We’re inky wretches here at footnoted, and so we pay pretty close attention to what’s going on in the news business — it hasn’t been pretty. David Carr, over at The New York Times, is one of the industry’s best chroniclers.
So when he tossed off some scary numbers about the pension plans at fading newspaper giants Gannett (GCI) and McClatchy (MNI), we got curious. It turns out that there’s a lot more going on beneath the surface.
Here are the numbers, from Carr’s column:
“The global pension plan at Gannett, which owns 82 daily papers, is underfunded by $942 million, and McClatchy, which owns 30 dailies, is short $383 million…”
The numbers, and some commentary around them, are attributed to Mike Simonton, from Fitch Ratings, the bond-rating company. They’re big numbers, and we know they shook at least a few Gannett journalists (and probably some McClatchy scribes as well).
They should be sobering, but maybe not quite as scary (on their own, anyway) as they seem at first glance. At the same time, some of the context around those numbers can be pretty sobering as well.
First, let’s put the big bucks in perspective: Gannett’s pensions were $942 million in the hole toward the end of December — but they also have $2.4 billion in assets. So the pensions were about 72% funded; in other words, they have about 72 cents on the dollar of what they would need to pay every pension check for every current and retired employee from now until they all go off to the great newsroom in the sky.
That’s not great, but there are plenty of worse companies out there. Moreover, a significant chunk of that underfunding isn’t what it seems.
Nearly $216 million of that gap in funding — or almost a quarter of it — comes from what Gannett’s 10-K calls the “Gannett Supplemental Retirement Plan (SERP)”. The SERP is open only to select, highly paid employees; it’s what amounts to an executive pension, and it’s completely, 100% unfunded — by choice, because there are substantial tax costs for funding it. (Gannett’s latest proxy filing suggests that at least $9.3 million of that is for just two executives: CEO Gracia C. Martore and Robert J. Dickey, president of its U.S. community publishing division. Former CEO Craig Dubow left the company with a $12.3 million pension last fall, as we footnoted at the time.)
Other elements of the gap can be attributed to the company’s U.K. pension arrangements, which operate under different rules than U.S. pensions, and even a vague “frozen plan for the company’s Board of Directors” (which is probably also unfunded, though presumably smaller than the executive plan). If you look at just the main Gannett U.S. pension plan, it was short about $560 million in December. That makes the plan about 76% funded. Still not great, but a gap of $560 million is a whole lot less scary than one of $942 million, at least for the company’s employees.
There are some other curiosities in Gannett’s retirement plans. For example, the company has made millions of dollars on its retiree health-care program in recent years, at least on paper: $7.4 million over the last two years, in fact. These gains are an accounting artifact, not cash, but they still show up in Gannett’s bottom line, which can use all the help it can get.
McClatchy’s filings offer less clarity on its pension shortfall. As far as we can tell, McClatchy doesn’t break out its executive pensions from its plans for the rank-and-file.
That means it’s impossible to suss out just how much of the company’s pension shortfall belongs to an unfunded executive plan, and how much belongs to an underfunded plan for inky wretches and other ordinary working stiffs. Still, we know there are sizable executive pensions, because McClatchy’s latest proxy filing shows Chairman and CEO Gary B. Pruitt with one worth more than $11.1 million.
Carr does note the $522-million shortfall in the regular pension at his own New York Times (NYT), putting the plan roughly on par with Gannett’s, at 74% funded. On top of that, though, the Times has another $277 million in executive pensions — bigger than Gannett’s $216 million.
Although both companies break out the executive pension obligation, the NYT does so a little more clearly. In fact, the Times does such a great job of showing the relative impact of its regular pensions that it’s a cinch to see that the rank-and-file plan has cost the company’s bottom line $21.6 million over three years (again, on paper), while the executive plans have cost nearly three times that amount, or $62.8 million, over the same period. As with Gannett, the Times’ retiree health plans have benefited the bottom line lately, by some $9.3 million over the last three years.
Carr’s column wasn’t fundamentally about pensions — the funding gap figures were used to illustrate a valid point: Bondholders and other lenders aren’t inclined to double down on and industry that is already in trouble, and that, in Carr’s words, “looks a lot like, well, steel, autos and textiles.” And this look at the interplay between regular and executive pensions, and how they affect the bottom line, runs far afield of that point. It’s meant to add some context and perspective about where that funding gap comes from, and how onerous the company’s various retirement plans really are. But we don’t disagree with Carr for a minute that the industry is in a world of hurt.
Still, with a shrinking market, vigorous new competitors and $1.76 billion in long-term debt over and above the roughly $1.1 billion in pension and retiree-health obligations on its balance-sheet — a good chunk of which is owed to the top brass — Gannet has a lot more to worry about than its pensions. Ditto McClatchy.
Image source: Various newspapers via Shutterstock.com
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