Purchase of Restricted Stock or Stock Units. *
11.2. Restrictions. *
11.3. Restricted Stock Certificates. *
11.4. Rights of Holders of Restricted Stock. *
11.5. Rights of Holders of Stock Units. *
11.5.1. Voting and Dividend Rights. *
11.5.2. Creditor's Rights. *
11.6. Termination of Service. *
11.7. Delivery of Stock. *
12. UNRESTRICTED STOCK AWARDS *
13. FORM OF PAYMENT FOR OPTIONS AND RESTRICTED STOCK *
13.1. General Rule. *
13.2. Surrender of Stock. *
13.3. Cashless Exercise. *
13.4. Other Forms of Payment. *
14. Dividend Equivalent RIGHTS *
14.1. Dividend Equivalent Rights. *
14.2. Termination of Service. *
15. Performance and Annual Incentive Awards *
15.1. Performance Conditions *
15.2. Performance or Annual Incentive Awards Granted to Designated Covered Employees *
15.2.1. Performance Goals Generally. *
15.2.2. Business Criteria. *
15.2.3. Timing For Establishing Performance Goals. *
15.2.4. Performance or Annual Incentive Award Pool. *
15.2.5. Settlement of Performance or Annual Incentive Awards; Other Terms. *
15.3. Written Determinations. *
15.4. Status of Section 15.2 Awards Under Code Section 162(m). *
16. REQUIREMENTS OF LAW *
16.1. General. *
16.2. Rule 16b-3. *
17. EFFECT OF CHANGES IN CAPITALIZATION *
17.1. Changes in Stock. *
17.2. Reorganization in Which the Company Is the Surviving Entity Which does not Constitute a Change of Control. *
17.3. Change of Control. *
17.4. Adjustments. *
17.5. No Limitations on Company. *
18. general provisions *
18.1. Disclaimer of Rights. *
18.2. Nonexclusivity of the Plan. *
18.3. Withholding Taxes. *
18.4. Captions *
18.5. Other Provisions *
18.6. Number And Gender *
18.7. Severability *
18.8. Governing Law *
THE MCCLATCHY COMPANY
2004 STOCK INCENTIVE PLAN
The McClatchy Company, a Delaware corporation (the "Company"), sets forth herein the terms of its 2004 Stock Incentive Plan (the "Plan"), as follows:
The Plan is intended to enhance the Company's and its Affiliates' (as defined herein) ability to attract and retain highly qualified officers, directors, and employees to motivate such officers, directors, and employees to serve the Company and its Affiliates and to expend maximum effort to improve the business results and earnings of the Company, by providing to such persons an opportunity to acquire or increase a direct proprietary interest in the operations and future success of the Company. To this end, the Plan provides for the grant of stock options, stock appreciation rights, restricted stock, stock units, unrestricted stock and dividend equivalent rights. Any of these awards may, but need not, be made as performance incentives to reward attainment of annual or long-term performance goals in accordance with the terms hereof. Stock options granted under the Plan may be non-qualified stock options or incentive stock options, as provided herein.
For purposes of interpreting the Plan and related documents (including Award Agreements), the following definitions shall apply:
The Board shall have such powers and authorities related to the administration of the Plan as are consistent with the Company's certificate of incorporation and by-laws and applicable law. The Board shall have full power and authority to take all actions and to make all determinations required or provided for under the Plan, any Award or any Award Agreement, and shall have full power and authority to take all such other actions and make all such other determinations not inconsistent with the specific terms and provisions of the Plan that the Board deems to be necessary or appropriate to the administration of the Plan, any Award or any Award Agreement. All such actions and determinations shall be by the affirmative vote of a majority of the members of the Board present at a meeting or by unanimous consent of the Board executed in writing in accordance with the Company's certificate of incorporation and by-laws and applicable law. The interpretation and construction by the Board of any provisi on of the Plan, any Award or any Award Agreement shall be final, binding and conclusive.
The Board has delegated to the Committee the powers and authorities related to the administration and implementation of the Plan, as set forth in Section 3.1 above and other applicable provisions, consistent with the certificate of incorporation and by-laws of the Company and applicable law.
(i) Except as provided in Subsection (ii) and except as the Board may otherwise determine, the Committee shall consist of two or more Outside Directors of the Company who: (a) qualify as "outside directors" within the meaning of Section 162(m) of the Code and who (b) meet such other requirements as may be established from time to time by the Securities and Exchange Commission for plans intended to qualify for exemption under Rule 16b-3 (or its successor) under the Exchange Act.
(ii) The Board may also appoint one or more separate committees of the Board, each composed of one or more directors of the Company who need not be Outside Directors, who may administer the Plan with respect to employees or other Designated Participants who are not officers or directors of the Company, may grant Awards under the Plan to such employees or other Designated Participants, and may determine all terms of such Awards.
In the event that the Plan, any Award or any Award Agreement entered into hereunder provides for any action to be taken by or determination to be made by the Board, such action may be taken or such determination may be made by the Committee if the power and authority to do so remains delegated to the Committee by the Board. Unless otherwise expressly determined by the Board, any such action or determination by the Committee shall be final, binding and conclusive. To the extent permitted by law, the Committee may delegate its authority under the Plan to a member of the Board, or to the Chief Executive Officer of the Company for actions or determinations regarding non-officer employees.
