Sunday, April 13, 2008

What went wrong at JRC

Teetering near default on a tower of debt and days from being booted off the Big Board, Journal Register Co. shows how strategic missteps and bad luck can imperil even as good a business as this highly profitable chain of community newspapers.

For all that’s wrong with JRC – and there is a quite lot, to be sure – the company’s 19.3% operating profit not only compares quite favorably with those of several of the largest Fortune 500 corporations but actually surpasses the margins of such giants as Chevron (18.5%), Wal-Mart (7.5%) and General Motors (3.5%).

The ability of JRC to continue generating rich profits at a time of unprecedented contraction in the newspaper business is the direct legacy of the rigorous expense management enforced by Robert Jelenic, the chief executive who ran the company for two decades until he resigned in November to undergo cancer treatment.

In addition to leaving JRC with some of the leanest-running newspapers in the land, Mr. Jelenic also left the company with the hefty $628.4 million in debt that now threatens to force it into bankruptcy. Most of the debt results from one bold, but less than successful, acquisition he undertook in 2004 in an effort to keep the company’s sales, profits and stock price growing.

Not only did the transaction prove over time to be a serious miscalculation, but a steep drop in JRC’s sales in the last two years has made it increasingly unlikely that the company can generate enough profits in the future to service its ponderous debt.

Between 2005 and 2007, JRC’s sales tumbled 20.2% to $463.2 million, a drop nearly 2½ times greater than the over-all industry decline of 8.2% in the same period. (Some revenue was eliminated in JRC's sale of a few modest operating units, but the volume of the discontinued operations comes nowhere close to accounting for the disparity between the performance of the company and the industry as a whole.)

Caught between high debt and declining sales, the company today finds itself in a world of hurt:

:: JRC’s share price has fallen by 99% from a high of $21.84 in 2004 to $0.265 Friday at the New York Stock Exchange. The Big Board plans to ban the shares from trading this week, because the value of the company is too low to meet the minimum listing standards.

:: The company’s debt, which amounts to an untenable seven times its operating earnings for the last 12 months, is now rated at Caa1 by Moody’s Investor Services, which means the rating agency believes the company has better than a 1 in 3 chance of default. Moody’s is concerned that the company cannot generate enough cash to cover the debt repayments scheduled for 2009.

:: The largest portion of the debt that threatens to force JRC into bankruptcy resulted from the acquisition for $415 million in 2004 of a group of community papers concentrated around economically distressed Detroit. To date, the company has been forced to write off $215 million, or nearly 52%, of the value of those assets.

:: An investment banker has been hired to explore the sale of some or all of the company’s assets, but few parties are interested in acquiring newspapers these days, given the the unsettled outlook for the industry. Further, it is questionable whether a buyer, if one materializes, would pay much more than the 7x earnings necessary to extinguish the company’s debt. This fear has caused investors to hammer the stock to the point it is all but worthless.

Ironically, JRC, which owns 22 daily newspapers and more than 300 non-daily publications in six geographic clusters, got its start as the reincarnation of a newspaper empire that was run off the rails in the 1980s by Ralph Ingersoll II, a buccaneering publisher who built his eponymous empire by overpaying for newspapers and financing them with junk bonds.

When Ingersoll Publications collapsed under its debt in 1990, its investors turned to Bob Jelenic, Mr. Ingersoll’s protégé, to restart the company as Journal Register.

The strategy for JRC, which went public in 1997, was essentially the same as that of Ingersoll Publications: Build the company by aggregating neighboring newspapers into ever-larger clusters that would make it possible to sell advertising more efficiently while lowering the costs of producing the publications.

It’s a terrific idea, so long as you don’t overpay for acquisitions and have a plan to build sales while judiciously cutting costs. But the execution didn’t prove to be much better at JRC than it was for Ingersoll Publications.

As JRC pursued its rollup strategy, Mr. Jelenic sought to boost his company’s stock by aggressively reducing expenses to increase earnings as much as possible, thus earning the reputation as the most zealous cost cutter in the newspaper industry. “Nobody cinches the belt tighter than…Journal Register Co., where cost-cutting has become an art,” reported Forbes Magazine in a 2001 article titled “Cheapskate Journalism.”

