Executives
Ryan Kimble – Assistant Treasurer
Patrick J. Talamantes – President, CEO
Robert J. Weil – VP, Operations
Mark Zieman – VP, Operations
Chris Hendrick – VP Interactive
Elaine Lintecum – VP, Finance, CFO
Analysts
Craig Huber – Huber Research
Scott Wipperman – Goldman Sachs
Bishop Cheen – Wells Fargo
Avi Steiner – JP Morgan
Sheldon Shing – CRC Capital Group
Amy Stepnowski – The Hartford Group
Tim Daggett – Citigroup
Mohammad Ahmed – B&M Capital
Andrew Finkelstein - Barclays
Michael Kass – Blue Mountain Capital
Dan Charleston – Global Credit
The McClatchy Company (MNI) Q2 2012 Earnings Call July 27, 2012 12:00 PM ET
Operator
Operator
Good morning. My name is Michelle and I will be your conference operator today. At this time I would like to welcome everyone to the McClatchy Corporation’s Second Quarter 2012 Earnings Call. (Operator Instructions)
I would now like to turn the call over to Mr. Ryan Kimball, Assistant Treasurer. Please go ahead, sir.
Ryan Kimball
Thank you, Michelle. Thank you for joining us today for our second quarter 2012 earnings call. I’m Ryan Kimball, Assistant Treasurer, and I’ll be available to answer any follow-up questions you may have after our call this morning. My phone number is 916-321-1849, and you can also find my contact information on our website.
This call is being webcast at mcclatchy.com, and will be archived for future reference. Our earnings release was issued this morning before the market opened, and I hope you’ve had a chance to review it. Joining me today is Pat Talamantes, our president and CEO, our vice presidents of operations Bob Weil and Mark Zieman, our vice president of interactive media, Chris Hendricks and our vice president and CFO, Elaine Lintecum.
This conference call will contain forward-looking statements that are subject to risks and uncertainties that are described in our SEC filings. Actual results may differ materially from those described during the call. Also, non-GAAP amounts discussed this morning are reconciled for the most directly comparable GAAP measures and schedules posted on our website.
Now, I’d like to turn the call over to Pat Talamantes.
Patrick Talamantes
Thanks, Ryan, and thank you all for joining the conference call today. In addition to discussing the primary drivers behind our quarterly results, we’d also like to update you on some of our digital strategies. Chris Hendricks will provide an overview of our digital subscription and mobile performance, and Mark Zieman will discuss our digital revenue strategies and plans going forward.
For the quarter, we reported net income of $16.1 million, excluding unusual items, compared to income of $9.0 million, excluding similar items, in the 2011 quarter. Revenues in the second quarter of 2012 were $299.3 million, down 4.8% from the second quarter of 2011.
Advertising revenues were $222.6 million, down 5.7% from 2011, and by month revenues were down 8.2% in April, 0.5% in May and 7.9% in June. Not only did we experience calendar switches for certain holidays, but we also continued to see advertisers consolidating their spending around specific holidays like Easter, Mother’s Day and the Fourth of July, impacting our month-to-month results in Q2. For example, Mother’s Day fell a week later this year, which boosted the performance in May and weakened April in comparison to last year. We had very strong advertiser response around Memorial Day, and we also saw a calendar shift between June and July due to the way Fourth of July fell on our fiscal calendar. Still, despite economic headwinds in the calendar changes, our advertising results showed an improving trend more than a point better than Q1.
Revenues from digital initiatives continued to grow at a very healthy rate. Digital-only advertising revenues increased 16.8%. Total digital advertising, which includes digital advertising both bundled with print and sold on the stand-alone basis, increased 4.9% compared to the 2011 quarter. Total digital advertising now represents 22.5% of McClatchy’s total advertising revenues, compared to 20.2% last year.
Across advertising categories, retail showed improvement, down 5% compared to down 6.4% in the first quarter, despite tougher comps, driven largely by improving print ROP and continued strong growth in digital retail advertising. Digital retail advertising was up 8.5%, with digital-only retail ads up 26.5% in the quarter.
Our classified advertising trend also improved, finishing down 7.1% compared to down 8.3% in Q1, marking the third straight quarter of improvement. Automotive continues to be the bright spot within classified, while, no surprise, real estate and employment remain challenged.
Direct marketing advertising continues to perform well, up 1.8%, our ninth consecutive quarter of steady growth, and now represents 14.1% of total advertising. Finally, national advertising remains disappointing, down 18.1% on tougher comps in Q1. While it’s only about 7% of our ad revenues, the volatility in national advertising continues to hurt our visibility.
Telecom advertising, most notably AT&T, has been down all year, and food and drug, national automotive and the transportation sectors also experienced weakness in the period. While total advertising revenues did decline in the quarter, we think it is important to note that this doesn’t mean that all of our advertisers have been pulling back. Looking at our top 50 advertisers on a year-to-date basis, we find that, excluding the seven largest decliners, the remaining 43 of the group have actually increased their spending in aggregate compared to 2011. And with those seven advertisers who have cut the most, the issues have more to do with their business than with ours.
