Can you handle this much upbeat financial news about the Star Tribune?
In a Wednesday staff meeting, Star Tribune publisher Mike Klingensmith announced a $1,163-per-fulltimer profit-sharing payment based on 2010 results. He’d predicted such payments since summer, bumping the number up in December.
For the rest of us who just want to know how the paper is doing, here were Klingensmith’s key points:
- Earnings in 2010 beat projections, though we don’t know what those projections were.
- That cash flow allowed the paper to pay down $15 million of its $100 million post-bankruptcy debt in a single year.
- Ad sales still declined, though not as much as the 2010 budget forecast. (When we talked in May, Klingensmith projected a single-digit decline that would turn around this year.)
- Circulation revenue is flat. Strib circ has only recently begun to tick up, depending on how you do the counting. The paper raised single-copy prices last year.
- Digital revenues rose — but that this was news shows how tough things have been. Also, a new website will be unveiled the first week in April.
On some level, Klingensmith can’t afford to be too bouyant; union contracts are up for renegotiation this summer — and 2009’s staff concessions were significantly responsible for 2010’s cash flow.
The publisher told the assembled not to expect profit-sharing checks as large in 2011, citing rising newsprint costs, ongoing pension payments, and long-overdue capital reinvestments. He may be thinking about payroll costs, too.
As Klingensmith indicated back in the spring, he foresees “equal dollars from readers and advertisers within the next several years.” Traditionally, advertisers have paid the bulk of the freight, with subscribers only covering delivery costs. But in-house digital initiatives such as a new iPad app are designed to boost what subscribers pay. A website pay wall will debut sometime after the web redesign.
Taken together, Year One was a good one for Stribbers after many annual batterings.
Here’s the full memo:
Star Tribune Publisher Mike Klingensmith Wednesday reviewed the company’s progress in 2010 and discussed the priorities and budget for 2011 and how they relate to the strategic goals of the company.
“The headline is that our company made significant strides in 2010,” Klingensmith told assembled Star Tribune employees. “We regained our financial footing while laying the groundwork for a return to growth in our business going forward.”
He said the Star Tribune had a double-digit percentage increase in cash flow in 2010 and significantly exceeded the 2010 budgeted earnings. As a result, the company reinstated the 401(k) match and made the full discretionary company match, made a $4.2 million pension contribution and will make a profit sharing distribution under its new profit sharing plan.
Klingensmith announced that profit sharing for 2010 will result in a payment of $1,163 per eligible full-time employee. The payment levels for eligible part-time employees are $698 for employees above 1,000 hours worked and $349 for employees above 500 hours. Supervisors can confirm which of the three tiers an employee falls into for those who have questions.
While the company had a good year financially, Klingensmith explained that the results were helped significantly by a reduced cost base that kept expenses in line with still-declining revenues. He said advertising revenue came in better than expected but still declined in 2010, while circulation revenue was flat to the previous year. However, costs were significantly lower in 2010 due to very favorable pricing for newsprint and also lower run-rate costs as a result of restructuring, which helped achieve a more efficient, flexible cost base.
Discussing the 2011 budget and some of the challenges it presents, he said the company is facing a substantial increase in the price of newsprint as suppliers have cut production capacity-limiting supply at the same time there is heightened demand for newsprint in foreign markets.
In addition, the company has significant obligations that it must meet- primarily making interest payments on debt, making pension fund contributions and investing in the future of the company with capital expenditures in plant, equipment and technology.
The primary obligation, he said, is to pay the Star Tribune’s debt to lenders. The good results in 2010 allowed the company to pay down $15 million of its prior $100 million in debt, he said.
“Also capital expenditures were sharply curtailed during the last three years of financial crisis, and now we have some catching up to do,” Klingensmith said, in order to maintain the existing business and grow the technologically dependent new business.
He said the company also expects to make substantial contributions to its pension plans over the next seven years to keep them healthy.
Klingensmith explained that profit sharing comes only after debt, pension and capital expenditure obligations are met. “We are very pleased with the tremendous efforts that have produced the excellent result for 2010,” he said.
Regarding strategic initiatives, Klingensmith said the main focus for 2011 is on restoring growth of both consumer and advertising revenues and boosting the overall proportion of revenue that comes from consumers and from digital.
A major strategic effort focuses on digital products with the unveiling of a new Star Tribune website the first week in April. It will have capabilities to improve the user experience, which in turn will help generate more advertising revenue from the site. He pointed out that in 2010 one of the most positive parts of the Star Tribune’s advertising picture was that digital ad revenue resumed its growth. The goal is that an increasing proportion of the company’s revenue will come from this channel.
And on the print side of the business, the company is focused on finding ways to boost revenue from consumers as well. “We would like to get equal dollars from readers and advertisers within the next several years,” he said.
Another strategic initiative is to grow by increasing the footprint of the Star Tribune in the state of Minnesota in print, digital and possibly other media. “All of this is intended to accelerate our evolution from the newspaper company of the past to the media company of the future,” he said.
“I would like to congratulate and thank everyone for a successful 2010 and for all of your accomplishments, all of which are too numerous to mention individually,” Klingensmith said in closing. “But from Burnsville to Heritage to Portland Avenue to Woodbury and all across our company, there was great progress made in 2010. We won awards, we grew circulation, we made our product better, we improved our staff and we grew our digital business. We have much more to do, but with all of your best efforts I am more confident than ever that our future is a bright one.”