-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Nu16RXb3ELeHSL5qdGwDZXdvkk5Uk5m+2RemXbos39R9J4/KzB+ogexaOndkz3UG qmaxwlCvWcUNVZBXv/Xo2g== 0000950149-94-000093.txt : 19940506 0000950149-94-000093.hdr.sgml : 19940506 ACCESSION NUMBER: 0000950149-94-000093 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19940505 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MCCLATCHY NEWSPAPERS INC CENTRAL INDEX KEY: 0000822043 STANDARD INDUSTRIAL CLASSIFICATION: 2711 IRS NUMBER: 940666175 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: 1933 Act SEC FILE NUMBER: 033-52475 FILM NUMBER: 94526265 BUSINESS ADDRESS: STREET 1: 2100 Q ST CITY: SACRAMENTO STATE: CA ZIP: 95816 BUSINESS PHONE: 9163211846 MAIL ADDRESS: STREET 1: PO BOX 15779 CITY: SACRAMENTO STATE: CA ZIP: 95852 S-3/A 1 AMENDMENT NO. 2 TO FORM S-3 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 5, 1994 REGISTRATION NO. 33-52475 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 2 TO FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ MCCLATCHY NEWSPAPERS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 94-0666175 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
2100 "Q" STREET, SACRAMENTO, CA 95816 (916) 321-1846 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------ JAMES P. SMITH VICE PRESIDENT, FINANCE AND TREASURER MCCLATCHY NEWSPAPERS, INC. 2100 "Q" STREET SACRAMENTO, CA 95816 (916) 321-1834 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE OF PROCESS) ------------------------ COPIES TO: TERRY MICHAEL KEE, ESQ. ROBERT T. CLARKSON, ESQ. KATHARINE A. MARTIN, ESQ. DAVID J. SEGRE, ESQ. ERIN G. AUSTIN, ESQ. ADELE FREEDMAN, ESQ. PILLSBURY MADISON & SUTRO JAMES E. WILLIAMS, ESQ. 235 MONTGOMERY STREET WILSON, SONSINI, GOODRICH & ROSATI SAN FRANCISCO, CA 94104 PROFESSIONAL CORPORATION TWO PALO ALTO SQUARE PALO ALTO, CA 94306
------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the Registration Statement becomes effective. ------------------------ If the only securities registered on this Form are being offered pursuant to dividend or interest reinvestment plans, check the following box: / / If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box: / / CALCULATION OF REGISTRATION FEE - -------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------- PROPOSED PROPOSED AMOUNT MAXIMUM MAXIMUM AMOUNT OF TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) FEE(3) - ----------------------------------------------------------------------------------------------------------- Class A Common Stock, $0.01 par value............................... 1,581,250 Shares $23.06 $36,463,625 $12,945 - ----------------------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------------------
(1) Includes 206,250 shares that the Underwriters have the option to purchase from the Company to cover over-allotments, if any. (2) Estimated as of April 28, 1994, pursuant to Rule 457, solely for the purposes of computing the amount of the registration fee. (3) $12,762.00 was previously paid based on a proposed maximum offering price of $23.75 per share and 1,558,250 shares registered. ------------------------ THE COMPANY HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE COMPANY SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED MAY 5, 1994 1,375,000 SHARES [LOGO] MCCLATCHY NEWSPAPERS, INC. CLASS A COMMON STOCK (PAR VALUE $0.01 PER SHARE) --------------------- Of the 1,375,000 shares of Class A Common Stock offered hereby, 750,000 shares are being sold by the Company and 625,000 shares are being sold by the Selling Stockholders. See "Selling Stockholders." The Company will not receive any of the proceeds from the sale of shares by the Selling Stockholders. The last reported sale price of the Class A Common Stock on the New York Stock Exchange on May 4, 1994 was $23.125 per share. See "Class A Common Stock Price Range, Volume and Dividends." After giving effect to the offering (assuming the Underwriters' over-allotment option is not exercised), the Company will have outstanding 6,207,903 shares of Class A Common Stock with one-tenth of a vote per share and the right to elect 25% of the Company's Directors and 23,406,789 shares of Class B Common Stock with one vote per share and the right to elect 75% of the Company's Directors. As a result, the holders of Class B Common Stock will have the exclusive right to vote shares constituting approximately 97% of the combined voting power of the Class A and Class B Common Stock. See "Description of Capital Stock." --------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ---------------------
PROCEEDS TO INITIAL PUBLIC UNDERWRITING PROCEEDS TO SELLING OFFERING PRICE DISCOUNT(1) COMPANY(2) STOCKHOLDERS ---------------- ------------------ ---------------- ------------------ Per Share............ $ $ $ $ Total(3)............. $ $ $ $
- --------------- (1) The Company and the Selling Stockholders have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. (2) Before deducting estimated expenses of $210,000 payable by the Company. (3) The Company has granted the Underwriters an option for 30 days to purchase up to an additional 206,250 shares at the initial public offering price per share, less the underwriting discount, solely to cover over-allotments. If such option is exercised in full, the total initial public offering price, underwriting discount and proceeds to the Company will be $ , $ and $ , respectively. See "Underwriting." --------------------- These shares are offered severally by the Underwriters, as specified herein, subject to receipt and acceptance by them and subject to their right to reject any order in whole or in part. It is expected that the certificates for the shares will be ready for delivery at the offices of Goldman, Sachs & Co., New York, New York, on or about , 1994. GOLDMAN, SACHS & CO. MERRILL LYNCH & CO. --------------------- The date of this Prospectus is , 1994. 3 AVAILABLE INFORMATION McClatchy Newspapers, Inc. (the "Company") is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Reports, proxy statements and other information filed by the Company may be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices located at Seven World Trade Center, 13th Floor, New York, New York, and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois. Copies of such materials can be obtained by mail from the Public Reference Branch of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, such material may also be inspected and copied at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005. The Company has filed with the Commission a registration statement on Form S-3 (herein, together with all amendments and exhibits, referred to as the "Registration Statement") under the Securities Act of 1933, as amended (the "Securities Act"). This Prospectus does not contain all of the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. For further information, reference is hereby made to the Registration Statement. ------------------------ INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents filed with the Commission (File No. 1-9824) pursuant to the Exchange Act are incorporated herein by reference: (1) Registration Statement on Form 8-A dated November 28, 1988, as amended December 9, 1988; (2) Annual Report on Form 10-K for the year ended December 31, 1993; (3) Current Report on Form 8-K dated April 22, 1994; and (4) All documents subsequently filed by the Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to the termination of the offering of Class A Common Stock. The Company will provide without charge to each person to whom a copy of this Prospectus is delivered, upon the request of any such person, a copy of any or all of the documents which are incorporated herein by reference, other than exhibits to such information (unless such exhibits are specifically incorporated by reference into such documents). Requests should be delivered to Elaine Lintecum, Investor Relations Manager, McClatchy Newspapers, Inc., 2100 "Q" Street, Sacramento, California 95816 (telephone: (916) 321-1846). Unless the context requires otherwise, the "Company" refers to McClatchy Newspapers, Inc., a Delaware corporation, its predecessors and its consolidated subsidiaries. The address of the Company's principal executive offices is 2100 "Q" Street, Sacramento, California 95816, and its telephone number is (916) 321-1846. ------------------------ Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any subsequently filed document which also is incorporated or deemed to be incorporated by reference herein modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. ------------------------ IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH TRANSACTIONS, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. 2 4 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and Consolidated Financial Statements appearing elsewhere in this Prospectus. THE COMPANY McClatchy Newspapers, Inc. (the "Company") owns and publishes 20 newspapers in California, Washington, Alaska and South Carolina. The Sacramento Bee, the Company's flagship newspaper established in 1857 with James McClatchy as its founding editor, together with The Fresno Bee and The Modesto Bee, formed the core of the Company's operations for many years and continue to have a significant influence on the civic, political, economic and cultural life of California's Central Valley. Since 1979, the Company has acquired four additional metropolitan daily newspapers, The (Tacoma) News Tribune, the Anchorage Daily News, the Tri-City Herald and The (Rock Hill) Herald, and has five smaller dailies and eight nondaily newspapers serving smaller communities in California, Washington and South Carolina. For the year ended December 31, 1993, the Company's combined average paid circulation totaled 815,000 daily, 962,100 Sunday and 31,700 nondaily circulation. Each of the Company's seven major daily newspapers has the largest circulation of any newspaper serving its particular metropolitan area. The Company believes that this circulation advantage is of primary importance in attracting advertising, the principal source of revenues for the Company. Until recently, two of the Company's major markets were shared with other local daily newspapers. However, in June 1992, the competing local daily newspaper in Anchorage ceased operations, permitting the Company's Anchorage Daily News to show a profit for the first time under Company ownership in 1993. In early 1994, the competitor to The Sacramento Bee published its last edition, leaving The Bee as the sole major local daily newspaper in the California State capital. The Company believes that it has grown and prospered by publishing newspapers that exhibit a high degree of concern for journalistic quality, public service and editorial integrity, and that its attention to certain basic strategies will continue to keep it financially strong and successful. Keeping and building the existing subscriber base is a fundamental goal of all of the Company's newspapers. In addition, the Company may add to its newspaper operations by purchasing newspapers in markets with strong growth potential. New products and services are developed to help the Company protect its existing franchises and enable it to deliver information through emerging technologies, including facsimile, audiotex, on-line and CD-ROM. The Company believes that the local newspaper is the principal packager and distributor of information to the community. Management believes that, as information becomes more widely available over electronic transmission networks, its newspaper databanks will enable the Company to become a primary supplier of general and customized information content on such networks. Substantially all of the Company's business operations relate to newspaper publishing. Advertising revenues approximated 78% of consolidated revenues in both 1993 and 1992. Circulation revenues approximated 19% of consolidated revenues in 1993 and 18% in 1992. The Company also owns other businesses that complement its publishing operations, strengthen its newspapers, and provide alternative methods of delivering news and information. Other businesses owned by the Company include Legi-Tech, an on-line computer service which provides information to clients on legislative activity in the California and New York state legislatures and in the United States Congress, and McClatchy Printing Company, a commercial printing operation, located in Clovis, California. The Company is currently expanding its West Coast based distributor of preprinted advertising inserts to a national operation under a newly formed subsidiary, The Newspaper Network, Inc. In addition, the Company is a partner (13.5% interest) in Ponderay Newsprint Company, a general partnership that constructed and now operates a newsprint mill in Washington State. 3 5 THE OFFERING Class A Common Stock offered: By the Company.............................................. 750,000 shares(1) By the Selling Stockholders................................. 625,000 shares Common Stock to be outstanding after the offering: Class A Common Stock........................................ 6,207,903 shares(1) Class B Common Stock........................................ 23,406,789 shares(2) Use of Proceeds............................................... For general corporate purposes, principally working capital. NYSE symbol for Class A Common Stock.......................... MNI
- --------------- (1) Assumes the Underwriters' over-allotment option is not exercised. See "Underwriting." (2) The Company's Common Stock is divided into two classes with identical rights with respect to cash dividends and in any dissolution, but different voting rights. The Class A Common Stock, shares of which are offered hereby, is generally entitled to one-tenth of a vote per share. The Class B Common Stock, which is convertible at the option of the holder into Class A Common Stock, is entitled to one vote per share. See "Description of Capital Stock." SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31, ---------------------------------------------------- 1989 1990 1991 1992 1993 -------- -------- -------- -------- -------- INCOME STATEMENT DATA: Revenues -- net: Advertising........................... $303,003 $335,663 $337,372 $345,574 $350,046 Circulation........................... 63,126 70,266 74,770 80,318 83,729 Other................................. 14,634 15,482 14,686 14,355 15,340 -------- -------- -------- -------- -------- Total................................. 380,763 421,411 426,828 440,247 449,115 -------- -------- -------- -------- -------- Operating income........................ 55,523 55,402 49,207 61,923 65,104 Income before cumulative effects of accounting changes.................... 33,890 26,445 23,729 30,171 31,798 Cumulative effects of accounting changes............................... -- -- -- (341) -- Net income.............................. $ 33,890 $ 26,445 $ 23,729 $ 29,830 $ 31,798 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Earnings per common share: Income before cumulative effects of accounting changes................. $ 1.19 $ 0.93 $ 0.83 $ 1.05 $ 1.10 Cumulative effects of accounting changes............................ -- -- -- (0.01) -- -------- -------- -------- -------- -------- Net income............................ $ 1.19 $ 0.93 $ 0.83 $ 1.04 $ 1.10 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Dividends per common share.............. $ 0.11 $ 0.16 $ 0.20 $ 0.215 $ 0.27 -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
DECEMBER 31, 1993 ---------------------------- ACTUAL AS ADJUSTED(1)(2) -------- ----------------- CONSOLIDATED BALANCE SHEET DATA: Working capital.................................................. $ 49,809 $ 66,076 Total assets..................................................... 525,163 541,430 Long-term obligations............................................ 14,213 14,213 Stockholders' equity............................................. 383,523 399,790
- --------------- (1) Assumes that the Underwriters' over-allotment option is not exercised. See "Underwriting." (2) Gives effect to the sale of shares offered by the Company hereby. The estimated net proceeds to the Company have been added to working capital pending their use. See "Use of Proceeds." 4 6 USE OF PROCEEDS The net proceeds to be received by the Company from the sale of the Class A Common Stock offered hereby are estimated to be $16,267,000 ($20,798,000 if the Underwriters' over-allotment option is exercised in full). The net proceeds will be used for general corporate purposes, which may include working capital requirements, capital expenditures, investments in the Company's newspaper subsidiaries or other related businesses, or investments in or the acquisition of other newspapers or complementary businesses. The Company will not receive any proceeds from the sale of the shares being sold by the Selling Stockholders. The sale of the Class A Common Stock offered hereby will effect a distribution of shares equal to approximately 27% of the 5.1 million shares of the outstanding Class A Common Stock as of December 31, 1993. CLASS A COMMON STOCK PRICE RANGE, VOLUME AND DIVIDENDS The Company's Class A Common Stock is listed on the New York Stock Exchange under the symbol "MNI." The Class A Common Stock is also traded on the Midwest Stock Exchange and the Pacific Stock Exchange. The Class B Common Stock is not publicly traded. The following table sets forth, for the periods indicated, high and low sale prices for the Company's Class A Common Stock and the aggregate quarterly trading volume, as reported by these exchanges, and the cash dividends declared per common share.
CLASS A COMMON STOCK AGGREGATE PRICE QUARTERLY CASH DIVIDENDS -------------- TRADING DECLARED HIGH LOW VOLUME PER SHARE ---- --- ---------- -------------- YEAR ENDED DECEMBER 31, 1992: First quarter.................................. $22 3/8 $17 539,300 $ 0.0500 Second quarter................................. 22 3/4 19 1/4 226,700 0.0500 Third quarter.................................. 22 3/8 19 1/4 172,300 0.0575 Fourth quarter................................. 21 18 356,300 0.0575 YEAR ENDED DECEMBER 31, 1993: First quarter.................................. 23 18 1/2 498,200 0.0625 Second quarter................................. 23 20 3/8 479,700 0.0625 Third quarter.................................. 20 7/8 18 1/8 464,500 0.0725 Fourth quarter................................. 25 5/8 20 1/8 385,900 0.0725 YEAR ENDED DECEMBER 31, 1994: First quarter.................................. 24 1/4 22 1/8 531,600 0.0800 Second quarter (through May 4, 1994)........... 23 1/2 21 7/8 141,800
On May 4, 1994, the reported last sale price of the Company's Class A Common Stock on the New York Stock Exchange was $23.125 per share. The Company's Common Stock is divided into two classes, with identical rights with respect to cash dividends and in any dissolution, but different voting rights. The Class A Common Stock, shares of which are offered hereby, is generally entitled to one-tenth of a vote per share and has the right to vote as a class to elect 25% of the Company's Directors (rounded up to the nearest whole number) but no vote with respect to election of the other Directors. The Class B Common Stock, which is convertible at the option of the holder into Class A Common Stock, is entitled to one vote per share and has the right to vote as a class to elect 75% of the Company's Directors (rounded down to the nearest whole number), but no vote with respect to election of the other Directors. The Class B Common Stock is closely held and subject to an agreement among stockholders designed to keep such stock in the hands of members of the McClatchy family and thus to prevent such stock from being held by the public generally. After giving effect to the offering of Class A Common Stock made hereby and assuming the Underwriters' over-allotment option is not exercised, the holders of Class B Common Stock will have the exclusive right to vote shares constituting approximately 97% of the combined voting power of the Class A and Class B Common Stock. See "Description of Capital Stock." 5 7 CAPITALIZATION The following table sets forth the capitalization of the Company as of December 31, 1993 and as adjusted to reflect the sale by the Company of 750,000 shares of Class A Common Stock and the receipt of the estimated net proceeds therefrom (assuming the Underwriters' over-allotment option is not exercised). The Company will not receive any proceeds from the sales of the shares by Selling Stockholders. The capitalization table should be read in conjunction with the Consolidated Financial Statements and notes thereto included elsewhere in this Prospectus.
DECEMBER 31, 1993 -------------------------- ACTUAL AS ADJUSTED -------- ----------- (IN THOUSANDS) Long-term debt, less current maturities........................... $ -- $ -- -------- ----------- Stockholders' equity: Common Stock(1): Class A, $0.01 par value, 50,000,000 shares authorized, 5,100,450 shares issued actual and 6,175,450 shares issued as adjusted(2).............................................. 51 62 Class B, $0.01 par value, 30,000,000 shares authorized, 24,503,789 shares issued actual and 23,428,789 shares issued as adjusted................................................. 238 234 Additional paid-in capital...................................... 39,472 55,732 Retained earnings............................................... 344,133 344,133 Treasury stock, 20,000 Class A shares actual and as adjusted, at cost, and 750,000 Class B shares actual, at no cost(3), and no shares as adjusted........................................ (371) (371) -------- ----------- Total stockholders' equity................................. 383,523 399,790 -------- ----------- Total capitalization.................................... $383,523 $ 399,790 -------- ----------- -------- -----------
- --------------- (1) Issued shares includes treasury shares. As adjusted share amounts reflect the conversion of 1,375,000 shares of Class B Common Stock into 1,375,000 shares of Class A Common Stock offered for sale hereby, of which 300,000 shares were so converted prior to December 31, 1993 and are reflected in actual Class A and Class B shares issued. (2) Shares of Class A Common Stock issued exclude 503,300 shares issuable upon exercise of options outstanding under the Company's stock option plans as of December 31, 1993. (3) See note 1 to Consolidated Financial Statements. 6 8 SELECTED CONSOLIDATED FINANCIAL DATA The selected consolidated financial data presented below for each of the five years ended December 31, 1993 have been derived from the Consolidated Financial Statements of the Company. This data should be read in conjunction with the Consolidated Financial Statements and notes thereto included elsewhere in this Prospectus.
