[X]
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
|||
For the quarterly period ended: July 1, 2007 | ||||
or
|
||||
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
[ ] 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
|
Class
A Common Stock
|
56,985,873
|
Class
B Common Stock
|
25,112,430
|
Part
I - FINANCIAL INFORMATION
|
Page
|
|||
Item
1 - Financial Statements (unaudited):
|
||||
Consolidated
Balance Sheet– July 1, 2007 and December
31,
2006
|
1
|
|||
Consolidated
Statement of
Income for the three and six
months ended July 1, 2007 and June 25, 2006
|
3
|
|||
Consolidated
Statement of Cash Flows for the six months ended
July 1, 2007 and June
25, 2006
|
4
|
|||
Consolidated
Statement of Stockholders'
Equity for the
period December 31, 2006 to July 1, 2007
|
5
|
|||
Notes
to Consolidated Financial Statements
|
6
|
|||
Item
2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
|
19
|
|||
Item
3 - Quantitative and Qualitative Disclosures About
Market Risk
|
31
|
|||
Item
4 - Controls and Procedures
|
31
|
|||
Part
II - OTHER INFORMATION
|
||||
Item
1A - Risk Factors
|
32
|
|||
Item
4 - Submission Of Matters To A Vote Of Security
Holders
|
33
|
|||
Item
6 - Exhibits
|
33
|
|||
Signatures
|
34
|
|||
Index
of Exhibits
|
35
|
THE
MCCLATCHY COMPANY
|
||||||||
CONSOLIDATED
BALANCE SHEET (UNAUDITED)
|
||||||||
(In
thousands)
|
||||||||
July
1,
|
December
31,
|
|||||||
2007
|
2006
|
|||||||
ASSETS
|
||||||||
CURRENT
ASSETS:
|
||||||||
Cash
and cash equivalents
|
$ |
25,271
|
$ |
19,581
|
||||
Trade
receivables (less allowance of
|
||||||||
$11,682
in 2007 and $12,732 in 2006)
|
271,332
|
311,785
|
||||||
Other
receivables
|
24,083
|
36,477
|
||||||
Newsprint,
ink and other inventories
|
40,813
|
52,097
|
||||||
Deferred
income taxes
|
47,055
|
248,753
|
||||||
Prepaid
income taxes
|
92,640
|
88,836
|
||||||
Land
and other assets held for sale
|
25,669
|
231,029
|
||||||
Other
current assets
|
20,128
|
23,192
|
||||||
Newspaper
assets held for sale
|
-
|
563,589
|
||||||
546,991
|
1,575,339
|
|||||||
PROPERTY,
PLANT AND EQUIPMENT:
|
||||||||
Land
|
205,042
|
204,692
|
||||||
Building
and improvements
|
391,883
|
382,206
|
||||||
Equipment
|
833,947
|
811,173
|
||||||
Construction
in progress
|
21,895
|
36,401
|
||||||
1,452,767
|
1,434,472
|
|||||||
Less
accumulated depreciation
|
(497,530 | ) | (458,496 | ) | ||||
955,237
|
975,976
|
|||||||
INTANGIBLE
ASSETS:
|
||||||||
Identifiable
intangibles -net
|
1,339,135
|
1,369,046
|
||||||
Goodwill-net
|
3,586,969
|
3,559,828
|
||||||
4,926,104
|
4,928,874
|
|||||||
INVESTMENTS
AND OTHER ASSETS:
|
||||||||
Investments
in unconsolidated companies
|
499,458
|
520,213
|
||||||
Income
tax refund
|
200,998
|
-
|
||||||
Land
held for sale
|
186,365
|
-
|
||||||
Prepaid
pension assets
|
29,332
|
32,457
|
||||||
Other
|
20,296
|
21,851
|
||||||
936,449
|
574,521
|
|||||||
TOTAL
ASSETS
|
$ |
7,364,781
|
$ |
8,054,710
|
||||
See
notes to consolidated financial statements.
|
THE
MCCLATCHY COMPANY
|
||||||||
CONSOLIDATED
BALANCE SHEET (UNAUDITED)
|
||||||||
(In
thousands, except share amounts)
|
||||||||
July
1,
|
December
31,
|
|||||||
2007
|
2006
|
|||||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
CURRENT
LIABILITIES:
|
||||||||
Current
portion of bank debt
|
$ |
-
|
$ |
530,000
|
||||
Accounts
payable
|
101,766
|
139,501
|
||||||
Accrued
compensation
|
108,060
|
135,363
|
||||||
Income
taxes
|
-
|
47,330
|
||||||
Unearned
revenue
|
87,282
|
82,524
|
||||||
Accrued
interest
|
33,677
|
33,697
|
||||||
Accrued
dividends
|
14,769
|
14,727
|
||||||
Other
accrued liabilities
|
39,944
|
45,166
|
||||||
Newspaper
liabilities held for sale
|
-
|
83,806
|
||||||
385,498
|
1,112,114
|
|||||||
NON-CURRENT
LIABILITIES:
|
||||||||
Long-term
debt
|
2,677,338
|
2,746,669
|
||||||
Deferred
income taxes
|
708,314
|
706,893
|
||||||
Pension
and postretirement obligations
|
313,363
|
311,127
|
||||||
Other
long-term obligations
|
106,450
|
74,283
|
||||||
3,805,465
|
3,838,972
|
|||||||
COMMITMENTS
AND CONTINGENCIES
|
||||||||
STOCKHOLDERS'
EQUITY:
|
||||||||
Common
stock $.01 par value:
|
||||||||
Class
A - authorized 200,000,000 shares,
|
||||||||
issued
56,907,576 in 2007 and 55,795,162 in 2006
|
569
|
557
|
||||||
Class
B - authorized 60,000,000 shares,
|
||||||||
issued
25,191,397 in 2007 and 26,116,397 in 2006
|
252
|
261
|
||||||
Additional
paid-in capital
|
2,193,132
|
2,182,544
|
||||||
Retained
earnings
|
1,028,546
|
1,016,023
|
||||||
Treasury
stock, 3,029 shares at cost
|
(122 | ) |
-
|
|||||
Accumulated
other comprehensive loss
|
(48,559 | ) | (95,761 | ) | ||||
3,173,818
|
3,103,624
|
|||||||
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
$ |
7,364,781
|
$ |
8,054,710
|
||||
See
notes to consolidated financial statements.
