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Posted Dec 4, 2013, 2:58 pm
There's a humorous adage in newsrooms that reporters have low salaries because of "journalism math" — if they could add and subtract, they'd figure out how little they were being paid.
While there might be some truth to that phrase, many reporters put in long hours poring over the budgets of corporations and government agencies. So they've got some ability to read a balance sheet.
Many executives of newspaper chains, on the other hand, rarely set foot in a newsroom. As far as their math skills go, you make the call:
Just two weeks after acknowledging a $78 million loss in 2013, the parent company of the Arizona Daily Star gave top executives Thanksgiving-eve gifts of company stock worth over $1.25 million — including 200,000 shares worth $722,000 given to Mary Junck, head of Iowa-based Lee Enterprises.
The bonus to Junck follows two totaling over $1.1 million given to her after the national newspaper chain exited bankruptcy in 2012.
Lee Enterprises stock closed at $3.61 the day before Thanksgiving, meaning the stock bonuses were then valued at over $1.25 million:
The troubled newspaper chain — which publishes about 50 newspapers, including the Star and St. Louis Post-Dispatch — did not release a comment on the bonuses, but filed paperwork required by the Securities and Exchange Commission.
Lee lost $77.7 million in fiscal year 2013, far exceeding 2012's loss of $16.3 million. The company did manage to pay down $98.4 million of its near billion-dollar debt, leaving a balance of $847.5 million.
An analyst for Seeking Alpha blogged that investors should short the stock of a company that is "burning the furniture."
The company's operating revenue of $674.7 million for the period ending Sept. 29 was down 4.6 percent from fiscal 2012, which had a 53-week period.
National advertising was down 18.8 percent, with retail advertising down 5 percent, and classifieds down 9.8, Lee said.
Lee cut the operating costs for its nationwide chain by 5.2 percent, with compensation down 7.1 percent on a 8.3 percent cut in the company's workforce.
Newsprint and ink costs decreased 15.8 percent, as Lee used 13.6 percent less newsprint.
"Aggressive digital and subscription revenue and business transformation initiatives have enabled Lee to continue strong, improving cash flow and rapid debt reduction," said Lee CEO Mary Junck in a statement.
Lee's digital advertising was up just 1.8 percent, with subscription revenues seeing the same percentage bump. Both amount to but a fraction of the chain's overall revenues, which remain largely dependent on print advertising. Page views for all digital platforms were up 9.4 percent, the company said.
Translated out of bizspeak, the company is continuing a years-long spiral that sees it employing fewer journalists, printing fewer papers that are delivered to fewer subscribers, and running fewer advertisements.
The same day the company spun its increased losses, it hailed the Star as the chain's "Enterprise of the Year." Although the announcement was made Monday, the paper had not reported it more than two weeks later.
"They drove double-digit digital growth, double-digit growth in cash flow, double-digit growth in Sunday circulation units and mobile audience numbers that fly off the chart," Junck said.
Corporate-wide, Lee's mobile advertising revenues were up 65 percent — to $1.5 million in the fourth quarter of 2013.
Financial blogger Alpha Exposure said investors should abandon Lee's stock.
"The operations of Lee have been gutted and the result is an enterprise on the precipice of decline," the analyst wrote:
The phrase "burning the furniture to heat the house," is meant to express the desperate measures that some people will take in order to stay warm and therefore alive. It also symbolizes actions that are ultimately futile - after all, once the furniture is burnt you have nothing left to burn to keep yourself warm. It's a stopgap measure that is ultimately both destructive and fails to obviate the final outcome - being left in the cold. We believe that Lee Enterprises (LEE) has been burning its furniture to stay alive by aggressively cutting costs in order to service its crushing debt load. While these actions have so far allowed the company to keep its EBITDA relatively stable, the current level of profitability looks unsustainable and additional cost savings are probably impossible.
Since the beginning of 2010, Lee Enterprises has reduced its headcount from 6,304 people to 4,678, a decline of 26%. If you're wondering how this is possible, it's not from getting people to work smarter or harder. Firing 26% of the workforce was made possible by the company's decision to shrink its newspapers. Over the same time period, the volume of newsprint consumed by the company has declined by 30%. In case you think that the decline is simply due to fewer subscribers, the newsprint produced per subscriber has also declined by 14% over this period, which means not only that Lee has fewer subscribers, but also that each of Lee's subscribers is reading a smaller newspaper. They are selling into a shrinking consumer base that also consumes fewer newspapers. The end result of firing so much of its staff is that LEE now produces a substantially less robust product than it previously did.
A pre-packaged bankruptcy filing by Lee was approved by a federal judge in January 2012.
Lee has been laboring under a near-$1 billion debt, much of which was to become due in April 2012. The bankruptcy prepared by the chain pushed the due dates back to December 2015 and April 2017, while hiking interest rates from 5.1 to 9.2 percent and diluting the company's shares by 13 percent.
The company contended the Chapter 11 reorganization would give it time to right its finances.
The company reached terms with the majority of its debt holders in 2011, but had to go to court to force the terms on a minority of its lenders.
While the majority of Lee's debt holders agreed to push back the due date on the loans two years, about 3 percent of the company's lenders were non-consenting, a spokesman said in a release at the time.
CEO Junck was paid a half-million dollar bonus by the company's board after the company exited bankruptcy. Another bonus followed in July.
Lee owns 48 newspapers around the country, with joint interest in four others, including the Star.
In 2011, the Star laid off 52 workers, including about 15 newsroom employees, in a cost-cutting move. The newsroom has since shrunk further as other employees have left the paper.
The company's partner in the Tucson paper, Gannett Inc., is the former publisher of the Tucson Citizen. While the press stopped rolling for that paper in 2009, Gannett and Lee remain partners in the South Park operation.
Lee took on the huge debt load to finance the 2005 acquisition of the Pulitzer newspaper chain for $1.46 billion, which brought it the Star and the St. Louis Post-Dispatch, among others.
Part of Lee's debt, $138 million known as the Pulitzer Notes, was inherited with that purchase, and is secured by the assets of the former Pulitzer chain, including the Star.
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Two years ago, Lee was faced with having its stock delisted from the New York Stock Exchange after trading below $1 for months. That threat has abated somewhat since the bankruptcy filing, as Lee has traded at slightly more than the dollar threshold.
Wednesday, Lee held at $3.51.
In 2004, Lee stock sold for $49.