YEAR ENDED DECEMBER 31, ---------------------------------------------------- 1989 1990 1991 1992 1993 -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) CONSOLIDATED INCOME STATEMENT DATA: Revenues -- net: Advertising........................... $303,003 $335,663 $337,372 $345,574 $350,046 Circulation........................... 63,126 70,266 74,770 80,318 83,729 Other................................. 14,634 15,482 14,686 14,355 15,340 -------- -------- -------- -------- -------- Total......................... 380,763 421,411 426,828 440,247 449,115 -------- -------- -------- -------- -------- Operating expenses: Compensation.......................... 156,863 175,668 188,791 199,295 199,743 Newsprint and supplements............. 72,452 77,956 74,562 59,501 60,639 Depreciation and amortization......... 25,583 30,316 29,929 33,560 35,583 Other operating expenses.............. 70,342 82,069 84,339 85,968 88,046 -------- -------- -------- -------- -------- Total......................... 325,240 366,009 377,621 378,324 384,011 -------- -------- -------- -------- -------- Operating income........................ 55,523 55,402 49,207 61,923 65,104 -------- -------- -------- -------- -------- Nonoperating expenses (income): Interest expenses..................... 311 2,776 1,157 920 118 Interest income....................... (987) (13) (7) (35) (461) Partnership losses.................... 935 6,366 4,193 6,674 6,171 Other -- net.......................... (139) 97 1,697 106 360 -------- -------- -------- -------- -------- Total......................... 120 9,226 7,040 7,665 6,188 -------- -------- -------- -------- -------- Income before income tax provision and cumulative effects of accounting changes............................... 55,403 46,176 42,167 54,258 58,916 Income tax provision.................... 21,513 19,731 18,438 24,087 27,118 -------- -------- -------- -------- -------- Income before cumulative effects of accounting changes.................... 33,890 26,445 23,729 30,171 31,798 Cumulative effects of accounting changes............................... -- -- -- (341) -- -------- -------- -------- -------- -------- Net income.............................. $ 33,890 $ 26,445 $ 23,729 $ 29,830 $ 31,798 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Earnings per common share: Income before cumulative effects of accounting changes................. $ 1.19 $ 0.93 $ 0.83 $ 1.05 $ 1.10 Cumulative effects of accounting changes............................ -- -- -- (0.01) -- -------- -------- -------- -------- -------- Net income............................ $ 1.19 $ 0.93 $ 0.83 $ 1.04 $ 1.10 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Dividends per common share.............. $ 0.11 $ 0.16 $ 0.20 $ 0.215 $ 0.27 -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
DECEMBER 31, ---------------------------------------------------- 1989 1990 1991 1992 1993 -------- -------- -------- -------- -------- CONSOLIDATED BALANCE SHEET DATA: Working capital....................... $ 21,899 $ 23,460 $ 22,208 $ 23,816 $ 49,809 Total assets.......................... 440,326 467,950 477,076 491,151 525,163 Long-term obligations................. 63,316 55,196 38,618 23,901 14,213 Stockholders' equity.................. $291,517 $314,186 $333,372 $358,299 $383,523 SHARES OF COMMON STOCK OUTSTANDING (AT YEAR END):(1) Class A, $0.01 par value.............. 4,287 4,358 4,461 4,565 5,080 Class B, $0.01 par value.............. 24,259 24,245 24,223 24,197 23,754 -------- -------- -------- -------- -------- Total......................... 28,546 28,603 28,684 28,762 28,834 -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
- --------------- (1) Excludes treasury shares. 7 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RECENT EVENTS The recessionary economy of Northern California continued in 1993, resulting in a slowdown in advertising revenues at The Sacramento Bee and The Modesto Bee. Stronger revenue performances at The Fresno Bee, the Anchorage Daily News and newspapers in Washington State and South Carolina offset the lower revenues in Sacramento and Modesto. Net income also benefitted from continued low newsprint prices and cost controls. In June 1992 the Anchorage Daily News became the sole metropolitan daily newspaper in Anchorage when the competing newspaper, the Anchorage Times, closed. As a result, revenues increased from $31.1 million in 1991 to $36.6 million in 1992 and $41.9 million in 1993, allowing the Daily News to become profitable for the first time under Company ownership in 1993. On August 2, 1993 new federal tax laws raised the corporate income tax rate from 34% to 35% retroactive to January 1, 1993, and made other changes to the deductibility of certain expenses. The liability method of income tax accounting required that the Company revalue accumulated deferred taxes, and taxes on earnings through the first half of 1993 to reflect the higher rate. Accordingly, the Company increased its tax provision by $1,088,000 or four cents per share in the third quarter of 1993 for these retroactive adjustments. See note 5 to the Consolidated Financial Statements. FIRST QUARTER 1994 RESULTS On April 19, 1994, the Company reported first quarter earnings of $5.9 million or 20 cents per share, up 23.7% from 1993 earnings of $4.8 million or 17 cents per share. First quarter 1994 earnings include a one-time pre-tax charge of $768,000 for closing many of the Company's Senior Spectrum tabloid newspapers which served readers over age 55. Excluding this charge, earnings would have been 22 cents per share or 32.3% higher than 1993. Earnings also benefitted from Easter advertising, which occurred principally in the first quarter of 1994 versus the second quarter of 1993. First quarter net revenues increased to $108.9 million, up 3.5% from 1993 revenues of $105.3 million. Advertising revenues were $83.8 million, a gain of 3.6% and circulation revenues posted a 1.2% increase to $21.2 million. Operating expenses were held to a 2.7% increase, generally reflecting low newsprint prices and company-wide cost control programs. Operating income increased 10.0% to $11.6 million compared to $10.5 million in 1993. Excluding the Senior Spectrum charge, operating income increased 17.3% over 1993. Net income also benefitted from higher interest income on investments and smaller losses from the Company's Ponderay newsprint mill joint venture. RESULTS OF OPERATIONS 1993 COMPARED TO 1992 Net income increased 6.6% to $31.8 million as strong performances at The Fresno Bee and newspapers in Washington State and South Carolina offset weaker results at the Sacramento and Modesto Bees. Income also benefitted from improved operating results at the Anchorage Daily News since the closure of the Anchorage Times, stringent cost controls at all of the Company's newspapers and a second year of low newsprint prices. Net revenues increased 2.0% to $449.1 million compared to $440.2 million in 1992. Advertising rate increases at most of the Company's newspapers offset the impact of lower volumes resulting in a 1.3% increase in consolidated advertising revenues. While overall advertising volumes were down, gains were reported at The Fresno Bee, the Tri-City Herald and The (Rock Hill) Herald. In general, higher retail advertising linage was offset by declines in national and classified linage. At the Company's seven largest daily newspapers, full run "run-of-press" ("ROP") linage, which is found in the body of the newspaper and accounts for the majority of advertising revenues, declined 3.1%. Part run ROP linage, found in zoned editions of the newspaper which are targeted to specific areas of a community, declined 4.6%. These declines were partially offset by gains in advertising in total market coverage ("TMC") products (delivered to nonsubscribers of the newspapers) of 18.5% and a 5.9% increase in the number of preprinted advertisements inserted into the daily newspapers. Advertising volume in McClatchy's 13 other newspapers increased 3.3%. Circulation revenue increased 4.2% as the combined number of daily and Sunday subscribers increased 1.9% and 1.8%, respectively (average paid circulation). With a slower economy impacting 8 10 many of the Company's newspaper readers, most of McClatchy's metropolitan newspapers opted to forego circulation rate increases in 1993. The Anchorage Daily News and The (Rock Hill) Herald increased home-delivery rates modestly in April and September, respectively. Other revenues increased $985,000 or 6.9% due principally to an increase in commercial printing at McClatchy Printing Company in Clovis, California. Operating expenses were held to a 1.5% increase over 1992 and were up 2.2% after excluding a $2.6 million charge in 1992 for an early retirement program at the Sacramento and Modesto Bees. Excluding the early retirement charge, compensation costs increased 1.5%, reflecting a 2.1% increase in salaries and a nominal decline in the cost of employee benefits. The increase in salaries generally reflect wage rate increases of 2% to 3% partially offset by lower headcounts. Newsprint and supplements and other operating expenses increased 2.2% and reflect low newsprint prices, generally low inflation and the impact of cost control programs at all of the Company's newspapers. Depreciation and amortization was up 6.0% due to the installation of new mailroom equipment at The Sacramento Bee and presses at The (Tacoma) News Tribune. Nonoperating expense declined $1.5 million primarily due to lower interest expense as the Company repaid its bank debt, and higher investment income on cash equivalents. The Company's tax rate was 46.0% compared to 44.4% in 1992. The increase in this rate primarily relates to new federal tax legislation which raised the corporate tax rate from 34% to 35%, retroactive to January 1, 1993. 1992 COMPARED TO 1991 Improved operating results at the Anchorage Daily News and The News Tribune, lower newsprint prices and company-wide cost controls were the major contributors to a 25.7% increase in net income. The Daily News and The News Tribune led the Company in both revenue and operating income growth. Net revenues increased 3.1% to $440.2 million compared to $426.8 million in 1991. This growth reflects circulation and advertising rate increases, and, to a lesser extent, a rebound in subscriber and advertising volumes in the second half of 1992. Advertising revenues were up 2.4% to $345.6 million. Advertising rates were increased at a number of the larger metropolitan dailies in the first quarter of 1992. The Anchorage Daily News implemented an additional advertising rate increase in August 1992 because of its significant growth in circulation after the Anchorage Times' closure. Advertising volumes were generally flat for the year. Lower advertising linage in the California markets was offset by gains made at other newspapers. At the Company's seven largest newspapers, full run ROP linage was even with 1991 levels. Gains in retail linage were offset by losses in classified and national advertising. Part run ROP linage grew 0.2% while linage in TMC products declined 11.1% at these newspapers. The number of preprinted inserts delivered in the seven largest newspapers grew 3.8%. Linage at McClatchy's 13 other newspapers declined 0.7%. The Anchorage Daily News also led the Company in subscriber and circulation revenue growth. The Daily News' average daily paid circulation for the year ended December 31, 1992 grew to approximately 72,000 from 60,800 in 1991 and Sunday was 94,900 versus 81,600. Company-wide, the number of subscribers grew 2.1% for average daily paid circulation (1.4% excluding the Ellensburg Daily Record purchased in 1992) and 1.8% on Sunday. Nondaily subscribers increased 3.1%. This growth in subscribers coupled with selective home delivery and single-copy rate increases resulted in a 7.4% gain in circulation revenues to $80.3 million. Operating expenses were held to a 0.2% increase over 1991 despite the recognition of a $2.6 million charge for an early retirement program. Excluding the early retirement charge, compensation costs were up 4.2%, reflecting a 3.6% increase in salaries and a 6.6% increase in fringe benefits. These increases reflect wage increases of 2% to 4% and higher retirement and other fringe benefits. Newsprint and supplements costs declined $15.1 million or 20.2% due mostly to lower newsprint prices precipitated by a lack of advertising demand. Depreciation and amortization was up 12.1% reflecting primarily a full year of depreciation on The Fresno Bee's expanded plant and new presses and amortization of intangibles purchased during the year. Other operating expenses were held to a 1.9% increase through Company-wide cost control programs. 9 11 While the Ponderay Newsprint Company continues to be one of the more efficient and low cost producers of newsprint, the Company's share of losses from this joint venture increased due to lower newsprint prices. Other nonoperating expenses declined because 1991 included an adjustment related to the destruction of a rental property. The effective tax rate increased to 44.4% from 43.7% in 1991. A reconciliation of the effective tax rates is included in note 5 to the Consolidated Financial Statements. QUARTERLY RESULTS OF OPERATIONS The Company's business is somewhat seasonal, with peak revenues and profits generally occurring in the second and fourth quarters of each year as a result of increased advertising activity during the spring holiday and Christmas periods. The first quarter is historically the weakest quarter for revenues and profits. The Company's 1992 and 1993 unaudited quarterly results are summarized as follows (in thousands, except share amounts):
1ST 2ND 3RD 4TH QUARTER QUARTER QUARTER QUARTER -------- -------- -------- -------- 1992: Revenues -- net............................. $101,292 $111,169 $110,503 $117,283 Operating income............................ 9,881 16,246 16,856 18,940 Income before cumulative effects of accounting changes........................ 4,488 7,831 8,699 9,153 Net income.................................. 4,147 7,831 8,699 9,153 Income per common share before cumulative effects of accounting changes............. .15 .27 .30 .32 Net income per common share................. .14 .27 .30 .32 1993: Revenues--net............................... $105,282 $113,458 $111,282 $119,093 Operating income............................ 10,546 16,962 16,396 21,200 Net income.................................. 4,768 8,514 7,341 11,175 Net income per common share................. .17 .30 .25 .39
LIQUIDITY AND CAPITAL RESOURCES The Company generated $90.7 million of cash from operations in 1993 and has generated $228.5 million over the last three years. The principal uses of cash have been to repay bank debt incurred to purchase its South Carolina-based newspapers and to invest in capital expenditures. Cash has also been used to fund its Ponderay newsprint mill investment and to pay dividends. With all of its bank debt now repaid, the Company has invested its cash in high quality commercial paper and government securities. At year end, cash and cash equivalents totaled $42.3 million. With the ongoing recession in Northern California, the Company deferred some of its planned capital expenditures in 1992 and 1993. Nonetheless, a total of $35.9 million was expended in 1993 for projects and equipment to improve productivity and keep pace with circulation growth. Capital expenditures over the last three years have totaled $106.9 million and planned expenditures in 1994 are estimated to be $38.3 million. The Company has a 13.5% interest in the Ponderay Newsprint Company, a general partnership formed to construct and operate a newsprint mill near Spokane, Washington. The mill began operating in December 1989. The Company's share of the mill's operating losses over the last three years equaled $17.0 million. The Company has contributed $12.4 million to fund the mill's cash needs over this period. Ponderay is expected to incur losses over the next several years assuming newsprint prices remain depressed and the Company presently intends, when necessary, to contribute funds to help finance its share of these losses. See note 3 to the Consolidated Financial Statements. During 1993 the Company terminated its bank line of credit and now has only an outstanding letter of credit for $5.9 million. See note 4 to Consolidated Financial Statements. Management is of the opinion that operating cash flow is adequate to meet the liquidity needs of the Company, including currently planned capital expenditures and other investments. 10 12 BUSINESS McClatchy Newspapers, Inc. (the "Company") owns and publishes 20 newspapers in California, Washington, Alaska and South Carolina. The Sacramento Bee, the Company's flagship newspaper established in 1857 with James McClatchy as its founding editor, together with The Fresno Bee and The Modesto Bee, formed the core of the Company's operations for many years and continue to have a significant influence on the civic, political, economic and cultural life of California's Central Valley. Since 1979, the Company has acquired four additional metropolitan daily newspapers, The (Tacoma) News Tribune, the Anchorage Daily News, the Tri-City Herald and The (Rock Hill) Herald, and has five smaller dailies and eight nondaily newspapers serving smaller communities in California, Washington and South Carolina. For the year ended December 31, 1993, the Company's combined average paid circulation totaled 815,000 daily, 962,100 Sunday and 31,700 nondaily circulation. Each of the Company's seven major daily newspapers has the largest circulation of any newspaper serving its particular metropolitan area. The Company believes that this circulation advantage is of primary importance in attracting advertising, the principal source of revenues for the Company. Until recently, two of the Company's major markets were shared with other local daily newspapers. However, in June 1992, the competing local daily newspaper in Anchorage ceased operations, permitting the Company's Anchorage Daily News to show a profit for the first time under Company ownership in 1993. In early 1994, the competitor to The Sacramento Bee published its last edition, leaving The Bee as the sole major local daily newspaper in the California State capital. Substantially all of the Company's business operations relate to newspaper publishing. Advertising revenues approximated 78% of consolidated revenues in both 1993 and 1992. Circulation revenues approximated 19% of consolidated revenues in 1993 and 18% in 1992. The Company also owns other businesses that complement its publishing operations, strengthen its newspapers, and provide alternative methods of delivering news and information. Other businesses owned by the Company include Legi-Tech, an on-line computer service which provides information to clients on legislative activity in the California and New York state legislatures and in the United States Congress and McClatchy Printing Company, a commercial printing operation, located in Clovis, California. The Company is currently expanding its West Coast based distributor of preprinted advertising inserts to a national operation under a newly formed subsidiary, The Newspaper Network, Inc. In addition, the Company is a partner (13.5% interest) in Ponderay Newsprint Company, a general partnership that constructed and now operates a newsprint mill in Washington State. STRATEGIES The Company believes that it has grown and prospered by publishing newspapers that exhibit a high degree of concern for journalistic quality, public service and editorial integrity and that attention to certain basic strategies will continue to keep it financially strong and successful. These key strategies include: Maintaining and expanding the Company's existing newspapers' subscriber base. Keeping and building the existing subscriber base is a fundamental goal of all of the Company's newspapers. Larger numbers of subscribers translate into higher circulation revenue and, more importantly, higher advertising revenue. To accomplish this goal, the Company is committed to making the necessary investment to achieve superior customer service and the highest degree of journalistic quality. Over the years this quality has been demonstrated by the many industry awards its newspapers have won, including two Pulitzer awards by The Sacramento Bee in 1992 and one by the Anchorage Daily News in 1989. Continuing to look for opportunities to acquire newspapers in new markets. The Company may add to its newspaper operations by purchasing newspapers in markets with strong growth potential which are or can become the primary print advertising and news sources for their areas. Over the last 15 years, this strategy has resulted in the purchase of 17 newspapers of varying sizes, each of which is the primary local news source in its market. Most of these newspapers are outside of Northern California and have helped reduce the effects on the Company's operations of the recent economic downturn in this region. Developing new products and services to protect its existing franchises. To combat competitive pressures, the Company develops new products and services to protect its existing franchises. 11 13 To answer the challenge of advertisers seeking to target more defined areas of distribution by direct mail, the Company is currently expanding its West Coast based distributor of preprinted advertising inserts to a national operation under a newly formed subsidiary, The Newspaper Network, Inc. The Newspaper Network offers advertisers the convenience of a one-order, one-bill sales of advertising preprints. The Company believes that this initiative will be important for both McClatchy and the newspaper industry in competing with direct mail on a national basis. Additionally, local management has developed alternative delivery systems, including electronic communications such as facsimile machines, to handle additional or expanded news stories and is using established carrier routes to distribute items other than newspapers such as magazines and product samples. Understanding and implementing new technologies which can enhance the value of the information content of the newspapers' databanks. In order to prepare for the future, the Company continues to research and monitor developing technologies relating to the "Information Superhighway." The Company believes the local newspaper in a given community is the principal packager and distributor of information and many of the new technologies being developed will make use of this information. Management believes that companies of its size may not own the transmission devices, but they can and will become primary suppliers of general and customized information content. The Company is making sure its newspapers have the expertise to assemble and package the information content to be transmitted along these highways of the future. A special task force known as the "Information Center" made up of employees from throughout the Company has been established to research and discuss how to distribute information through electronic outlets. In addition, the Company is working with five other newspaper companies to explore how each might benefit from information and technology changes. NEWSPAPER OPERATIONS Each of the Company's newspapers is semiautonomous in its business and editorial operations so as to meet most effectively the needs of the communities it serves. Publishers, editors and general managers of the newspapers make the day-to-day decisions and within limits are responsible for their own budgeting and planning. Policies on such matters as determining the amount and type of capital expenditures, key personnel changes, and strategic planning and operating budgets including wage and pricing matters are approved or established by the Company's senior management or Board of Directors. The volume of advertising is significantly affected by the local economies in each newspaper's market. The Northern California economy, home to three of the Company's larger newspapers, slowed in 1991 and continues to be affected by an economic downturn, albeit not as severe as the downturn in the southern half of the State. As a result, advertising linage (i.e., number of lines of type in six column inches) declined in 1993 at The Sacramento and Modesto Bees, but was partially offset by increases in advertising rates. Total advertising linage is comprised of a number of different components, the most important of which is "run of press" ("ROP") linage. Full run ROP linage is advertising in the body of a newspaper distributed throughout a community while part run ROP is found in zoned editions of the newspaper targeted to specific areas of the community. ROP linage generates in excess of 80% of advertising revenues. Total-market-coverage ("TMC") advertising linage is found in products distributed to nonsubscribers of the newspapers. Preprinted inserts are advertisements inserted into the newspapers and are generally measured by units rather than lines of type. At the Company's seven largest daily newspapers, full run ROP linage was 8.9 million six column inches, down 3.1% from 1992. Part run ROP linage was 614,000, down 4.6%, TMC linage was 1.0 million, up 18.5% and the newspapers distributed 1,401 million advertising preprints, up 5.9% from 1992. The Company continued to show growth in average paid circulation in 1993. For the year ended December 31, 1993, the Company's combined average paid daily circulation increased 1.9% to 815,000 and Sunday was up 1.8% to 962,100. In 1992, the State of California enacted a sales tax on daily newspapers which caused a circulation decrease at The Sacramento, Modesto and Fresno Bees for the year. 12 14 All of the Company's daily newspapers are morning distribution, except for the Ellensburg Daily Record. Certain information regarding newspaper operations is summarized below: - --------------------------------------------------------------------------------
CIRCULATION(1) DAYS ------------------- NEWSPAPER LOCATION PUBLISHED DAILY SUNDAY ------------------------ --------------- ---------------- ------- ------- The Sacramento Bee Sacramento, CA Mon.-Sun. 271,700 341,000 The Fresno Bee Fresno, CA Mon.-Sun. 149,900 186,800 The News Tribune Tacoma, WA Mon.-Sun. 128,600 147,800 The Modesto Bee Modesto, CA Mon.-Sun. 83,000 91,900 Anchorage Daily News Anchorage, AK Mon.-Sun. 73,400 97,100 Tri-City Herald Pasco, WA Mon.-Sun. 38,600 41,900 The Herald Rock Hill, SC Mon.-Sun. 31,000 30,700 The Island Packet Hilton Head, SC Mon.-Fri., Sun. 12,700 15,600 Beaufort Gazette Beaufort, SC Mon.-Fri., Sun. 10,000 9,300 The Dispatch Gilroy, CA Mon.-Fri. 6,300 Daily Record Ellensburg, WA Mon.-Sat. 5,500 Free Lance Hollister, CA Mon.-Fri. 4,300 Amador Ledger Dispatch Jackson, CA Mon., Wed., Fri. (2) Pierce County Herald Puyallup, WA Tues., Sat. (2) Morgan Hill Times Morgan Hill, CA Tues., Fri. (2) Clovis Independent Clovis, CA Wed. (2) Lincoln News Messenger Lincoln, CA Thurs. (2) Clover Herald Clover, SC Wed. (2) Yorkville Enquirer Yorkville, SC Thurs. (2) Lake Wylie Magazine Lake Wylie, SC Twice-Monthly (2)
------------------ (1) Average paid circulation for the year ended December 31, 1993 according to Company records. (2) Combined total nondaily circulation for these local newspapers for the year ended December 31, 1993 was 31,700. - -------------------------------------------------------------------------------- THE SACRAMENTO BEE Founded in 1857, The Sacramento Bee, the Company's flagship newspaper, serves the California State capital and its metropolitan area. According to estimates contained in the 1993 Survey of Buying Power published by Sales and Marketing Management ("SMMS") and which is based upon the most recent census taken by the United States Bureau of Census, the Sacramento Metropolitan Statistical Area ("MSA") had a population of approximately 1,461,400 as of December 31, 1992, making it the 33rd largest MSA in the United States. SMMS figures indicate that the population of the Sacramento MSA increased 2.8% in 1992. Prior to the recession, which began in 1991, the Sacramento area experienced strong population growth as individuals and businesses were drawn to the more affordable Central Valley of California. This influx has slowed because of the recent economic recession, causing the newspaper's advertising volumes to decrease and 1993 advertising revenues to decline 2.4% from the prior year. Nonetheless, cost control programs at The Sacramento Bee helped to partially offset the impact of lower revenues. For many years The Sacramento Bee's principal competitor was the Sacramento Union, a morning daily and Sunday newspaper. In October 1993 the Union reduced its publication to three times a week and in January 1994 the Union ceased publication. Over the last several years the Union had lost advertising and circulation to the extent that its closure is not expected to have a significant near-term impact on The Sacramento Bee. Frank Whittaker, age 44, has been president of The Sacramento Bee since 1990 and general manager since 1985. He was previously the director of circulation and manager of newspaper planning for The Toronto Star. Gregory Favre, age 58, has been the executive editor of the newspaper since 1984. He was previously the managing editor of the Chicago Sun Times and of the Chicago Daily News. 13 15 The following table summarizes The Sacramento Bee's net revenues, circulation and advertising activity over the last five years: - --------------------------------------------------------------------------------
