UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
|
[X]
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
|
|
|
For
the quarterly period ended: |
September
28, 2008
|
|
or
|
|
|
|
[ ]
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
|
|
|
For
the transition period from ________________________________ to
_______________________________
|
|
|
|
Commission
file number:
|
1-9824
|
|
|
(Exact
name of registrant as specified in its
charter)
|
Delaware
|
|
52-2080478
|
(State
or other jurisdiction of incorporation or organization)
|
|
(I.R.S.
Employer Identification No.)
|
|
2100
"Q" Street, Sacramento, CA
|
|
95816
|
(Address
of principal executive offices)
|
|
(Zip
Code)
|
916-321-1846
|
Registrant's
telephone number, including area
code
|
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90
days. [ X ]
Yes [ ] No
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer [X] Accelerated
filer [ ]
Non-accelerated
filer [ ] (Do not check if smaller reporting
company)
Smaller
reporting company [ ]
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12-b
of the Exchange Act).
As
of November 5, 2008, the registrant had shares of common stock as listed below
outstanding:
Class
A Common Stock
|
57,515,181 |
Class
B Common Stock
|
25,050,962 |
THE
McCLATCHY COMPANY
INDEX
TO FORM 10-Q
PART I - FINANCIAL INFORMATION
THE
McCLATCHY COMPANY
|
|
|
|
(In
thousands, except share amounts)
|
|
|
|
|
|
|
|
|
ASSETS
|
|
September
28,
|
|
|
December
30,
|
|
CURRENT
ASSETS:
|
|
2008
|
|
|
2007
|
|
Cash
and cash equivalents
|
|
$ |
4,992 |
|
|
$ |
25,816 |
|
Trade
receivables (less allowances of $13,762
in 2008 and $11,096 in 2007)
|
|
|
218,076 |
|
|
|
289,550 |
|
Other
receivables
|
|
|
12,304 |
|
|
|
19,677 |
|
Newsprint,
ink and other inventories
|
|
|
48,954 |
|
|
|
36,230 |
|
Deferred
income taxes
|
|
|
27,461 |
|
|
|
27,077 |
|
Prepaid
income taxes
|
|
|
7,061 |
|
|
|
60,758 |
|
Income
tax receivable
|
|
|
12,046 |
|
|
|
185,059 |
|
Land
and other assets held for sale
|
|
|
181,875 |
|
|
|
177,436 |
|
Other
current assets
|
|
|
19,866 |
|
|
|
20,636 |
|
|
|
|
532,635 |
|
|
|
842,239 |
|
PROPERTY,
PLANT AND EQUIPMENT:
|
|
|
|
|
|
|
|
|
Land
|
|
|
199,815 |
|
|
|
205,080 |
|
Building
and improvements
|
|
|
393,648 |
|
|
|
395,553 |
|
Equipment
|
|
|
825,899 |
|
|
|
846,664 |
|
Construction
in progress
|
|
|
8,166 |
|
|
|
17,183 |
|
|
|
|
1,427,528 |
|
|
|
1,464,480 |
|
Less
accumulated depreciation
|
|
|
(566,450 |
) |
|
|
(522,388 |
) |
|
|
|
861,078 |
|
|
|
942,092 |
|
INTANGIBLE
ASSETS:
|
|
|
|
|
|
|
|
|
Identifiable
intangibles - net
|
|
|
845,467 |
|
|
|
891,591 |
|
Goodwill
|
|
|
1,060,194 |
|
|
|
1,042,880 |
|
|
|
|
1,905,661 |
|
|
|
1,934,471 |
|
|
|
|
|
|
|
|
|
|
INVESTMENTS
AND OTHER ASSETS:
|
|
|
|
|
|
|
|
|
Investments
in unconsolidated companies
|
|
|
331,355 |
|
|
|
401,274 |
|
Other
assets
|
|
|
24,563 |
|
|
|
17,843 |
|
|
|
|
355,918 |
|
|
|
419,117 |
|
TOTAL
ASSETS
|
|
$ |
3,655,292 |
|
|
$ |
4,137,919 |
|
|
|
|
|
|
|
|
|
|
See
notes to consolidated financial statements.
|
|
|
|
|
|
|
|
|
THE
McCLATCHY COMPANY
|
|
CONSOLIDATED
BALANCE SHEET (UNAUDITED) – Continued
|
|
(In
thousands, except share amounts)
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
September
28,
|
|
|
December
30,
|
|
CURRENT
LIABILITIES:
|
|
2008
|
|
|
2007
|
|
Accounts
payable
|
|
$ |
64,786 |
|
|
$ |
93,626 |
|
Accrued
compensation
|
|
|
95,559 |
|
|
|
104,892 |
|
Income
taxes payable
|
|
|
- |
|
|
|
20,861 |
|
Unearned
revenue
|
|
|
84,209 |
|
|
|
82,461 |
|
Accrued
interest
|
|
|
17,999 |
|
|
|
28,246 |
|
Accrued
dividends
|
|
|
7,424 |
|
|
|
14,788 |
|
Other
accrued liabilities
|
|
|
45,571 |
|
|
|
44,642 |
|
|
|
|
315,548 |
|
|
|
389,516 |
|
|
|
|
|
|
|
|
|
|
NON-CURRENT
LIABILITIES:
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
2,068,216 |
|
|
|
2,471,827 |
|
Deferred
income taxes
|
|
|
506,487 |
|
|
|
555,887 |
|
Pension
and postretirement obligations
|
|
|
272,746 |
|
|
|
200,318 |
|
Other
long-term obligations
|
|
|
116,315 |
|
|
|
94,831 |
|
|
|
|
2,963,764 |
|
|
|
3,322,863 |
|
COMMITMENTS
AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY:
|
|
|
|
|
|
|
|
|
Common
stock $.01 par value:
|
|
|
|
|
|
|
|
|
Class
A - authorized 200,000,000 shares, issued
|
|
|
|
|
|
|
|
|
57,389,780
in 2008 and 57,108,308 in 2007
|
|
|
574 |
|
|
|
571 |
|
Class
B - authorized 60,000,000 shares,
|
|
|
|
|
|
|
|
|
issued
25,050,962 in 2008 and 2007
|
|
|
251 |
|
|
|
251 |
|
Additional
paid-in capital
|
|
|
2,203,000 |
|
|
|
2,197,041 |
|
Accumulated
deficit
|
|
|
(1,795,290 |
) |
|
|
(1,781,298 |
) |
Treasury
stock, 5,264 shares in 2008 and 3,029 shares in 2007 at
cost
|
|
|
(144 |
) |
|
|
(122 |
) |
Accumulated
other comprehensive income (loss)
|
|
|
(32,411 |
) |
|
|
9,097 |
|
|
|
|
375,980 |
|
|
|
425,540 |
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
$ |
3,655,292 |
|
|
$ |
4,137,919 |
|
|
|
|
|
|
|
|
|
|
See
notes to consolidated financial statements.
|
|
|
|
|
|
|
|
|
THE
McCLATCHY COMPANY
|
|
|
|
(In
thousands, except per share amounts)
|
|
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
28,
|
|
|
September
30,
|
|
|
September
28,
|
|
|
September
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
REVENUES
- NET:
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising
|
|
$ |
370,117 |
|
|
$ |
457,017 |
|
|
$ |
1,180,468 |
|
|
$ |
1,422,317 |
|
Circulation
|
|
|
64,691 |
|
|
|
67,995 |
|
|
|
198,610 |
|
|
|
209,582 |
|
Other
|
|
|
16,812 |
|
|
|
15,332 |
|
|
|
50,508 |
|
|
|
55,030 |
|
|
|
|
451,620 |
|
|
|
540,344 |
|
|
|
1,429,586 |
|
|
|
1,686,929 |
|
OPERATING
EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
|
|
|
199,861 |
|
|
|
224,309 |
|
|
|
647,771 |
|
|
|
689,592 |
|
Newsprint
and supplements
|
|
|
61,815 |
|
|
|
63,600 |
|
|
|
186,462 |
|
|
|
211,203 |
|
Depreciation
and amortization
|
|
|
35,479 |
|
|
|
36,250 |
|
|
|
108,510 |
|
|
|
112,440 |
|
Other
operating expenses
|
|
|
113,828 |
|
|
|
118,440 |
|
|
|
345,757 |
|
|
|
371,180 |
|
Goodwill
and newspaper masthead impairment
|
|
|
- |
|
|
|
1,434,590 |
|
|
|
- |
|
|
|
1,434,590 |
|
|
|
|
410,983 |
|
|
|
1,877,189 |
|
|
|
1,288,500 |
|
|
|
2,819,005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
INCOME (LOSS)
|
|
|
40,637 |
|
|
|
(1,336,845 |
) |
|
|
141,086 |
|
|
|
(1,132,076 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-OPERATING
(EXPENSES) INCOME:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(34,195 |
) |
|
|
(48,264 |
) |
|
|
(116,140 |
) |
|
|
(151,605 |
) |
Interest
income
|
|
|
761 |
|
|
|
23 |
|
|
|
1,332 |
|
|
|
129 |
|
Equity
losses in unconsolidated companies, net
|
|
|
(850 |
) |
|
|
(7,652 |
) |
|
|
(14,340 |
) |
|
|
(28,599 |
) |
Gain
on sale of SP Newsprint
|
|
|
2,570 |
|
|
|
- |
|
|
|
34,546 |
|
|
|
- |
|
Gain
on extinguishment of debt
|
|
|
180 |
|
|
|
- |
|
|
|
19,680 |
|
|
|
- |
|
Impairments
related to investments and land held for sale
|
|
|
(2,983 |
) |
|
|
(84,568 |
) |
|
|
(24,498 |
) |
|
|
(84,568 |
) |
Other
- net
|
|
|
101 |
|
|
|
700 |
|
|
|
1,120 |
|
|
|
1,443 |
|
|
|
|
(34,416 |
) |
|
|
(139,761 |
) |
|
|
(98,300 |
) |
|
|
(263,200 |
) |
INCOME
(LOSS) FROM CONTINUING OPERATIONS
BEFORE
INCOME TAX PROVISION (BENEFIT)
|
|
|
6,221 |
|
|
|
(1,476,606 |
) |
|
|
42,786 |
|
|
|
(1,395,276 |
) |
INCOME
TAX PROVISION (BENEFIT)
|
|
|
2,054 |
|
|
|
(131,419 |
) |
|
|
19,561 |
|
|
|
(99,133 |
) |
INCOME
(LOSS) FROM CONTINUING OPERATIONS
|
|
|
4,167 |
|
|
|
(1,345,187 |
) |
|
|
23,225 |
|
|
|
(1,296,143 |
) |
INCOME
(LOSS) FROM DISCONTINUED OPERATIONS
-
NET OF INCOME TAXES
|
|
|
67 |
|
|
|
(1,546 |
) |
|
|
(175 |
) |
|
|
(6,324 |
) |
NET
INCOME (LOSS)
|
|
$ |
4,234 |
|
|
$ |
(1,346,733 |
) |
|
$ |
23,050 |
|
|
$ |
(1,302,467 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME (LOSS) PER COMMON SHARE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
$ |
0.05 |
|
|
$ |
(16.40 |
) |
|
$ |
0.28 |
|
|
$ |
(15.81 |
) |
Loss
from discontinued operations
|
|
|
- |
|
|
|
(0.02 |
) |
|
|
- |
|
|
|
(0.08 |
) |
Net
income (loss) per share
|
|
$ |
0.05 |
|
|
$ |
(16.42 |
) |
|
$ |
0.28 |
|
|
$ |
(15.89 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
$ |
0.05 |
|
|
$ |
(16.40 |
) |
|
$ |
0.28 |
|
|
$ |
(15.81 |
) |
Loss
from discontinued operations
|
|
|
- |
|
|
|
(0.02 |
) |
|
|
- |
|
|
|
(0.08 |
) |
Net
income (loss) per share
|
|
$ |
0.05 |
|
|
$ |
(16.42 |
) |
|
$ |
0.28 |
|
|
$ |
(15.89 |
) |
|
|
WEIGHTED
AVERAGE NUMBER OF COMMON SHARES:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
82,382 |
|
|
|
82,040 |
|
|
|
82,274 |
|
|
|
81,967 |
|
Diluted
|
|
|
82,434 |
|
|
|
82,040 |
|
|
|
82,327 |
|
|
|
81,967 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
notes to consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THE
McCLATCHY COMPANY
|
|
|
|
(In
thousands)
|
|
|
|
Nine
Months Ended
|
|
|
|
September
28,
|
|
|
September
30,
|
|
|
|
2008
|
|
|
2007
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
$ |
23,225 |
|
|
$ |
(1,296,143 |
) |
Reconciliation
to net cash provided by continuing operations:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
108,510 |
|
|
|
112,440 |
|
Goodwill
and newspaper masthead impairment
|
|
|
- |
|
|
|
1,434,590 |
|
Impairments
related to investments and land held for sale
|
|
|
24,498 |
|
|
|
84,568 |
|
Employee
benefit expense
|
|
|
11,212 |
|
|
|
25,435 |
|
Stock
compensation expense
|
|
|
3,676 |
|
|
|
5,895 |
|
Deferred
income taxes
|
|
|
- |
|
|
|
(150,481 |
) |
Equity
loss in unconsolidated companies
|
|
|
14,340 |
|
|
|
28,599 |
|
Gain
on sale of SP Newsprint
|
|
|
(34,546 |
) |
|
|
- |
|
Gain
on extinguishment of debt
|
|
|
(19,680 |
) |
|
|
- |
|
Write-off
of deferred financing costs
|
|
|
3,738 |
|
|
|
- |
|
Other
|
|
|
3,932 |
|
|
|
3,090 |
|
Changes
in certain assets and liabilities:
|
|
|
|
|
|
|
|
|
Trade
receivables
|
|
|
71,474 |
|
|
|
55,405 |
|
Inventories
|
|
|
(12,724 |
) |
|
|
15,570 |
|
Other
assets
|
|
|
11,052 |
|
|
|
21,796 |
|
Accounts
payable
|
|
|
(29,688 |
) |
|
|
(42,793 |
) |
Accrued
compensation
|
|
|
(9,333 |
) |
|
|
(35,326 |
) |
Income
taxes
|
|
|
(4,007 |
) |
|
|
(44,580 |
) |
Other
liabilities
|
|
|
(13,916 |
) |
|
|
1,342 |
|
Net
cash provided by operating activities of continuing
operations
|
|
|
151,763 |
|
|
|
219,407 |
|
Proceeds
from income tax refund
|
|
|
190,039 |
|
|
|
- |
|
Other
|
|
|
(1,159 |
) |
|
|
2,007 |
|
Net
cash provided by operating activities of discontinued
operations
|
|
|
188,880 |
|
|
|
2,007 |
|
Net
cash provided by operating activities
|
|
|
340,643 |
|
|
|
221,414 |
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds
from sale of equipment
|
|
|
31,721 |
|
|
|
24,441 |
|
Proceeds
from sale of investments
|
|
|
63,141 |
|
|
|
24,288 |
|
Purchases
of property, plant and equipment
|
|
|
(17,052 |
) |
|
|
(43,222 |
) |
Equity
investments
|
|
|
(855 |
) |
|
|
(3,231 |
) |
Other
- net
|
|
|
- |
|
|
|
(25 |
) |
Net
cash provided by investing activities of continuing
operations
|
|
|
76,955 |
|
|
|
2,251 |
|
Proceeds
from sale of newspaper
|
|
|
- |
|
|
|
522,922 |
|
Purchases
of property, plant and equipment of discontinued
operations
|
|
|
- |
|
|
|
(4,837 |
) |
Net
cash provided by investing activities of discontinued
operations
|
|
|
- |
|
|
|
518,085 |
|
Net
cash provided by investing activities
|
|
|
76,955 |
|
|
|
520,336 |
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Repayments
of term bank debt
|
|
|
- |
|
|
|
(550,000 |
) |
Net
repayments of revolving bank debt
|
|
|
(97,970 |
) |
|
|
(149,022 |
) |
Payment
of financing costs
|
|
|
(9,330 |
) |
|
|
- |
|
Extinguishment
of public notes and related expenses
|
|
|
(288,987 |
) |
|
|
- |
|
Payment
of cash dividends
|
|
|
(44,399 |
) |
|
|
(44,263 |
) |
Other
- principally stock issuances
|
|
|
2,264 |
|
|
|
6,950 |
|
Net
cash used by financing activities
|
|
|
(438,422 |
) |
|
|
(736,335 |
) |
NET
CHANGE IN CASH AND CASH EQUIVALENTS
|
|
|
(20,824 |
) |
|
|
5,415 |
|
CASH
AND CASH EQUIVALENTS, BEGINNING OF YEAR
|
|
|
25,816 |
|
|
|
19,581 |
|
CASH
AND CASH EQUIVALENTS, END OF PERIOD
|
|
$ |
4,992 |
|
|
$ |
24,996 |
|
OTHER
CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Cash
paid (received) during the period for:
|
|
|
|
|
|
|
|
|
Income
taxes (net of refunds)
|
|
$ |
(172,170 |
) |
|
$ |
97,417 |
|
Interest
(net of capitalized interest)
|
|
$ |
111,592 |
|
|
$ |
138,130 |
|
See
notes to consolidated financial statements.