Looking at our results by region, we were encouraged to see advertising revenue growth in Florida. This is the first time a McClatchy region has recorded advertising growth since 2006, and reflects a more robust economic [inaudible]. The Southeast and Midwest also showed better than our overall average performance, while Texas and California continued a lag due to the economic stagnation and state government deficit in California and the choppy recovery in Texas.
Turning to circulation, revenue decreased in the quarter, down 2.4%. Daily circulation volume declined 6%, while Sunday was down 5.2%. We face a difficult comparison this quarter versus the second quarter of last year, especially in Sunday single copy sales, which, as you may recall, were driven by the strong interest in couponing that spurred Sunday circulation growth in 2011. While circulation revenues and volumes showed declines in the second quarter, we are focused on developing strategies to generate additional subscription revenues and improve circulation volumes at our newspapers. We recently completed an exhaustive study [inaudible] across our newspapers, and have begun implementing policies across the company to improve both print circulation volumes and revenues.
As we’ve said before, print circulation measures only part of our total audience, and we continue to focus on driving performance with a multi-platform strategy that gives readers access to our content whenever and wherever they choose to engage us. In the third quarter, we’re expanding our paid digital subscription model at our newspapers, after learning from our own experiments and watching best practices from our peers. We will price these models and roll them out in a way that makes the most strategic sense in each market.
To provide a little more color about our strategy on this front, I’d like to turn the call over to Chris Hendricks, our vice president of interactive.
Christian Hendricks
Thank you, Pat. McClatchy has been active in the paid digital subscription space since the mid-nineties. Unlike our recent initiatives, which are focused on our general news sites, [inaudible] were focused in vertical content areas like state politics, business and sports. Last year we launched McClatchy’s first paid digital subscription program at a general news site on our website in Modesto, California. The primary goal of the effort was to determine whether digital-only readers would pay for content, and to determine whether a pay-for-access model would be disruptive to our existing and successful advertising model. Like many other newspapers, we elected to ask readers to pay only after reading a fixed number of pages.
After analyzing results from our Modest initiative, along with a number of other pay model efforts underway across the newspaper industry, we believe that introducing paid digital subscriptions, for both digital-only readers and print subscribers, will: first, not disrupt web traffic in a meaningful way, and as a result, not disrupt existing advertising revenue streams; second, result in small but highly-profitable incremental revenue from digital-only subscribers; and third, drive digital subscription revenue through sales of bundled, digital and print products to current print subscribers.
This intelligence informed us as we developed a plan to offer new subscription packages to our readers. We will roll out a plan in five markets during the third quarter to offer current print readers a combined print and digital subscription package that will include home delivery of our printed newspaper and access to our website, certain mobile products and a digital replica edition of our printed newspaper, for a relatively small increase to print home delivery rates.
Our new plan includes subscriptions for both combined digital and print readers, and digital-only readers, but print readers will be charged a lower price and be automatically opted in to a bundled package when their subscription renews. While some subscribers may not want to participate in the package plan, many are surprised we’ve been giving away our content free for so long. In fact, other newspaper companies have seen very low opt-out rates [inaudible] similar packages.
Our first [inaudible] launch will be a good mix of small, medium and large papers. Once we’re launched and tweak the model, we’ll then quickly move forward with the rest of our papers by the end of the year. We’ll also offer online users a metered digital-only subscription. Our plan is called the metered model, because a pay wall doesn’t actually come down until a visitor reads a certain number of stories or pages. The number of metered pages is set by our newspapers, and can be adjusted up or down at any time. Our digital-only subscription package will include web, certain mobile products and a print replica edition.
Our digital traffic is important to us, and continues to grow. Our local unique visitors were up 2.1% in the second quarter. While we’re bullish about the paid digital subscription model, and believe encouraging our loyal print subscribers to also use our digital products may boost digital traffic, we’re also excited about what’s going on with mobile. Readership of our journalism and content by mobile devices [inaudible] at a rapid pace. Our mobile daily unique visitor count is growing significantly, up 101% through June. Nearly a quarter of our daily unique visitors now read our journalism and content on a mobile device.
On the mobile revenue front, we’re seeing big growth but it’s on a small revenue base. Year-to-date through June, local mobile revenue was up 277%. The majority of our mobile revenue comes from display advertising, with a small portion coming from subscription-based mobile products.
Patrick Talamantes
Our newspapers are also hard at work pursuing new digital revenues, and our new initiatives include, among others, expanding revenue growth and Dealsaver, and offering Impress Local, a suite of digital products and services, to small advertisers in our markets. Mark Zieman, vice president of operations, will discuss some of these initiatives and how they are currently working and being rolled out to our newspapers.