THE SACRAMENTO BEE OPERATIONAL SUMMARY(1) YEAR ENDED DECEMBER 31, ---------------------------------------------------- 1989 1990 1991 1992 1993 -------- -------- -------- -------- -------- Net Revenues (in thousands)................. $155,557 $167,053 $168,428 $168,486 $165,322 Circulation: Daily..................................... 260,900 266,100 270,000 266,900 271,700 Sunday.................................... 314,400 328,300 338,100 337,900 341,000 Advertising Linage (in thousands of six column inches): Full Run ROP.............................. 2,968 2,884 2,597 2,530 2,408 Part Run ROP.............................. 198 312 361 345 328 TMC....................................... 221 237 159 159 158 Preprinted Inserts (millions distributed).................... 449 473 539 532 564
--------------------- (1) According to Company records. - -------------------------------------------------------------------------------- Based upon the December 31, 1992 (latest available) Audit Bureau of Circulation ("ABC") audit report and ABC's estimate of households in The Sacramento Bee's Newspaper Designated Market ("NDM"), an area agreed upon by ABC and a newspaper to be the newspaper's primary circulation area, the newspaper was reaching daily 42% and Sunday 51% of such households. THE FRESNO BEE The Fresno Bee, founded in 1922, serves the number one agricultural producing county in the United States. Fresno County's economy benefited in 1993 through relief from a six-year drought and growth in residential construction. SMMS estimates that the Fresno MSA had a population of approximately 832,500 as of December 31, 1992 making it the 68th largest MSA in the nation. SMMS figures indicate that the population of the Fresno MSA increased 3.2% in 1992. The 1992 completion of a $60 million plant expansion and addition of 18 units of new press has allowed the paper to respond to increasing demand for color advertising and circulation growth. The paper capitalized on its relatively strong economy and new equipment, posting a 3.2% increase in advertising revenue in 1993. Gary Pruitt, age 36, has been the publisher of The Fresno Bee since October 1991. He was previously assistant to the vice president of operations for the Company and from 1984 to 1991 he was the Company's general counsel, and was corporate secretary from 1987 to 1991. 14 16 The following table summarizes The Fresno Bee's net revenues, circulation and advertising activity over the last five years: - --------------------------------------------------------------------------------
THE FRESNO BEE OPERATIONAL SUMMARY(1) YEAR ENDED DECEMBER 31, ---------------------------------------------------- 1989 1990 1991 1992 1993 -------- -------- -------- -------- -------- Net Revenues (in thousands)................. $ 73,066 $ 73,646 $ 74,778 $ 77,153 $ 79,072 Circulation: Daily..................................... 146,000 147,000 150,100 146,800 149,900 Sunday.................................... 176,000 181,500 184,900 183,100 186,800 Advertising Linage (in thousands of six column inches): Full Run ROP.............................. 1,516 1,410 1,448 1,418 1,483 Part Run ROP.............................. 115 131 159 184 159 TMC....................................... 171 133 234 167 170 Preprinted Inserts (millions distributed)... 219 235 246 284 291
------------------ (1) According to Company records. - -------------------------------------------------------------------------------- Based on the December 31, 1992 (latest available) ABC audit report and ABC's estimate of households in The Fresno Bee's NDM, the newspaper was reaching daily 48% and Sunday 58% of such households. THE NEWS TRIBUNE The News Tribune serves the Tacoma, Washington metropolitan area, including Federal Way, a newly incorporated city just north of Tacoma. SMMS estimates that the Tacoma Primary MSA had a population of approximately 625,000 as of December 31, 1992 making it the 81st largest MSA in the nation. SMMS figures indicate that the population of the Tacoma Primary MSA increased 3.3% in 1992. Since purchasing The News Tribune in 1986, the Company has improved the editorial product to expand circulation in the Puget Sound region and has improved the operating margins by nearly 200%. In addition, the Company converted The News Tribune from evening to morning distribution in 1987 and circulation has grown from daily 109,300 and Sunday 121,600 in 1986 to daily 128,600 and Sunday 147,800 in 1993. The newspaper now competes in the northernmost fringes of its market with the major Seattle daily newspapers located just 30 miles north of Tacoma. The Tacoma area is affected by the downsizing of The Boeing Company, a major employer in the Puget Sound region, and has experienced a recent slowdown in business activity. However, planned staffing increases at military bases in the Tacoma area may help to offset the impact of the aircraft maker's layoffs. Kelso Gillenwater, age 47, became publisher of The News Tribune in October 1991. He was publisher of the Company's Tri-City Herald from 1981 to 1991 and was previously president and general manager of Landmark Dailies, Inc. 15 17 The following table summarizes The News Tribune's net revenues, circulation and advertising activity over the last five years: - --------------------------------------------------------------------------------
THE NEWS TRIBUNE OPERATIONAL SUMMARY(1) YEAR ENDED DECEMBER 31, ---------------------------------------------------- 1989 1990 1991 1992 1993 -------- -------- -------- -------- -------- Net Revenues (in thousands)................. $ 52,495 $ 55,818 $ 58,099 $ 61,647 $ 64,324 Circulation: Daily..................................... 119,200 118,800 122,600 126,900 128,600 Sunday.................................... 130,800 135,900 140,100 144,500 147,800 Advertising Linage (in thousands of six column inches): Full Run ROP.............................. 1,300 1,296 1,233 1,292 1,291 Part Run ROP.............................. 45 33 28 20 28 TMC....................................... 23 28 26 22 31 Preprinted Inserts (millions distributed)... 170 179 185 194 214
------------------ (1) According to Company records. - -------------------------------------------------------------------------------- Based on the December 31, 1992 (latest available) ABC audit report and ABC's estimate of households in The News Tribune's NDM, the newspaper was reaching daily 51% and Sunday 57% of such households. THE MODESTO BEE The Modesto Bee, Company-owned since 1927, serves the city of Modesto, located in San Joaquin County in the Central Valley of California. SMMS estimates that the Modesto MSA had a population of approximately 406,200 as of December 31, 1992 making it the 120th largest MSA in the nation. SMMS figures indicate that Modesto's population increased 2.9% in 1992. The Modesto Bee's revenue and operating income peaked in 1990 when the Modesto area enjoyed a strong influx of newcomers into its region from the San Francisco Bay Area as many people and businesses were attracted to the more affordable Central Valley. This migration slowed as the California recession began in 1991. As a result, the newspaper has relied on cost controls to offset slower business activity and lower revenues. John Ward, age 47, has been the general manager of The Modesto Bee since 1985. He was previously the vice president of administration of the Knight-Ridder Fort Wayne, Indiana newspapers. Sanders H. LaMont, age 53, has been the executive editor of The Modesto Bee since 1980. He was previously the executive editor of The Marietta (Ohio) Times and before that the managing editor of The Fort Meyers News-Press. The following table summarizes The Modesto Bee's net revenues, circulation and advertising activity over the last five years: - --------------------------------------------------------------------------------
THE MODESTO BEE OPERATIONAL SUMMARY(1) YEAR ENDED DECEMBER 31, ----------------------------------------------- 1989 1990 1991 1992 1993 ------- ------- ------- ------- ------- Net Revenues (in thousands)....................... $39,263 $44,566 $43,574 $43,662 $42,925 Circulation: Daily........................................... 79,300 82,600 83,300 82,500 83,000 Sunday.......................................... 87,800 92,300 92,800 91,700 91,900 Advertising Linage (in thousands of six column inches): Full Run ROP.................................... 1,269 1,361 1,238 1,269 1,237 Part Run ROP.................................... 72 105 108 108 99 TMC............................................. 654 460 428 402 567 Preprinted Inserts (millions distributed)......... 138 154 154 147 143
------------------ (1) According to Company Records. - -------------------------------------------------------------------------------- 16 18 Based on the December 31, 1992 (latest available) ABC audit report and ABC's estimate of households in The Modesto Bee's NDM, the newspaper was reaching daily 63% and Sunday 68% of such households. ANCHORAGE DAILY NEWS Purchased by the Company in 1979, the Anchorage Daily News has since grown to become Alaska's largest newspaper. The Daily News' primary circulation is concentrated in the south central region of the state -- comprised of metropolitan Anchorage, the Kenai Peninsula and the Matanuska-Susitna Valley. SMMS estimates that the Anchorage MSA had an approximate population of 244,400 as of December 31, 1992, making it the 174th largest MSA in the United States. SMMS figures indicate that the population of the Anchorage MSA increased 5.2% in 1992. The Company considers the progress of the Anchorage Daily News since its purchase in 1979 to be one of its greatest successes. When acquired, the Daily News had an average paid circulation of about 12,000 and was not published on Sundays. Its competitor, the Anchorage Times, had an average paid circulation of about 45,500 daily and 51,900 Sunday. By 1983, the Daily News had surpassed the Anchorage Times in both daily and Sunday circulation and advertising share of field. In June 1992 the Anchorage Times ceased publication and sold certain of its operating assets to the Company. Now the sole daily in Anchorage, the Daily News had an average paid circulation of 73,400 daily and 97,100 Sunday in 1993 and revenues of $41.9 million, up from $36.6 million in 1992 and $31.1 million in 1991. In 1993, the Daily News had its first profitable year under Company ownership. In July 1993, Fuller Cowell, age 41, became publisher of the Daily News. He was operations coordinator for the Company from 1991 to 1993 and was previously vice president and general manager of the Company's Gavilan Newspapers subsidiary (The Dispatch, Free Lance and Morgan Hill Times) from 1987 to 1991. Howard Weaver, age 43, who won a Pulitzer Prize for the Daily News as a reporter in 1975, has been the managing editor of the newspaper since 1980. The following table summarizes the Anchorage Daily News' net revenues, circulation and advertising activity over the last five years: - --------------------------------------------------------------------------------
ANCHORAGE DAILY NEWS OPERATIONAL SUMMARY(1) YEAR ENDED DECEMBER 31, ----------------------------------------------- 1989 1990 1991 1992 1993 ------- ------- ------- ------- ------- Net Revenues (in thousands)....................... $28,875 $30,550 $31,101 $36,648 $41,923 Circulation: Daily........................................... 57,000 59,600 60,800 72,000 73,400 Sunday.......................................... 73,000 77,900 81,600 94,900 97,100 Advertising Linage (in thousands of six column inches): Full Run ROP.................................... 1,482 1,479 1,370 1,390 1,053 TMC............................................. 40 49 45 43 30 Preprinted Inserts (millions distributed)......... 59 79 77 87 99
------------------ (1) According to Company records. - -------------------------------------------------------------------------------- Based on the June 30, 1993 (latest available) ABC audit report and ABC's estimate of households in the Anchorage Daily News' NDM, the newspaper was reaching daily 58% and Sunday 74% of such households. TRI-CITY HERALD Purchased by the Company in 1979, the Tri-City Herald serves the Tri-Cities, which include the cities of Richland, Kennewick and Pasco in southeastern Washington. SMMS estimated that the Tri-City MSA had a population of approximately 158,000 as of December 31, 1992 making it the 219th largest MSA in the country. SMMS figures indicate that the population of the Tri-City MSA increased 3.8% in 1992. 17 19 During the last two decades, the Tri-Cities economy has been affected greatly by the construction of nuclear energy plants and storage of nuclear waste. During the 1980s, the federal government curtailed a major portion of such activity, resulting in a regional economic recession. Over the past several years, the United States Department of Energy has begun clean-up of the nuclear waste, which has enhanced the region's economy. Jack Briggs, age 61, became publisher in October 1991. He was the Tri-City Herald's managing editor from 1985 to 1991 and has held various editorial positions at the paper since 1960. The following table summarizes the Tri-City Herald's net revenues, circulation and advertising activity over the last five years: - --------------------------------------------------------------------------------
TRI-CITY HERALD OPERATIONAL SUMMARY(1) YEAR ENDED DECEMBER 31, ----------------------------------------------- 1989 1990 1991 1992 1993 ------- ------- ------- ------- ------- Net Revenues (in thousands)....................... $11,930 $12,429 $13,217 $14,089 $15,626 Circulation: Daily........................................... 33,000 35,000 36,100 37,300 38,600 Sunday.......................................... 36,300 38,200 39,200 40,400 41,900 Advertising Linage (in thousands of six column inches): Full Run ROP.................................... 707 673 652 656 721 TMC............................................. 25 21 25 25 20 Preprinted Inserts (millions distributed)......... 46 53 54 58 64
------------------ (1) According to Company records. - -------------------------------------------------------------------------------- Based on the December 31, 1992 (latest available) ABC audit report and ABC's estimate of households in the Tri-City Herald's NDM, the newspaper was reaching daily 73% and Sunday 79% of such households. THE HERALD Purchased in 1990, The Herald serves Rock Hill and surrounding communities in York County, South Carolina. Rock Hill is a community approximately 25 miles southwest of Charlotte, North Carolina, just across the state border. SMMS estimates that York County had an approximate population of 138,600 as of December 31, 1992. The Herald's main competitor is a zoned edition of the Charlotte Observer, whose circulation in The Herald's primary circulation area as reported by ABC was 10,752 daily and 13,894 Sunday as of March 31, 1993 compared to 11,049 daily and 13,955 Sunday as of March 31, 1992. After purchasing The Herald in 1990, the Company invested in new editorial production computers, added a third section to the newspaper and expanded sports coverage and newswire services. The Company also extended training of sales representatives in advertising and circulation and introduced advertising volume contracts and other new advertising programs. The result of these initiatives has been growth in revenues, operating results and circulation. Orage Quarles, III, age 43, was hired in 1993 as publisher of The Herald and director of the Company's South Carolina operations, which includes The Herald and sister daily newspapers in Hilton Head and Beaufort. He was previously president and publisher of The Stockton (California) Record and began his newspaper career in 1969 with the Gannett Co., Inc., where he held various management positions from 1979 through 1993. 18 20 The following table summarizes The Herald's net revenues, circulation and advertising activity over the last four years: - --------------------------------------------------------------------------------
THE (ROCK HILL) HERALD OPERATIONAL SUMMARY(1) YEAR ENDED DECEMBER 31, ------------------------------------- 1990 1991 1992 1993 ------- ------- ------- ------- Net Revenues (in thousands)................................ $ 7,991 $ 8,415 $ 8,723 $ 9,514 Circulation: Daily.................................................... 29,600 30,100 30,400 31,000 Sunday................................................... 29,200 29,400 29,800 30,700 Advertising Linage (in thousands of six column inches): Full Run ROP............................................. 648 660 642 725 TMC...................................................... 69 66 56 60 Preprinted Inserts (millions distributed).................. 19 20 21 26
------------------ (1) According to Company records. The Herald was purchased by the Company on January 1, 1990. - -------------------------------------------------------------------------------- Based on the March 31, 1993 (latest available) ABC audit report and ABC's estimate of households in The Herald's NDM, the newspaper was reaching daily 60% and Sunday 59% of such households. OTHER NEWSPAPERS The Company also publishes five small daily and eight nondaily community newspapers. The Ellensburg Daily Record in Central Washington was purchased in September 1992. The Daily Record is an evening newspaper, published Monday through Saturday, with about 5,500 paid circulation. The other four daily newspapers include two in South Carolina -- The Island Packet on Hilton Head Island and the Beaufort Gazette in Beaufort; and two in California -- The Dispatch in Gilroy and the Free Lance in Hollister. Combined average daily circulation for these four newspapers according to Company records was 33,200 in 1993 compared to 32,300 in 1992. Average Sunday circulation at the two South Carolina newspapers was 24,900 in 1993 compared to 23,600 in 1992. The eight nondaily newspapers are generally published weekly or twice-weekly. Four of the newspapers are located in California, three in South Carolina and one in Washington State. Combined average circulation for this group according to Company records was 31,700 at December 31, 1993. OTHER OPERATIONS AND INVESTMENTS Substantially all of the Company's business operations relate to newspaper publishing. However, the Company also owns other businesses that complement its publishing operations, serve to strengthen its newspapers, and allow for alternative methods of delivering news and information. The Company is currently expanding its West Coast based distributor of preprinted advertising inserts to a national operation under a newly formed subsidiary, The Newspaper Network, Inc. The Newspaper Network has launched an aggressive program to build a national business by offering advertisers one-order, one-bill sales of advertising preprints in newspapers throughout the country. The Company believes that this initiative will be important for both McClatchy and the newspaper industry in competing with direct mail on a national basis. Legi-Tech is an on-line computer service which provides information to clients on legislative activity in the California and New York state legislatures and in the United States Congress. Legi-Tech also provides The Sacramento Bee on-line to its customers and sells historical legislative information, as well as The Sacramento and Fresno Bees on CD-ROM. In late 1993, Legi-Tech expanded distribution of its on-line information to Internet, and in 1994 plans to introduce the use of photography and graphics in its CD-ROM products. As a result of the Company's continued research and development of new technologies for its news and data, most of its larger papers are providing subscriber and advertiser services through various forms of electronic distribution. Several of the Company's largest newspapers are available on-line through various third-party services. For a fee, customers can request a "fax on demand" of a current or historical 19 21 news story or additional details not originally published, but stored in a newspaper's database. Through automated voice technology, individuals can obtain information on a variety of topics, including weather, sports scores and stock quotes. McClatchy Printing Company is a commercial printer located in Clovis, California. In addition to printing television guides for the Company's Bee newspapers, it prints various commercial products and preprinted advertisements for third party customers. In 1993 approximately 40% of McClatchy Printing revenues were derived from outside customers. The addition of a new press in 1993 will enable McClatchy Printing to continue to expand its operations. The Company has also invested with four other publishers and a Canadian newsprint manufacturer in Ponderay Newsprint Company, a general partnership formed to construct and operate a newsprint mill in the State of Washington. The mill became operational in late 1989 and is one of the more efficient and low-cost producers of newsprint in North America. Ponderay has a production capacity in excess of 200,000 metric tons annually. The publisher partners are committed to take an aggregate 126,000 metric tons of this production with the balance sold on the open market. The Company's annual commitment is 28,400 metric tons. See note 3 to the Consolidated Financial Statements. 20 22 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The Directors and executive officers of the Company and their ages are as follows:
NAME AGE POSITIONS HELD - ---------------------------- --- -------------------------------------- William K. Coblentz 71 Director Booth Gardner 57 Director William L. Honeysett 56 Executive Vice President, Director Joan F. Lane 65 Director Betty Lou Maloney(1) 73 Director, Assistant Secretary James B. McClatchy(1) 73 Chairman of the Board of Directors and Publisher William Ellery McClatchy(1) 69 Director, Assistant Secretary Erwin Potts 61 President and Chief Executive Officer, Director S. Donley Ritchey 60 Director William M. Roth 77 Director Frederick R. Ruiz 50 Director James P. Smith 56 Vice President, Finance, Treasurer, Director H. Roger Tatarian 77 Director Peter M. CaJacob 50 Vice President, Human Resources Gregory E. Favre 58 Vice President, News
- --------------- (1) James B. McClatchy and William Ellery McClatchy are brothers. Betty Lou Maloney is their cousin by marriage. William K. Coblentz, a Director of the Company since March 1979, is a senior partner in the San Francisco law firm of Coblentz, Cahen, McCabe & Breyer. He was a member of the board of directors of Pacific Telesis Group from 1976 to 1992 and is a member of the board of directors of the Koret Foundation. From 1964 through 1980 Mr. Coblentz was a member of the University of California Board of Regents and was its chairman for two years. Booth Gardner has been a Director of the Company since July 1993. In 1993 he was nominated to serve as the U.S. Ambassador to the General Agreement on Tariffs and Trade in Geneva, Switzerland. He was elected Governor of the State of Washington in 1984 and held that office from 1985 to 1993. While Governor, he served as Chairman of the Western Governors' Association and chaired the National Governors' Association's Committee on International Trade. Prior to his tenure as Governor of Washington, he was County Executive of Pierce County, Washington from 1980 to 1984. Mr. Gardner is a member of the board of trustees of the Menninger Foundation and the board of advisors of the PEW Charitable Trusts. William L. Honeysett was named Executive Vice President on February 18, 1994, has been a Director of the Company since July 1993 and its Vice President, Operations from October 1991 to February 1994. Until October 1991, he was publisher of The News Tribune in Tacoma, Washington. Mr. Honeysett was a regional president for Gannett Co., Inc. before becoming publisher in Tacoma. He is a former director of the Pacific Northwest Newspaper Association. Joan F. Lane has been a Director of the Company since March 22, 1989. From 1982 to 1992, Mrs. Lane served as Special Assistant to the Dean of the School of Humanities and Sciences of Stanford University. She is currently a Special Assistant to the Board of Trustees of Stanford University. She has served on the board of directors of The Brown Group, Inc. from 1985 to the present, as a director of the James Irvine Foundation from 1990 to the present, and as a trustee of the San Francisco Foundation from 1984 to November 1991. She was a member of the board of trustees of Smith College from 1978 to 1985, and chairman of that board from 1982 to 1985. Betty Lou Maloney has been a Director of the Company since July 1975 and Assistant Secretary of the Company since August 1980. 21 23 James B. McClatchy is Chairman of the Company's Board of Directors, having been elected to that position in April 1989; he also held that position from August 1980 through July 1987. He has served as the Company's Publisher from July 1987 to the present. Mr. McClatchy was a Director of the Company from 1943 through 1965, was again elected a Director in March 1976 and has served in that capacity since that time. He is a former owner and publisher of several weekly newspapers in California and Nevada. He is a board member and past president of the Inter-American Press Association and board chairman and director of the French American International School. William Ellery McClatchy has been a Director of the Company since March 1976 and Assistant Secretary since August 1980. Erwin Potts has been the President of the Company since July 1987, its chief executive officer since April 1989 and its chief operating officer since 1985. He was the Company's Executive Vice President from March 1985 through July 1987, and a Vice President from March 1979 through March 1985. In addition, Mr. Potts has served as a Director of the Company since March 1976. He is a member of the advisory board of the John S. Knight Fellowship at Stanford University, and was a member of the advisory board of University of North Carolina School of Journalism from 1989 to 1992. He is a director of the Newspaper Association of America and a director of the Sacramento Regional Foundation. S. Donley Ritchey has been a Director of the Company since July 1985. He retired from Lucky Stores, Inc. in 1986, where he was chief executive officer and chairman of its board of directors. Mr. Ritchey is a director of Pacific Telesis Group, The Brown Group, Inc., Spreckels Industries, Inc., Hughes Markets, Inc., De La Salle Institute and the Rosenberg and East Bay Community Foundations. He was elected to the city council of the town of Danville, California in November 1987 and is currently Mayor of Danville. William M. Roth has been a Director of the Company since September 1980. He was chief financial officer for Matson Navigation Company from 1952 to 1961, chairman of the board of Pacific Life Assurance Company from 1960 to 1963, and U.S. Ambassador and Special Trade Representative from 1963 to 1969. He was a member of the University of California Board of Regents for 16 years. Mr. Roth is president of Roth Properties, a family controlled investment management company. Frederick R. Ruiz has been a Director of the Company since July 1993. He is chairman and chief executive officer of Ruiz Foods, Inc., a family-owned frozen food manufacturer, having been a co-founder with his father of that business in 1964. He has served on the board of directors of Gottschalks, Inc. since 1992. In 1992, Mr. Ruiz' company received the U.S. Small Business Association's National Entrepreneurial Success Award and was inducted into the SBA Hall of Fame in Washington, D.C. Mr. Ruiz is a member of the board of the College of the Sequoias Foundation; a member of the President's Advisory Board, Business Advisory Council of the School of Business, and Board of Governor's Foundation, and past chairman of the Valley Business Center, School of Business, all at California State University, Fresno. He is a member of the board of trustees of Valley Children's Hospital, Fresno, and serves on the boards of the American Frozen Food Institute, California Hispanic Business College Fund, and is a review board member for the U.S. Military Academy, as well as a member of the steering committee of the Valley Business Conference. James P. Smith is Vice President, Finance and Treasurer of the Company. He has been a Director of the Company since March 1982. He was named Vice President, Finance in December 1985 and Treasurer in July 1980. Prior to that time he had served as Assistant Treasurer. Mr. Smith served as Secretary from July 1980 through January 1987. Mr. Smith has been the Company's chief financial officer since 1980. H. Roger Tatarian has been a Director of the Company since March 1982. He was employed by United Press International from 1938 through 1972, and was its vice president and editor-in-chief from 1963 through 1972. From 1972 until 1987 he was a professor of journalism and since 1987 he has been professor emeritus of journalism at California State University, Fresno. He was a trustee, New York Correspondents Fund, 1969 through 1972; Board of Governors, Overseas Press Club, 1968 through 1969; member, Western Region Advisory Board, American Press Institute, 1981 through 1984; and Consultant to the U.S. National Commission for UNESCO, 1978 through 1982. Peter M. CaJacob has been Vice President, Human Resources since December 1993. He joined the Company as Director of Human Resources in February of 1990. Prior to that he held a variety of positions 22 24 in personnel, labor relations and employee relations for Whirlpool Corporation, Aerojet-General Corporation and GenCorp Automotive during the past 25 years. Gregory E. Favre has been Vice President, News of the Company since January 1990 and Executive Editor of The Sacramento Bee since 1984. Prior to that he was managing editor of the Chicago Sun Times and managing editor of the Chicago Daily News. He was named California's Newspaper Executive of the Year by the California Newspaper Publishers Association in 1993. Mr. Favre is incoming president (April 1, 1994) of the American Society of Newspaper Editors. He served as president of the California Society of Newspaper Editors during the 1988-1989 term. SELLING STOCKHOLDERS The following table sets forth certain information regarding the Selling Stockholders' actual or deemed beneficial ownership of the Company's Class A Common Stock as of March 17, 1994:
