ITEM 1. BUSINESS
OVERVIEW
McClatchy Newspapers, Inc. and subsidiaries (the Company), originally
incorporated in California in 1930 and reincorporated in Delaware on August 7,
1987, owns and publishes 20 newspapers in California, Washington, Alaska and
South Carolina, ranging from large daily newspapers serving metropolitan areas
to non-daily newspapers serving small communities. For the year ended December
31, 1993 the Company had average paid daily circulation of 815,000, Sunday
962,100 and nondaily circulation 31,700.
Each of the Company's newspapers is semiautonomous in its business and
editorial operations so as to meet most effectively the needs of the communities
it serves. Publishers, editors and general managers of the newspapers make the
day-to-day decisions and within limits are responsible for their own budgeting
and planning. Policies on such matters as the amount and type of capital
expenditures, key personnel changes, and strategic planning and operating
budgets including wage and pricing matters, are approved or established by the
Company's senior management or Board of Directors.
The Company's overall strategy is to concentrate on developing its
newspapers and smaller related businesses. Each of its seven major daily
newspapers has the largest circulation of any newspaper servicing its particular
metropolitan area. The Company believes that this circulation advantage is of
primary importance in attracting advertising, the principal source of revenues
for the Company. Advertising revenues approximated 78% of consolidated revenues
in both 1993 and 1992. Circulation revenues approximated 19% of consolidated
revenues in 1993 and 18% in 1992.
The northern California economy, home to three of the Company's larger
newspapers, slowed in 1991 and continues to be affected by the economic
downturn, albeit not as severely as the downturn in the southern half of the
state. The decline in the Company's combined linage was offset by increases in
advertising rates resulting in advertising revenue growth of 1.3%. The Company
continued to show growth in average paid circulation in 1993. See the following
discussion of individual newspapers and Part II, Item 7 for further elaboration
of the impact of these trends on the Company's business.
The Company's newspaper business is somewhat seasonal, with peak revenues
and profits generally occurring in the second and fourth quarters of each year
as a result of increased advertising activity during the Easter holiday and
spring advertising season, and Thanksgiving and Christmas periods. The first
quarter is historically the weakest quarter for revenues and profits.
Other businesses owned by the Company include Legi-Tech, an 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 Co., a commercial printing operation, located in
Clovis, California. In 1993 the Company expanded Big Valley, a previously West
Coast based distributor of preprinted advertising inserts, to a national
operation under a newly formed subsidiary, The Newspaper Network, Inc. Revenues,
operating income and assets for each of these businesses are less than 10% of
total consolidated revenues, operating income and assets of the Company. 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.
The Company also distributes information by electronic technology. The
Company believes that individual newspapers, as primary information providers in
their respective markets, will play a pivotal role in the potential growth of
this segment in the industry.
THE SACRAMENTO BEE
The Sacramento Bee, the Company's largest newspaper, is a morning newspaper
serving the California state capital and its metropolitan area. Based on the
Company's records, The Sacramento Bee's average paid circulation was
approximately 271,700 daily and 341,000 Sunday in 1993 compared to 266,900 daily
and 337,900 Sunday in 1992.
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Until October 1993 The Sacramento Bee's principal direct newspaper
competitor was the Sacramento Union, a morning daily and Sunday newspaper. In
October 1993 the Union became a thrice-weekly newspaper and in January 1994
ceased publications.
The suggested home delivery price for The Sacramento Bee is $10.75 per
month. The newsstand price is $0.50 for the daily paper and $1.25 for the Sunday
paper. As of December 31, 1993, approximately 86% of the daily and 79% of the
Sunday circulation was home delivered.
The Sacramento Bee's advertising linage for the years ended December 31,
1993 and 1992 is set forth in the following table.
1993 1992
----- -----
Advertising Linage (in thousands of six-column
inches):
Full Run........................................ 2,408 2,530
Part Run........................................ 328 345
Total Market Coverage........................... 158 159
Net revenues of The Sacramento Bee were $165,322,000 in 1993 and
$168,486,000 in 1992.
THE FRESNO BEE
The Fresno Bee is a morning newspaper serving the Fresno, California
metropolitan area. Based on the Company's records, The Fresno Bee's average paid
circulation was approximately 149,900 daily and 186,800 Sunday compared to
146,800 daily and 183,100 Sunday in 1992.
Among the small newspapers which compete with The Fresno Bee is the Clovis
Independent, a Company-owned weekly newspaper with about 4,000 circulation. As
of December 31, 1993, approximately 89% of The Fresno Bee's daily and 85% of the
Sunday circulation was home delivered. The suggested home delivery price is
$10.50 per month. The newsstand price is $0.50 for the daily paper and $1.25 for
the Sunday paper.
The Fresno Bee's advertising linage for the years ended December 31, 1993
and 1992 is set forth in the following table.