For the duration of the Board's delegation to the Committee under Section 3.2, the Committee shall have full and final authority to:
(i) designate Grantees,
(ii) determine the type or types of Awards to be made to a Grantee,
(iii) determine the number of shares of Stock to be subject to an Award,
(iv) establish the terms and conditions of each Award (including, but not limited to, the exercise price of any Option, the nature and duration of any restriction or condition (or provision for lapse thereof) relating to the vesting, exercise, transfer, or forfeiture of an Award or the shares of Stock subject thereto, and any terms or conditions that may be necessary to qualify Options as Incentive Stock Options),
(v) prescribe the form of each Award Agreement evidencing an Award, and
(vi) amend, modify, or supplement the terms of any outstanding Award. Such authority specifically includes the authority, in order to effectuate the purposes of the Plan but without amending the Plan, to modify Awards to eligible individuals who are foreign nationals or are individuals who are employed outside the United States to recognize differences in local law, tax policy, or custom.
As a condition to any subsequent Award, the Committee shall have the right, at its discretion, to require Grantees to return to the Company Awards previously made under the Plan. Subject to the terms and conditions of the Plan, any such new Award shall be upon such terms and conditions as are specified by the Committee at the time the new Award is made. The Committee shall have the right, in its discretion, to make Awards in substitution or exchange for any other award under another plan of the Company, any Affiliate, or any business entity to be acquired by the Company or an Affiliate. The Company may retain the right in an Award Agreement to cause a forfeiture of the gain realized by a Grantee on account of actions taken by the Grantee in violation or breach of or in conflict with any employment agreement, non-competition agreement, any agreement prohibiting solicitation of employees or clients of the Company or any Affiliate thereof or any confidentiality obligation with respect to the Compan y or any Affiliate thereof or otherwise in competition with the Company or any Affiliate thereof, to the extent specified in such Award Agreement applicable to the Grantee. Furthermore, the Company may annul an Award if the Grantee is an employee of the Company or an Affiliate thereof and is terminated for Cause as defined in the applicable Award Agreement or the Plan, as applicable. The grant of any Award shall be contingent upon the Grantee executing the appropriate Award Agreement.
The Board may permit or require the deferral of any award payment into a deferred compensation arrangement, subject to such rules and procedures as it may establish, which may include provisions for the payment or crediting of interest or dividend equivalents, including converting such credits into deferred Stock equivalents and restricting deferrals to comply with hardship distribution rules affecting 401(k) plans.
No member of the Board or of the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Award or Award Agreement.
Subject to adjustment as provided in Section 17 hereof, the number of shares of Stock available for issuance under the Plan shall be three million (3,000,000). Stock issued or to be issued under the Plan shall be authorized but unissued shares; or, to the extent permitted by applicable law, issued shares that have been reacquired by the Company. If any shares covered by an Award are not purchased or are forfeited, or if an Award otherwise terminates without delivery of any Stock subject thereto, then the number of shares of Stock counted against the aggregate number of shares available under the Plan with respect to such Award shall, to the extent of any such forfeiture or termination, again be available for making Awards under the Plan. If the Option Price of any Option that is not an Incentive Stock Option granted under the Plan, or if pursuant to Section 18.3 the withholding obligation of any Grantee with respect to an Option that is not an Incentive Stock Option , is satisfied by tendering shares of Stock to the Company (by either actual delivery or by attestation) or by withholding shares of Stock, the total number of shares of Stock issued net of shares tendered or withheld shall be deemed delivered for purposes of determining the maximum number of shares of Stock available for delivery under the Plan; provided, however, that this rule does not apply to Incentive Stock Options, as to which the total number of shares of stock issued shall be deemed delivered without any offset.
The Plan shall terminate automatically ten (10) years after its adoption by the Board and may be terminated on any earlier date as provided in Section 5.2.
The Board may, at any time and from time to time, amend, suspend, or terminate the Plan as to any shares of Stock as to which Awards have not been made. An amendment shall be contingent on approval of the Company's shareholders to the extent stated by the Board, required by applicable law or required by applicable stock exchange listing requirements. No Awards shall be made after termination of the Plan. No amendment, suspension, or termination of the Plan shall, without the consent of the Grantee, impair rights or obligations under any Award theretofore awarded under the Plan.
Subject to this Section 6, Awards may be made under the Plan to: (i) any Designated Participant in the Company or in any Affiliate, including any Designated Participant who is an officer or director of the Company, or of any Affiliate, as the Board shall determine and designate from time to time, and (ii) any Outside Director.
An eligible person may receive more than one Award, subject to such restrictions as are provided herein.
During any time when the Company has a class of equity security registered under Section 12 of the Exchange Act,
(i) the maximum number of shares of Stock subject to Options that can be awarded under the Plan to any person eligible for an Award under Section 6 hereof is three hundred thousand (300,000) per calendar year; and
(ii) the maximum number of shares that can be awarded under the Plan, other than pursuant to an Option, to any person eligible for an Award under Section 6 hereof is three hundred thousand (300,000) per calendar year
The preceding limitations in this Section 6.3 are subject to adjustment as provided in Section 17 hereof; however, during the term of the Plan no Designated Participant shall be awarded an amount in excess of the maximum number of shares set forth in this Section.