BENEFICIAL OWNERSHIP PRIOR BENEFICIAL OWNERSHIP AFTER TO OFFERING(2) OFFERINGS(3) ---------------------------- ---------------------------- PERCENT OF PERCENT OF CLASS A CLASS A NUMBER OF COMMON CLASS A SHARES NUMBER OF COMM0N SELLING STOCKHOLDERS(1) SHARES STOCK TO BE SOLD SHARES STOCK - ------------------------------ ------------ ------------ -------------- ------------ ----------- The Central Valley Foundation.................. 500,000 9.3% 500,000 -- -- James B. McClatchy(4)......... 13,172,198 71.3% 50,000 13,122,198 68.1% William Briggs McClatchy...... 290,000 5.1% 10,000 280,000 5.0% Betty Lou Maloney(5).......... 1,503,750 21.9% 20,000 1,483,750 21.6% Charles Kennan McClatchy 1993 Trust(6)............... 249,600 4.4% 25,000 224,600 4.0% Kevin S. McClatchy............ 386,375 6.7% 20,000 366,375 6.4%
- --------------- (1) All addresses: c/o McClatchy Newspapers, Inc., P.O. Box 15779, Sacramento, CA 95852-0779 except the address of The Central Valley Foundation which is 235 Montgomery St., 11th Floor, San Francisco, CA 94104. (2) To the Company's knowledge, the persons named in the table have sole voting and investment power with respect to all shares of Class B Common Stock shown as beneficially owned by them, subject to community property laws where applicable and the information contained in the footnotes to this table. (3) Assumes the Underwriters' over-allotment option is not exercised. (4) Includes: (i) 10,000,000 shares held under five separate trusts each with 2,000,000 shares and different income beneficiaries. James B. McClatchy, William Ellery McClatchy, William K. Coblentz, William M. Roth and Erwin Potts share joint voting and investment control with respect to these trusts. James B. McClatchy disclaims beneficial ownership of all but the 2,000,000 shares in one such trust as to which he has a present income interest; and (ii) 1,078,865 shares over which James B. McClatchy, William Ellery McClatchy and William K. Coblentz share joint voting and investment control as Co-Executors under the will of Charles K. McClatchy, deceased. James B. McClatchy disclaims beneficial ownership of these shares. (5) Includes 3,750 shares subject to stock options which are currently exercisable. (6) Of the 249,600 shares held by the trust, 49,600 shares are held by a revocable trust pursuant to which Charles Kennan McClatchy and D.B. Craig, Jr., as trustee, share voting and dispositive power, and 200,000 shares are held by a stock trust pursuant to which D.B. Craig, Jr., as trustee, has sole voting and dispositive power. DESCRIPTION OF CAPITAL STOCK The authorized capital stock of the Company consists of 50,000,000 shares of Class A Common Stock, $0.01 par value, and 30,000,000 shares of Class B Common Stock, $0.01 par value. As of May 2, 1994, there were 5,412,903 shares of Class A Common Stock outstanding held by 1,267 stockholders and 23,451,789 shares of Class B Common Stock outstanding held by 24 stockholders. Effective on the date of this Prospectus, the holders of 45,000 shares of Class B Common Stock will convert such shares into Class A Common Stock for sale to the Underwriters. 23 25 CLASS A COMMON STOCK AND CLASS B COMMON STOCK The Transfer Agent and Registrar for the Class A and Class B Common Stock is the Chemical Trust Company of California. Each share of Class B Common Stock is convertible at any time at the option of the holder into Class A Common Stock on a share-for-share basis. Voting Rights 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). Holders of Class A Common Stock and Class B Common Stock are not entitled to vote cumulatively for the election of Directors. Immediately following this offering, the holders of Class B Common Stock will retain effective control of the Company through holding approximately 97% of the combined voting power of the outstanding Common Stock and the ability to elect nine of the thirteen members of the Board. Directors may be removed with or without cause by holders of the class of stock that elected them or with cause by the Board of Directors. A vacancy on the Board created by the removal or resignation of a Director or by the expansion of the authorized number of Directors may be filled by the remaining Directors then in office. The holders of Class A Common Stock and Class B Common Stock are entitled to vote as separate classes on any modifications to the rights of either class of stock and as otherwise required by law. Dividends Shares of Class A and Class B Common Stock are entitled to receive dividends if, as and when declared by the Board of Directors of the Company. Dividends must be paid on both the Class A Common Stock and the Class B Common Stock at any time that dividends are paid on either. Any dividend so declared and payable in cash, capital stock of the Company (other than Class A Common Stock or Class B Common Stock) or other property will be paid equally, share for share, on the Class B Common Stock and Class A Common Stock. Dividends and distributions payable in shares of Class B Common Stock may be paid only on shares of Class B Common Stock, and dividends and distributions payable in shares of Class A Common Stock may be paid only on shares of Class A Common Stock. Pursuant to any such dividend or distribution, each share of Class B Common Stock will receive a number of shares of Class B Common Stock equal to the number of shares of Class A Common Stock payable on each share of Class A Common Stock. In the event of the liquidation, dissolution or winding up of the Company, holders of the shares of Class A Common Stock and Class B Common Stock are entitled to share equally, share for share, in the assets available for distribution. AGREEMENT AMONG CLASS B STOCKHOLDERS The owners of all outstanding shares of Class B Common Stock of the Company have entered into an agreement to continue until the year 2047, in which they have agreed, for themselves, their successors and assigns that, subject to certain exceptions, no one of them may make any transfer of any shares of Class B Common Stock (unless such shares are, as generally permitted by the agreement, first converted into Class A Common Stock) except to one or more "Permitted Transferees." For purposes of the agreement, a Permitted Transferee is any current holder of Class B Common Stock of the Company; any lineal descendant of Charles Kenny McClatchy (1858-1936), founder of the predecessor of the Company; or a trust for the exclusive benefit of, or in which all of the remainder beneficial interests are owned by, one or more of such lineal descendants. In the event that a party to the agreement attempts to transfer any shares of Class B Common Stock or any interest therein in violation of the agreement, or upon the happening of certain other events enumerated in the agreement as "Option Events," the remaining parties will acquire options to purchase the Class B Common Stock of the party attempting to transfer the same or otherwise affected by the 24 26 particular Option Event. Such options to purchase will entitle each remaining party to purchase that number of shares of Class B Common Stock which is proportionate to that party's respective holdings of Class B Common Stock prior to such purchase. If all such shares are not purchased proportionately, those holders who do exercise options will have an opportunity to purchase the remainder, again in a proportional manner. If less than all shares are purchased, the Company will have the option to purchase the remaining shares. In general, any shares not so purchased pursuant to this procedure may thereafter be converted into shares of Class A Common Stock and then transferred freely (unless following such 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 intent of the foregoing agreement is to preserve family control of the Company. Such agreement may be terminated by the vote of the holders of 80% of the outstanding shares of Class B Common Stock who are subject to such agreement. 25 27 UNDERWRITING Subject to the terms and conditions of the Underwriting Agreement, the Company and the Selling Stockholders have agreed to sell to each of the Underwriters named below, and each of such Underwriters, for whom Goldman, Sachs & Co. and Merrill Lynch, Pierce, Fenner & Smith Incorporated are acting as representatives, has severally agreed to purchase from the Company and the Selling Stockholders, the respective number of shares of Class A Common Stock set forth opposite its name below:
NUMBER OF SHARES OF CLASS A UNDERWRITER COMMON STOCK ------------------------------------------------------------ ---------------- Goldman, Sachs & Co......................................... Merrill Lynch, Pierce, Fenner & Smith Incorporated.................................... ---------------- Total............................................. 1,375,000 ---------------- ----------------
Under the terms and conditions of the Underwriting Agreement, the Underwriters are committed to take and pay for all the shares offered hereby, if any are taken. The Underwriters propose to offer the shares of Class A Common Stock in part directly to the public at the initial public offering price set forth on the cover page of this Prospectus, and in part to certain securities dealers at such price less a concession of $ per share. The Underwriters may allow, and such dealers may reallow, a concession not in excess of $ per share to certain brokers and dealers. After the shares of Class A Common Stock are released for sale to the public, the offering price and other selling terms may from time to time be varied by the representatives. The Company has granted the Underwriters an option exercisable for 30 calendar days after the date of this Prospectus to purchase up to an aggregate of 206,250 additional shares of Class A Common Stock to cover over-allotments, if any. If the Underwriters exercise their over-allotment option, the Underwriters have severally agreed, subject to certain conditions, to purchase approximately the same percentage thereof that the number of shares to be purchased by each of them, as shown in the foregoing table, bears to the 1,375,000 shares of Class A Common Stock offered hereby. The Underwriters may exercise such option only to cover over-allotments made in connection with the sale of the 1,375,000 shares of Class A Common Stock offered hereby. The Company, the Selling Stockholders and officers and directors of the Company who, after the offering, will hold in the aggregate approximately 4,606,500 shares of Class A and Class B Common Stock (including 188,075 shares subject to currently exercisable stock options), have agreed not to offer, sell or otherwise dispose of any shares of capital stock of the Company for a period of 120 days after the date of this Prospectus without the prior written consent of the representatives of the Underwriters, except that the Company may, without such consent, grant options or issue shares of Class A Common Stock under its stock option plans and employee stock purchase plan. Certain other holders of 17,936,057 shares of Class B Common Stock have agreed not to offer, sell or otherwise dispose of any shares of capital stock of the Company for a period of 90 days after the date of this Prospectus without the prior written consent of the representatives of the Underwriters. The Company and the Selling Stockholders have agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act of 1933. LEGAL MATTERS The legality of the issuance of the shares of Class A Common Stock offered hereby is being passed upon for the Company and the Selling Stockholders by Pillsbury Madison & Sutro, San Francisco and Menlo Park, California. Certain legal matters in connection with the Class A Common Stock offered hereby are being passed upon for the Underwriters by Wilson, Sonsini, Goodrich & Rosati, Professional Corporation, Palo Alto, California. 26 28 EXPERTS The Consolidated Financial Statements of the Company as of December 31, 1993 and 1992 and for each of the three years in the period ended December 31, 1993 included and incorporated by reference in this Prospectus and the related financial statement schedules incorporated by reference in this Prospectus have been audited by Deloitte & Touche, independent auditors, as stated in their reports appearing and incorporated by reference herein and have been so included and incorporated by reference in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing. 27 29 MCCLATCHY NEWSPAPERS, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Report of Deloitte & Touche, Independent Auditors.................................... F-2 Consolidated Statement of Income..................................................... F-3 Consolidated Balance Sheet........................................................... F-4 Consolidated Statements of Cash Flows................................................ F-6 Consolidated Statements of Stockholders' Equity...................................... F-7 Notes to Consolidated Financial Statements........................................... F-8
F-1 30 INDEPENDENT AUDITOR'S REPORT McClatchy Newspapers, Inc.: We have audited the accompanying consolidated balance sheets of McClatchy Newspapers, Inc. and its subsidiaries as of December 31, 1993 and 1992, and the related consolidated statements of income, cash flows and stockholders' equity for each of the three years in the period ended December 31, 1993. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of McClatchy Newspapers, Inc. and its subsidiaries at December 31, 1993 and 1992, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1993 in conformity with generally accepted accounting principles. As discussed in note 2 to the consolidated financial statements, in 1992 the Company changed its method of accounting for income taxes to conform to Statement of Financial Accounting Standards (SFAS) No. 109 and changed its method of accounting for postretirement health care and life insurance benefits to conform to SFAS No. 106. DELOITTE & TOUCHE Sacramento, California February 1, 1994 F-2 31 CONSOLIDATED STATEMENT OF INCOME (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31, ---------------------------------- 1993 1992 1991 -------- -------- -------- REVENUES -- NET: Advertising........................................ $350,046 $345,574 $337,372 Circulation........................................ 83,729 80,318 74,770 Other.............................................. 15,340 14,355 14,686 -------- -------- -------- TOTAL......................................... 449,115 440,247 426,828 -------- -------- -------- OPERATING EXPENSES: Compensation....................................... 199,743 199,295 188,791 Newsprint and supplements.......................... 60,639 59,501 74,562 Depreciation and amortization...................... 35,583 33,560 29,929 Other operating expenses........................... 88,046 85,968 84,339 -------- -------- -------- TOTAL......................................... 384,011 378,324 377,621 -------- -------- -------- OPERATING INCOME........................................ 65,104 61,923 49,207 NONOPERATING EXPENSES (INCOME): Interest expense................................... 118 920 1,157 Partnership losses................................. 6,171 6,674 4,193 Other -- net....................................... (101) 71 1,690 -------- -------- -------- TOTAL......................................... 6,188 7,665 7,040 -------- -------- -------- INCOME BEFORE INCOME TAX PROVISION AND CUMULATIVE EFFECTS OF ACCOUNTING CHANGES......................... 58,916 54,258 42,167 Income tax provision.................................... 27,118 24,087 18,438 -------- -------- -------- INCOME BEFORE CUMULATIVE EFFECTS OF ACCOUNTING CHANGES.. 31,798 30,171 23,729 Cumulative effects of accounting changes................ -- (341) -- -------- -------- -------- NET INCOME.............................................. $ 31,798 $ 29,830 $ 23,729 -------- -------- -------- -------- -------- -------- EARNINGS PER COMMON SHARE: Income before cumulative effects of accounting changes.......................................... $ 1.10 $ 1.05 $ .83 Cumulative effects of accounting changes........... -- (.01) -- -------- -------- -------- NET INCOME PER COMMON SHARE........................ $ 1.10 $ 1.04 $ .83 -------- -------- -------- -------- -------- -------- WEIGHTED AVERAGE NUMBER OF COMMON SHARES................ 28,879 28,754 28,664
See notes to consolidated financial statements. F-3 32 MCCLATCHY NEWSPAPERS, INC. CONSOLIDATED BALANCE SHEET (IN THOUSANDS, EXCEPT SHARE AMOUNTS) ASSETS
DECEMBER 31, ----------------------- 1993 1992 --------- --------- CURRENT ASSETS: Cash and cash equivalents..................................... $ 42,326 $ 8,658 Trade receivables (less allowances of $1,757 in 1993 and $2,100 in 1992).............................................. 47,859 46,862 Other receivables............................................. 1,456 1,108 Newsprint, ink and other inventories.......................... 10,033 10,130 Deferred income taxes......................................... 9,672 8,143 Other current assets.......................................... 1,843 2,512 --------- --------- TOTAL CURRENT ASSETS..................................... 113,189 77,413 PROPERTY, PLANT AND EQUIPMENT: Land.......................................................... 18,057 17,670 Buildings and improvements.................................... 120,753 119,111 Equipment..................................................... 282,082 265,662 Construction in progress...................................... 15,893 7,977 --------- --------- Total.................................................... 436,785 410,420 Accumulated depreciation........................................... (166,460) (149,272) --------- --------- NET PROPERTY, PLANT AND EQUIPMENT.................................. 270,325 261,148 INTANGIBLES -- NET................................................. 124,662 133,977 INVESTMENT IN NEWSPRINT MILL PARTNERSHIP........................... 3,977 5,437 OTHER ASSETS....................................................... 13,010 13,176 --------- --------- TOTAL ASSETS............................................. $ 525,163 $ 491,151 --------- --------- --------- ---------
See notes to consolidated financial statements. F-4 33 MCCLATCHY NEWSPAPERS, INC. LIABILITIES AND STOCKHOLDERS' EQUITY
DECEMBER 31, --------------------- 1993 1992 -------- -------- CURRENT LIABILITIES: Accounts payable................................................ $ 14,043 $ 10,474 Accrued compensation............................................ 26,324 22,902 Income taxes.................................................... 1,117 30 Unearned revenue................................................ 10,560 9,833 Carrier deposits................................................ 3,055 3,006 Other accrued liabilities....................................... 8,281 7,352 -------- -------- TOTAL CURRENT LIABILITIES.................................. 63,380 53,597 LONG-TERM OBLIGATIONS................................................ 14,213 23,901 DEFERRED INCOME TAXES................................................ 64,047 55,354 COMMITMENTS AND CONTINGENCIES (NOTE 9) STOCKHOLDERS' EQUITY: Common stock, $.01 par value: Class A -- authorized 50,000,000 shares, issued 5,100,450 in 1993 and 4,585,370 in 1992................................... 51 46 Class B -- authorized 30,000,000 shares, issued 24,503,789 in 1993 and 24,946,789 in 1992.................................. 238 242 Additional paid-in capital...................................... 39,472 38,272 Retained earnings............................................... 344,133 320,110 Treasury stock, 20,000 Class A shares, and 750,000 Class B...... (371) (371) -------- -------- TOTAL STOCKHOLDERS' EQUITY................................. 383,523 358,299 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................. $525,163 $491,151 -------- -------- -------- --------
F-5 34 MCCLATCHY NEWSPAPERS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, ---------------------------------- 1993 1992 1991 -------- -------- -------- CASH PROVIDED (USED) BY OPERATING ACTIVITIES: Net income............................................ $ 31,798 $ 29,830 $ 23,729 Reconciliation to net cash provided: Depreciation and amortization...................... 35,778 33,751 30,180 Deferred income taxes.............................. 7,164 5,940 5,819 Partnership losses................................. 6,171 6,674 4,193 Cumulative effect of changes in accounting: Postretirement benefit........................ -- 4,627 -- Income taxes.................................. -- (4,286) -- Changes in certain current assets and liabilities -- net............................... 9,204 4,365 (1,938) Other.............................................. 599 (4,923) (208) -------- -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES............... 90,714 75,978 61,775 CASH PROVIDED (USED) BY INVESTING ACTIVITIES: Purchase of property, plant and equipment............. (35,851) (29,476) (41,574) Investment in newsprint mill partnership.............. (4,711) (3,780) (3,882) Acquisition of newspaper operations................... -- (3,755) (47) Other -- net.......................................... 188 (4,486) 617 -------- -------- -------- NET CASH USED BY INVESTING ACTIVITIES................... (40,374) (41,497) (44,886) CASH PROVIDED (USED) BY FINANCING ACTIVITIES: Repayment of long-term debt........................... (10,072) (25,092) (15,792) Payment of cash dividends............................. (7,775) (6,182) (5,736) Other................................................. 1,175 1,249 1,193 -------- -------- -------- NET CASH USED BY FINANCING ACTIVITIES................... (16,672) (30,025) (20,335) -------- -------- -------- NET CHANGE IN CASH AND CASH EQUIVALENTS................. 33,668 4,456 (3,446) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR............ 8,658 4,202 7,648 -------- -------- -------- CASH AND CASH EQUIVALENTS, END OF YEAR.................. $ 42,326 $ 8,658 $ 4,202 -------- -------- -------- -------- -------- -------- OTHER CASH FLOW INFORMATION: Cash paid during the year for: Interest (net of amount capitalized).................. $ 118 $ 1,086 $ 1,225 Income taxes (net of refunds)......................... 18,448 20,625 13,587
See notes to consolidated financial statements. F-6 35 MCCLATCHY NEWSPAPERS, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PAR VALUE ADDITIONAL TREASURY ----------------- PAID-IN RETAINED STOCK CLASS A CLASS B CAPITAL EARNINGS AT COST TOTAL ------- ------- ---------- --------- --------- -------- BALANCES, DECEMBER 31, 1990.............. $44 $ 243 $ 35,801 $ 278,469 $(371) $314,186 Net income............................... 23,729 23,729 Dividends paid ($.20 per share).......... (5,736) (5,736) Conversion of 22,000 Class B shares to Class A................................ -- -- Issuance of 80,408 Class A shares under employee stock plans................... 1 1,192 1,193 ------- ------- ---------- --------- --------- -------- BALANCES, DECEMBER 31, 1991.............. 45 243 36,993 296,462 (371) 333,372 Net income............................... 29,830 29,830 Dividends paid ($.215 per share)......... (6,182) (6,182) Conversion of 26,000 Class B shares to Class A................................ 1 (1) Issuance of 78,391 Class A shares under employee stock plans................... 1,279 1,279 Receipt of 750,000 Class B treasury shares from trust...................... -- -- ------- ------- ---------- --------- --------- -------- BALANCES, DECEMBER 31, 1992.............. 46 242 38,272 320,110 (371) 358,299 Net income............................... 31,798 31,798 Dividends paid ($.27 per share).......... (7,775) (7,775) Conversion of 443,000 Class B shares to Class A................................ 4 (4) Issuance of 72,080 Class A shares under employee stock plans................... 1 1,200 1,201 ------- ------- ---------- --------- --------- -------- BALANCES, DECEMBER 31, 1993.............. $51 $ 238 $ 39,472 $ 344,133 $(371) $383,523 ------- ------- ---------- --------- --------- -------- ------- ------- ---------- --------- --------- --------
