The McClatchy Q1 Earnings Call Transcript

123jump.com Staff
03 Jun, 2010
New York City

Revenues fell 8.2% to $335.6 million and net income was $2.2 million or 3 cents a share. Operating cash flow nearly doubled to $81.9 million and our operating cash flow margin was 24.4%. National advertising declined 7% compared to a 19.8% decline in the last quarter of 2009.

The McClatchy Company ((MNI))
Q1 2010 Earnings Call Transcript
April 22, 2010 12:00 p.m. ET

Executives

Elaine Lintecum – Investor Relations
Gary B. Pruitt – Chairman, President and Chief Executive Officer
Patrick J. Talamantes – Vice President, Finance and Chief Financial Officer
Christian A. Hendricks – Vice President, Interactive Media

Analysts

Alexia Quadrani – J.P. Morgan
Craig Huber – Access 342
Ken Silver – Royal Bank of Scotland
Matthew Swope – Broadpoint Capital
Scott Wipperman – Goldman Sachs
Andrew Steinerman – J.P. Morgan
Robert Kricheff – Credit Suisse
Jonathan Levine – Jefferies & Company
Barry Schwartz – Chatham Asset Management
Edward Atorino – The Benchmark Company
Harry DeMott - Knighthead Capital
Tim Dagget – Citigroup
Sharon Hill – AIM Group

Presentation

Operator

Good afternoon. My name is Victoria and I will be your conference Operator today. At this time, I would like to welcome everyone to the The McClatchy First Quarter 2010 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remark, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. Ms. Elaine Lintecum, you may begin your conference.

Elaine Lintecum

All right. Thank you all for joining us today for our first quarter conference call. The call is being webcast at mcclatchy.com and that webcast will be archived for future reference. Joining me today is Gary Pruitt, our Chairman and CEO, our Vice President of Operations, Bob Weil and Frank Whittaker, our Vice President of Interactive Media, Chris Hendricks, and our Vice President and CFO, Pat Talamantes. We''re all available for questions at the end of Gary''s remarks. We''ll be sticking to the one question per participant rule. If you have follow-up questions, I will be available and can be reached at 916-321-1846.

The earnings release and statistical report were issued this morning before the market opened. It includes a summary of our unaudited results and the full text of that release, and the statistical report are posted on our website for your convenience. We''ve also posted reconciliation of non-GAAP amounts that will be discussed on the call this morning. They are reconciled to the most direct linked comparable GAAP measure in the schedules that are on the website.

As a reminder, this conference call will contain forward-looking statements that are subject to risk and uncertainties, including among others, those described in the company''s 2009 annual report on Form 10-K. Actual results may differ materially from those described during the call. Now, here is Gary Pruitt, our CEO.

Gary B. Pruitt

Thanks, Elaine. Hello everyone. For the first quarter of 2010, we reported net income of $4.8 million or $0.06 per share, excluding charges related to debt refinancing and restructuring related severance. This compares to a net loss of $22.9 million or $0.28 per share excluding unusual items in the first quarter of 2009. Much of the financial improvement we reported came from improving revenue trends.

Total revenues in the first quarter 2010 were down 8.2%, compared to a decline of 16.5% in the fourth quarter of 2009. Advertising revenues in the first quarter declined year-over-year by 11.2%, compared to a 20.5% decline in the fourth quarter of 2009 and a 28.1% decline in the third quarter of 2009.

Moreover, ad revenues within the first quarter also showed an improving trend, down 12.9% in January, 10.6% in February and 9.7% in March. Digital advertising revenues grew 2.2% in the first quarter.

In addition to improving revenue trends, we continued to be vigilant in reducing expenses. We reduced cash expenses in the first quarter by 21.3%, excluding severance. The combination of improving revenues and strong cost control resulted in a significant gain in operating cash flow this quarter.

Operating cash flow nearly doubled to $81.9 million and our operating cash flow margin was 24.4%. Completing our debt refinancing was an important accomplishment in the first quarter, and we look forward to discussing it with you.

But first, let''s look at our operating results starting with revenues by category. Retail advertising was down 11.5% in Q1 compared to a decline of 20.3% during the fourth quarter of 2009. The declines in our print advertisings were partially offset by strong growth in digital advertising.