An Option shall constitute an Incentive Stock Option only (i) if the Grantee of such Option is an employee of the Company or any Subsidiary of the Company; (ii) to the extent specifically provided in the related Award Agreement; and (iii) to the extent that the aggregate Fair Market Value (determined at the time the Option is granted) of the shares of Stock with respect to which all Incentive Stock Options held by such Grantee become exercisable for the first time during any calendar year (under the Plan and all other plans of the Grantee's employer and its Affiliates) does not exceed $100,000. This limitation shall be applied by taking Options into account in the order in which they were granted.
Awards granted under the Plan may, in the discretion of the Board, be granted either alone or in addition to, in tandem with, or in substitution or exchange for, any other Award or any award granted under another plan of the Company, any Affiliate, or any business entity to be acquired by the Company or an Affiliate, or any other right of a Grantee to receive payment from the Company or any Affiliate. Such additional, tandem, and substitute or exchange Awards may be granted at any time. If an Award is granted in substitution or exchange for another Award, the Board shall require the surrender of such other Award in consideration for the grant of the new Award. In addition, Awards may be granted in lieu of cash compensation, including in lieu of cash amounts payable under other plans of the Company or any Affiliate, in which the value of Stock subject to the Award is equivalent in value to the cash compensation (for example, Stock Units or Restricted Stock), or in which the Option Price, grant price or purchase price of the Award in the nature of a right that may be exercised is equal to the Fair Market Value of the underlying Stock minus the value of the cash compensation surrendered (for example, Options granted with an Option Price "discounted" by the amount of the cash compensation surrendered).
Each Award granted pursuant to the Plan shall be evidenced by an Award Agreement, in such form or forms as the Board shall from time to time determine. Award Agreements granted from time to time or at the same time need not contain similar provisions but shall be consistent with the terms of the Plan. Each Award Agreement evidencing an Award of Options shall specify whether such Options are intended to be Non-qualified Stock Options or Incentive Stock Options, and in the absence of such specification such options shall be deemed Non-qualified Stock Options.
The Option Price of each Option shall be fixed by the Board and stated in the Award Agreement evidencing such Option; provided, however, that in the event that a Grantee is a Ten Percent Shareholder, the Option Price of an Option granted to such Grantee that is intended to be an Incentive Stock Option shall be not less than 110 percent of the Fair Market Value of a share of Stock on the Grant Date. In no case shall the Option Price of any Option be less than the par value of a share of Stock.
Subject to Sections 8.3 and 17.3 hereof, each Option granted under the Plan shall become exercisable at such times and under such conditions as shall be determined by the Board and stated in the Award Agreement. For purposes of this Section 8.2, fractional numbers of shares of Stock subject to an Option shall be rounded down to the next nearest whole number. The Board may provide, for example, in the Award Agreement for (i) accelerated exercisability of the Option in the event the Grantee's Service terminates on account of death, Disability or another event, (ii) expiration of the Option prior to its term in the event of the termination of the Grantee's Service, (iii) immediate forfeiture of the Option in the event the Grantee's Service is terminated for Cause or (iv) unvested Options to be exercised subject to the Company's right of repurchase with respect to unvested shares of Stock. No Option shall be exercisable in whole or in part prior to the Effec tive Date.
Each Option granted under the Plan shall terminate, and all rights to purchase shares of Stock thereunder shall cease, upon the expiration of ten years from the date such Option is granted, or under such circumstances and on such date prior thereto as is set forth in the Plan or as may be fixed by the Board and stated in the Award Agreement relating to such Option (the "Termination Date"); provided, however, that in the event that the Grantee is a Ten Percent Shareholder, an Option granted to such Grantee that is intended to be an Incentive Stock Option shall not be exercisable after the expiration of five years from its Grant Date.
Each Award Agreement shall set forth the extent to which the Grantee shall have the right to exercise the Option following termination of the Grantee's Service. Such provisions shall be determined in the sole discretion of the Board, need not be uniform among all Options issued pursuant to the Plan, and may reflect distinctions based on the reasons for termination of Service.
Notwithstanding any other provision of the Plan, in no event may any Option be exercised, in whole or in part, prior to the date the Plan is approved by the shareholders of the Company as provided herein, or after ten years following the Grant Date, or after the occurrence of an event referred to in Section 17 hereof which results in termination of the Option.
An Option that is exercisable may be exercised by the Grantee's delivery to the Company of written notice of exercise on any business day, at the Company's principal office, on the form specified by the Company. Such notice shall specify the number of shares of Stock with respect to which the Option is being exercised and shall be accompanied by payment in full of the Option Price of the shares for which the Option is being exercised. The minimum number of shares of Stock with respect to which an Option may be exercised, in whole or in part, at any time shall be the lesser of (i) 100 shares or such lesser number set forth in the applicable Award Agreement and (ii) the maximum number of shares available for purchase under the Option at the time of exercise.
Unless otherwise stated in the applicable Award Agreement, an individual holding or exercising an Option shall have none of the rights of a shareholder (for example, the right to receive cash or dividend payments or distributions attributable to the subject shares of Stock or to direct the voting of the subject shares of Stock ) until the shares of Stock covered thereby are fully paid and issued to him. Except as provided in Section 17 hereof, no adjustment shall be made for dividends, distributions or other rights for which the record date is prior to the date of such issuance.
Promptly after the exercise of an Option by a Grantee and the payment in full of the Option Price, such Grantee shall be entitled to the issuance of a stock certificate or certificates evidencing his or her ownership of the shares of Stock subject to the Option. Notwithstanding any other provision of this Plan to the contrary, the Company may elect to satisfy any requirement under this Plan for the delivery of stock certificates through the use of book-entry.