See notes to consolidated financial statements. F-7 36 MCCLATCHY NEWSPAPERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SIGNIFICANT ACCOUNTING POLICIES McClatchy Newspapers, Inc. and its subsidiaries (the "Company") are engaged primarily in the publication of newspapers. The consolidated financial statements include the accounts of the Company and its subsidiaries. Significant intercompany items and transactions have been eliminated. Revenue recognition -- Advertising revenues are recorded when the advertisement is 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 various high-credit-quality institutions and are currently invested in the highest rated commercial paper and government securities. Accounts receivable are with customers located primarily in the immediate area of each city of publication. The Company routinely assesses the financial strength of significant customers and this assessment, combined with the large number and geographic diversity of its customers, limits the Company's concentration of risk with respect to trade accounts receivable. Inventories are stated at the lower of cost (based principally on the last-in, first-out method) or current market value. If the first-in, first-out method of inventory accounting had been used, inventories would have increased by $1,460,000 at December 31, 1993 and $1,124,000 at December 31, 1992. Property, plant and equipment are stated at cost. Major renewals and betterments, as well as interest incurred during construction, are capitalized. Such interest aggregated $5,000 in 1993, $376,000 in 1992 and $2,715,000 in 1991. Depreciation is computed generally on a straight-line basis over estimated useful lives of: - 10 to 60 years for buildings - 9 to 20 years for presses - 3 to 10 years for other equipment Intangibles consist of the unamortized excess of the cost of acquiring newspaper operations over the fair market values of the newspapers' tangible assets at the date of purchase. Identifiable intangible assets, consisting primarily of lists of advertisers and subscribers, covenants not to compete and commercial printing contracts, are amortized over periods ranging from three to twenty-five years. The excess of purchase prices over identifiable assets is amortized over forty years. Management periodically evaluates the recoverability of intangible assets by reviewing the current and projected profitability of its newspaper operations. Deferred income taxes result from temporary differences between amounts reported for financial and income tax reporting purposes. See note 2. Earnings per share are based upon the weighted average number of outstanding shares of common stock and common stock equivalents (stock options -- see note 10). Prior to 1992 shares issued excluded 750,000 Class B shares which were held in a trust in which the Company had a vested income and remainder interest. Upon the dissolution of the trust in 1992 the shares were returned to the Company and included in treasury stock at no cost. These shares have been excluded from weighted average shares outstanding for all periods. F-8 37 MCCLATCHY NEWSPAPERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. CUMULATIVE EFFECTS OF ACCOUNTING CHANGES Effective January 1, 1992, the Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes". Under SFAS 109, deferred income tax assets and liabilities reflect the future tax consequences, based on enacted tax laws, of temporary differences between financial and tax reporting existing at the balance sheet date. The actual effects of tax law changes are recognized when enacted. Prior to SFAS 109, deferred income taxes were determined using tax rates in effect when differences relating to revenues and expenses arose between financial and tax reporting. The cumulative effect of this change reduced deferred tax liabilities and increased 1992 net income by $4,286,000 or $.15 per share. This change had no significant effect on the income tax provision for 1992, and when considered with the other change described below, did not have a material impact on net earnings in 1992. The Company also adopted the provisions of SFAS No. 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions" effective January 1, 1992. The Statement requires the accrual of postretirement health care and life insurance benefits over employees' service periods rather than expensing these costs on a pay-as-you-go basis. The cumulative effect of this change increased long-term obligations by $7,592,000, decreased deferred income tax liabilities by $2,965,000 and reduced 1992 net income by $4,627,000 or $.16 per share. 3. INVESTMENT IN NEWSPRINT MILL PARTNERSHIP A wholly-owned subsidiary of the Company owns a 13.5% interest in Ponderay Newsprint Company ("Ponderay"), a general partnership formed to construct and operate a newsprint mill in the State of Washington. The Company guarantees $16,875,000 of bank debt provided by a consortium of 11 foreign and domestic banks to construct the mill. At December 31, 1993, Ponderay borrowings bore interest at rates averaging 7.27%. The debt is due in quarterly installments through March 1, 2001 and is collateralized by the assets of Ponderay. The debt is subject to certain restrictive covenants regarding contractual obligations of Ponderay and its partners. The Company has committed to take 28,400 metric tons of annual production on a "take-if-tendered" basis until the debt is repaid. The Company purchased $12,079,000, $12,700,000 and $16,526,000 of newsprint from Ponderay in 1993, 1992 and 1991, respectively. Summarized financial data for the years ended December 31, 1993, 1992 and 1991 for Ponderay's operations are as follows (in thousands):
1993 1992 1991 --------- --------- --------- FINANCIAL POSITION: Current assets............................... $ 19,624 $ 18,361 $ 19,249 Property, plant and equipment................ 304,315 321,065 336,343 Other assets................................. 5,690 10,075 15,326 --------- --------- --------- TOTAL ASSETS......................... $ 329,629 $ 349,501 $ 370,918 --------- --------- --------- --------- --------- --------- Current liabilities.......................... $ 33,761 $ 27,516 $ 17,416 Long-term liabilities........................ 267,331 282,636 292,717 Partners' capital............................ 28,537 39,349 60,785 --------- --------- --------- TOTAL LIABILITIES AND PARTNERS' CAPITAL............................ $ 329,629 $ 349,501 $ 370,918 --------- --------- --------- --------- --------- --------- RESULTS OF OPERATIONS: Revenues.................................. $ 94,375 $ 89,807 $ 112,295 Net loss.................................. 45,713 49,435 31,058
F-9 38 MCCLATCHY NEWSPAPERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. LONG-TERM OBLIGATIONS Long-term obligations consist of (in thousands):
DECEMBER 31, ---------------------- 1993 1992 -------- -------- Long-term debt: Bank credit agreement............................... $ 10,000 Other debt.......................................... $ 60 164 -------- -------- Total............................................... 60 10,164 Less current portion................................ 60 92 -------- -------- Total long-term debt................................ -- 10,072 Postretirement benefits obligation.................... 9,142 8,808 Other long-term obligations........................... 5,071 5,021 -------- -------- Total long-term obligations........................... $ 14,213 $ 23,901 -------- -------- -------- --------
Long-term obligations mature as follows (in thousands): 1995.............................. $ 1,068 1996.............................. 1,004 1997.............................. 636 1998.............................. 406 Thereafter........................ 11,099 -------- Total............................. $ 14,213 -------- --------
The Company's cash reserves and expected cash flows are sufficient for its near term needs. Accordingly, the Company terminated its bank credit agreement at the end of 1993. The Company has an outstanding letter of credit for $5,860,000. Other long-term obligations consist primarily of deferred compensation and supplemental retirement benefits. 5. INCOME TAX PROVISIONS On January 1, 1992 the Company adopted SFAS 109. The impact of this change is discussed in note 2. Income tax provisions consist of (in thousands):
YEAR ENDED DECEMBER 31, ------------------------------- 1993 1992 1991 ------- ------- ------- Current: Federal........................................... $16,212 $14,692 $11,168 State............................................. 3,742 3,455 1,451 Deferred: Federal........................................... 6,663 5,963 5,552 State............................................. 501 (23) 267 ------- ------- ------- Income tax provision................................ $27,118 $24,087 $18,438 ------- ------- ------- ------- ------- -------
F-10 39 MCCLATCHY NEWSPAPERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Deferred income tax provisions result from (in thousands):
YEAR ENDED DECEMBER 31, ------------------------------ 1993 1992 1991 ------- ------- ------ Depreciation and amortization........................ $ 5,441 $ 3,982 $2,613 Newsprint mill partnership........................... 2,445 2,191 2,183 Deductible deposits.................................. -- 2,205 -- State taxes.......................................... (10) (295) 696 Deferred compensation................................ (1,617) (1,979) (719) Other................................................ 905 (164) 1,046 ------- ------- ------ Total................................................ $ 7,164 $ 5,940 $5,819 ------- ------- ------ ------- ------- ------
The effective tax rate and the statutory federal income tax rate are reconciled as follows:
YEAR ENDED DECEMBER 31, ------------------------------ 1993 1992 1991 ---- ---- ---- Statutory rate......................................... 35% 34% 34% State taxes, net of federal benefit.................... 5 4 3 Amortization of intangibles............................ 4 4 5 Impact of retroactive tax rate adjustments............. 1 -- -- Other.................................................. 1 2 2 ---- ---- ---- Effective rate......................................... 46% 44% 44% ---- ---- ---- ---- ---- ----
On August 2, 1993 new federal tax legislation was enacted which, among other things, increased the federal corporate tax rate to 35% from 34%, retroactive to January 1, 1993. The liability method of accounting for taxes requires that the effect of this rate increase on current and cumulative deferred taxes be reflected in the period in which the law was enacted. Accordingly, the Company recorded an adjustment of $1,088,000 in the third quarter. Of this amount, $239,000 related to higher taxes on earnings through June 30, 1993 and $849,000 was required to revalue deferred taxes at January 1, 1993. The components of deferred tax liabilities (benefits) recorded in the Company's Consolidated Balance Sheet on December 31, 1993 and 1992 are (in thousands):
1993 1992 -------- ------- Depreciation and amortization......................... $ 45,517 $40,076 Partnership losses.................................... 10,971 8,526 Deductible deposits................................... 3,954 3,954 State taxes........................................... 1,689 1,699 Deferred compensation................................. (11,321) (9,704) Other................................................. 3,565 2,660 -------- ------- Deferred tax liability (net of $9,672 in 1993 and $8,143 in 1992 reported as current assets).......... $ 54,375 $47,211 -------- ------- -------- -------
The tax asset above for deferred compensation includes $2,965,000 in 1992 which was allocated to the cumulative effect of adopting a change in the method of accounting for postretirement benefits as discussed in note 2. See note 9 for a discussion of tax assessments. F-11 40 MCCLATCHY NEWSPAPERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. INTANGIBLES Intangibles consist of (in thousands):
DECEMBER 31, --------------------- 1993 1992 -------- -------- Identifiable intangible assets, primarily customer lists.............................................. $132,881 $133,403 Excess purchase prices over identifiable assets...... 64,560 64,560 -------- -------- Total................................................ 197,441 197,963 Less accumulated amortization........................ 72,779 63,986 -------- -------- Intangibles -- net................................... $124,662 $133,977 -------- -------- -------- --------
7. EMPLOYEE BENEFITS Early retirement charge: In September 1992, the Sacramento and Modesto Bees made available an early retirement program to certain employees. The program ended in October 1992 with 66 employees accepting early retirement. Accordingly, the Company recorded a pretax charge of $2,593,000 in the fourth quarter of 1992. Retirement plans: The Company has a defined benefit pension plan (the "retirement plan") for a majority of its employees. Benefits are based on years of service and compensation. Contributions to the plan are made by the Company in amounts deemed necessary to provide benefits. Plan assets consist primarily of investments in marketable securities including common stocks, bonds and U.S. government obligations, and other interest bearing accounts. The Company also has a supplemental retirement plan to provide key employees with additional retirement benefits. The terms of the plan are generally the same as those of the retirement plan, except that the supplemental retirement plan is limited to key employees and benefits under it are reduced by benefits received under the retirement plan. The accrued pension obligation for the supplemental retirement plan is included in other long-term obligations. The elements of pension costs are as follows (in thousands):
DECEMBER 31, ------------------------------- 1993 1992 1991 ------- ------- ------- Cost of benefits earned during the year............. $ 5,393 $ 5,282 $ 5,123 Interest on projected benefit obligation............ 6,447 5,922 6,788 Return on plan assets -- (gain)..................... (10,231) (7,253) (13,135) Deferred gain -- return on plan assets greater than assumed........................................... 3,787 1,098 5,637 Net amortization and other deferrals................ 2 (384) (521) ------- ------- ------- Net pension cost.................................... $ 5,398 $ 4,665 $ 3,892 ------- ------- ------- ------- ------- -------
Assumptions used for accounting for defined benefit plans were:
DECEMBER 31, -------------------------------------- 1993 1992 1991 ---------- ---------- ---------- Discount rate in determining benefit obligation............................... 7.3% 8.5% 8.5% Expected long-term rate of return on assets................................... 8.5% 9.0% 9.0% Rates of compensation increase............. 4.5%-5.5% 5.5%-6.0% 5.5%-6.0%
F-12 41 MCCLATCHY NEWSPAPERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The plans' funded status and amounts recognized in the Company's Consolidated Balance Sheet at December 31, 1993 and 1992 are as follows (in thousands):
1993 1992 -------------------------- -------------------------- SUPPLEMENTAL SUPPLEMENTAL RETIREMENT RETIREMENT RETIREMENT RETIREMENT PLAN PLAN PLAN PLAN ---------- ------------ ---------- ------------ Actuarial present value of: Vested benefit obligation.................. $ 67,081 $ 2,834 $ 51,629 $ 2,688 ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------ Accumulated benefit obligation............. $ 72,609 $ 2,834 $ 55,757 $ 2,688 ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------ Plan assets at fair value.................... $ 89,219 $ 79,540 Projected benefit obligation................. (94,378) $ (3,780) (78,684) $ (3,461) ---------- ------------ ---------- ------------ Projected benefit (over) under plan assets... (5,159) (3,780) 856 (3,461) Unrecognized net (gains) losses.............. 982 (427) (2,043) (576) Unrecognized prior service cost.............. 3,274 1,628 3,667 1,790 Unrecognized net pension transition asset, amortized over 15 years.................... (4,378) -- (4,925) -- Adjustment required to recognize minimum liability.................................. -- (255) -- (441) ---------- ------------ ---------- ------------ Accrued pension obligation................... $ (5,281) $ (2,834) $ (2,445) $ (2,688) ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------
In 1992, the Company settled pension obligations for future benefits due to employees who retired prior to January 1, 1989 by converting pension assets totalling approximately $22,300,000 to purchased annuities. The Company recognized a pretax gain of $794,000 on the settlement of these obligations. The Company has a Deferred Compensation and Investment Plan ("401(k) plan") which enables qualified employees to voluntarily defer compensation. Company contributions to the 401(k) plan were $3,751,000 in 1993, $3,455,000 in 1992 and $2,987,000 in 1991. POSTRETIREMENT BENEFITS: The Company also provides or subsidizes certain retiree health care and life insurance benefits. On January 1, 1992 the Company began accruing the cost of these benefits over employee's service periods instead of recording them on a pay-as-you-go basis. The impact of this change is discussed in note 2. The elements of postretirement expenses are as follows (in thousands):
DECEMBER 31, ------------------ 1993 1992 ----- ------- Service costs............................................. $ 230 $ 233 Interest costs............................................ 649 645 Transition obligation..................................... -- 7,592 ----- ------- Total postretirement benefits costs....................... $ 879 $ 8,470 ----- ------- ----- -------
F-13 42 MCCLATCHY NEWSPAPERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Assumptions used for accounting for postretirement benefits were:
DECEMBER 31, ---------------------- 1993 1992 ----------- ----- Discount rate in determining benefit obligation.... 7.3% 8.5% Medical care cost trend rate....................... 9.5%-13.25% 14.0%
The plan's funded status and amounts recognized in the Company's Consolidated Balance Sheet at December 31, 1993 and 1992 are as follows (in thousands):
DECEMBER 31, -------------------- 1993 1992 ------- ------- Accumulated postretirement benefit obligation (APBO): Retirees................................................. $ 5,250 $ 5,525 Active eligible employees................................ 789 721 Active ineligible employees.............................. 3,343 2,721 ------- ------- Total APBO............................................... 9,382 8,967 Unrecognized gain........................................ (80) -- ------- ------- Net postretirement benefit liability..................... $ 9,302 $ 8,967 ------- ------- ------- -------
The medical care cost trend rates are expected to decline to about 5.8% by the year 2003. A 1.0% increase in the assumed health care cost trend rate would have increased the APBO by 3.0%, the annual service cost by 13.0% and the annual interest cost by 4.0%. 8. CASH FLOW INFORMATION Cash provided or used by operations was affected by changes in certain current assets and liabilities, net of the effects of acquired newspaper operations, as follows (in thousands):
DECEMBER 31, ----------------------------------- 1993 1992 1991 ------- -------- -------- Increase (decrease) in assets: Receivables.................................... $ 1,345 $ (142) $ 290 Inventories.................................... (97) 1,221 (627) Other current assets........................... (669) (1,795) 2,714 ------- -------- -------- Total..................................... 579 (716) 2,377 Increase (decrease) in liabilities: Accounts payable............................... 3,569 2,103 (4,844) Accrued compensation........................... 3,422 1,109 594 Income taxes................................... 1,087 (2,112) 1,455 Other current liabilities...................... 1,705 2,549 3,234 ------- -------- -------- Total..................................... 9,783 3,649 439 ------- -------- -------- Net cash increase (decrease) from changes in current assets and liabilities.................... $ 9,204 $ 4,365 $ (1,938) ------- -------- -------- ------- -------- --------
F-14 43 MCCLATCHY NEWSPAPERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. COMMITMENTS AND CONTINGENCIES See note 3 for a discussion of the Company's commitments to Ponderay Newsprint Company. The Company and its subsidiaries rent certain facilities and equipment under operating leases expiring at various dates through December 31, 1999. Total rental expense amounted to $1,618,000 in 1993, $1,596,000 in 1992 and $1,649,000 in 1991. Minimum rental commitments under operating leases with noncancelable terms in excess of one year are (in thousands): 1994............................... $ 1,869 1995............................... 1,460 1996............................... 1,128 1997............................... 865 1998............................... 617 Thereafter......................... 207 ------- Total.............................. $ 6,146 ------- -------
State and federal taxing authorities have audited the Company's tax returns for 1982-1987, and have made assessments or proposed adjustments primarily related to the deduction of certain intangible assets and deductions related to discontinued and other non-newspaper operations. The total amount of the proposed adjustments, including interest thereon, is approximately $25,000,000 at December 31, 1993. The Company is protesting the adjustments through the appropriate authorities. While this process is expected to extend over several years and additional assessments for like issues are expected to be forthcoming, the Company believes these adjustments will be reduced in the appeals processes. Pending final resolution of these matters, the Company has deposited, with the applicable tax authorities, a total of $12,592,000 to stop interest accrual on a portion of the adjustments and included this amount in other assets at December 31, 1993. In the opinion of management, adequate provision has been made for any taxes and interest resulting from these assessments and the ultimate outcome of these matters will not have a material adverse effect on the Company's consolidated results of operation or financial position. There are libel and other legal actions that have arisen in the ordinary course of business and are pending against the Company. Management believes, after reviewing such actions with counsel, that the outcome of pending actions will not have a material adverse effect on the Company's consolidated results of operations or financial position. 10. COMMON STOCK AND STOCK PLANS 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. Prior to 1992, shares issued excluded 750,000 Class B shares which were held in a trust in which the Company had a vested income and remainder interest. Upon dissolution of the trust in 1992, the shares were returned to the Company and included in treasury stock. The Company's Amended Employee Stock Purchase Plan (the "Purchase Plan") reserved 1,500,000 shares of Class A common stock for issuance to employees. Eligible employees may purchase shares at 85% of "fair market value" (as defined) through payroll deductions. The Purchase Plan can be F-15 44 MCCLATCHY NEWSPAPERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) automatically terminated by the Company at any time. As of December 31, 1993, 385,518 shares of Class A common stock have been issued under the Purchase Plan. The Company's 1987 Stock Option Plan (the "Employee Plan"), as amended, reserved 600,000 shares of Class A common stock for issuance to key employees. Options are granted at the market price of the Class A common stock on the date of the grant. The options vest in installments over four years, and once vested are exercisable up to ten years from the date of award. Although the Plan permits the Company, at its sole discretion, to settle unexercised options by granting stock appreciation rights (SARS), the Company does not intend to avail itself of this alternative except in limited circumstances. In July 1990, the Company adopted a stock option plan for outside (nonemployee) directors (the "Directors' Plan") providing for the issuance of up to 150,000 shares of Class A Common Stock. Under the Directors' Plan each outside director is granted an option at fair market value at the conclusion of each regular annual meeting of stockholders for 1,500 shares. Terms of the Directors' Plan are similar to the terms of the Employee Plan. Outstanding options are summarized as follows:
EMPLOYEE PLAN DIRECTORS' PLAN -------------------- ------------------- AVERAGE AVERAGE OPTIONS PRICE OPTIONS PRICE -------- ------- ------- ------- Outstanding, December 31, 1990...................... 284,800 $17.43 10,500 $18.25 Granted............................................. 110,400 15.88 10,500 21.50 -------- ------- Outstanding, December 31, 1991...................... 395,200 16.99 21,000 19.88 Granted............................................. 108,600 19.50 10,500 20.75 Exercised........................................... (1,025) 16.00 -- -- Surrendered for SARS................................ (23,500) 15.66 -- -- Forfeited........................................... (9,975) 22.66 -- -- -------- ------- Outstanding, December 31, 1992...................... 469,300 17.52 31,500 20.17 Granted............................................. -- -- 10,500 22.38 Exercised........................................... (4,425) 15.26 -- -- Forfeited........................................... (3,575) 17.78 -- -- -------- ------- Outstanding, December 31, 1993...................... 461,300 17.54 42,000 20.72 -------- ------- -------- -------
In the Employee Plan, there are 220,925 options exercisable as of December 31, 1993. In January 1994, the Company granted 104,500 options to employees using substantially all shares reserved in the plan. In the Directors' Plan 15,750 shares were exercisable at December 31, 1993 and 108,000 available for future awards. On January 26, 1994 the Board of Directors adopted the 1994 Employee Stock Option Plan, subject to stockholder approval, reserving 650,000 Class A shares for issuance to key employees. The terms of this plan are substantially the same as the terms of the Employee Plan and no shares have been granted under the new plan. F-16 45 MCCLATCHY NEWSPAPERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The Company's business is somewhat seasonal, with peak revenues and profits generally occurring in the second and fourth quarters of each year as a result of increased advertising activity during the spring holiday and Christmas periods. The first quarter is historically the weakest quarter for revenues and profits. The Company's quarterly results are summarized as follows (in thousands, except per share amounts):
1ST 2ND 3RD 4TH QUARTER QUARTER QUARTER QUARTER --------- --------- --------- --------- 1993: Revenues -- net............................. $ 105,282 $ 113,458 $ 111,282 $ 119,093 Operating income............................ 10,546 16,962 16,396 21,200 Net income.................................. 4,768 8,514 7,341 11,175 Net income per common share................. .17 .30 .25 .39 1992: Revenues -- net............................. $ 101,292 $ 111,169 $ 110,503 $ 117,283 Operating income............................ 9,881 16,246 16,856 18,940 Income before cumulative effects of accounting changes........................ 4,488 7,831 8,699 9,153 Net income.................................. 4,147 7,831 8,699 9,153 Income per common share before cumulative effects of accounting changes............. .15 .27 .30 .32 Net income per common share................. .14 .27 .30 .32 1991: Revenues -- net............................. $ 99,469 $ 109,399 $ 106,451 $ 111,507 Operating income............................ 6,525 13,999 12,904 15,779 Net income.................................. 2,974 6,263 6,563 7,929 Net income per common share................. .10 .22 .23 .28
See notes 5 and 7 for discussions of charges recorded in the third quarter of 1993 and fourth quarter of 1992 for tax and early retirement expenses, respectively. F-17 46 - ------------------------------------------------------ - ------------------------------------------------------ NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. ------------------------ TABLE OF CONTENTS
PAGE ----- Available Information................ 2 Incorporation of Certain Documents by Reference.......................... 2 Prospectus Summary................... 3 Use of Proceeds...................... 5 Class A Common Stock Price Range, Volume and Dividends............... 5 Capitalization....................... 6 Selected Consolidated Financial Data............................... 7 Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 8 Business............................. 11 Management........................... 21 Selling Stockholders................. 23 Description of Capital Stock......... 23 Underwriting......................... 26 Legal Matters........................ 26 Experts.............................. 27 Index to Consolidated Financial Statements......................... F-1
- ------------------------------------------------------ - ------------------------------------------------------ - ------------------------------------------------------ - ------------------------------------------------------ 1,375,000 SHARES MCCLATCHY NEWSPAPERS, INC. CLASS A COMMON STOCK (PAR VALUE $0.01 PER SHARE) ------------------ PROSPECTUS ------------------ GOLDMAN, SACHS & CO. MERRILL LYNCH & CO. REPRESENTATIVES OF THE UNDERWRITERS - ------------------------------------------------------ - ------------------------------------------------------ 47 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the various expenses in connection with the sale and distribution of the securities being registered hereby, other than underwriting discounts and commissions. All amounts are estimated except the Securities and Exchange Commission registration fee and the New York Stock Exchange fee and the National Association of Securities Dealers, Inc. filing fee.