Beyond shrinking staff, benefits and newshole, JRC was known for such practices as printing on ever-thinner newsprint and requiring executives to check the odometers of journalists before reimbursing them for driving to their assignments. A former JRC publisher told the American Journalism Review in 1999 that Mr. Jelenic sometimes demanded the instant firing of an employee, any employee, if his paper missed its weekly revenue target.

JRC produced some of the highest operating profits ever seen in the newspaper industry when its earnings before interest, taxes, depreciation and amortization (EBITDA) hit 29.1% in 2001. But it is hard to replicate annually such one-time savings as downsizing a newsroom or consolidating two printing plants into one. In the absence of significant sales growth from 2001 to 2003, JRC’s profitability, though still ample, began faltering.

To boost the company’s growth and potential for future profitability, Mr. Jelenic in 2004 bought 21st Century Newspapers in what it called “affluent markets” in Michigan for $415 million, paying a generous 11.5x EBITDA. But the domestic auto industry was facing a decline that, if anything, has accelerated since then.

The Michigan acquisition not only failed to produce the hoped-for sales and profits, but also saddled JRC with substantial debt at the same time revenues began falling at its properties and most other newspapers in the United States.

Now, JRC is caught in a squeeze it may not be able to survive. Unlike newspapers owned by other publishers that are trying to tough out the tough times by paring expenses, most JRC newspapers have little left to cut – and limited resources to build sales with new print and online products.

Despite its straitened circumstances, JRC in 2007 did manage to pay Mr. Jelenic more than $6.3 million in salary, severance and other compensation, which represented a fourfold increase over the nearly $1.5 million he received the prior year.

As part of his severance arrangement, Mr. Jelenic got an extra 192,000 shares of JRC to add to the nearly 2.3 million shares he already owns. Unfortunately, his stock, like mine, isn’t likely to be worth anything near what it used to be.

27 Comments:

OpenID ROCKPORTBUY said...

Anyone who has worked for or with JRC for even a brief period knows how horribly run the operation was from even a decade ago. This day was sure to come. Mr. Jelenic paid himself well while slashing the staff, salaries and benefits of acquired properties.

While some looked at JRC's profits and marveled as how wonderfully Jelenic's "cluster" approach was working on paper, most inside or nearby knew better.

JRC papers were loosing circulation in heaps even before the current newspaper industry troubles and turnover at papers are a nightmare.

The good managers the company was able to attract early off saw what a mess the company was and left for much better offers elsewhere. Those who remain are either castoffs of those other much better run publications or staffers who could not leave due to family obligations, etc. So sad to see JRC fall apart now and know so many of the publication are too far gone to be saved. Hundreds of employees will find their publications shut down and their jobs gone.

Jenenic, known for being a tirant who swore like a sailor in the office and brought many to tears has his $6 million and doesn't care at all what happens to those left on the sinking ship I'm sure.

3:53 PM  
Anonymous Anonymous said...

How about their biggest problem: putting out shitty newspapers?

All this folderol about "missteps" and "bad luck" is bs.

7:55 AM  
Anonymous jswanlake said...

It is almost impossible to overstate the damage Jelenic did to JRC and to its many properties, most of which were once proud, well-respected community institutions. His habit of grossly overpaying for the properties he bought made him a laughing stock among his colleagues. His lack of understanding of the business he was in ("We don't talk to reporters," was the battle cry at JRC HQ) was legendary. His strategy of stripping the life out of dozens of community papers has left the company almost completely without sellable resources in this dark hour. And his personal vulgarity and brutality will live on whenever former JRC minions gather to recount the worst days of their working lives.

8:16 AM  
Blogger rknil said...

The metro Detroit papers were already sliding downhill quickly when JRC overpaid grossly for them. I guess the JRC execs should have been checking facts and figures rather than odometers. Tough break for them.

8:20 AM  
Anonymous Anonymous said...

