Exhibit 99.1
McCLATCHY REPORTS THIRD QUARTER RESULTS
SACRAMENTO, Calif., October 21, 2008 – The McClatchy Company (NYSE-MNI) today reported net income from continuing operations in the third quarter of 2008 of $4.2 million, or five cents per share. Adjusted earnings from continuing operations(1) were $10.4 million, or 13 cents per share, in the third quarter of 2008 after excluding the unusual items discussed below. The company’s total net income including discontinued operations was $4.2 million or five cents per share.
Earnings in the third quarter of 2008 included the impact of several unusual items including: an adjustment to the second quarter gain on the sale of a one-third interest in SP Newsprint Company; a gain on the extinguishment of debt and a write off of deferred financing costs as a result of an amendment to the company’s credit agreement; charges related to the implementation of previously announced restructuring plans; the write-down of certain internet investments; and adjustments for certain discrete tax items.
For 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. Adjusted earnings from continuing operations(1) were $25.7 million, or 31 cents per share, in the third quarter of 2007 after considering the non-cash impairment charges and adjustments for certain discrete tax items. Total loss in the third quarter of 2007 including discontinued operations was $1.347 billion or $16.42 per share.
Revenues in the third quarter of 2008 were $451.6 million, down 16.4% from revenues from continuing operations of $540.3 million in the third quarter of 2007. Advertising revenues were $370.1 million, down 19.0% from 2007, and circulation revenues were $64.7 million, down 4.9%. Online advertising revenues grew 9.0% in the third quarter of 2008 and were 12.2% of total advertising revenues compared to 8.6% of total advertising revenues for all of 2007.
On September 16, 2008, the company announced a restructuring plan which is expected to result in approximately $100 million in annual savings. This plan includes a reduction in workforce of about 10% and is expected to result in severance of approximately $20 million. Of that amount, $17.0 million was recognized in the third quarter of 2008.
As previously reported, near the end of the third quarter McClatchy successfully obtained an amendment to its credit agreement which provides greater flexibility for the life of the credit facility in the allowable leverage and interest coverage ratios, the two primary financial covenants contained in the agreement. The company reduced debt principal by nearly $404 million in the first nine months of 2008. Total debt was $2.07 billion as of September 28, 2008.
First Nine Months Results:
Income from continuing operations for the first nine months of 2008 was $23.2 million, or 28 cents per share, and was affected by the impact of the unusual items discussed above as well as amounts recorded in earlier quarters. Adjusted earnings from continuing operations(1) were $26.4 million, or 32 cents per share, in the first nine months of 2008. The company’s total net income for the first nine months of 2008 including the results of discontinued operations was $23.1 million, or 28 cents per share.
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 non-cash impairment charges. Adjusted earnings from continuing operations(1) were $74.8 million, or 91 cents per share, in the first nine months of 2007 after considering the non-cash impairment charges and adjustments for certain discrete tax items. 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 from continuing operations in the first nine months of 2008 were down 15.3% to $1.4 billion compared to $1.7 billion in 2007. Advertising revenues in 2008 totaled $1.2 billion, down 17.0% and circulation revenues were $198.6 million, down 5.2%. Online advertising revenues grew 10.7% in the first nine months of 2008 and represented 11.8% of total advertising revenues.
Management’s Comments:
Commenting on McClatchy’s results, Gary Pruitt, chairman and chief executive officer, said, “Our advertising revenues in the third quarter of 2008 continued to be hurt by the weak economy and, to a lesser extent, the secular shift in advertising to the internet. Advertising revenues were down in the same 19% range that we saw at the end of the second quarter.
“Our online business continues to be a bright spot for the company; online audiences and revenues are growing strongly. In the third quarter, average monthly unique visitors to our websites were up 43.8% and were up 37.1% through the first nine months of 2008. Online advertising revenues grew 9.0% in the third quarter of 2008 and were up 49.3% excluding employment advertising, a category that has been impacted both online and in print by the nation-wide decline in jobs. More than half of our online advertising came from ads placed only online; they were not tied to a print up-sell.
“Nonetheless, the advertising environment continues to be weak and we expect print advertising revenues to continue to be down. Thus far in October, advertising revenues are tracking similarly to September.
“Given this economic climate we continue to reduce expenses and realign our cost structure, while retaining our focus on sales, news and online operations. Our print products are an important mainstay of our business, but we must produce them as efficiently as possible. We are finding numerous opportunities to streamline operations. For example, beginning in the fourth quarter our Modesto Bee is being printed by its sister newspaper, The Sacramento Bee, using faster presses with greater color capacity.
“Excluding severance and other benefit charges related to our restructuring plans, cash expenses were down 11.8% in the third quarter, and were down 10.6% in the first nine months of 2008. The expected annual savings from the two restructuring plans put in place this year is about $200 million; so clearly we expect to see additional cost savings from these initiatives in the coming quarters.”
Pat Talamantes, McClatchy’s chief financial officer, said, “We continue to generate significant cash, but given our limited visibility on advertising revenues resulting from slowing economic conditions, we and our banks agreed to amend our credit agreement. The amended agreement provides the company with greater flexibility for the life of the credit facility in the allowable leverage and interest coverage ratios, the two primary financial covenants contained in the agreement.”
