-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CdQrlXLcm/JUQVaHUrcWEn6m+dkb+3/buAfkuQYUSv9fRt2U7PaM9y6SX1/wfRe2 Q/8MWSe1RoBPpw+dWlKKtw== 0000822043-97-000012.txt : 19970814 0000822043-97-000012.hdr.sgml : 19970814 ACCESSION NUMBER: 0000822043-97-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970813 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MCCLATCHY NEWSPAPERS INC CENTRAL INDEX KEY: 0000822043 STANDARD INDUSTRIAL CLASSIFICATION: NEWSPAPERS: PUBLISHING OR PUBLISHING & PRINTING [2711] IRS NUMBER: 940666175 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09824 FILM NUMBER: 97657612 BUSINESS ADDRESS: STREET 1: 2100 Q ST STREET 2: PO BOX 15779 CITY: SACRAMENTO STATE: CA ZIP: 95816 BUSINESS PHONE: 9163211828 MAIL ADDRESS: STREET 1: PO BOX 15779 STREET 2: 2100 Q ST CITY: SACRAMENTO STATE: CA ZIP: 95816 10-Q 1 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 30, 1997 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 1-9824 McCLATCHY NEWSPAPERS, INC. (Exact name of registrant as specified in its charter) Delaware 94-0666175 (State of Incorporation) (IRS Employer Identification Number) 2100 "Q" Street, Sacramento, CA. 95816 (Address of principal executive offices) (916) 321-1846 (Registrant's telephone number) Indicate by check mark whether the registrant has (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . The number of shares of each class of common stock outstanding as of August 8, 1997: Class A Common Stock 9,351,446 Class B Common Stock 28,699,412 1 of 21 McCLATCHY NEWSPAPERS, INC. INDEX TO FORM 10-Q Page Part I - FINANCIAL INFORMATION Item 1 - Financial Statements: Consolidated Balance Sheet - June 30, 1997 (unaudited) and December 31, 1996 3 Consolidated Statement of Income for the Three Months and Six Months Ended June 30, 1997 and 1996 (unaudited) 5 Consolidated Statement of Cash Flows for the Six Months Ended June 30, 1997 and 1996 (unaudited) 6 Consolidated Statement of Stockholders' Equity for the Period from December 31, 1995 to June 30, 1997 (unaudited) 7 Notes to Consolidated Financial Statements (unaudited) 8 Item 2 - Management's Discussion and Analysis of Results of Operations and Financial Condition 15 Part II - OTHER INFORMATION 20 2 PART I - FINANCIAL INFORMATION Item 1 - Financial Statements McCLATCHY NEWSPAPERS, INC. CONSOLIDATED BALANCE SHEET (In thousands) ASSETS June 30, December 31, 1997 1996 (Unaudited) Current assets: [S] [C] [C] Cash and cash equivalents $ 8,255 $ 5,877 Trade receivables (less allowances of $2,642 in 1997 and $2,440 in 1996) 78,693 81,791 Other receivables 1,696 1,911 Newsprint, ink and other inventories 10,583 8,015 Deferred income taxes 10,787 10,223 Other current assets 3,911 3,193 Total current assets 113,925 111,010 Property, plant and equipment: Land 33,054 32,591 Buildings and improvements 157,564 157,741 Equipment 376,372 369,346 Construction in progress 6,876 8,532 Total 573,866 568,210 Accumulated depreciation (239,782) (226,420) Net property,plant and equipment 334,084 341,790 Intangibles - net 401,347 411,393 Newsprint mill investment 8,289 8,989 Other assets 2,473 2,484 Total assets $ 860,118 $ 875,666 See notes to consolidated financial statements 3 McCLATCHY NEWSPAPERS, INC. CONSOLIDATED BALANCE SHEET (In thousands, except share amounts) LIABILITIES AND STOCKHOLDERS' EQUITY June 30, December 31, 1997 1996 (Unaudited) Current liabilities: [S] [C] [C] Accounts payable $ 27,900 $ 22,806 Accrued compensation 36,152 33,567 Income taxes 1,288 4,737 Unearned revenue 17,701 18,103 Carrier deposits 4,142 4,149 Other accrued liabilities 9,592 8,998 Total current liabilities 96,775 92,360 Long-term bank debt 143,000 190,000 Other long-term obligations 28,966 29,814 Deferred income taxes 58,798 60,378 Commitments and contingencies (note 7) Stockholders' equity: Common stock $.01 par value: Class A - authorized 100,000,000 shares, 9,223,828 issued in 1997 and 8,946,651 in 1996 92 89 Class B - authorized 60,000,000 shares, issued 28,729,412 in 1997 and 28,842,287 in 1996 287 288 Additional paid-in capital 70,878 67,534 Retained earnings 461,322 435,574 Treasury stock, 25,000 Class A shares in 1996 - (371) Total stockholders'equity 532,579 503,114 Total liabilities and stockholders' equity $ 860,118 $ 875,666 See notes to consolidated financial statements 4 McCLATCHY NEWSPAPERS, INC. CONSOLIDATED STATEMENT OF INCOME (In thousands, except per share amounts)
Three Months Ended June 30 Six Months Ended June 30 1997 1996 1997 1996 Revenues - net: (Unaudited) (Unaudited) Newspapers: Advertising $ 128,317 $ 121,584 $ 244,960 $ 233,414 Circulation 26,615 27,098 53,573 54,094 Other 4,401 3,640 8,634 7,182 Total Newspapers 159,333 152,322 307,167 294,690 Non-newspapers 2,947 4,597 5,734 8,532 Total net revenue 162,280 156,919 312,901 303,222 Operating expenses: Compensation 63,008 62,808 126,416 126,198 Newsprint and supplements 23,586 30,315 45,057 61,489 Depreciation and amortization 13,391 13,256 26,641 26,252 Other operating expenses 29,753 28,345 59,455 56,991 Total 129,738 134,724 257,569 270,930 Operating income 32,542 22,195 55,332 32,292 Non-operating (expenses) income: Interest expense (2,333) (3,499) (5,001) (6,952) Partnership (loss) income (300) 1,100 (700) 2,250 Gain on sale of newspaper operations 109 - 6,703 - Other - net 128 20 231 59 Income before income tax provision 30,146 19,816 56,565 27,649 Income tax provision 12,554 8,611 23,616 12,058 Net income $ 17,592 $ 11,205 $ 32,949 $ 15,591 Net income per common share $ 0.46 $ 0.30 $ 0.87 $ 0.41 Weighted average number of common shares 38,091 37,729 38,038 37,673
See notes to consolidated financial statements 5 McCLATCHY NEWSPAPERS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (In thousands) Six Months Ended June 30, 1997 1996 (unaudited) Cash provided (used) by operating activities: [S] [C] [C] Net income $ 32,949 $ 15,591 Reconciliation to net cash provided: Depreciation and amortization 26,714 26,329 Partnership losses (income) 700 (2,250) Changes in certain assets and liabilities - net 2,608 13,382 Gain on sale of newspaper operations (6,703) - Other (2,105) (740) Net cash provided by operating activities 54,163 52,312 Cash provided (used) by investing activities: Purchase of property, plant and equipment (12,707) (18,304) Sale of newspaper operations 11,400 - Other - net 6 (1,830) Net cash used by investing activities (1,301) (20,134) Cash (used) provided by financing activitites: Repayment of long-term debt (47,000) (26,000) Payment of cash dividends (7,201) (5,702) Other - principally stock issuances 3,717 1,341 Net cash used by financing activities (50,484) (30,361) Net change in cash and cash equivalents 2,378 1,817 Cash and cash equivalents, beginning of year 5,877 3,252 Cash and cash equivalents, end of period $ 8,255 $ 5,069 Other cash flow information Cash paid during the period for: Income taxes (net of refunds) $ 28,591 $ 5,963 Interest paid (net of capitalized interest) 5,475 6,683 See notes to consolidated financial statements 6 McCLATCHY NEWSPAPERS, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED) (In thousands, except share and per share amounts)
Par Value Additonal Treasury Class A Class B Paid-In Retained Stock Common Common Capital Earnings At cost Total Balances, December 31, 1995 $ 85 $ 289 $ 62,447 $ 403,244 $ (371) $ 465,694 Net income (6 months) 15,591 15,591 Dividends paid ($.152 per share) (5,702) (5,702) Issuance of 95,703 shares under employee plans 1,341 1,341 Balances, June 30,1996 85 289 63,788 413,133 (371) 476,924 Net income (6 months) 28,902 28,902 Dividends paid ($.171 per share) (6,461) (6,461) Conversion of 71,875 Class B shares to Class A 1 (1) Issuance of 211,673 Class A shares under employee stock plans 3 3,112 3,115 Tax benefit from stock plans 634 634 Balances, December 31, 1996 89 288 67,534 435,574 (371) 503,114 Net income (6 months) 32,949 32,949 Dividends paid ($.19 per share) (7,201) (7,201) Conversion of 112,875 Class B shares to Class A 1 (1) Issuance of 194,302 Class A shares under employee and director plans 2 3,099 3,101 Tax benefit from stock plans 616 616 Retirement of treasury shares (371) 371 Balances, June 30, 1997 $ 92 $ 287 $ 70,878 $ 461,322 $ - $ 532,579
