On Monday, Nov. 5, the latest six-month newspaper circulation results were released showing The Seattle Times bucking the industry's seemingly inexorable downward slide, with a 1.2 percent circulation increase over the same period last year. Times Circulation Director Alan Fisco dashed off a memo to the paper's staff praising the increase as "a magnificent achievement."
Indeed it was. But while Fisco and the Times folk were celebrating the good news in Seattle, The McClatchy Co., which owns 49.5 percent of the Seattle Times Co., was putting the final touches down in Sacramento on second-quarter financial results. Those figures offer a grim snapshot of how things are faring at the state's largest daily and the newspaper industry in general.
McClatchy disclosed on Thursday, Nov. 8, that it wrote off $1.52 billion of the worth of 31 newspapers and other holdings. Buried deep in a quarterly filing to the Securities and Exchange Commission was further news that the writedown included a drop of $69.1 million in valuation of McClatchy's stake in the Seattle Times Co. The Times, which is not publicly held, does not report finances to the SEC, so McClatchy's publicly stated value of its holding is the only data anyone outside the companies has to gauge the worth and vitality of the Seattle newspaper and its siblings. (Besides the flagship paper in Seattle, the Seattle Times Co. owns newspapers in Yakima and Walla Walla, Wash.; three daily newspapers in Maine; and several weekly publications here and there.)
Put another way, since McClatchy acquired its Times stake through purchase of Knight Ridder last year, the value of the Times asset, in the eyes of McClatchy, is a stomach-churning 81 percent less than reported to the SEC at the beginning of the year. What McClatchy stated was worth $102.2 million then is thought to be worth a mere $19.0 million now. And as McClatchy noted in this latest SEC filing, it now sees the loss in value of the Seattle Times Co. as "other than temporary."
... Due to continuing challenging business conditions, management determined that a loss in value of its investments in STC [Seattle Times Co.] and Ponderay [Newsprint Company], which are other than temporary declines, should be recognized. As a result, the Company recorded a write down of $69.1 million and $6.0 million to reduce its investment in STC and Ponderay, respectively, to their fair value as of September 30, 2007. No write downs were required for the Company's other investments in unconsolidated subsidiaries and joint ventures.
McClatchy Treasurer Elaine Lintecum declined to offer any additional information about the company's plans for its Times holding, other than to declare that the writedown "doesn't change the investment at all."
Lintecum referred to a statement released yesterday by McClatchy's Chairman and Chief Executive Officer Gary Pruitt in which he noted that newspaper revenues have declined across the industry and his company's $4 billion acquisition of Knight Ridder last year will ultimately be seen as a good business move.
Pruitt's statement didn't mention The Seattle Times, and Times spokeswoman Jill Mackie declined to fill in the blanks. "This is an action taken by McClatchy," she said. "McClatchy's announcement is in no way a reflection on the operations of the Times. It is unrelated to our internal accounting." She insisted the value of McClatchy's Times Co. stake and the 50.5 percent majority share held by the Seattle-based Blethen family are only "tangentially related." True, a non-controlling stake is worth far less than a controlling stake, even if the portions are relatively even at 49.5 percent and 50.5 percent.
But the declaration by McClatchy that its nearly half share of the Seattle Times Co. is worth a mere $19.0 million will probably not generate quite the joy that Circulation Director Fisco's memo was intended to produce among Times staffers. Mackie said the Times has no plans for "across-the-board layoffs" and added, "no operational changes are anticipated that are in any way related to McClatchy's writedown." Rumors of cutbacks have been circulating lately at the paper, according to Liz Brown, administrative officer for the Pacific Northwest Newspaper Guild, which represents 249 Times employees. Brown said that if the newspaper does decide to trim its staff, the union must receive four weeks notice. "That hasn't happened," she said.
Two years ago, during a long-running scrap with the Seattle Post-Intelligencer over the future of their joint operating agreement, the Times cut its employee rolls by about 100 positions after Publisher Frank Blethen said the paper was losing money. At the time, Blethen warned that the Times was in such financial straits it might have to be sold. Since settling with the P-I in August, at a cost to the Times Co. of about $24 million, the Times management has become far less talkative about internal finances. "Generally speaking," Mackie said when asked by Crosscut about the Times's current financial health, "it's not our habit to talk about these things."