McClatchy Reports Third Quarter 2010 Earnings

-- Improving ad revenue trends continued in the quarter

-- Cash operating expenses, excluding severance, down 4.2% in the quarter and down 12.3% in the nine-month period

-- Expect full-year operating cash flow to grow

-- Earnings from digital investments up significantly through the first nine months

Oct 19, 2010, 09:00 ET from The McClatchy Company

SACRAMENTO, Calif., Oct. 19 /PRNewswire-FirstCall/ -- The McClatchy Company (NYSE: MNI) today reported net income in the third quarter of 2010 of $12.1 million or 14 cents per share. Adjusted earnings(1) in the third quarter of 2010, excluding unusual items, were $10.6 million or 12 cents per share.

In the third quarter of 2009 the company's earnings from continuing operations were $23.6 million or 28 cents per share. Adjusted earnings from continuing operations(1) in the third quarter of 2009, excluding unusual items, were $11.0 million or 13 cents per share.

Unusual items affecting the third quarter results in each year are discussed below.

Revenues in the third quarter of 2010 were $327.7 million, down 5.7% from revenues of $347.4 million in the third quarter of 2009.  Advertising revenues were $249.1 million, down 6.4%, and circulation revenues were $66.4 million, down 3.8%.

Cash operating expenses (a non-GAAP term which is discussed below) in the third quarter, excluding severance costs, declined $10.7 million, or 4.2%, from the 2009 third quarter.

Management noted that earnings in the third quarter of 2010 benefited from the reversal of tax reserves and related interest as tax years in certain states closed.  

First Nine Months Results:

Income from continuing operations in the first nine months of 2010 was $17.4 million or 20 cents per share. Adjusted earnings from continuing operations,(1) excluding several unusual items discussed below, were  $23.6 million or 28 cents per share. Total net income, including discontinued operations, was $21.4 million or 25 cents per share.

Income from continuing operations for the first nine months of 2009 was $27.9 million, or 33 cents per share, and was affected by the unusual items discussed below. Adjusted earnings from continuing operations(1) were $11.0 million, or 13 cents per share, in the first nine months of 2009.  

Revenues in the first nine months of 2010 were down 6.8% to $1.0 billion compared to $1.1 billion in the 2009 period.  Advertising revenues in the 2010 period totaled $762.6 million, down 8.6%, and circulation revenues were $203.7 million, down 1.5%.

Management's Comments:

Commenting on McClatchy's third quarter results, Gary Pruitt, chairman and chief executive officer, said, "Advertising revenue trends continued to improve in the third quarter with ad revenues down year-over-year by 6.4% compared to declines of 8.2% in the second quarter and 11.2% in the first quarter of 2010.  Within the quarter, advertising revenues were down 6.1% in July, down 5.8% in August and down 7.3% in September.

"Classified advertising continued to recover in the third quarter, particularly in the employment and automotive categories. Employment advertising, more than half of which is now digital, grew throughout the quarter: up 0.1% in July, up 0.2% in August and up 5.6% in September.

"We have seen improving ad revenues since the second quarter of 2009 although September went against this trend. We believe the September results reflect the uneven nature of the economic recovery. The slowdown in September occurred primarily in national advertising and, to a lesser extent, in retail. The declines were greatest at our California and Florida newspapers, where the rate of economic recovery continues to be slower than we are seeing elsewhere.   

"In spite of the impact of the economy, our digital advertising revenue grew 1.6% in the quarter and represented 19.0% of our total third quarter advertising revenue. Our local online audiences continue to grow strongly, up 19.2% in the third quarter.

"Much of our digital success in classified advertising comes from Cars.com and CareerBuilder. We own more than a quarter of Cars.com and 14% of CareerBuilder, companies that provide state-of-the-art products that have boosted our digital auto and employment advertising revenues. Their earnings have also contributed significantly to our income this year. Income from all equity interests has more than doubled in the first nine months of the year to $8.2 million, with the increase coming primarily from Cars.com and CareerBuilder.

"As we have said many times, we continue to focus on becoming more efficient in our operations. Excluding severance costs, cash operating expenses were down 4.2% from the third quarter of 2009.  Through the first nine months of the year, our cash expenses excluding severance costs were down 12.3% and operating cash flow grew $31.1 million, or 13.5%, to $261.2 million.

"Looking ahead to the fourth quarter our visibility on revenues is limited, but we will work to maximize results and will remain vigilant in controlling costs. We expect cash operating expenses excluding severance costs in the fourth quarter to be flat to up only slightly reflecting the impact of higher newsprint prices.  As a result, we expect our full year operating cash flow to grow compared to last year."

