Goodwill is the je ne sais quoi of the value of something you buy. It doesn't exist as something you can touch and feel. It's an abstract thing such as reputation or brand to which companies assign a dollar value when they make a play for your assets.
At least once a year, accounting rules set by the Financial Accounting Standards Board call for companies to "test" their goodwill and intangible assets for signs of "impairment." FASB requires this test of goodwill and intangibles to determine whether they are holding up or, to put it in FASB parlance, "reflect the underlying economics of those assets."
When newspaper companies went hunting for goodwill at the end of the second quarter, they found huge chunks of it had evaporated into thin air. In other words, there was significant "impairment" in the value of properties acquired earlier.
With the click of a calculator,
- Tribune eliminated $3.8 billion in goodwill in the second quarter related to the purchase of the Times Mirror newspapers, including the LA Times, Baltimore Sun, Hartford Courant and others, for which Tribune overpaid. That's on top of $130 million in goodwill Tribune eliminated in 2007.
- Gannett is expected to write off between $2.6 billion and $2.7 billion of goodwill in the second quarter. In 2007, it eliminated $130 million in goodwill from its financial statements.
- McClatchy last year wrote down $1.37 billion in goodwill related to its buyout of Knight Ridder newspapers, which includes the Miami Herald. At the end of 2007, McClatchy only had $1 billion left in goodwill.
Now, this is not cash money. Heavens forbid. It's a paper loss. But the write down of goodwill is still very significant. It basically means your stuff isn't worth what you thought it was when you plunked down good money ($8 billion in the case of Tribune) to buy some properties or assets.
It's like acknowledging that the wonderful 3 bedroom, 2 bath house you just had to have and paid $150,000 for two years ago is now worth $50,000 -- if that. If you put the house on the market today, you would have to eat $100,ooo of goodwill. And so it is with newspapers.
Nobody would pay $8 billion for Tribune today, and especially not Sam Zell. I'd venture to say he probably has a voodoo doll of Dennis FitzSimons somewhere in his office in Tribune Tower. Zell and others had no choice but to write down the assets.
Newspaper stocks have tanked, and that's a sign of the value of a company. Tribune is not a public company anymore. But McClatchy, for example, is trading at $4.19 a share on very low volume (350,433). Most other newspaper stocks are in the toilet as well.
That's goodwill for you. Here one moment, flushed the next.