Mark Zieman
Thanks, Pat. As you heard a bit earlier, our total digital revenues grew 4.9% in the second quarter, and digital-only advertising was up 16.8%. The digital-only growth was driven in part by a 22% increase in automotive digital-only advertising, largely from our successful Cars.com product. We saw a similar increase in Cars.com revenue in the first quarter, so it’s clearly a product that continues to work well for our advertisers.
Another big driver for us was a 26% increase in retail digital-only advertising, driven by banner growth and by Dealsaver, which is our local daily deals product that we launched about this time last year. There are certainly a lot of deal providers out there, but many of our competitors are niche sites with little local audience or national sites with no local sales force. As you know, we have a big local audience and a large local sales force that gives us an advantage in this space, plus the ability to promote these deals in our newspapers. It’s a strong, growing business for us, and most of our deals are from merchants who don’t normally advertise with newspapers, which means it’s new revenue and a way for us to grow market share.
In the second quarter, we launched a major new initiative in two of our markets that we call Impress Local, which is aimed at small and medium-sized advertisers. It’s our name for a portfolio of digital products, some from McClatchy and some from other companies, that we’ve bundled together to form a one-stop, affordable turnkey marketing solution for local businesses. Using Impress Local, our clients will be able to establish a presence on the web in both computer and mobile-friendly formats. They can promote their businesses through Facebook, gain greater recognition from search engines, track their online reputations, advertise online and track incoming calls. They will receive real-time reports through dashboards that we’ve created, so that they can track the success of their campaigns and their return on investment. We’ve been testing the packages in Fort Worth and Kansas City, and early acceptance from advertisers has been very encouraging. We’re optimistic about our ability to grow market share and revenues with Impress Local.
We’ve hired 18 new sales and support employees for Impress Local, and we’re completing a hiring, training and sales strategy playbook that should help us roll out this product to the rest of our major markets by early 2013, and the remainder of McClatchy next year. It’s too early for us to have revenue projections related to this effort, but we do believe that it could add meaningfully to our digital growth, and we’ll keep you updated as we continue to expand this initiative.
Patrick Talamantes
Thanks, Mark. You can see that we’re doing a lot to improve upon our gold medal-winning performance in digital even further, and we’re deeply intent on continuing those recent successes. Now I’d like to turn to expenses and cash flow. As we’ve said for some time now, we continue to be focused on expense efficiency, while investing strategically in our business.
For the quarter, operating cash expenses, excluding charges associated with restructuring plans, declined $6.6 million or [inaudible] from the 2011 quarter. We continued to hold the line in compensation, our largest area of cost, and were helped by lower newsprint usage and prices.
Expenses also include start-up costs relating to some of the revenue initiatives we discussed, and the cost of implementing new advertising circulation and editorial assistance, all of which are in various stages of being rolled out at our newspapers.
These strategic initiatives are well worth the investment, as they will continue our ability to generate revenues and hold down future costs, while better serving our readers and advertisers, and in most cases we’re using Cloud technology to avoid capital expenditures.
Our continued athletic expense management enabled us to generate strong operating cash flow of $75.1 million in the quarter. As was the case throughout the recession, all of our papers remain profitable and all continue to publish daily, providing [inaudible] with needed news and information in whatever form they wish to receive it.
On the debt front, we were able to repurchase $35 million of publicly-traded bonds in the quarter, and $70.5 million to-date, bringing our debt balance to $1.564 billion at quarter-end. Our cash flow generation remains robust, and our nearest term debt maturity is in November, 2014, with only $66 million due. At 4.57 times cash flow, our leverage ratio at the end of the second quarter was essentially unchanged, despite the modest decline in EBITDA, and our interest coverage was 2.24.
We ended the quarter with $37.7 million in cash on hand that will be used to cover seasonal interest and tax payments in the third quarter.
Total interest expense decreased $14.1 million to 30.6 million [inaudible]. Now interest expense related to debt was down $3.0 million from the 2011 quarter, as we continued to pay down debt. Most of the remaining decline in interest expense was due to non-cash reversals of tax reserves. Our effective cash interest rate on debt is about 9.1%.
We used $6 million to fund capex in the quarter, with $3 million relating to the new production facility project in Miami, which by the way remains on track. We expect to spend approximately $40 million in capital in 2012, including that new facility. That figure reflects about $18 million for ongoing operations, and the remainder for the Miami building.
In April, we received $6 million from the purchaser of our Miami land to reimburse us for expenditures related to moving to that new facility. As we noted in the press release, there is good news on the [inaudible] as a result of new legislation on funding requirements. The new law values pension obligations using normalized long-term bond yields, rather than the unprecedented low rates we now see for long-term bonds. We believe this is a more rational approach to the valuation of pension obligations. Under the new calculation, our funding level went from about 77% under [inaudible], to an estimated 91% funded. Consequently, we believe the new law will reduce our required funding from our earlier estimate of about $78 million for 2013 and 2014 combined, to just $10 million in 2013 and $25 million in 2014, allowing us to focus more cash on debt repayment.
