The McClatchy Company
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McClatchy Reports Growth in Fourth Quarter 2009 Earnings

Released: 01/27/2010

SACRAMENTO, Calif. -- 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:

2008 transactions and events:

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):

Three Months Ended Year Ended
(Dollars in thousands, except per share amounts) December 27, 2009 December 28, 2008 December 27, 2009 December 28, 2008
Income (loss) from continuing operations $32,384  $(20,418) $60,264  $   2,807 
Unusual items, net of tax:
  Sale of SP Newsprint Company interest 82  (501) (21,703)
  Gain on extinguishment of debt 20  (851) (27,780) (13,306)
  Restructuring related charges 1,596  1,351  15,672  26,821 
  Impairment related charges 17,834  36,331  17,834  51,816 
  Accelerated depreciation on equipment 5,794 
  Write-off of financing costs 230  2,355 
  Reversal of interest on tax settlements (3,839) (3,839)
  Impact of revised projected annual tax rate 6,442 
Certain discrete tax items (4,797) 5,287  (7,061) 6,600 
Adjusted income from continuing operations $49,644  $21,782  $60,613  $55,390 
Earnings per share:
Income (loss) from continuing operations $   0.38  $  (0.25) $    0.72  $  0.03 
Adjusted income from continuing operations $   0.59  $    0.26  $    0.72  $  0.67 

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:

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.

***THE McCLATCHY COMPANY***
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
(In thousands, except per share amounts)
Three Months Ended Year Ended
December 27, December 28, December 27, December 28,
2009 2008 2009 2008
REVENUES - NET:
  Advertising $308,659  $388,298  $1,143,129  $1,568,766 
  Circulation 71,396  66,974  278,256  265,584 
  Other 13,179  15,598  50,199  66,106 
393,234  470,870  1,471,584  1,900,456 
OPERATING EXPENSES:
  Compensation 128,758  175,000  582,241  822,771 
  Newsprint and supplements 33,981  66,137  167,164  252,599 
  Depreciation and amortization 32,204  34,438  142,889  142,948 
  Other operating expenses 94,072  115,216  380,778  460,973 
  Goodwill and newspaper masthead impairment 59,563  59,563 
289,015  450,354  1,273,072  1,738,854 
OPERATING INCOME 104,219  20,516  198,512  161,602 
NON-OPERATING (EXPENSES) INCOME:
  Interest expense (24,501) (41,245) (127,276) (157,385)
  Interest income 97  47  1,429 
  Equity gain (losses) in unconsolidated companies, net (1,505) 319  2,130  (14,021)
  Gain on sale of SP Newsprint (6) (129) 208  34,417 
  Gain on extinguishment of debt (32) 1,346  44,117  21,026 
  Write-down of investments and land held for sale (28,322) (1,964) (28,322) (26,462)
  Other - net 309  359  (5) 1,479 
(54,056) (41,217) (109,101) (139,517)
INCOME (LOSS) FROM CONTINUING OPERATIONS
  BEFORE INCOME TAX PROVISION (BENEFIT) 50,163  (20,701) 89,411  22,085 
INCOME TAX PROVISION (BENEFIT) 17,779  (283) 29,147  19,278 
INCOME (LOSS)  FROM CONTINUING OPERATIONS 32,384  (20,418) 60,264  2,807 
LOSS FROM DISCONTINUED OPERATIONS -
  NET OF INCOME TAXES (6,555) (6,583) (6,174) (6,758)
NET INCOME (LOSS) $25,829  $(27,001) $54,090  $(3,951)
NET INCOME (LOSS) PER COMMON SHARE:
  Basic:
    Income (loss) from continuing operations $0.38  $(0.25) $0.72  $ 0.03 
    Loss from discontinued operations $(0.08) $(0.08) $(0.07) $(0.08)
    Net income (loss) per share $0.31  $(0.33) $0.65  $(0.05)
  Diluted:
    Income (loss) from continuing operations $0.38  $(0.25) $0.72  $0.03 
    Loss from discontinued operations $(0.08) $(0.08) $(0.07) $(0.08)
    Net income (loss) per share $0.30  $(0.33) $0.65  $(0.05)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES:
  Basic 84,446 82,511 83,785 82,333
  Diluted 84,740 82,511 83,810 82,409

***THE McCLATCHY COMPANY***
Reconciliation of GAAP Measures to Non-GAAP Amounts
(In thousands)
Three Months Ended Year Ended
December 27, December 28, December 27, December 28,
2009 2008 2009 2008
REVENUES - NET:
  Advertising $308,659    $388,298    $1,143,129    $1,568,766   
  Circulation 71,396    66,974    278,256    265,584   
  Other 13,179    15,598    50,199    66,106   
393,234    470,870    1,471,584    1,900,456   
OPERATING EXPENSES:
  Compensation excluding restructuring charges 125,278    172,747    553,666    778,067   
  Newsprint and supplements 33,981    66,137    167,164    252,599   
  Other cash operating expenses 94,072    115,215    380,778    460,736   
  Cash operating expenses excluding
  restructuring charges 253,331    354,099    1,101,608    1,491,402   
  Restructuring related compensation 3,480    2,253    28,575    44,704   
  Non-cash impairment charge -    59,563    -    59,799   
  Depreciation and amortization 32,204    34,438    142,889    142,948   
  Total operating expenses 289,015    450,353    1,273,072    1,738,853   
OPERATING INCOME 104,219    20,517    198,512    161,603   
Add back:
  Depreciation and amortization 32,204    34,438    142,889    142,948   
  Non-cash impairment charge -    59,563    -    59,799   
  Restructuring related compensation charges 3,480    2,253    28,575    44,704   
OPERATING CASH FLOW $139,903    $116,771    $369,976    $409,054   
OPERATING CASH FLOW MARGIN 35.6% 24.8% 25.1% 21.5%

