[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
|
[ ]
|
Yes
|
[X]
|
No
|
Class
A Common Stock
|
57,515,181 |
Class
B Common Stock
|
25,050,962 |
THE
McCLATCHY COMPANY
|
||||||||
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
|
||||||||
(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
|
||||||||||||||||
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
|
||||||||||||||||
(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
|
||||||||
CONSOLIDATED STATEMENT OF CASH
FLOWS (UNAUDITED)
|
||||||||
(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
|
||||||||||||||||||||||||||||
CONSOLIDATED STATEMENT OF
STOCKHOLDERS' EQUITY (UNAUDITED)
|
||||||||||||||||||||||||||||
(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.
|
NOTE
1. SIGNIFICANT ACCOUNTING
POLICIES
|
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 | ) |
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
4. INVESTMENTS IN UNCONSOLIDATED COMPANIES AND LAND
HELD FOR SALE
|
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 |
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.
|
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
|
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 |
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
|
|
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 |
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 |
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 |
ITEM 2. MANAGEMENT’S DISCUSSION
AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF
OPERATIONS
|
●
|
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.
|
●
|
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.
|
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 | % |
●
|
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%.
|
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 | % | ||||||
●
|
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%.
|
LIQUIDITY
AND CAPITAL RESOURCES
|
|
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
|
|
ITEM 6. EXHIBITS |
|
The
McClatchy Company
|
||
November
7, 2008
|
By: /s/
Gary B. Pruitt
|
|
Date
|
Gary
B. Pruitt
Chief
Executive Officer
|
|
November
7, 2008
|
By: /s/
Patrick J. Talamantes
|
|
Date
|
Patrick
J. Talamantes
Chief
Financial Officer
|
Exhibit
|
Description
|
||
2.1
|
* |
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.
|
|
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.
|
|
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.
|
|
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.
|
|
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.
|
|
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.
|
|
10.4
|
* |
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.
|
|
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.
|
|
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.
|
|
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.
|
|
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.
|
|
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.
|
Exhibit
|
Description
|
||
**10.10 |
*
|
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.
|
|
**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.
|
|
**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.
|
|
**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.
|
|
**10.14 |
*
|
Amended
and Restated Supplemental Executive Retirement Plan included as Exhibit
10.4 to the Company's 2002 Report on Form 10-K.
|
|
**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.
|
|
**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.
|
|
**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.
|
|
**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.
|
|
**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.
|
|
**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.
|
|
**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.
|
|
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.
|
|
**10.23 | * |
Amended
and Restated 1997 Stock Option Plan included as Exhibit 10.7 to the
Company's 2002 Report on Form 10-K.
|
|
**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.
|
|
**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.
|
|
**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.
|
|
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.
|
Exhibit
|
Description
|
||
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.
|
|
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.
|
|
**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.
|
|
21 | * |
Subsidiaries
of the Company.
|
|
31.1 |
Certification
of the Chief Executive Officer of The McClatchy Company pursuant to Rule
13a-14(a) under the Exchange Act.
|
||
31.2 |
Certification
of the Chief Financial Officer of The McClatchy Company pursuant to Rule
13a-14(a) under the Exchange Act.
|
||
32.1 |
Certification
of the Chief Executive Officer of The McClatchy Company pursuant to 18
U.S.C. Section 1350.
|
||
32.2 |
Certification
of the Chief Financial Officer of The McClatchy Company pursuant to 18
U.S.C. Section 1350.
|
||
* |
Incorporated
by reference
|
||
** |
Compensation
plans or arrangements for the Company's executive officers and
directors
|