mni_Current_Folio_10Q

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended:  September 29, 2019

 

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

 

Picture 919

 

The McClatchy Company

(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) 321-1844

 

 

(Registrant’s telephone number, including area code)

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

 

 

 

Title of each class

 

Ticker Symbol

 

Name of each exchange on which registered

Class A Common Stock, par value $.01 per share

 

MNI

 

NYSE American LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   No 

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes   No 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

 

 

 

 

Large accelerated filer ◻

Accelerated filer 

Non-accelerated filer

 

Smaller reporting company  

Emerging growth company 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12-b of the Exchange Act).    Yes   No 

 

As of November 8, 2019, the registrant had shares of common stock as listed below outstanding:

 

 

 

Class A Common Stock

5,502,435

Class B Common Stock

2,428,191

 

 

 

Table of Contents

 

THE MCCLATCHY COMPANY

 

TABLE OF CONTENTS

 

 

 

 

 

PART I – FINANCIAL INFORMATION 

1

 

 

 

Item 1. 

Financial Statements

1

 

 

 

Item 2. 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

27

 

 

 

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

38

 

 

 

Item 4. 

Controls and Procedures

38

 

 

 

 

 

 

PART II – OTHER INFORMATION 

39

 

 

 

Item 1. 

Legal Proceedings

39

 

 

 

Item 1A. 

Risk Factors

39

 

 

 

Item 6. 

Exhibits

39

 

 

 

 

 

 

SIGNATURES 

40

 

 

 

 

Table of Contents

PART I – FINANCIAL INFORMATION

 

ITEM 1.  FINANCIAL STATEMENTS.

 

THE MCCLATCHY COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited; amounts in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Quarters Ended

 

Nine Months Ended

 

 

 

September 29,

 

September 30,

 

September 29,

 

September 30,

 

 

    

2019

    

2018

 

2019

 

2018

 

REVENUES — NET:

 

 

 

 

 

 

 

 

 

 

 

 

 

Advertising

 

$

76,754

 

$

95,102

 

$

247,404

 

$

301,942

 

Audience

 

 

78,333

 

 

84,040

 

 

241,737

 

 

255,143

 

Other

 

 

12,351

 

 

11,923

 

 

37,283

 

 

37,186

 

 

 

 

167,438

 

 

191,065

 

 

526,424

 

 

594,271

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation

 

 

57,828

 

 

73,501

 

 

188,719

 

 

230,650

 

Newsprint, supplements and printing expenses

 

 

11,147

 

 

12,913

 

 

34,072

 

 

40,333

 

Depreciation and amortization

 

 

5,575

 

 

19,041

 

 

40,504

 

 

57,496

 

Other operating expenses

 

 

82,905

 

 

90,527

 

 

254,196

 

 

271,993

 

Goodwill and other asset write-downs (see Notes 2 and 5)

 

 

295,270

 

 

14,148

 

 

296,009

 

 

14,207

 

 

 

 

452,725

 

 

210,130

 

 

813,500

 

 

614,679

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING LOSS

 

 

(285,287)

 

 

(19,065)

 

 

(287,076)

 

 

(20,408)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NON-OPERATING INCOME (EXPENSE):

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(19,733)

 

 

(23,346)

 

 

(59,697)

 

 

(60,181)

 

Equity income (loss) in unconsolidated companies, net

 

 

(39)

 

 

(473)

 

 

(1,568)

 

 

573

 

Gains related to investments in unconsolidated companies

 

 

 —

 

 

1,721

 

 

 —

 

 

1,721

 

Gain (loss) on extinguishment of debt, net

 

 

 —

 

 

36,286

 

 

(1,986)

 

 

30,918

 

Retirement benefit expense

 

 

(4,330)

 

 

(2,778)

 

 

(19,386)

 

 

(8,335)

 

Other — net

 

 

173

 

 

271

 

 

541

 

 

512

 

 

 

 

(23,929)

 

 

11,681

 

 

(82,096)

 

 

(34,792)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

 

(309,216)

 

 

(7,384)

 

 

(369,172)

 

 

(55,200)

 

Income tax benefit

 

 

(4,513)

 

 

(14,422)

 

 

(4,982)

 

 

(2,932)

 

NET INCOME (LOSS)

 

$

(304,703)

 

$

7,038

 

$

(364,190)

 

$

(52,268)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(38.43)

 

$

0.90

 

$

(46.08)

 

$

(6.74)

 

Diluted

 

$

(38.43)

 

$

0.90

 

$

(46.08)

 

$

(6.74)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

7,929

 

 

7,778

 

 

7,904

 

 

7,754

 

Diluted

 

 

7,929

 

 

7,850

 

 

7,904

 

 

7,754

 

 

See notes to the condensed consolidated financial statements.