During the lifetime of a Grantee, only the Grantee (or, in the event of legal incapacity or incompetency, the Grantee's guardian or legal representative) may exercise an Option. No Option shall be assignable or transferable by the Grantee to whom it is granted, other than by will or the laws of descent and distribution.
The Board is authorized to grant Stock Appreciation Rights ("SARs") to Grantees on the following terms and conditions:
A SAR shall confer on the Grantee to whom it is granted a right to receive, upon exercise thereof, the excess of (A) the Fair Market Value of one share of Stock on the date of exercise over (B) the grant price of the SAR as determined by the Board. The Award Agreement for an SAR shall specify the grant price of the SAR, which may be fixed at the Fair Market Value of a share of Stock on the date of grant or may vary in accordance with a predetermined formula while the SAR is outstanding.
The Board shall determine at the date of grant or thereafter, the time or times at which and the circumstances under which a SAR may be exercised in whole or in part (including based on achievement of performance goals and/or future service requirements), the time or times at which SARs shall cease to be or become exercisable following termination of Service or upon other conditions, the method of exercise, method of settlement, form of consideration payable in settlement, method by or forms in which Stock will be delivered or deemed to be delivered to Grantees, whether or not a SAR shall be in tandem or in combination with any other Award, and any other terms and conditions of any SAR.
The Board may from time to time grant Restricted Stock or Stock Units to persons eligible to receive Awards under Section 6 hereof, subject to such restrictions, conditions and other terms, if any, as the Board may determine. The Grantee shall be required, to the extent required by applicable law, to purchase the Restricted Stock from the Company at a Purchase Price equal to the greater of (i) the aggregate par value of the shares of Stock represented by such Restricted Stock or (ii) the Purchase Price, if any, specified in the Award Agreement relating to such Restricted Stock. The Purchase Price shall be payable in a form described in Section 13 or, in the discretion of the Board, in consideration for past Services rendered to the Company or an Affiliate, such that no monetary price is required actually to be paid for the Restricted Stock Award.
At the time a grant of Restricted Stock or Stock Units is made, the Board may, in its sole discretion, establish a period of time (a "restricted period") applicable to such Restricted Stock or Stock Units. Each Award of Restricted Stock or Stock Units may be subject to a different restricted period. The Board may, in its sole discretion, at the time a grant of Restricted Stock or Stock Units is made, prescribe restrictions in addition to or other than the expiration of the restricted period, including the satisfaction of corporate or individual performance objectives, which may be applicable to all or any portion of the Restricted Stock or Stock Units in accordance with Section 15.1 and 15.2. Neither Restricted Stock nor Stock Units may be sold, transferred, assigned, pledged or otherwise encumbered or disposed of during the restricted period or prior to the satisfaction of any other restrictions prescribed by the Board with respect to such Restricted Stock or Stock Units.< /P>
The Company shall issue, in the name of each Grantee to whom Restricted Stock has been granted, stock certificates representing the total number of shares of Restricted Stock granted to the Grantee, as soon as reasonably practicable after the Grant Date. The Board may provide in an Award Agreement that either (i) the Secretary of the Company shall hold such certificates for the Grantee's benefit until such time as the Restricted Stock is forfeited to the Company or the restrictions lapse, or (ii) such certificates shall be delivered to the Grantee, provided, however, that such certificates shall bear a legend or legends that comply with the applicable securities laws and regulations and makes appropriate reference to the restrictions imposed under the Plan and the Award Agreement.
Unless the Board otherwise provides in an Award Agreement, holders of Restricted Stock shall have the right to vote such Stock and the right to receive any dividends declared or paid with respect to such Stock. The Board may provide that any dividends paid on Restricted Stock must be reinvested in shares of Stock, which may or may not be subject to the same vesting conditions and restrictions applicable to such Restricted Stock. All distributions, if any, received by a Grantee with respect to Restricted Stock as a result of any stock split, stock dividend, combination of shares, or other similar transaction shall be subject to the restrictions applicable to the original Grant.
Unless the Board otherwise provides in an Award Agreement, holders of Stock Units shall have no rights as shareholders of the Company. The Board may provide in an Award Agreement evidencing a grant of Stock Units that the holder of such Stock Units shall be entitled to receive, upon the Company's payment of a cash dividend on its outstanding Stock, a cash payment for each Stock Unit held equal to the per-share dividend paid on the Stock. Such Award Agreement may also provide that such cash payment will be deemed reinvested in additional Stock Units at a price per unit equal to the Fair Market Value of a share of Stock on the date that such dividend is paid.
A holder of Stock Units shall have no rights other than those of a general creditor of the Company. Stock Units represent an unfunded and unsecured obligation of the Company, subject to the terms and conditions of the applicable Award Agreement.
Unless the Board otherwise provides in an Award Agreement or in writing after the Award Agreement is issued, upon the termination of a Grantee's Service, any Restricted Stock or Stock Units held by such Grantee that have not vested, or with respect to which all applicable restrictions and conditions have not lapsed, shall immediately be deemed forfeited. Upon forfeiture of Restricted Stock or Stock Units, the Grantee shall have no further rights with respect to such Award, including but not limited to any right to vote Restricted Stock or any right to receive dividends with respect to shares of Restricted Stock or Stock Units.