|
THE
McCLATCHY COMPANY
|
||||||||||||||||
CONSOLIDATED
STATEMENT OF INCOME (UNAUDITED)
|
||||||||||||||||
(In
thousands, except per share amounts)
|
||||||||||||||||
Three
Months Ended
|
Six
Months Ended
|
|||||||||||||||
July
1,
|
June
25,
|
July
1,
|
June
25,
|
|||||||||||||
2007
|
2006
|
2007
|
2006
|
|||||||||||||
REVENUES
- NET:
|
||||||||||||||||
Advertising
|
$ |
488,277
|
$ |
183,683
|
$ |
965,300
|
$ |
350,017
|
||||||||
Circulation
|
69,707
|
23,504
|
141,587
|
47,268
|
||||||||||||
Other
|
22,043
|
4,813
|
39,698
|
9,178
|
||||||||||||
580,027
|
212,000
|
1,146,585
|
406,463
|
|||||||||||||
OPERATING
EXPENSES:
|
||||||||||||||||
Compensation
|
228,959
|
84,103
|
465,283
|
169,842
|
||||||||||||
Newsprint
and supplements
|
72,186
|
27,267
|
147,603
|
53,531
|
||||||||||||
Depreciation
and amortization
|
38,357
|
9,973
|
76,190
|
19,860
|
||||||||||||
Other
operating expenses
|
123,144
|
38,396
|
252,740
|
75,690
|
||||||||||||
462,646
|
159,739
|
941,816
|
318,923
|
|||||||||||||
OPERATING
INCOME
|
117,381
|
52,261
|
204,769
|
87,540
|
||||||||||||
NON-OPERATING
(EXPENSES) INCOME:
|
||||||||||||||||
Interest
expense
|
(49,556 | ) |
-
|
(103,341 | ) |
-
|
||||||||||
Interest
income
|
42
|
15
|
106
|
28
|
||||||||||||
Equity
income (losses) in unconsolidated companies, net
|
(11,198 | ) |
496
|
(20,947 | ) |
892
|
||||||||||
Other
- net
|
791
|
(38 | ) |
743
|
(45 | ) | ||||||||||
(59,921 | ) |
473
|
(123,439 | ) |
875
|
|||||||||||
INCOME
FROM CONTINUING OPERATIONS
|
||||||||||||||||
BEFORE
INCOME TAX PROVISION
|
57,460
|
52,734
|
81,330
|
88,415
|
||||||||||||
INCOME
TAX PROVISION
|
22,929
|
20,545
|
32,286
|
34,445
|
||||||||||||
INCOME
FROM CONTINUING OPERATIONS
|
34,531
|
32,189
|
49,044
|
53,970
|
||||||||||||
INCOME
(LOSS) FROM DISCONTINUED OPERATIONS - NET OF INCOME TAXES
|
705
|
11,947
|
(4,778 | ) |
17,893
|
|||||||||||
NET
INCOME
|
$ |
35,236
|
$ |
44,136
|
$ |
44,266
|
$ |
71,863
|
||||||||
NET
INCOME PER COMMON SHARE:
|
||||||||||||||||
Basic:
|
||||||||||||||||
Income
from continuing operations
|
$ |
0.42
|
$ |
0.69
|
$ |
0.60
|
$ |
1.15
|
||||||||
Income
(loss) from discontinued operation
|
0.01
|
0.25
|
(0.06 | ) |
0.39
|
|||||||||||
Net
income per share
|
$ |
0.43
|
$ |
0.94
|
$ |
0.54
|
$ |
1.54
|
||||||||
Diluted:
|
||||||||||||||||
Income
from continuing operations
|
$ |
0.42
|
$ |
0.69
|
$ |
0.60
|
$ |
1.15
|
||||||||
Income
(loss) from discontinued operation
|
0.01
|
0.25
|
(0.06 | ) |
0.38
|
|||||||||||
Net
income per share
|
$ |
0.43
|
$ |
0.94
|
$ |
0.54
|
$ |
1.53
|
||||||||
WEIGHTED
AVERAGE NUMBER OF COMMON SHARES:
|
||||||||||||||||
Basic
|
81,976
|
46,771
|
81,931
|
46,753
|
||||||||||||
Diluted
|
82,037
|
46,985
|
82,010
|
47,028
|
||||||||||||
See
notes to consolidated financial statements.