See notes to consolidated financial statements 7 McCLATCHY NEWSPAPERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. SIGNIFICANT ACCOUNTING POLICIES McClatchy Newspapers, Inc. (the "Company") and its subsidiaries are engaged primarily in the publication of newspapers located in California, Washington state, Alaska and North and South Carolina. The consolidated financial statements include the accounts of the Company and its subsidiaries. Significant intercompany items and transactions have been eliminated. All share and per share amounts have been adjusted to reflect a five-for-four stock split. See note 8. 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 to present fairly the Company's financial position, results of operations, and cash flows for the interim periods presented. All adjustments are normal recurring entries. Such financial statements are not necessarily indicative of the results to be expected for the full year. Revenue recognition - Advertising revenues are recorded when advertisements are placed in the newspaper and circulation revenues are recorded as newspapers are delivered over the subscription term. Unearned revenues represent prepaid circulation subscriptions. Cash equivalents are highly liquid investments with maturities of three months or less when acquired. Concentrations of credit risks - Financial instruments which potentially subject the Company to concentrations of credit risks are principally cash and cash equivalents and trade accounts receivables. Cash and cash equivalents are placed with major financial institutions. Accounts receivables are with customers located primarily in the immediate area of each city of publication. The Company routinely assesses the financial strength of significant customers and this assessment, combined with the large number and geographic diversity of its customers, limits the Company's concentration of risk with respect to trade accounts receivables. Inventories are stated at the lower of cost (based principally on the last- in, first-out method) or current market value. If the first-in, first-out method of inventory accounting had been used, inventories would have increased by $3,499,000 at June 30, 1997 and $3,246,000 at December 31, 1996. Related party transactions - The Company owns a 13.5% interest in Ponderay Newsprint Company ("Ponderay") which owns and operates a newsprint mill in the State of Washington. The investment is accounted for using the equity method, under which the Company's share of earnings of Ponderay is 8 reflected in income as earned. The Company guarantees certain bank debt used to construct the mill (see note 7) and is required to purchase 28,400 metric tons of annual production on a "take-if-tendered" basis until the debt is repaid. The Company satisfies this obligation by direct purchase (1997: $7,700,000 and 1996: $5,699,000) or reallocation to other buyers. To secure additional newsprint, the Company has arranged to purchase an additional 8,000 metric tons from Ponderay in 1997. Property, plant and equipment are stated at cost. Major renewals and betterment's, as well as interest incurred during construction, are capitalized. For three months ended June 30, 1997 and 1996 such interest was $10,000 and $323,000, respectively. For the six months then ended, such interest was $25,000 in 1997 and $459,000 in 1996. Depreciation is computed generally on a straight-line basis over estimated useful lives of: - 10 to 60 years for buildings - 9 to 25 years for presses - 3 to 15 years for other equipment Intangibles consist of the unamortized excess of the cost of acquiring newspaper operations over the fair market values of the newspapers' tangible assets at the date of purchase. Identifiable intangible assets, consisting primarily of lists of advertisers and subscribers and covenants not to compete, are amortized over periods ranging from three to forty years. The excess of purchase prices over identifiable assets is amortized over forty years. Management periodically evaluates the recoverability of intangible assets by reviewing the current and projected cash flows of each of its newspaper operations. Stock-based compensation - The Company accounts for stock-based awards to employees using the intrinsic value method in accordance with APB No. 25, Accounting for Stock Issued to Employees. Deferred income taxes result from temporary differences between amounts reported for financial and income tax reporting purposes. See note 3. Earnings per share are based on the weighted average number of outstanding shares of common stock and dilutive common stock equivalents (stock options). All share and per share amounts have been adjusted to reflect a five-for-four stock split. See note 8. 2. LONG-TERM BANK DEBT AND OTHER LONG-TERM OBLIGATIONS On July 28, 1995 the Company entered into a bank credit agreement (Credit Agreement) providing for borrowings up to $310,000,000. At June 30, 1997 and December 31, 1996 the Company had long-term bank debt of $143,000,000 and $190,000,000, respectively. In addition, the Company also has an outstanding letter of credit for $4,309,000 securing estimated obligations from workers' compensation claims. 9 Under the Credit Agreement, interest only is payable through July 1, 2000. Principal in the amount of $28,000,000 is due on July 1, 2003 and the remaining principal matures in increasing annual amounts until it is paid in full by July 1, 2005. The Company may select between alternative floating interest rates for each drawdown. On June 30, 1997 the interest rate applicable to the amount drawn ranged from 6.0% to 6.6%. Such debt is unsecured and the related agreement contains covenants requiring, among other things, maintenance of cash flow and limitations on debt-to-equity ratios, with which the Company was in compliance at June 30, 1997. At June 30, 1997 the Company had an outstanding interest rate swap that effectively converted $50,000,000 of debt under its Credit Agreement to a fixed rate debt at a rate of 6.0%. The swap expires in November 1998. The Company makes payments to a counterparty depending on the change in variable interest rates which are recorded as additions to or reductions of interest expense. Other long-term obligations consist of (in thousands): June 30, December 31, 1997 1996 [S] [C] [C] Pension obligations $ 17,172 $ 17,272 Post retirement benefits obligation 8,514 9,058 Deferred compensation and other 3,280 3,484 Total long-term obligations $ 28,966 $ 29,814 3. INCOME TAX PROVISIONS Income tax provisions consist of (in thousands): Three Months Ended Six Months Ended June 30, June 30, 1997 1996 1997 1996 Current: [S] [C] [C] [C] [C] Federal $ 11,680 $ 8,366 $ 22,039 $ 11,414 State 1,953 964 3,721 1,328 Deferred: Federal (1,181) (805) (2,305) (806) State 102 86 161 122 Income tax provision $ 12,554 $ 8,611 $ 23,616 $ 12,058 10 The effective tax rate and the statutory federal income tax rate are reconciled as follows: Three Months Six Months Ended Ended June 30, June 30, 1997 1996 1997 1996 [S] [C] [C] [C] [C] Statutory rate 35.0% 35.0% 35.0% 35.0% State taxes, net of federal benefit 4.4 3.4 4.5 3.4 Amortization 3.1 4.6 3.1 4.7 Tax adjustments to basis of newspapers sold (1.0) - (1.0) - Other 0.1 0.5 0.2 0.5 Effective tax rate 41.6% 43.5% 41.8% 43.6% The components of deferred taxes recorded in the Company's Balance Sheet on June 30, 1997 and December 31, 1996 are (in thousands): 1997 1996 [S] [C] [C] Depreciation and amortization $ 55,463 $ 55,649 Partnership losses 7,991 8,283 State taxes 924 1,310 Deferred compensation (17,633) (16,540) Other 1,266 1,453 Deferred tax liability (net of $10,787 in 1997 and $10,223 in 1996 reported as current assets) $ 48,011 $ 50,155 4. INTANGIBLES Intangibles consist of (in thousands): June 30, December 31, 1997 1996 Identifiable intangible assets, [S] [C] [C] primarily customer lists $ 147,443 $ 148,692 Excess purchase prices over identifiable intangible assets 362,060 365,604 Total 509,503 514,296 Less accumulated amortization 108,156 102,903 Intangibles - net $ 401,347 $ 411,393 11 5. EMPLOYEE BENEFIT PLANS The Company has two defined benefit pension plans (retirement plans) which together 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 benefits. The plans assets consist primarily of marketable securities including common stocks, bonds and U.S. government obligations, and other interest bearing accounts. The Company also has three supplemental retirement plans to provide key employees 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 for the supplemental retirement plans is included in other long-term obligations. Expenses of these plans for the three months ended June 30, 1997 and 1996 were $1,895,000 and $1,852,000, respectively. Expenses for the six months then ended were $3,693,000 and $3,666,000 in 1997 and 1996, respectively. The Company also has two deferred compensation and investment plans (401(k) plans) which enables qualified employees to voluntarily defer compensation. Company contributions to the 401(k) plans for the three months ended June 30, 1997 and 1996 were $1,257,000 and $1,151,000, respectively. Contributions for the six months then ended were $2,423,000 and $2,291,000 in 1997 and 1996, respectively. The Company also provides or subsidizes certain retiree health care and life insurance benefits. For the three months ended June 30, 1997 and 1996, postretirement benefit credit was $179,000 and was $60,000 expense in 1996. For the six months then ended, postretirement benefit credit was $359,000 in 1997 and was a $120,000 expense in 1996. 