Press: Hearstiana

To the attention of the Securities & Exchange Commission in Washington last week came two of the most remarkable registration statements ever filed. Having reshuffled the major provinces of his tangled empire, William Randolph Hearst proposed to borrow $35,500,000 from the public—$13,000,000 for Hearst Magazines Inc., $22,500,000 for Hearst Publications, Inc., which included two radio stations, nine dailies and the Sunday-supplement American Weekly. By no means did Mr. Hearst tell all. Although the registrations took in the entire string of Hearst magazines they covered only one-third of the Hearst newspapers, included nothing on such Hearst interests as King Features, Hearst Metrotone News, Cosmopolitan Productions (cinema). But revealed in some 250 pages of text and tabulations was many a Hearst publishing secret, many a Hearst business oddity.

The Magazines. Supposedly the Hearst enterprises are being put through a stiff course of corporate simplification. When the proposed financing is completed all Hearst magazines will be lumped in one package, Hearst Magazines Inc. What may look like simplicity to Mr. Hearst and his chief legal lieutenant, John Francis Neylan, would still look complex to the layman. But in the case of Hearst Magazines one thing is crystal clear: Mr. Hearst needs cash.

From the proceeds of its bond issue Hearst Magazines will add about $1,000,000 to working capital. Another $1,000,000 will be used to refund an old debenture issue. The disposition of the rest is a complete lesson in Hearst finance. First comes the payment of bank loans amounting to $1,900,000. To get these bank loans Hearst Magazines had to have them guaranteed by its parent company, Hearst Corp., by its grandparent company, American Newspapers, Inc., and personally by William Randolph Hearst. Mr. Hearst’s name is also on a $2,000,000 printing bill due Cuneo Press, Inc. This bill will also be paid from the proceeds of the new issue.

Another $3,000,000 is needed to pay off short-term notes sold to Halsey, Stuart & Co. last month. Two-thirds of this money was borrowed not for the use of the borrower. Hearst Magazines, but to re-lend upstream to American Newspapers. Inc. The rest of the money borrowed from Halsey, Stuart was applied as a down payment on a Manhattan building owned by Hearst’s New York Evening Journal—but leased by Hearst Magazines. Full price for the building is $3,253,000, which is $500,000 more than the appraised value. This inflated price is justified on the ground that Hearst Magazines will thus be relieved of a burdensome lease. One of the things that make the lease burdensome is that Hearst Magazines has been paying rent not only for space it occupied itself but for space used by the Journal. Moreover, the lease is pledged under a Journal bond issue, now outstanding in the amount of $2,000,000 and personally guaranteed by William Randolph Hearst. Since this bond issue will be retired as soon as Hearst Magazines buys the building, Mr. Hearst will be relieved of another contingent liability.

Revealed was the proposed sale of National Magazine Co., Ltd. to Hearst Magazines. Now owned indirectly by Mr. Hearst, National Magazine publishes British editions of Good Housekeeping and Harper’s Bazaar in addition to Nash’s Pall Mall and the Connoisseur. It also runs the Good Housekeeping restaurant in London. But National Magazine’s principal asset is St. Donat’s Castle in Wales, the historical 135-room show place bought by Mr. Hearst in 1925, sight unseen. The price was about $120,000. Completely rehabilitated, packed with antiques, rated one of the finest castles in Europe, it is Mr. Hearst’s British estate. According to the registration statement, however, St. Donat’s is used “from time to time to promote goodwill for the publications of the National Magazine Co., Ltd., though its commercial value to that company is probably small and substantially less than the book value.” Upkeep of St. Donat’s Castle is treated as an operating expense in National Magazine’s accounts, the figure last year having been more than $40,000.

St. Donat’s Castle bulks even larger in National Magazine’s balance sheet. The land and building are carried at about $1,300,000, while furnishing and “livestock as valued by manager” foot up to nearly $100,000 more. Since National Magazine is a consistent money-loser with an accumulated deficit of some $750,000, Mr. Hearst is, in effect, simply selling his estate to Hearst Magazines. In the indenture of the proposed bond issue is a stipulation that while St. Donat’s Castle may be kept in repair for Mr. Hearst, neither the issuer nor any subsidiary may “expend any money for restoration or alterations of this property.”