Why just pick on JRC. Look at the rest of this sea of debt newspapers have rolled up, from the $11.2 billion Sam Zell is sitting on with Tribune, to the $2.3 billion McClatchy debt, the $1.4 billion Lee has on its books, and the $1.2 billion by Gatehouse Media. Then there's $1.1 or so Singleton's MediaNews is having real trouble making payments on. Even Blethen is choking on a comparatively modest $240 million in debt he accumulated largely through an extravagant and foolish expedition into a depressed and depressing Maine market. I just don't understand what these media moguls thought in taking on this sort of debt, but it's all coming home now with layoffs and buyouts. If the prospects for this year are as dismal as some economists predict, there's going to be one hell of a bankruptcy sale.

8:56 AM  
Anonymous Register Ex said...

Those of us who had the pleasure of working for JRC are giddy with schadenfreude today.

9:01 AM  
Anonymous Anonymous said...

As a 7-year veteran of JRC's hellholes, I'd like to gloat that bad things happen to bad people. Tragically, however, that is not the case here. Instead, a bad thing happened to a bad company.
Jelenic walked away from his journalist holocaust with more than $6 million, plus stock that's still worth nearly $1 million despite its pennies-on-the-dollar single-share worth.
Meanwhile, there are good people and good journalists left among the mire, forced to stay by life, family and circumstances, who will pay the toll for his inhumane, brutalistic management.
Anyone who ever lauded him is an ignoramus.

9:12 AM  
Anonymous Anonymous said...

While it is true the newspaper industry is in a tailspin, I'm not sure anyone made their bed quite as well as Bob Jelenic.
It is quite a feat to make every single one of your employees hate the job they once loved but he managed to do it.

10:12 AM  
Anonymous Anonymous said...

You'll pardon me if I'm hardly giddy over the wonders of the JRC business model.

Like many another JRC refugee, I watched as Jelenic and Co. cut the heart out of the once-proud suburban daily for whom I toiled.

It's easy to make a ton of money when you work your staff into the ground and don't pay them.

11:14 AM  
Anonymous Anonymous said...

I had to leave...the waste, the abuse, the language, and the stench of death were all around.

Jelenic was truly a moron and a idiot combined. A true waste of a CEO. Most humans do not fall to such depths.

Anyone who wants to purchase JRS ought to check out the capital requests that were stalled, ignored, and denied. You will find operations severely underfunded, backward, and bankrupt.

I feel sorry for those who remain.

12:12 PM  
Anonymous Anonymous said...

Journal Register's other problem is that it puts out horrible newspapers. JRC papers have shed readership at astonishing rates. Some of its Connecticut papers have lost in excess of 60 percent of their circulation since JRC took them over in the early 90s.

Those high margins and tight newsroom budgets came at a cost -- readers. Unfortunately, the analysts on Wall Street who couldn't actually run a company, but wjp are happy to tell CEOs how to do it failed to grasp that JRC was a cancer that was eating the company from the inside.

That cancer had a name -- Jelenic.

2:01 PM  
Anonymous Anonymous said...

Great financial analysis, but when you look back at the numbers it makes you wonder how they turned that profit.

It came not from great advertising or great newspaper work. The company didn't build it's profit on its profit. They built it on the backs of its employees.

How noble.

When they get a new property, they would slash and burn overhead and for a time, the market wouldn't differentiate. It takes years to destroy your readership. So, they were taking advanatge of the good will these community papers built up with their readers. The revenues stayed the same and the cost cutting drove up record profits.

But, the devil is in the details. Take the CT Cluster. The small dailies such as New Britain, MIddletown, Torrington and Bristol have had their circulations tank to almost nothing. Over the last 10 years JRC has consolidated printing and production in New Haven. Brilliant cost cutting, but now you have 4 daily papers with no presses and no delivery systems.

Add to that the fact the markets have turned on the papers (New Britain's circulation was 45,000 in the mid 1980s, it is about 10,000 now with a very large population base) and these properties are worthless.

They can't be sold now, and they have stopped making money.

It was a great short term strategy to make some people money. But, if you just looked at the chart and numbers and didn't care, you are in for a huge surprise.

It is mounting debt (bad decision on purchasing Michigan cluster) and also the dismantaling of its editorial operations. They ca't cut their way out of this hole. That is a bad combination.

Lot's of debt and a bad product with no more money able to be squeezed out of it.

5:18 PM  
Anonymous Anonymous said...

