Arkansas Newspapers Feel Pinch But Wehco, Stephens on Lookout for Buying Opportunities

by Mark Hengel  on Monday, Jul. 14, 2008 12:00 am  

In the annual report, the company said that its debt might endanger dividend payments and basic operations.

"There can be no assurance that our business will generate cash flow from operations or that future borrowings will be available to us in amounts sufficient to enable us to pay our indebtedness or to fund our other liquidity needs," according to the annual report.

GateHouse has lost money for three straight years: $240.7 million in 2007, $28.9 million in 2006 and $14.1 million in 2005. GateHouse's bond rating at Moody's has been downgraded to B2, which is junk-bond level and means the company's chance of default is estimated at 19.9 percent.

Sitting Pretty

While Morris and GateHouse struggle under their debts, Wehco Newspapers Inc. of Little Rock and Stephens Media of Las Vegas, owned by Little Rock's Stephens family, are feeling a slowdown but are not struggling.

"If you don't have any debt and your profit margins are off, you still have a profit," Paul Smith, president of Wehco Newspapers, said. He did not say how profitable the company's papers have been.

The company's only debts are in low-interest loans that funded the construction of presses in Little Rock and northwest Arkansas, which the company could pay off, Smith said.

Though Wehco does take risks, such as competing with the larger Arkansas Gazette during a 12-year newspaper war that ended in Wehco's victory in 1991, Walter Hussman, president and CEO of Wehco Media, has never taken on huge debt to purchase newspapers. Smith said the company paid cash for its most recent acquisitions, three newspapers in central Missouri, though he did not disclose the price.

The company could also expand. Smith confirmed that Wehco is still considering - as Arkansas Business first reported in May - buying three daily papers from Landmark Communications: The Virginian-Pilot of Norfolk. The Roanoke Times of Roanoke, Va., and the Greensboro News & Record in North Carolina.

The company's largest paper, the Arkansas Democrat-Gazette, saw advertising revenue drop in 2007, Smith said, but that was the first decline since 2002.

While other companies have announced cuts in light of dropping revenue, Smith said the paper does not plan any cuts - in newsroom budget or circulation area - to make up for the decline.

"There have been other times when profits have fallen off, and not one time has [Hussman] said 'cut expenses,'" Smith said. "When others cut, the business never all comes back because they lessen the quality of the newspaper."



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