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McClatchy Reports Fourth Quarter 2010 Earnings

Wednesday 09. February 2011 - The McClatchy Company (NYSE: MNI) today reported net income from continuing operations in the fourth quarter of 2010 of $15.8 million or 18 cents per share compared to income of $32.4 million or 38 cents per share in the 2009 quarter.

Adjusted earnings from continuing operations(1) were $33.6 million or 39 cents per share in the fourth quarter of 2010 after excluding the unusual items discussed below, compared to $49.6 million or 59 cents per share reported in the fourth quarter of 2009. Total net income including discontinued operations was $14.9 million or 17 cents per share in the fourth quarter of 2010 compared to net income of $25.8 million or 30 cents per share in the 2009 fourth quarter.
The 2010 results reflect a charge of $21.4 million related to an impairment of land in Miami that was previously under contract to be sold. This charge is based upon a preliminary evaluation of the fair value of the property, which will be completed prior to the filing of the company’s Form 10-K with the U.S. Securities and Exchange Commission (SEC). Adjustments, if any, from this preliminary evaluation will be reflected in the company’s final consolidated financial statements filed with the SEC. Unusual items affecting the fourth quarter results from continuing operations in each year are discussed below and are included in adjusted earnings from continuing operations.(1)
Revenues in the fourth quarter of 2010 were $369.9 million, down 5.9% from the fourth quarter of 2009. Advertising revenues were $287.4 million, down 6.9% from 2009, and circulation revenues were $69.0 million, down 3.3%. Digital advertising revenues grew 5.1% in the fourth quarter of 2010 and were 17.8% of total advertising revenues compared to 15.8% of total advertising revenues in the fourth quarter of 2009.
Operating cash expenses, excluding severance associated with restructuring plans, declined $4.3 million, or 1.7%, from the 2009 quarter despite significant increases in newsprint prices compared to the fourth quarter of 2009. Operating cash flow, a non-GAAP measure, was $120.9 million in the fourth quarter of 2010, down 13.6%, and largely reflects lower revenues and the impact of higher newsprint prices in the quarter (non-GAAP measurements are discussed below).
Full Year Results:
Income from continuing operations for 2010 was $33.2 million or 39 cents per share and was affected by the impact of the unusual items discussed below. Adjusted earnings from continuing operations(1) were $58.0 million or 68 cents per share in 2010. Total net income including discontinued operations was $36.3 million or 43 cents per share, in 2010.
Income from continuing operations for 2009 was $60.3 million or 72 cents per share and was affected by the impact of the unusual items discussed below. Adjusted earnings from continuing operations(1) were $60.6 million or 72 cents per share in 2009. Total net income including discontinued operations was $54.1 million or 65 cents per share, in 2009.
Revenues in 2010 were down 6.5% to $1.4 billion compared to $1.5 billion in 2009. Advertising revenues in 2010 totaled $1.0 billion, down 8.1%, and circulation revenues were $272.8 million, down 2.0%.
Operating cash expenses, excluding severance associated with restructuring plans, declined $108.5 million, or 9.9% from 2009. Operating cash flow, a non-GAAP measure, was $382.1 million, up 3.3%.
Other Recent Events:
As previously reported, in December 2010 the company received a cash dividend of $24.3 million from its investment in Classified Ventures, LLC, which operates Cars.com and Apartments.com. In addition, the company previously reported that it amended its credit agreement to, among other things, eliminate restrictions on the early retirement of the company’s existing public bonds and repaid its remaining bank term loans in the fourth quarter of 2010.
In January 2011 the company announced that it had contributed certain company-owned real estate valued at $49.6 million to its qualified defined benefit pension plan in order to satisfy virtually all of the company’s expected required pension contribution for 2011. On Feb. 1, 2011, the company announced that the agreement to sell 10 acres of land adjacent to The Miami Herald had been terminated. McClatchy previously received approximately $16.5 million in nonrefundable deposits, which it used to repay debt.
Management’s Comments:
Commenting on McClatchy’s results, Gary Pruitt, chairman and chief executive officer, said, “Overall, we made good progress in 2010. We held costs down and saw advertising revenue trends improve. As a result, we grew operating cash flow. We also strengthened our financial position by refinancing and reducing debt.
“Looking at the fourth quarter of 2010, advertising revenues were down year-over-year by 6.9% compared to declines of 6.4% in the third quarter, 8.2% in the second quarter and 11.2% in the first quarter of the year. The declines in retail and classified advertising were similar to our third quarter year-over-year declines, but the decline in national advertising revenues accelerated. National advertising is a volatile advertising category, and while it helped our trend earlier in the year, that momentum, unfortunately, did not carry into the fourth quarter.
“Our digital advertising revenue grew 5.1% in the fourth quarter and was up 2.4% for all of 2010. In 2010 digital ads represented 18.1% of our total advertising revenue. Our local daily unique visitors continue to grow strongly, up 13.1% in the fourth quarter and 17.3% for all of 2010.
“We focused on controlling costs in 2010. Cash expenses excluding severance costs were down 1.7% in the fourth quarter, despite higher newsprint prices, and were down 9.9% for the year. This hard work, coupled with the improving trends in revenues, resulted in growing cash flows in 2010. Our operating cash flow was up $12.2 million to $382.1 million in 2010. We will work hard to build on this progress.
“Looking to 2011, advertising revenues in January were down 10.0% compared to January 2010, with all major categories down. Both national and retail advertising declined more than in the fourth quarter, while classified advertising was down 7.2%, about equal to December’s rate of decline.