After the Enron collapse, we had some accounting of what happened in court cases and testimony before congressional investigating committeees. But who is going to call for an accounting these newspaper executives who destroyed (or are destroying) once viable, profit-making newspapers that were a vital part of their communities in search of a buck. Of the 1,600 newspapers in the country, I guess a quarter are now in peril of being bankrupted by these decisions. That doesn't necessarily mean they will go out of business. Some will restructure and cling to life. But they will emerge with smaller staffs, less capable of covering their communities, and will produce less profit. The executives have made their money, from salaries and stock options, and can slink into retirement without telling anyone why they did what they did. So, Alan, who is going to hold newspaper executives responsible for what they have done?

8:14 PM  
Anonymous Anonymous said...

The difference between what happened at Enron and what is happening at newspapers is huge. Enron was a fraud, if not from the start, then damn near. Newspapers have been poorly run and managed, just like hundreds of business every year.

Exectives of companies need only tell shareholders why they did what they did. And at the time they were making those moves, the shareholders must have agreed. Newspapers and their executives are being held liable in the reduced stock prices. But unless they committed some fraud (which it doesn't appear they did) they merely ran a business into the ground. That isn't illegal and doesn't require an accounting before congress.

8:15 AM  
Anonymous Jim said...

I was a reporter and copy editor for 11 years at The Times Herald in Norristown, PA, which was a somewhat stodgy but respected and well-run suburban newspaper until JRC bought it in 1993 to add to its "Philadelphia cluster." The TH's circulation was around 30,000 back then. I think it's 15,000 now, and I'd be very suspicious even of that figure. Someone check to see how many extra copies are chucked under the Dannehower Bridge each day.

From the day of the takeover -- when we were lined up in the hall like cattle to wait for hours to learn whether we would be retained (at a drastically cut salary and less benefits) or summarily axed -- until the day I left some seven months later, it was clear that Jelenic and his stooges had only one goal in mind -- suck as much blood out of the paper as possible until in collapsed of its own dead weight. The only times we heard from Jelenic was when he was screaming for someone to be fired or to insist that we run more ice hockey stories. The endless procession of idiotic JRC-appointed editors couldn't even spell "Norristown," much less stay long enough to get a sense of the area and how to use the few resources Jelenic and company spared us. One of the happiest days of my life was my last day at the TH -- but I will always miss the good newspaper it once was.

As for Jelenic and his stooges -- good riddance to bad rubbish.

1:21 PM  
Anonymous Anonymous said...

As a former editor of one of Mr. Jelenic's bigger papers, I can attest to the micro- and mismanagement of the product. He ordered the firing of good reporters and editors because he (or his assistant, Jean Clifton) didn't like the handling of the story; he (or she) routinely ordered the coverage of Little League events because a relative or neighbor was playing; he (or she) ordered reporters notebooks locked up and not given out until the reporter proved his or her previous one was filled up.

In short, as others have said, he turned may good, proud journalists into cynical, bitter employees, or, worse yet, ex-journalists.

And, again as others have said, he took his golden parachute and bailed out, while the good people are left to suffer.

All you need to know is that this is a man with cancer, and no one -- not one -- has found it within himself or herself to be able to find one iota of compassion.

10:02 PM  
Anonymous Anonymous said...

JRC is a joke. The papers are poorly managed. Customer service to advertisers does not exist, unless you enjoy being treated as an annoyance. I am amazed that Jelenic could get away with paying employees so poorly. Then again, at least his employees won't be financially devastated when layoffs arrive. Unemployment should pretty much make up for the meager wages they were earning.

7:43 AM  
Anonymous Anonymous said...

A note from Middletown, CT. Passersby at the old home of The Middletown Press on Main Street will note a pile of rubble. In its final act of destruction of a once quite good newspaper, JRC sold for $ 4million its building erected in 1981. A Rite-Aid drug store and restaurant will be the new inhabitants.

1:19 PM  
Anonymous Anonymous said...

Let's hope SOMEONE on Wall Street learns something from this disaster.

Slashing and burning content and circulation in the name of profits is not building value and is not sustainable. We're seeing just about every newspaper company make the same mistakes now -- cutting instead of investing. Newspapers need to reinvent themselves on the web and you can't do that with 20% less staff than you had last year. Stupidity rules these days and it's really scary.