Digital retail advertising was up 9.4% in Q1. Classified advertising was down 13.8% this quarter, an 11.2 percentage point improvement from the fourth quarter of 2009. The improvement is consistent across all regions and in all categories of classified testing.

Here''s a look at how the major classified categories performed during the quarter. Employment advertising, the most improved category, was down 18.4% in the first quarter, versus 43.6% in the fourth quarter 2009, a 25.2 percentage point improvement. For the quarter, print improvement revenues were down 26.8%, while online revenues were down 6.5%.

For the first time in a very long while, the declines in employment advertising were in the single digits in March, down 8.5% in total. Automotive advertising was down 14.1%, a 6.3 percentage point pick up from the fourth quarter.

Our print advertising was down 19.3% and online auto advertising was down only 3.2%. Real estate advertising was down 26.8%, which was an 8.8 percentage point improvement from the fourth quarter. Print advertising was down 29.8% and online real estate advertising declined 16% from the first quarter of 2009.

Other classified advertising, which includes legal, remembrances and celebration notices and miscellaneous advertising, now makes up about 30% of our classified advertising, and has been growing for the last two quarters. It was up 2.8% in the first quarter of this year on top of a 0.1% growth -- on top of a 0.1% growth in the fourth quarter of 2009.

Turning next to national advertising, it showed good recovery in Q1 as well. National advertising declined 7% in the quarter compared to a 19.8% decline in the first quarter of -- in the last quarter of 2009. Print losses were partially offset by a 9.1% growth in digital national advertising.

While digital advertising was included in the results I just reviewed, we wanted to discuss this important and growing part of our business with you in more detail. Digital advertising revenue grew 2.2%, slower than we saw in the fourth quarter, but still positive. We face tough comparisons to 2009, when we implemented price increases and introduced new digital products but even so our digital business remains strong. In fact, both auto and employment digital advertising showed growth in the month of March, a potential indicator of economic recovery. Digital advertising was 17.5% of total advertising in the first quarter of 2010.

We recently announced the roll out of an online marketing platform called WebVisible, which will be in every The McClatchy market by the end of year. WebVisible gives our local advertisers the most efficient way to place advertisements on multiple search engines, including Google, Yahoo and Bing. Adding this platform furthers our strategy of providing local advertisers with market leading solutions that drive results for our customers and increase our revenues.

Turning to circulation, circulation revenues grew 1.8% in first quarter of 2010. Daily circulation declined 10% and Sunday was down 8.2%. We expect improvement in the trends later this year as we lap the circulation initiatives we took in 2009 to both cut expenses and increase revenues. But circulation doesn''t fully measure our reader ship anymore than the number of TV sets measures broadcast viewership and our print readership declines are much less than our circulation declines.

Furthermore, we measure our audience in terms of our print and digital products and our strategy is to grow total audience, regardless of platform. Overall, our websites grew their local online audience by 18% in the first quarter of 2010, compared to Q1 2009. Our hybrid print and digital business model allows us to offer our advertisers, offer our advertising and compelling journalism in whatever format our readers and users prefer most.

Turning next to expenses. As I had mentioned earlier, total cash expenses in the first quarter were down 21.3%, excluding the impact of severance. This quarter, we saw the benefits from our March 2009 restructuring initiatives as well as some actions we took in the first quarter this year.

Compensation costs were down 18%, excluding severance. News print and supplement costs declined 40.6%, reflecting lower news print prices and usage. News print prices were down 30.7% and usage was down 23%. Supplements expense was up 1.5%. All other expenses declined 16.5%.

Interests costs were up $6.8 million from the first quarter of 2009, reflecting higher rates, offset somewhat by lower debt balances. Our effective interest rate paid on debt in Q1 was 7.1%, which includes only a partial quarter of our new bond and bank amendment. We expect to pay an effective interest rate of about 8.5% going forward. In addition, we have about 6, 6.5, $6.5 million in non-cash interest expenses that we record each quarter.

Capital expenses in the quarter were $1.7 million and we plan to hold CapEx to about $20 million in 2010. We also expect to make pension contributions in the $19 million range, slightly lower than we thought at year-end with the first payment due in July.