|
|
|
|
|
|
|
|
|
THE
McCLATCHY COMPANY
|
|
|
|
(In
thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Earnings
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Par
Value
|
|
|
Paid-In
|
|
|
(Accumulated
|
|
|
Comprehensive
|
|
|
Treasury
|
|
|
|
|
|
|
Class
A
|
|
|
Class
B
|
|
|
Capital
|
|
|
Deficit)
|
|
|
Income
(Loss)
|
|
|
Stock
|
|
|
Total
|
|
BALANCES,
DECEMBER 30, 2007
|
|
$ |
571 |
|
|
$ |
251 |
|
|
$ |
2,197,041 |
|
|
$ |
(1,781,298 |
) |
|
$ |
9,097 |
|
|
$ |
(122 |
) |
|
$ |
425,540 |
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,050 |
|
|
|
|
|
|
|
|
|
|
|
23,050 |
|
Other
comprehensive loss, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
and postretirement plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
actuarial loss and prior service costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(40,315 |
) |
|
|
|
|
|
|
(40,315 |
) |
Other
comprehensive loss related to
investments in unconsolidated
companies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,193 |
) |
|
|
|
|
|
|
(1,193 |
) |
Other
comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(41,508 |
) |
Total
comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,458 |
) |
Dividends
declared ($.45 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(37,042 |
) |
|
|
|
|
|
|
|
|
|
|
(37,042 |
) |
Issuance
of 281,472 Class A shares under stock plans
|
|
|
3 |
|
|
|
|
|
|
|
2,283 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,286 |
|
Stock
compensation expense
|
|
|
|
|
|
|
|
|
|
|
3,676 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,676 |
|
Purchase
of 2,235 shares of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22 |
) |
|
|
(22 |
) |
BALANCES,
SEPTEMBER 28, 2008
|
|
$ |
574 |
|
|
$ |
251 |
|
|
$ |
2,203,000 |
|
|
$ |
(1,795,290 |
) |
|
$ |
(32,411 |
) |
|
$ |
(144 |
) |
|
$ |
375,980 |
|
|
|
See
notes to consolidated financial statements.
|
|
THE
McCLATCHY COMPANY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
NOTE
1. SIGNIFICANT ACCOUNTING
POLICIES
|
The
McClatchy Company (McClatchy or the Company) is the third largest newspaper
company in the United States based upon daily circulation, with 30 daily
newspapers and approximately 50 non-dailies in 29 markets across the
country. McClatchy also operates leading local websites and direct
marketing operations in each of its markets which complement its newspapers and
extend its audience reach in each market. The Company’s newspapers
include, among others, The
Miami
Herald, The
Sacramento Bee, The
(Fort Worth)
Star-Telegram, The
Kansas
City Star, The
Charlotte
Observer, and The
(Raleigh) News
& Observer. McClatchy is listed on the New York Stock
Exchange under the symbol MNI.
McClatchy
also owns a portfolio of premium digital assets, including 14.4% of
CareerBuilder LLC, the nation’s largest online job site, and 25.6% of Classified
Ventures LLC, a newspaper industry partnership that offers classified websites
such as: the auto website, cars.com; and the rental site,
apartments.com.
The
consolidated financial statements include the Company and its
subsidiaries. Significant intercompany items and transactions are
eliminated. In preparing the financial statements, management makes
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
In the
opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments necessary (consisting of normal recurring
items and certain unusual items including, gains on sales of assets, the impact
of amendments to the Company’s credit agreement, impairment charges, gains on
debt extinguishments and certain charges related to internet investments
discussed below) to present fairly the Company's financial position, results of
operations, and cash flows for the interim periods presented. The
financial statements contained in this report are not necessarily indicative of
the results to be expected for the full year. These financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company’s Annual Report on Form
10-K for the period ended December 30, 2007.
Goodwill
and intangible impairment - The Company accounts for goodwill in
accordance with Statement of Financial Accounting Standards (SFAS) No. 142,
Goodwill
and Other Intangible Assets. As required by SFAS No. 142, the
Company tests for impairment of goodwill annually (at year-end) or whenever
events occur or circumstances change that would more likely than not reduce the
fair value of a reporting unit below its carrying amount. The
required two-step approach uses accounting judgments and estimates of future
operating results. Changes in estimates or the application of
alternative assumptions could produce significantly different
results. Impairment testing is done at a reporting unit level. The
Company performs this testing at its three newspaper operating segments, which
are also considered reporting units under SFAS No. 142. An impairment loss
generally is recognized when the carrying amount of the reporting unit’s net
assets exceeds the estimated fair value of the reporting unit. The estimates and
judgments that most significantly affect the fair value calculation are
assumptions related to revenue growth, newsprint prices, compensation levels,
discount rate and private and public market trading multiples for newspaper
assets. The sum of the fair values of the reporting units is
reconciled to the Company's current market capitalization (based upon the most
recent stock market price) plus an estimated control premium, and factors in the fair value
of the Company's publicly traded debt.
Newspaper
mastheads (newspaper titles and website domain names) are not subject to
amortization and are tested for impairment annually (at year-end), or more
frequently if events or changes in circumstances indicate that the asset might
be impaired. The impairment test consists of a comparison of the fair
value of each newspaper masthead with its carrying amount.
Intangible
assets subject to amortization (primarily advertiser and subscriber lists) are
tested for recoverability whenever events or changes in circumstances indicate
that their carrying amounts may not be recoverable. The carrying
amount of each asset group is not recoverable if it exceeds the sum of the
undiscounted cash flows expected to result from the use of such asset
group.
See Note
3 for a discussion of the impairment charges taken in 2007.
Stock-based
compensation - All share-based payments to employees, including grants of
employee stock options, stock appreciation rights and restricted stock under
equity incentive plans and purchases under the employee stock purchase plan, are
recognized in the financial statements based on their fair values. At
September 28, 2008, the Company had six stock-based compensation
plans. Total stock-based compensation expense from continuing
operations was $1.3 million and $3.7 million for the three and nine months ended
September 28, 2008, respectively, and was $1.6 million and $5.9 million for the
three and nine months ended September 30, 2007,
respectively.
Income
Taxes - The Company accounts for income taxes using the liability
method. Under this method, deferred tax assets and liabilities are
determined based on differences between the financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that are expected to be in effect when the differences are expected to
reverse.
Financial
Accounting Standards Board (FASB) Interpretation No. 48 (FIN 48), Accounting
for Uncertainty in Income Taxes – an interpretation of FASB Statement 109
clarifies the accounting for uncertainty in income taxes and prescribes a
recognition threshold and measurement of a tax position taken or expected to be
taken in an enterprise’s tax returns. The Company recognizes accrued
interest related to unrecognized tax benefits in interest
expense. Accrued penalties are recognized as a component of income
tax expense. As of September 28, 2008, the Company had approximately
$89.0 million of long-term liabilities relating to uncertain tax positions
consisting of approximately $62.0 million in gross unrecognized tax benefits
(primarily state tax positions before the offsetting effect of federal income
tax) and $27.0 million in gross accrued interest and penalties. If recognized,
$7.0 million of the net unrecognized tax benefits would decrease the effective
tax rate and approximately $33.0 million would reduce goodwill from previous
acquisitions. It is reasonably possible that a reduction of up to
$13.0 million of unrecognized tax benefits may occur within the next 12 months
as a result of the closure of certain audits and the expiration of statutes of
limitations. During the nine months ended September 28, 2008, the
Company recorded expense for interest and penalties related to unrecognized tax
benefits of approximately $4.0 million.
Comprehensive
income (loss) - The Company records changes in its net assets from
non-owner sources in its Statement of Stockholders’ Equity. The
following table summarizes the composition of total comprehensive income (loss)
(in thousands):
|
|
For
the Three Months Ended
|
|
|
For
the Nine Months Ended
|
|
|
|
September
28,
2008
|
|
|
September
30,
2007
|
|
|
September
28,
2008
|
|
|
September
30,
2007
|
|
Net
income (loss)
|
|
$ |
4,234 |
|
|
$ |
(1,346,733 |
) |
|
$ |
23,050 |
|
|
$ |
(1,302,467 |
) |
Pension,
net actuarial loss and prior service
costs, net of tax
|
|
|
(4,450 |
) |
|
|
1,065 |
|
|
|
(40,315 |
) |
|
|
3,197 |
|
Other
comprehensive loss related
to equity
investments
|
|
|
(474 |
) |
|
|
- |
|
|
|
(1,193 |
) |
|
|
- |
|
Total
comprehensive loss
|
|
$ |
(690 |
) |
|
$ |
(1,345,668 |
) |
|
$ |
(18,458 |
) |
|
$ |
(1,299,270 |
) |
Earnings
per share (EPS) - Basic EPS excludes dilution from common stock
equivalents and reflects income divided by the weighted average number of common
shares outstanding for the period. Diluted EPS is based upon the
weighted average number of outstanding shares of common stock and dilutive
common stock equivalents in the period. Common stock equivalents
arise from dilutive stock options and restricted stock and are computed using
the treasury stock method. The weighted average anti-dilutive common
stock equivalents that could potentially dilute basic EPS in the future, but
were not included in the weighted average share calculation for three and nine
months ended September 28, 2008 were 4,953,330 and 4,980,425, respectively, and
were 3,764,161 and 3,911,733 for the three and nine months ended September 30,
2007, respectively.
New
Accounting Pronouncements
Fair
Value Option for Financial Assets and Financial Liabilities
In
February 2007, the FASB issued Statement No. 159 (SFAS 159), The
Fair Value Option for Financial Assets and Financial Liabilities-Including an
Amendment of FASB Statement No. 115. SFAS 159 allows entities
to voluntarily choose to measure certain financial assets and liabilities at
fair value. The fair value option may be elected on an
instrument-by-instrument basis and is irrevocable, unless a new election date
occurs. If the fair value option is elected for an instrument, SFAS
159 specifies that unrealized gains and losses for that instrument be reported
in earnings at each subsequent reporting date. SFAS 159 was effective
for the Company on December 31, 2007. The Company did not apply the
fair value option to any of the Company’s outstanding instruments and,
therefore, SFAS 159 did not have an impact on the Company’s financial position
or result of operations.
Fair
Value Measurements
In September 2006, the
FASB issued Statement No. 157 (SFAS 157), Fair
Value Measurements, which defines fair value, establishes a framework for
measuring fair value in accordance with generally accepted accounting
principles, and expands disclosures about fair value
measurements. SFAS 157 was effective for the Company on December 31,
2007 for all financial assets and liabilities and for nonfinancial assets and
liabilities recognized or disclosed at fair value in our consolidated financial
statements on a recurring basis (at least annually). For all other
nonfinancial assets and liabilities, SFAS 157 is effective for the Company on
December 29, 2008. As it relates to the Company’s financial assets
and liabilities and for nonfinancial assets and liabilities recognized or
disclosed at fair value in the
consolidated
financial statements on a recurring basis (at least annually), the adoption of
SFAS 157 did not have a material impact on the Company’s consolidated financial
statements. Management does not expect the adoption of SFAS 157 for
nonfinancial assets and liabilities not valued on a recurring basis (at least
annually) to have a material impact to the Company’s financial position or
result of operations.
Business
Combinations
In December 2007, the
FASB issued
Statement No.
141R (SFAS 141R), Business
Combinations. SFAS
141R
establishes principles and requirements for how the acquirer of a business
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree. The statement also provides guidance for recognizing and measuring the
goodwill acquired in the business combination and determines what information to
disclose to enable users of the financial statement to evaluate the nature and
financial effects of the business combination. SFAS 141R is effective for
financial statements issued for fiscal years beginning after December 15,
2008. Accordingly, any business combinations the Company engages in will
be recorded and disclosed following existing generally accepted accounting
principles until December 28, 2008. Management expects
SFAS 141R will have an impact
on our consolidated financial statements when effective, but the nature and
magnitude of the specific effects will depend upon the nature, terms and size of
the acquisitions the Company consummates after the effective date. An
estimated $33.0 million of the approximately $62.0 million liability for
unrecognized tax benefits as of September 28, 2008 relate to tax positions of
acquired entities taken prior to their acquisition by the Company. If such
liabilities are settled for greater or lesser amounts prior to the adoption of
SFAS 141R,
the reversal of any remaining liability will affect goodwill. If such
liabilities reverse subsequent to the adoption of SFAS 141R, such reversals will
affect the income tax expense in the period of reversal. Management is
still assessing the full impact of SFAS 141R on the consolidated financial
statements.