 

 

1

Table of Contents

 

THE MCCLATCHY COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited; amounts in thousands) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Quarters Ended

 

Nine Months Ended

 

 

 

September 29,

 

September 30,

 

September 29,

 

September 30,

 

 

    

2019

    

2018

 

2019

 

2018

 

NET INCOME (LOSS)

 

$

(304,703)

 

$

7,038

 

$

(364,190)

 

$

(52,268)

 

OTHER COMPREHENSIVE INCOME (LOSS): 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension and post retirement plans: (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in pension and post-retirement benefit plans

 

 

5,441

 

 

5,550

 

 

33,434

 

 

16,649

 

Other comprehensive income

 

 

5,441

 

 

5,550

 

 

33,434

 

 

16,649

 

Comprehensive income (loss)

 

$

(299,262)

 

$

12,588

 

$

(330,756)

 

$

(35,619)

 

_____________________

(1) There is no income tax benefit associated with the quarters and nine months ended September 29, 2019, or September 30, 2018, due to the recognition of a valuation allowance.    

 

See notes to the condensed consolidated financial statements.

 

 

2

Table of Contents

THE MCCLATCHY COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited; amounts in thousands, except share amounts)

 

 

 

 

 

 

 

 

 

 

    

September 29,

    

December 30,

 

 

 

2019

 

2018

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

11,419

 

$

21,906

 

Trade receivables (net of allowances of $1,447 and $3,008)

 

 

49,290

 

 

81,709

 

Other receivables

 

 

8,599

 

 

12,198

 

Newsprint, ink and other inventories

 

 

6,471

 

 

9,115

 

Assets held for sale

 

 

17,305

 

 

9,920

 

Other current assets

 

 

15,926

 

 

15,505

 

 

 

 

109,010

 

 

150,353

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

208,019

 

 

233,692

 

Intangible assets:

 

 

 

 

 

 

 

Identifiable intangibles — net

 

 

82,278

 

 

143,347

 

Goodwill

 

 

447,095

 

 

705,174

 

 

 

 

529,373

 

 

848,521

 

Investments and other assets:

 

 

 

 

 

 

 

Investments in unconsolidated companies

 

 

2,976

 

 

3,888

 

Operating lease right-of-use assets

 

 

46,977

 

 

 —

 

Other assets

 

 

57,402

 

 

58,847

 

 

 

 

107,355

 

 

62,735

 

 

 

$

953,757

 

$

1,295,301

 

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

1,468

 

$

4,312

 

Accounts payable

 

 

27,519

 

 

37,521

 

Accrued pension liabilities

 

 

117,210

 

 

11,510

 

Accrued compensation

 

 

21,101

 

 

20,481

 

Income taxes payable

 

 

 —

 

 

6,535

 

Unearned revenue

 

 

55,384

 

 

58,340

 

Accrued interest

 

 

11,810

 

 

26,037

 

Financing obligation

 

 

13,027

 

 

10,417

 

Current portion of operating lease liabilities

 

 

8,494

 

 

 —

 

Other accrued liabilities

 

 

5,773

 

 

5,385

 

 

 

 

261,786

 

 

180,538

 

Non-current liabilities:

 

 

 

 

 

 

 

Long-term debt

 

 

608,801

 

 

633,383

 

Deferred income taxes

 

 

15,178

 

 

20,775

 

Pension and postretirement obligations

 

 

528,457

 

 

655,310

 

Financing obligations

 

 

132,556

 

 

108,252

 

Operating lease liabilities

 

 

47,999

 

 

 —

 

Other long-term obligations

 

 

30,516

 

 

38,708

 

 

 

 

1,363,507

 

 

1,456,428

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity (deficit):

 

 

 

 

 

 

 

Common stock $.01 par value:

 

 

 

 

 

 

 

Class A (authorized 200,000,000 shares, issued 5,561,493 shares and 5,384,303 shares)