Looking forward, we continue to see a very choppy economic recovery that is affecting our advertising customers and therefore our visibility into our own advertising revenues. We continue to focus on our strong and growing set of product and revenue initiatives, especially in digital and direct marketing. We will carefully balance expense management with strategically investing in our products. We expect to continue to benefit from stability in newsprint pricing, recognizing that comparisons to 2011 get tougher in the third quarter, even in a soft newsprint pricing environment. On balance, we expect cash expenses to be down in the low single digit percentage range in the third quarter of 2012.
So, I’d like to thank you for your time this morning, and we’d be happy to take your questions.
Question-and-Answer Session
Operator
(Operator instructions). Your first question comes from Craig Huber –Huber Research. Your line is open.
Craig Huber –Huber Research
Yes, hi. First I have a housekeeping question. Can you give us the breakdown with the newsprint of average price percent change consumption in the supplements? I’d like the follow up about July please.
Elaine Lintecum
Sure, our usage was in the quarter was down about 8.4% and prices were down .04%.
Craig Huber –Huber Research
I’m talking about the supplement line that you guys (inaudible) in that line?
Elaine Lintecum
Sure, supplements were down 2.1%, and printing cost for outsource printing was up 5.7%, and if you put that all together you can see that the line item in total was down 5.4%.
Craig Huber –Huber Research
Okay then, also can you just comment a little bit further about what you’re seeing in July, how is that pacing for you? Is it in line with what June did, or what?
Patrick Talamantes
Yes, you know, every period we’re in the middle of the last week. We obviously have a sense of our results of the four weeks into it, but given the volatility we’ve seen, we really can’t be confident of the whole month. Or even if we knew July, that it would be representative of a full quarter. You know, as we said in our release, our revenue visibility is limited in part because of the shifting holidays and such, and part because of the choppy economy, that you know, we saw this morning GDP up only 1.1%. It’s not the kind of economy that lends itself to a lot of visibility. And we’ve got customers moving in and out, you know almost at will. So, at this point Craig, I’m not really in a position to talk about July.
Craig Huber –Huber Research
Last question if I could ask about cost/savings. How would you characterize it, or do you find it much more difficult to take cost out of the operation?
Patrick Talamantes
Well, in the second quarter we were down 2.9%, year-to-date we were down 3 ½%. We do expect to take cash expenses down to low two digit range in the third quarter. You know, part of what we’re seeing is that we’re rolling over some of the 2011 actions that we took in a more difficult revenue environment. We’re in the process of individual papers taking additional actions as are necessary to achieve, you know, their individual budgets. And when they go through that process, we work with them to try to maintain resources as much as possible in news, advertising and digital. But in some cases, you know, to your point, we might find that we’ll do less then we might like to do, because we want to maintain the quality of the operation. So for the expense reduction is really driven by revenue trends and we look at it on a case by case basis, and we just know that we’ve got to align our expenses with the revenue realities. But we also know that we’ve got to get more efficient over time, just given the transition from print to digital. And toward that end, we’ve got a number of initiatives going, so we’re centralizing our IT functions and taking advantage of cloud computing, and we think that we can get a lot of efficiencies out of that, but at the same time there’s an investment upfront of about a million dollars in the first six months. So, you know, I think what’s getting more difficult is making sure that we’re investing for the future at the same time that we’re trying to get more efficient in other areas. (inaudible) really more the balancing act that you’re alluding to.
Craig Huber –Huber Research
And lastly, if I could just ask a quick question on taxes. It looked like you adjusted tax rate (inaudible) onetime items in the front page of your press release was only about 7% tax rate, roughly a million dollars of tax versus $17 million pre-tax income. Why is the adjusted tax rate so low please?
Elaine Lintecum
Sure Craig, its Elaine. I would say that we did call out that we had a number of tax reserve reversals in the quarter, and we pulled those out of the tax adjustment. We also had some normal statutes of limitations that expired for some states that weren’t necessarily unusual items, but lowered our tax rate. I think when you back those things out, our effective tax rate on underlying operations was about 42.4%, and that’s kind of what’s reflected in the tax rate going and what you can expect in July going forward.
Craig Huber –Huber Research
Yes, because I backout that $7 million dollar tax that you had on the front page, it still came out about 7% tax rate. Any other onetime items adjusted for?
Elaine Lintecum
Again there were other tax statutes of limitations or expirations that backout, and when you back those out you get closer to a 42% tax rate, and still we had good strong earnings growth with that.
Craig Huber –Huber Research
Okay it’s those things, got you. Thank you.
Operator
Your next question comes from Scott Wipperman – Goldman Sachs. Your line is open.
Scott Wipperman – Goldman Sachs
Hi, thanks for taking the question, and thanks for all the commentary on the digital initiatives. I guess with the 4.9% growth, do you think that these initiatives can help sustain that growth we saw here for the remainder of the year? And then I have a followup.