PAYABLE BY REGISTRANT ---------- SEC registration fee............................................. $ 12,945 NASD filing fee.................................................. 4,238 New York Stock Exchange listing fee.............................. 1,500 Blue sky fees and expenses....................................... 10,000 Accounting fees and expenses..................................... 50,000 Legal fees and expenses.......................................... 100,000 Printing expenses................................................ 25,000 Registrar and transfer agent's fees and expenses................. 5,000 Miscellaneous.................................................... 1,317 ---------- Total.................................................. $210,000 ---------- ----------
The Company intends to pay all expenses of registration, issuance and distribution with respect to shares being sold by Selling Stockholders hereunder, with the exception of underwriting discounts, commissions, stock transfer taxes and any independent legal fees and expenses. ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 145 of the Delaware General Corporation Law permits the Company's board of directors to indemnify any person against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with any threatened, pending or completed action, suit or proceeding in which such person is made a party by reason of his being or having been a director, officer, employee or agent of the Company, in terms sufficiently broad to permit such indemnification under certain circumstances for liabilities (including reimbursement for expenses incurred) arising under the Securities Act of 1933, as amended (the "Act"). The statute provides that indemnification pursuant to its provisions is not exclusive of other rights of indemnification to which a person may be entitled under any by-law, agreement, vote of stockholders or disinterested directors, or otherwise. Article VII of the Company's Restated Certificate of Incorporation provides for indemnification of its directors, officers, employees and other agents to the maximum extent permitted by law. In addition, the Company has entered into separate indemnification agreements with its directors and officers that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers to the fullest extent not prohibited by law. The Underwriting Agreement provides for indemnification by the Underwriters of the Company, its directors and officers, and by the Company of the Underwriters, for certain liabilities, including liabilities arising under the Act, and affords certain rights of contribution with respect thereto. II-1 48 ITEM 16. EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT -------- ------------------------------------------------------------------------------ 1.1 Form of Underwriting Agreement. 5.1 Opinion of Pillsbury Madison & Sutro. 23.1 Consent of Deloitte & Touche. 23.2 Consent of Pillsbury Madison & Sutro (included in Exhibit 5.1). 24.1* Powers of Attorney of certain officers and directors of the Company.
- ------------ * Previously filed. ITEM 17. UNDERTAKINGS Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the "Act"), may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned Company hereby undertakes that for purposes of determining any liability under the Act: (1) the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof; and (3) each filing of the Company's annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-2 49 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, McClatchy Newspapers, Inc. certifies that it has reasonable grounds to believe it meets all of the requirements for filing on Form S-3 and has duly caused this Amendment No. 2 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Sacramento, State of California, on the 5th day of May, 1994. McCLATCHY NEWSPAPERS, INC. By: JAMES B. McCLATCHY* James B. McClatchy Chairman of the Board *By: /s/ JAMES P. SMITH James P. Smith Attorney-in-Fact Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 2 to the Registration Statement has been signed below by the following persons in the capacities and on the 5th day of May, 1994.
SIGNATURE TITLE - ----------------------------------------------- -------------------------------------------- PRINCIPAL EXECUTIVE OFFICERS: JAMES B. McCLATCHY* Publisher and Chairman of the Board James B. McClatchy ERWIN President, Chief Executive Officer and POTTS* Director Erwin Potts PRINCIPAL FINANCIAL OFFICER: /s/ JAMES P. Vice President, Finance, Treasurer and SMITH Director James P. Smith PRINCIPAL ACCOUNTING OFFICER: ROBERT W. BERGER* Controller Robert W. Berger DIRECTORS: BOOTH Director GARDNER* Booth Gardner WILLIAM K. Director COBLENTZ* William K. Coblentz
II-3 50
SIGNATURE TITLE --------- ----- WILLIAM L. HONEYSETT* Executive Vice President ------------------------ William L. Honeysett and Director JOAN F. LANE* Director ------------------------ Joan F. Lane BETTY LOU MALONEY* Director ------------------------ Betty Lou Maloney WILLIAM ELLERY McCLATCHY* Director ------------------------ William Ellery McClatchy S. DONLEY RITCHERY, JR.* Director ------------------------ S. Donley Ritchey, Jr. WILLIAM M. ROTH* Director ------------------------ William M. Roth FREDERICK R. RUIZ* Director ------------------------ Frederick R. Ruiz H. ROGER TATARIAN* Director ------------------------- H. Roger Tatarian *By /s/ JAMES P. SMITH ---------------------------------- James P. Smith Attorney-in-Fact
II-4 EX-1.1 2 UNDERWRITING AGREEMENT 1 EXHIBIT 1.1 MCCLATCHY NEWSPAPERS, INC. CLASS A COMMON STOCK (PAR VALUE $.01 PER SHARE) UNDERWRITING AGREEMENT , 1994 GOLDMAN, SACHS & CO. MERRILL LYNCH, PIERCE, FENNER & SMITH, INCORPORATED As the representatives of the several Underwriters named in Schedule I hereto c/o Goldman, Sachs & Co. 85 Broad Street New York, New York 10004 Dear Sirs: McClatchy Newspapers, Inc., a Delaware corporation (the "Company"), proposes, subject to the terms and conditions stated herein, to issue and sell to the Underwriters named in Schedule I hereto (the "Underwriters") an aggregate of 750,000 shares and, at the election of the Underwriters, up to 206,250 additional shares of Class A Common Stock, $.01 par value ("Stock") of the Company and the stockholders of the Company named in Schedule II hereto (the "Selling Stockholders") propose, subject to the terms and conditions stated herein, to sell to the Underwriters an aggregate of 625,000 shares. The aggregate of 1,375,000 shares to be sold by the Company and the Selling Stockholders is herein called the "Firm Shares" and the aggregate of 206,250 additional shares to be sold by the Company is herein called the "Optional Shares". The Firm Shares and the Optional Shares which the Underwriters elect to purchase pursuant to Section 2 hereof are herein collectively called the "Shares". 1. (a) The Company represents and warrants to, and agrees with, each of the Underwriters that: (i) A registration statement (File No. 33-52475) in respect of the Firm Shares and the Optional Shares has been filed with the Securities and Exchange Commission (the "Commission"); such registration statement and any post-effective amendments thereto, each in the form heretofore delivered to you, and, excluding exhibits thereto but including all documents incorporated by reference in the prospectus contained therein, for each of the other Underwriters, have been declared effective by the Commission in such form; no other document with respect to such registration statement or document incorporated by reference therein has heretofore been filed with the Commission; and no stop order suspending the effectiveness of such registration statement has been issued and no proceeding for that purpose has been initiated or threatened by the Commission (any preliminary prospectus included in such registration statement or filed with the Commission pursuant to Rule 424(a) of the rules and regulations of the Commission under the Securities Act of 1933, as amended (the "Act"), being hereinafter called a "Preliminary Prospectus"; the various parts of such registration statement, including all exhibits thereto and including (i) the information contained in the form of final prospectus filed with the Commission pursuant to Rule 424(b) under the Act in accordance with Section 5(a) hereof and deemed by virtue of Rule 430A under the Act to be part of the registration statement at the time it was declared effective, each as amended at the time such part of the registration statement became effective and (ii) the documents incorporated by reference in the prospectus contained in the registration statement at the time such part of the registration statement became effective, being hereinafter collectively called the "Registration Statement"; such final prospectus, in the form first filed pursuant to Rule 424(b) under the Act, being hereinafter called the "Prospectus") and any reference herein to any Preliminary 2 Prospectus or the Prospectus shall be deemed to refer to and include the documents incorporated by reference therein pursuant to Item 12 of Form S-3 under the Act, as of the date of such Preliminary Prospectus or Prospectus, as the case may be; any reference to any amendment or supplement to any Preliminary Prospectus or the Prospectus shall be deemed to refer to and include any documents filed after the date of such Preliminary Prospectus or Prospectus, as the case may be, under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and incorporated by reference in such Preliminary Prospectus or Prospectus, as the case may be; and any reference to any amendment to the Registration Statement shall be deemed to refer to and include any annual report of the Company filed pursuant to Section 13(a) or 15(d) of the Exchange Act after the effective date of the Registration Statement that is incorporated by reference in the Registration Statement); (ii) No order preventing or suspending the use of any Preliminary Prospectus has been issued by the Commission, and each Preliminary Prospectus, at the time of filing thereof, conformed in all material respects to the requirements of the Act and the rules and regulations of the Commission thereunder, and did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by an Underwriter through you expressly for use therein; (iii) The documents incorporated by reference in the Prospectus, when they became effective or were filed with the Commission, as the case may be, conformed in all material respects to the requirements of the Act or the Exchange Act, as applicable, and the rules and regulations of the Commission thereunder, and none of such documents contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and any further documents so filed and incorporated by reference in the Prospectus or any further amendment or supplement thereto, when such documents become effective or are filed with the Commission, as the case may be, will conform in all material respects to the requirements of the act or the Exchange Act, as applicable, and the rules and regulations of the Commission thereunder and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by an Underwriter through you expressly for use therein; (iv) The Registration Statement conforms, and the Prospectus and any further amendments or supplements to the Registration Statement or the Prospectus will conform, in all material respects to the requirements of the Act and the rules and regulations of the Commission thereunder and do not and will not, as of the applicable effective date as to the Registration Statement and any amendment thereto and as of the applicable filing date as to the Prospectus and any amendment or supplement thereto, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by an Underwriter through you expressly for use therein or by a Selling Stockholder expressly for use in the preparation of the answers therein; (v) Neither the Company nor any of its subsidiaries has sustained since the date of the latest audited financial statements included or incorporated by reference in the Prospectus any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, the effect of which is material to the Company and its subsidiaries considered as a (2) 3 whole otherwise than as set forth or contemplated in the Prospectus; and, since the respective dates as of which information is given in the Registration Statement and the Prospectus, there has not been any change in the capital stock (other than conversions from Class B Common Stock to Class A Common Stock) including the issuance of stock options, warrants or other rights to purchase capital stock, or any increase in long-term or short-term debt of the Company or any of its subsidiaries or any material adverse change, or any development involving a prospective material adverse change, in or affecting the general affairs, management, financial position, stockholders' equity or results of operation of the Company and its subsidiaries considered as a whole, otherwise than as set forth or contemplated in the Prospectus; (vi) The Company and its subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them, in each case free and clear of all liens, encumbrances and defects except such as are described in the Prospectus or such as do not materially affect the value of such property in the aggregate and do not interfere in any material respect with the use made and proposed to be made of such property by the Company and its subsidiaries; and any real property and buildings held under lease by the Company and its subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its subsidiaries; (vii) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware, with power and authority (corporate and other) to own its properties and conduct its business as described in the Prospectus, and has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties, or conducts any business, so as to require such qualification, except where the failure to be so qualified would not have a material adverse effect on the Company and its subsidiaries considered as a whole; and each subsidiary of the Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation; (viii) The Company has an authorized capitalization as set forth in the Prospectus, and all of the issued shares of capital stock of the Company have been duly and validly authorized and issued, are fully paid and non-assessable and conform to the description of the capital stock contained in the Prospectus; and all of the issued shares of capital stock of each subsidiary of the Company have been duly and validly authorized and issued, are fully paid and non-assessable and are owned directly or indirectly by the Company, free and clear of all liens, encumbrances, equities or claims; (ix) The Shares to be issued and sold by the Company hereunder have been duly and validly authorized and, when delivered against payment therefor as provided herein, will be duly and validly issued and fully paid and non-assessable and will conform to the description of the Stock contained in the Prospectus and no preemptive rights of stockholders will exist with respect to any of the Shares or the sale thereof at each Time of Delivery (as defined in Section 4 below); (x) The sale of the Firm Shares and Optional Shares by the Company and the performance of this Agreement and the consummation of the transactions herein contemplated will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other material agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject, nor will such action result in any violation of the provisions of the Certificate of Incorporation or Bylaws of the Company or any statute or any (3) 4 order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any of its subsidiaries or any of their properties; and no consent, approval, authorization, order, registration or qualification of or with any such court or governmental agency or body is required for the issue and sale of the Shares or the consummation by the Company of the transactions contemplated by this Agreement, except the registration under the Act of the Shares, compliance with the applicable requirements of the New York Stock Exchange (the "Exchange") and such consents, approvals, authorizations, registrations or qualifications as may be required under state securities or Blue Sky laws in connection with the purchase and distribution of the Shares by the Underwriters; (xi) Other than as set forth in the Prospectus, there are no legal or governmental proceedings pending to which the Company or any of its subsidiaries is a party or of which any property of the Company or any of its subsidiaries is the subject which, if determined adversely to the Company or any of its subsidiaries, would individually or in the aggregate have a material adverse effect on the consolidated financial position, stockholders' equity or results of operations of the Company and its subsidiaries; to the best of the Company's knowledge, no such proceedings are threatened or contemplated by governmental authorities or threatened by others; and there is no strike or other labor dispute involving the Company pending, or to the knowledge of the Company, threatened which, individually or in the aggregate, would have a material adverse effect on the consolidated financial position, stockholders' equity or results of operations of the Company and its subsidiaries; (xii) Neither the Company nor any of its affiliates does business with the government of Cuba or with any person or affiliate located in Cuba within the meaning of Section 517.075 of Florida Statutes (Chapter 92-198, Laws of Florida); (xiii) Deloitte & Touche, who have audited certain financial statements of the Company and its subsidiaries, are independent public accountants as required by the Act and the rules and regulations of the Commission thereunder; and (xiv) The Company and its subsidiaries own or possess adequate licenses or other rights to use all patents, trademarks, service marks, trade names, copyrights and know-how necessary to conduct the business now or proposed to be conducted by them as described in the Prospectus, and neither the Company nor any of its subsidiaries has received notice of infringement of or conflict with (and knows of no such infringement or conflict with) asserted rights of others with respect to any patents, trademarks, service marks, trade names, copyrights or know-how which could result in any material adverse effect on the business or financial condition of the Company and its subsidiaries considered as a whole. (b) Each of the Selling Stockholders severally represents and warrants to, and agrees with, each of the Underwriters and the Company that: (i) All consents, approvals, authorizations and orders necessary for the execution and delivery by such Selling Stockholder of this Agreement, the Power of Attorney (the "Power of Attorney") and the Letter of Transmittal and Custody Agreement (the "Custody Agreement") hereinafter referred to, and for the sale and delivery of the Shares to be sold by such Selling Stockholder hereunder, have been obtained; and such Selling Stockholder has full right, power and authority to enter into this Agreement, the Power of Attorney and Custody Agreement and to sell, assign, transfer and deliver the Shares to be sold by such Selling Stockholder hereunder; (ii) The sale of the Shares to be sold by such Selling Stockholder hereunder and the performance of this Agreement, the Power of Attorney and the Custody Agreement and the consummation of the transactions herein and therein contemplated will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement, trust, will or other material agreement or (4) 5 instrument to which such Selling Stockholder is a party or by which such Selling Stockholder is bound, or assuming compliance with the securities registration or qualification requirements under applicable state securities or Blue Sky laws, any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over such Selling Stockholder or the property of such Selling Stockholder; (iii) Such Selling Stockholder has, and immediately prior to the First Time of Delivery (as defined in Section 4 hereof) such Selling Stockholder will have, good and valid title to the Shares to be sold by such Selling Stockholder hereunder, free and clear of all liens, encumbrances, equities or claims; and, assuming the Underwriters are acquiring the Shares in good faith without notice of any adverse claim, upon delivery of such Shares and payment therefor pursuant hereto, good and valid title to such Shares, free and clear of all liens, encumbrances, equities or claims, will pass to the several Underwriters; (iv) No offer, sale or other disposition of any Class A Common Stock, Class B Common Stock or Preferred Stock of the Company will be made within 120 days after the date of the Prospectus, directly or indirectly, by such Selling Stockholder, otherwise than hereunder or with your written consent or pursuant to bona fide gifts to persons who agree in writing with you to be bound by the provisions of this clause; (v) Such Selling Stockholder has not taken and will not take, directly or indirectly, any action which is designed to or which has constituted or which might reasonably be expected to cause or result in stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares; (vi) Any statements or omissions made in the Registration Statement, any Preliminary Prospectus, the Prospectus or any amendment or supplement thereto in reliance upon and in conformity with written information furnished to the Company by such Selling Stockholder expressly for use therein under the section entitled "Selling Stockholders," as of the applicable effective date as to the Registration Statement and any amendment thereto, and as of the applicable date of filing as to the Preliminary Prospectus, the Prospectus and any amendment or supplement thereto, did not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statement therein not misleading; and (vii) The sale of Shares by such Selling Stockholder pursuant hereto is not prompted by any adverse information concerning the Company which is not set forth or contemplated in the Prospectus. In order to document the Underwriters' compliance with the reporting and withholding provisions of the Tax Equity and Fiscal Responsibility Act of 1982 with respect to the transactions herein contemplated, each of the Selling Stockholders agrees to deliver to you prior to or at the First Time of Delivery (as hereinafter defined) a properly completed and executed United States Treasury Department Form W-9 (or other applicable form or statement specified by Treasury Department regulations in lieu thereof). Each of the Selling Stockholders represents and warrants that certificates in negotiable form representing all of the Shares to be sold by such Selling Stockholder hereunder have been placed in custody under a Custody Agreement, in the form heretofore furnished to you, duly executed and delivered by such Selling Stockholder to Chemical Bank, as custodian (the "Custodian"), and that such Selling Stockholder has duly executed and delivered a Power of Attorney, in the form heretofore furnished to you, appointing James P. Smith, Erwin Potts and/or James B. McClatchy as such Selling Stockholder's attorneys-in-fact (the "Attorneys-in-Fact") with authority to execute and deliver this Agreement on behalf of such Selling Stockholder, to determine the purchase price to be paid by the Underwriters to the Selling Stockholders as provided in Section 2 hereof, to authorize the delivery of the Shares to be sold by such Selling Stockholder hereunder and otherwise to act on (5) 6 behalf of such Selling Stockholder in connection with the transactions contemplated by this Agreement and the Custody Agreement. Each of the Selling Stockholders specifically agrees that the Shares represented by the certificates held in custody for such Selling Stockholder under the Custody Agreement are subject to the interests of the Underwriters hereunder, and that the arrangements made by such Selling Stockholder for such custody, and the appointment by such Selling Stockholder of the Attorneys-in- Fact by the Power of Attorney, are to that extent irrevocable. Each of the Selling Stockholders specifically agrees that the obligations of the Selling Stockholders hereunder shall not be terminated by operation of law, whether by the death or incapacity of any individual Selling Stockholder or by the occurrence of any other event. If any Selling Stockholder should die or become incapacitated before the delivery of the Shares hereunder, certificates representing the Shares shall be delivered by or on behalf of the Selling Stockholders in accordance with the terms and conditions of this Agreement and of the Custody Agreements, and actions taken by the Attorneys-in-Fact pursuant to the Power of Attorney shall be as valid as if such death, incapacity or other event had not occurred, regardless of whether or not the Custodian, the Attorneys-in-Fact, or any of them, shall have received notice of such death, incapacity or other event. 2. Subject to the terms and conditions herein set forth, (a) the Company and each of the Selling Stockholders agree, severally and not jointly, to sell to each of the Underwriters, and each of the Underwriters agrees, severally and not jointly, to purchase from the Company and from each of the Selling Stockholders, at a purchase price per share of $ , the number of Firm Shares (to be adjusted by you so as to eliminate fractional shares) determined by multiplying the aggregate number of shares to be sold by the Company and each of the Selling Stockholders as set forth opposite its name in Schedule II hereto by a fraction, the numerator of which is the aggregate number of Firm Shares to be purchased by such Underwriter as set forth opposite the name of such Underwriter in Schedule I hereto and the denominator of which is the aggregate number of Firm Shares to be purchased by all the Underwriters from the Company and the Selling Stockholders hereunder and (b) in the event and to the extent that the Underwriters shall exercise the election to purchase Optional Shares as provided below, the Company agrees to issue and sell to each of the Underwriters, and each of the Underwriters agrees, severally and not jointly, to purchase from the Company, at the purchase price per share set forth in clause (a) of this Section 2, that portion of the number of Optional Shares as to which such election shall have been exercised (to be adjusted by you so as to eliminate fractional shares) determined by multiplying such number of Optional Shares by a fraction the numerator of which is the maximum number of Optional Shares which such Underwriter is entitled to purchase as set forth opposite the name of such Underwriter in Schedule I hereto and the denominator of which is the maximum number of the Optional Shares which all of the Underwriters are entitled to purchase hereunder. The Company hereby grants to the Underwriters the right to purchase at their election up to 203,250 Optional Shares, at the purchase price per share set forth in clause (a) of this Section 2, for the sole purpose of covering over-allotments in the sale of the Firm Shares. Any such election to purchase Optional Shares may be exercised by written notice from you to the Company, given within a period of 30 calendar days after the date of this Agreement and setting forth the aggregate number of Optional Shares to be purchased and the date on which such Optional Shares are to be delivered, as determined by you but in no event earlier than the First Time of Delivery (as defined in Section 4 hereof) or, unless you and the Company otherwise agree in writing, earlier than two or later than seven business days after the date of such notice. 3. Upon the authorization by you of the release of Firm Shares, the several Underwriters propose to offer the Firm Shares for sale upon the terms and conditions set forth in the Prospectus. 