|
THE
McCLATCHY COMPANY
|
||||||||
CONSOLIDATED
STATEMENT OF CASH FLOWS (UNAUDITED)
|
||||||||
(In
thousands)
|
||||||||
Six
Months Ended
|
||||||||
July
1,
|
June
25,
|
|||||||
2007
|
2006
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Income
from continuing operations
|
$ |
49,044
|
$ |
53,970
|
||||
Reconciliation
to net cash provided by continuing operations:
|
||||||||
Depreciation
and amortization
|
76,190
|
19,860
|
||||||
Contribution
to pension plans
|
-
|
(31,545 | ) | |||||
Employee
benefit expense
|
16,956
|
8,710
|
||||||
Stock
compensation expense
|
4,292
|
3,621
|
||||||
Deferred
income taxes
|
-
|
(2,718 | ) | |||||
Equity
loss (income) in unconsolidated companies
|
20,947
|
(892 | ) | |||||
Other
|
2,735
|
115
|
||||||
Changes
in certain assets and liabilities:
|
||||||||
Trade
receivables
|
40,453
|
2,254
|
||||||
Inventories
|
11,279
|
(158 | ) | |||||
Other
assets
|
7,537
|
(8,930 | ) | |||||
Accounts
payable
|
(31,340 | ) | (11,711 | ) | ||||
Accrued
compensation
|
(26,573 | ) | (1,714 | ) | ||||
Income
taxes
|
(44,580 | ) |
24,817
|
|||||
Other
liabilities
|
(8,810 | ) |
1,701
|
|||||
Net
cash provided by operating activities of continuing
operations
|
118,130
|
57,380
|
||||||
Net
cash provided by operating activities of discontinued
operations
|
3,340
|
28,530
|
||||||
Net
cash provided by operating activities
|
121,470
|
85,910
|
||||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Purchases
of property, plant and equipment
|
(28,340 | ) | (18,955 | ) | ||||
Proceeds
from sale of equipment
|
19,356
|
-
|
||||||
Equity
investments and other - net
|
(806 | ) |
206
|
|||||
Net
cash used by investing activities of continuing operations
|
(9,790 | ) | (18,749 | ) | ||||
Proceeds
from sale of newspaper
|
522,922
|
-
|
||||||
Other
|
(4,837 | ) | (5,103 | ) | ||||
Net
cash provided (used) by investing activities of discontinued
operations
|
518,085
|
(5,103 | ) | |||||
Net
cash provided (used) by investing activities
|
508,295
|
(23,852 | ) | |||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Repayments
of term bank debt
|
(350,000 | ) |
-
|
|||||
Net
borrowings (repayments) from revolving bank debt
|
(250,508 | ) |
109,000
|
|||||
Net
repayments from commercial paper
|
-
|
(154,200 | ) | |||||
Payment
of cash dividends
|
(29,495 | ) | (16,842 | ) | ||||
Other
- principally stock issuances
|
5,928
|
2,831
|
||||||
Net
cash used by financing activities
|
(624,075 | ) | (59,211 | ) | ||||
NET
CHANGE IN CASH AND CASH EQUIVALENTS
|
5,690
|
2,847
|
||||||
CASH
AND CASH EQUIVALENTS, BEGINNING OF YEAR
|
19,581
|
3,052
|
||||||
CASH
AND CASH EQUIVALENTS, END OF PERIOD
|
$ |
25,271
|
$ |
5,899
|
||||
OTHER
CASH FLOW INFORMATION:
|
||||||||
Cash
paid during the period for:
|
||||||||
Income
taxes (net of refunds)
|
$ |
82,033
|
$ |
18,120
|
||||
Interest
(net of capitalized interest)
|
$ |
98,319
|
$ |
2,719
|
||||
See
notes to consolidated financial statements
|
THE
McCLATCHY COMPANY
|
||||||||||||||||||||||||||||
CONSOLIDATED
STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
|
||||||||||||||||||||||||||||
(In
thousands, except share amounts)
|
||||||||||||||||||||||||||||
Accumulated
|
||||||||||||||||||||||||||||
Additional
|
Other
|
|||||||||||||||||||||||||||
Par
Value
|
Paid-In
|
Retained
|
Comprehensive
|
Treasury
|
||||||||||||||||||||||||
Class
A
|
Class
B
|
Capital
|
Earnings
|
Loss
|
Stock
|
Total
|
||||||||||||||||||||||
BALANCES,
DECEMBER 31, 2006
|
$ |
557
|
$ |
261
|
$ |
2,182,544
|
$ |
1,016,023
|
$ | (95,761 | ) | $ |
-
|
$ |
3,103,624
|
|||||||||||||
Adoption
of FIN 48
|
(2,218 | ) | (2,218 | ) | ||||||||||||||||||||||||
ADJUSTED
BALANCES, JANUARY 1, 2007
|
557
|
261
|
2,182,544
|
1,013,805
|
(95,761 | ) |
-
|
3,101,406
|
||||||||||||||||||||
Net
income
|
44,266
|
44,266
|
||||||||||||||||||||||||||
Pension
amortization from other
comprehensive income
|
2,132
|
2,132