1993 1992
----- -----
Advertising Linage (in thousands of six-column
inches):
Full Run........................................... 1,483 1,415
Part Run........................................... 159 184
Total Market Coverage.............................. 170 167
Net revenues of The Fresno Bee were $79,072,000 in 1993 and $77,153,000 in
1992.
THE MODESTO BEE
The Modesto Bee is a morning newspaper serving the Modesto, California
metropolitan area. Based on the Company's records, The Modesto Bee's average
paid circulation was approximately 83,000 daily and 91,900 Sunday in 1993
compared to 82,500 daily and 91,700 Sunday in 1992.
The Modesto Bee competes with small daily and weekly newspapers in its
market area. The suggested home delivery price is $10.50 per month. The
newsstand price is $0.50 for the daily paper and $1.25 for the Sunday paper. As
of December 31, 1993, approximately 89% of the daily and 86% of the Sunday
circulation was home delivered.
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The Modesto Bee's advertising linage for the years ended December 31, 1993
and 1992 is set forth in the following table.
1993 1992
----- -----
Advertising Linage (in thousands of six-column
inches):
Full Run........................................... 1,237 1,269
Part Run........................................... 99 108
Total Market Coverage.............................. 567 402
Net revenues of The Modesto Bee were $42,925,000 in 1993 and $43,662,000 in
1992.
THE NEWS TRIBUNE
The News Tribune, a morning newspaper, primarily serves the Tacoma,
Washington metropolitan area. Based on the Company's records, the average paid
circulation of the News Tribune was approximately 128,600 daily and 147,800
Sunday in 1993 compared to 126,900 daily and 144,500 Sunday in 1992.
Tacoma is approximately 30 miles south of Seattle. The News Tribune
competes in the northern most fringes of its market with the major Seattle daily
newspapers. Among the small newspapers which compete with The News Tribune is
the Pierce County Herald a Company-owned twice-weekly newspaper with about 8,800
circulation. The suggested home delivery price of The News Tribune is $10.00 per
month. The newsstand price of The News Tribune is $0.35 for the daily paper and
$1.25 for the Sunday paper. As of December 31, 1993 approximately 83% of the
daily and 81% of the Sunday circulation was home delivered.
The News Tribune's advertising linage for the years ended December 31, 1993
and 1992 is set forth in the following table.
1993 1992
----- -----
Advertising Linage (in thousands of six-column
inches):
Full Run........................................... 1,291 1,292
Part Run........................................... 28 20
Total Market Coverage.............................. 31 22
Net revenues of The News Tribune were $64,324,000 in 1993 and $61,647,000
in 1992.
ANCHORAGE DAILY NEWS
The Anchorage Daily News, a morning newspaper, is Alaska's largest
newspaper. The Anchorage Daily News circulates throughout the state of Alaska
but its primary circulation is concentrated in the south central region of the
state comprised of metropolitan Anchorage, the Kenai Peninsula and the
Matanuska-Susitna Valley.
The suggested home delivery price of the Anchorage Daily News is $9.50 per
month for city delivery. The newsstand price of the Anchorage Daily News is
$0.50 for the daily paper and $1.00 for the Sunday paper. As of December 31,
1993 approximately 72% of the daily and 63% of the Sunday circulation was home
delivered.
The Anchorage Daily News' principal direct competitor was the Anchorage
Times. In June 1992, the Anchorage Times ceased publication and the Company
purchased certain of its operating assets. Based on the Company's records, the
Daily News' average paid circulation was approximately 73,400 daily and 97,100
Sunday in 1993 compared to 72,000 daily and 94,900 Sunday in 1992.
Comparative amounts of linage for the years ended December 31, 1993 and
1992 are set forth in the following table.
1993 1992
----- -----
Advertising Linage (in thousands of six-column
inches):
Full Run........................................... 1,053 1,390
Total Market Coverage.............................. 30 43
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Net revenues of the Anchorage Daily News were $41,923,000 in 1993 and
$36,648,000 in 1992.
TRI-CITY HERALD
The Tri-City Herald is a morning newspaper serving the Tri-Cities of
Richland, Kennewick and Pasco in southeastern Washington. Efforts to diversify
the economic base of the area, which has depended in the past on energy
development and agriculture, are having a positive impact in the Tri-Cities.
The Tri-Cities economy benefitted in 1993 by the Department of Energy's efforts
to clean up nuclear waste at nearby Hanford Nuclear reservation. Over the last
several years the clean-up activity has contributed to revenue growth at the
Tri-City Herald.
Based on the Company's records, the Tri-City Herald's average paid
circulation was approximately 38,600 daily and 41,900 Sunday in 1993 compared to
37,300 daily and 40,400 Sunday in 1992.
The suggested home delivery price of the Tri-City Herald is $9.50 per month
while the newsstand price for its daily paper is $0.50 and the newsstand price
for its Sunday paper is $1.25. As of December 31, 1993, approximately 92% of the
daily and 90% of the Sunday circulation was home delivered.