4. Certificates in definitive form for the Shares to be purchased by each Underwriter hereunder, and in such denominations and registered in such names as Goldman, Sachs & Co. may (6) 7 request upon at least forty-eight hours' prior notice to the Company and the Attorneys-in-Fact, shall be delivered by or on behalf of the Company and the Selling Stockholders to you for the account of such Underwriter, against payment by such Underwriter or on its behalf of the purchase price therefor by certified or official bank check or checks, payable to the order of the Company and the Custodian, as their interests may appear, in New York Clearing House funds, all at the offices of Goldman, Sachs & Co., 85 Broad Street, NY, NY 10004. The time and date of such delivery and payment shall be, with respect to the Firm Shares, 9:30 a.m., New York time, on , 1994 or such other time and date as you, the Company and the Selling Stockholders may agree upon in writing, and with respect to the Optional Shares, 9:30 a.m. New York time, on the date specified by you in the written notice given by you of the Underwriters' election to purchase such Optional Shares, or such Optional Shares, or such other time and date as you and the Company may agree upon in writing. Such time and date for delivery of the Firm Shares is herein called the "First Time of Delivery," such time and date for delivery of the Optional Shares, if not the First Time of Delivery, is herein called the "Second Time of Delivery," and each such time and date of delivery is herein called a "Time of Delivery." Such certificates will be made available for checking and packaging at least forty-eight hours prior to each Time of Delivery at the office of Goldman, Sachs & Co. as set forth above, or at such other location as Goldman, Sachs & Co. and the Company may agree. 5. The Company agrees with each of the Underwriters: (a) To prepare the Prospectus in a form approved by you and to file such Prospectus pursuant to Rule 424(b) under the Act not later than the Commission's close of business on the second business day following the execution and delivery of this Agreement, or, if applicable, such earlier time as may be required by Rule 430A(a)(3) under the Act; to make no further amendment or any supplement to the Registration Statement or Prospectus prior to any Time of Delivery which shall be disapproved by you promptly after reasonable notice thereof; to advise you, promptly after it receives notice thereof, of the time when the Registration Statement, or any amendment thereto, has been filed or becomes effective or any supplement to the Prospectus or any amended Prospectus has been filed and to furnish you copies thereof; to file promptly all reports and any definitive proxy or information statements required to be filed by the Company with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of the Prospectus and for so long as the delivery of a prospectus is required in connection with the offering or sale of the Shares; to advise you, promptly after it receives notice thereof, of the issuance by the Commission of any stop order or of any order preventing or suspending the use of any Preliminary Prospectus or Prospectus, of the suspension of the qualification of the Shares for offering or sale in any jurisdiction, of the initiation or threatening of any proceeding for any such purpose, or of any request by the Commission for the amending or supplementing of the Registration Statement or Prospectus or for additional information; and, in the event of the issuance of any stop order or of any order preventing or suspending the use of any Preliminary Prospectus or Prospectus or suspending any such qualification, to use promptly its best efforts to obtain its withdrawal; (b) Promptly from time to time to take such action as you may reasonably request to qualify the Shares for offering and sale under the securities laws of such jurisdictions within the United States as you may request and to comply with such laws so as to permit the continuance of sales and dealings therein in such jurisdictions for as long as may be necessary to complete the distribution of the Shares, provided that in connection therewith the Company shall not be required to qualify as a foreign corporation or to file a general consent to service of process in any jurisdiction; (c) To furnish the Underwriters with copies of the Prospectus in such quantities as you may from time to time reasonably request, and, if the delivery of a prospectus is required at any time prior to the expiration of nine months after the time of issue of the Prospectus in connection with the offering or sale of the Shares and if at such time any events shall have occurred as a result of which the Prospectus as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light (7) 8 of the circumstances under which they were made when such Prospectus is delivered, not misleading, or, if for any other reason it shall be necessary during such same period to amend or supplement the Prospectus or to file under the Exchange Act any document incorporated by reference in the Prospectus in order to comply with the Act or the Exchange Act, to notify you and upon your request to file such document and to prepare and furnish without charge to each Underwriter and to any dealer in securities as many copies as you may from time to time reasonably request of an amended Prospectus or a supplement to the Prospectus which will correct such statement or omission or effect such compliance, and in case any Underwriter is required to deliver a Prospectus in connection with sales of any of the Shares at any time nine months or more after the time of issue of the Prospectus, upon your request but at the expense of such Underwriter, to prepare and deliver to such Underwriter as many copies as you may request of an amended or supplemented Prospectus complying with Section 10(a)(3) of the Act; (d) To make generally available to its securityholders as soon as practicable, but in any event not later than eighteen months after the effective date of the Registration Statement (as defined in Rule 158(c)), an earnings statement of the Company and its subsidiaries (which need not be audited) complying with Section 11(a) of the Act and the rules and regulations of the Commission thereunder (including, at the option of the Company, Rule 158); (e) During the period beginning from the date hereof and continuing to and including the date 90 days after the date of the Prospectus, not to offer, sell, contract to sell or otherwise dispose of any securities of the Company that are substantially similar to the Shares, including but not limited to any securities that are convertible into or exchangeable for or that represent the right to receive the Shares or any such substantially similar securities (other than pursuant to employee stock option or stock purchase plans existing on, or upon the conversion or exchange of convertible or exchangeable securities outstanding as of, the date of this Agreement) without your prior written consent; (f) To furnish to its stockholders as soon as practicable after the end of each fiscal year (beginning with the fiscal year ending after the effective date of the Registration Statement) an annual report (including a balance sheet and statements of income, stockholders' equity and change in financial position of the Company and its consolidated subsidiaries certified by independent public accountants) and, as soon as practicable after the end of each of the first three quarters of each fiscal year, consolidated summary financial information of the Company and its subsidiaries for such quarter in reasonable detail; (g) During a period of three years from the effective date of the Registration Statement, to furnish to you copies of all reports or other communications (financial or other) furnished to stockholders, and deliver to you (i) as soon as they are available, copies of any reports and financial statements furnished to or filed with the Commission or any national securities exchange on which any class of securities of the Company is listed; and (ii) such additional information concerning the business and financial condition of the Company as you may from time to time reasonably request (such financial statements to be on a consolidated basis to the extent the accounts of the Company and its subsidiaries are consolidated in reports furnished to its stockholders generally or to the Commission); and (h) To use its best efforts to list, subject to notice of issuance, the Shares on the Exchange. 6. The Company and each of the Selling Stockholders covenant and agree with one another and with the several Underwriters that (a) the Company will pay or cause to be paid the following: (i) the fees, disbursements and expenses of the Company's counsel and accountants in connection with the registration of the Shares under the Act and the sale of the Shares and all other expenses in connection with the preparation, printing and filing of the Registration Statement, any Preliminary Prospectus and the Prospectus and amendments and supplements thereto and the mailing and delivering of copies thereof to the Underwriters and dealers; (ii) the cost of printing or producing any Agreement among Underwriters, this Agreement, the Blue Sky Memoranda and any other documents in connection with the offering, purchase, sale and delivery of the Shares; (iii) all (8) 9 expenses in connection with the qualification of the Shares for offering and sale under state securities laws as provided in Section 5(b) hereof, including the reasonable fees and disbursements of counsel for the Underwriters in connection with such qualification and in connection with the Blue Sky surveys; (iv) all expenses in connection with the listing of the Shares on the Exchange and the filing fees incident to securing any required review by the NASD of the terms of the sale of the Shares; (v) the cost of preparing stock certificates; (vi) the fees and expenses of the Attorneys-in-Fact and the Custodian; (vii) the cost and charges of any transfer agent or registrar; and (viii) all other costs and expenses incident to the performance of its obligations hereunder which are not otherwise provided for in this Section; and (b) such Selling Stockholder will pay or cause to be paid all costs and expenses incident to the performance of such Selling Stockholder's obligations hereunder which are not otherwise specifically provided for in this Section, including (i) any fees and expenses of separate counsel, if any, for such Selling Stockholder, and (ii) all expenses and taxes incident to the sale and delivery of the Shares to be sold by such Selling Stockholder to the Underwriters hereunder. In connection with Clause (b)(ii) of the preceding sentence, Goldman, Sachs & Co. agrees to pay New York state transfer tax, and such Selling Stockholder agrees to reimburse Goldman, Sachs & Co. for associated carrying costs if such tax payment is not rebated on the day of payment and for any portion of such tax payment not rebated. It is understood, however, that the Company shall bear, and the Selling Stockholders shall not be required to pay or to reimburse the Company for, the cost of any other matters not directly relating to the sale and purchase of the Shares pursuant to this Agreement, and that, except as provided in this Section, Section 8 and Section 11 hereof, the Underwriters will pay all of their own costs and expenses, including the fees of their counsel, stock transfer taxes on resale of any of the Shares by them, and any advertising expenses connected with any offers they may make. 7. The obligations of the Underwriters hereunder, as to the Shares to be delivered at each Time of Delivery, shall be subject, in their discretion, to the condition that all representations and warranties and other statements of the Company and of the Selling Stockholders herein are, at and as of such Time of Delivery, true and correct, the condition that the Company and the Selling Stockholders shall have performed all of its and their obligations hereunder theretofore to be performed, and the following additional conditions: (a) The Prospectus shall have been filed with the Commission pursuant to Rule 424(b) within the applicable time period prescribed for such filing by the rules and regulations under the Act and in accordance with Section 5(a) hereof; no stop order suspending the effectiveness of the Registration Statement or any part thereof shall have been issued and no proceeding for that purpose shall have been initiated or threatened by the Commission; (b) Wilson, Sonsini, Goodrich & Rosati, P.C., counsel for the Underwriters, shall have furnished to you such opinion or opinions, dated such Time of Delivery, with respect to the matters covered in paragraphs (i), (ii), (vi), (x) and (xi) and paragraphs containing relevant disclosure opinions of Subsection (c) below, as well as any other related matters as you may reasonably request, and such counsel shall have received such papers and information as they may reasonably request to enable them to pass upon such matters; (c) Pillsbury Madison & Sutro, counsel for the Company and for the Selling Stockholders (other than the Charles Kennan McClatchy 1993 Trust), shall have furnished to you their written opinion, dated such Time of Delivery, in form and substance satisfactory to you, to the effect that: (i) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware, with corporate power and authority to own its properties and conduct its business as described in the Prospectus; (ii) The Company has an authorized capitalization as set forth in the Prospectus, and all of the issued shares of capital stock of the Company (including the Shares being issued by the Company and being sold by the Selling Stockholders at such Time of Delivery) have (9) 10 been duly and validly authorized and issued and are fully paid and nonassessable; and the Shares conform to the description of the Class A Common Stock contained in the Prospectus; the certificates for the Shares comply as to form with the requirements of the Delaware General Corporation Law; and no preemptive rights of stockholders exist with respect to any of the Shares or the issue and sale thereof at such Time of Delivery; (iii) The Company has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties, or conducts any business, so as to require such qualification except where the failure to be so qualified would not have a material adverse effect on the consolidated financial condition or business of the Company and its subsidiaries considered as a whole, or is subject to no material liability or disability by reason of failure to be so qualified in any such jurisdiction; (iv) Each of the Anchorage Daily News, Inc., Tacoma News, Inc., and East Coast Newspapers, Inc. (herein the "Material Subsidiaries") has been duly incorporated and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation; and all of the issued shares of capital stock of each such Material Subsidiary have been duly and validly authorized and issued, are fully paid and non-assessable, and are owned directly by the Company, free and clear of all liens, encumbrances, equities or claims; (v) To the best of such counsel's knowledge and other than as set forth in the Prospectus, there are no legal or governmental or administrative proceedings pending to which the Company or any of its Material Subsidiaries is a party or of which any property of the Company or any of its Material Subsidiaries is the subject which are required to be described in the Prospectus, and which, if determined adversely to the Company or any of its Material Subsidiaries, would individually or in the aggregate have a material adverse effect on the consolidated financial position, stockholders' equity or results of the Company and its subsidiaries considered as a whole; and, to the best of such counsel's knowledge, no such proceedings are threatened or contemplated by governmental authorities or threatened by others; (vi) This Agreement has been duly authorized, executed and delivered by the Company; (vii) The issue and sale of the Shares being delivered at such Time of Delivery by the Company and the compliance by the Company with all of the provisions of this Agreement and the consummation of the transactions herein contemplated will not result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument known to such counsel to which the Company or any of its Material Subsidiaries is a party or by which the Company or any of its Material Subsidiaries is bound or to which any of the property or assets of the Company or any of its Material Subsidiaries is subject, which indenture, mortgage, deed of trust, loan agreement or other agreement or instrument is material to the Company and its Material Subsidiaries, taken as a whole, nor will such action result in any violation of the provisions of the Certificate of Incorporation or Bylaws of the Company or any statute or any order, rule or regulation known to such counsel of any court or governmental agency or body having jurisdiction over the Company or any of its Material Subsidiaries or any of their properties; (viii) No consent, approval, authorization, order, registration or qualification of or with any such court or governmental agency or body is required for the issue and sale of the Shares or the consummation by the Company of the transactions contemplated by this Agreement, except the registration under the Act of the Shares, compliance with the applicable requirements of the Exchange, and such consents, approvals, authorizations, (10) 11 registrations or qualifications as may be required under state securities or Blue Sky laws in connection with the purchase and distribution of the Shares by the Underwriters; (ix) The documents incorporated by reference in the Prospectus or any further amendment or supplement thereto made by the Company prior to such Time of Delivery (other than the financial statements, including the notes thereto and related schedules and other financial data contained therein, as to which such counsel need express no opinion), when they became effective or were filed with the Commission, as the case may be, complied as to form in all material respects with the requirements of the Act or the Exchange Act, as applicable, and the rules and regulations of the Commission thereunder; (x) The Registration Statement and the Prospectus and any further amendments and supplements thereto made by the Company prior to such Time of Delivery (other than the financial statements, including the notes thereto and related schedules and other financial data contained therein, as to which such counsel need express no opinion) comply as to form in all material respects with the requirements of the Act and the rules and regulations thereunder; (xi) The statements in the Prospectus under "Selling Stockholders -- Agreement Among Class B Stockholders" and "Description of Capital Stock" insofar as such statements constitute a summary of the legal matters, documents or proceedings referred to therein, fairly present the information called for by the regulations adopted under the Act with respect to such legal matters, documents or proceedings in all material respects; (xii) A Power of Attorney and a Custody Agreement have been duly executed and delivered by the Selling Stockholders; (xiii) This Agreement has been duly authorized, executed and delivered by or on behalf of each Selling Stockholder; and based solely upon the statements and representations of such Selling Stockholder to such counsel which such counsel has no reason to believe are incorrect, the sale of the Shares to be sold by such Selling Stockholder hereunder and the compliance by the Selling Stockholders with all of the provisions of this Agreement, the Power of Attorney and the Custody Agreement and, to the knowledge of such counsel, the consummation of the transactions herein and therein contemplated will not result in a violation of any of the terms of or provisions of, or constitute a default under any indenture, mortgage, deed of trust, loan agreement, trust, will or other material agreement or instrument to which such Selling Stockholder is a party, or (assuming compliance with the securities registration or qualification requirements under all United States state securities or Blue Sky laws) any statute, order, rule or regulation known to such counsel of any governmental agency or body having jurisdiction over such Selling Stockholder or the property of such Selling Stockholder; (xiv) To the best of such counsel's knowledge, no consent, approval, authorization or order of any court or governmental agency or body is required for the consummation by such Selling Stockholder of the transactions contemplated by this Agreement in connection with the Shares to be sold by such Selling Stockholder hereunder, except such as have been obtained under the Act and such as may be required under state securities or Blue Sky laws in connection with the purchase and distribution of such Shares by the Underwriters; and (xv) Immediately prior to the consummation of the transactions contemplated herein, the Selling Stockholders were each the sole registered owner of their respective Shares; and upon registration of the Shares in the names of the Underwriters in the stock records of the Company, the Underwriters will, assuming that they have purchased the Shares for value in good faith and without notice of any adverse claim, have acquired all of the rights of (11) 12 the Selling Stockholders in the Shares free of any adverse claim, any lien in favor of the Company and any restrictions on transfer imposed by the Company. Such counsel shall also state that they have no reason to believe that the Registration Statement and the information incorporated therein by reference (other than financial statements, including the notes thereto and related schedules and other financial data contained therein, as to which counsel need express no view), as of its effective date, contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus and the information incorporated therein by reference (excluding the financial statements, including the notes thereto and related schedules and other financial data contained therein, as to which counsel need express no view), as of its date or the date of such opinion, included or includes any untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. (d) Bartel Eng Miller & Torngren, counsel for the Charles Kennan McClatchy 1993 Trust shall have furnished you their written opinion, dated such Time of Delivery, in form and substance satisfactory to you, to the effect that: (i) A Power of Attorney and Custody Agreement have been duly executed and delivered by the Charles Kennan McClatchy 1993 Trust; (ii) This Agreement has been duly authorized, executed and delivered by or on behalf of the Charles Kennan McClatchy 1993 Trust; and based solely upon the statements and representations of the Charles Kennan McClatchy 1993 Trust to such counsel which counsel has no reason to believe are incorrect, the sale of the Shares to be sold by the Charles Kennan McClatchy 1993 Trust hereunder and the compliance by the Charles Kennan McClatchy 1993 Trust with all of the provisions of this Agreement, the Power of Attorney and the Custody Agreement and, to the knowledge of such counsel, the consummation of the transactions herein and therein contemplated will not result in a violation of any of the terms of or provisions of, or constitute a default under any indenture, mortgage, deed of trust, loan agreement, trust, will or other material agreement or instrument to which the Charles Kennan McClatchy 1993 Trust is a party, or (assuming compliance with the securities registration or qualification requirements under all United States state securities or Blue Sky laws) any statute, order, rule or regulation known to such counsel of any governmental agency or body having jurisdiction over the Charles Kennan McClatchy 1993 Trust or the property of the Charles Kennan McClatchy 1993 Trust; (iii) To the best of such counsel's knowledge, no consent, approval, authorization or order of any court or governmental agency or body is required for the consummation by the Charles Kennan McClatchy 1993 Trust of the transactions contemplated by this Agreement in connection with the Shares to be sold by the Charles Kennan McClatchy 1993 Trust hereunder, except such as have been obtained under the Act and as such may be required under state securities or Blue Sky laws in connection with the purchase and distribution of such Shares by the Underwriters; and (iv) Immediately prior to the consummation of the transactions contemplated herein, the Charles Kennan McClatchy 1993 Trust was the sole registered owner of its Shares; and upon registration of the Shares in the names of the Underwriters and the stock records of the Company, the Underwriters will, assuming that they have purchased the Shares for value in good faith and without notice of any adverse claim, have acquired all the rights to the Charles Kennan McClatchy 1993 Trust in the Shares free of any adverse claim, any lien in favor of the Company and any restriction on transfer imposed by the Company. (12) 13 (e) At 10:00 a.m., New York City time, on the effective date of the Registration Statement and the effective date of the most recently filed post-effective amendment to the Registration Statement and also at each Time of Delivery, Deloitte & Touche shall have furnished to you a letter or letters, dated the respective date of delivery thereof, in form and substance satisfactory to you, to the effect set forth in Annex I hereto; (f) (i) Neither the Company nor any of its subsidiaries shall have sustained since the date of the latest financial statements included or incorporated by reference in the Prospectus any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Prospectus, and (ii) since the respective dates as of which information is given in the Prospectus there shall not have been any change in the capital stock or long-term debt of the Company or any of its subsidiaries or any change, or any development involving a prospective change, in or affecting the general affairs, management, financial position, stockholders' equity or results of operations of the Company and its subsidiaries considered as a whole, otherwise than as set forth or contemplated in the Prospectus, the effect of which, in any such case described in clause (i) or (ii), is in your judgment so material and adverse as to make it impracticable or inadvisable to proceed with the public offering or the delivery of the Shares being delivered at such Time of Delivery on the terms and in the manner contemplated in the Prospectus; (g) On or after the date hereof there shall not have occurred any of the following: (i) a suspension or material limitation in trading in securities generally on the New York Stock Exchange or Nasdaq National Market (ii) a general moratorium on commercial banking activities in New York declared by either Federal or New York State authorities or (iii) the outbreak or escalation of hostilities involving the United States or the declaration by the United States of a national emergency or war if the effect of any such event specified in this Clause (iii) in your judgment makes it impracticable or inadvisable to proceed with the public offering or the delivery of the Shares being delivered at such Time of Delivery on the terms and in the manner contemplated in the Prospectus; (h) The Shares to be sold by the Company and the Selling Stockholders at such Time of Delivery shall have been duly approved, subject to notice of issuance, on the Exchange; and (i) The Company and the Selling Stockholders (directly or pursuant to the Powers of Attorney) shall have furnished or caused to be furnished to you at such Time of Delivery certificates of officers of the Company and of the Selling Stockholders, respectively, satisfactory to you as to the accuracy of the representations and warranties of the Company and the Selling Stockholders, respectively, herein at and as of such Time of Delivery, as to the performance by the Company and the Selling Stockholders of all of their respective obligations hereunder to be performed at or prior to such Time of Delivery, and as to such other matters as you may reasonably request, and the Company shall have furnished or caused to be furnished certificates as to the matters set forth in subsections (a) and (e) of this Section, and as to such other matters as you may reasonably request. 