Looking forward, even though we expect advertising revenues to be down in the second quarter, we believe the ad trend will continue to improve. We will remain vigilant on cost, but the savings run rate going forward will be lower than we experienced in the first quarter because we cycled over the major restructuring initiative implemented in early 2009. Even so we expect cash expenses to be down in the high single digit range in the second quarter and we expect a continued favorable revenue trend, and stringent cost controls will allow us to at least maintain, if not grow cash flow from operations in 2010.

Finally, we are pleased to have completed our debt refinancing, and appreciate the confident that investors have demonstrated in our company. Their willingness to contribute new capital to our company indicates their belief that we are weathering this recession and successfully transitioning to the hybrid print and online business model that will sustain us in the future.

We will continue to focus on our strategic priorities and core competencies, high quality journalism, advertising sales and digital media. That focus will allow us to generate cash to repay more debt. Our total debt at the end of the first quarter was $1.905 billion, down more than $43 million from the end of 2009, despite incurring $46.6 million in costs associated with the refinancing and premiums paid on the bond tenders.

Importantly, our leverage profile continue to improve. We had expected our leverage ratio to improve to five times operating cash flow at the end of the first quarter of 2010. Instead, we finished the quarter with a leverage ratio of 4.65 times more than a quarter turn better than our earlier expectations.

While this ratio may bounce around, we expect it to remain below five times for all of 2010. So we believe financial covenants are not a concern for the company, nor are debt maturities, as a majority of these have been pushed off to 2017. We have approximately $185 million in availability under our bank credit lines and have only $55.7 million in maturities in June 2011 and $93.4 million coming due in June 2013. After that, the company has no debt of consequence coming due until late 2014. But we will not be complacent about our leverage. We expect to make further progress in paying down debt in 2010.

In summary, we are pleased with our first quarter results, given the economic environment in which we are operating. We are looking forward to a successful 2010, and are poised to benefit from the economic recovery as it progresses. Thank you for your attention and now, we will be happy to answer your questions.

Question-and-Answer Session

Operator

At this time, I’d like to remind everyone in order to ask a question, press star then the number one on your telephone keypad. Your first question comes from Alexia Quadrani from J.P. Morgan. Your line is now open.

Alexia Quadrani – J.P. Morgan

Hi. Thank you. Question on the outlook for the second quarter, do you think your expense reductions, can out pace revenue declines in Q2? And also how is April trending compared to March?

Gary B. Pruitt

Okay. Well, we''re not giving any revenue guidance beyond -- in the second quarter beyond saying that we expect revenue trends to continue to improve. Visibility is not great, but we do see enough to be confident that trends will continue to improve. And on the expense side, we do see expenses down in the high single digit range. So in this first quarter, we did have total revenues down 8.2% and advertising revenues 11.2. We see that 11.2 improving and expenses in the high single digits. We will, we will, anniversary some of the circulation price increases. So circulation revenue trends may not improve in the same way that advertising revenue trends improve. April, we have actually no meaningful advertising trends to report to you from April because of the Easter switch in the calendar. We have some weeks affected positively and negatively by that switch. Therefore, we feel it not helpful to report anything on April at this point.

Alexia Quadrani – J.P. Morgan

And, can you tell us what national advertising was in March?

Gary B. Pruitt

Yeah. National advertising, it bounced around all quarter. It often does for us. It''s not a big category for us but in January, it was down 3.9. In February, it was down 4.1. And then in March, it got worse, it was down 13.4. For the quarter, it was down 7% and in the fourth quarter, it was down 19.8. So the trend was good within the quarter but it bounced around within the quarter.

Operator

Your next question comes from Craig Huber from Access 342. Your line is now open.

Craig Huber – Access 342

Yes, good morning. Hi Gary.

Gary B. Pruitt

Hi Craig.

Craig Huber – Access 342

A couple things if I could. Two part question. The advertising rates, what was the percent change down there year-over-year in the first quarter? And then just importantly, on the compensation expense line, $134 million of costs are adjusted for so-called one time item, that was up $5 million or $10 million in each of the last two quarters. What changed on your compensation expenses versus what happened in the third and fourth quarter, when you take out the severance charges? Why was it higher?

Gary B. Pruitt

Okay. On the first question of rates, it''s always a more difficult question to get at and even more difficult when given our mix in products. But in general, the advertising rates were down in the mid-to-high single digit rate, which is an improvement from the trend from last year. And it is more difficult to get at or be more precise than that, because much of our revenue is now wrapped up in revenue contracts and also wrapped up in contracts where advertisers are buying a portfolio of products, both print and digital. Some pay newspaper, some pre-products, various digital products, so it''s more difficult to tease out a mathematical mean for you in that way.

