McClatchy takes $1.47 billion write-down

The McClatchy Co. announced another big write-down of its assets Thursday, this one totaling nearly $1.5 billion, a sign of a difficult business climate and the drop in McClatchy's stock price.

The $1.47 billion post-tax write-down was an accounting charge and won't actually cost Sacramento-based McClatchy any cash. But it's a reflection of the state of the newspaper industry and the troubles McClatchy has encountered since buying fellow publisher Knight Ridder Inc. in 2006.

Although The Bee's owner said it remains optimistic about its long-term future, the write-down signals a diminished value of the company's assets, especially the 20 papers acquired in the Knight Ridder deal.

The entire industry is suffering because of the real estate slump, a weakening economy and the migration of advertising and circulation to the Internet. McClatchy is particularly vulnerable because it gets one-third of its revenue from California and Florida, where the housing market is especially soft.

The write-down "reflects the downturn in advertising that has hit us, particularly in California and Florida," said McClatchy Treasurer Elaine Lintecum.

McClatchy absorbed a $1.37 billion non-cash write-down in November, mainly because of worsening business conditions.

The latest write-down became necessary almost entirely because of the decline in McClatchy's stock price.

Since the end of the third quarter of 2007, McClatchy shares have fallen roughly in half, and under accounting rules the company had to take another write-down.

The stock closed Thursday at $9.84, down 28 cents, on the New York Stock Exchange.

The write-down also reflects a dip in the market value of McClatchy's publicly traded bonds, plus the economy's "recessionary outlook," Chairman and Chief Executive Gary Pruitt said in a press release.

McClatchy reported fourth-quarter profits of $30.1 million, or 37 cents a share, in early February but said those numbers would change once it calculated the write-down. The write-down leaves the company with a $1.43 billion loss for the quarter, or $17.42 a share.

"It's important to understand that this non-cash charge does not reflect our view of the long-term health of the newspaper industry or the value of McClatchy," Pruitt said.

On Wednesday, McClatchy reported a 14.4 percent drop in sales for January and said it expects the rest of the first quarter to be about as bad. Revenue from California and Florida operations dropped more than 20 percent.

In a Securities and Exchange Commission filing Thursday, McClatchy said the biggest drops in revenue last year occurred at its two largest papers, The Bee and the Miami Herald. The Bee's 2007 revenue fell by 17 percent, to $211 million.

The Herald's revenue, including its Spanish-language edition El Nuevo Herald, dropped 15 percent to $297.4 million. Revenue fell at all but two McClatchy papers.

Pruitt said McClatchy still produces "strong cash flows and (is) quickly moving to become a successful hybrid print and online news company."

One of the company's major investors said he continues to have faith in McClatchy but that the current environment is troubling.

"I still own shares; I haven't sold mine," said Thomas Russo of Gardner Russo & Gardner, a Pennsylvania investment firm that owns 8.3 percent of the "public" shares, the class of stock not held by the McClatchy family.

Russo said Thursday's write-down, like the earlier one, reflects a diminishment of "goodwill," an accounting term that refers to the sum McClatchy paid for Knight Ridder in excess of the basic carrying costs of the Knight Ridder properties.

McClatchy paid $4 billion, plus $2 billion in debt assumption, for Knight Ridder.

Russo said much will depend on how well McClatchy's revenues recover when the real estate market bounces back, and how well McClatchy can adapt to the Internet age.

For instance, he's encouraged by a fledgling alliance with Yahoo that should drive more readers to McClatchy's Web sites.

"Newspapers have survived advertising downturns before, and they'll survive this one," he said.

About the writer:

• Call The Bee's Dale Kasler, (916) 321-1066.