McClatchy Reports Growth in Fourth Quarter 2009 Earnings

SACRAMENTO, Calif., Jan. 27 /PRNewswire-FirstCall/ -- The McClatchy Company (NYSE: MNI) today reported net income from continuing operations in the fourth quarter of 2009 of $32.4 million, or 38 cents per share, compared to a loss of $20.4 million, or 25 cents per share, in the 2008 quarter. Adjusted earnings from continuing operations(1)  were $49.6 million, or 59 cents per share, in the fourth quarter of 2009 after excluding the unusual items discussed below, compared to $21.8 million, or 26 cents per share, reported in the fourth quarter of 2008.  Total net income including discontinued operations was $25.8 million, or 30 cents per share in the fourth quarter of 2009 compared to a net loss of $27.0 million, or 33 cents per share in the 2008 fourth quarter.

Unusual items affecting the fourth-quarter results from continuing operations in each year are discussed below and are included in adjusted earnings from continuing operations.(1)

Revenues in the fourth quarter of 2009 were $393.2 million, down 16.5% from the fourth quarter of 2008.  Advertising revenues were $308.7 million, down 20.5% from 2008, and circulation revenues were $71.4 million, up 6.6%.  Online advertising revenues grew 14.9% in the fourth quarter of 2009 and were 15.8% of total advertising revenues compared to 10.9% of total advertising revenues in the fourth quarter of 2008.

Cash expenses, excluding severance associated with restructuring plans, declined $100.8 million, or 28.5% from the 2008 quarter.  Operating cash flow, a non-GAAP measure, was $139.9 million, up 19.8% (non-GAAP measurements are discussed below).

Full Year Results:

Income from continuing operations for 2009 was $60.3 million, or 72 cents per share, and was affected by the impact of the unusual items discussed below. Adjusted earnings from continuing operations(1) were $60.6 million, or 72 cents per share, in 2009.  Total net income including discontinued operations was $54.1 million, or 65 cents per share, in 2009.

Income from continuing operations for 2008 was $2.8 million, or three cents per share, and was affected by the impact of the unusual items discussed below. Adjusted earnings from continuing operations (1) were $55.4 million, or 67 cents per share, in 2008.  Total net loss including discontinued operations was $4.0 million, or five cents per share, in 2008.

Revenues in 2009 were down 22.6% to $1.5 billion compared to $1.9 billion in 2008.  Advertising revenues in 2009 totaled $1.1 billion, down 27.1%, and circulation revenues were $278.3 million, up 4.8%.

Management's Comments:

Commenting on McClatchy's results, Gary Pruitt, chairman and chief executive officer, said, "We were pleased to see 2009 end on a more positive note. The advertising revenue trend improvement in October and November continued into December. Ad revenues, which were down 28.1% year-over-year in the third quarter, declined 25.9% in October, 19.6% in November and 14.9% in December. Importantly, we reported strong growth in our digital advertising revenues, up 14.9% in the fourth quarter compared to 2008.

"We're seeing some evidence of a recovery in classified advertising. It's typically the first area of our business to suffer in a downturn – and also the first to rebound when the economy improves. Importantly, the improvement in the rate of decline is consistent across all regions and categories of classified advertising, both in print and online advertising.

"Our transition to a successful hybrid print and online company continues to advance. Our online audiences are growing. Average monthly unique visitors to our websites were up 18.6% in 2009.  McClatchy's online advertising from its websites represents an industry-leading 16.2% of total newspaper advertising revenue for all of 2009. Conventional thinking holds that newspaper companies are being left behind as advertising migrates from print to the internet. But that is not true at McClatchy. About one-third of our classified advertising now takes place online. More than half of employment, one-third of automotive and a quarter of real estate advertising is digital.

"But given that total ad revenues are still negative and secular challenges remain, we will continue to focus on costs. We feel we've made real progress in reengineering our company over the past few years. In 2009 cash expenses declined by about $390 million, or 26.1%.  The results are clear: Our operating cash flow grew 19.8% in the fourth quarter compared to the fourth quarter of 2008, on top of growth in the third quarter. And every one of our newspapers is profitable.

"Based on the first few weeks in January, ad revenues are down in the low- to mid-teens percentage range and that is consistent with where we expect to see ad revenues in the first quarter of 2010.  We also expect cash expenses to be down in the low-20 percent range in the first quarter, so we expect to see strong double-digit growth in operating cash flow, which would enable us to continue to improve our leverage ratio. Our debt at the end of 2009 was 5.26 times cash flow as defined under our credit agreement, and we expect it to decline to approximately 5.0 times by the end of the first quarter.

