Gannett (GCI) faces $3 billion write down

The newspaper business had been bad and getting worse. Ad revenue at some large chains with properties in the hard-hit economies of Florida and California are seeing their classified businesses drop by over 30% compared with last year. A number of newspaper chain stocks are down well over 50% since the middle of 2007.

The largest newspaper company in the U.S., Gannett (NYSE: GCI), is getting ready to take a $3 billion, non-cash charge to write-down the value of its assets. The charge will cover almost 20% of the firm's total assets. According to The Wall Street Journal, "The publisher of USA Today and more than 80 other daily papers, Gannett is the latest newspaper company to take an impairment charge reflecting difficult industry conditions."

Of all U.S. newspaper companies, Gannett is the most likely to weather the current storm, unless it never ends. The firm's long-term debt is $4 billion, which is modest for a company its size. Gannett's revenue last year was $7.5 billion.

Other companies in the industry may not be so lucky. Some, like McClatchy (NYSE: MNI) and Gatehouse (NYSE: GHS) have taken on substantial debt loads to buy other newspaper companies. They may not have the operating income to cover debt service.

That means a lot of newspapers could be auctioned off later this year.

Douglas A. McIntyre is an editor at 247wallst.com and author of the Ten Stocks Under $10 letter.