|
||||||||||||||||||||||||||
Total
comprehensive income
|
46,398
|
|||||||||||||||||||||||||||
Adjustment
to eliminate minimum pension
liability
related to Star Tribune
|
45,070
|
45,070
|
||||||||||||||||||||||||||
Dividends
declared ($.36 share)
|
(29,525 | ) | (29,525 | ) | ||||||||||||||||||||||||
Conversion
of 925,000 Class B shares to
Class A shares
|
9
|
(9 | ) |
-
|
||||||||||||||||||||||||
Issuance
of 228,109 Class A shares
|
||||||||||||||||||||||||||||
under
stock plans
|
3
|
5,747
|
5,750
|
|||||||||||||||||||||||||
Stock
compensation expense
|
4,541
|
4,541
|
||||||||||||||||||||||||||
Tax
benefit from stock plans
|
300
|
300
|
||||||||||||||||||||||||||
Purchase
of treasury stock
|
(122 | ) | (122 | ) | ||||||||||||||||||||||||
BALANCES,
JULY 1, 2007
|
$ |
569
|
$ |
252
|
$ |
2,193,132
|
$ |
1,028,546
|
$ | (48,559 | ) | $ | (122 | ) | $ |
3,173,818
|
NOTE
1. SIGNIFICANT
ACCOUNTING POLICIES
|
|
5
to 60 years for buildings and improvements
|
9 to 25 years for presses
|
2
to 15 years for other equipment
|
For
the three
months
ended
|
For
the six
months
ended
|
|||||||||||||||
July
1, 2007
|
June
25, 2006
|
July
1, 2007
|
June
25, 2006
|
|||||||||||||
Net
income
|
$ |
35,236
|
$ |
44,136
|
$ |
44,266
|
$ |
71,863
|
||||||||
Pension
amortization from other comprehensive
income, net of tax
|
2,132
|
-
|
2,132
|
-
|
||||||||||||
Total
comprehensive income
|
$ |
37,368
|
$ |
44,136
|
$ |
46,398
|
$ |
71,863
|
Three
Months Ended
|
Six
Months Ended
|
|||||||
June
25,
2006
|
June
25,
2006
|
|||||||
Revenues
|
$ |
632,433
|
$ |
1,228,728
|
||||
Income
from continuing operations
|
$ | 37,047 | (1) | $ | 55,927 | (1) | ||
Income
from continuing operations per diluted share
|
$ |
0.45
|
$ |
0.68
|
||||
(1) Excludes
$18.1 million of income tax benefits related to the Company’s
recalculation of its deferred tax liabilities and assets.
|
Three
Months Ended
|
Six
Months Ended
|
|||||||||||||||
July
1,
2007
|
June
25,
2006
|
July
1,
2007
|
June
25,
2006
|
|||||||||||||
Revenues
|
$ |
91
|
$ |
92,234
|
$ |
52,994
|
$ |
179,775
|
||||||||
Income
(loss) from discontinued operations before
income taxes (1)
|
$ |
146
|
$ |
20,373
|
$ | (4,637 | ) | $ |
30,630
|
|||||||
Income
tax expense (benefit)
|
(559 | ) |
8,426
|
141
|
12,737
|
|||||||||||
Income
(loss) from discontinued operations
|
$ |
705
|
$ |
11,947
|
$ | (4,778 | ) | $ |
17,893
|
(1)
|
Includes
interest expense allocated to discontinued operations of $0 and $1.2
million for the three months and six months ended July 1, 2007,
respectively and $1.6 million and $3.7 million for the three months
and
six months ended June 25, 2006,
respectively.
|
Company
|
%
Ownership
Interest
|
July
1,
2007
|
December
31,
2006
|
|||||||||
CareerBuilder
|
14.4
|
$ |
225,992
|
$ |
230,506
|
|||||||
Seattle
Times Company
|
49.5
|
89,910
|
102,228
|
|||||||||
Classified
Ventures
|
25.6
|
98,476
|
98,259
|
|||||||||
SP
Newsprint
|
33.3
|
38,543
|
40,666
|
|||||||||
Ponderay
Newsprint
|
27.0
|
24,068
|
26,162
|
|||||||||
ShopLocal
|
15.0
|
11,147
|
10,993
|
|||||||||
Topix
|
11.3
|
9,442
|
9,956
|
|||||||||
McClatchy
Tribune Information Services
|
50.0
|
1,102
|
773
|
|||||||||
Other
|
Various
|
778
|
670
|
|||||||||
$ |
499,458
|
$ |
520,213
|
Intangible
assets and goodwill, along with their weighted-average amortization
periods consisted of the following (in thousands):
|
|||||||||||||
July
1, 2007
|
|||||||||||||
Weighted
|
|||||||||||||
Average
|
|||||||||||||
Gross
|
Accumulated
|
Net
|
Amortization
|
||||||||||
Amount
|
Amortization
|
Amount
|
Period
|
||||||||||
Intangible
assets subject to amortization:
|
|||||||||||||
Advertiser
and subscriber lists
|
$ |
817,701
|
$ | (177,203 | ) | $ |
640,498
|
14
years
|
|||||
Other
|
26,261
|
(10,624 | ) |
15,637
|
8
years
|
||||||||
Total
|
$ |
843,962
|
$ | (187,827 | ) |
656,135
|
|||||||
Other
intangible assets not subject to amortization:
|
|||||||||||||
Newspaper
mastheads
|
683,000
|
||||||||||||
Total
|
1,339,135
|
||||||||||||
Goodwill
- net
|
3,586,969
|
||||||||||||
Total
intangible assets and goodwill
|
$ |
4,926,104
|
|||||||||||
December
31, 2006
|
|||||||||||||
Weighted
|
|||||||||||||
Average
|
|||||||||||||
Gross
|
Accumulated
|
Net
|
Amortization
|
||||||||||
Amount
|
Amortization
|
Amount
|
Period
|
||||||||||
Intangible
assets subject to amortization:
|
|||||||||||||
Advertiser
and subscriber lists
|
$ |
817,701
|
$ | (148,427 | ) | $ |
669,274
|
14
years
|
|||||
Other
|
26,161
|
(9,389 | ) |
16,772
|
8
years
|
||||||||
Total
|
$ |
843,862
|
$ | (157,816 | ) |
686,046
|
|||||||
Other
intangible assets not subject to amortization:
|
|||||||||||||
Newspaper
mastheads
|
683,000
|
||||||||||||
Total
|
1,369,046
|
||||||||||||
Goodwill
- net
|
3,559,828
|
||||||||||||
Total
intangible assets and goodwill
|
$ |
4,928,874
|
The
following is a summary of the changes in the identifiable intangible
assets and goodwill from December 31, 2006 to July 1, 2007 (in
thousands):
|
||||||||||||||||||||||||
December
31,
|
Disposals/
|
Amortization
|
July
1,
|
|||||||||||||||||||||
2006
|
Additions
|
|
Adjustments
|
Expense
|
2007
|
|||||||||||||||||||
Intangible
assets subject to amortization
|
$ |
843,862
|
$ |
25
|
$ |
75
|
$ |
-
|
$ |
843,962
|
||||||||||||||
Accumulated
amortization
|
(157,816 | ) |
|
(9 | ) | (30,002 | ) | (187,827 | ) | |||||||||||||||
686,046
|
25
|
66
|
(30,002 | ) |
656,135
|
|||||||||||||||||||
Mastheads
and other
|
683,000
|
683,000
|
||||||||||||||||||||||
Goodwill
- net
|
3,559,828
|
27,141
|
3,586,969
|
|||||||||||||||||||||
Total
|
$ |
4,928,874
|
$ |
27,166
|
$ |
66
|
$ | (30,002 | ) | $ |
4,926,104
|
|||||||||||||
(1)
Relates primarily to revised estimates of acquired income tax
reserves.
|
||||||||||||||||||||||||
Amortization
expense for continuing operations was $15.0 million and $1.2 million
in
the second fiscal quarters of 2007 and 2006, respectively and was
$30.0
million and $2.4 million for the first six months of fiscal 2007
and 2006,
respectively.
|
||||||||||||||||||||||||
The
estimated amortization expense for the remainder of fiscal 2007 and
the
five succeeding fiscal years is as follows (in thousands):
|
||||||||||||||||||||||||
Amortization
|
||||||||||||||||||||||||
Year
|
Expense
|
|||||||||||||||||||||||
2007
|
$ |
29,948
|
||||||||||||||||||||||
2008
|
59,941
|
|||||||||||||||||||||||
2009
|
59,910
|
|||||||||||||||||||||||
2010
|
59,232
|
|||||||||||||||||||||||
2011
|
57,837
|
|||||||||||||||||||||||
2012
|
57,368
|
July
1,
2007
|
December
31,
2006
|
|||||||
Term
A bank debt, weighted average interest of 6.11%
at July 1, 2007
and 6.12% at December 31, 2006
|
$ |
750,000
|
$ |
1,100,000
|
||||
Revolving
bank debt, interest of 6.10%
at July 1, 2007 and 6.10% at
December 31, 2006
|
415,287
|
665,795
|
||||||
Publicly-traded
notes:
|
||||||||
$100
million 6.625% debentures due in 2007
|
100,011
|
100,025
|
||||||
$200
million 9.875% debentures due in 2009
|
210,139
|
212,950
|
||||||
$300
million 7.125% debentures due in 2011
|
304,005
|
304,512
|
||||||
$200
million 4.625% debentures due in 2014
|
174,443
|
172,705
|
||||||
$400
million 5.750% debentures due in 2017
|
361,724
|
359,848
|
||||||
$100
million 7.150% debentures due in 2027
|
90,940
|
90,717
|
||||||
$300
million 6.875% debentures due in 2029
|
270,789
|
270,117
|
||||||
Total
debt
|
2,677,338
|
3,276,669
|
||||||
Less
current portion
|
-
|
530,000
|
||||||
Long
term debt
|
$ |
2,677,338
|
$ |
2,746,669
|
|
Year
|
Payments
|
|||
|
2008
|
$ |
-
|
||
|
2009
|
200,000
|
|||
|
2010
|
-
|
|||
|
2011
|
1,565,287
|
|||
|
2012
|
-
|
|||
|
Thereafter |
1,000,000
|
|||
2,765,287
|
|||||
|
Less net discount | (87,949 | ) | ||
|
Total debt | $ |
2,677,338
|
Three
Months Ended
|
Six
Months Ended
|
|||||||||||||||
July
1,
2007
|
June
25,
2006
|