"While we are seeing improving advertising revenue trends, we still have a lot of hard work ahead of us as we weather the current economic environment. We will remain vigilant in realigning our costs to focus on our core competencies: high quality journalism, advertising sales and digital media."

Pat Talamantes, McClatchy's chief financial officer, said, "We completed the quarter with debt principal outstanding of $1.95 billion, down more than $174 million from the end of 2008.  Based on our trailing 12 months of cash flow, our leverage ratio, as defined under our credit agreement, improved for the third consecutive quarter to 5.26 times at the end of the fourth quarter, and our interest coverage ratio was 3.08 times.  Both of these ratios are well within the covenant requirements under our current credit agreement of a leverage ratio of less than 7.0 times and an interest coverage ratio of greater than 2.0 times. And, as Gary said, we expect further improvement in our leverage ratio in the first quarter.

"We are also pleased to report that our pension plan had strong returns in 2009 and, based on preliminary results, the unfunded status of the company's pension plans improved by approximately $114 million from year-end 2008."

(1) Adjusted Earnings From Continuing Operations and EPS:

Earnings in the fourth quarters and the full years of 2009 and 2008 included the impact of several unusual events, including:

2009 transactions and events:

• In March 2009, the company announced restructuring efforts which included, among other things, reducing its workforce by approximately 15%, freezing the company's pension plans and temporarily suspending the company's matching contribution to its 401(k) plan as of March 31, 2009.
• On May 21, 2009, the company launched a private debt exchange offer for all of its outstanding debt securities for a combination of cash and new debt securities. The offer closed on June 25, 2009, and the company exchanged $3.4 million in cash and $24.2 million of newly issued senior notes for $102.8 million of debt securities. The company recorded a gain on the transaction in the second quarter.
• In connection with the exchange offer described above, the company entered into an agreement with its lenders on May 20, 2009, to amend its credit agreement which, among other things, allowed the company to use up to $60 million of its revolving credit facility to repurchase its unsecured notes due in 2011 or unsecured notes due in 2014, subject to certain conditions. As a result, the company wrote off a portion of its original financing costs related to its credit agreement in the second quarter.
• During the second quarter of 2009, the company recorded $10.6 million of accelerated depreciation on production equipment resulting from the outsourcing of printing at several of its newspapers.
• The company recorded additional closing adjustments that impacted the gain on the 2008 sale of SP Newsprint Company of which McClatchy was a one-third owner.  The company received $60 million in proceeds from this sale ($5 million in 2009), which was used to repay debt.
• The company recorded a $26.3 million non-cash write-down of the value of land held for sale in Miami in the fourth quarter of 2009 reflecting the challenging credit markets faced by the buyer and the decline in the commercial real estate market in Miami.
• The Company's effective tax rate was 35.4% for the fourth quarter of 2009 and 32.6% for all of 2009, which was lower than the previously estimated annual rate of 61.8% due primarily to the impact of a settlement for certain state tax issues that were resolved during the quarter and greater earnings before taxes generated in the fourth quarter of 2009 than anticipated. The revised rates were applied to the unusual items in the adjusted earnings from continuing operations below and the impact is separately identified in the schedule.
• The settlement of certain open state tax issues (discussed above) for which the company had provided taxes in prior years resulted in a reduction of the company's fourth quarter tax expense of $4.8 million, and reduced interest on tax liabilities by $6.9 million.

2008 transactions and events:

• In May 2008, the company purchased $300 million aggregate principal amount of its outstanding publicly-traded debt securities for $282.4 million. The company recorded a gain on the transaction in the second quarter of 2008.
• On June 16, 2008, and again on September. 16, 2008, the company announced restructuring plans to permanently reduce its workforce. The reductions were implemented in the second and fourth quarters of 2008.
• On June 30, 2008, the company sold its 15.0% interest in ShopLocal, LLC for $7.875 million and used the proceeds to reduce debt and recorded a write-off in the second quarter of 2008 related to ShopLocal's carrying value. In addition, one of the internet companies in which McClatchy has an investment incurred an impairment charge on a product and as a result, the company recognized a charge related to this investment in the second quarter.
• In March and September 2008, the company obtained amendments to its credit agreement which provided greater flexibility for the life of the credit facility in the allowable leverage and interest coverage ratios, the two primary financial covenants contained in the agreement. As a result, the company wrote off a portion of its original financing costs related to its credit agreement in the first and third quarters of 2008.

Both the 2009 and 2008 results included charges for certain discrete tax items.