Pat Talamantes, McClatchy's chief financial officer, said, "Debt at the end of the quarter was even with the second quarter at $1.8 billion, $113.4 million below year-end 2009, despite having to make the initial interest payment on our new 2017 bonds in the third quarter. Our leverage ratio at the end of the third quarter was 4.52 times trailing-12-month cash flow, down from 5.26 times at the end of 2009.  Our interest coverage ratio was 2.69 times at the end of the 2010 third quarter. Both of these measurements are well within our bank covenants which require a leverage ratio of no greater than 6.75 times and interest coverage ratio of at least 1.50 times."

(1)Adjusted Earnings From Continuing Operations and EPS:

The company entered into several transactions and reported several unusual events in the third quarters and first nine months of fiscal 2010 and 2009 that affected results:  

  • The company incurred a loss related to its debt refinancing and debt repayments in the first quarter of 2010.
  • Compensation in 2010 and 2009 included pre-tax severance charges incurred in connection with the restructuring plans.
  • 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. All but $375,000 of those senior notes were retired in the company's February 2010 debt refinancing.
  • During the second quarters of 2010 and 2009, the company recorded accelerated depreciation on production equipment associated with the outsourcing of printing at various newspapers.
  • In 2009 the company refined its estimate of its projected effective annual tax rate and applied the revised rate to the unusual items resulting in a significant adjustment in the third quarter of 2009.
  • Both the 2010 and 2009 third quarters included charges for certain discrete tax items, and, in 2010, included the reversal of interest on income taxes related to certain of those discrete tax items.

The impact of these items on the 2010 and 2009 results are summarized below (dollars in thousands, except per share amounts):  

Three Months Ended

Nine Months Ended

Sept. 26, 2010

Sept. 27, 2009

Sept. 26, 2010

Sept. 27, 2009

(Dollars in thousands, except per share amounts)

Income from continuing operations

$    12,081

$     23,601

$      17,401

$        27,880

Unusual items, net of tax:

  Sale of equity investment

(150)

(999)

61

(503)

  Loss (gain) on extinguishment of debt

-

430

4,726

(27,902)

  Restructuring related charges

1,292

516

3,700

9,584

  Amendment related write-offs of financing costs

-

-

-

140

  Accelerated depreciation  on equipment

-

-

1,841

4,034

  Reversal of interest on discrete tax items

(452)

-

(452)

-

Impact of revised projected annual tax rate

-

(11,245)

-

-

Certain discrete tax items

(2,187)

(1,334)

(3,621)

(2,264)

Adjusted income from continuing operations

$    10,584

$    10,969

$    23,656

$       10,969

Diluted earnings per share:

Income from continuing operations

$       0.14

$          0.28

$        0.20

$        0.33

Adjusted income from continuing operations

$       0.12

$         0. 13

$        0.28

$        0.13

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, and restructuring related charges) along with operating cash flow margins (operating cash flow divided by net revenues) that 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 operating results against investor and analyst financial models.

Operating income, non-operating expenses and income, income taxes, net income and diluted earnings per share 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.

In addition, the company's statistical report, which summarizes revenue performance for the third fiscal quarter and first nine months of 2010, follows.  

At noon Eastern time today, McClatchy will review its results in a conference call (877-278-1205 pass code 13411830) 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, publishing 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, 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; 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 Dec. 27, 2009, 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.  

***THE McCLATCHY COMPANY***

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)

(In thousands, except per share amounts)

Three Months Ended

Nine Months Ended

September 26,

September 27,

September 26,

September 27,

2010

2009

2010

2009

REVENUES - NET:

  Advertising

$       249,134

$       266,120

$       762,595

$       834,470

  Circulation

66,383

69,029

203,735

206,860

  Other

12,193

12,241

38,975

37,020

327,710

347,390

1,005,305

1,078,350

OPERATING EXPENSES:

  Compensation

126,574

130,048

394,144

453,483

  Newsprint and supplements

32,962

33,312

97,925

133,183

  Depreciation and amortization

32,651

32,678

100,373

110,685

  Other operating expenses

85,184

90,985

258,836

286,706

277,371

287,023

851,278

984,057

OPERATING INCOME

50,339

60,367

154,027

94,293

NON-OPERATING (EXPENSES) INCOME:

  Interest expense

(44,032)

(34,549)

(134,248)

(102,775)

  Interest income

449

9

520

46

  Equity income in unconsolidated

     companies, net

5,368

5,378

8,153

3,849

  Gain (loss) on extinguishment of debt

-

(680)

(7,519)

44,149

  Other - net

42

20

146

(314)

(38,173)

(29,822)

(132,948)

(55,045)

INCOME FROM CONTINUING OPERATIONS

 BEFORE INCOME TAX PROVISION

12,166

30,545

21,079

39,248

INCOME TAX PROVISION

85

6,944

3,678

11,368

INCOME FROM CONTINUING OPERATIONS

12,081

23,601

17,401

27,880

INCOME (LOSS) FROM DISCONTINUED

 OPERATIONS - NET OF INCOME TAXES

(161)