Upon the expiration or termination of any restricted period and the satisfaction of any other conditions prescribed by the Board, the restrictions applicable to shares of Restricted Stock or Stock Units settled in Stock shall lapse, and, unless otherwise provided in the Award Agreement, a stock certificate for such shares shall be delivered, free of all such restrictions, to the Grantee or the Grantee's beneficiary or estate, as the case may be.
The Board may, in its sole discretion, grant (or sell at par value or such other higher purchase price determined by the Board) an Unrestricted Stock Award to any Grantee pursuant to which such Grantee may receive shares of Stock free of any restrictions ("Unrestricted Stock") under the Plan; provided, however, that the total number of shares of Unrestricted Stock granted under the Plan may not exceed 100,000 in the aggregate. Unrestricted Stock Awards may be granted or sold as described in the preceding sentence in respect of past services and other valid consideration, or in lieu of, or in addition to, any cash compensation due to such Grantee.
Payment of the Option Price for the shares purchased pursuant to the exercise of an Option or the Purchase Price for Restricted Stock shall be made in cash or in cash equivalents acceptable to the Company.
To the extent the Award Agreement so provides, payment of the Option Price for shares purchased pursuant to the exercise of an Option or the Purchase Price for Restricted Stock may be made all or in part through the tender to the Company of shares of Stock, which shares, if acquired from the Company, shall have been held for at least six months at the time of tender and which shall be valued, for purposes of determining the extent to which the Option Price or Purchase Price has been paid thereby, at their Fair Market Value on the date of exercise.
With respect to an Option only (and not with respect to Restricted Stock), to the extent the Award Agreement so provides, payment of the Option Price for shares purchased pursuant to the exercise of an Option and any withholding taxes described in Section 18.3 may be made all or in part (a) by delivery (on a form acceptable to the Board) of an irrevocable direction to a licensed securities broker acceptable to the Company to sell shares of Stock and to deliver all or part of the sales proceeds to the Company, or (b) by proceeds secured from a licensed securities broker acceptable to the Company even if secured by the shares underlying the Option.
To the extent the Award Agreement so provides, payment of the Option Price for shares purchased pursuant to exercise of an Option or the Purchase Price for Restricted Stock may be made in any other form that is consistent with applicable laws, regulations and rules.
A Dividend Equivalent Right is an Award entitling the recipient to receive credits based on cash distributions that would have been paid on the shares of Stock specified in the Dividend Equivalent Right (or other award to which it relates) if such shares had been issued to and held by the recipient. A Dividend Equivalent Right may be granted hereunder to any Grantee as a component of any other Award. The terms and conditions of Dividend Equivalent Rights shall be specified in the grant. Dividend Equivalents credited to the holder of a Dividend Equivalent Right may be paid currently or may be deemed to be reinvested in additional shares of Stock, which may thereafter accrue additional equivalents. Any such reinvestment shall be at Fair Market Value on the date of reinvestment. Dividend Equivalent Rights may be settled in cash or Stock or a combination thereof, in a single installment or installments, all determined in the sole discretion of the Board. A Dividend Equivalent Right grante d as a component of another Award may provide that such Dividend Equivalent Right shall be settled upon exercise, settlement, or payment of, or lapse of restrictions on, such other award, and that such Dividend Equivalent Right shall expire or be forfeited or annulled under the same conditions as such other award. Although granted as a component of another Award, a Dividend Equivalent Right may be subject to terms and conditions different from such other award.
Except as may otherwise be provided by the Board either in the Award Agreement or in writing after the Award Agreement is issued, a Grantee's rights in all Dividend Equivalent Rights or interest equivalents shall automatically terminate upon the Grantee's termination of Service for any reason.
The right of a Grantee to exercise or receive a grant or settlement of any Award, and the timing thereof, may be subject to such performance conditions as may be specified by the Board. The Board may use such business criteria and other measures of performance as it may deem appropriate in establishing any performance conditions, and may exercise its discretion to reduce the amounts payable under any Award subject to performance conditions, except as limited under Sections 15.2 hereof in the case of a Performance Award or Annual Incentive Award intended to qualify under Code Section 162(m). If and to the extent required under Code Section 162(m), any power or authority relating to a Performance Award or Annual Incentive Award intended to qualify under Code Section 162(m), shall be exercised by the Committee and not the Board.
If and to the extent that the Committee determines that a Performance or Annual Incentive Award to be granted to a Grantee who is designated by the Committee as likely to be a Covered Employee should qualify as "performance-based compensation" for purposes of Code Section 162(m), the grant, exercise and/or settlement of such Performance or Annual Incentive Award shall be contingent upon achievement of pre-established performance goals and other terms set forth in this Section 15.2.
The performance goals for such Performance or Annual Incentive Awards shall consist of one or more business criteria and a targeted level or levels of performance with respect to each of such criteria, as specified by the Committee consistent with this Section 15.2. Performance goals shall be objective and shall otherwise meet the requirements of Code Section 162(m) and regulations thereunder including the requirement that the level or levels of performance targeted by the Committee result in the achievement of performance goals being "substantially uncertain." The Committee may determine that such Performance or Annual Incentive Awards shall be granted, exercised and/or settled upon achievement of any one performance goal or that two or more of the performance goals must be achieved as a condition to grant, exercise and/or settlement of such Performance or Annual Incentive Awards. Performance goals may differ for Performance or Annual Incentive Awards granted to any one Grantee o r to different Grantees.