The impact of these items on the 2009 and 2008 results are summarized below (dollars in thousands, except per share amounts):

Non-GAAP Financial Measures:

In addition to the results reported in accordance with accounting principles generally accepted in the United States ("GAAP") included in this press release the company has provided information regarding operating income, non-operating expenses and income, income taxes, net income and diluted earnings per share (EPS) excluding certain special or unusual items described in the table above. In addition, the company has presented operating cash flows (defined as operating income plus depreciation and amortization, non-cash charges for impairment of assets included in operating income, and restructuring related charges) along with operating cash flow margins (operating cash flow divided by net revenues), which are reconciled to GAAP measures in an attached schedule. Management believes these non-GAAP measures, when read in conjunction with the company's GAAP financials, provide useful information to investors by offering:

• the ability to make more meaningful period-to-period comparisons of the company's on-going operating results;
• the ability to better identify trends in the company's underlying business;
• a better understanding of how management plans and measures the Company's underlying business; and
• an easier way to compare the company's most recent results of operations against investor and analyst financial models.

Operating income, non-operating expenses and income, income taxes, net income and diluted earnings per share (EPS) excluding certain special or unusual items should not be considered a substitute or an alternative to these computations calculated in accordance with and required by GAAP. Nor are operating cash flow and operating cash flow margins to be considered replacements for cash provided by operating activities as shown in the company's statement of cash flows.

The company's statistical report, which summarizes revenue performance for the 2009 fourth fiscal quarter and fiscal year 2009, follows.

At 11 a.m. Eastern time today, McClatchy will review its results in a conference call (877-278-1205 pass code 51959527) and webcast (www.mcclatchy.com).  The webcast will be archived at McClatchy's website.

About McClatchy

The McClatchy Company is the third largest newspaper company in the United States, with 30 daily newspapers, 43 non-dailies, and direct marketing and direct mail operations. McClatchy also operates leading local websites in each of its markets which extend its audience reach. The websites offer users comprehensive news and information, advertising, e-commerce and other services. Together with its newspapers and direct marketing products, these interactive operations make McClatchy the leading local media company in each of its premium high growth markets. McClatchy-owned newspapers include The Miami Herald, The Sacramento Bee, the Fort Worth Star-Telegram, The Kansas City Star, The Charlotte Observer, and The News & Observer (Raleigh).

McClatchy also owns a portfolio of premium digital assets, including 14.4% of CareerBuilder, the nation's largest online job site, 25.6% of Classified Ventures, a newspaper industry partnership that offers two of the nation's premier classified websites: the auto website, cars.com, and the rental site, Apartments.com and 33.3% of HomeFinder, LLC which operates the real estate website HomeFinder.com. McClatchy is listed on the New York Stock Exchange under the symbol MNI.

Additional Information:

Statements in this press release regarding future financial and operating results, including revenues, anticipated savings from cost reduction efforts, future dividend payments, cash flows, debt levels, as well as future opportunities for the company and any other statements about management's future expectations, beliefs, goals, plans or prospects constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  Any statements that are not statements of historical fact (including statements containing the words "believes," "plans," "anticipates," "expects," "estimates" and similar expressions) should also be considered to be forward-looking statements.  There are a number of important risks and uncertainties that could cause actual results or events to differ materially from those indicated by such forward-looking statements, including: the duration and depth of the economic recession; McClatchy may not generate cash from operations, or otherwise, necessary to reduce debt or meet debt covenants as expected; McClatchy may not consummate contemplated transactions to enable debt reduction on anticipated terms or at all; McClatchy may not achieve its expense reduction targets or may do harm to its operations in attempting to achieve such targets; McClatchy's operations have been, and will likely continue to be, adversely affected by competition, including competition from internet publishing and advertising platforms; the Company's inability to continue to satisfy the New York Stock Exchange's qualitative and quantitative listing standards for continued listing; increases in the cost of newsprint; bankruptcies or financial strain of its major advertising customers; litigation or any potential litigation; geo-political uncertainties including the risk of war; changes in printing and distribution costs from anticipated levels; changes in interest rates; changes in pension assets and liabilities; increased consolidation among major retailers in our markets or other events depressing the level of advertising; our inability to negotiate and obtain favorable terms under collective bargaining agreements with unions; competitive action by other companies; decreased circulation and diminished revenues from retail, classified and national advertising; and other factors, many of which are beyond our control; as well as the other risks detailed from time to time in the Company's publicly filed documents, including the Company's Annual Report on Form 10-K for the year ended December 28, 2008, filed with the U.S. Securities and Exchange Commission. McClatchy disclaims any intention and assumes no obligation to update the forward-looking information contained in this release.

SOURCE The McClatchy Company