Noncontrolling Interests
in Consolidated Financial Statements
In December 2007, the FASB
issued Statement No. 160 (SFAS 160), Noncontrolling
Interests in Consolidated Financial Statements – an amendment of ARB No.
51. SFAS 160 establishes accounting and reporting standards
for the noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. It clarifies that a noncontrolling interest in a
subsidiary is an ownership interest in the consolidated entity that should be
reported as equity in the consolidated financial
statements. Additionally, SFAS 160 requires expanded disclosures in
the consolidated financial statements. SFAS 160 is effective for
fiscal years beginning on or after December 15, 2008. Management does
not expect the adoption of SFAS 160 to have material impact to the Company’s
financial position or results of operations.
Disclosures
about Derivative Instruments and Hedging Activities
In
March 2008, the FASB issued Statement No. 161 (SFAS 161), Disclosures
about Derivative Instruments and Hedging Activities, an amendment of FASB
Statement No. 133, Accounting
for Derivative Instruments and Hedging Activities. This Statement amends
and expands disclosures about an entity’s derivative and hedging activities with
the intent to provide users of financial statements with an enhanced
understanding of a) how and why an entity uses derivative instruments, b) how
derivative instruments and related hedged items are accounted for under
Statement 133 and its related interpretations, and c) how derivative instruments
and related hedged items affect an entity’s financial position, financial
performance and cash flows. SFAS 161 is effective for financial statements
issued for fiscal years and interim periods beginning after November 15,
2008, with early application encouraged. This Statement encourages, but does not
require, comparative disclosures. The Company expects to adopt SFAS 161 on
December 29, 2008. Management does not expect the adoption of SFAS 161 to have a
material impact on the Company’s disclosures about its financial position or
results of operations.
Hierarchy of Generally Accepted Accounting Principles
In May
2008, the FASB issued Statement No. 162 (SFAS 162), The
Hierarchy of Generally Accepted Accounting Principles. SFAS 162 is
intended to improve financial reporting by identifying a consistent framework,
or hierarchy, for selecting accounting principles to be used in preparing
financial statements that are presented in conformity with U.S. generally
accepted accounting principles for nongovernmental entities. SFAS 162 is
effective 60 days following the SEC's approval of the PCAOB amendments to AU
Section 411, The
Meaning of Present Fairly in Conformity with Generally Accepted Accounting
Principles. Management does not expect the adoption of SFAS
162 to have a material impact to the Company’s financial position or results of
operations.
Determining
Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities
In June
2008, the FASB issued FASB Staff Position (FSP) EITF 03-6-1, Determining
Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities. This FSP provides that unvested share-based
payment awards that contain non-forfeitable rights to dividends or dividend
equivalents (whether paid or unpaid) are participating securities and shall be
included in the computation of earnings per share pursuant to the two-class
method. The FSP is effective for financial statements issued for
fiscal years beginning after December 15, 2008, and interim periods within those
years. Upon adoption, a company is required to retrospectively adjust its
earnings per share data (including any amounts related to interim periods,
summaries of earnings and selected financial data) to conform with the
provisions in this FSP. Early application of this FSP is
prohibited. Management has not completed its analysis of the impact
this FSP will have, if any, on its consolidated financial
statements.
NOTE
2. DIVESTITURES
On March
5, 2007, the Company sold the (Minneapolis) Star
Tribune newspaper and other publications and websites related to the
newspaper for $530 million. The Company received an income tax
benefit of approximately $200 million related to the
sale. Approximately $15 million offset taxes payable in the first
fiscal quarter of 2008 and the Company received approximately $185 million as an
income tax refund in the second fiscal quarter of 2008, which it used to reduce
debt.
The
results of Star
Tribune's operations, including interest on debt incurred to purchase it,
have been recorded as discontinued operations in all periods
presented.
Revenues
and income (loss) from discontinued operations, net of income taxes, for the
three and nine months ended September 28, 2008 and September 30, 2007 were as
follows (in thousands):
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
28,
2008
|
|
|
September
30,
2007
|
|
|
September
28,
2008
|
|
|
September
30,
2007
|
|
Revenues
|
|
$ |
- |
|
|
$ |
(73 |
) |
|
$ |
- |
|
|
$ |
52,921 |
|
Income
(loss) from discontinued
operations before
income taxes (1)
|
|
|
114 |
|
|
|
(2,553 |
) |
|
|
(26 |
) |
|
|
(7,190 |
) |
Income
tax expense (benefit)
|
|
|
47 |
|
|
|
(1,007 |
) |
|
|
149 |
|
|
|
(866 |
) |
Income
(loss) from discontinued operations
|
|
$ |
67 |
|
|
$ |
(1,546 |
) |
|
$ |
(175 |
) |
|
$ |
(6,324 |
) |
|
|
(1) Includes
interest expense allocated to discontinued operations of $0 and $1.2
million for the three and nine months ended September 30, 2007,
respectively.
|
|
NOTE
3. GOODWILL AND NEWSPAPER MASTHEAD IMPAIRMENT
Management
performed its testing of impairment of goodwill and newspaper mastheads as of
September 30, 2007, due to the continuing challenging business conditions and
the resulting weakness in the Company's stock price as of the end of its third
quarter of 2007. The fair values of the Company's reporting units for
goodwill impairment testing and individual newspaper mastheads were estimated
using the expected present value of future cash flows, using estimates,
judgments and assumptions that management believes were appropriate in the
circumstances. As a result, the Company recorded an impairment charge
related to goodwill of $1.2 billion and a newspaper masthead impairment charge
of $250.4 million in the third quarter of 2007.
The
Company performed its annual impairment testing of goodwill and newspaper
mastheads as of December 30, 2007. The fair values of the Company’s
reporting units were estimated using the expected present value of future cash
flows, based upon estimates, judgments and assumptions (see Note 1) that
management believes were appropriate in the circumstances. The sum of
the fair values of the reporting units was reconciled to the Company’s then
current market capitalization (based upon the stock market price) plus an
estimated control premium, and factored in the fair value of the Company's
publicly traded debt. As a result of this reconciliation process, the
Company recorded an impairment charge related to goodwill of $1.4 billion and a
newspaper masthead impairment charge of $166.6 million in the fourth quarter of
2007.
NOTE
4. INVESTMENTS IN UNCONSOLIDATED COMPANIES AND LAND
HELD FOR SALE
|
The
following is the Company's ownership interest and carrying value of investments
in unconsolidated companies and joint ventures (dollars in
thousands):
Company
|
|
%
Ownership
Interest
|
|
|
September
28,
2008
|
|
|
December
30,
2007
|
|
CareerBuilder,
LLC
|
|
|
14.4 |
|
|
$ |
217,899 |
|
|
$ |
224,699 |
|
Classified
Ventures, LLC
|
|
|
25.6 |
|
|
|
84,077 |
|
|
|
99,313 |
|
Ponderay
Newsprint Company (general partnership)
|
|
|
27.0 |
|
|
|
16,953 |
|
|
|
16,221 |
|
Seattle
Times Company (C-corporation)
|
|
|
49.5 |
|
|
|
7,938 |
|
|
|
19,310 |
|
SP
Newsprint Company (general partnership)
|
|
|
- |
|
|
|
|
|
|
|
19,455 |
|
Other
|
|
Various
|
|
|
|
4,488 |
|
|
|
22,276 |
|
|
|
|
|
|
|
$ |
331,355 |
|
|
$ |
401,274 |
|
Except in
very limited cases, the Company uses the equity method of accounting for
investments.
On June
30, 2008 (the first day of the Company’s third fiscal quarter), the Company sold
its 15.0% ownership interest in ShopLocal, LLC (included in “other” in the table
above) for $7.9 million and used the proceeds to reduce debt. The
Company expects to receive an income tax benefit from the sale of approximately
$5.6 million in the fourth quarter of 2008. In the second fiscal
quarter of 2008, the Company reduced its carrying value of ShopLocal to match
the sales price.
In the
second fiscal quarter of 2008, Classified Ventures, LLC identified potential
goodwill impairment at a real estate-related reporting unit and as a result, the
Company recognized an estimated charge related to this investment. An
additional charge of $3.0 million was recorded in the third
fiscal
quarter
of 2008 representing the Company’s portion of Classified Ventures revised
estimate of the impairment charge, and the final impairment amount will be
determined in the fourth quarter of 2008 when Classified Ventures completes its
impairment analysis. The total non-cash pre-tax charges related to impairments
of internet investments, including ShopLocal and Classified Ventures, recorded
in the first nine months of 2008 were $24.5 million.
On March
31, 2008, McClatchy and its partners, affiliates of Cox Enterprises, Inc. and
Media General, Inc., completed the sale of SP Newsprint Company, of which
McClatchy was a one-third owner. The Company recorded a gain on the
transaction of approximately $34.5 million. The Company used the $55
million of proceeds it received from the sale to reduce debt in the second
fiscal quarter of 2008 and has $5 million recorded as a long-term receivable
which is collateralized by cash in escrow.
During
the third fiscal quarter of 2007, due to continuing challenging business
conditions, management determined that a loss in value of its investments in
Seattle Times Company (STC) and Ponderay, which were other than temporary
declines, should be recognized. As a result, the Company recorded a
write down of $69.1 million and $6.0 million to reduce its investment in STC and
Ponderay, respectively, to their fair value as of September 30,
2007.
As part
of the June 2006 Knight Ridder acquisition (the Acquisition), the Company
acquired 10 acres of land in Miami. Such land was under contract to
be sold for gross proceeds of $190.0 million pursuant to a March 2005 sale
agreement, the closing of which was subject to resolution of certain
environmental and other contingencies. On August 10, 2007, the sale
agreement was amended. As of September 30, 2007, the Company expected
to consummate the sale of the Miami land prior to December 31, 2008 for gross
proceeds of approximately $180.0 million. As a result, the Company
recorded a write-down of $9.5 million in the third quarter of 2007.
The
Company now expects the sale of this land to be consummated by December 31, 2008
for approximately $190 million in gross proceeds. However, the
current state of the capital markets may adversely impact the buyers’ ability to
obtain financing to close the transaction by the December 31, 2008 contract
date.
NOTE
5. INTANGIBLE ASSETS AND GOODWILL
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible
assets and goodwill, along with their weighted-average amortization
periods consisted of the following (in thousands):
|
|
|
September
28, 2008
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Gross
|
|
|
Accumulated
|
|
|
Net
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Period
|
Intangible
assets subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
Advertiser
and subscriber lists
|
|
$ |
817,701 |
|
|
$ |
(249,135 |
) |
|
$ |
568,566 |
|
|
14
years
|
Other
|
|
|
26,270 |
|
|
|
(15,319 |
) |
|
|
10,951 |
|
|
8
years
|
Total
|
|
|
843,971 |
|
|
|
(264,454 |
) |
|
|
579,517 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
intangible assets not subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
Newspaper
mastheads
|
|
|
|
|
|
|
|
|
|
|
265,950 |
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
845,467 |
|
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
1,060,194 |
|
|
|
Total
intangible assets and goodwill
|
|
|
|
|
|
|
|
|
|
$ |
1,905,661 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Gross
|
|
|
Accumulated
|
|
|
Net
|
|
Amortization
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
Period
|
Intangible
assets subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertiser
and subscriber lists
|
|
$ |
817,701 |
|
|
$ |
(205,979 |
) |
|
$ |
611,722 |
|
|
14
years
|
Other
|
|
|
26,261 |
|
|
|
(12,342 |
) |
|
|
13,919 |
|
|
8
years
|
Total
|
|
$ |
843,962 |
|
|
$ |
(218,321 |
) |
|
|
625,641 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
intangible assets not subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
Newspaper
mastheads
|
|
|
|
|
|
|
|
|
|
|
265,950 |
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
891,591 |
|
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
1,042,880 |
|
|
|
Total
intangible assets and goodwill
|
|
|
|
|
|
|
|
|
|
$ |
1,934,471 |
|
|
|
|
|
The
following is a summary of the changes in the identifiable intangible
assets and goodwill from December
30, 2007 to September 28, 2008 (in thousands):
|
|
|
December
30,
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
September
28,
|
|
|
|
2007
|
|
|
Additions
|
|
|
Adjustments
|
|
|
Expense
|
|
|
2008
|
|
Intangible
assets subject
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
amortization
|
|
$ |
843,962 |
|
|
$ |
- |
|
|
$ |
9 |
|
|
$ |
- |
|
|
$ |
843,971 |
|
Accumulated
amortization
|
|
|
(218,321 |
) |
|
|
- |
|
|
|
(1 |
) |
|
|
(46,132 |
) |
|
|
(264,454 |
) |
|
|
|
625,641 |
|
|
|
- |
|
|
|
8 |
|
|
|
(46,132 |
) |
|
|
579,517 |
|
Newspaper
mastheads
|
|
|
265,950 |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
265,950 |
|
Goodwill
|
|
|
1,042,880 |
|
|
|
- |
|
|
|
17,314 |
(1) |
|
|
|
|
|
|
1,060,194 |
|
Total
|
|
$ |
1,934,471 |
|
|
$ |
- |
|
|
$ |
17,322 |
|
|
$ |
(46,132 |
) |
|
$ |
1,905,661 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Relates
primarily to revised estimates of deferred income tax assets and
liabilities related to the Knight Ridder
acquisition.
|
|
Amortization
expense for continuing operations was $15.4 million and $46.1 million for the
three and nine months ended September 28, 2008, respectively, and $15.0 million
and $45.0 million for the three and nine months ended September 30, 2007,
respectively.
The
estimated amortization expense for the remainder of fiscal 2008 and the
five succeeding fiscal years is as follows (in
thousands):
|
|
|
|
|
Amortization
|
|
|
|
|
Year
|
|
Expense
|
|
|
|
|
|
|
|
|
|
|
|
2008 (remaining)
|
|
$ 14,805
|
|
|
|
|
2009
|
|
59,312
|
|
|
|
|
2010
|
|
58,634
|
|
|
|
|
2011
|
|
57,538
|
|
|
|
|
2012
|
|
57,368
|
|
|
|
|
2013
|
|
56,228
|
|
|
NOTE
6. LONG-TERM DEBT
As of
September 28, 2008 and December 30, 2007, long-term debt consisted of the
following (in thousands):
|
|
September
28,
2008
|
|
|
December
30,
2007
|
|
Term
A bank debt, interest of 4.47% at September 28, 2008 and
6.07%
at December 30, 2007
|
|
$ |
550,000 |
|
|
$ |
550,000 |
|
Revolving
bank debt, interest of 4.74% at September 28, 2008 and
6.02%
at December 30, 2007
|
|
|
410,630 |
|
|
|
508,600 |
|
Publicly
traded notes:
|
|
|
|
|
|
|
|
|
$44.1
million 9.875% debentures due in 2009
|
|
|
44,749 |
|
|
|
207,327 |
|
$170
million 7.125% debentures due in 2011
|
|
|
171,548 |
|
|
|
303,497 |
|
$180
million 4.625% debentures due in 2014
|
|
|
160,909 |
|
|
|
176,180 |
|
$400
million 5.750% debentures due in 2017
|
|
|
366,413 |
|
|
|
363,600 |
|
$100
million 7.150% debentures due in 2027
|
|
|
91,496 |
|
|
|
91,162 |
|
$300
million 6.875% debentures due in 2029
|
|
|
272,471 |
|
|
|
271,461 |
|
Total
long-term debt
|
|
$ |
2,068,216 |
|
|
$ |
2,471,827 |
|
The
publicly traded notes are stated net of unamortized discounts and premiums
resulting from recording such assumed liabilities at fair value as of the June
27, 2006 acquisition date of Knight-Ridder, Inc. The notes due in 2009 are
expected to be refinanced on a long-term basis using the Company’s revolving
credit facility and accordingly, are included in long-term debt.