The Tri-City Herald's advertising linage for the years ended December 31,
1993 and 1992 is set forth in the following table.
1993 1992
--- ---
Advertising Linage (in thousands of six-column inches):
Full Run.............................................. 721 656
Total Market Coverage................................. 20 25
Net revenues of the Tri-City Herald were $15,626,000 in 1993 and
$14,089,000 in 1992.
THE (ROCK HILL) HERALD
The Herald is a morning newspaper serving Rock Hill and surrounding
communities in York County, South Carolina. Rock Hill is a community
approximately 25 miles southwest of Charlotte, North Carolina. The Herald's
average paid circulation as reported by the Company was 31,000 daily and 30,700
Sunday in 1993 compared to 30,400 daily and 29,800 Sunday in 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. The Herald also competes with the
Yorkville Enquirer and the Clover Herald, weekly newspapers, and the Lake Wylie
Magazine, a monthly magazine, all company-owned publications. The newsstand
prices for the Herald are $0.25 daily and $0.75 Sunday and the suggested home
delivery price is $7.50 per month. As of December 31, 1993, approximately 81% of
the daily and 82% of the Sunday circulation was home delivered.
According to the Herald's records, advertising linage for the years ended
December 31, 1993 and 1992 were as follows:
1993 1992
--- ---
Advertising Linage (in thousands of six-column inches):
Full Run.............................................. 725 642
Total Market Coverage................................. 60 56
Net revenues of the Herald were $9,514,000 in 1993 and $8,723,000 in 1992.
OTHER NEWSPAPERS
During 1993 the Company published five small daily and eight nondaily
community newspapers (including the previously mentioned weekly newspapers).
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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.
RAW MATERIALS
In 1993 the Company consumed approximately 137,000 metric tons of newsprint
compared to 138,000 metric tons in 1992. The Company currently obtains its
supply of newsprint from a number of suppliers, both foreign and domestic, under
long-term contracts.
Newsprint costs accounted for approximately 15.1% of operating expenses in
1993. Management believes its newsprint sources of supply under existing
arrangements are adequate for its anticipated needs. Weak demand for newsprint
resulting from lower newspaper advertising caused a weakening in newsprint
prices in 1992 which persisted in 1993. A substantial increase in the price of
newsprint would adversely affect the operating results of the Company to the
extent that it was not offset by advertising and circulation volume and/or rate
increases.
The Company, through a wholly-owned subsidiary, Newsprint Ventures, Inc.
and four other publishers and a Canadian newsprint manufacturer are partners in
Ponderay Newsprint Company, a general partnership formed to construct and
operate a newsprint mill located sixty miles northeast of Spokane, Washington.
The mill became operational in late 1989 and has a production capacity in excess
of 200,000 metric tons annually. The publisher partners have committed to take
126,000 metric tons of this anticipated production on a "take-if-tendered" basis
with the balance to be sold on the open market. The Company's annual commitment
is 28,400 metric tons. See Part II, Items 7 and 8 for further discussion of the
impact of this investment on the Company's business.
COMPETITION
The Company faces competition for advertising revenues from television,
radio and direct mail programs, suburban neighborhood and national newspapers
and other publications. The Company's daily newspaper competitor in Sacramento,
California, the Sacramento Union, ceased publication in January 1994. The
Company's primary competitor in Anchorage, the Anchorage Times, ceased
operations in June 1992. Competition for advertising is based upon circulation
levels, readership demographics, price and advertiser results, while competition
for circulation is generally based upon the content, journalistic quality and
price of the newspaper. The Company's major daily newspapers are well ahead of
their newspaper competitors in both advertising linage and general circulation
in all of their markets.
EMPLOYEES -- LABOR
As of December 31, 1993, the Company had 6,304 employees, of whom
approximately 13% were represented by unions. Following the expiration of
contracts with certain unions at The Sacramento Bee, The Fresno Bee and The
Modesto Bee, negotiations between the newspapers and the affected unions (which
represent approximately 10% of these newspapers' employees) reached an impasse.
In early 1987, final offers were "posted" to the unions at the Sacramento and
Fresno Bees. In 1990, a final offer to the union at The Modesto Bee was posted.
It is under these posted conditions that such union employees have been working.
Negotiations have been resumed with the unions at the Sacramento and Fresno
Bees. At The News Tribune
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in Tacoma, Washington negotiations between the newspaper and one union
representing about 6% of The News Tribune's employees reached an impasse and
these employees are working under posted conditions.
While the Company's newspapers have not had a strike since 1978 and they do
not currently anticipate a strike occurring, the Company cannot preclude the
possibility that a strike may occur at one or more of its newspapers. The
Company believes that, in the event of a newspaper strike, the affected
newspaper would be able to continue to publish and deliver to subscribers, a
capability which is critical to retaining revenues from advertising and
circulation.