And then on the second question, I, I kind of tell you, Craig, I didn''t follow you. If you can repeat it for me please? If somebody, if you can let Craig back on the line. I know that may be difficult to do but technology and for other reasons, but Craig if you could come back on and ask that question.

Operator

Just, he''s here, he''s coming, you''re line is open.

Craig Huber – Access 342

Thank you for that. Craig Huber here. Compensation adjusted for the so-called one time item is $134 million in the first quarter.

Gary B. Pruitt

Right.

Craig Huber – Access 342

It''s higher than $125 million you had in the fourth quarter and $129 million you had in the third quarter, why was it up sequentially.

Gary B. Pruitt

Yes, I''m sorry. I didn''t listen closely enough the first time. We have more accruals in terms of incentive compensation in 2010 than in 2009. There were no bonuses paid in 2009. There may be bonuses paid in 2010 depending upon the company''s performance, so an accrual is being made for that at this time. Also, the revenue trends are much improved, still down but compared very favorably to high 20s last year and that means that there are higher variable costs associated with that, including commissions and other compensation.

Craig Huber – Access 342

I''m sorry. Gary. You were at, you…

Gary B. Pruitt

Somebody else cut him off. Not me. I know that sounded suspicious. But I don''t know what happened.

Operator

He just dropped. Can you queue, do you want him to queue back up.

Gary B. Pruitt

Not really, but we''ll let him anyway.

Operator

Okay. Go ahead.

Craig Huber – Access 342

Gary. Can you hear me. Craig Huber.

Gary B. Pruitt

Yes.

Craig Huber – Access 342

Hey, I''m pretty easy on you. Come on my friend.

Gary B. Pruitt

I''m kidding come on.

Craig Huber – Access 342

Seasonably, the quarter was much smaller on the revenue front in the fourth quarter. But I don''t quite understand whys variable cost in the compensation would be to account for $134 million versus 125 in -- I hear you on accrual side. Maybe you can let me know, let us know how much the accruals were in the first quarter, so I can think about that further?

Gary B. Pruitt

Yeah. I don''t, I don''t have the detail of that break, break out, Craig, but you can call Elaine and I think she can give you a more precise idea of the break out in that.

Craig Huber – Access 342

Okay. Great. Thank you.

Gary B. Pruitt

All right. Thank you.

Operator

Your next question comes from Ken Silver from the Royal Bank of Scotia. Your line is open.

Ken Silver – Royal Bank of Scotland

Hi, Royal Bank of Scotland. Can you just talk about circulation volume trends in the second quarter. Are they -- you said down 10 and down 8, for daily and Sunday in the first quarter right?

Gary B. Pruitt

Yes, that''s right. And so in the second quarter, we expect to see an improving trend there, but that trend to accelerate in it''s improvement in the second half, trending more toward the mid single digit range. What''s happening is that we''re cycling on aggressive price increases we took last year, in the late first quarter and throughout the second quarter, in an effort to offset some of the advertising revenues declines. And we''re also cycling on circulation actions, we took in the first half and second quarter, where we were cutting back on unprofitable and expensive circulation in far flung geographic areas. So we haven''t, we''re beginning to cycle on that. And we would expect that, that trend would continue to improve. It even improved in the first quarter as lousy as those numbers were, they were better than the fourth quarter trend, by a couple percentage points on daily circulation.

Ken Silver – Royal Bank of Scotland

Okay. Am I still on?

Gary B. Pruitt

Yes.

Ken Silver – Royal Bank of Scotland

And can you just clarify what you said about, I guess readership being different than circulation?

Gary B. Pruitt

Sure. The readership and we know this from our research studies on readership. So what I reported when I said the down 10, down 8, was of course, circulation, that is just the number of copies. And that is not the audience. On average, three people read a newspaper. So the readership is much higher than the circulation number. In fact, readers per copy has grown over time and in recent years. There have been more readers on average per copy according to recently released Scarborough research. And for us, readership declined far less than circulation because the circulation we eliminated was not read as much as the circulation we kept. It was not as valuable. Some of it was third party circulation. Some of it was discounted. Our circulation now is higher core with less churn, so a higher quality circulation, albeit lower. And so we have to research to support the idea that the readership declines were much less than the circulation declines.

