NEWS - Manufacturing

Morris Publishing Company, publisher of the Savannah Morning News, Savannah Magazine and a number of local niche products, reported its third-quarter financial results.

Total debt now stands at $415 million, plus $23 million in accrued interest overdue, against total assets of $175,464,000.

And the company got an extension of two business days, until 5 p.m. EDT on Nov. 17, to gain support for its financial restructuring plan from 99 percent of its lenders to stay out of bankruptcy court.  To date, only 72 percent to 75 percent of its banks have ever agreed to numerous extensions on loan default arrangements. 

For the three months of operations ended Sept. 30, advertising revenues dropped 26.9 percent, consistent with trends announced by other metro print daily newspapers around the United States While circulation numbers dropped significantly, revenues increased slightly due to rate increases announced earlier this year.

Newspaper and ink costs were 50 percent lower than the same period last year, due to printing less pages because of declining advertising, and newsprint prices have been lower in 2009 than in 2008.  Unfortunately, significant increases have been announced by the paper mills for 2010.

Labor and employee benefit costs were down 20 percent. The company has announced several layoffs company-wide, and at selected newspapers, cut all pay rates on April 1.

Despite the cuts and lower newsprint prices, the company announced only a profit of  $711,000, versus a profit of $7,484,000 in the same quarter last year on operations. In the third quarter 2008, Morris also reduced the value of its assets by $170,000,000. That write-down brought the loss for the third quarter 2008 to $163,000,000 when combined with the operational profit. 

For the nine months ended Sept. 30, 2009, the company reported a total loss to date of  $13,164  million versus an operational profit for the same period in 2008 of $15,116 million.
According to the company’s auditors, “…during 2008 and the first nine months of 2009, the company’s financial position and liquidity have deteriorated due to the significant declines in advertising revenue.”

During the third quarter, Morris received only $4 million of a total $11,538 million due from Gatehouse, and wrote off the remaining $7,538 million.  Gatehouse is going through the same financial liquidity issues.

The work of financial advisors has been costly, compounding the company’s problems. The company has incurred $2,508 million and $7,994 million in legal, investment banking and consulting fees during the third quarter and the first nine months of 2009, respectively.

If Morris is forced into bankruptcy, a number of vendors will be hurt by the company’s inability to make payments to them, but more importantly, the Morris family may lose control of the company as the creditors and the bankruptcy court takes over.

A number of newspaper companies have emerged successfully from bankruptcy this year.  Some have sold off some of their newspapers, but others have restructured their debt and kept the publishing companies essentially intact.

In the company’s SEC filing last week, the realities of the effect of bankruptcy were enumerated.  “We believe that seeking relief under the Bankruptcy Code other than in connection with the Prepackaged Plan could materially and adversely affect the relationships between us and our existing and potential readers, advertisers, employees, vendors, suppliers and other stakeholders and subject us to other direct and indirect adverse consequences,” stated Steven Stone, CFO, who signed the SEC filing.  Included in the impacts listed are:
• “Reputational damage could cause subscribers and advertisers to move to our competitors or to alternative media sources;

• Such a bankruptcy filing could erode our customers’ confidence in our ability to produce and deliver our publications and, as a result, there could be a significant and precipitous decline in our revenues, profitability and cash flow;

• It may be more difficult to retain, attract or replace key employees;…”

And, if they go into bankruptcy and cannot renegotiate credit terms, the company acknowledges, “if we were not able to confirm and implement a plan of reorganization or if sufficient post petition financing were not available, we may be forced to liquidate under chapter 7 of the Bankruptcy Code.”

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