 

 

56

 

 

53

 

Class B (authorized 60,000,000 shares, issued 2,428,191 shares and 2,428,191 shares)

 

 

24

 

 

24

 

Additional paid-in-capital

 

 

2,217,898

 

 

2,216,681

 

Accumulated deficit

 

 

(2,318,299)

 

 

(1,954,132)

 

Treasury stock at cost, 59,893 shares and 252 shares

 

 

(360)

 

 

(2)

 

Accumulated other comprehensive loss

 

 

(570,855)

 

 

(604,289)

 

 

 

 

(671,536)

 

 

(341,665)

 

 

 

$

953,757

 

$

1,295,301

 

 

See notes to the condensed consolidated financial statements.

 

 

 

 

3

Table of Contents

THE MCCLATCHY COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 

(Unaudited; amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

September 29,

 

September 30,

 

 

    

2019

    

2018

    

CASH FLOWS FROM OPERATING ACTIVITIES:

    

 

 

    

 

 

 

Net loss

 

$

(364,190)

 

$

(52,268)

 

 

 

 

 

 

 

 

 

Reconciliation to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

40,504

 

 

57,496

 

Gain on disposal of property and equipment (excluding other asset write-downs)

 

 

(2,124)

 

 

(2,820)

 

Retirement benefit expense

 

 

19,386

 

 

8,335

 

Stock-based compensation expense

 

 

1,220

 

 

1,819

 

Deferred income taxes

 

 

(5,597)

 

 

(2,170)

 

Equity (income) loss in unconsolidated companies

 

 

1,568

 

 

(573)

 

Gains related to investments in unconsolidated companies

 

 

 —

 

 

(1,721)

 

Distributions of income from investments in unconsolidated companies

 

 

550

 

 

2,876

 

(Gain) loss on extinguishment of debt, net

 

 

1,986

 

 

(30,918)

 

Goodwill and other asset write-downs

 

 

296,009

 

 

14,207

 

Amortization of bond fees and other debt-related items

 

 

7,492

 

 

3,654

 

Other

 

 

(7,047)

 

 

(4,773)

 

Changes in certain assets and liabilities:

 

 

 

 

 

 

 

Trade receivables

 

 

32,419

 

 

32,622

 

Inventories

 

 

2,644

 

 

(1,911)

 

Other assets

 

 

6,609

 

 

2,380

 

Accounts payable

 

 

(9,876)

 

 

(1,378)

 

Accrued compensation

 

 

620

 

 

(2,452)

 

Income taxes

 

 

(6,535)

 

 

(10,379)

 

Accrued interest

 

 

(14,227)

 

 

3,645

 

Other liabilities

 

 

(7,958)

 

 

(7,793)

 

Net cash provided by (used in) operating activities

 

 

(6,547)

 

 

7,878

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

(1,901)

 

 

(9,262)

 

Proceeds from sale of property, plant and equipment and other

 

 

5,060

 

 

4,052

 

Contributions to cost and equity investments

 

 

(825)

 

 

(2,301)

 

Proceeds from sale of unconsolidated companies and other-net

 

 

 —

 

 

5,301

 

Net cash provided by (used in) investing activities

 

 

2,334

 

 

(2,210)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Repurchase of notes and related expenses

 

 

(36,602)

 

 

(459,539)

 

Proceeds from issuance of debt

 

 

 —

 

 

361,449

 

Payment of financing costs

 

 

(28)

 

 

(17,387)

 

Proceeds from sale-leaseback financing obligations

 

 

29,743

 

 

15,749

 

Purchase of treasury shares

 

 

(358)

 

 

(424)

 

Other

 

 

(1,029)

 

 

(441)

 

Net cash used in financing activities

 

 

(8,274)

 

 

(100,593)

 

Decrease in cash, cash equivalents and restricted cash

 

 

(12,487)

 

 

(94,925)

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

50,555

 

 

131,354

 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD 

 

$

38,068

 

$

36,429

 

 

See notes to the condensed consolidated financial statements

4

Table of Contents

 

THE MCCLATCHY COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT) 

(Unaudited; amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

Class A

 

Class B

 

Additional

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

$.01 par

 

$.01 par

 

Paid-In

 

Accumulated

 

Comprehensive

 

Treasury

 

 

 

 

 