Operator

Your next question comes from Matt Swope from Broadpoint Capital. Your line is now open.

Matthew Swope – Broadpoint Capital

Hi, guys.

Gary B. Pruitt

Hey.

Matthew Swope – Broadpoint Capital

You talked a little bit, Gary, about your intention to pay down more debt as you go along here. Will that all be in the form of paying down the term loan or do you have any ability or desire to pay down any of the, any of the unsecured debt?

Gary B. Pruitt

Well, in the short-term, it''s all going to be focused on paying down the bank term debt and that''s what we will focus on first and foremost. And so while those maturities are not substantial, they will keep us busy here for a little while, about $56 million due in June of 2011 and $93 million due in June of ''13. We''ll keep paying them down. We do have some 11 bonds left, which we will take out. There are relatively small amounts. So we''ll take out those as well. We do have the ability to enter the market and buy back bonds and reduce debt that way. But that will be something we, after we can, we will consider after we take out the 11 bonds and the bank term debt, which we will do first and foremost. And we''ll use all of our free cash flow to do.

Matthew Swope – Broadpoint Capital

And is there a limit on how much, just a restricted payments on how much you''re able to do, of taking bonds out in the open market?

Gary B. Pruitt

Yes. I''ll defer that to Pat, our CFO.

Patrick J. Talamantes

Yes. Of course, the restricted payment basket, would govern how much bonds we could take in the open market. And since we just issued those notes, that restricted payment basket will grow over time as we generate free cash flow.

Operator

Your next question comes from Scott Wipperman from Goldman Sachs. Your line is now open.

Scott Wipperman – Goldman Sachs

Great. Thanks for taking the question. Gary, first, as I look at the advertising categories, retail, national and classified, can you comment on what you feel you have the most upside in? Where you are seeing the most improvement? And as we think about the remainder of the year, where do you guys think you have the most momentum to actually show growth? And then second, just on the expense side, if you can just comment on where you see additional ability to take out expenses going forward, the remainder of the year?

Gary B. Pruitt

Sure. On the revenue category, we see the most upside in our, in still which is our worse category, classified advertising. Classified advertising was hit the hardest, it is the most cyclical, but it is all the one --so it will recover best we believe. And it also is an area where we have very strong digital products to fuel that growth. So to give you a sense of the classified rebound, roughly 38% in the third quarter, 25% in the fourth quarter, 14% down in the first quarter and continues to trend. Classified is the category that bounces around the least. It trends the most with the economy. So it went down for 16 or month consecutive quarter and getting warts each quarter. And starting mid year, it began to improve, and it has improved sharply in each of the past three quarters.

And we expect that it will continue to improve. And we saw that pattern within the quarter. So we think classified advertising has the most upside and it''s the one that gives us the most confident in terms of a projection going forward of improving advertising revenue trends. And in some of those classified categories, in employment for instance, a majority of our revenue is now in digital. So this isn''t a secular issue as much as either. Much more of our revenue is in the digital in the classified category. We think we''re poised with great products, CareerBuilder and employment, cars.com and auto, HomeFinder in real estate, et cetera.

We think we''ll see good upside in classified advertising. National as we said bounces around, but the trend is improving there. Retail is in between classified and national in terms of its, in terms of predictability and it has shown improvement as well. So while classified has the most upside, we are seeing improving trends in every region in every category. As far as, as far as the expenses go, looking forward, we think we''ll face some head wind on news print, as news print prices are rising. Although we don''t think they''re going to be rising as fast as the news print companies think. And then we would see some opportunities in the other categories, all other and compensation expense but the -- but what, the trends we see there in many ways will be, will be affected by what we''re seeing in revenue trends and we are not anxious to make more cuts. On the other hand, we understand that if revenue trends persist down, we may very well have to make more cuts and so, we''re seeking to strike that balance.

Operator

Your next question comes from Andy Steinerman from J.P. Morgan. Your line is now open.

Andrew Steinerman – J.P. Morgan

Thanks. I''ll make this brief but you talk about potential areas of upside, can you talk about maybe what''s going on in Florida and California, if you''re seeing anything better there. And then lastly, what drove the pension contribution changes here? Thank you.