“We entered into this amendment because we realized that the credit crisis may result in a more drawn out economic downturn than we had initially thought,” said Talamantes. “Based on our trailing twelve months of cash flow our leverage ratio is currently 4.7 times cash flow and our interest coverage ratio is just over 3.0 times cash flow as defined by our bank agreement—well within the allowable covenant thresholds. The willingness of our bank group to agree to this amendment demonstrates the confidence they have in the company to work through this difficult environment, and we very much appreciate their support. We expect to make further progress in paying down debt through the remainder of 2008.”
(1) Adjusted Earnings From Continuing Operations and EPS:
Earnings in the third quarter and nine months of 2008 included the impact of several unusual events including: the gain on the sale of a one-third interest in SP Newsprint Company, gains on the extinguishment of debt related to bond redemptions, write-offs of deferred financing costs related to amendments to our credit agreement, the impact of implementing restructuring plans, impairment related charges including the write-downs of certain internet investments, and charges for certain discrete tax items. The impacts of these items on 2008 results and comparable 2007 results are summarized below (dollars in thousands, except per share amounts):
| | | Three Months Ended | | | Nine Months Ended | |
| | | September 28, 2008 | | | September 30, 2007 | | | September 28, 2008 | | | September 30, 2007 | |
| (Dollars in thousands, except per share amounts) | | | | | | | | | | | | |
| Income (loss) from continuing operations | | $ | 4,167 | | | $ | (1,345,187 | ) | | $ | 23,225 | | | $ | (1,296,143 | ) |
| Unusual items, net of tax: | | | | | | | | | | | | | | | | |
| Sale of SP Newsprint Company interest | | | (1,809 | ) | | | - | | | | (21,785 | ) | | | - | |
| Gain on extinguishment of debt | | | (80 | ) | | | - | | | | (12,455 | ) | | | - | |
| Restructuring related charges | | | 7,551 | | | | - | | | | 18,960 | | | | - | |
| Impairment related charges | | | 1,962 | | | | 1,368,677 | | | | 15,498 | | | | 1,368,677 | |
| Write-off of financing costs | | | 157 | | | | - | | | | 1,660 | | | | - | |
| Certain discrete tax items | | | (1,538 | ) | | | 2,212 | | | | 1,313 | | | | 2,291 | |
| Adjusted income from continuing operations | | $ | 10,410 | | | $ | 25,702 | | | $ | 26,416 | | | $ | 74,825 | |
| Earnings per share: | | | | | | | | | | | | | | | | |
| Income (loss) from continuing operations | | $ | 0.05 | | | $ | (16.40 | ) | | $ | 0.28 | | | $ | (15.81 | ) |
| Adjusted income from continuing operations | | $ | 0.13 | | | $ | 0.31 | | | $ | 0.32 | | | $ | 0.91 | |
Non-GAAP measures should not be considered a substitute for GAAP measures. However, adjusted income from continuing operations provides meaningful supplemental information about the company’s underlying results of operations, and management believes it assists investors and financial analysts in analyzing and forecasting future periods.
The company’s statistical report, which summarizes revenue performance for September, the third fiscal quarter and first nine months of 2008, follows.
At noon Eastern Time today, McClatchy will review its results in a conference call (877-278-1205 pass code 67578508) and webcast (www.mcclatchy.com). The webcast will be archived at McClatchy’s website.
About McClatchy
The McClatchy Company is the third largest newspaper company in the United States, with 30 daily newspapers, 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 the leading local media company in each of its premium high growth markets. McClatchy-owned newspapers include The Miami Herald, The Sacramento Bee, the Fort Worth Star-Telegram, The Kansas City Star, the Charlotte Observer, and The (Raleigh) News & Observer.
McClatchy also owns a portfolio of premium digital assets, including 14.4% of CareerBuilder, the nation's largest online job site, and 25.6% of Classified Ventures, a newspaper industry partnership that offers two of the nation's premier classified websites: the auto website, cars.com, and the rental site, apartments.com. McClatchy is listed on the New York Stock Exchange under the symbol MNI.
Additional Information:
Statements in this press release regarding future financial and operating results, including revenues, anticipated savings from cost reduction efforts, cash flows, debt levels, as well as future opportunities for the company and any other statements about management’s future expectations, beliefs, goals, plans or prospects constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements that are not statements of historical fact (including statements containing the words “believes,” “plans,” “anticipates,” “expects,” “estimates” and similar expressions) should also be considered to be forward-looking statements. There are a number of important risks and uncertainties that could cause actual results or events to differ materially from those indicated by such forward-looking statements, including: the duration and depth of an economic recession in markets where McClatchy operates its newspapers may reduce its income and cash flow greater than expected; McClatchy may not consummate contemplated transactions which may enable debt reduction on anticipated terms or at all; McClatchy may not achieve its expense reduction targets or may do harm to its operations in attempting to achieve such targets; McClatchy’s operations have been, and will likely continue to be, adversely affected by competition, including competition from internet publishing and advertising platforms; 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 release.
| 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 | |