July
1,
2007
|
June
25,
2006
|
|||||||||||||
Service
cost
|
$ |
10,872
|
$ |
4,235
|
$ |
18,810
|
$ |
8,028
|
||||||||
Interest cost
|
22,772
|
6,462
|
46,988
|
12,258
|
||||||||||||
Expected
return on plan
assets
|
(26,024 | ) | (8,517 | ) | (54,250 | ) | (16,268 | ) | ||||||||
Prior
service cost
amortization
|
24
|
50
|
105
|
94
|
||||||||||||
(Gain)/loss
amortization
|
(556 | ) |
2,372
|
3,453
|
4,491
|
|||||||||||
Net
pension
expense
|
$ |
7,088
|
$ |
4,602
|
$ |
15,106
|
$ |
8,603
|
Three
Months Ended
|
Six
Months Ended
|
|||||||||||||||
July
1,
2007
|
June
25,
2006
|
July
1,
2007
|
June
25,
2006
|
|||||||||||||
Service
cost
|
$ |
200
|
$ |
1
|
$ |
422
|
$ |
1
|
||||||||
Interest
cost
|
426
|
97
|
1,434
|
106
|
||||||||||||
(Gain)/loss
amortization
|
(6 | ) |
-
|
(6 | ) |
-
|
||||||||||
Net
post-retirement
expense
|
$ |
620
|
$ |
98
|
$ |
1,850
|
$ |
107
|
Outstanding options and SARs are summarized as follows:
|
Options/
SARs
|
Weighted
Average Exercise
Price
|
Aggregate
Intrinsic
Value
(in
thousands)
|
|||||||||
Outstanding
December 31, 2006
|
4,064,075
|
$ |
52.78
|
$ |
4,857
|
|||||||
Granted
|
37,250
|
39.45
|
||||||||||
Exercised
|
(69,625 | ) |
26.55
|
|||||||||
Forfeited
|
(94,250 | ) |
63.74
|
|||||||||
Expired
|
(227,000 | ) |
56.57
|
|||||||||
Outstanding
July 1, 2007
|
3,710,450
|
52.63
|
nil
|
|||||||||
Options
and SARs exercisable:
|
||||||||||||
July
1, 2007
|
2,130,825
|
$ |
53.42
|
The
following tables summarize information about stock options and SARs
outstanding in the stock plans at July 1, 2007:
|
||||||||||||||||||||||
Range
of Exercise
Prices
|
Options/
SARs
Outstanding
|
Average
Remaining
Contractual
Life
|
Weighted
Average
Exercise
Price
|
Options/
SARs
Exercisable
|
Weighted
Average
Exercise
Price
|
|||||||||||||||||
$ |
26.19
- $42.50
|
1,486,625
|
6.79
|
$ |
40.81
|
590,625
|
$ |
38.44
|
||||||||||||||
$ |
45.98
- $59.09
|
1,253,200
|
6.34
|
$ |
54.37
|
892,825
|
$ |
52.86
|
||||||||||||||
$ |
59.58
- $73.36
|
970,625
|
6.82
|
$ |
68.49
|
647,375
|
$ |
67.86
|
||||||||||||||
$ |
26.19
- $73.36
|
3,710,450
|
6.65
|
$ |
52.63
|
2,130,825
|
$ |
53.42
|
Six
Months Ended
|
||||||||
July
1, 2007
|
June
25, 2006
|
|||||||
Dividend
yield
|
1.96
|
1.57
|
||||||
Expected
life in years
|
5.41
|
5.27
|
||||||
Volatility
|
.19
|
.19
|
||||||
Risk-free
interest rate
|
4.74 | % | 5.00 | % | ||||
Weighted
average fair value of options/SARs granted
|
$ |
8.40
|
$ |
11.01
|
ITEM
2. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
|
·
|
On
June 26, 2006, the Company issued approximately 35 million Class
A shares
in connection with the Acquisition. As a result, the weighted average
diluted shares used to calculate earnings per share in the second
fiscal
quarter of 2007 increased to approximately 82 million shares compared
to
approximately 47 million shares in second fiscal quarter of
2006.
|
·
|
The
purchase price for the Acquisition has been allocated to the assets
acquired and liabilities assumed based upon their estimated fair
values as
of June 27, 2006, the date of the Acquisition. The purchase price
allocation, while substantially complete, is subject to further
adjustments based upon completion of analyses of deferred income
tax
assets and liabilities.
|
·
|
On
March 5, 2007, the Company sold the (Minneapolis) Star Tribune
newspaper for $530.0 million in proceeds and is expected to receive
a tax
refund of approximately $201 million related to the sale in
2008. The results of Star Tribune's operations have
been recorded as discontinued operations in all periods
presented.
|
·
|
During
the second fiscal quarter of 2007, 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 is expected to pay approximately $24
million to Hearst in the third fiscal quarter of 2007. The
Company has expensed $7.8 million as its share of this payment
as part of its equity loss in the second fiscal quarter of
2007.