In the
second fiscal quarter of 2008, the Company purchased $300 million aggregate
principal amount of its outstanding debt securities for
$282.4 million in cash obtained from its revolving credit facility and recorded
a pre-tax gain in the second fiscal quarter of 2008 of $19.5
million. The Company purchased $150 million, $130 million and $20
million of its outstanding principal amount of debt securities maturing in 2009,
2011 and 2014, respectively. The gain includes the write-off of approximately
$2.8 million of net unamortized premiums related to these
securities.
In the
third fiscal quarter of 2008, the Company purchased $5.9 million aggregate
principal of its outstanding debt securities maturing in 2009 for $5.8 million
in cash obtained from its revolving credit facility and recorded a pre-tax gain
in the third fiscal quarter of $180,000. The gain includes the
write-off of approximately $0.1 million of net unamortized premiums related to
these securities.
The
Company's credit facility entered into on June 27, 2006 provided for a $3.2
billion senior unsecured credit facility (Credit Agreement) and was established
in connection with the Acquisition. At the closing of the
Acquisition, the Company’s new Credit Agreement consisted of a $1.0 billion
five-year revolving credit facility and $2.2 billion five-year Term A loan. Both
the Term A loan and the revolving credit facility are due on June 27,
2011.
On March
28, 2008, the Company entered into an agreement to amend the Credit Agreement
giving the Company greater flexibility in its bank covenants and reducing the
facility to $1.175 billion including a $625 million revolving credit facility
and a $550 million Term A loan as of the end of the second
quarter. The Company wrote off $3.4 million of deferred financing
costs in connection with the amendment, which was recorded in interest expense
in the first fiscal quarter of 2008.
On
September 26, 2008, the Company entered into an agreement to amend the Credit
Agreement giving the Company additional flexibility in its bank covenants and
amending other terms as described below. Pursuant to the amendment,
the revolving credit facility was reduced to $600 million on September 26, 2008
(to a total facility of $1.150 billion); a further reduction of $125 million is
required upon sale of the Miami land; and a reduction of $25 million will be
made on December 31, 2009. The Company wrote off $0.4 million of deferred
financing costs in connection with the amendment, which was recorded in interest
expense in the third fiscal quarter of 2008.
A total
of $188 million was available under the revolving credit facility at September
28, 2008, all of which could be borrowed under the Company's current leverage
covenant and trailing operating cash flow (as defined in the Credit Agreement).
On October 6, 2008 letters of credit totaling $48.3 million were issued under
the Credit Agreement reducing the amount available under the revolving credit
facility to approximately $140 million (see discussion of letters of credit
below).
Based
upon the September 26, 2008 amendment, debt under the Credit Agreement incurs
interest at the London Interbank Offered Rate (LIBOR) plus a spread ranging from
200 basis points to 425 basis points or Bank of America’s prime rate at a spread
of 100 basis points to 325 basis points based upon the Company’s total leverage
ratio (as defined). A commitment fee for the unused revolving credit
is priced at 50 basis points. The Company currently pays interest as of
September 28, 2008 at LIBOR plus 200.0 basis points on outstanding
debt.
The
amended Credit Agreement contains quarterly financial covenants including a
minimum interest coverage ratio (as defined in the Credit Agreement) of 2.25 to
1.00 through December 28, 2008 and 2.00 to 1.00 thereafter. Quarterly covenants
also include a maximum leverage ratio (as defined in the Credit Agreement) of
6.25 to 1.00 from September 28, 2008 to December 28, 2008; 7.00 to 1.00 from
March 29, 2009 through September 26, 2010; and 6.25 to 1.00 from and after
December 26, 2010. Upon the sale by the Company of the
Miami land, the applicable leverage ratio covenant will be reduced by 0.25
times. At September 28, 2008, the Company was in compliance with all debt
covenants.
In
addition, substantially all of the Company’s subsidiaries (as defined and
expanded in the September 26, 2008 amendment to the Credit Agreement) have
guaranteed the Company’s obligations under the Credit Agreement. The
Company has given a security interest in assets that include, but are not
limited to, intangible assets, inventory, receivables and certain minority
investments as collateral for the facility. In addition the amendment added
various requirements for mandatory prepayments of bank debt from certain sources
of cash; added limitations on cash dividends allowed to be paid at certain
leverage levels; and added and amended other covenants including limitations on
additional debt and the ability to retire public bonds early, amongst other
changes.
At
September 28, 2008, the Company had outstanding letters of credit totaling $49.3
million securing estimated obligations stemming from workers’ compensation
claims and other contingent claims. On October 6, 2008, $48.3 million
of these previously issued letters of credit were transferred from the original
issuing bank to the banks under the Credit Agreement.
In
September 2008, Moody’s and S&P lowered the Company’s corporate credit
ratings, as well as its rating on unsecured bonds and its senior bank credit
facility and noted that the ratings outlook on the corporate credit rating from
both agencies was negative; citing the uncertainty over the extent and duration
of the current cyclical slowdown. The ratings downgrades had no
impact on the interest rate and commitment fees the Company pays under the
Credit Agreement.
The
following table summarizes the ratings of the Company’s debt
instruments:
|
Debt
Ratings
|
|
|
As
of September 28, 2008
|
|
Credit
Facility:
|
|
|
S
& P
|
B+
|
|
Moody's
|
Ba2
|
|
Bonds:
|
|
|
S
& P
|
CCC+
|
|
Moody's
|
Caa1
|
|
Corp.
Family Rating:
|
|
|
S
& P
|
B
|
|
Moody's
|
B2
|
|
The
following table presents the approximate annual maturities of debt, based upon
the Company's required payments, for the next five years and thereafter (in
thousands):
|
Year
|
|
Payments
|
|
|
2009
|
|
$ |
44,089 |
|
|
2010
|
|
|
- |
|
|
2011
|
|
|
1,130,630 |
|
|
2012
|
|
|
- |
|
|
2013
|
|
|
- |
|
|
Thereafter
|
|
|
980,000 |
|
|
|
|
2,154,719 |
|
|
Less net discount
|
|
|
(86,503 |
) |
|
Total debt
|
|
$ |
2,068,216 |
|
NOTE
7. EMPLOYEE BENEFITS
The
Company sponsors defined benefit pension plans (retirement plans), which cover a
majority of its employees. Benefits are based on years of service and
compensation. Contributions to the retirement plans are made by the
Company in amounts deemed necessary to provide the required
benefits. No contributions to the Company's retirement plans are
currently planned during fiscal 2008.
The
Company also has a limited number of supplemental retirement plans to provide
key employees with additional retirement benefits. These plans are
funded on a pay-as-you-go basis and the accrued pension obligation is largely
included in pension and postretirement obligations.
As of
December 31, 2007, the McClatchy and Knight-Ridder Retirement Plans merged into
one retirement plan.
On June
16, 2008, the Company announced plans to reduce its workforce by about 10%, or
1,400 positions, as the Company streamlines its operations and staff
size. On September 16, 2008, the Company announced plan to further
reduce its workforce by about 1,150 positions as the Company continues to
streamline its operations and staff size.
As of
September 28, 2008, the workforce reductions have resulted in severance costs of
$42.4 million, including $17.0 million in the fiscal third quarter of 2008;
pension curtailment losses in certain defined benefit plans of $2.4 million,
including $0.7 million in the third fiscal quarter of 2008; and a gain in a
postretirement plan of $2.2 million, including $0.8 million in the third fiscal
quarter of 2008.
The
elements of pension costs for continuing operations are as follows (in
thousands):
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
28,
2008
|
|
|
September
30,
2007
|
|
|
September
28,
2008
|
|
|
September
30,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
5,760 |
|
|
$ |
9,405 |
|
|
$ |
22,863 |
|
|
$ |
28,216 |
|
Interest
cost
|
|
|
25,762 |
|
|
|
23,494 |
|
|
|
75,042 |
|
|
|
70,482 |
|
Expected
return on plan assets
|
|
|
(29,082 |
) |
|
|
(27,125 |
) |
|
|
(85,682 |
) |
|
|
(81,375 |
) |
Prior
service cost amortization
|
|
|
108 |
|
|
|
52 |
|
|
|
208 |
|
|
|
157 |
|
Actuarial
loss (gain)
|
|
|
(2,136 |
) |
|
|
1,727 |
|
|
|
(1,953 |
) |
|
|
5,180 |
|
Curtailment
loss
|
|
|
724 |
|
|
|
- |
|
|
|
2,373 |
|
|
|
- |
|
Net
pension expense
|
|
$ |
1,136 |
|
|
$ |
7,553 |
|
|
$ |
12,851 |
|
|
$ |
22,660 |
|
No
material contributions were made to the Company's multi-employer plans for
continuing operations for the three and nine months ended September 28, 2008 and
September 30, 2007.
The
Company also provides for or subsidizes postretirement healthcare and certain
life insurance benefits for employees. The elements of postretirement
benefits for continuing operations are as follows (in thousands):
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
28,
2008
|
|
|
September
30,
2007
|
|
|
September
28,
2008
|
|
|
September
30,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
5,760 |
|
|
$ |
9,405 |
|
|
$ |
22,863 |
|
|
$ |
28,216 |
|
Interest
cost
|
|
|
25,762 |
|
|
|
23,494 |
|
|
|
75,042 |
|
|
|
70,482 |
|
Expected
return on plan assets
|
|
|
(29,082 |
) |
|
|
(27,125 |
) |
|
|
(85,682 |
) |
|
|
(81,375 |
) |
Prior
service cost amortization
|
|
|
108 |
|
|
|
52 |
|
|
|
208 |
|
|
|
157 |
|
Actuarial
loss (gain)
|
|
|
(2,136 |
) |
|
|
1,727 |
|
|
|
(1,953 |
) |
|
|
5,180 |
|
Curtailment
loss
|
|
|
724 |
|
|
|
- |
|
|
|
2,373 |
|
|
|
- |
|
Net
pension expense
|
|
$ |
1,136 |
|
|
$ |
7,553 |
|
|
$ |
12,851 |
|
|
$ |
22,660 |
|
In the
third quarter of 2007, the Company entered into an agreement with the Pension
Benefit Guaranty Corporation (PBGC) to guarantee certain potential pension plan
termination liabilities associated with the plans maintained by certain divested
Knight Ridder newspapers. The guarantee covers any of the plans terminating
prior to September 1, 2009 on account of financial distress. The maximum
guarantee under each plan is no greater than the termination liability at the
time of the divestiture of the plan sponsor, and the liability amount is reduced
by contributions made by the plan sponsor going forward and by additional
amounts recovered from the plan sponsor in connection with any such
termination. PBGC may only seek payment under the guarantee if it has
exhausted all reasonable efforts to obtain payment from the current sponsors of
the plans. The Company believes the
likelihood
of its being required to perform under this guarantee is remote given the short
duration of the guarantee, and the number of pension plans and plan sponsors
involved. The gross amount of potential termination liabilities subject to the
guarantee is $126.3 million spread among a number of different plan sponsors and
pension plans. The Company recorded an expense in discontinued operations and a
corresponding liability of $2.5 million for the fair value of the
guarantee. Such liability is being amortized into income of
discontinued operations over the life of the guarantee.
NOTE
8. COMMITMENTS AND CONTINGENCIES
There are
libel and other legal actions that have arisen in the ordinary course of
business and are pending against the Company. From time to time the
Company is involved as a party in various governmental proceedings, including
environmental matters. 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 financial statements taken
as a whole, although no assurances can be given. No material amounts
for any losses from litigation which may ultimately occur have been recorded in
the consolidated financial statements, as management believes that any such
losses are not probable.
ITEM 2. MANAGEMENT’S DISCUSSION
AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF
OPERATIONS
|
Overview
The
McClatchy Company (McClatchy or the Company) is the third largest newspaper
company in the United States, with 30 daily newspapers, approximately 50
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 a leading local media company in each of its premium high growth
markets. McClatchy-owned newspapers include, among others, The
Miami
Herald, The
Sacramento Bee, The
(Fort Worth)
Star-Telegram, The
Kansas
City Star, The
Charlotte
Observer, and The
(Raleigh) News
& Observer. McClatchy is listed on the New York Stock
Exchange under the symbol MNI.
McClatchy
also owns a portfolio of premium digital assets, including 14.4% of
CareerBuilder, the United States’ largest online job site, and 25.6% of
Classified Ventures, a newspaper industry partnership that offers two of the
United States’ premier classified websites: the auto website, cars.com, and the
rental site, apartments.com.
The
Company's primary source of revenue is print and online advertising, which
accounted for 82.0% of the Company's revenue for the third fiscal quarter of
2008. While percentages vary from year to year and from newspaper to
newspaper, classified advertising has steadily decreased as a percentage of
total advertising revenues primarily in the employment and real estate
categories and to a lesser extent the automotive category. Classified
advertising as a percentage of total advertising revenues has declined to 32.8%
in the third fiscal quarter of 2008 compared to 38.0% in the third fiscal
quarter of 2007 and 40.9% in the third fiscal quarter of 2006, primarily as a
result of the economic slowdown affecting classified advertising and the secular
shift in advertising demand to online products.
While
revenues from retail advertising carried as a part of newspapers (run-of-press
or ROP advertising) or in advertising inserts placed in newspapers (preprint
advertising) has decreased year over year, retail advertising has steadily
increased as a percentage of total advertising up to 49.0% in the third fiscal
quarter of 2008 compared to 44.7% in the third fiscal quarter of 2007 and 41.5%
in the third fiscal quarter of 2006.
National
advertising as a percentage of total advertising revenue remained relatively
similar year over year and contributed 9.0% of total advertising revenue in the
third fiscal quarter of 2008. Direct marketing and other advertising
made up the remainder of the Company's advertising revenues in the third fiscal
quarter of 2008.