One or more of the following business criteria for the Company, on a consolidated basis, and/or specified subsidiaries or business units of the Company (except with respect to the total shareholder return and earnings per share criteria), shall be used exclusively by the Committee in establishing performance goals for such Performance or Annual Incentive Awards: (1) operating cash flow, (2) operating cash flow as a percentage of revenue, (3) revenue, (4) operating income, (5) operating income as a percentage of revenue, (6) pretax income, (7) pretax income as a percentage of net income, (8) net income as a percentage of revenue and/or circulation, (9) total shareholder return; (10) such total shareholder return as compared to total return (on a comparable basis) of a publicly available index such as, but not limited to, the Standard & Poor's 500 Stock Index; (10) earnings per share; (11) return on equity; (12) pretax earnings per share; (13) return on capital; (14) return on investment; (15) working capital; and (16) ratio of debt to shareholders' equity.
Performance goals shall be established not later than 90 days after the beginning of any performance period applicable to such Performance or Annual Incentive Awards, or at such other date as may be required or permitted for "performance-based compensation" under Code Section 162(m).
The Committee may establish a Performance or Annual Incentive Award pool, which shall be an unfunded pool, for purposes of measuring Company performance in connection with Performance or Annual Incentive Awards.
Settlement of such Performance or Annual Incentive Awards shall be in cash, Stock, other Awards or other property, in the discretion of the Committee. The Committee may, in its discretion, reduce the amount of a settlement otherwise to be made in connection with such Performance or Annual Incentive Awards. The Committee shall specify the circumstances in which such Performance or Annual Incentive Awards shall be paid or forfeited in the event of termination of Service by the Grantee prior to the end of a performance period or settlement of Performance Awards.
All determinations by the Committee as to the establishment of performance goals, the amount of any Performance Award pool or potential individual Performance Awards and as to the achievement of performance goals relating to Performance Awards, and the amount of any Annual Incentive Award pool or potential individual Annual Incentive Awards and the amount of final Annual Incentive Awards, shall be made in writing in the case of any Award intended to qualify under Code Section 162(m). To the extent required to comply with Code Section 162(m), the Committee may delegate any responsibility relating to such Performance Awards or Annual Incentive Awards.
It is the intent of the Company that Performance Awards and Annual Incentive Awards under Section 15.2 hereof granted to persons who are designated by the Committee as likely to be Covered Employees within the meaning of Code Section 162(m) and regulations thereunder shall, if so designated by the Committee, constitute "qualified performance-based compensation" within the meaning of Code Section 162(m) and regulations thereunder. Accordingly, the terms of Section 15.2, including the definitions of Covered Employee and other terms used therein, shall be interpreted in a manner consistent with Code Section 162(m) and regulations thereunder. The foregoing notwithstanding, because the Committee cannot determine with certainty whether a given Grantee will be a Covered Employee with respect to a fiscal year that has not yet been completed, the term Covered Employee as used herein shall mean only a person designated by the Committee, at the time of grant of Performance Awards or an Ann ual Incentive Award, as likely to be a Covered Employee with respect to that fiscal year. If any provision of the Plan or any agreement relating to such Performance Awards or Annual Incentive Awards does not comply or is inconsistent with the requirements of Code Section 162(m) or regulations thereunder, such provision shall be construed or deemed amended to the extent necessary to conform to such requirements.
The Company shall not be required to sell or issue any shares of Stock under any Award if the sale or issuance of such shares would constitute a violation by the Grantee, any other individual exercising an Option, or the Company of any provision of any law or regulation of any governmental authority, including without limitation any federal or state securities laws or regulations. If at any time the Company shall determine, in its discretion, that the listing, registration or qualification of any shares subject to an Award upon any securities exchange or under any governmental regulatory body is necessary or desirable as a condition of, or in connection with, the issuance or purchase of shares hereunder, no shares of Stock may be issued or sold to the Grantee or any other individual exercising an Option pursuant to such Award unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Company, and any delay caused thereby shall in no way affect the date of termination of the Award. Specifically, in connection with the Securities Act, upon the exercise of any Option or the delivery of any shares of Stock underlying an Award, unless a registration statement under such Act is in effect with respect to the shares of Stock covered by such Award, the Company shall not be required to sell or issue such shares unless the Board has received evidence satisfactory to it that the Grantee or any other individual exercising an Option may acquire such shares pursuant to an exemption from registration under the Securities Act. Any determination in this connection by the Board shall be final, binding, and conclusive. The Company may, but shall in no event be obligated to, register any securities covered hereby pursuant to the Securities Act. The Company shall not be obligated to take any affirmative action in order to cause the exercise of an Option or the issuance of shares of Stock pursuant to the Plan to comply with any law or regulation of any governmental authority. As to any jurisdiction that expressly imposes the requirement that an Option shall not be exercisable until the shares of Stock covered by such Option are registered or are exempt from registration, the exercise of such Option (under circumstances in which the laws of such jurisdiction apply) shall be deemed conditioned upon the effectiveness of such registration or the availability of such an exemption.
During any time when the Company has a class of equity security registered under Section 12 of the Exchange Act, it is the intent of the Company that Awards pursuant to the Plan and the exercise of Options granted hereunder will qualify for the exemption provided by Rule 16b-3 under the Exchange Act. To the extent that any provision of the Plan or action by the Board does not comply with the requirements of Rule 16b-3, it shall be deemed inoperative to the extent permitted by law and deemed advisable by the Board, and shall not affect the validity of the Plan. In the event that Rule 16b-3 is revised or replaced, the Board may exercise its discretion to modify this Plan in any respect necessary to satisfy the requirements of, or to take advantage of any features of, the revised exemption or its replacement.