6. CASH FLOW INFORMATION Cash provided or used by operations in the six months ended June 30, 1997 and 1996 was affected by changes in certain assets and liabilities as follows (in thousands): 1997 1996 Increase (decrease) in assets: [S] [C] [C] Receivables $ (2,988) $ (752) Inventories 2,832 (5,500) Other assets 975 (2,001) Total 819 (8,303) Increase (decrease) in liabilities: Accounts payable 5,118 (1,827) Accrued compensation 1,396 1,358 Income taxes (3,449) 4,622 Other liabilities 362 926 Total 3,427 5,079 Net cash increase from changes in assets and liabilities $ 2,608 $ 13,382 12 7. COMMITMENTS AND CONTINGENCIES The Company guarantees $20,829,000 of bank debt related primarily to its joint venture in the Ponderay newsprint mill. There are libel and other legal actions that have arisen in the ordinary course of business and are pending against the Company. From time to time, the Company is involved as a party in various governmental proceedings, including environmental matters. Management believes, after reviewing such actions with counsel, that the outcome of pending actions will not have a material adverse effect on the Company's consolidated results of operations or financial position. 8. COMMON STOCK AND STOCK PLANS On May 21, 1997 the Company increased the authorized shares of Class A common stock to 100,000,000 and increased authorized Class B shares to 60,000,000. On March 31, 1997 the Company retired 25,003 shares of Class A common stock that were held as treasury shares. On December 4, 1996, the Board of Directors of the Company declared a five- for-four split on its Class A and Class B common stock in the form of a special 25% stock dividend, which was paid on January 2, 1997 to the holders of record of the common stock as of the close of business on December 16, 1996. All share and per share amounts have been adjusted in the financial statements to reflect the stock split. The Company's Class A and Class B common stock participate equally in dividends. Holders of Class A common stock are entitled to one-tenth of a vote per share and to elect as a class 25% of the Board of Directors, rounded up to the nearest whole number. Holders of Class B common stock are entitled to one vote per share and to elect as a class 75% of the Board of Directors, rounded down to the nearest whole number. Class B common stock is convertible at the option of the holder into Class A common stock on a share-for-share basis. At June 30, 1997 the Company has four stock-based compensation plans, which are described below. The Company applies APB No. 25 and related interpretations in accounting for its plans. No significant amounts of compensation cost have been recognized for its fixed stock option plans and its stock purchase plan. The Company's Amended Employee Stock Purchase Plan (the Purchase Plan) reserved 1,875,000 shares of Class A common stock for issuance to employees. Eligible employees may purchase shares at 85% of "fair market value" (as defined) through payroll deductions. The Purchase Plan can be automatically terminated by the Company at any time. As of June 30, 1997, 759,548 shares of Class A common stock have been issued under the Purchase Plan. The Company's Amended and Restated 1987 Stock Option Plan (1987 employee plan), as amended, reserved 750,000 shares of Class A common stock for issuance to key employees. Options are granted at the market price of the Class A common stock on the date of the grant. The options vest in installments 13 over four years, and once vested are exercisable up to ten years from the date of award. Although the employee plan permits the Company, at its sole discretion, to settle unexercised options by making payments to the option holder of stock appreciation rights (SARs), the Company does not intend to avail itself of this alternative except in limited circumstances. The Company's Amended and Restated 1994 Employee Stock Option Plan (1994 employee plan) reserved 812,500 Class A shares for issuance to key employees. The terms of this plan are substantially the same as the terms of the 1987 employee plan. The Company's amended and restated stock option plan for outside (nonemployee) directors (directors' plan) provides for the issuance of up to 187,500 shares of Class A common stock. Under the Directors' Plan each outside director is granted an option at fair market value for 1,875 shares annually. Terms of the Directors' Plan are similar to the terms of the employee plans. In the employee plans, there are 393,698 options exercisable as of June 30, 1997. Substantially all of the shares reserved in the 1987 plan have been granted. In the 1994 plan, 260,063 remain for future grants. A total of 817,234 options are outstanding in the employee plans at an average option prices of $15.97 and $20.50 per share for the 1987 and 1994 plans, respectively. In the directors' plan, 101,250 options are outstanding at an average price of $18.91 per share, 63,292 shares were exercisable at June 30, 1997 and 75,000 are available for future awards. 9. FAIR VALUE OF FINANCIAL INSTRUMENTS SFAS 107, "Disclosures about Fair Value of Financial Instruments", requires the determination of fair value for certain of the Company's assets, liabilities and contingent liabilities. The following methods and assumptions were used to estimate the fair value of those financial instruments included in the following categories: Cash Equivalents - The carrying amount approximates fair value based on quoted market prices. Long-Term Bank Debt - The carrying value approximates fair value based on interest rates available to the Company on debt instruments with similar terms. Interest Rate Swap Agreement - When considering interest rates at June 30, 1997, it is estimated that the Company could terminate the interest rate swap agreement with only a nominal gain or loss. 10. SALE OF NEWSPAPER OPERATIONS On February 28, 1997 the Company completed the sale of the Gilroy Dispatch, The Hollister Free Lance, the Morgan Hill Times and the Amador Ledger Dispatch. These newspapers had combined daily circulation of approximately 10,150 and weekly circulation of 12,800, and generated $7,574,000 in revenues in 1996. The Company reported a $6,703,000 gain on the sale which is included in non- operating (expenses) income. 14 Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Recent Events and Trends On December 4, 1996 the Company declared a five-for-four stock split in the form of a 25% stock dividend which was paid on January 2, 1997. All outstanding shares and per share amounts have been restated in this discussion to reflect the stock dividend. In October 1996, the Company announced that it had entered into agreements in principle to sell five community newspapers. In December, the Company sold the Ellensburg Daily Record and recorded a pre-tax gain of $3.2 million. On February 28, 1997 it completed the sale of the remaining four community newspapers and recorded a pre-tax gain of $6.7 million in other non-operating (expenses) income. See note 10. The after tax gain on the 1997 sale is 10 cents per share. Newsprint prices fluctuated substantially during 1996, reaching an all-time high in early 1996. Prices began declining during the second quarter of 1996 and the Company's newsprint purchases in the first quarter of 1997 continued to be priced at roughly year-end 1996 price levels. While newsprint prices rose in the second quarter of 1997, the Company continued to purchase newsprint at prices lower than 1996 and management expects average newsprint prices in 1997 to be below 1996 average prices which would positively impact operating income for the year. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128) which requires changes in current earnings per share (EPS) reporting requirements. The Company is required to adopt SFAS 128 in the fourth quarter of 1997. Because of the limited number of stock options granted by the Company, management expects there to be no significant difference in the calculation and reporting of EPS under the new statement, hence, SFAS 128 is not expected to significantly affect historical or future EPS. In June 1997, the Financial Accounting Standards Board adopted Statements of Financial Accounting Standards No. 130 (Reporting Comprehensive Income), which requires that an enterprise report, by major components and as a single total, the change in its net assets during the period from nonowner sources; and No. 131 (Disclosures about Segments of an Enterprise and Related Information), which establishes annual and interim reporting standards for an enterprise's business segments and related disclosures about its products, services, geographic area, and major customers. Adoption of these statements will not impact the Company's consolidated financial position, results of operations or cash flows. Both statements are effective in 1998, with earlier application permitted. Second Quarter 1997 Compared to 1996 The Company reported record second quarter earnings of $17.6 million or 46 cents per share, up 57.0% from 1996 earnings of $11.2 million or 30 cents per share. Higher advertising revenues and lower newsprint costs were the primary factors in earnings growth in the quarter. 15 Revenues: Revenues increased 3.4% from second quarter 1996 and were up 5.1% excluding the five community newspapers that were sold. Advertising revenues from ongoing operations were up 7.2% to $128.3 million, primarily reflecting rate increases at most newspapers and linage growth in the California and Carolina newspapers. Circulation revenues were roughly even with the 1996 quarter. The Company chose to forego circulation rate increases at nearly all of its newspapers in 1997. Operating Revenues By Region (in thousands): 1997 1996 % Change [S] [C] [C] [C] California newspapers $ 80,339 $ 76,846 4.5 Carolina newspapers 42,224 38,679 9.2 Northwest newspapers 36,770 36,797 (0.1) Non-newspaper operations 2,947 4,597 (35.9) Total operating revenue $ 162,280 $ 156,919 3.4 California newspapers posted total revenue gains of 4.5%, but were up 7.3% excluding the four community newspapers which were sold in February 1997. The sold newspapers contributed $2.0 million in revenues in 1996. Advertising revenues at the Company's three Bee newspapers in Sacramento, Fresno and Modesto increased $4.9 million or 8.1% to $65.3 million, with the majority of the increase coming from The Sacramento Bee. Full run "run-of-press" (ROP) advertising linage, which is found in the body of a newspaper and generates a majority of advertising revenues, increased 3.5% at the three Bees. Circulation revenues declined $73,000, while other revenues increased $596,000 from new products such as direct mail programs and niche publications at The Sacramento and Fresno Bees. Total revenues at the Company's Carolina newspapers increased $3.5 million or 9.2% with $2.6 million coming from The News and Observer (Raleigh, NC), the Company's second largest newspaper. Advertising revenues increased $3.2 million at the Carolina newspapers. Full run ROP linage at the Carolina daily newspapers increased 9.7%. Circulation revenues increased $153,000 due to growth in daily and Sunday circulation. Total revenues at the Company's Northwest newspapers declined nominally ($27,000), but were up $438,000 or 1.2% excluding revenues from the Ellensburg Daily Record which was sold in December 1996. Advertising revenues increased $335,000 or 1.2%, while full run ROP linage declined 2.6% at the three Northwest dailies. While advertising revenues and linage increased at the Anchorage Daily News, The News Tribune and Tri-City Herald were hurt by retailer consolidations in their markets. Circulation revenues declined $152,000, and other revenues increased $230,000 reflecting higher commercial printing revenues. Non-newspaper revenues declined $1.7 million mostly due to the sale of the Company's internet access business in September 1996 and a reorganization at its commercial printing operation in Clovis, California. 16 Operating Expenses: Operating expenses declined 3.7% and excluding $2.6 million in expenses related to the sold operations, were down 1.8%. Much of the decline was due to lower newsprint prices resulting in newsprint and supplements costs declining $6.5 million or 21.5%. Excluding newsprint and supplements and expenses from the sold operations, total operating expenses increased 4.0% primarily due to spending on new product development and promotion of the Company's publications. Non-operating (Expenses) Income: Interest expense declined $1.2 million as the Company continued to repay debt. The Company recorded a $300,000 loss for its share of its Ponderay newsprint mill joint venture's results versus $1.1 million in income in the 1996 quarter when newsprint prices were higher. The Company's effective tax rate was 41.6% in the 1997 quarter, down from 43.5% in 1996, due primarily to lower non-deductible amortization at ongoing operations and to an adjustment to the tax basis of certain intangibles related to the sold newspapers. See note 3 to the consolidated financial statements. Six Month Comparisons Net income for the first half of 1997 was $32.9 million or 87 cents per share, including a gain of 10 cents per share on the sale of four community newspapers in California. Excluding the gain on the sale and results of the sold newspapers, earnings were $29.2 million or 77 cents. Net income for the six month period in 1996 was $15.6 million or 41 cents per share, and was $15.9 million or 42 cents excluding the sold newspapers. In general, revenues and expenses were affected by the same factors as those discussed in the quarterly comparisons above. Revenues: Total revenues increased 3.2% to $312.9 million -- with advertising revenues up 4.9% to $245.0 million and circulation revenues down 1.0% to $53.6 million. Excluding the sold newspapers, total revenues increased 4.5% to $311.8 million, advertising revenues were up 6.2% to $244.2 million and circulation revenues were roughly flat at $53.4 million. Operating Revenues By Region (in thousands): 1997 1996 % Change [S] [C] [C] [C] California newspapers $ 155,894 $ 151,274 3.1 Carolina newspapers 81,293 73,288 10.9 Northwest newspapers 69,980 70,128 (0.2) Non-newspaper operations 5,734 8,532 (32.8) Total operating revenue $ 312,901 $ 303,222 3.2 17 Total revenues at the Company's California newspapers increased $4.6 million, but excluding revenues from the sold newspapers from the comparisons, revenues increased $7.2 million or 4.9%. Advertising revenues at the three Bee newspapers were up $6.1 million or 5.1%, while full run ROP advertising linage was flat. Advertising linage in the first three months of the year was affected by the consolidation of Macy's and Weinstock's department stores in March 1996. These stores were previously the Company's largest two advertisers. Circulation revenues were relatively flat reflecting average paid daily circulation gains of 0.4% and Sunday gains of 0.2% through June 1997 at the three Bees. Other revenues increased $1.0 million from new products, primarily at The Sacramento Bee. Total revenues increased $8.0 million or 10.9% at the Company's Carolina newspapers, with advertising revenues up $7.1 million and circulation revenues up $427,000. Full run ROP linage gained 10.7% at the Carolina dailies. Average paid circulation at the Carolina dailies increased 2.0% daily and 1.2% Sunday. At the Company's Northwest newspapers, total revenues declined slightly, but were up $700,000 or 1.0% excluding the Ellensburg Daily Record's revenues from the comparison. Consolidation of retailers in Tacoma and Tri-Cities, Washington held advertising revenues to a $710,000 or 1.4% increase. Full run ROP linage was up 0.8%. Circulation revenues at the Northwest dailies declined $383,000 as average paid circulation was down 0.9% and Sunday was off 0.7%. Other revenues, primarily commercial printing, were up $266,000. Non-newspaper revenues declined $2.8 million reflecting the same factors discussed in the quarterly comparisons. Operating Expenses: Operating expenses declined 4.9%, and were down 3.6% after excluding expenses of the sold newspapers from the comparisons. Lower newsprint prices were the major factor in the expense decline. Excluding newsprint and supplement costs and expenses at the sold newspapers, operating expenses were held to a 3.2% increase. Non-Operating (Expenses) Income: Interest expense declined $2.0 million, while the Company's share of losses from the Ponderay newsprint mill joint venture was $700,000 versus income of $2.2 million in the first half of 1996. Non-operating income includes a gain of $6.7 million from the sale of newspaper operations. The Company's effective tax rate in the six-month period was 41.8%, compared to 43.6% in 1996. See note 3 to the consolidated financial statements. 