Gary B. Pruitt

Sure. As far as California and Florida goes, they certainly were our worst and lead into the recession, but now they''re kind of, in total ad revenues, they''re much closer to performance with the rest of the company. So while we were 11.2% down in, in advertising revenue for the total company, California was down 11.6, Florida was down 11.9. So just a little worse than the average, but dig down a little bit and go a little more granular, Florida and California are still lagging in classified advertising, which means they''re still lagging in terms of an economic recovery. So in real estate California is still bound to the quarter 35% and most importantly, in employment, where the company was down 18.4% in the quarter, Florida was down 25%, and California was down 28%. So we are still seeing indications that Florida and California are lagging in economic recovery. And the macro figures show that in the economy, so we still see good upside for Florida and California, which is not being realized yet in classified. It does better in retail, but classified remains a place for upside potential. As far as the pension expense question, I''ll turn it other to Pat.

Patrick J. Talamantes

We''re being able to use more funding credits from the past contributions this year. We previously guided, I think, $22 million this year, and through greater use of credits, we''re looking at only having to make a $19 million contribution this year.

Operator

Your next question comes from Bob Kricheff from Credit Suisse. Your line is now open.

Robert Kricheff – Credit Suisse

Hi. Could you just take us through the working cap swings for the quarter and give us an idea what we might be able to expect for the rest of the year on that one?

Gary B. Pruitt

Sure. Pat?

Patrick J. Talamantes

Sure, I think it''s kind of a complicated quarter in a sense that we''ve got all the swings on the debt side. But also from a cash from operations perspective, it, it''s complicated as well. First quarter is typically our lowest quarter in terms of EBITDA, from a cash generation perspective. Two things will impact that, one is collecting receivables that were generated in the fourth quarter during our seasonal high point. And then we''re always subject to tax payments swings during the first, during that first quarter, depending on the probability outlook for the year, any catch up payments related to the prior year.

So between collecting receivables from prior year, as well as having only to make a very, very modest, less than $1 million payment, payments on account of taxes, we were able to generate almost $100 million in cash from operations and investing activities in the first quarter. And most of the models wouldn''t have reflected that, and so I think that''s the predominant reason why bank debt is turning to be lower than folks expected.

Going forward, of course, none of this has a bearing on what happens in the rest of the year, because we don''t have that collections receivables the same way we do in this first quarter. And of course, we will have tax payments, it make as we go through the rest of the year. So it''s not something by any stretch that you can extrapolate, better to continue with your full-year models. But as we''ve talked about before, when we talked about cash taxes, working capital swings, timing differences can impact that number.

Operator

Your next question comes from Jonathan Levine from Jefferies. Your line is now open.

Jonathan Levine – Jefferies & Company

Yeah. Most my question''s have been asked and answered. But I just did want to follow up, on the online revenues, I mean, if you go back over really the last to 8 to 12 quarters, it''s pretty much been in that kind of low to mid 40, some of them going in the upper $40 million range on a quarterly basis. Can you talk a little bit in terms what you''re seeing, are you seeing kind of new demand from I guess new advertisers in that segment? What you''re seeing in terms of rate and how should we think about that over the next maybe three plus quarters?

Gary B. Pruitt

Sure. I''ll answer generally first and then turn it over to Chris for more specifics. We''ve actually been very pleased with our digital revenue performance into the teeth of this terrible recession. So they''ve held up quite well and in terms of percentage of ad revenue have grown nicely, so we feel good about their performance overall. They are now 17.5% of ad revenues and highly profitable, at a higher profit margin than our print business. And even last year, with all of the big declines that media suffered, our digital revenue grew. I think we were the only newspaper company that had digital ad revenue growth last year. But with that general introduction, I''ll turn it to Chris Hendricks, our VP of Interactive Media.

Christian A. Hendrick

Right. I''ll address this in two ways. One on the product side, last year we introduced a lot of new products in classified categories, specifically in legal, obits and elective categories and that seemed to be a focus, as well as ramping up Yahoo on the retail side. This year, last year we also took pricing up where we had seen, there was inventory scarcity, value and opportunity for us. This year we see the ability more to really explore the retail side of the business for continuing the Yahoo sales in a local marketplace, bring in new retailers in those categories.