While
included in the revenues above, all categories of online advertising are
growing, with the exception of employment which has been negatively affected by
the economic downturn. Online advertising grew 9.0% in the third
fiscal quarter of 2008 and represented 12.2% of total advertising, up from 9.1%
of total advertising in the third fiscal quarter of 2007. Excluding employment
online advertising, online advertising grew 49.3% in the third fiscal quarter
and 53.3% in the nine months of 2008.
Circulation
revenues increased to 14.3% of the Company's newspaper revenues in the third
fiscal quarter of 2008 from 12.6% in the third fiscal quarter of
2007. Most of the Company’s newspapers are delivered by independent
contractors. Circulation revenues are recorded net of direct delivery
costs.
See the
following "Results of Operations" for a discussion of the Company's revenue
performance and contribution by category for the three and nine months ended
September 28, 2008 and September 30, 2007.
Critical
Accounting Policies
Critical
accounting policies are those accounting policies that management believes are
important to the portrayal of the Company's financial condition and results of
operations and require management's most difficult, subjective or complex
judgments, often as a result of the need to make estimates about the effect of
matters that are inherently uncertain. The Company's Annual Report on
Form 10-K for the period ended December 30, 2007 includes a description of
certain critical accounting policies, including those with respect to revenue
recognition, allowance for doubtful accounts, acquisition accounting,
discontinued operations, goodwill and intangible impairment, pension and
postretirement benefits, income taxes, insurance and stock-based employee
compensation. In order to provide additional clarity and detail
regarding the Company’s impairment of goodwill and intangibles in 2007, the
following is an expanded discussion on the Company’s policy for goodwill and
intangible impairment:
Goodwill
and Intangible Impairment - The Company accounts for goodwill in
accordance with Statement of Financial Accounting Standards (SFAS) No. 142,
Goodwill
and Other Intangible Assets. As required by SFAS No. 142, the
Company tests for goodwill annually (at year-end) or whenever events occur or
circumstances change that would more likely than not reduce the fair value of a
reporting unit below its carrying amount. Such indicators of
impairment may include, but are not limited to, changes in business climate such
as an economic downturn, significant operating cash flow declines related to its
newspapers or a major change in the assessment of future operations of its
newspapers, or a sustained decline in the Company’s stock price below the
per-share book value of stockholders’ equity. Due to the continuing challenging
business conditions and the resulting weakness in the Company’s stock price, the
Company analyzed the carrying value of its net assets as of September 30, 2007
and December 30, 2007. As a result impairment charges related to
goodwill and newspaper mastheads were recorded in the third and fourth quarters
of 2007—please see additional information in Note 3 to the Company’s
consolidated financial statements.
Summary
of Approach and Analysis of Impairments
The
required two-step approach to test for impairment under SFAS 142 requires the
use of accounting judgments and estimates of future operating
results. Because SFAS 142 requires that impairment testing be done at
a reporting unit level, the Company performs this testing at its newspaper
operating segments (which are considered reporting units under SFAS No. 142). An
impairment charge generally is recognized when the carrying amount of the
reporting unit’s net assets exceeds the estimated fair value of the reporting
unit. In summary the Company conducts its tests and considers the
following factors:
●
|
The
fair value of the Company’s reporting units is determined using a
discounted cash flow model. The projected cash flows are based on
estimates of revenues, newsprint expenses and other cash costs. While
these estimates are always inherently subject to risks and uncertainties,
the ability to project future operations (and in particular advertising
revenues) has become more difficult due to the unprecedented declines in
print advertising as discussed
below.
|
●
|
The
discount rate is determined using the Company’s weighted average cost of
capital, adjusted for risks perceived by investors which are implicit in
the Company’s publicly traded stock
price.
|
●
|
The
amount of a goodwill impairment charge requires management to allocate the
fair value of the reporting units to all of the assets and liabilities of
that unit (including any unrecognized intangible assets), using its best
judgments and estimates in valuing the reporting unit, to determine the
implied fair value of goodwill.
|
●
|
The
resulting total fair value of the reporting units is then reconciled to
the market capitalization of the Company, giving effect to an appropriate
control premium. A goodwill impairment charge is recorded to the extent
that the implied goodwill values are below the book value of goodwill for
the reporting units.
|
Management
believes the lack of visibility in future revenue trends has affected investors’
view of the Company’s enterprise value as reflected in its stock price.
Continued declines in the Company’s revenues, which are not offset by the
Company’s cost restructuring efforts, will likely have an impact on the fair
value of the Company’s reporting units as determined by the Company’s discounted
cash flow analysis. In addition, a sustained decline in the value of
the Company’s stock price (likely the result of declining revenues not
sufficiently offset with cost savings) would be considered an indicator of
impairment, as discussed below.
A more
comprehensive discussion of the factors that affected the 2007 impairment
charges follows.
Factors
Affecting Fair Value Calculations for Goodwill Impairment
Fair
value is determined using an income approach, which estimates fair value based
upon future revenue, expenses and cash flows discounted to their present
value. The estimated future cash flows projected can vary within a
range of outcomes depending on the assumptions and estimates used. The estimates
and judgments that most significantly affect the fair value calculation are
assumptions related to revenue, and in particular, potential changes in future
advertising (including the impact of economic trends and the speed of conversion
of advertising and readership to online products from traditional print
products); trends in newsprint prices; and other operating expense items. The
following are trends considered by the Company in developing assumptions and
estimates for its discounted cash flow analysis:
●
|
Beginning
in mid 2006, advertising declined as the real estate boom began to unwind
and newspapers in the states that experienced the largest run up in real
estate values experienced advertising revenue declines. The real
estate-led downturn has subsequently spread to other sectors in the
economy and across the nation. As a result, advertising declined in the
newspaper industry in 2006 and the decline worsened through 2007. The
Company’s advertising revenues in 2006 were up 0.5% but declined 8.6% in
2007 (both years pro forma for the acquisition of Knight Ridder) and
continued to decline in 2008 at an accelerating
pace.
|
●
|
Advertising
has been moving to the internet, particularly in the employment category.
This shift in advertiser preferences accelerated as the economy slowed.
While much of this advertising was captured by newspapers’ websites, low
barriers to entry and the searchable format of the internet gave rise to
many more competitors online than in print, particularly in the classified
advertising categories.
|
●
|
Newsprint
expense is the largest raw material input in the production of newspapers
and has ranged from 13.9% (in 2007) to 18.4% (in 2000) of cash operating
expenses for the Company. Newsprint producers have consolidated and
reduced capacity within the last year, and foreign demand of newsprint has
risen, causing prices to begin to rise in late 2007 and continue to
increase in 2008. However newsprint usage is at historical lows due to
declines in circulation and advertising, and to a lesser extent, to the
migration of some readers and advertisers to the internet. Through
September 2008 price increases have been offset by lower newsprint usage
reflecting declines in print advertising and circulation and newspaper
conservation efforts, but that may not
continue.
|
●
|
Through
2007 the Company has been in a process of downsizing its business as it
has become a hybrid print and online news and information company;
ultimately a smaller company than one primarily focused on print alone.
Compensation expenses are the largest component of the Company’s expenses
and management has reduced its workforce and restructured operations over
time by using attrition, outsourcing and consolidating functions. As
revenue declines have accelerated, the pace of restructuring has also
accelerated leading to restructuring initiatives announced by the Company
on June 16, 2008 and September 16, 2008 that included workforce
reductions. Other expenses have also been targeted for reductions in the
restructuring.
|
While the
impact of these trends and anticipation of restructuring efforts were taken into
account in the Company’s discounted cash flow model as of September 30, 2007,
assumptions about their impact on future operations are subject to variability
and the ultimate outcome and specific advertising growth rates are highly
subjective for individual newspapers.
Fair
value calculations by their nature require management to make assumptions about
future operating results which can be difficult to predict with
certainty. They are influenced by management’s views of future
advertising trends in the industry, and in the markets in which it operates
newspapers. As discussed above, the variability in these trends and the
difficulty in projecting advertising growth in particular in each newspaper
market are impacted by the unprecedented declines in advertising.
The
difficult economic conditions and decline in advertising revenues discussed
above have continued and accelerated throughout the first nine months of 2008.
The Company has responded with significant restructuring plans that are expected
to reduce operating expenses by approximately $200 million. As a
result of the economic conditions, the Company’s Class A stock price has also
continued to decline during 2008. As of September 28, 2008,
management believes that current circumstances do not indicate that it is
more-likely-than not that the fair values of the reporting units are below their
carrying amounts. However, continued declines in advertising revenues
and the Company’s Class A stock price may result in impairment charges in the
fourth quarter of 2008 based upon management’s annual test of the value of
goodwill and intangible assets.
Discount Rate Considerations
In
developing an appropriate discount rate to apply in its discounted cash flow
models the Company develops an estimate of its weighted average cost of
capital. Management also reviews the capital markets and considers in
its estimates the level of interest rates and perceived market risk associated
with media companies at large and the Company’s value specifically. The ultimate
discount rate selected is influenced by the reconciliation to current market
capitalization. The Company also reviews the value of each newspaper as
calculated in the discounted cash flow model at various discount rates in
comparison to public and private market trading multiples for newspaper assets
as a reasonableness check.
Enterprise
Value and Reconciliation to Market Capitalization
The
trends discussed above, along with general economic conditions, affect the
market’s perception of McClatchy’s enterprise value. The sum of the
fair values of the reporting units is reconciled to the Company's current market
capitalization (based upon the most recent stock market price) plus an estimated
control premium, and factors in the fair value of the Company's publicly traded
debt. The estimated control premium is based in part upon multiples
achieved in sales transactions of media companies with similar dual-class stock
structures as the Company. Though there is a level of subjectivity
and variability related to the assumptions in projecting future operating
results, this reconciliation process provides observable market input into and
therefore influences the range of values ascribed to the reporting
units.
Masthead
Considerations
Newspaper
mastheads (newspaper titles and website domain names) are not subject to
amortization and are tested for impairment annually (at year-end), or more
frequently if events or changes in circumstances indicate that the asset might
be impaired. The impairment test consists of a comparison of the fair
value of each newspaper masthead with its carrying amount. The
Company uses a relief from royalty approach which utilizes a discounted cash
flow model to determine the fair value of each newspaper
masthead. Management’s judgments and estimates of future operating
results in determining the reporting unit fair values are consistently applied
to each newspaper in determining the fair value of each newspaper
masthead. The Company performed impairment tests on newspaper
mastheads as of September 30, 2007 and December 30, 2007. See Note 3
to the consolidated financial statements for a discussion of the impairment
charges taken.
Other
Intangible Assets Considerations
Intangible
assets subject to amortization (primarily advertiser and subscriber lists) are
tested for recoverability whenever events or change in circumstances indicate
that their carrying amounts may not be recoverable. The carrying
amount of each asset group is not recoverable if it exceeds the sum of the
undiscounted cash flows expected to result from the use of such asset
group. The Company performed impairment tests on its long lived
assets (including intangible assets subject to amortization) as of September 30,
2007 and December 30, 2007. No impairment loss was recognized on
intangible assets subject to amortization.
Recent
Events and Trends
Disposition
Transaction:
On March
5, 2007, the Company sold the (Minneapolis) Star
Tribune newspaper and other publications and websites related to the
newspaper for $530 million. The Company used the proceeds from the sale of the
Star
Tribune to reduce debt. In addition, the Company received an
income tax benefit of approximately $200 million related to the
sale. Approximately $15 million of the tax benefit offset taxes
payable in the first fiscal quarter of 2008 and the Company received
approximately $185 million as an income tax refund in the second fiscal quarter
of 2008, which it used to reduce debt.
The
results of Star
Tribune's operations, including interest on debt incurred in connection
with the purchase of the company, have been recorded as discontinued operations
in all periods presented.
Impairment
of Goodwill and Newspaper Mastheads:
Management
performed its testing of impairment of goodwill and newspaper mastheads as of
September 30, 2007, due to the continuing challenging business conditions and
the resulting weakness in the Company's stock price as of the end of its third
quarter in 2007. The fair value of the Company's reporting units for
goodwill impairment testing and individual newspaper mastheads were estimated
using the expected present value of future cash flows, using estimates,
judgments and assumptions, that management believes were appropriate in the
circumstances. As a result, the Company recorded an impairment charge
related to goodwill of $1.2 billion and a newspaper masthead impairment charge
of $250.4 million in the third quarter of 2007.
The
Company performed its annual impairment testing of goodwill and newspaper
mastheads as of December 30, 2007. The fair values of the Company’s
reporting units were estimated using the expected present value of future cash
flows, using estimates, judgments and assumptions (see Note 1) that management
believes were appropriate in the circumstances. The sum of the fair
values of the reporting units was reconciled to the Company’s then current
market capitalization (based upon the stock market price) plus an estimated
control premium, and factored in the fair value of the Company's publicly traded
debt. As a result of this reconciliation process, the Company
recorded an impairment charge related to goodwill of $1.4 billion and a
newspaper masthead impairment charge of $166.6 million in the fourth quarter of
2007.
Advertising
Revenues:
Advertising
revenues in the third fiscal quarter of 2008 decreased as a result of the
continuing weak economy and the secular shift in advertising to the
internet. The rate of decline in advertising revenues from comparable
periods in 2007 continued to accelerate in the third fiscal quarter compared to
the second fiscal quarter of 2008. Management believes a significant portion of
the advertising downturn reflects the current economic cycle and expects
declines to continue in the fourth fiscal quarter of 2008. See the revenue
discussions in management’s review of “Results of Operations”.
Restructuring
Plans:
In June
2008, the Company announced plans to reduce its workforce by about 10%, or 1,400
positions, as the Company streamlines its operations and staff
size. The announced workforce reduction is expected to result in
total severance costs of approximately $30 million. Savings from the
restructuring, including compensation savings, are expected to be approximately
$95 million to $100 million, and are expect to be realized over four quarters
beginning in third quarter of 2008.
On
September 16, 2008, the Company announced a plan to further reduce its workforce
by about 1,150 positions as the Company continues to streamline its operations
and staff size. The Company expects to achieve savings of $100
million over the next four quarters beginning in the fourth quarter of 2008,
excluding severance costs of approximately $20 million, from the staff
reductions along with other savings initiatives.
As of
September 28, 2008, the workforce reductions have resulted in severance costs of
$42.4 million, including $17.0 million in the fiscal third quarter of 2008;
pension curtailment losses in certain defined benefit plans of $2.4 million,
including $0.7 million in the third fiscal quarter of 2008; and a gain in a
postretirement plan of $2.2 million, including $0.8 million in the third fiscal
quarter of 2008.