18 Liquidity & Capital Resources Operations generated $54.2 million of cash, a 3.5% increase over the first half of 1996. In addition, the Company received $11.4 million in proceeds from the sale of the four community newspapers in February 1997. Cash was used to repay debt, pay for capital expenditures and pay dividends. Capital expenditures are projected to be between $25.0 million and $30.0 million in 1997. See notes 1 and 7 to the consolidated financial statements for a discussion of the Company's commitments to its newsprint mill joint venture (Ponderay). See note 2 for a discussion of the Company's long-term obligations. The Company had $167.0 million of available credit at June 30, 1997. Management is of the opinion that operating cash flow and available credit facilities are adequate to meet the liquidity needs of the Company, including currently planned capital expenditures and other investments. Forward Looking Information The preceding management discussion contains estimates and other forward- looking statements covering subjects related to financial operating results. These forward-looking statements, and any other statements going beyond historical facts that McClatchy management has discussed, are subject to risks and uncertainties that could cause actual results to differ. These include increases in newsprint prices and/or printing and distribution costs over anticipated levels, competition from other forms of media in the Company's principal markets, increased consolidation among major retailers in the Company's newspaper markets or other events depressing the level of advertising, an economic downturn in the local economies of California's Central Valley, Washington state, Alaska or the Carolinas, or other occurrences leading to decreased circulation and diminished revenues from both display and classified advertising. 19 PART II - OTHER INFORMATION Item 1. Legal Proceedings - None Item 2. Changes in Securities - None Item 3. Default Upon Senior Securities - None Item 4. Submission of Matters to a Vote of Security Holders: The Annual Meeting of Stockholders of McClatchy Newspapers, Inc. was held on May 21, 1997 and stockholders of record on March 17, 1997 approved all matters submitted for voting as follows: Votes For Withheld Election of Directors of the Board: Nominees for Class A Directors voted by Class A stockholders: [S] [C] [C] Larry Jinks 7,573,686 155,060 Joan F. Lane 7,574,931 153,815 S. Donley Ritchey, Jr. 7,577,307 151,439 Frederick R. Ruiz 7,577,026 151,720 Nominees for Class B Directors voted by Class B stockholders: [S] [C] William K. Coblentz 27,291,205 Molly Maloney Evangelisti 27,291,205 William L. Honeysett 27,291,205 Betty Lou Maloney 27,291,205 James B. McClatchy 27,291,205 William E. McClatchy 27,291,205 Erwin Potts 27,291,205 Gary B. Pruitt 27,291,205 William M. Roth 27,291,205 James P. Smith 27,291,205 20 Votes Broker For Against Abstentions Non-Votes [S] [C] [C] [C] [C] Approval of Amendment to the Company's Certificate of Incorporation to increase authorized shares of common stock 27,989,696 62,111 12,271 0 Ratification of appointment of Deloitte & Touche LLP as the Company's independent 28,062,343 423 1,312 0 auditors for 1997 Item 5. Other Information - None Item 6. Exhibits and Reports on Form 8-K: Exhibit 3.1 Certificate of Amendment of Restated Certificate of Incorporation of McClatchy Newspapers, Inc. dated May 22, 1997. 3.2 Amended and Restated By-laws of McClatchy Newspapers, Inc. dated May 15, 1996. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized. McClatchy Newspapers, Inc. Registrant Date: August 12, 1997 /s/ James P. Smith James P. Smith Vice President, Finance and Treasurer 21 EX-27 2
5 This schedule contains financial information extracted from SEC filing Form 10-Q and is qualified in its entirety by reference to such financial statements. 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 8,255 0 81,335 2,642 10,583 113,925 573,866 239,782 860,118 96,775 0 379 0 0 532,200 860,118 312,901 312,901 0 257,569 (6,234) 0 5,001 56,565 23,616 32,949 0 0 0 32,949 0.87 0.87
EX-3.(I) 3 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF McCLATCHY NEWSPAPERS, INC. McClatchy Newspapers, Inc., a Delaware corporation organized and existing by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: FIRST: That at a meeting of the Board of Directors of McClatchy Newspapers, Inc., the Board deemed the amendment to the Corporation's Certificate of Incorporation set forth below to be advisable and recommended that the stockholders of said Corporation consider and approve such amendment at the next annual meeting of stockholders. SECOND: That, thereafter, pursuant to resolution of the Corporation's Board of Directors, the annual meeting of stockholders of said Corporation was duly called and held, upon notice in accordance with Section 222 of the General Corporation law of the State of Delaware at which meeting the necessary number of shares as required by statute were voted in favor of the amendment. THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. FOURTH: Article IV of the Corporation's Certificate of Incorporation is amended to read in its entirety as follows: Article IV (a) Authorized Capitalization. The total number of shares of all classes of stock which the Corporation shall have authority to issue is one hundred sixty million (160,000,000) shares, consisting of one hundred million (100,000,000) shares of Class A Common Stock, with a par value of one cent ($.01) per share, and sixty million (60,000,000) shares of Class B Common Stock, with a par value of one cent ($.01) per share. The number of authorized shares of Class A Common Stock or Class B Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) if the increase or decrease is approved by the holders of a majority of the voting power of all of the then outstanding shares of stock entitled to vote in any general election of directors, voting together as a single class, but without the separate vote of the holders of any other class of stock. (b) Class A Common Stock. The shares of Class A Common Stock and shares of Class B Common Stock shall be identical in all respects and shall have equal rights and privileges except as set forth in this paragraph (b) and in paragraph (c) of this Article IV. Upon dissolution of the Corporation, holders of Class A Common Stock and holders of Class B Common Stock are entitled to share ratably 2 in the assets thereof that may be available for distribution after satisfaction of creditors. (i) Dividends. (A) Such dividends or distributions as may be determined by the Board of Directors of the Corporation from time to time may be declared and paid or made upon the Class A Common Stock out of any source at the time lawfully available for the payment of dividends, provided that (subject to subparagraphs (B) and (C) below of this paragraph (b)(i)) identical dividends or distributions are declared and paid concurrently upon the Class B Common Stock. If dividends or distributions are declared and paid upon the Class B Common Stock (subject to subparagraphs (B) and (C) below of this paragraph (b)(i)) an identical dividend shall be declared and paid