Patrick Talamantes
Yes, Scott thanks for your question. I think on the digital side we’re trying to do everything we can to grow that number. What gets difficult with the total digital number of course is that you have bundled packages with print, and if print is down it makes it even more difficult to grow that number overall. A number of our more active initiatives, whether it’s an impressed local or a deal saver, they really end up working on, or focused on the digital only side of the revenue. So that’s where you really see those come out, and then the total digital falls out after that.
I would note that in terms of our performance on the total digital line that up 4.9% looks very, very good compared to what a number or other of our peers have been reporting so far.
Scott Wipperman – Goldman Sachs
Thanks, that’s helpful. And then Elaine, just on the (inaudible) the cash balance going forward. Should we be assuming that you’re going to keep a little higher balance then maybe we’re used to historically seeing just to collateralize the other 10 million LC’s that are not covered by the recent (revolver) change?
Elaine Lintecum
Thanks Scott. Actually there’s only about $8 ½ million dollars of other LC’s, and those are already taken care of. They’re collateralized with certificates of deposits and direct deposits that are included in our other assets, but are not included in that $37.7 million dollars. So the $37.7 million dollars is kind of net of those other things. It takes care of the other LC’s.
But in answer to your question, we probably will maintain cash balances, not just similar to what you’ve seen on average over the last several quarters. And the 20 to 25 million range in general depending upon the quarter. For instance, obviously we keep more cash on the balance sheet (inaudible) quarter because we’re preparing for seasonably high cash uses in the third quarter, and so you will also see a higher cash balances at the end of the fourth quarter. Again, preparing for seasonally high expenses that our debt service charges that are in the first quarter. So while we fluctuate, it will be generally speaking on average 20 to 25 million.
Scott Wipperman – Goldman Sachs
That’s great and very helpful. Thank you very much.
Elaine Lintecum
You’re welcome.
Operator
Your next question comes from Bishop Cheen – Wells Fargo. Your line is open.
Bishop Cheen – Wells Fargo
Hi everyone. Hey Pat, Hey Elaine.
Patrick Talamantes
Hey Bishop.
Bishop Cheen – Wells Fargo
Thank you for the uptake. So, let me just focus on two or three important things, because your view is very helpful. On your meter model, please correct me if I’m wrong, but this seems to be most fined or articulated model that I have heard from you to date. It’s different from the New York Times, different from (inaudible) and while I don’t have the granularity on it, you say it’s very variable in each market in change. How much the user gets to sample the content before they have to start paying? Is that correct?
Patrick Talamantes
While we won’t be responding to local market issues in each of our markets, overall the strategy is going to be the same across all of our markets. That part of it is really the same, but to the extent that we see (inaudible) one way or another in an individual market, we might bring the wall down at different levels of pages.
Bishop Cheen – Wells Fargo
And it’s driven the key metrics is the number of view. I mean it’s not a time that you can say, it’s a per-view metric, correct?
Patrick Talamantes
Yes, a page view metric in a 30 day cycle. Not a time metric.
Bishop Cheen – Wells Fargo
Okay, that’s what I wanted to know. So, I would just encourage you to share whatever you’re comfortable with, with each call or with each press release, because the more we get to understand the model, the more we get to understand the transition of the traditional newspaper business.
Patrick Talamantes
Exactly right, and we do plan to do that Bishop. We may have some more to say in the third quarter, although it will still be fairly early days, my guess will be that we’ll have a lot more to say at the media week conferences in December.
Bishop Cheen – Wells Fargo
Okay. Well McClatchy has been, let’s say, (lacking) for lack of a better word on New York Times and (inaudible) in terms of ramping up your digital. Looks like you’ve reached a nice slope lately. It’s still as a percentage of advertising, I think they have a 30 handle, you’ve got a 20 handle, 22 ½%, and so there’s a gap there but it looks like you’ve made significant progress from the last quarter?
Patrick Talamantes
I don’t know if that’s completely true or not, on the advertising side Bishop, where we’ve been focused. Perhaps they have (inaudible) revenues …
Bishop Cheen – Wells Fargo
I’ve kind of mixed apples and oranges that’s true. So I’ll go back and double check that as well.
Patrick Talamantes
And then, in both of those companies have other digital businesses that they consolidate, and you’d have to be careful to look at apples-to-apples. The digital revenues for our paper stacked up to those two companies, and if I’m not mistaken we’re #1 on that metric.
Bishop Cheen – Wells Fargo
Right. And they also have the advantage of having a huge flagship in their fleet with USA Today and the New York Times, where you have more individual market papers. Let’s just say the difference in tactical armament.
The other thing I was intrigued about, is the impressed local player. We get in and (inaudible) being an old time salesman, I know how much local advertisers like solutions, and this sounds very solutionee what with building the website. So Kansas City, which Americas fantastic for so many things, is where you’re figuring out, I think you said. Do you have any perceptions yet on how much more expense providing the full service solution, service to your advertising base. You know, how much more expense you might have to incur for that?
Patrick Talamantes
Keep in mind Bishop, we’re looking at a (inaudible) in Kansas City that does involve having additional sales people to make that work. We’re using the current sales (inaudible) to roll that out. We’re looking at a couple of different ways to find out what the right model it.