Newsprint:
After a
period of declining newsprint prices through most of 2007, newsprint prices
began to increase in the fourth fiscal quarter of 2007 and continued to increase
through the third fiscal quarter of 2008. For the third fiscal
quarter of 2008, newsprint expense was 2.3% lower than in the third fiscal
quarter of 2007, primarily reflecting lower newsprint usage partially offset by
higher newsprint prices. Newsprint producers have announced price
increases to be implemented in the fourth fiscal quarter of 2008; however, the
Company does not yet know whether the full amount of announced increases will be
implemented or the timing of such increases. The Company anticipates
that the current cycle in newsprint prices may soon peak based on lowering
energy costs, a stronger dollar compared to global currencies and lower
newsprint usage.
Newsprint
pricing is dependent on global demand and supply for
newsprint. Significant changes in newsprint prices can increase or
decrease the Company's operating expenses and therefore, directly affect the
Company’s operating results. However, because the Company has an
ownership interest in Ponderay Newsprint Co. (Ponderay), a newsprint producer,
an increase in newsprint prices, while negatively affecting the Company’s
operating expenses, would increase the earnings from its share of this
investment partially offsetting the increase in the Company’s newsprint
expense. A decline in newsprint prices would have the opposite
effect. Ponderay is also impacted by fluctuations in the cost of
energy and fiber used in the papermaking process. The impact of
newsprint price increases on the Company's financial results is discussed under
"Results of Operations."
Equity
Investments:
On March
31, 2008, the Company, along with the other general partners of SP Newsprint Co.
(SP), completed the sale of SP, of which the Company was a one-third
owner. The Company recorded a gain on the transaction of $34.5
million. The Company used the $55.0 million of proceeds it received
from the sale to reduce debt and has $5.0 million in escrow which it has
recorded as a long-term asset.
On June
30, 2008 (the first day of the Company’s third fiscal quarter), the Company sold
its 15.0% ownership interest in ShopLocal, LLC for $7.9 million and used the
proceeds to reduce debt. The Company expects to receive an income tax
benefit from the sale of approximately $5.6 million in the fourth fiscal quarter
of 2008. The Company reduced its carrying value of ShopLocal to match
the sales price. In addition, Classified Ventures, LLC identified potential
goodwill impairment at a real estate-related reporting unit and as a result, the
Company recognized an estimated charge related to this investment in the second
fiscal quarter of 2008. An additional charge of $3.0 million was
recorded in the third quarter, and the final impairment amount will determined
in the fourth quarter of 2008 when Classified Ventures completes its impairment
analysis. The total non-cash pre-tax charges related to impairments of internet
investments, including ShopLocal and Classified Ventures, recorded in the first
nine months of 2008 were $24.5 million.
Due to
continuing challenging business conditions during 2007, management determined
that a loss in value of certain investments and other assets at September 30,
2007 was other than temporary. Accordingly, charges of $84.6 million were
recorded to reduce the carrying values of certain investments during the third
quarter of 2007—please see additional information in Note 4 to the Company’s
consolidated financial statements.
Repurchase
of Public Notes:
In the
second fiscal quarter of 2008, the Company repurchased $300 million aggregate
principal amount of its outstanding debt securities for
$282.4 million in cash obtained from its revolving credit facility and recorded
a pre-tax gain of $19.5 million. The Company purchased $150 million,
$130 million and $20 million of its outstanding principal amount of debt
securities maturing in 2009, 2011 and 2014, respectively. The gain includes the
write-off of approximately $2.8 million of net unamortized premiums related to
these securities.
In the
third fiscal quarter of 2008, the Company purchased $5.9 million aggregate
principal of its outstanding debt securities maturing in 2009 for $5.8 million
in cash obtained from its revolving credit facility and recorded a pre-tax gain
in the third fiscal quarter of $180,000. The gain includes the
write-off of approximately $0.1 million of net unamortized premiums related to
these securities.
RESULTS
OF OPERATIONS
Third
Fiscal Quarter of 2008 Compared to Third Fiscal Quarter of 2007
The
Company reported income from continuing operations in the third fiscal quarter
of 2008 of $4.2 million, or five cents per share. The Company’s total
net income was $4.2 million, or five cents per share including discontinued
operations in the third fiscal quarter of 2008.
In the
third quarter of 2007, the Company reported an after-tax loss from continuing
operations of $1.345 billion, or $16.40 per share, including the effect of
non-cash after-tax impairment charges. The Company recorded pre-tax
non-cash impairment charges of $1.18 billion to goodwill, $250.4 million to
newspaper mastheads and $84.6 million to investments in unconsolidated
subsidiaries and other items; resulting in total impairment charges
of $1.37 billion, or $16.68 per share in the third quarter of 2007.
Total loss in the third quarter of 2007 including discontinued operations was
$1.347 billion or $16.42 per share.
Revenues:
Revenues
in the third fiscal quarter of 2008 were $451.6 million, down 16.4% from
revenues of $540.3 million in the third fiscal quarter of
2007. Advertising revenues were $370.1 million, down 19.0% from
advertising in the third fiscal quarter of 2007, and circulation revenues were
$64.7 million, down 4.9%.
As
discussed in Recent Events and Trends above, the economic weakness in the United
States and particularly the declining real estate market continued to impact the
Company’s advertising revenues in the third fiscal quarter of
2008. Circulation revenues decreased primarily due to lower
circulation volumes.
The
following summarizes the Company's revenue by category, which compares the third
fiscal quarter of 2008 with the third fiscal quarter of 2007 (dollars in
thousands):
|
|
Quarter
Ended
|
|
|
|
September
28,
2008
|
|
|
September
30,
2007
|
|
|
%
Change
|
|
Advertising:
|
|
|
|
|
|
|
|
|
|
Retail
|
|
$ |
181,416 |
|
|
$ |
204,349 |
|
|
|
-11.2 |
% |
National
|
|
|
33,485 |
|
|
|
41,718 |
|
|
|
-19.7 |
% |
Classified:
|
|
|
|
|
|
|
|
|
|
|
|
|
Auto
|
|
|
33,406 |
|
|
|
42,331 |
|
|
|
-21.1 |
% |
Employment
|
|
|
35,024 |
|
|
|
59,155 |
|
|
|
-40.8 |
% |
Real
estate
|
|
|
30,099 |
|
|
|
48,322 |
|
|
|
-37.7 |
% |
Other
|
|
|
22,902 |
|
|
|
23,987 |
|
|
|
-4.5 |
% |
Total
classified
|
|
|
121,431 |
|
|
|
173,795 |
|
|
|
-30.1 |
% |
Direct
marketing
|
|
|
|
|
|
|
|
|
|
|
|
|
and
other
|
|
|
33,785 |
|
|
|
37,155 |
|
|
|
-9.1 |
% |
Total
advertising
|
|
|
370,117 |
|
|
|
457,017 |
|
|
|
-19.0 |
% |
Circulation
|
|
|
64,691 |
|
|
|
67,995 |
|
|
|
-4.9 |
% |
Other
|
|
|
16,812 |
|
|
|
15,332 |
|
|
|
9.7 |
% |
Total
revenues
|
|
$ |
451,620 |
|
|
$ |
540,344 |
|
|
|
-16.4 |
% |
Retail
advertising decreased $22.9 million or 11.2% from the third fiscal quarter of
2007. The declines in retail advertising were largely in the
furniture and home furnishings segments reflecting the real estate downturn, and
in department store advertising. Online retail advertising increased
$5.1 million or 83.5% from the third fiscal quarter of 2007 driven by banner and
display advertisements, while print ROP advertising decreased $20.7 million or
17.6% from the third fiscal quarter of 2007. Preprint advertising
decreased $7.3 million or 9.1% from the third fiscal quarter of
2007.
National
advertising decreased $8.2 million or 19.7% from the third fiscal quarter of
2007. The declines in total national advertising were primarily in the
telecommunications and national automotive segments. However, online
national advertising increased $1.8 million or 80.7% from the third fiscal
quarter of 2007.
Classified
advertising decreased $52.4 million or 30.1% from the third fiscal quarter of
2007. Print classified advertising declined $49.2 million or 35.0%.
Online classified advertising decreased $3.1 million or 9.4% from the third
fiscal quarter of 2007 largely due to a $6.3 million decline in employment
advertising that was partially offset by other online classified advertising
growth. More specifically:
●
|
Real
estate advertising decreased $18.2 million or 37.7% from the third fiscal
quarter of 2007. The Company has seen dramatic declines in
California and Florida, which continue to be adversely impacted more than
other regions by the real estate downturn. In the third fiscal quarter of
2008, $8.5 million or 46.9% of the Company’s decline in real estate
advertising was in these two states. In total, print real
estate advertising declined 42.5%, while online advertising grew
18.3%.
|
●
|
Automotive
advertising decreased $8.9 million or 21.1% from the third fiscal quarter
of 2007, reflecting lower automotive sales and the consolidation of
automotive dealers. Print automotive advertising declined
30.2%, while online advertising grew 28.7% reflecting the strength of the
Company's cars.com online products.
|
●
|
Employment
advertising decreased $24.1 million or 40.8% from the third fiscal quarter
of 2007 reflecting a national slowdown in hiring and therefore, employment
advertising. The declines were reflected both in print
employment advertising, down 46.8%, and online employment advertising,
down 29.9%.
|
Online
advertising revenue, which is included in each of the advertising categories
discussed above, totaled $45.3 million in the third fiscal quarter of 2008, an
increase of 9.0% as compared to the third fiscal quarter of 2007. In
particular, those areas of online advertising that are not as strongly tied to
print up-sells (advertising sold as a combined purchase of print and online
advertising), primarily retail and automotive, have shown the strongest growth
in advertising sales. Excluding employment advertising, online advertising grew
49.3% in the third fiscal quarter of 2008 as compared to the third fiscal
quarter of 2007.
Direct
marketing decreased $3.3 million or 8.9% from the third fiscal quarter of 2007
reflecting the overall slow advertising environment in 2008.
Circulation
revenues decreased $3.3 million or 4.9% from the third fiscal quarter of 2007,
primarily reflecting lower circulation volumes. The Company expects
circulation volumes to remain lower in fiscal 2008 compared to fiscal 2007
reflecting both the Company’s focus on reducing circulation programs deemed to
be of lesser value to its advertising customers and changes in readership
trends.
Operating
Expenses:
Operating
expenses in the third quarter of fiscal 2008 decreased by $1.5 billion compared
to the third quarter of fiscal 2007. Operating expenses in the third
quarter of 2007 included a $1.4 billion charge for impairment of goodwill and
newspaper mastheads. Operating expenses in the third quarter of 2008
included $17.0 million in severance and benefit plan curtailment costs related
to the Company’s restructuring plans. Operating expenses, excluding
the restructuring items from 2008 and the impairment charges from 2007,
decreased $48.7 million or 11.0% quarter over quarter for 2008 versus
2007.
Compensation
expenses decreased $24.4 million or 10.9% from the third fiscal quarter of 2007
and included the restructuring charges discussed above. Excluding the
effect of the restructuring, compensation expense was down 18.5%. Excluding the
restructuring charges, payroll was down 14.7% and fringe benefits costs declined
33.9% reflecting an 18.2% decrease in average headcount in the quarter and lower
retirement and medical costs.
Newsprint
and supplement expense was down 2.8% with newsprint expense down 2.3%, primarily
reflecting lower newsprint usage. Supplement expense was down
5.7%. Depreciation and amortization expenses were down 2.1% from the
third fiscal quarter of 2007. Other operating costs were down 3.9%, reflecting
company-wide cost controls.
Interest:
Interest
expense from continuing operations declined $14.1 million or 29.2% in the third
fiscal quarter of 2008 reflecting lower interest rates and debt
balances. Interest expense included a $0.4 million charge related to
the write-off of deferred financing costs as a result of the amendment to the
Company’s bank credit agreement on September 26, 2008.
Equity
Loss:
Losses
from unconsolidated investments were $0.9 million in the third fiscal quarter of
2008 compared to $7.7 million in 2007. Losses from unconsolidated
investments in 2007 included losses from SP Newsprint Company (SP) and ShopLocal
which were sold at the beginning of the second and third fiscal quarters of
2008, respectively, as discussed below.
The
Company sold SP in the second fiscal quarter of 2008 and recorded an adjustment
to increase the gain on the sale by 2.6 million in the third quarter to $34.5
million. The Company recorded an additional charge to write down an
internet investment by $3.0 million in the third quarter. For further
information, see Note 4 to the consolidated financial statements for an expanded
discussion of transactions and events related to the Company’s less than
50%-owned companies.
The
Company recorded a charge of $84.6 million to write down the value of its
investments in The Seattle Times Company, Ponderay Newsprint Company and the
Miami land held for sale in the third fiscal quarter of 2007. See
Note 4 to the consolidated financial statements.
Income
Taxes:
The
income tax rate from continuing operations in the third fiscal quarter of 2008
was 33% and reflects taxes on the sales of equity interest and other discrete
tax items. The effective tax rate excluding the impact of the
transactions and other discrete items for the current fiscal year is expected to
be in the range of 54% to 55%, and is reflective of lower earnings in relation
to permanently nondeductible amortization arising from the Acquisition, and
higher effective state tax rates in certain states in which the Company
operates.
The
income tax rate from continuing operations in the third fiscal quarter of 2007
was impacted primarily by the fact that most of the goodwill impairment charges
are not tax deductible and therefore provided a tax benefit of only $23.7
million.
Discontinued
Operations:
The
Company has no significant discontinued operations in 2008. The $1.5 million
loss from discontinued operations in the third fiscal quarter of 2007 primarily
related to an expense of $2.5 million to record the fair value of the PBGC
guarantee (see Note 7 to the consolidated financial statements).
First
Nine Months of 2008 Compared to First Nine Months of 2007
The
Company reported income from continuing operations in the first nine months of
2008 of $23.2 million, or 28 cents per share. The Company’s net
income was $23.1 million, also 28 cents per share including discontinued
operations in the first nine months of 2008.
The loss
from continuing operations for the first nine months of 2007 was $1.296 billion
or $15.81 per share including the effect of the $1.4 billion in non-cash
impairment charges. In the first nine months of 2007, the Company
recorded a loss from discontinued operations of $6.3 million, or $0.08 per share
relating to the results of the (Minneapolis) Star
Tribune. The Company’s total net loss, including the results
of discontinued operations, for the first nine months of 2007 was $1.302
billion, or $15.89 per share.
Revenues:
Revenues
in the first nine months of 2008 were $1.4 billion, down 15.3% from revenues of
$1.7 billion in 2007. Advertising revenues were $1.2 billion, down
17.0% from advertising in the first nine months of 2007, and circulation
revenues were $198.6 million, down 5.2%.
As
discussed in Recent Events and Trends above, the economic weakness in the United
States and particularly the declining real estate market continued to impact the
Company’s advertising revenues in the first nine months of
2008. Also, California and Florida have been affected more than other
regions by the real estate downturn in the first nine months of 2008;
advertising revenues declined 22.6% in these two states in the first nine months
of 2008 compared to declines of 14.0% in all other regions.