concurrently on the Class A Common Stock. (B) No dividend may be declared and paid in Class A Common Stock unless the dividend is payable only to holders of Class A Common Stock and a dividend payable to Class B Common Stock is declared and paid concurrently in respect of outstanding shares of Class B Common Stock in the same number of shares of Class B Common Stock per outstanding share. (C) If a dividend is declared and paid in Class B Common Stock in respect of outstanding shares of Class B Common Stock, then a dividend shall be declared and paid concurrently in shares of Class A Common Stock in respect of outstanding shares of Class A Common Stock so that each holder of outstanding shares of Class A Common Stock receives (on a per outstanding share basis) a total number of dividend shares of Class A Common Stock equal to the number of dividend shares of Class B Common Stock received by the holders of the outstanding shares of Class B Common Stock. (ii) Stock Combinations and Subdivisions. The Class A Common Stock shall not be combined or subdivided unless at the same time there is a proportionate combination or subdivision of the Class B Common Stock. If the Class B Common Stock is combined or subdivided, a proportionate combination or subdivision of the Class A Common Stock shall be made at the same time. (iii) Voting. The holders of Class A Common Stock shall have the voting rights set forth below: (A) With respect to the election of Directors, the holders of Class A Common Stock voting as a separate class shall be entitled to elect that number of Directors which constitutes twenty-five percent (25%) of the total membership of the Board of Directors, and if such twenty-five percent (25%) is not a whole number, then the holders of Class A Common Stock will be entitled to elect the nearest higher whole number of directors which constitutes twenty-five percent (25%) of such membership. Such election shall be from a slate of Director nominees separate from a slate of Director nominees from which holders of Class B Common Stock shall elect Directors. There shall be no cumulative voting for either holders of Class A Common Stock or holders of Class B Common Stock. 3 (B) The holders of Class A Common Stock will be entitled to vote as a separate class on the removal, with or without cause, of any Director elected by the holders of Class A Common Stock, provided that, to the extent permitted by applicable law, any Director may be removed for cause by the Board of Directors. (C) Except as may otherwise be required by law, the holders of Class A Common Stock shall, in all matters not referred to in subparagraphs (A) or (B) of this paragraph (b)(iii) or in subparagraphs (A) or (B) of paragraph (c)(iii) of this Article IV, vote together with the holders of Class B Common Stock as a single class, provided that the holders of Class A Common Stock will have one-tenth (1/10) of a vote for each share and the holders of Class B Common Stock shall have one (1) vote for each share. (D) Notwithstanding anything herein to the contrary, the holders of Class A Common Stock shall have exclusive voting power on all matters at any time when no shares of Class B Common Stock are issued and outstanding. (c) Class B Common Stock. (i) Dividends and Distributions. Subject to the provisions of paragraph (b)(i) of this Article IV, such dividends and distributions may be declared and paid or made upon the Class B Common Stock as may be permitted by applicable law. (ii) Stock Combinations and Subdivisions. Subject to the provisions of paragraph (b)(ii) of this Article IV, the Class B Common Stock may be combined or subdivided in such manner as may be permitted by applicable law. (iii) Voting. Subject to the provisions of paragraph (b)(iii) of this Article IV, the Class B Common Stock shall have one (1) vote per share on all matters that may be submitted to a vote of the stockholders. Without limiting the generality of the foregoing: (A) With respect to the election of Directors, the holders of Class B Common Stock shall be entitled, voting as a separate class, to elect the remaining Directors not subject to the priority right of the holders of the Class A Common Stock set forth in paragraph (b)(iii)(A) of this Article IV; and (B) The holders of the Class B Common Stock will be entitled to vote as a separate class on the removal, with or without cause, of any Director who was elected either by the holders of the Class B Common Stock or by Directors who were elected by the holders of the Class B Common Stock, provided that any Director may be removed for cause by the Board of Directors. (iv) Conversion. 4 (A) Each holder of record of Class B Common Stock may, in such holder's sole discretion and at such holder's option, convert any whole number or all of such holder's shares of Class B Common Stock into fully paid and nonassessable shares of Class A Common Stock at the rate (subject to adjustment as hereinafter provided) of one (1) share of Class A Common Stock for each share of Class B Common Stock surrendered for conversion; provided, however, that such conversion may not occur unless the shares of Class A Common Stock into which the shares of Class B Common Stock are to be converted shall have been listed or approved for listing upon notice of issuance on a national securities exchange certified by rule or order of the Commissioner of Corporations of the State of California pursuant to Section 25100(o) of the California Corporations Code. Any such conversion may be effected by any holder of Class B Common Stock surrendering such holder's certificate or certificates for the shares of Class B Common Stock to be converted, duly endorsed, at the office of the Corporation or any transfer agent for the Class B Common Stock, together with a written notice to the Corporation at such office that such holder elects to convert all or a specified number of shares of Class B Common Stock and stating the name or names in which such holder desires the certificate or certificates for such shares of Class A Common Stock to be issued. Promptly thereafter, the Corporation shall issue and deliver to such holder or such holder's nominee or nominees, a certificate or certificates for the number of shares of Class A Common Stock to which such holder shall be entitled as aforesaid. Such conversion shall be deemed to have been made at the close of business on the day of such surrender and the person or persons entitled to receive the shares of Class A Common Stock issuable on such conversion shall be treated for all purposes as the record holder or holders of such shares of Class A Common Stock on that date. (B) The number of shares of Class A Common Stock into which the shares of Class B Common Stock may be converted shall be subject to adjustment from time to time in the event of any capital reorganization, reclassification of stock of the Corporation, consolidation or merger of the Corporation with or into another corporation, or sale or conveyance of all or substantially all of the assets of the Corporation to another corporation or other entity or person. Each share of Class B Common Stock shall thereafter be convertible into such kind and amount of securities or other assets, or both, as are issuable or distributable in respect of the number of shares of Class A Common Stock into which each share of Class B Common Stock is convertible immediately prior to such reorganization, reclassification, consolidation, merger, sale or conveyance. In any such case, appropriate adjustments shall be made by the Board of Directors of the Corporation in the application of the provisions herein set forth with respect to the rights and interests thereafter of the holders of Class B Common Stock to the end that the provisions set forth herein (including provisions for adjustment of the conversion rate) shall thereafter be applicable, as nearly as reasonably may be, in relation to any securities or other assets thereafter deliverable on conversion of the Class B Common Stock. (C) The Corporation shall, at all times, reserve and keep available out of the authorized and unissued shares of Class A Common Stock, solely for the purpose of effecting the conversion of the outstanding Class B Common Stock, such number of shares of Class A Common Stock as shall from time to time be sufficient to effect conversion of all outstanding Class B Common Stock and if, at any time, the number of authorized and unissued shares of 5 Class A Common Stock shall not be sufficient to effect conversion of the then outstanding Class B Common Stock, the Corporation shall take such corporate action as may be necessary to increase the number of authorized and unissued shares of Class A Common Stock to such number as shall be sufficient for such purposes. WITNESS WHEREOF, McClatchy Newspapers, Inc. has caused this Certificate of Amendment of Certificate of Incorporation to be executed by Karole Morgan- Prager, its authorized officer, on this 22nd day of May, 1997. /s/Karole Morgan-Prager General Counsel and Corporate Secretary EX-3.