Mark, would you like to expand on Bishop’s question at all?
Mark Zieman
Well, I can tell you that your earlier comments about what local businesses are looking for are exactly right. They’re looking for somebody to come in, usually the top media company in the region, which is the newspaper and really help them out with a solution that sort of one-stop-shopper across the board. So the response to this, so far has been very positive indeed, and from their perspective and from their results. So, we’re excited about it, but as Pat just said, the correct model we’re still working through. We worked with Fort Worth to sort of tweak the package, and we’re working with Kansas City to tweak the right staffing model, and we’ll know a lot more probably by the next call.
Patrick Talamantes
So, Bishop I think you know, at McClatchy what we’re trying to do is to put in place a product development culture, such that we’re constantly bringing new things to market. We had deal saver last year about this time. We talked about it, we didn’t have a lot of metrics around it, it was very early days, and it turned out to be very successful. We’re in a similar stage with both impress local, as well as other digital initiatives, and so there might be a sense that there’s not as much detail in terms of our expectations as you might like to see, but it’s only because it’s fairly early days. We are excited about digital initiatives however.
Bishop Cheen – Wells Fargo
That’s okay, Warren Buffet is excited too, and he doesn’t have any granular statements either, so, don’t feel bad. But he has the power or the purse.
Okay two housekeeping questions. When do you think the Q will be made available?
Elaine Lintecum
We think in the first week of August.
Bishop Cheen – Wells Fargo
And then on the 35 million face, I think you brought back 75 million year-to-date. That is face value, right. That’s not what you spent to buy back the debt?
Elaine Lintecum
That’s correct, we generally brought the debt back at a discount. That discount is in the second
quarter, actually and in the first quarter as well.
Bishop Cheen – Wells Fargo
And if I remember correctly the Q will give me the granularity as to how much of that (inaudible) secured at 11 ½ and how much would the legacy McClatchy bonds.
Elaine Lintecum
That’s absolutely right, and in fact if you look at the first quarter, I think we sort of announce that already. So out of the 30 million that we purchased a good portion of it were the 2014 bonds and then also the unsecured 2017. So we didn’t buy any of the secured in the second quarter.
Bishop Cheen – Wells Fargo
Okay that is very helpful. Thank you for all the collar, I will pass it on.
Patrick Talamantes
Thank you Bishop.
Operator
Your next question comes from Avi Stiner from JP Morgan, your line is open.
Avi Steiner – JP Morgan
Thanks guys. Most of this has been covered. So, yes, Pat, any update on digital assets and [inaudible] follow up on any thoughts on what Tribune exits from bankers so it could mean for the newspaper space in general, and maybe to the ownership of some of your digital assets, and would that change possibly the ownership profile, or timing of distributions from any of those? Thanks.
Patrick J. Talamantes
Avi, you’re talking about our digital assets in terms of how they’re performing, or…
Avi Steiner – JP Morgan
Yes, the first part is just how they are performing, any update on the two big ones that we focus on, and go from there.
Patrick J. Talamantes
I would say that classified ventures and career builder continue to perform very well. Cars.com product that comes out of classified ventures is really what it has been able to allow us to grow our automotive revenue on the digital side so quickly. So, it continues to be a very valuable investment for us. [inaudible] likewise for us, has turned in extraordinary results in a difficult and challenging employment environment – I think you probably saw that on the [inaudible] call. So, we continue to be very pleased with those investments, and evaluations remain very strong for both, and so, we are very pleased that we own sizable investments in both of those companies. In terms of the Tribune bankruptcy and our ability to monetize either of them, I think it’s too early to say what impact that will have on our ability to monetize those assets – you know, for us, we certainly would want to do any transaction in a way that would [inaudible] our affiliations, or at least in return for reducing a portion of our ownership interest, but, you know, the timing as always is a very difficult to get a handle on – Tribune exiting from bankruptcy or not. So, at this point I don’t think I could speculate on how that might impact any monetization efforts that classify interest or curve builder.
Avi Steiner – JP Morgan
Thanks for the time guys.
Patrick J. Talamantes
Thank you, Avi.
Operator
Your next question comes from Sheldon Shing from CRC Capital Group, your line is open.
Sheldon Shing – CRC Capital Group
Thanks for taking the question. On the 35 million that was used to put with that pre-paid payment in the quarter, did you say that it was used with the ’14 maturity?
Elaine Lintecum
I said ’14 and unsecured ’17.
Sheldon Shing – CRC Capital Group
Okay, and how should we [inaudible] that pre-payment going forward especially as you have – you know, you will have more cash coming in with the new pension legislation?