“In response to this year’s weak start, we have increased our ad sales efforts companywide and have initiated expense cuts at those newspapers that have seen the more significant ad revenue declines in December and January. We are determined to improve advertising revenue trends and control costs as we move through the year. We will continue to pay down debt and improve our financial condition at every opportunity.”
Pat Talamantes, McClatchy’s chief financial officer, said, “We completed the year with debt outstanding of $1.775 billion, down more than $174 million from the end of 2009. We paid off our bank term loans 18 months early and only our bonds remained outstanding at year end. We also ended the year with nearly $17 million of cash on our balance sheet. We retain a valuable parcel of 10 acres in an attractive area in Miami and believe we will have numerous options to monetize this asset. We are quite comfortable with our debt maturity schedule, which has only $18 million of bonds maturing in mid-2011 and then none until 2014. We will continue to improve our balance sheet by repaying debt with our free cash flow.
“Based on our trailing 12 months of cash flow, our leverage ratio, as defined under our credit agreement, was 4.6 times cash flow at the end of the fourth quarter compared to 5.3 times at the end of 2009. Our interest coverage ratio was 2.4 times. Both of these ratios are well within the covenant requirements under our current credit agreement of a leverage ratio of less than 6.75 times and an interest coverage ratio of greater than 1.5 times.”
(1) Adjusted Earnings From Continuing Operations and EPS:
Earnings in the fourth quarters and the full years of 2010 and 2009 included the impact of several unusual events, including:
— The company recorded a pre-tax loss of $10.7 million related to its debt
refinancing and debt repayments in the first quarter of 2010 and the
amendment to its credit agreement in the fourth quarter of 2010.
— Compensation in 2010 and 2009 included pre-tax severance charges
incurred in connection with the restructuring plans.
— On May 21, 2009, the company launched a private debt exchange offer for
all of its outstanding debt securities for a combination of cash and new
debt securities. The offer closed on June 25, 2009, and the company
exchanged $3.4 million in cash and $24.2 million of newly issued senior
notes for $102.8 million of debt securities. All but $375,000 of those
senior notes were retired in the company’s February 2010 debt
refinancing.
— During 2010 and 2009, the company recorded accelerated depreciation on
production equipment associated with the outsourcing of printing at
various newspapers.
— In the fourth quarter of 2010 and 2009 the company recorded impairments
on land in Miami, Florida that was previously under contract to be sold
and impairments from Classified Ventures for a real-estate business.
— In 2009 the company refined its estimate of its projected effective
annual tax rate and applied the revised rate to the unusual items
resulting in a significant adjustment in the fourth quarter of 2009.
— Both 2010 and 2009 included net benefits for certain discrete tax items,
and the reversal of interest on income taxes related to certain of those
discrete tax items.
The impact of these items on the 2010 and 2009 results are summarized below:
Three Months Ended
——————
(Dollars in thousands, except
per share amounts) December 26, December 27,
2010 2009
— —
Income from continuing
operations $15,789 $32,384
Unusual items, net of tax:
Gain (loss) on extinguishment
of debt 1,979 20
Restructuring related charges 1,881 1,596
Impairment related charges 15,331 17,834
Accelerated depreciation on
equipment 1,583
Reversal of interest on tax
settlements (205) (3,839)
Impact of revised projected
annual tax rate – 6,442
Other – 4
Certain discrete tax items (2,787) (4,797)
Adjusted income from continuing
operations $33,571 $49,644
======= =======
Diluted earnings per share:
Income from continuing
operations $0.18 $0.38
Adjusted income from continuing
operations $0.39 $0.59
Year Ended
———-
(Dollars in thousands, except
per share amounts) December December
26, 2010 27, 2009
——– ——–
Income from continuing
operations $33,190 $60,264
Unusual items, net of tax:
Gain (loss) on extinguishment
of debt 6,713 (27,780)
Restructuring related charges 6,086 15,672
Impairment related charges 15,331 17,834
Accelerated depreciation on
equipment 3,676 5,794
Reversal of interest on tax
settlements (657) (3,839)
Impact of revised projected
annual tax rate – –
Other 61 (271)
Certain discrete tax items (6,408) (7,061)
Adjusted income from continuing
operations $57,992 $60,613
======= =======
Diluted earnings per share:
Income from continuing
operations $0.39 $0.72
Adjusted income from continuing
operations $0.68 $0.72
Non-GAAP Financial Measures:
In addition to the results reported in accordance with accounting principles generally accepted in the United States (“GAAP”) included in this press release the company has provided information regarding operating income, non-operating expenses and income, income taxes, net income and diluted earnings per share (EPS) excluding certain special or unusual items described in the table above. In addition the company has presented operating cash flows (defined as operating income plus depreciation and amortization, and restructuring related charges) along with operating cash flow margins (operating cash flow divided by net revenues) that are reconciled to GAAP measures in an attached schedule. Management believes these non-GAAP measures, when read in conjunction with the company’s GAAP financials, provide useful information to investors by offering:
— the ability to make more meaningful period-to-period comparisons of the
company’s on-going operating results;
— the ability to better identify trends in the company’s underlying
business;
— a better understanding of how management plans and measures the
company’s underlying business; and
— An easier way to compare the company’s most recent operating results
against investor and analyst financial models.
Operating income, non-operating expenses and income, income taxes, net income and diluted earnings per share excluding certain special or unusual items should not be considered a substitute or an alternative to these computations calculated in accordance with and required by GAAP. Nor are operating cash flow and operating cash flow margins to be considered replacements for cash provided by operating activities as shown in the company’s statement of cash flows.