September 24, 2023

Keeping Media and Government Accountable.

McClatchy seeks IRS waiver to reduce pension payments

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McClatchy, the newspaper conglomerate that owns the Kansas City Star and the Wichita Eagle, posted a devastating second-quarter earnings report on Aug. 8. The company lost $17.5 million last quarter, has less than $20 million in cash-on-hand, and is requesting an IRS waiver that would allow it to delay payments to its pension fund.

“They’re burning the furniture for firewood,” said David Kensinger, a former campaign manager for former Kansas Gov. Sam Brownback and Sen. Pat Roberts.

The parent company of the largest daily paper in Kansas is putting a positive spin on its earnings, noting in a news article that “McClatchy reports growth in digital subscriptions” and “reduced second-quarter earnings loss.”

McClatchy did lose less money this quarter than it did in the first quarter. In May, the newspaper chain reported losing $42 million, or $5.34 per share, compared to its $17.5 million loss, or $2.62 per share.

McClatchy sold the Star Press Pavilion for less than $42 million. It now leases back the building it constructed for $200 million in 2006.

The second-quarter financial statement includes the sale and leaseback of the Kansas City Star Press Pavilion as well as the sale of a distribution center in Miami, which netted after-tax proceeds of $32 million. It used the proceeds to redeem secured notes due in 2026.

In a press release, the company touted its operating expenses are down 14.6 percent and it grew digital-only subscribers by 51.6 percent to 185,500 subscribers over the second quarter of last year. That didn’t, however, translate into increased revenues. McClatchy lost $359 million during the first six months of 2019. Advertising revenues dipped by $170 million, and digital-only revenue was down 13.2 percent compared to the first half of 2018. 

The release suggests that a slower news cycle in 2019, changes to its algorithms, and paywall tightening were to blame for the losses.

McClatchy’s earnings report reveals the company is seeking an IRS waiver to lower required contributions of approximately $120 million to its employee pension plan in 2020. The request says making the payment on time would have a “material adverse effect” on the company’s finances. There is no guarantee that the IRS will grant the waiver.

“It’s all over but the shouting,” Kensinger said.

When then-Gov. Sam Brownback proposed a similar cost-saving scheme to delay payments to Kansas’s pension system, the Star’s editorial board proclaimed the state’s situation dire.

In a Feb. 9, 2016 editorial, the board warned that Brownback’s proposal amounted to the state not paying its “fair share.” They called it a “desperate bid to balance the out-of-whack Kansas budget” and wrote that it was “sending a chill” through state employees.

“Brownback and the Republican-controlled Legislature are recklessly looking for any cash they can find,” the editorial reads.

The paper reported that refinancing pension obligation bonds involves considerable risk, because “a government might not earn a sufficient rate of return on its investments to pay off the bonds, exacerbating its financial woes.” 

No word yet on how chilled the Star’s editorial board is today about a similar plan to balance McClatchy’s debt-laden budget.

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