If the number of outstanding shares of Stock is increased or decreased or the shares of Stock are changed into or exchanged for a different number or kind of shares or other securities of the Company on account of any recapitalization, reclassification, stock split, reverse split, combination of shares, exchange of shares, stock dividend or other distribution payable in capital stock, or other increase or decrease in such shares effected without receipt of consideration by the Company occurring after the Effective Date, the number and kinds of shares for which grants of Options and other Awards may be made under the Plan shall be adjusted proportionately and accordingly by the Company. In addition, the number and kind of shares for which Awards are outstanding shall be adjusted proportionately and accordingly so that the proportionate interest of the Grantee immediately following such event shall, to the extent practicable, be the same as immediately before such event. Any such adjustment in outstanding Options or SARs shall not change the aggregate Option Price or SAR Exercise Price payable with respect to shares that are subject to the unexercised portion of an outstanding Option or SAR, as applicable, but shall include a corresponding proportionate adjustment in the Option Price or SAR Exercise Price per share. The conversion of any convertible securities of the Company shall not be treated as an increase in shares effected without receipt of consideration. Notwithstanding the foregoing, in the event of any distribution to the Company's shareholders of securities of any other entity or other assets without receipt of consideration by the Company, the Company may, in such manner as the Company deems appropriate, adjust (i) the number and kind of shares subject to outstanding Awards and/or (ii) the exercise price of outstanding Options and Stock Appreciation Rights to reflect such distribution.
Subject to Section 17.34 hereof, if the Company shall be the surviving entity in any reorganization, merger, or consolidation of the Company with one or more other entities which does not constitute a Change of Control, any Option or SAR theretofore granted pursuant to the Plan shall pertain to and apply to the securities to which a holder of the number of shares of Stock subject to such Option or SAR would have been entitled immediately following such reorganization, merger, or consolidation, with a corresponding proportionate adjustment of the Option Price or SAR Exercise Price per share so that the aggregate Option Price or SAR Exercise Price thereafter shall be the same as the aggregate Option Price or SAR Exercise Price of the shares remaining subject to the Option or SAR immediately prior to such reorganization, merger, or consolidation. Subject to any contrary language in an Award Agreement evidencing an Award, any restrictions applicable to such Award shall apply as wel l to any replacement shares received by the Grantee as a result of the reorganization, merger or consolidation.
Subject to the exception set forth in the last sentence of Section 17.4:
(i) upon the occurrence of a Change of Control, all outstanding Options and SARs hereunder and all outstanding shares of Restricted Stock and Stock Units shall be deemed to have vested, and all restrictions and conditions applicable to such Options and SARs, and shares of Restricted Stock and Stock Units shall be deemed to have lapsed, immediately prior to the occurrence of such Change of Control, and
(ii) either of the following two actions shall be taken:
(A) The Board may elect, in its sole discretion, to cancel any outstanding Awards of Options, Restricted Stock, and/or SARs and pay or deliver, or cause to be paid or delivered, to the holder thereof an amount in cash or securities having a value (as determined by the Board acting in good faith), in the case of Restricted Stock, equal to the formula or fixed price per share paid to holders of shares of Stock and, in the case of Options or SARs, equal to the product of the number of shares of Stock subject to the Option or SAR (the "Award Shares") multiplied by the amount, if any, by which (I) the formula or fixed price per share paid to holders of shares of Stock pursuant to such transaction exceeds (II) the Option Price or SAR Exercise Price applicable to such Award Shares. With respect to all outstanding Options, in addition to the action taken under the preceding sentence, the Board may further elect, in its sole discretion, to give Grantees scheduled to become vested in Options upon the Ch ange of Control the opportunity to exercise the Options prior to the scheduled consummation of the Change of Control contingent on the occurrence of such Change of Control.
(B) The Company may make provision in writing in connection with such Change of Control for the assumption and continuation of the Options, SARs, Restricted Stock and Stock Units theretofore granted, or for substitution of such Options, SARs, Restricted Stock and Stock Units for new common stock option and stock appreciation rights and new common stock restricted stock and stock units relating to the stock of the successor entity, or a parent or subsidiary thereof, with appropriate adjustment as to the number of shares (disregarding any consideration that is not common stock) and option and stock appreciation right exercise prices.
Adjustments under this Section 17 related to shares of Stock or securities of the Company shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. No fractional shares or other securities shall be issued pursuant to any such adjustment, and any fractions resulting from any such adjustment shall be eliminated in each case by rounding downward to the nearest whole share. The Board shall determine the effect of a Change of Control upon Awards other than Options, SARs, Restricted Stock and Stock Units, and such effect shall be set forth in the appropriate Award Agreement. The Board may provide in the Award Agreements at the time of grant, or any time thereafter with the consent of the Grantee, for different provisions to apply to an Award in place of those described in Sections 17.1, 17.2 and 17.3.
The making of Awards pursuant to the Plan shall not affect or limit in any way the right or power of the Company to make adjustments, reclassifications, reorganizations, or changes of its capital or business structure or to merge, consolidate, dissolve, or liquidate, or to sell or transfer all or any part of its business or assets.