2:36 PM  
Anonymous J. Matthew Root said...

Not to mention the numerous (as many as 8 at one time) investigations by the Department of Labor for violations of their employee's rights. Like the one I was involved in where JRC was forced to repay me for near $4000 worth of unpaid overtime. That number acounted for less then half what I was actually owed. The policy at all JRC properties that I encountered went as follows- If you left work before your work was done, even after 8+ hours, you were fired. (I saw it happen) and if you dared to note any overtime hours on your timesheet you were fired. (I also saw his happen) Being delisted and bankrupt is getting off way too easy for this monster of a company. It should be brought up on criminal Federal charges for the open extortion of its own empolyees. JRC never intended to make newspapers- it intended to make money and it didn't care one jot who had to die for that to happen.

7:38 AM  
Anonymous Anonymous said...

For many in the "Michigan cluster" it is no surprise, and almost a relief, that Journal Register is failing fast. When our papers were purchased, we thought the buy was part of a strategic move and we expected that management would let us know how our papers fit into that plan. Instead, good managers were let go and incompetent managers kept in place ... as best we can tell based primarily on salary. There was no plan to integrate our papers into the larger company. Instead, staff levels were cut, resources stripped away, and integrity compromised. We should have talked to our counterparts already working for JRC. But maybe we didn't have the heart to do so. The sooner this company is put out of its misery, the better.

10:28 AM  
Anonymous Anonymous said...

If a man jumps off a ten story building at least at one point he is still ten stories above the earth. The laws of nature assure us as to where he will land.

To look at a moment in time and claim that the JRC had accomplished a certain level of profitability is to provide no true insight. The idea that expenses were reduced in these newspapers is just a myth. The decline in circulation which is a hallmark of most JRC newspapers tell a different story. It did take time to unwind these companies, and certainly the macro trends accelerated their fall, but there was never any doubt they would crash to the pavement.

7:37 PM  
Anonymous Anonymous said...

I too was a casualty of JRC. After 45 years of loyal employment at The Oakland Press in Pontiac, Michigan all but a few years as a supervisor. I was "let-go" while on assignment in Az. How? With a 40second cell phone call! "We are not going to pay you any more" was the message. I was cheated out of many weeks of vacation time and also not paid for work already finished. I returned to Michigan on my own dime. They would not even return my letters and calls. I understand that the entire Oakland Press is ready and willing to have a union represent them. Many good hard working people have been shown the door - all done without any sensitivity or consideration.
As I hear the Oakland Press has lost about thirty percent of its subcribers. The one time proud and excellent Oakland Press has become a sad little rag.

10:14 AM  
Anonymous Anonymous said...

Love to hear more about the Oakland Press in Pontiac Michigan. Word in media circles is that they are down to $600-$800 for a broadsheet, full-color page of auto advertising and still their lineage is declining.

1:17 PM  
Anonymous Anonymous said...

The fish rots from the head first. The rot was the model and the mindset from Jelenic and JRC yes boys at headquarters. What happened to the company was predicted a decade ago by many on various message boards, because it was such an easy call.

7:01 PM  
Anonymous Anonymous said...

Jelenic died recently and I wonder how many JRC employees other than Jean Clifton, his long-time CFO (a.k.a The Dragonlady) who mysteriously left with a suspiciously large severance package, attended the funeral. Not many, I bet, and none from the thousands of rank-and file journalists who suffered under the JRC heel. Our experience in Rhode Island was much the same as elsewhere in the JRC fiefdom--lousy pay, bad working conditions, inept imported managers, unimaginative planning, scare tactics and corporate lies.
If the American newspaper industry dies, Jelenic and his corporate minions are among the murderers.

7:38 AM  
Anonymous Sam Pratt said...

And now JRC has abruptly shuttered another of its properties, the once-proudly-locally-owned Independent of Hillsdale, New York.

Employees learned this morning that tomorrow's issue would be the last.

It strikes some of us as kind of odd that JRC would just close it up without shopping the property around in the community. There are a lot of well-heeled people in the area who might have been interested in buying it (if the price were right). By letting the staff go and the paper to lapse, the value of the franchise is seriously diminished.

7:50 PM  

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