(38)

4,000

381

NET INCOME

$         11,920

$         23,563

$         21,401

$         28,261

NET INCOME PER COMMON SHARE:

  Basic:

    Income from continuing operations

$0.14

$0.28

$0.20

$0.33

    Income from discontinued operations

-

-

0.05

-

    Net income per share

$0.14

$0.28

$0.25

$0.33

  Diluted:

    Income from continuing operations

$             0.14

$             0.28

$             0.20

$             0.33

    Income from discontinued operations

-

-

0.05

-

    Net income per share

$             0.14

$             0.28

$             0.25

$             0.33

WEIGHTED AVERAGE NUMBER OF COMMON SHARES:

  Basic

84,834

84,052

84,695

82,274

  Diluted

85,458

84,061

85,443

82,327

See notes to condensed consolidated financial statements.

***The McClatchy Company***

Consolidated Statistical Report

(In thousands, except for preprints)

Quarter  3

Combined

Print Only

Digital Only

Revenues - Net:

2010

2009

% Change

2010

2009

% Change

2010

2009

% Change

Advertising

Retail

$127,733

$139,462

-8.4%

$109,564

$121,790

-10.0%

$18,170

$17,672

2.8%

National

21,808

24,097

-9.5%

16,418

18,668

-12.1%

5,390

5,429

-0.7%

Classified Total

70,893

75,641

-6.3%

46,996

52,027

-9.7%

23,897

23,614

1.2%

Automotive

20,956

22,050

-5.0%

12,473

13,745

-9.3%

8,483

8,305

2.1%

Real Estate

14,027

17,201

-18.5%

10,241

12,903

-20.6%

3,786

4,298

-11.9%

Employment

14,353

14,105

1.8%

6,635

6,615

0.3%

7,718

7,490

3.0%

Other

21,558

22,285

-3.3%

17,648

18,764

-5.9%

3,910

3,521

11.0%

Direct Marketing

28,456

26,473

7.5%

28,456

26,473

7.5%

Other Advertising

244

447

-45.4%

244

447

-45.4%

Total Advertising

$249,134

$266,120

-6.4%

$201,678

$219,405

-8.1%

$47,457

$46,715

1.6%

Circulation

66,383

69,029

-3.8%

Other

12,193

12,241

-0.4%

Total Revenues

$327,710

$347,390

-5.7%

Advertising Revenues by Market:

California

$44,347

$48,542

-8.6%

$36,410

$40,473

-10.0%

$7,937

$8,069

-1.6%

Florida

33,061

36,507

-9.4%

26,846

29,580

-9.2%

6,215

6,927

-10.3%

Texas

28,662

30,287

-5.4%

23,452

25,431

-7.8%

5,210

4,856

7.3%

Southeast

72,703

76,992

-5.6%

58,791

63,683

-7.7%

13,912

13,309

4.5%

Midwest

42,367

43,806

-3.3%

33,855

35,587

-4.9%

8,512

8,218

3.6%

Northwest

27,978

29,965

-6.6%

22,324

24,651

-9.4%

5,655

5,314

6.4%

Other

16

21

-23.8%

0

0

0.0%

16

22

-27.3%

Total Advertising

$249,134

$266,120

-6.4%

$201,678

$219,405

-8.1%

$47,457

$46,715

1.6%

Advertising Statistics for Dailies:

Full Run ROP Linage

4,928.7

5,204.2

-5.3%

Millions of Preprints Distributed

1,281.9

1,294.5

-1.0%

Average Paid Circulation:*

Daily

2,040.8

2,174.7

-6.2%

Sunday

2,674.7

2,840.1

-5.8%

Columns may not add due to rounding

*    Reflects average paid circulation based upon number of days in period. Does not reflect ABC reported figures.

***The McClatchy Company***

Consolidated Statistical Report

(In thousands, except for preprints)

September  Year-to-Date

Combined

Print Only

Digital Only

Revenues - Net:

2010

2009

% Change

2010

2009

% Change

2010

2009

% Change

Advertising

Retail

$392,033

$436,719

-10.2%

$338,959

$386,228

-12.2%

$53,074

$50,491

5.1%

National

71,067

75,791

-6.2%

54,560

59,951

-9.0%

16,508

15,839

4.2%

Classified Total

214,330

237,350

-9.7%

145,117

166,835

-13.0%

69,213

70,516

-1.8%

Automotive

62,579

69,551

-10.0%

38,872

45,310

-14.2%

23,708

24,242

-2.2%

Real Estate

43,258

55,631

-22.2%

32,273

42,660

-24.3%

10,985

12,971

-15.3%

Employment

43,284

46,447

-6.8%

20,168

23,435

-13.9%

23,117

23,012

0.5%

Other

65,208

65,720

-0.8%

53,804

55,430

-2.9%

11,404

10,290

10.8%

Direct Marketing

84,166

83,284

1.1%

84,166

83,284

1.1%

Other Advertising

999

1,326

-24.7%

999

1,326

-24.7%

Total Advertising

$762,595

$834,470

-8.6%

$623,801

$697,624

-10.6%

$138,795

$136,846

1.4%

Circulation

203,735

206,860

-1.5%

Other

38,975

37,020

5.3%

Total Revenues

$1,005,305

$1,078,350

-6.8%

Advertising Revenues by Market:

California

$136,988

$151,723

-9.7%

$113,668

$128,156

-11.3%

$23,320

$23,567

-1.0%

Florida

107,187

120,163

-10.8%

88,073

99,674

-11.6%

19,113

20,489

-6.7%

Texas

86,429

93,550

-7.6%

71,514

79,273

-9.8%

14,916

14,277

4.5%

Southeast

220,597

240,124

-8.1%

179,720

199,830

-10.1%

40,878

40,294

1.4%

Midwest

127,260

135,576

-6.1%

102,601

112,887

-9.1%

24,659

22,689

8.7%

Northwest

84,082

93,256

-9.8%

68,225

77,804

-12.3%

15,857

15,452

2.6%

Other

52

78

-33.3%

0

0

0.0%

52

78

-33.3%

Total Advertising

$762,595

$834,470

-8.6%

$623,801

$697,624

-10.6%

$138,795

$136,846

1.4%

Advertising Statistics for Dailies:

Full Run ROP Linage

14,993.8

15,930.8

-5.9%

Millions of Preprints Distributed

3,776.1

3,978.1

-5.1%

Average Paid Circulation:*

Daily

2,137.9

2,315.9

-7.7%

Sunday

2,761.3

2,968.0

-7.0%

Columns may not add due to rounding

*    Reflects average paid circulation based upon number of days in period. Does not reflect ABC reported figures.

***THE McCLATCHY COMPANY***

Reconciliation of GAAP Measures to Non-GAAP Amounts

(In thousands)

Reconciliation of Operating Income  to Operating Cash Flows

Three Months Ended

Nine Months Ended

September 26,

September 27,

September 26,

September 27,

2010

2009

2010

2009

REVENUES - NET:

  Advertising

$    249,134

$     266,120

$   762,595

$    834,470

  Circulation

66,383

69,029

203,735

206,860

  Other

12,193

12,241

38,975

37,020

327,710

347,390

1,005,305

1,078,350

OPERATING EXPENSES:

  Compensation excluding restructuring charges

124,198

128,698

387,336

428,386

  Newsprint and supplements

32,962

33,312

97,925

133,183

  Other operating expenses

85,184

90,985

258,836

286,706

  Cash operating expenses excluding

    restructuring charges

242,344

252,995

744,097

848,275

  Restructuring related compensation

2,376

1,350

6,808

25,097

  Depreciation and amortization

32,651

32,678

100,373

110,685

  Total operating expenses

277,371

287,023

851,278

984,057

OPERATING INCOME

50,339

60,367

154,027

94,293

Add back:

  Depreciation and amortization

32,651

32,678

100,373

110,685

  Restructuring related compensation charges

2,376

1,350

6,808

25,097

OPERATING CASH FLOW

$      85,366

$       94,395

$   261,208

$    230,075

OPERATING CASH FLOW MARGIN

26.0%

27.2%

26.0%

21.3%

Reconciliation of Net Income to Adjusted Net Income

Net income from continuing operations

$      12,081

$       23,601

$     17,401

$      27,880

Add back certain items, net of tax:

  Loss (gain) on extinguishment of debt

-

430

4,726

(27,902)

  Restructuring related charges

1,292

516

3,700

9,584

  Loss on sale of equity investments

(150)

(999)

61

(503)

  Amendment related write-off of financing costs

-

-

-

140

  Accelerated depreciation on equipment

-

-

1,841

4,034

  Reversal of interest on tax items

(452)

-

(452)

-

Impact of revised projected annual tax rate

-

(11,245)

-

-

Certain discrete tax items

(2,187)

(1,334)

(3,621)

(2,264)

Adjusted income from continuing operations

$      10,584

$       10,969

$     23,656

$      10,969

Earnings per share:

Income from continuing operations

$          0.14

$           0.28

$         0.20

$          0.33

Adjusted income  from continuing operations

$          0.12

$           0.13

$         0.28

$          0.13

SOURCE The McClatchy Company



RELATED LINKS

http://www.mcclatchy.com