Elaine Lintecum
Well, obviously we are going to be focused on buying back public funds because that’s the bulk of our – the ideas are outstanding debt. We can’t say exactly which securities we’ll buy, or about the timing of those repurchases would be – I mean, look at array of factors including, you know, what the new near term maturities are versus the best after tax return. We also look at the impact on our restricted payments basket in terms of buying the secured versus unsecured, and we also look at the level of the discounts from [inaudible] value, and of course we have other uses for cash. So, we balance all of that, and looking at it – so, we’re going to, you know, maximize our cash use as it relates to things [inaudible], and also using cash for what is best for the company in terms of making [inaudible].
Patrick J. Talamantes
So, what is great, as I piggy back on Elaine’s comments, is that we have been able to get the 2014 securities down to just $66 million, which is based on our current free cash flow run rate clearly is not an issue. So, we really have been in the position now to get a lot of run way, you know, up to 2017 – that gives us additional time to, you know, complete the transition to the digital side. So, from a – between the news on the pension side that you raised, as well as the reduction in the 2014 maturity, we are in really great shape. Now, that’s not to say that there aren’t challenges out there, and we will over time seek to work that 2017 tower down so that [inaudible] ominous as it otherwise might seem. But, we’ve got plenty of time to be able to work for that, and we will be opportunistic as we look at pulling that off.
Sheldon Shing – CRC Capital Group
Thank you, that’s helpful. And then can you remind us what your color [inaudible] capacity is, and also with the cash interest and cash taxes where in the quarter? Thanks.
Patrick J. Talamantes
The RP basket is $182 million.
Elaine Lintecum
And [inaudible] wasn’t cash interest and taxes in the 10Q when it comes down – I don’t have those numbers available, you can follow up with Ryan afterwards.
Sheldon Shing – CRC Capital Group
Okay, thank you.
Operator
Your next question comes from Amy Stepnowski from the Heartford Group, your line is open. Ms. Stepnowski, your line is open.
Patrick J. Talamantes
Thank you Debbie, Amy?
Operator
Your next question…
Patrick J. Talamantes
That’s too bad, Amy is such a nice person.
Operator
Your next question will come from Tim Daggett from Citigroup, your line is open
Tim Daggett – Citigroup
Thanks. Have you guys bought back any bonds yet in the third quarter?
Patrick J. Talamantes
Hey, Tim – we have not. Typically what is said at this point in the quarter, whether we bought back any or not, as you may recall, we have a window period that extends from close to the end of the previous quarter through to the earnings release, and so we wouldn’t really be in a position to buy any back until next week, and then typically we provide some disclosure [inaudible] to the extent that we think it gets material and/or wanted. So, at this point, you know, we don’t have any guidance for you.
Tim Daggett – Citigroup
Okay, and what’s the current finding status of your pension plan?
Patrick J. Talamantes
Well, as I mentioned before under [inaudible], at the end of 2011, under the old rules, it was 77%, but under the new rules that allow us to use longer term bond yields, it’s actually 91%.
Tim Daggett – Citigroup
Yes, but the dollar amount? What’s the dollar amount, do you know?
Patrick J. Talamantes
The dollar – the dollar amount under Arissa?
Unidentified Company Representative
I will have to get back to you with that number Tim, we don’t have it at our fingertips.
Patrick J. Talamantes
We have it, we just don’t have it here in the conference room. We have every other conceivable fact about the company here, but we don’t have that.
Tim Daggett – Citigroup
Okay, thanks.
Patrick J. Talamantes
Sorry.
Operator
Your next question comes from Muhammad Ahmed from B&M Capital, your line is open.
Muhammad Ahmed – B&M Capital
Hi, good morning, thank you. My questions have been answered.
Patrick J. Talamantes
Thank you.
Operator
(Operator Instructions). Your next question comes from Andrew Finklestein from Barclays, your line is open.
Andrew Finklestein – Barclays
Hey guys, thanks. Just one question for me, Pat, I was wondering if you could maybe talk about the month to month performance, it does seem like there is sort of a peak quarter around the key, you know, shopping seasons, or holidays – November, I think, was very strong, and last year with other month’s around it being weaker, and obviously you got – you know, not exactly, but similar seasonality year-over-year. I’m wondering if advertisers are sort of there for their newspaper spend, you know, around the key times [inaudible] aren’t using it as much on a sort of a regular, ongoing , week to week basis. I don’t know if you guys have talked to sales about that, if you can add any color.
Patrick J. Talamantes
Well, you know, I think the last time we say this was in 2010, we started to see some consolidation around the holiday, we didn’t see quite as much in the first three quarters of last year, and then you are absolutely right – in November of last year were down just 2.4%, and so it was very noticeable at that time, and then in the second quarter obviously there was a lot of focus on Mother’s Day, and in particular, I would say Memorial Day was stronger than what we would have anticipated going into it. You know, it’s hard it blame advertisers [inaudible] when you are in an economy that is only growing one – you really have to pick your spots because the advertising on a retail level any way might not be as effective as it would be in a more normal economic environment, and so it’s quite rational for them to focus on a little bit more on the big holidays than perhaps on other weeks. So, when you exasperate that with changes to the fiscal calendar, it really effects how the advertising results play out. It’s – you know, something that we’ve seen across the newspaper universe, all of the newspaper companies at lease with regional newspapers that have reported so far have seen the same thing. I think it’s something that we are going to have to [inaudible] live with for a while, or at least until we can cycle it, and grab the economic environment gets a little bit better.