Other Hearstiana revealed by the registrations include the fact that most of the company’s insurance is placed through an agency 40% owned by William Randolph Hearst; that among the assets of Hearst magazines is a Manhattan apartment building at the corner of Park Avenue and 58th Street; that the highest-paid Hearst authors are A. J. Cronin ($41,500), Temple Bailey, Lloyd C. Douglas and S. S. Van Dine ($35,000 each).

With 2,000,000 circulation and an operating profit last year of $3,800,000, Good Housekeeping (U. S.) is the backbone of Hearst Magazines. Cosmopolitan (circulation: 1,800,000) last year turned in an operating profit of $528,000. The profit on Harper’s Bazaar (circulation: 180,000) was $321,000. Motor and Motor Boating each make a little money but four of Hearst’s U. S. string are consistent losers —American Druggist, American Architect & Architecture, Town & Country, House Beautiful. After deducting interest, overhead, taxes and $377,000 losses on its extensive real-estate business, Hearst magazines last year reported a net income of $2,371,000.

The Newspapers. In 1930 in his first major move toward taking the public in on his ventures, Mr. Hearst lumped ten of his more profitable newspapers and the American Weekly in a corporate package called Hearst Consolidated Publications, Inc. He then wrote these properties’ goodwill at $75,000,000 and over five years sold $50,000,000 worth of a participating preferred stock.

The latest move in the simplification program is to lump the same Hearst Consolidated properties, with one exception—the profitable New York Evening Journal—in a wholly-owned subsidiary called Hearst Publications, Inc., which now proposes to offer $22,500,000 worth of bonds to the public. Nearly all the proceeds will be used to pay off bank loans and refund old bond issues, many carrying William Randolph Hearst’s personal guarantee.

As interesting as the intricate paths of Hearst finance were the tabulations on the state of typical Hearstpapers.* Six of the nine dailies now included in Hearst publications, Inc. made less money last year than ten years ago, the exceptions being the Oakland Post-Enquirer, Los Angeles Evening Herald & Express and the Detroit Times. Four made less money last year than five years ago in the deep of Depression, and six showed circulation losses since 1932. Most conspicuous loser was the Seattle Post-Intelligencer, which has shown operating losses every year since 1929. Definitely on the down grade is the Chicago Evening American, which used to be one of the big Hearst moneymakers. However, 1936 was the best year in history for the American Weekly, in both circulation (5,700,000) and operating profits ($2,999,000).

Newspaper operating profits are figured before interest, taxes and various other charges. Last year after all charges Hearst Publications as a whole earned only $2,372,000, a slight gain over the year before but under the figure for 1934. Not the least startling item in Hearst Publications, Inc.’s accounting is the principal tangible asset—$37,000,000 due from its parent company, Hearst Consolidated Publications. A footnote explains that most of that item once represented money due from another Hearst company. When Hearst Consolidated was formed in 1930, it assumed the debt in part payment for stock in Hearst Publications. Thus, in effect, the subsidiary lent the parent company the money with which the parent company bought the subsidiary’s stock. Hearst Publications lists its goodwill (circulation, press franchises, reference libraries, etc.) at $38,000,000, some $30,000,000 of which represents write-ups. Out of Hearst Publications’ $89,000,000 total assets, $75,000,000 consists of goodwill and upstream loans.

*Officially admitted in the registration was ownership of the Milwaukee Sentinel, ostensibly a Paul Block property. Publisher Block leases the Sentinel from Publisher Hearst. Last week Mr. Hearst leased his Washington Herald to Mrs. Eleanor (“Cissy”) Patterson, sister of Publisher Joseph Medill Patterson of the tabloid New York Daily News. In seven years as its editor & publisher, she has seen its circulation rise from 31,000 to 115,000.