Reading between the numbers
McClatchy Newspapers, owner and gutter (as in that which guts) of the News & Observer, filed its first quarter financial results Thursday, and the news was even worse than expected. But here are a few nuggets of information you had to dig for, and because most people don’t — what with lives and real jobs and all — I did the digging for them. (All information below was harvested from documents filed by McClatchy with the Securities and Exchange Commission.)
At the end of every day, McClatchy falls a little further behind. The amount of money the company lost on its operations during the quarter (after backing out numerous one-time charges) was $22.9 million — or $254,000 every day during a 90-day quarter. Interest on McClatchy’s $2 billion debt for the quarter was $33.9 million — or $377,000 a day. At the end of 2008, McClatchy had $5 million cash in hand. Needless to say, that’s a discouraging cluster of numbers.
McClatchy is now closer to default on its debt agreement than it was three months ago. Under the terms of its agreement, McClatchy has to maintain a 7-to-1 “leverage ratio” — meaning its debt can’t be more than seven times higher than its cash flow. At the end of 2008, that ratio stood at 5.1-to-1. It is now 5.9-to-1, a huge jump in the wrong direction. There are only three ways to reduce that ratio: Pay down the principal on that $2 billion debt (with what?), somehow increase revenue during the worst recession in a generation (not gonna happen), or cut costs (the only viable choice). In short, McClatchy can keep the ship afloat only by continuing to throw people overboard.
A “retired” debt isn’t always actually retired. In its earnings announcement yesterday, McClatchy included this sentence:
The company noted that on April 15, 2009, it retired $31 million of unsecured notes which had matured.
Sounds like some of the debt was paid down, right? Sure — until you consider this passage from McClatchy’s most recent annual filing with the SEC:
The Company has $31.0 million of public notes maturing in April 2009 which are expected to be refinanced on a long-term basis by drawing on the Company’s revolving credit facility and accordingly, were included in long-term debt as of December 28, 2008.
This is like taking out a second mortgage on your home to “retire” your first mortgage. That debt hasn’t been paid. It’s just been moved to a new spot on the balance sheet.
April 24th, 2009 at 12:42 pm
You are incorrect in your assumption of the retiring of debt.
It would be a criminal statement to claim to have paid off debt but to have actually paid it off with more debt.
You cannot take what they say 3+ months ago and assume they followed through with what they were thinking at the time.
April 24th, 2009 at 1:09 pm
Bob: Two things in response. (1) McClatchy didn’t say it had paid off the debt. It said it had “retired the unsecured notes,” which is technically true: The bondholders were paid in full and the bonds were retired. It’s just that the company used money from its bank credit line to do so … which of course has to be paid back. There’s nothing criminal here, because McClatchy plainly said it intended to do exactly this. (2) McClatchy’s annual report to the SEC wasn’t filed three-plus months ago. In fact, it was filed only last month.
April 24th, 2009 at 4:10 pm
guh!
this is why you are my business journalism sensei. why aren’t YOU teaching at UNC? seriously.