Archive for April, 2009

Reading between the numbers

Friday, April 24th, 2009

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.