8. (a) The Company will indemnify and hold harmless each Selling Stockholder and each Underwriter against any losses, claims, damages or liabilities, joint or several, to which such Selling Stockholder and Underwriter may become subject, under the Act or otherwise, to the extent, but only to the extent, that such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, the Registration Statement or the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each Selling Stockholder and Underwriter for any legal or other expenses reasonably incurred by such Selling Stockholder or such Underwriter in (13) 14 connection with investigating or defending any such action or claim; provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any Preliminary Prospectus, the Registration Statement or the Prospectus or any such amendment or supplement in reliance upon and in conformity with written information furnished to the Company by any Underwriter through you expressly for use therein; and provided, further, that the Company shall not be liable to any Underwriter under this subsection in (a) with respect to any Preliminary Prospectus to the extent that any loss, claim, damage or liability of such Underwriter results from the fact that such Underwriter sold Shares to a person to whom there was not given or sent, at or prior to the written confirmation of such sale, a copy of the Prospectus or of the Prospectus as then amended or supplemented if the Company has previously furnished copies thereof to such Underwriter. (b) Each Selling Stockholder will indemnify and hold harmless each Underwriter against any losses, claims, damages or liabilities, joint or several, to which such Underwriter may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any breach of any warranty or covenant of such Selling Stockholder contained herein, and will reimburse each Underwriter for any legal or other expenses reasonably incurred by such Underwriter in connection with investigating or defending any such action or claim; provided however, that no such Selling Stockholder shall be liable to any Underwriter under this subsection (b) with respect to any Preliminary Prospectus to the extent that any loss, claim, damage or liability of such Underwriter results from the fact that such Underwriter sold Shares to a person to whom there was not given or sent, at or prior to the written confirmation of such sale, a copy of the Prospectus or of the Prospectus as then amended or supplemented if the Company has previously furnished copies thereof to such Underwriter. Notwithstanding the foregoing provisions of this Subsection (b), in no event shall any Selling Stockholder be liable for an amount in excess of the net proceeds received by such Selling Stockholder from the sale of the shares. (c) Each Underwriter will indemnify and hold harmless the Company and each Selling Stockholder against any losses, claims, damages or liabilities to which the Company or such Selling Stockholder may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, the Registration Statement or the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in any Preliminary Prospectus, the Registration Statement or the Prospectus or any such amendment or supplement in reliance upon and in conformity with written information furnished to the Company by such Underwriter through you expressly for use therein; and will reimburse the Company and each Selling Stockholder for any legal or other expenses reasonably incurred by the Company or such Selling Stockholder in connection with investigating or defending any such action or claim as such expenses are incurred. (d) Promptly after receipt by an indemnified party under subsection (a), (b) or (c) above of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against an indemnifying party under such subsection, notify the indemnifying party in writing of the commencement thereof; but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to any indemnified party otherwise than under such subsection. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party (14) 15 (which shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and, after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party under such subsection for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by such indemnified party, in connection with the defense thereof other than reasonable costs of investigation. (e) If the indemnification provided for in this Section 8 is unavailable to or insufficient to hold harmless an indemnified party under subsection (a), (b) or (c) above in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Selling Stockholders on the one hand and the Underwriters on the other from the offering of the Shares. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law or if the indemnified party failed to give the notice required under subsection (d) above, then each indemnifying party shall contribute to such amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company and the Selling Stockholders on the one hand and the Underwriters on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company and the Selling Stockholders on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company and the Selling Stockholders bear to the total underwriting discounts and commissions received by the Underwriters with respect to the Shares purchased under this Agreement, in each case as set forth in the table on the cover page of the Prospectus. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Selling Stockholders on the one hand or the Underwriters on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company, each of the Selling Stockholders and the Underwriters agree that it would not be just and equitable if contributions pursuant to this subsection (e) were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this subsection (e). The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this subsection (e) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (e) no Selling Stockholder shall be required to (i) make any contribution for any matter not indemnified by such Selling Stockholder under subsection (b), or (ii) contribute any amount in excess of the amount by which the net proceeds of the offering received by such Selling Stockholder exceeds the amount of any damages which such Selling Stockholder has been required to pay by reason of such indemnity under subsection (b). Notwithstanding the provisions of this subsection (e), no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations in this subsection (e) to contribute are several in proportion to their respective underwriting obligations and not joint. (15) 16 (f) The obligations of the Company and the Selling Stockholders under this Section 8 shall be in addition to any liability which the Company and the respective Selling Stockholders may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls any Underwriter within the meaning of the Act; and the obligations of the Underwriters under this Section 8 shall be in addition to any liability which the respective Underwriters may otherwise have and shall extend, upon the same terms and conditions, to each officer and director of the Company (including any person who, with his consent, is named in the Registration Statement as a prospective director of the Company) and to each person, if any, who controls the Company or any Selling Stockholder within the meaning of the Act. 9. (a) If any Underwriter shall default in its obligation to purchase the Shares which it has agreed to purchase hereunder at a Time of Delivery, you may in your discretion arrange for you or another party or other parties to purchase such Shares on the terms contained herein. If within thirty-six hours after such default by any Underwriter you do not arrange for the purchase of such Shares, then the Company and the Selling Stockholders shall be entitled to a further period of thirty-six hours within which to procure another party or other parties satisfactory to you to purchase such Shares on such terms. In the event that, within the respective prescribed periods, you notify the Company and the Selling Stockholders that you have so arranged for the purchase of such Shares, or the Company and the Selling Stockholders notify you that they have so arranged for the purchase of such Shares, you or the Company and the Selling Stockholders shall have the right to postpone such Time of Delivery for a period of not more than seven days, in order to effect whatever changes may thereby be made necessary in the Registration Statement or the Prospectus, or in any other documents or arrangements, and the Company agrees to file promptly any amendments to the Registration Statement or the Prospectus which in your opinion may thereby be made necessary. The term "Underwriter" as used in this Agreement shall include any person substituted under this Section with like effect as if such person had originally been a party to this Agreement with respect to such Shares. (b) If, after giving effect to any arrangements for the purchase of the Shares of a defaulting Underwriter or Underwriters by you and the Company and the Selling Stockholders, as provided in subsection (a) above, the aggregate number of Shares which remains unpurchased does not exceed one-eleventh of the aggregate number of all the Shares to be purchased at such Time of Delivery, then the Company and the Selling Stockholders shall have the right to require each nondefaulting Underwriter to purchase the number of Shares which such Underwriter agreed to purchase hereunder at such Time of Delivery and, in addition, to require each nondefaulting Underwriter to purchase its pro rata share (based on the number of Shares which such Underwriter agreed to purchase hereunder) of the Shares of such defaulting Underwriter or Underwriters for which such arrangements have not been made; but nothing herein shall relieve a defaulting Underwriter from liability for its default. (c) If, after giving effect to any arrangements for the purchase of the Shares of a defaulting Underwriter or Underwriters by you and the Company and the Selling Stockholders, as provided in subsection (a) above, the aggregate number of such Shares which remains unpurchased exceeds one-eleventh of the aggregate number of all the Shares to be purchased at such Time of Delivery, or if the Company and the Selling Stockholders shall not exercise the right described in subsection (b) above to require non-defaulting Underwriters to purchase Shares of a defaulting Underwriter or Underwriters, then this Agreement (or, with respect to the Second Time of Delivery, the obligations of the Underwriters to purchase and of the Company to sell the Optional Shares) shall thereupon terminate, without liability on the part of any non-defaulting Underwriter or the Company or the Selling Stockholders, except for the expenses to be borne by the Company and the Selling Stockholders and the Underwriters, as provided in Section 6 hereof, and the indemnity and contribution agreements in Section 8 hereof; but nothing herein shall relieve a defaulting Underwriter from liability for its default. (16) 17 10. The respective indemnities, agreements, representations, warranties and other statements of the Company, the Selling Stockholders, the stockholders of the Selling Stockholders and the several Underwriters, as set forth in this Agreement or made by or on behalf of them, respectively, pursuant to this Agreement, shall remain in full force and effect, regardless of any investigation (or any statement as to the results thereof) made by or on behalf of any Underwriter or any controlling person of any Underwriter, or the Company, the Selling Stockholders, or any officer or director or controlling person of the Company, or any controlling person of the Selling Stockholders, and shall survive delivery of and payment for the Shares. 11. If this Agreement shall be terminated pursuant to Section 9 hereof, neither the Company, nor the Selling Stockholders shall then be under any liability to any Underwriter, except as provided in Section 6 and Section 8 hereof; but, if for any other reason any Shares are not delivered by or on behalf of the Company and the Selling Stockholders as provided herein, the Company will reimburse the Underwriters through you for all out-of-pocket expenses approved in writing by you, including fees and disbursements of counsel, reasonably incurred by the Underwriters in making preparations for the purchase, sale and delivery of the Shares not so delivered, but the Company and the Selling Stockholders shall then be under no further liability to any Underwriter in respect of the Shares not so delivered, except as provided in Section 6 and Section 8 hereof. 12. In all dealings hereunder, you shall act on behalf of each of the Underwriters, and the parties hereto shall be entitled to act and rely upon any statement, request, notice or agreement on behalf of any Underwriter made or given by you jointly or by Goldman, Sachs & Co. on behalf of you as the representatives; and in all dealings with any Selling Stockholder hereunder, you and the Company shall be entitled to act and rely upon any statement, request, notice or agreement on behalf of such Selling Stockholder made or given by any or all of the Attorneys-in-Fact for such Selling Stockholder. All statements, requests, notices and agreements hereunder shall be in writing, and if to the Underwriters shall be delivered or sent by mail to you as the representatives in care of Goldman, Sachs & Co., at 85 Broad Street, New York, NY 10004, Attention: Registration Department; if to any Selling Stockholder shall be delivered or sent by mail, telex or facsimile transmission to the address on the books of the Company with a copy to such Selling Stockholder's counsel (whose name and address shall be provided to you as representatives of the Underwriters); and if to the Company shall be delivered or sent by mail, telex or facsimile transmission to the address of the Company set forth in the Registration Statement, Attention: Secretary; provided, however, that any notice to an Underwriter pursuant to Section 8(d) hereof shall be delivered or sent by mail, telex or facsimile transmission to such Underwriter at its address set forth in its Underwriters' Questionnaire or telex constituting such Questionnaire, which address will be supplied to the Company or the Selling Stockholders by you upon request. Any such statements, requests, notices or agreements shall take effect upon receipt thereof. 13. This Agreement shall be binding upon, and inure solely to the benefit of, the Underwriters, the Company and the Selling Stockholders and, to the extent provided in Sections 8 and 10 hereof, the officers and directors of the Company and each person who controls the Company, any Selling Stockholder or any Underwriter, and their respective heirs, executors, administrators, successors and assigns, and no other person shall acquire or have any right under or by virtue of this Agreement. No purchaser of any of the Shares from any Underwriter shall be deemed a successor or assign by reason merely of such purchase. 14. Time shall be of the essence of this Agreement. As used herein, the term "business day" shall mean any day when the Commission's office in Washington, D.C. is open for business. 15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. (17) 18 16. This Agreement may be executed by any one or more of the parties hereto in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same instrument. If the foregoing is in accordance with your understanding, please sign and return to us the counterparts hereof, and upon the acceptance hereof by you, on behalf of each of the Underwriters, this letter and such acceptance hereof shall constitute a binding agreement among each of the Underwriters, the Company and each of the Selling Stockholders. It is understood that your acceptance of this letter on behalf of each of the Underwriters is pursuant to the authority set forth in a form of Agreement among Underwriters, the form of which shall be submitted to the Company and the Selling Stockholders for examination, upon request, but without warranty on your part as to the authority of the signers thereof. (18) 19 Any person executing and delivering this Agreement as Attorney-in-Fact for the Selling Stockholders and the stockholders of the Selling Stockholders represents by so doing that he has been duly appointed as Attorney-in-Fact by the Selling Stockholders and the stockholders of the Selling Stockholders pursuant to a validly existing and binding Power of Attorney which authorizes such Attorney-in-Fact to take such action. Very truly yours, McCLATCHY NEWSPAPERS, INC. By: Name: Title: SELLING STOCKHOLDERS (except the Central Valley Foundation) By: Name: Title: As Attorney-in-Fact acting on behalf of the Selling Stockholders named in Schedule II to this Agreement. THE CENTRAL VALLEY FOUNDATION By: Name: James B. McClatchy Title: As Attorney-in-Fact Accepted as of the date hereof GOLDMAN, SACHS & CO. MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By: (Goldman, Sachs & Co.) On behalf of each of the Underwriters (19) 20 SCHEDULE I
NUMBER OF OPTIONAL TOTAL SHARES TO BE NUMBER OF PURCHASED IF FIRM MAXIMUM SHARES TO BE OPTION UNDERWRITER PURCHASED EXERCISED - ------------------------------------------------------------------ ------------ ------------- Goldman, Sachs & Co. ............................................. Merrill Lynch, Pierce, Fenner & Smith, Incorporated............... [NAMES OF OTHER UNDERWRITERS]..................................... ------------ ------------- Total................................................... ------------ ------------- ------------ -------------
(20) 21 SCHEDULE II
NUMBER OF OPTIONAL TOTAL SHARES TO BE NUMBER OF PURCHASED IF FIRM MAXIMUM SHARES TO BE OPTION UNDERWRITER PURCHASED EXERCISED - ------------------------------------------------------------------ ------------ ------------- The Company....................................................... 750,000 206,250 The Selling Stockholders: Betty Lou Maloney............................................... 20,000 Charles Kennan McClatchy........................................ 25,000 William Briggs McClatchy........................................ 10,000 The Central Valley Foundation................................... 500,000 James B. McClatchy.............................................. 50,000 Kevin McClatchy................................................. 20,000 ------------ ------------- Total................................................... 1,375,000 206,250 ------------ ------------- ------------ -------------
(21) 22 ANNEX I Pursuant to Section 7(d) of the Underwriting Agreement, Deloitte & Touche shall furnish letters to the Underwriters to the effect that: (i) They are independent certified public accountants with respect to the Company and its subsidiaries within the meaning of the Act and the applicable published rules and regulations thereunder; (ii) In their opinion, the financial statements and any supplementary financial information and schedules (and, if applicable, prospective financial statements and/or pro forma financial information) examined by them and included in the Prospectus or the Registration Statement comply as to form in all material respects with the applicable accounting requirements of the Act or the Exchange Act, as applicable, and the related published rules and regulations thereunder; and, if applicable, they have made a review in accordance with standards established by the American Institute of Certified Public Accountants of the consolidated interim financial statements, selected financial data, pro forma financial information, prospective financial statements and/or condensed financial statements derived from audited financial statements of the Company for the periods specified in such letter, as indicated in their reports thereon, copies of which have been furnished to the representatives of the Underwriters (the "Representatives"); (iii) The unaudited selected financial information with respect to the consolidated results of operations and financial position of the Company for the five most recent fiscal years included in the Prospectus and included or incorporated by reference in Item 6 of the Company's Annual Report on Form 10-K for the most recent fiscal year agrees with the corresponding amounts (after restatement where applicable) in the audited consolidated financial statements for such five fiscal years which were included or incorporated by reference in the Company's Annual Reports on Form 10-K for such fiscal years; (iv) On the basis of limited procedures, not constituting an examination in accordance with generally accepted auditing standards, consisting of a reading of the unaudited financial statements and other information referred to below, a reading of the latest available interim financial statements of the Company and its subsidiaries, inspection of the minute books of the Company and its subsidiaries since the date of the latest audited financial statements included or incorporated by reference in the Prospectus, inquiries of officials of the Company and its subsidiaries responsible for financial and accounting matters and such other inquiries and procedures as may be specified in such letter, nothing came to their attention that caused them to believe that: (A) the unaudited condensed consolidated statements of income, consolidated balance sheets and consolidated statements of cash flows included or incorporated by reference in the Company's Quarterly Reports on Form 10-Q incorporated by reference in the Prospectus do not comply as to form in all material respects with the applicable accounting requirements of the Exchange Act as it applies to Form 10-Q and the related published rules and regulations thereunder or are not in conformity with generally accepted accounting principles applied on a basis substantially consistent with the basis for the audited consolidated statements of income, consolidated balance sheets and consolidated statements of cash flows included or incorporated by reference in the Company's Annual Report on Form 10-K for the most recent fiscal year; (B) any other unaudited income statement data and balance sheet items included in the Prospectus do not agree with the corresponding items in the unaudited consolidated financial statements from which such data and items were derived, and any such unaudited data and items were not determined on a basis substantially consistent with the basis for the corresponding amounts in the audited consolidated financial statements included or (22) 23 incorporated by reference in the Company's Annual Report on Form 10-K for the most recent fiscal year: (C) the unaudited financial statements which were not included in the Prospectus but from which were derived the unaudited condensed financial statements referred to in Clause (A) and any unaudited income statement data and balance sheet items included in the Prospectus and referred to in Clause (B) were not determined on a basis substantially consistent with the basis for the audited financial statements included or incorporated by reference in the Company's Annual Report on Form 10-K for the most recent fiscal year; (D) any unaudited pro forma consolidated condensed financial statements included or incor- porated by reference in the Prospectus do not comply as to form in all material respects with the applicable accounting requirements of the Act and the published rules and regulations thereunder or the pro forma adjustments have not been properly applied to the historical amounts in the compilation of those statements; (E) as of a specified date not more than five days prior to the date of such letter, there have been any changes in the consolidated capital stock (other than issuances of capital stock upon exercise of options and stock appreciation rights, upon earn-outs of performance shares and upon conversions of convertible securities, in each case which were outstanding on the date of the latest balance sheet included or incorporated by reference in the Prospectus) or any increase in the consolidated long-term debt of the Company and its subsidiaries, or any decreases in consolidated net current assets or net assets or other items specified by the Representatives, or any increases in any items specified by the Representatives, in each case as compared with amounts shown in the latest balance sheet included or incorporated by reference in the Prospectus, except in each case for changes, increases or decreases which the Prospectus discloses have occurred or may occur or which are described in such letter; and (F) for the period from the date of the latest financial statements included or incorporated by reference in the Prospectus to the specified date referred to in Clause (E) there were any decreases in consolidated net revenues or operating profit or the total or per share amounts of consolidated net income or other items specified by the Representatives, or any increases in any items specified by the Representatives, in each case as compared with the comparable period of the preceding year and with any other period of corresponding length specified by the Representatives, except in each case for increases or decreases which the Prospectus discloses have occurred or may occur or which are described in such letter; and (v) In addition to the examination referred to in their report(s) included or incorporated by reference in the Prospectus and the limited procedures, inspection of minute books, inquiries and other procedures referred to in paragraphs (iii) and (iv) above, they have carried out certain specified procedures, not constituting an examination in accordance with generally accepted auditing standards, with respect to certain amounts, percentages and financial information specified by the Representatives which are derived from the general accounting records of the Company and its subsidiaries, which appear in the Prospectus (excluding documents incorporated by reference) or in Part II of, or in exhibits and schedules to, the Registration Statement specified by the Representatives or in documents incorporated by reference in the Prospectus specified by the Representatives, and have compared certain of such amounts, percentages and financial information with the accounting records of the Company and its subsidiaries and have found them to be in agreement. (23) EX-5.1 3 CONSENT OF PILLSBURY MADISON & SUTRO 1 EXHIBIT 5.1 PILLSBURY MADISON & SUTRO May 5, 1994 McClatchy Newspapers, Inc. 2100 "Q" Street Sacramento, CA 95816 Re: McClatchy Newspapers, Inc. -- Registration Statement on Form S-3 (Registration No. 33-52475) Ladies and Gentlemen: We are acting as counsel for McClatchy Newspapers, Inc., a Delaware corporation (the "Company"), and those certain selling stockholders (the "Selling Stockholders"), in connection with the registration under the Securities Act of 1933, as amended, of 1,581,250 shares of the Company's Class A Common Stock, par value $.01 per share (the "Class A Common Stock"), of which 750,000 authorized but heretofore unissued shares (including 206,250 shares subject to the underwriters' over-allotment option) are to be offered and sold by the Company and 625,000 shares (75,000 of which are to be issued upon conversion of 75,000 shares of Class B Common Stock, par value $.01 per share, of the Company) are to be offered and sold by the Selling Stockholders. In this regard, we have participated in the preparation of a Registration Statement on Form S-3 (Registration No. 33-52475) and the amendments thereto relating to such 1,581,250 shares of Class A Common Stock. Such Registration Statement, as amended, is herein referred to as the "Registration Statement." We are of the opinion that (i) the shares of Class A Common Stock to be offered and sold by the Company have been duly authorized and, when issued and sold by the Company in the manner described in the Registration Statement, will be legally issued, fully paid and nonassessable, and (ii) the shares of Class A Common Stock to be offered and sold by the Selling Stockholders have been duly authorized and, when issued upon conversion of Class B Common Stock into Class A Common Stock in the manner described in the Registration Statement, such shares will be legally issued, fully paid and nonassessable. We hereby consent to the filing of this opinion as Exhibit 5.1 to the Registration Statement and to the use of our name under the caption "Legal Matters" in the Registration Statement and in the Prospectus included therein. Very truly yours, PILLSBURY MADISON & SUTRO EX-23.1 4 INDEPENDENT AUDITOR'S CONSENT 1 EXHIBIT 23.1 INDEPENDENT AUDITOR'S CONSENT We consent to the use in this Amendment No. 2 to Registration Statement No. 33-52475 of McClatchy Newspapers, Inc. on Form S-3 of our report dated February 1, 1994, included in the Annual Report on Form 10-K of McClatchy Newspapers, Inc. for the year ended December 31, 1993, and to the use of our report dated February 1, 1994, appearing in the Prospectus, which is part of this Registration Statement. We also consent to the reference to us under the heading "Experts" in such Prospectus. DELOITTE & TOUCHE Sacramento, California May 5, 1994 -----END PRIVACY-ENHANCED MESSAGE-----