(II) 4 BY-LAWS OF McCLATCHY NEWSPAPERS, INC. (As Amended as of May 15, 1996) ARTICLE I The Board of Directors Section 1.1: Authority of the Board. The business and affairs of McClatchy Newspapers, Inc. (herein called the "Company") shall be managed by or under the direction of the Board of Directors (the "Board") or, if authorized by the Board, by or under the direction of one or more committees thereof. Except as otherwise provided by law, the Company's Certificate of Incorporation or these By-Laws, the Board or such committee, the Board or any committee thereof may act by unanimous written consent or, at an authorized meeting at which a quorum is present, by the vote of the majority of the Directors present at the meeting. Section 1.2: Number of Directors; Vacancies. The authorized number of Directors who shall constitute the Board shall be fixed from time to time by resolution of the Board approved by at least a majority of the Directors then in office, provided that no such resolution other than a resolution to take effect as of the next election of Directors by the stockholders shall have the effect of reducing the authorized number of Directors to less than the number of Directors in office as of the effective time of the resolution. Whenever there are fewer Directors in office than the authorized number of Directors, the Board may, by resolution approved by a majority of the Directors then in office, choose one or more additional Directors, each of whom shall hold office until the next annual meeting of stockholders and his successor is duly elected. Section 1.3: Authorized Meetings of the Board. The Board shall have authority to hold annual, regular and special meetings. The annual meeting of the Board shall be held immediately following the annual meeting of the stockholders at such place as may be determined by resolution of the Board. Regular meetings of the Board may be held at such times and places as may be determined from time to time by resolution of the Board. Special meetings of the Board may be held at such times and places as may be called by the Chairman of the Board, the Publisher, the President, or by at least three members of the Board. A special meeting of the Board shall be an authorized meeting only if the Directors receive reasonable notice of the time and place of the meeting; provided, however, that one day's notice shall be conclusively reasonable. The Chairman of the Board shall preside over all Board meetings. If the Chairman of the Board is absent, the Publisher, President or a chairman chosen at the meeting shall preside over the meeting. 2 At all meetings of the Board, a majority of the Directors then in office shall constitute a quorum. If any meeting of the Board shall lack a quorum, a majority of the Directors present may adjourn the meeting from time to time, without notice, until a quorum is obtained. Section 1.4: Committees. The Board may by resolution establish committees of the Board with various powers, duties and rules of procedure. Unless the Board otherwise provides, each committee shall conduct its business in the same manner as the Board conducts its business pursuant to these By-Laws. Any such committee shall have a secretary and report its actions to the Board. Section 1.5: Compensation. Directors who are not also employees of the Company shall be entitled to such compensation for their service on the Board or any committee thereof as the Board may from time to time determine. ARTICLE II Officers Section 2.l: Designated Officers. The officers of the Company shall be elected by, and serve at the pleasure of, the Board and shall consist of a Chairman of the Board, a President and a Secretary, and such other officers, including, without limitation, a Publisher, a Treasurer, a Controller, one or more Vice Presidents, one or more Assistant Treasurers, one or more Assistant Secretaries, and such other officers as the Board may determine as appropriate. Section 2.2: Chairman of the Board. The Chairman of the Board shall preside at all meetings of the Board and shall have such other powers and perform such other duties as may from time to time be granted or assigned to him by the Board. Section 2.3: President. The President shall be the chief executive officer of the Company. In managing its operations, he shall report as appropriate to the Board and shall be subject to the instructions given to him by the Board. He shall have such other powers and perform such other duties as may from time to time be granted or assigned to him by the Board Section 2.4: Publisher. The Publisher shall have responsibility for advising the Company regarding outside corporate relations and acquisitions, and shall have such other powers and perform such other duties as may from time to time be granted or assigned to him by the Board. Section 2.5: Vice Presidents. In the absence of the Chairman of the Board, the Publisher or the President, or in their inability or refusal to act, the Vice Presidents in the order designated by the Board shall act in their place. The Vice Presidents shall also have such other powers and perform such other duties as may from time to time be granted or assigned to them by the Board. Section 2.6: Treasurer. The Treasurer shall be the chief financial officer of the Company. He shall have custody of the Company's funds and deposit and 3 pay out such funds in accordance with the direction of the Board. The Treasurer shall also have such other powers and perform such other duties as may from time to time be granted or assigned to him by the Board. Section 2.7: Assistant Treasurers. The Assistant Treasurers shall assist the Treasurer in the performance of his duties and shall have such other powers and perform such other duties as may from time to time be granted or assigned to them by the Board. Section 2.8: Controller. The Controller shall be the chief accounting officer of the Company and shall have charge of the Company's books of accounts and records. He shall also have such other powers and perform such other duties as may from time to time be granted or assigned to him by the Board. Section 2.9: Secretary. The Secretary shall keep full and complete records of the proceedings of the Board, its committees, and the meetings of the stockholders; keep the seal of the Company and affix it to all instruments which may require it; have custody of and maintain the Company's stockholder records. The Secretary shall also have such other powers and perform such other duties as may from time to time be granted or assigned to him by the Board. Section 2.10: Assistant Secretaries. The Assistant Secretaries shall assist the Secretary in the performance of his duties, and shall have such other powers and perform such other duties as may from time to time be granted or assigned to them by the Board. Section 2.11: Other Officers. Any other elected officer shall have such powers and perform such duties as may from time to time be granted or assigned to him by the Board. Section 2.12: Powers of Attorney. Whenever an applicable statute, decree, rule or regulation requires a document to be subscribed by a particular officer of the Company, such document may be signed on behalf of such officer by a duly appointed attorney-in-fact, except as otherwise directed by the Board. ARTICLE III Offices The Company shall have an office at 2100 "Q" Street, Sacramento, California, and shall also have offices at such other places as the Board may from time to time determine. ARTICLE IV Stock and Stock Certificates Section 4.1: Common Stock. The Board may from time to time issue new shares of the Company's "Class A Common Stock" up to