|
As
Reported
|
Pro
Forma
|
|||||||||||||||||||
July
1,
2007
|
June
25,
2006
|
%
Change
|
June
25,
2006
|
%
Change
|
||||||||||||||||
Advertising:
|
||||||||||||||||||||
Retail
|
$ |
213,203
|
$ |
74,971
|
184.4
|
$ |
227,220
|
(6.2 | ) | |||||||||||
National
|
46,064
|
15,394
|
199.2
|
50,821
|
(9.4 | ) | ||||||||||||||
Classified:
|
||||||||||||||||||||
Auto
|
43,760
|
18,085
|
142.0
|
51,729
|
(15.4 | ) | ||||||||||||||
Employment
|
66,236
|
25,954
|
155.2
|
78,363
|
(15.5 | ) | ||||||||||||||
Real
estate
|
54,687
|
28,916
|
89.1
|
67,492
|
(19.0 | ) | ||||||||||||||
Other
|
23,120
|
6,480
|
256.8
|
23,085
|
0.2
|
|||||||||||||||
Total
classified
|
187,803
|
79,435
|
136.4
|
220,669
|
(14.9 | ) | ||||||||||||||
Direct
marketing
|
||||||||||||||||||||
and
other
|
41,207
|
13,883
|
196.8
|
42,658
|
(3.4 | ) | ||||||||||||||
Total
advertising
|
488,277
|
183,683
|
165.8
|
541,368
|
(9.8 | ) | ||||||||||||||
Circulation
|
69,707
|
23,504
|
196.6
|
73,087
|
(4.6 | ) | ||||||||||||||
Other
|
22,043
|
4,813
|
358.0
|
17,978
|
22.6 | |||||||||||||||
Total
revenues
|
$ |
580,027
|
$ |
212,000
|
173.6
|
$ |
632,433
|
(8.3 | ) |
·
|
Real
estate advertising was up $25.8 million or 89.1% from the second
fiscal
quarter of 2006. On a pro forma basis, real estate advertising decreased
$12.8 million or 19.0% from the second fiscal quarter of
2006. The Company has seen dramatic declines in California and
Florida, where real estate values, and thus advertising, were
exceptionally strong in 2006. The Company expects declines in
this revenue category to continue because of the difficult trends
in these
states.
|
·
|
Automotive
advertising increased $25.7 million or 142.0% from the second fiscal
quarter of 2006. On a pro forma basis, automotive advertising
declined $8.0 million or 15.4% from the second fiscal quarter of
2006,
reflecting an industry-wide trend. Print advertising declined
18.7%, while online advertising grew 12.9% reflecting the strength
of the
Company's cars.com online products.
|
·
|
Employment
advertising increased $40.3 million or 155.2% from the second fiscal
quarter of 2006. On a pro forma basis, employment advertising
decreased $12.1 million or 15.5% from the second fiscal quarter of
2006. Print employment advertising declined 17.0% while online
employment advertising declined 12.4%. Online employment advertising
was
affected by the current affiliate agreement with CareerBuilder, the
Company’s online employment advertising partner. This agreement
is helping to grow online employment revenues at the legacy McClatchy
newspapers. However, under the current affiliate agreement
selected products are no longer available to be sold by the 20 acquired
Knight Ridder newspapers, which are reducing their internet
revenues.
|
As
Reported
|
Pro
Forma
|
|||||||||||||||||||
Year
to Date
|
Year
to Date
|
|||||||||||||||||||
July
1,
2007
|
June
25,
2006
|
%
Change
|
June
25,
2006
|
%
Change
|
||||||||||||||||
Advertising:
|
||||||||||||||||||||
Retail
|
$ |
419,231
|
$ |
139,659
|
200.2
|
$ |
431,565
|
(2.9 | ) | |||||||||||
National
|
91,214
|
29,152
|
212.9
|
101,220
|
(9.9 | ) | ||||||||||||||
Classified:
|
||||||||||||||||||||
Auto
|
85,895
|
36,585
|
134.8
|
101,950
|
(15.7 | ) | ||||||||||||||
Employment
|
135,882
|
51,082
|
166.0
|
154,076
|
(11.8 | ) | ||||||||||||||
Real
estate
|
109,837
|
55,379
|
98.3
|
131,706
|
(16.6 | ) | ||||||||||||||
Other
|
44,725
|
12,672
|
252.9
|
44,613
|
0.3
|
|||||||||||||||
Total
classified
|
376,339
|
155,718
|
141.7
|
432,345
|
(13.0 | ) | ||||||||||||||
Direct
marketing
|
||||||||||||||||||||
and
other
|
78,516
|
25,488
|
208.1
|
80,011
|
(1.9 | ) | ||||||||||||||
Total
advertising
|
965,300
|
350,017
|
175.8
|
1,045,141
|
(7.6 | ) | ||||||||||||||
Circulation
|
141,587
|
47,268
|
199.5
|
147,672
|
(4.1 | ) | ||||||||||||||
Other
|
39,698
|
9,178
|
332.5
|
35,915
|
10.5
|
|||||||||||||||
Total
revenues
|
$ |
1,146,585
|
$ |
406,463
|
182.1
|
$ |
1,228,728
|
(6.7 | ) |
·
|
Real
estate advertising was up $54.5 million or 98.3% from the first six
months
of fiscal 2006. On a pro forma basis, real estate advertising decreased
$21.9 million or 16.6% from the first six months of fiscal 2006 as
discussed in the quarterly review
above.
|
·
|
Automotive
advertising increased $49.3 million or 134.8% from the first six
months of
fiscal 2006. On a pro forma basis, automotive advertising
declined $16.1 million or 15.7% from the first six months of fiscal
2006,
reflecting an industry-wide trend. As in the quarterly
discussion above, growth in online automotive advertising revenue
was
offset by declines in print
advertising.
|
·
|
Employment
advertising increased $84.8 million or 166.0% from the first six
months of
fiscal 2006. On a pro forma basis, employment advertising
decreased $18.2 million or 11.8% from the first six months of fiscal
2006,
partially reflecting the effect of the current CareerBuilder affiliate
agreement discussed above.
|
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
|
|
1.
|
Election
of Directors of the Board
|
||||||||||
|
VOTES
|
||||||||||
|
FOR
|
WITHHELD
|
|||||||||
Class
A Common Stock
|
|||||||||||
Elizabeth
Ballantine
|
46,813,690
|
2,495,780
|
|||||||||
Kathleen
Foley Feldstein
|
46,750,814
|
2,558,656
|
|||||||||
P.