And also in the national category and as Gary suggested earlier, launching of WebVisible to bring some search engine marketing aspect to it, selling for Bing, Google and for Yahoo. So we also do have video coming, rolling out less further out in the year. So we think the second half will show improvement over what we''ve seen here in the first quarter, as we roll out these products. We don''t see the ability to go back and raise pricing this year in the specifically in the CPM basis and also on an up sale base I see that''s okay, because we''re going to continue to roll out new product.

Jonathan Levine – Jefferies & Company

Thanks Chris.

Operator

Your next question comes from Barry Schwartz [ph] from Chatham Asset. Your line is now open.

Barry Schwartz – Chatham Asset Management

Hi, thanks. Two things. I was just trying to reconcile some of the debt balances and maybe, maybe I could do this offline later with you Pat, but I, I''m coming in with about $71 million less of, of total debt, based on what''s in the press release. And I''m just wondering if there''s something, if pensions are included in that or what''s in at that total liability number?

Patrick J. Talamantes

Well, I''m sorry. You''re saying that the debt number you have is $71 million lower than what we put in the release?

Barry Schwartz – Chatham Asset Management

Less, I have about a $1.8 billion.

Patrick J. Talamantes

What could happen. I don''t know if you have the discounts -- fund discounts in your numbers? Our numbers are at notional value, without regard to purchase accounting fro the discounts.

Barry Schwartz – Chatham Asset Management

Okay. I can talk with you about off the line. The other questions I had, I was hoping maybe you could update me on where, what the status is of the Miami land sales and this progress with that? And maybe if you could talk a little bet about what''s going on with CareerBuilder and some of your assets that you have on the balance sheet?

Gary B. Pruitt

Sure. With regard to the Miami land, there hasn''t been any updates since our last quarter conference call, so $190 contract for 10 acres of land, adjacent to The Miami Herald plant. We''ve received $16 million in non-refundable deposit. There is a termination -- and the buyer has until the end of January 2011, so about three quarters from now, to close the deal. If the deal doesn''t close by the end of January, we''re entitled to a termination fee of $7 million and the buyer is hopeful in closing the deal, and we''re hopeful the deal closes as well. But we have no further update than that. With regard to our internet assets, we feel they are an important part of the company and a very valuable part of the company.

CareerBuilder is the number one employment site in North America. We own 14.4% of it. It is a profitable private large Internet company and it also provides us with market leading products to sell in the employment category. Cars.com, another profitable, strong Internet company. The number two auto company on the Internet and gives us great products to sell in the, in the auto category. I mentioned employment is now a majority digital. Auto is about 38% digital and we have -- and then we have HomeFinder, which is a relatively new Internet company in the real estate category owned with Tribune and Gannet and expect and hope that, it gives us great products and hope and expect it will be a strong Internet player as well. We also, we own a quarter of cars.com, we also own a quarter of apartments.com, the number one or two rental company online depending on the measure and that helps us in the apartments category. So we have investments in these companies that we feel are valuable, profitable and importantly also help our operating strategy and further it. I don''t know if Chris you have anything to add.

Christian A. Hendrick

No. The only thing that I add that CareerBuilder continue to expand internationally, and making acquisitions as they see fit, with goal, as they are the leader in U.S. as far as revenue and traffic is concerned is to be leader globally.

Barry Schwartz – Chatham Asset Management

Okay. Thank you.

Operator

Your next question comes from Edward Atorino from The Benchmark Company. Your line is now open.

Edward Atorino – The Benchmark Company

Good morning. I guess it''s still morning there.

Gary B. Pruitt

Yeah.

Edward Atorino – The Benchmark Company

Interest expense -- if you take out the extra costs, would be sort of a run rate on interest expense? And same question on comp, which I realize you may be running out places to take things out, is that sort of now a level of compensation that will go forward?

Gary B. Pruitt

Yeah. With regard to interest, you should not regard that as I a run rate, because we only have a partial quarter with the higher interest rate that we''ll have going forward. So in Q1, that interest rate was 7.1%, that''s the not the run rate. The run rate is 8.5% on an average. So 8.5% will be the interest rate going forward in terms of cash interest expense.

Elaine Lintecum

And then if you add about $6.5 million of non-cash expense that reflect amortization of discounts and financing costs and things of that nature. If you want to give me a call later, I''ll, I''ll walk through with you.