the limit of authorized shares of such class. The Board may also authorize the purchase on behalf of 4 the Company for its treasury of issued and outstanding shares of Class A or Class B Common Stock, and the resale, assignment or other transfer by the Company of any such treasury shares of Class A Common Stock. Shares of Class A and Class B Common Stock shall be represented by certificates, which shall be registered upon the books of the Company. Section 4.2: Form of Certificate. Every holder of Common Stock in the Company shall be entitled to have a certificate signed by or in the name of the Company by the Chairman of the Board or the President and by the Secretary. All such certificates shall bear the seal of the Company or a facsimile thereof, and shall be countersigned by a Transfer Agent and Registrar for the Common Stock. Certificates of Common Stock signed by the Chairman of the Board or the President and the Secretary, if properly countersigned as set forth above by a Transfer Agent and the Registrar, and if regular in other respects, shall be valid, whether such officers hold their respective positions at the date of issue or not. Any signature or countersignature on certificates of Common Stock may be an actual signature or a printed or engraved facsimile. Section 4.3: Lost, Stolen, or Destroyed Certificates. The Company may issue a new certificate of Common Stock in the place of any certificate issued by it, alleged to have been lost, stolen or destroyed; and the Company may require the owner of the lost, stolen or destroyed certificate to give the Company or its designated representative both an affidavit or affirmation of such loss, theft or destruction and a bond of indemnity or indemnity agreement covering the issuance of any replacement certificate. Section 4.4: Stock Transfers. Transfer of shares of Common Stock shall be made on the books of the Company only upon the surrender of a valid certificate of Common Stock endorsed by the person named in the certificate or by an attorney lawfully constituted in writing. The Company may impose such additional conditions to the transfer of its stock as may be necessary or appropriate for compliance with applicable law or to protect the Company, a Transfer Agent or the Registrar from liability with respect to such transfer. Section 4.5: Stockholders of Record. The Board may fix a time as a record date for the determination of stockholders entitled to receive any dividend or distribution declared to be payable on any shares of the Company; or to vote upon any matter to be submitted to the vote of any stockholders of the Company; or to be present or to be represented by proxy at any meeting of the stockholders of the Company, which record date in the case of a meeting of the stockholders shall be not more than sixty nor less than ten days before the date set for such meeting; and other stockholders of record as of the record date shall be entitled to receive such dividend or distribution, or to vote on such matter, or to be present or represented by proxy at such meeting. Section 4.6: Registered Stockholders. The Company shall be entitled to recognize the exclusive right of a person registered on its books as the owner 5 of shares to receive dividends and to vote as owner. The Company shall not be bound to recognize any equitable or other claim to or interest in such shares on the part of any other person, except as otherwise provided by federal or Delaware law. ARTICLE V Meetings of Stockholders Section 5.l: Annual Meetings of Stockholders. An annual meeting of stockholders to elect directors and transact such other business as may properly be presented to the meeting shall be held at the date, hour and place as the Board may from time to time fix. At the Annual Meeting, the holders of Class A Common Stock, voting as a separate class, shall elect that number of Directors which constitutes twenty-five percent (25%) of the authorized number of Directors, or if such twenty-five percent shall not be a whole number, then the nearest higher whole number of Directors. The remaining number of authorized Directors shall be elected by the holders of Class B Common Stock, voting as a separate class. Section 5.2: Special Meetings of Stockholders. Special meetings of the stockholders for any purpose or purposes, unless prohibited by law, may be called by the Board. Notice of a special meeting of stockholders shall state the purpose or purposes of the meeting, and no other business other than that stated in the notice shall be considered or transacted without the unanimous consent of all stockholders entitled to vote. Section 5.3: Notices of Meetings. Written notice of all meetings of the stockholders stating the place, date and hour of the meeting, shall be mailed, postage prepaid, not less than ten nor more than sixty days before such meeting to each stockholder entitled to notice of, or to vote at, any meeting of stockholders at the address of such stockholder as it appears on the records of the Company. Section 5.4: Conduct of Meetings. The Chairman of the Board, or such other officer as may preside at any meeting of the stockholders, shall have authority to establish, from time to time, such rules for the conduct of such meeting, and to take such action, as may in his judgment be necessary or proper for the conduct of the meeting and in the best interests of the Company and the stockholders in attendance in person or by proxy. Section 5.5: Quorum for Action by Stockholders, Voting. At all elections or votes for any purpose, there must be represented a number of shares sufficient to constitute a majority of the outstanding voting power of the Common Stock. For the election of directors a plurality of the votes cast by the respective classes shall be sufficient to elect the Directors to be elected by each such class. With respect to other matters, unless otherwise provided by law, the Company's Certificate of Incorporation or these By-Laws, the affirmative vote of the holders of the majority of the voting power of the Common Stock present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders. 6 Where a separate vote by class is required, the affirmative vote of the holders of a majority of the shares of each class of stock shall be the act of such class, except as otherwise provided by law, the Company's Certificate of Incorporation or these By-Laws. Section 5.6: Adjournments. Any meeting of stockholders may adjourn from time to time to reconvene at the same or some other place, and notice need not be given of any such adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the reconvened meeting the Company may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the reconvened meeting, a notice of the reconvened meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 5.7: Proxies. Any stockholder entitled to vote at a meeting of stockholders may be represented and have his shares voted by a proxy or proxies appointed by an instrument in writing executed by the stockholder of record; provided, however, that no such instrument may appoint more than three persons to act as proxies. If an instrument shall purport to appoint more than three persons to act as proxies, the Company shall recognize as proxies only the first three persons listed as appointed. No such instrument shall be valid except for the purposes expressly stated therein, and shall not be valid after the expiration of three years from the date of its execution, unless the person executing it specifies therein that the proxy shall continue for a longer period. Subject to the above, any written instrument appointing a proxy or proxies and duly executed by a stockholder of record shall, unless otherwise limited by its terms, continue in full force and effect until a written instrument bearing a later date is filed with the Secretary, which instrument by its terms either revokes the earlier appointment or creates a new appointment. ARTICLE VI Corporate Seal The seal of the Company shall have inscribed thereon the name of the Company and the words "Incorporated July 2, 1987 Delaware." ARTICLE VII Amendments These By-Laws may be amended or repealed, and new by-laws adopted, by the Board; but the stockholders may adopt additional by-laws and may amend or repeal any by-law whether or not adopted by them. -----END PRIVACY-ENHANCED MESSAGE-----