Anthony Ridder
|
46,546,767
|
2,762,703
|
|||||||||
Maggie
Wilderotter
|
46,743,074
|
2,566,396
|
|||||||||
Class
B Common Stock
|
|||||||||||
Leroy
Barnes, Jr.
|
23,786,457
|
-0-
|
|||||||||
William
K. Coblentz
|
23,786,457
|
-0-
|
|||||||||
Molly
Maloney Evangelisti
|
23,786,457
|
-0-
|
|||||||||
Larry
Jinks
|
23,786,457
|
-0-
|
|||||||||
Joan
F. Lane
|
23,786,457
|
-0-
|
|||||||||
Brown
McClatchy Maloney
|
23,786,457
|
-0-
|
|||||||||
William
B. McClatchy
|
23,786,457
|
-0-
|
|||||||||
Kevin
S. McClatchy
|
23,786,457
|
-0-
|
|||||||||
Theodore
Mitchell
|
23,786,457
|
-0-
|
|||||||||
S.
Donley Ritchey
|
23,786,457
|
-0-
|
|||||||||
Gary
B. Pruitt
|
23,786,457
|
-0-
|
|||||||||
Frederick
R. Ruiz
|
23,786,457
|
-0-
|
2.
|
Ratification
of Deloitte & Touche LLP
|
FOR
|
AGAINST
|
ABSTAIN
|
BROKER
NON-VOTES
|
||||||||||||||
as independent auditors for 2007
|
28,686,832
|
22,282
|
8,290
|
-0-
|
The
McClatchy Company
|
||
Registrant
|
||
August
10, 2007
|
By:
/s/ Gary B. Pruitt
|
|
Date
|
Gary
B. Pruitt
Chief
Executive Officer
|
|
August
10, 2007
|
By:
/s/ Patrick J. Talamantes
|
|
Date
|
Patrick
J. Talamantes
Chief
Financial Officer
|
INDEX
OF EXHIBITS
|
|
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, 2007.
|
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 By-laws as amended as of June 22, 2006, included as Exhibit
3.2
in the Company's Current Report on Form 8-K filed June 28,
2006.
|
4.1*
|
Form
of Physical Note for Commercial Paper Program included as Exhibit
4.1 to
the Company's Quarterly Report on Form 10-Q for the quarter ended
June 27,
2004.
|
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 Current Report on Form 10-Q filed for the quarter ending
on June
25, 2006.
|
10.2*
|
Amendment
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
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*
|
General
Continuing Guaranty dated May 4, 2007 by each Material
Subsidiary in favor of the Lenders party to the Credit Agreement
dated June 27, 2006 by and between The McClatchy Company, the
Lenders and Bank of America, N.A., as Administrative Agent, included
as
Exhibit 10.3 in the Company’s Current Report on Form 10-Q for the quarter
ending on April 1, 2007.
|
10.5*
|
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.
|
10.6*
|
Fourth
Supplemental Indenture dated June 27, 2006, between the Company and
Knight-Ridder, Inc. included as Exhibit 10.4 in the Company's Current
Report on Form 10-Q filed for the quarter ending on June 25,
2006.
|
**10.7*
|
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 31, 2000.
|
**10.8*
|
The
Company's Amended and Restated Long-Term Incentive Plan included
as
Exhibit 99.1 to the Company's Report on Form 8-K filed May 23,
2005.
|
**10.9*
|
Amended
and Restated Supplemental Executive Retirement Plan included as Exhibit
10.4 to the Company's 2001 Form 10-K.
|
**10.10*
|
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
Form
10-K.
|
**10.11*
|
Amended
and Restated 1994 Stock Option Plan included as Exhibit 10.15 to
the
Company's Report on Form 10-Q filed for the Quarter Ending on July
1,
2001.
|
**10.12*
|
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.
|
**10.13*
|
Amendment
1 to The McClatchy Company 2004 Stock Incentive Plan dated January
23,
2007, included as Exhibit 10.10 to the Company's 2006 Report on Form
10-K.
|
**10.14*
|
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.
|
**10.15*
|
The
Company's Amended and Restated Chief Executive Bonus Plan, included
as
Exhibit 10.12 to the Company's Report on Form 10-Q for the Quarter
Ending
June 29, 2003.
|
**10.16*
|
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.
|
10.17*
|
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.
|
**10.18*
|
Amended
and Restated 1997 Stock Option Plan included as Exhibit 10.7 to the
Company's 2002 Report on Form 10-K.
|
**10.19*
|
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.
|
**10.20*
|
The
Company's Amended and Restated 2001 Director Stock Option Plan, included
as Exhibit 10.13 to the Company's 2004 Report on Form
10-K.
|
**10.21*
|
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.
|
10.22*
|
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 Report on Form 8-K filed December 26,
2006.
|
10.23
|
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.
|
10.24
|
First
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.
|
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 |
|
|
|
|