No provision in the Plan or in any Award or Award Agreement shall be construed to confer upon any individual the right to remain in the employ or service of the Company or any Affiliate, or to interfere in any way with any contractual or other right or authority of the Company either to increase or decrease the compensation or other payments to any individual at any time, or to terminate any employment or other relationship between any individual and the Company. In addition, notwithstanding anything contained in the Plan to the contrary, unless otherwise stated in the applicable Award Agreement, no Award granted under the Plan shall be affected by any change of duties or position of the Grantee, so long as such Grantee continues to be a director, officer, consultant or employee of the Company or an Affiliate. The obligation of the Company to pay any benefits pursuant to this Plan shall be interpreted as a contractual obligation to pay only those amounts described herein, in the manner an d under the conditions prescribed herein. The Plan shall in no way be interpreted to require the Company to transfer any amounts to a third party trustee or otherwise hold any amounts in trust or escrow for payment to any Grantee or beneficiary under the terms of the Plan.
Neither the adoption of the Plan nor the submission of the Plan to the shareholders of the Company for approval shall be construed as creating any limitations upon the right and authority of the Board to adopt such other incentive compensation arrangements (which arrangements may be applicable either generally to a class or classes of individuals or specifically to a particular individual or particular individuals) as the Board in its discretion determines desirable, including, without limitation, the granting of stock options otherwise than under the Plan.
The Company or an Affiliate, as the case may be, shall have the right to deduct from payments of any kind otherwise due to a Grantee any Federal, state, or local taxes of any kind required by law to be withheld with respect to the vesting of or other lapse of restrictions applicable to an Award or upon the issuance of any shares of Stock upon the exercise of an Option or pursuant to an Award. At the time of such vesting, lapse, or exercise, the Grantee shall pay to the Company or the Affiliate, as the case may be, any amount that the Company or the Affiliate may reasonably determine to be necessary to satisfy such withholding obligation. Subject to the prior approval of the Company or the Affiliate, which may be withheld by the Company or the Affiliate, as the case may be, in its sole discretion, the Grantee may elect to satisfy such obligations, in whole or in part, (i) by causing the Company or the Affiliate to withhold shares of Stock otherwise issuable to the Grantee or (ii)  ;by delivering to the Company or the Affiliate shares of Stock already owned by the Grantee. The shares of Stock so delivered or withheld shall have an aggregate Fair Market Value equal to such withholding obligations. The Fair Market Value of the shares of Stock used to satisfy such withholding obligation shall be determined by the Company or the Affiliate as of the date that the amount of tax to be withheld is to be determined. A Grantee who has made an election pursuant to this Section 18.3 may satisfy his or her withholding obligation only with shares of Stock that are not subject to any repurchase, forfeiture, unfulfilled vesting, or other similar requirements.
The use of captions in this Plan or any Award Agreement is for the convenience of reference only and shall not affect the meaning of any provision of the Plan or such Award Agreement.
Each Award granted under the Plan may contain such other terms and conditions not inconsistent with the Plan as may be determined by the Board, in its sole discretion.
With respect to words used in this Plan, the singular form shall include the plural form, the masculine gender shall include the feminine gender, etc., as the context requires.
If any provision of the Plan or any Award Agreement shall be determined to be illegal or unenforceable by any court of law in any jurisdiction, the remaining provisions hereof and thereof shall be severable and enforceable in accordance with their terms, and all provisions shall remain enforceable in any other jurisdiction.
The validity and construction of this Plan and the instruments evidencing the Award hereunder shall be governed by the laws of the State of Delaware, other than any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of this Plan and the instruments evidencing the Awards granted hereunder to the substantive laws of any other jurisdiction.
* * *
To record adoption of the Plan by the Board as of January 28, 2004, and approval of the Plan by the shareholders on May 19, 2004, the Company has caused its authorized officer to execute the Plan.
THE MCCLATCHY COMPANY |
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By: |
/s/ Karole Morgan-Prager |
Title: |
Vice President and Secretary |
EXHIBIT 31.1
CERTIFICATION
I, Gary B. Pruitt, Chief Executive Officer of The McClatchy Company, certify that:
1. |
I have reviewed this quarterly report on Form 10-Q of The McClatchy Company; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
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a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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b) |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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c) |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, the registrant's internal control over financial reporting; and |
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5. |
The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): |
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a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
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b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. |
Date: July 29, 2004 |
/s/ Gary B. Pruitt |
Gary B. Pruitt Chief Executive Officer |
EXHIBIT 31.2
CERTIFICATION
I, Patrick J. Talamantes, Chief Financial Officer of The McClatchy Company, certify that:
1. |
I have reviewed this quarterly report on Form 10-Q of The McClatchy Company; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
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a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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b) |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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c) |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, the registrant's internal control over financial reporting; and |
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5. |
The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): |
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a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
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b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. |
Date: July 29, 2004 |
/s/ Patrick J. Talamantes |
Patrick J. Talamantes Chief Financial Officer |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of The McClatchy Company (the "Company") on Form 10-Q for the period ended March 28, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Gary B. Pruitt, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Dated: July 29, 2004 |
/s/ Gary B. Pruitt |
Gary B. Pruitt Chief Executive Officer |
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of The McClatchy Company (the "Company") on Form 10-Q for the period ended March 28, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Patrick J. Talamantes, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Dated: July 29, 2004 |
/s/ Patrick J. Talamantes |
Patrick J. Talamantes Chief Financial Officer |