The
following summarizes the Company's revenue by category, which compares the first
nine months of 2008 with the first nine months of 2007 (dollars in
thousands):
|
|
Nine
Months Ended
|
|
|
|
September
28,
2008
|
|
|
September
30,
2007
|
|
|
%
Change
|
|
Advertising:
|
|
|
|
|
|
|
|
|
|
Retail
|
|
$ |
568,670 |
|
|
$ |
623,878 |
|
|
|
-8.8 |
% |
National
|
|
|
108,391 |
|
|
|
132,934 |
|
|
|
-18.5 |
% |
Classified:
|
|
|
|
|
|
|
|
|
|
|
|
|
Auto
|
|
|
104,790 |
|
|
|
128,264 |
|
|
|
-18.3 |
% |
Employment
|
|
|
121,888 |
|
|
|
195,182 |
|
|
|
-37.6 |
% |
Real
estate
|
|
|
99,934 |
|
|
|
158,233 |
|
|
|
-36.8 |
% |
Other
|
|
|
70,174 |
|
|
|
68,728 |
|
|
|
2.1 |
% |
Total
classified
|
|
|
396,786 |
|
|
|
550,407 |
|
|
|
-27.9 |
% |
Direct
marketing
|
|
|
|
|
|
|
|
|
|
|
|
|
and
other
|
|
|
106,621 |
|
|
|
115,098 |
|
|
|
-7.4 |
% |
Total
advertising
|
|
|
1,180,468 |
|
|
|
1,422,317 |
|
|
|
-17.0 |
% |
Circulation
|
|
|
198,610 |
|
|
|
209,582 |
|
|
|
-5.2 |
% |
Other
|
|
|
50,508 |
|
|
|
55,030 |
|
|
|
-8.2 |
% |
Total
revenues
|
|
$ |
1,429,586 |
|
|
$ |
1,686,929 |
|
|
|
-15.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
advertising decreased $55.2 million or 8.8% from the first nine months of 2007
and largely reflected the factors discussed in the comparison of quarterly
results above. Online retail advertising increased $14.4 million or
77.9% from the first nine months of 2007 driven by banner and display
advertisements, while print ROP advertising decreased $53.6 million or 14.7%
from the first nine months of 2007. Preprint advertising decreased
$16.0 million or 6.7% from the first nine months of 2007.
National
advertising decreased $24.5 million or 18.5% from the first nine months of 2007.
The declines in total national advertising were primarily in the
telecommunications and the national automotive category. However,
online national advertising increased $6.5 million or 121.4% from the first nine
months of 2007.
Classified
advertising decreased $153.6 million or 27.9% from the first nine months of
2007. Print classified advertising declined $146.1 million or 32.6%,
while online classified advertising decreased $7.5 million or 7.4% from the
first nine months of 2007. More specifically:
●
|
Real
estate advertising decreased $58.3 million or 36.8% from the first nine
months of 2007. The Company has seen dramatic declines in
California and Florida which continue to be adversely impacted more than
other regions by the real estate downturn. In the first nine months of
2008, $33.0 million or 56.6% of the Company’s decline in real estate
advertising was in these two states. In total, print real
estate advertising declined 40.9%, while online advertising grew
15.4%.
|
●
|
Automotive
advertising decreased $23.5 million or 18.3% from the first nine months of
2007, reflecting lower automotive sales and the consolidation of
automotive dealers. Print automotive advertising declined
27.2%, while online advertising grew 35.1% reflecting the strength of the
Company's cars.com online products.
|
●
|
Employment
advertising decreased $73.3 million or 37.6% from the first nine months of
2007 reflecting a national slowdown in hiring and therefore employment
advertising. The declines were reflected both in print
employment advertising, down 43.5%, and online employment advertising,
down 26.3%.
|
Online
advertising revenue, which is included in each of the advertising categories
discussed above, totaled $139.0 million in the first nine months of 2008, an
increase of 10.7% as compared to the first nine months of 2007. In
particular, those areas of online advertising that are not as strongly tied to
print up-sells (advertising sold as a combined purchase of print and online
advertising), primarily retail and automotive, have shown the strongest growth
in advertising sales. Excluding employment advertising, online
advertising grew 53.3% in the first half of 2008.
Direct
marketing decreased $8.1 million or 7.2% from the first nine months of 2007
reflecting the overall slow advertising environment in 2008.
Circulation
revenues decreased $11.0 million or 5.2% from the first nine months of 2007,
primarily reflecting lower circulation volumes. The Company expects
circulation volumes to remain lower in fiscal 2008 compared to fiscal 2007
reflecting the trends discussed in the quarterly results above.
Operating
Expenses:
Operating
expenses decreased $1.5 billion in the nine-month period of 2008 compared to
2007. Operating expenses in the first nine months of 2007 included a
$1.4 billion charge for impairment of goodwill and newspaper
mastheads. Operating expenses in the first nine months of 2008
included $42.5 million in severance and benefit plan curtailment costs related
to the Company’s restructuring plans. Operating expenses, excluding the
restructuring items from 2008 and the impairment charges from 2007, decreased
$138.4 million, or 10.0% year over year for 2008 versus 2007.
Compensation
costs were down 6.1% and included the restructuring related charges discussed
above. Excluding the effect of the restructuring, compensation costs were down
12.8%, with payroll down 9.5% and fringe benefits costs down 22.6% reflecting an
11.7% decrease in average headcount and lower retirement and medical
costs.
Newsprint
and supplement expense was down 11.7% with newsprint expense down 12.2%,
primarily reflecting lower newsprint usage. Supplement expense was
down 8.8%. Depreciation and amortization expenses were down 3.5% from
the first nine months of 2007. Other operating costs were down 6.9%, reflecting
company-wide cost controls.
Interest:
Interest
expense for continuing operations declined $35.5 million, or 23.4%, to $116.1
million for the first nine months of 2008 reflecting lower interest rates and
debt balances. Interest expense included $3.7 million in charges
related to the write-off of deferred financing costs as a result of the
amendments to the Company’s bank credit agreement in the first and third fiscal
quarters of 2008.
Equity
Loss:
Losses
from unconsolidated investments were $14.4 million in the first nine months of
2008 compared to $28.6 million in 2007. During the second fiscal
quarter of 2007, the Seattle Times Company (STC) and Hearst entered into an
agreement to settle certain outstanding legal issues and amend their Joint
Operating Agreement relating to STC and Hearst's Seattle newspaper. As a
result, STC paid approximately $24 million to Hearst in the third fiscal
quarter of 2007. The Company expensed $7.8 million as its share
of this payment as part of its equity losses in the second fiscal quarter of
2007. Excluding the STC legal settlement, total losses from unconsolidated
investments were $20.8 million in the first nine months of 2007. The
2007 losses include a full nine months of losses from SP Newsprint and ShopLocal
which were sold in the beginning of the second and third fiscal quarters of
2008, respectively.
The
Company also recorded a gain on the sale of SP Newsprint of $34.5 million and
charges totaling $24.5 million related to estimated impairments of certain
internet investments. See Note 4 to the consolidated financial
statements for an expanded discussion of transactions and events related to the
Company’s less than 50% owned companies.
The
Company recorded a charge of $84.6 million to write down the value of its
investments in The Seattle Times Company, Ponderay Newsprint Company and land
held for sale in the third fiscal quarter of 2007. See Note 4 to the
consolidated financial statements.
Gain
on Extinguishment of Debt
The
Company recorded a gain on the extinguishment of debt of $19.7 million relating
to the repurchase of outstanding debt securities. See Note 6 to the
consolidated financial statements.
Income
Taxes:
The
income tax rate for the first nine months of 2008 from continuing operations was
45.7% and was impacted by several discrete items. The effective tax rate
excluding the impact of the discrete items for the current fiscal year is
expected to be in the range of 54% to 55%.
The
income tax rate from continuing operations for the first nine months of fiscal
2007 was affected by the impairment charges discussed in the quarterly reviews
above.
Discontinued
Operations:
Total
losses from discontinued operations in the first nine months of 2008 was $0.2
million or less than $0.01 per share compared to a loss in the first nine months
of 2007 of $6.3 million or $0.08 per share (related to the Star
Tribune newspaper – see Note 2 to the consolidated financial
statements). $1.2 million in interest incurred on the debt used to
finance the purchase of the Star
Tribune was recorded in discontinued operations in the first nine months
of fiscal 2007.
LIQUIDITY
AND CAPITAL RESOURCES
|
|
Sources
and Uses of Liquidity and Capital Resources:
The
Company’s cash and cash equivalents were $4.9 million as of September 28,
2008. All available cash is used to pay down debt on the Company’s
revolving credit line to minimize interest costs and the Company does not
foresee the need to hold excess cash on its balance sheet for liquidity
purposes. The Company generated $151.8 million of cash from operating
activities from continuing operations in the first nine months of 2008 compared
to $219.4 million in 2007. The decrease in cash from operating
activities primarily relates to lower advertising revenues and receipts in 2008
and changes in working capital. The Company generated $188.9 million
in cash from discontinued operations which was primarily from a $185 million
income tax refund related to the sale of The Star Tribune
Company. The Company used the proceeds from the refund to repay
debt.
Investing
activities provided $77.0 million in cash primarily due to the receipt of $63.1
million in proceeds from the sales of the Company’s interests in SP Newsprint
Company (SP) and ShopLocal and $31.7 million in proceeds from the sale of other
assets. These inflows were offset by the purchase of property, plant and
equipment totaling $17.1 million. Capital expenditures are expected
to total approximately $28 million in 2008 and are expected to total between $20
million and $25 million in 2009. The Company used the proceeds it received from
the sale of SP, ShopLocal and other asset sales to reduce debt and has $5
million related to the SP sale recorded as a long-term receivable which is
collateralized by cash in escrow.
The
Company owns 10 acres of land in Miami which is currently under contract to
sell. As of September 28, 2008, the Company expects to consummate the
sale of its Miami land by December 31, 2008 for a sale price of approximately
$190 million with after-tax net proceeds of approximately $115.0 million.
Proceeds from the sale will be used to repay debt. However, the
current state of the capital markets may adversely impact the buyer’s ability to
obtain financing in order to close the transaction by the December 31, 2008
contract date.
The
Company used $438.4 million of cash from financing sources in the first nine
months of 2008. The Company used $387.0 million in cash to reduce debt principal
by $403.9 million in the first nine months of 2008. A total of $289.0 million in
cash, including offering expenses, was used to complete a tender for a $305.9
million in face value of bonds (see discussion of “Debt and Related Matters”
below) and $98.0 million was used to repay bank debt. The Company
also paid $9.3 million in financing costs relating to amending its Credit
Agreement in the first and third fiscal quarters of 2008 and paid $44.4 million
in dividends in the first nine months of 2008.
While the
Company expects that most of its free cash flow generated from operations in the
foreseeable future will be used to repay debt, management believes that
operating cash flow and liquidity under its credit facilities as described below
are adequate to meet the liquidity needs of the Company, including currently
planned capital expenditures, required bond maturities in 2009 and other
investments.
Debt
and Related Matters:
In May
2008, the Company purchased $300 million aggregate principal amount of
its outstanding debt securities for $282.4 million in cash obtained
from its revolving credit facility and recorded a pre-tax gain of $19.5 million
in the second fiscal quarter of 2008. The Company purchased $150
million, $130 million and $20 million of its outstanding principal amount of
debt securities maturing in 2009, 2011 and 2014, respectively. The gain includes
the write-off of approximately $2.8 million of net unamortized premiums related
to these securities.
In
the third fiscal quarter of 2008, the Company purchased $5.9 million aggregate
principal of its outstanding debt securities maturing in 2009 for $5.8 million
in cash obtained from its revolving credit facility and recorded a pre-tax gain
in the third fiscal quarter of $0.2 million. The gain includes the
write-off of approximately $0.1 million of net unamortized premiums related to
these securities.
On March
28, 2008, the Company entered into an agreement to amend the Credit Agreement
giving the Company greater flexibility in its bank covenants and reducing the
facility to $1.175 billion including a $625 million revolving credit facility
and a $550 million Term A loan as of the end of the second
quarter. The Company wrote off $3.4 million of deferred financing
costs in connection with the amendment, which was recorded in interest expense
in the first fiscal quarter of 2008.
On
September 26, 2008, the Company entered into an agreement to amend the Credit
Agreement giving the Company additional flexibility in its bank covenants and
amending other terms as described below. Pursuant to the amendment,
the revolving credit facility was reduced to $600 million on September 26, 2008
(to a total facility of $1.150 billion); a further reduction of $125 million is
required upon sale of the Miami land; and a reduction of $25 million will be
made on December 31, 2009. The Company wrote off $0.4 million of deferred
financing costs in connection with the amendment, which was recorded in interest
expense in the third fiscal quarter of 2008.
A total
of $188 million was available under the revolving credit facility at September
28, 2008, all of which could be borrowed under the Company's current leverage
covenant and trailing operating cash flow (as defined in the Credit Agreement).
On October 6, 2008, letters of credit totaling $48.3 million were issued under
the credit agreement reducing the amount available under the revolving credit
facility to approximately $140 million (see discussion of letters of credit
below).
Based
upon the amendment, debt under the amended Credit Agreement incurs interest at
the London Interbank Offered Rate (LIBOR) plus a spread ranging from 200 basis
points to 425 basis points or Bank of America’s prime rate at a spread of 100
basis points to 325 basis points based upon the Company’s total leverage ratio
(as defined). A commitment fee for the unused revolving credit is
priced at 50 basis points. As of September 28, 2008, the Company pays
interest at LIBOR plus 200 basis points on outstanding debt. Based on
the expected total leverage ratio as defined in the Credit Agreement, the
Company expects to pay interest in the fourth quarter on its bank debt at the
lower of LIBOR plus 275 basis points or prime rate plus 175 basis
points.
The
amended Credit Agreement contains quarterly financial covenants including a
minimum interest coverage ratio (as defined in the Credit Agreement) of 2.25 to
1.00 through December 28, 2008 and 2.00 to 1.00 thereafter. Quarterly covenants
also include a maximum leverage ratio (as defined in the Credit Agreement) of
6.25 to 1.00 from September 28, 2008 to December 28, 2008; 7.00 to 1.00 from
March 29, 2009 through September 26, 2010; and 6.25 to 1.00 from and after
December 26, 2010. Upon the sale by the Company of the
Miami land, the applicable leverage ratio covenant will be reduced by 0.25
times. At September 28, 2008, the Company was in compliance with all debt
covenants.
In
addition, substantially all of the Company’s subsidiaries (as defined and
expanded in the September 26, 2008 amendment to the Credit Agreement) have
guaranteed the Company’s obligations under the Credit Agreement. The
Company has given a security interest in assets that include, but are not
limited to, intangible assets, inventory, receivables and certain minority
investments as collateral for the facility. In addition, the amendment added
various requirements for mandatory prepayments of bank debt from certain sources
of cash; added limitations on cash dividends allowed to be paid at certain
leverage levels; and added and amended other covenants including limitations on
additional debt and the ability to retire public bonds early, amongst other
changes.
