McClatchy Balance Sheet in Shambles

Sacramento Bee publisher cash reserves dwindling quickly; more problems ahead

As reported Friday, the stock price of Sacramento-based McClatchy Co (MNI), publisher of the Sacramento Bee has plummeted to a 52-week low. As of the close of Friday, MNI closed at 81¢.

With declining circulation in general coupled with declining advertising brought on by the recession as well as the fundamental changes in how news is consumed, newspapers problems are well documented.

While MNI certainly is experiencing these problems, their problems stem more from the ill-advised purchase of the Knight Ridder two years ago for $6.5 billion. In taking on Knight Ridder, MNI now carries over $2.1 billion in long term debt.

A review of MNI's balance sheet reveals something more startling - as of September, 2008 they have only $4.9 million of cash on hand. Given the current credit crisis, worldwide recession and deterioration of advertising and circulation revenue, we would not be surprised to see a Chapter 11 bankruptcy filing for MNI sometime during 2009.

One thing we find quite surprising is that despite declining revenues, downgrading of their debt and the penny-stock status of their stock, which puts it at risk of being de-listed from the NYSE, MNI still plans on paying a 9¢ per share dividend this Friday. On an annualized rate, that represents an almost 45% return based on the current stock price.

While we certainly can sympathize with our brethren who work at MNI, one has to wonder what the priorities of executive management are at MNI with this exorbitant dividend being paid. With practices like this, it is no wonder MNI finds itself on the verge.