Operator
Your next question comes from Michael Kass from Blue Mountain Capital. Your line is open.
Michael Kass – Blue Mountain Capital
Hi. Thanks for taking my question. With regards to the decline in the pension liability that you guys are getting as a result of legislation, is that going to impact your GAAP balance sheet going forward as well? I was just – I mean, by my math, that looks like a reduction of like $300 million in your pension liability and I’m just wondering if we should expect in the Q for there to be some revision to what’s in your balance sheet?
Patrick Talamantes
Yeah, the politicians have stayed away from legislating GAAP. Probably in most cases it’s a good thing, here I wouldn’t have minded it so much. But no, Michael, it doesn’t impact our GAAP reported number. So overtime, you’ll see a bigger variance between an arithic calculation which is more of a smooth calculation to begin with and then on to of it has this additional long-term bond yield mechanic in the GAAP number which is based more on the discount rate that exists as of the date, you know, literally it gets remeasured at the end of the year so it’s that discount rate at the end of the year that determines it for another 12 months.
Michael Kass – Blue Mountain Capital
Got it. That’s really helpful. Does the decrease in the funding obligation, does it change your – does the legislation make it more or less likely that you will fund that liability going forward as you have in the past couple of quarters through the sale and whatnot?
Patrick Talamantes
I don’t know that it makes – I don’t think it makes up more likely to pre-fund it. I think what it does is it gives us more ability to make smart decisions, more flexibility. But you know, we’re laser focused on getting our debt down and that’s really what we’re most focused on.
Michael Kass – Blue Mountain Capital
And then just along those lines, is there some point or at what point do you – are you able to diversify your capital allocation away from debt reduction? I mean, put differently, what do you think is an acceptable level of leverage for your business?
Patrick Talamantes
Yeah, you know, it’s hard to say until the economic scenario that we’re in starts getting a little bit better. Clearly the answer is lower. We would like to get our leverage ratio much lower. I don’t think we’ve got a specific target in mind. But having said that, just as we’ve made strategic investments on the cost side to help grow our revenue, we’re also looking to make small strategic investments to also help grow our top line. So for example, in 2011, you saw that with our investment in Shopko, that’s a partnership with our industry peers to help build an industry-wide platform that’s pretty much based on our find-and-save solution on our websites. So we’ll do small investments that are strategic to our operating business and that will continue. But again, vastly outweighed by debt reduction.
Michael Kass – Blue Mountain Capital
Okay, thanks a lot.
Operator
Your next question comes from Dan Charleston from Global Credit. Your line is open.
Dan Charleston – Global Credit
Thank you. Just a point of clarification on the CapEx number for the quarter. I think I heard you say 6 million, which included 3 million of project. I just want to get clarification there. And then secondly, on Florida, I think you said something, it was growing for the first time in a while, yet in the 8K I do see that the print side it was down remarkably as you did have a little pickup in digital. Maybe just give us some color around what you’re seeing in Florida. Thanks.
Patrick Talamantes
Yeah, first on the CapEx, the CapEx was $6 million in the quarter and you’re absolutely right, the amount going to the new production facility project in Miami was $3.0 million. So you absolutely have those numbers right. In terms of Florida, I would say that what we’re seeing there, the reference in our prepared remarks at the outset was based on Florida growing on the combined basis, print and digital, up 0.2% and that’s the first time any McClatchy region, any McClatchy region has grown since 2006 over a specific quarter.
The improvement in Florida really reflects an improving economic environment across the board. They are leading our company or are among the leaders in our company in a variety of categories, which really just gets back to the turnaround, I think, in the real estate environment there. They’ve had a nice injection of funds coming in to soak up some of the excess real estate there and absolutely help stabilize the area. So Mark is – Mark is now closer to it than I am having turned it over to Mark in the middle of the quarter. That’s probably the smartest thing that we did because it took off like a rocket right after I did that. So Mark, is there anything else that you’d like to add on Florida?
Mark Zieman
I think that part was a coincidence, but the truth is that we’re seeing improvement in nearly every part of our business there from retail advertising to local auto and real estate. It was also nice that the Miami Heat won the NBA Championship, but really, we’re seeing improvement across the board and it’s also driven in part by our resurge in tourism industry with hotel occupancies and rates better than we had projected and that’s good for restaurants and stores and everybody else. So it’s a promising trend, obviously, that we hope continues.
Dan Charleston – Global Credit
Okay, thank you.
Operator
I have no further questions in queue. I’ll turn the conference back over to the presenters for closing remarks.
Patrick Talamantes
Great. Well, thanks, everybody for bearing with us on a rather long call. We hope you have a great weekend.
Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.
THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.
If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!