At
September 28, 2008, the Company had outstanding letters of credit totaling $49.3
million securing estimated obligations stemming from workers’ compensation
claims and other contingent claims. On October 6, 2008, $48.3 million
of the previously issued letters of credit were transferred from the original
issuing bank to the banks under the Credit Agreement.
In
September 2008, Moody’s and S&P lowered the Company’s corporate credit
ratings, as well as its rating on unsecured bonds and its senior bank credit
facility and noted that the ratings outlook on the corporate credit rating from
both agencies was negative; citing the uncertainty over the extent and duration
of the current cyclical slowdown. The ratings downgrades had no
impact on the interest rate and commitment fees the Company pays under the
Credit Agreement.
The
following table summarizes the ratings of the Company’s debt
instruments:
|
Debt
Ratings
|
|
|
As
of September 28, 2008
|
|
Credit
Facility:
|
|
|
S
& P
|
B+
|
|
Moody's
|
Ba2
|
|
Bonds:
|
|
|
S
& P
|
CCC+
|
|
Moody's
|
Caa1
|
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Corp.
Family Rating:
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S
& P
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B
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Moody's
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B2
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Contractual
Obligations:
As of
September 28, 2008, the Company has purchase obligations primarily related to
capital expenditures for property, plant and equipment expiring at various dates
through 2009, totaling approximately $1.6 million.
The
Company’s pension and postretirement obligations increased by approximately
$80.7 million as the qualified pension plan and certain postretirement plans
were revalued as of September 28, 2008 in connection with assessing the impact
of a curtailment of the plans pursuant to the Company’s recently announced
restructuring plans. See Note 7 to the consolidated financial statements above
for more discussion of the Company’s recent restructuring efforts.
ITEM 3. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Debt
under the Credit Agreement bears interest at the LIBOR plus a spread ranging
from 200.0 basis points to 425.0 basis points. Applicable rates are
based upon the Company's total leverage ratio. A hypothetical 25
basis point change in LIBOR for a fiscal year would increase or decrease the
Company’s annual net income by $1.0 million to $1.25 million based on expected
debt balances in 2008.
See the
discussion at “Recent Events and Trends - Operating Expenses” in Management's
Discussion and Analysis of Financial Condition and Results of Operations for the
impact of market changes on the Company's newsprint and pension
costs.
ITEM 4. CONTROLS AND
PROCEDURES
Evaluation
of disclosure controls and procedures. Our management
evaluated, with the participation of our Chief Executive Officer (CEO) and Chief
Financial Officer (CFO), the effectiveness of the design and operation of the
Company's disclosure controls and procedures (as defined in Rules 13a - 15(e) or
15d - 15(e) under the Securities Exchange Act of 1934, as amended) as of the end
of the period covered by this Quarterly Report on Form 10-Q. Based on this
evaluation, the Company's management, including the CEO and CFO, concluded that
the Company's disclosure controls and procedures were effective as of the end of
the period covered by this Quarterly Report on Form 10-Q to ensure that
information we are required to disclose in reports that we file or submit under
the Securities Exchange Act of 1934 is accumulated and communicated to our
management, including our principal executive and principal financial officers,
as appropriate to allow timely decisions regarding required disclosure and that
such information is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission Rules and
Forms.
Changes
in internal control over financial reporting. There was no
change in our internal control over financial reporting that occurred during the
third fiscal quarter of 2008 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.
Forward-Looking
Information:
Statements
in this quarterly report on Form 10-Q regarding future financial and operating
results, including revenues, operating expenses, 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: anticipated
savings from cost restructuring efforts may not materialize in the amount or
timing anticipated by management; the duration and depth of an
economic recession in markets where McClatchy operates its newspapers may reduce
its income and cash flow more than expected; McClatchy may not consummate
contemplated transactions, including but not limited to the pending sale of the
real estate in Miami, which may prevent debt reduction on anticipated terms or
at all; McClatchy may harm to its operations in attempting to achieve its cost
reduction targets; McClatchy’s operations have been, and will likely continue to
be, adversely affected by competition, including competition from internet
publishing and advertising platforms; McClatchy’s expense and income levels
could be adversely affected by changes in the cost of newsprint and McClatchy’s
operations could be negatively affected by any deterioration in its labor
relations, 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 30, 2007, 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 quarterly
report.
Declines
in general economic and business conditions subject the Company to risks of
declines in advertising revenues.
Classified
advertising revenues have continued to decline since late 2006 and advertising
revenues in all categories have declined across the board in fiscal year
2008. Advertising revenues were down 17.0% in the first nine
months of fiscal year 2008. The deterioration of general
economic and business conditions may continue to have an adverse effect on the
Company’s business and financial results, including negatively impacting
revenues and margins.
The
economic downturn and the decline in the price of the Company's publicly traded
stock may result in impairment charges.
The
Company recorded goodwill and masthead impairment charges of $3.0 billion in
2007 reflecting the economic downturn, particularly in California and Florida,
and the decline in the price of the Company’s publicly traded common
stock. Should general economic, market or business conditions
continue to decline, and continue to have an negative impact on the Company’s
stock price, the Company may be required to record additional impairment charges
in the fourth quarter of 2008.
See
McClatchy’s 2007 Form 10-K filed with the Securities and Exchange Commission on
February
28, 2008 for further discussion of risk factors that could affect operating
results.
Exhibits
filed as part of this Report as listed in the Index of Exhibits, on page 39
hereof.
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
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The
McClatchy Company
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November
7, 2008
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By: /s/
Gary B. Pruitt
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Date
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Gary
B. Pruitt
Chief
Executive Officer
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November
7, 2008
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By: /s/
Patrick J. Talamantes
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Date
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Patrick
J. Talamantes
Chief
Financial Officer
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Exhibit
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Description
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2.1
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* |
Agreement
and Plan of Merger, dated March 12, 2006, between the Company and
Knight-Ridder, Inc., included as Exhibit 2.1 in the Company’s Current
Report on Form 8-K filed March 12, 2006.
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3.1 |
* |
The
Company's Restated Certificate of Incorporation dated June 26, 2006,
included as Exhibit 3.1 in the Company's Quarterly Report on Form 10-Q for
the quarter ended
June
25, 2006.
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3.2 |
* |
The
Company's Bylaws as amended and restated effective July 23, 2008, included
as Exhibit 3.2 in the Company's Current Report on Form 8-K filed July 28,
2008.
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10.1 |
* |
Credit
Agreement dated June 27, 2006 by and among the Company, lenders party
thereto, Bank of America, N.A. as Administrative Agent, Swing Line Lender
and Letter of Credit Issuer, JPMorgan Chase Bank as Syndication Agent and
Banc of America Securities LLC and JPMorgan Securities Inc. as Joint Lead
Arrangers and Joint Book Managers, included as Exhibit 10.2 in the
Company's Quarterly Report on Form 10-Q filed for the quarter ending on
June 25, 2006.
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10.2 |
* |
Amendment
No. 1 to Credit Agreement dated March 28, 2007 by and between The
McClatchy Company and Bank of America, N.A., as Administrative Agent,
included as Exhibit 99.1 in the Company's Current Report on Form 8-K filed
April 2, 2007.
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10.3 |
* |
Amendment
No. 2 to Credit Agreement dated July 30, 2007 by and between The McClatchy
Company and Bank of America, N.A., as Administrative Agent, included as
Exhibit 10.1 in the Company's Current Report on Form 8-K filed July 31,
2007.
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10.4
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* |
Amendment
No. 3 to Credit Agreement dated March 28, 2008 by and between The
McClatchy Company and Bank of America, N.A., as Administrative Agent,
included as Exhibit 10.1 in the Company’s Current Report on Form 8-K filed
March 31, 2008.
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10.5 |
* |
Amendment
No. 4 to Credit Agreement dated as of September 26, 2008 by and among The
McClatchy Company, the lenders under its Credit Agreement dated June 27,
2006, and amended on March 28, 2007, July 19, 2007, and March 28, 2008
(the “Credit Agreement”) by and among The McClatchy Company, Bank of
America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer,
JPMorgan Chase Bank, N.A., as Syndication Agent, and other lenders thereto
and Bank of America, N.A., as Administrative Agent, included as Exhibit
10.1 to the Company’s Current Report on Form 8-K filed on September 30,
2008.
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10.6 |
* |
Amended
and Restated Guaranty dated as of September 26, 2008 executed by certain
subsidiaries of The McClatchy Company in favor of the lenders under the
Credit Agreement, included as Exhibit 10.3 to the Company’s Current Report
on Form 8-K filed on September 30, 2008.
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10.7 |
* |
Security
Agreement dated as of September 26, 2008 executed by The McClatchy Company
and certain of its subsidiaries in favor of Bank of America, N.A., as
Administrative Agent, included as Exhibit 10.2 to the Company’s Current
Report on Form 8-K filed on September 30, 2008.
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10.8 |
* |
Second
Supplemental Indenture dated June 27, 2006, between the Company and
Knight-Ridder, Inc. included as Exhibit 10.3 in the Company's Current
Report on Form 10-Q filed for the quarter ending on June 25,
2006.
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10.9 |
* |
Fourth
Supplemental Indenture dated June 27, 2006, between the Company and
Knight-Ridder, Inc. included as Exhibit 10.4 in the Company's Quarterly
Report on Form 10-Q filed for the quarter ending on June 25,
2006.
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Exhibit
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Description
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**10.10 |
*
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The
McClatchy Company Management by Objective Plan Description included as
Exhibit 10.4 in the Company's Report filed on Form 10-K for the Year
ending December 30, 2000.
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**10.11 |
* |
The
Company’s Amended and Restated CEO Bonus Plan, included as Exhibit 10.27
in the Company’s Quarterly Report on Form 10-Q for the quarter ending June
29, 2008.
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**10.12 |
* |
The
Company’s Amended and Restated Long-Term Incentive Plan included as
Exhibit 99.1 to the Company’s Current Report on Form 8-K filed May 23,
2005.
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**10.13 |
* |
Amendment
No. 1 to the Company’s Amended and Restated Long-Term Incentive Plan,
included as Exhibit 10.26 in the Company’s Quarterly Report on Form 10-Q
for the quarter ending June 29, 2008.
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**10.14 |
*
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Amended
and Restated Supplemental Executive Retirement Plan included as Exhibit
10.4 to the Company's 2002 Report on Form 10-K.
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**10.15 |
* |
The
Company's Amended and Restated 1990 Directors' Stock Option Plan dated
February 1, 1998 included as Exhibit 10.12 to the Company's 1997 Report on
Form 10-K.
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**10.16 |
* |
Amended
and Restated 1994 Stock Option Plan included as Exhibit 10.15 to the
Company's Quarterly Report on Form 10-Q filed for the Quarter Ending on
July 1, 2001.
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**10.17 |
* |
Form
of Chief Executive Stock Appreciation Rights Agreement related to the
Company's 2004 Stock Incentive Plan included as Exhibit 10.25 in the
Company’s 2007 Report on Form 10-K.
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**10.18 |
* |
The
Company’s 2004 Stock Incentive Plan, as amended and restated included as
Exhibit 10.25 in the Company’s Quarterly Report on Form 10-Q filed for the
quarter ending June 29, 2008.
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**10.19 |
* |
Form
of 2004 Stock Incentive Plan Nonqualified Stock Option Agreement included
as Exhibit 99.1 to the Company's Current Report on Form 8-K filed December
16, 2004.
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**10.20 |
* |
Form
of Restricted Stock Agreement related to the Company's 2004 Stock
Incentive Plan, included as Exhibit 99.1 to the Company's Current Report
on Form 8-K dated January 28, 2005.
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**10.21 |
* |
Amended
and Restated Employment Agreement between the Company and Gary B. Pruitt
dated October 22, 2003, included as Exhibit 10.10 to the Company's 2003
Form 10-K.
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10.22 |
* |
Form
of Indemnification Agreement between the Company and each of its officers
and directors, included as Exhibit 99.1 to the Company's Current Report on
Form 8-K filed on May 23, 2005.
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**10.23 |
* |
Amended
and Restated 1997 Stock Option Plan included as Exhibit 10.7 to the
Company's 2002 Report on Form 10-K.
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**10.24 |
* |
Amendment
1 to The McClatchy Company 1997 Stock Option Plan dated January 23, 2007
included as Exhibit 10.16 to the Company's 2006 Report on Form
10-K.
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**10.25 |
* |
The
Company's Amended and Restated 2001 Director Stock Option Plan, included
as Exhibit 10.13 to the Company's 2005 Report on Form
10-K.
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**10.26 |
* |
Amendment
1 to The McClatchy Company 2001 Director Option Plan dated January 23,
2007 included as Exhibit 10.18 to the Company’s 2006 Report on Form
10-K.
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10.27 |
* |
Stock
Purchase Agreement by and between The McClatchy Company and Snowboard
Acquisition Corporation, dated December 26, 2006, included as Exhibit 2.1
to the Company's Current Report on Form 8-K filed December 26,
2006.
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Exhibit
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Description
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10.28 |
* |
Contract
for Purchase and Sale of Real Property by and between The Miami Herald
Publishing Company and Richmond, Inc. and Knight Ridder, Inc. and
Citisquare Group, LLC, dated March 3, 2005, included as Exhibit 10.23 in
the Company's Quarterly Report on Form 10-Q filed for the quarter ending
July 1, 2007.
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10.29 |
* |
Amendment
to Contract for Purchase and Sale of Real Property by and between The
Miami Herald Publishing Company and Richmond, Inc. and Knight Ridder, Inc.
and Citisquare Group, LLC, dated March 3, 2005, included as Exhibit 10.24
in the Company's Quarterly Report on Form 10-Q filed for the quarter
ending July 1, 2007.
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**10.30 |
* |
The
Company’s Amended and Restated Employee Stock Purchase Plan, included as
Exhibit 10.28 in the Company’s Quarterly Report on Form 10-Q for the
quarter ending June 29, 2008.
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21 |
* |
Subsidiaries
of the Company.
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31.1 |
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Certification
of the Chief Executive Officer of The McClatchy Company pursuant to Rule
13a-14(a) under the Exchange Act.
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31.2 |
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Certification
of the Chief Financial Officer of The McClatchy Company pursuant to Rule
13a-14(a) under the Exchange Act.
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32.1 |
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Certification
of the Chief Executive Officer of The McClatchy Company pursuant to 18
U.S.C. Section 1350.
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32.2 |
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Certification
of the Chief Financial Officer of The McClatchy Company pursuant to 18
U.S.C. Section 1350.
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* |
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Incorporated
by reference
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** |
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Compensation
plans or arrangements for the Company's executive officers and
directors
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41