Gary B. Pruitt

And, and then as far as comp goes, I think that it''s closer to the run rate that you would see, but I would say there or slightly lower would be the run rate.

Operator

Your next question comes from Harry DeMott from Knighthead Capital. Your line is now open.

Harry DeMott – Knighthead Capital

Hi. Thanks, guys. Quick, it''s sort a question like Ed''s just had. I was wondering sort of theoretically as you look across this year, you look at last year the total cash expenses were -- I don''t know, $1 billion, $1.30 billion, $1.38 billion. I''m trending closer to you a billion this year just based on some of the stuff you''ve said and looking at the models -- where do you think sort of the rock bottom is to run the paper where you have to put out a physical paper? Obviously, not minding news print cost not so much, as they''re not wholly in your control, but just in terms of compensation and is that sort of like $500 million number on compensation kind of about as low as we get and everything else beyond that is sort of the revenue?

Gary B. Pruitt

I don''t have a precise quantitative answer to give you to that question. In terms of the rock bottom expense to put out a paper is, it is certainly significantly lower than that figure. But we don''t plan on going to a rock bottom expense level to put out the papers. We think that we can maintain high quality products and offerings, and actually grow our profitability based upon that quality and improving it. So we think that we can maximize our cash flow by not going to the rock bottom there. The paper continue to be very strong with high quality journalism.

McClatchy was a Pulitzer finalist, didn''t win a Pulitzer this year, did last year, won the RFK award, one the most prestigious journalism awards in the country last year and this year for Best Domestic Journalism. Charlotte in Kansas City won a Polk award, another major national award in Belleville. So the papers are doing excellent work and we have had to make painful expense cuts, as the revenue has declined. And while there are places to go further and make cuts and still put out the papers, it''s not that we''re anxious to do so. We will be making cuts as necessary and needed given the revenue trends. But you know, that''s not a rock bottom measure at all, but we don''t really think in terms of the rock bottom measure at all, but we don''t really think in term of the rock bottom measure.

Operator

Your last question comes from Tim Dagget from Citi. Your line is now open.

Tim Dagget – Citigroup

Hi. Would you guys consider selling your stake in CareerBuilder to pay down debt?

Gary B. Pruitt

Well, we would like, we plan to maintain an ownership interest in CareerBuilder. Will it always be at the 14.4% level? I don''t know. I think we would consider monetization opportunities with our internet assets but at the same time plan on maintaining an ownership stake and using those valuable products going forward. But I wouldn''t rule that out, given the right monetization opportunity.

Elaine Lintecum

Victoria?

Operator

And we do have one more question from Sharon Hill [ph] at AIM Group. Your line is now open.

Sharon Hill – AIM Group

Thank you very much. Gary and this may be a Chris question, he mentioned it briefly in an answer to another question but it''s about WebVisible. I''ve been following this since you signed on. I think a couple papers about 2006. And now of course, with the recent announcement that all The McClatchy papers are going to be using it. I was talking to someone at McClatchy Interactive that mentioned that you''ve been focusing heavily on the behavioral targeting product of Yahoo newspaper consortium. And that this was going to be a nice pairing with that. And I was hoping you''d say a little bit more about that, most especially about if it''s going to be packaged as one sale, who''s going to be approached, who''s going to be selling it that? That sort of thing.

Gary B. Pruitt

Okay. Thank you. I''ll turn it over to Chris.

Christian A. Hendrick

Right, Sharon. Yes, indeed, it will be package our strategy is to be able to provide market leading solutions to our advertisers, whether it be our own or whether it be partners, such as Yahoo''s a great example of selling somebody else''s inventory. We have expertise in the local marketplace to deal with customers on a one-on-one basis, where these other companies do not. So with the WebVisible deal, it roll up a nice package to add to our online sales, to our present sales, to bring a solution that advertisers do want, but don''t have the ability to manage on an ongoing basis. So that''s part of the strategy. It''s not to take it to market as an individual product, because it''s, low cost product, but it is something our advertisers want and need and that we can manage for them. And that is an ongoing strategy and we expect to add more products and services from others with quality to our arsenal of advertising products.

Operator

There are no further questions in the queue. I''ll turn the call back over to you.

Gary B. Pruitt

Okay. Thank you. I want to thank everyone for listening and their questions today. Look forward to a good 2010 from McClatchy. Thank you very much. Good bye.