 

value

 

value

 

Capital

 

Deficit

 

Income (Loss)

 

Stock

 

Total

 

Balance at December 30, 2018

 

$

53

 

$

24

 

$

2,216,681

 

$

(1,954,132)

 

$

(604,289)

 

$

(2)

 

$

(341,665)

 

Net loss

 

 

 

 

 

 

 

 

(41,956)

 

 

 

 

 

 

(41,956)

 

Cumulative effect adjustment of Topic 842

 

 

 

 

 

 

 

 

23

 

 

 

 

 

 

23

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

22,552

 

 

 

 

22,552

 

Issuance of 168,610 Class A shares under stock plans

 

 

 2

 

 

 

 

(2)

 

 

 

 

 

 

 

 

 —

 

Stock compensation expense

 

 

 

 

 

 

663

 

 

 

 

 

 

 

 

663

 

Purchase of 56,934 shares of treasury stock

 

 

 —

 

 

 

 

 —

 

 

 

 

 

 

(268)

 

 

(268)

 

Balance at March 31, 2019

 

$

55

 

$

24

 

$

2,217,342

 

$

(1,996,065)

 

$

(581,737)

 

$

(270)

 

$

(360,651)

 

Net loss

 

 

 

 

 

 

 

 

(17,531)

 

 

 

 

 

 

(17,531)

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

5,441

 

 

 

 

5,441

 

Issuance of 2,320 Class A shares under stock plans

 

 

 1

 

 

 

 

(1)

 

 

 

 

 

 

 

 

 —

 

Stock compensation expense

 

 

 

 

 

 

303

 

 

 

 

 

 

 

 

303

 

Purchase of 851 shares of treasury stock

 

 

 —

 

 

 

 

 —

 

 

 

 

 

 

(85)

 

 

(85)

 

Balance at June 30, 2019

 

$

56

 

$

24

 

$

2,217,644

 

$

(2,013,596)

 

$

(576,296)

 

$

(355)

 

$

(372,523)

 

Net loss

 

 

 

 

 

 

 

 

(304,703)

 

 

 

 

 

 

(304,703)

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

5,441

 

 

 

 

5,441

 

Issuance of 6,260 Class A shares under stock plans

 

 

 —

 

 

 

 

 —

 

 

 

 

 

 

 

 

 —

 

Stock compensation expense

 

 

 

 

 

 

254

 

 

 

 

 

 

 

 

254

 

Purchase of 1,856 shares of treasury stock

 

 

 —

 

 

 

 

 —

 

 

 

 

 

 

(5)

 

 

(5)

 

Balance at September 29, 2019

 

$

56

 

$

24

 

$

2,217,898

 

$

(2,318,299)

 

$

(570,855)

 

$

(360)

 

$

(671,536)

 

 

See notes to the condensed consolidated financial statements

5

Table of Contents

THE MCCLATCHY COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT) 

(Unaudited; amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

Class A

 

Class B

 

Additional

 

 

 

 

Other

 

 

 

 

 

 

 

 

$.01 par

 

$.01 par

 

Paid-In

 

Accumulated

 

Comprehensive

 

Treasury

 

 

 

 

 

value

 

value

 

Capital

 

Deficit

 

Income (Loss)

 

Stock

 

Total

Balance at December 31, 2017

    

$

52

 

$

24

 

$

2,215,109

 

$

(1,970,097)

 

$

(449,369)

 

$

(51)

 

$

(204,332)

Net loss

 

 

 

 

 

 

 

 

(38,941)

 

 

 

 

 

 

(38,941)

Cumulative effect adjustment of Topic 606

 

 

 

 

 

 

 

 

(2,668)

 

 

 

 

 

 

(2,668)

Other comprehensive income

 

 

 

 

 

 

 

 

 —

 

 

5,550

 

 

 

 

5,550

Issuance of 94,184 Class A shares under stock plans

 

 

 1

 

 

 

 

(1)

 

 

 

 

 

 

 

 

 —

Stock compensation expense

 

 

 

 

 

 

741

 

 

 

 

 

 

 

 

741

Purchase of 33,805 shares of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

(307)

 

 

(307)

Balance at April 1, 2018

 

$

53

 

$

24

 

$

2,215,849

 

$

(2,011,706)

 

$

(443,819)

 

$

(358)

 

$

(239,957)

Net loss