***The McClatchy Company***
Consolidated Statistical Report
(In thousands, except for preprints)
Quarter  4
Combined Print Only Online Only
Revenues - Net: 2009 2008 % Change 2009 2008 % Change 2009 2008 % Change
Advertising
Retail $173,560    $217,646    -20.3% $153,399    $204,081    -24.8% $20,161    $13,565    48.6%
National 30,460    37,984    -19.8% 23,410    33,351    -29.8% 7,050    4,633    52.2%
Classified Total 70,147    93,548    -25.0% 48,717    69,397    -29.8% 21,430    24,151    -11.3%
Automotive 21,115    26,542    -20.4% 13,411    18,681    -28.2% 7,704    7,861    -2.0%
Real Estate 15,024    23,342    -35.6% 11,286    19,263    -41.4% 3,738    4,079    -8.4%
Employment 12,516    22,202    -43.6% 5,968    12,379    -51.8% 6,548    9,823    -33.3%
Other 21,492    21,462    0.1% 18,053    19,074    -5.4% 3,440    2,388    44.1%
Direct Marketing 34,009    38,680    -12.1% 34,009    38,680    -12.1%
Other Advertising 483    440    9.8% 483    440    9.8%
Total Advertising $308,659    $388,298    -20.5% $260,018    $345,949    -24.8% $48,641    $42,349    14.9%
Circulation 71,396    66,974    6.6%
Other 13,179    15,598    -15.5%
Total Revenues $393,234    $470,870    -16.5%
Advertising Revenues by Market:
California $54,970    $70,434    -22.0% $46,606    $63,267    -26.3% $8,365    $7,167    16.7%
Florida 49,404    62,303    -20.7% 42,139    56,527    -25.5% 7,266    5,776    25.8%
Texas 34,490    41,585    -17.1% 29,230    37,005    -21.0% 5,260    4,580    14.8%
Southeast 87,503    109,444    -20.0% 73,753    96,500    -23.6% 13,749    12,944    6.2%
Midwest 49,947    61,530    -18.8% 41,338    54,215    -23.8% 8,609    7,315    17.7%
Northwest 32,323    42,980    -24.8% 26,952    38,435    -29.9% 5,370    4,545    18.2%
Other 22    22    0.0% 0    0    0.0% 22    22    0.0%
Total Advertising $308,659    $388,298    -20.5% $260,018    $345,949    -24.8% $48,641    $42,349    14.9%
Advertising Statistics for Dailies:
Full Run ROP Linage 5,439.5    6,527.3    -16.7%
Millions of Preprints Distributed 1,642.8    1,918.1    -14.4%
Average Paid Circulation:*
Daily 2,246.9    2,547.8    -11.8%
Sunday 2,881.7    3,154.5    -8.6%
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)
December  Year-to-Date
Combined Print Only Online Only
Revenues - Net: 2009 2008 % Change 2009 2008 % Change 2009 2008 % Change
Advertising
Retail $610,280    $786,316    -22.4% $539,628    $739,764    -27.1% $70,652    $46,552    51.8%
National 106,251    146,376    -27.4% 83,361    129,818    -35.8% 22,890    16,558    38.2%
Classified Total 307,497    490,334    -37.3% 215,551    372,090    -42.1% 91,946    118,244    -22.2%
Automotive 90,667    131,332    -31.0% 58,721    98,832    -40.6% 31,946    32,500    -1.7%
Real Estate 70,655    123,276    -42.7% 53,946    106,131    -49.2% 16,709    17,145    -2.5%
Employment 58,963    144,089    -59.1% 29,402    84,750    -65.3% 29,561    59,339    -50.2%
Other 87,212    91,636    -4.8% 73,482    82,377    -10.8% 13,730    9,260    48.3%
Direct Marketing 117,292    144,088    -18.6% 117,292    144,088    -18.6%
Other Advertising 1,809    1,652    9.5% 1,809    1,652    9.5%
Total Advertising $1,143,129    $1,568,766    -27.1% $957,641    $1,387,412    -31.0% $185,488    $181,354    2.3%
Circulation 278,256    265,584    4.8%
Other 50,199    66,107    -24.1%
Total Revenues $1,471,584    $1,900,457    -22.6%
Advertising Revenues by Market:
California $206,693    $282,762    -26.9% $174,761    $253,245    -31.0% $31,932    $29,517    8.2%
Florida 169,568    233,595    -27.4% 141,813    208,818    -32.1% 27,755    24,777    12.0%
Texas 128,040    171,442    -25.3% 108,503    154,742    -29.9% 19,537    16,700    17.0%
Southeast 327,627    455,219    -28.0% 273,583    397,656    -31.2% 54,044    57,563    -6.1%
Midwest 185,523    244,367    -24.1% 154,225    213,248    -27.7% 31,298    31,119    0.6%
Northwest 125,578    180,474    -30.4% 104,756    159,703    -34.4% 20,822    20,771    0.2%
Other 100    907    -89.0% 0    0    0.0% 100    907    -89.0%
Total Advertising $1,143,129    $1,568,766    -27.1% $957,641    $1,387,412    -31.0% $185,488    $181,354    2.3%
Advertising Statistics for Dailies:
Full Run ROP Linage 21,370.3    27,368.2    -21.9%
Millions of Preprints Distributed 5,621.0    6,668.3    -15.7%
Average Paid Circulation:*
Daily 2,298.6    2,594.8    -11.4%
Sunday 2,946.4    3,213.6    -8.3%
Columns may not add due to rounding
*    Reflects average paid circulation based upon number of days in period. Does not reflect ABC reported figures.

SOURCE The McClatchy Company

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