AMI: Honestly, We've Got a Plan

Reassures Investors as It Blows Restatement Deadline and Replaces 'Star' Editor

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NEW YORK ( -- American Media may have blown a fourth deadline to correct its financial statements last week, but it did manage to make some changes. It replaced the editor of Star and presented bondholders with a set of cost-saving and revenue-enhancing moves.
Changes at 'Star' include a new editor and editorial help from sibling 'National Enquirer.'
Changes at 'Star' include a new editor and editorial help from sibling 'National Enquirer.'

But the question for everyone from lenders to employees to competitors is whether the strategy will improve the balance sheet. The answer is far from clear -- particularly given the delay in restating results that go back to 2005. The delay, not incidentally, has held up American Media's attempt to raise cash by selling five magazines including Muscle & Fitness and Country Weekly.

"I'm a little frustrated," said one close observer. "You'd think that by now that they'd have a handle on their earnings for fiscal 2006. At this point, management is not overly credible."

Factors for decline at 'Star'
American Media blamed the newsstand decline at Star last year on bad cover selections -- which often overlapped with those of cheaper competitors such as In Touch Weekly -- and "weakened" news-gathering efforts. Star Editor Joe Dolce was replaced last week by Candace Trunzo, a former editor in chief of Star and senior executive editor at National Enquirer. She'll report to Bonnie Fuller, exec VP-editorial director.

Star is now closely monitoring its competitors' photo buys and getting editorial help from sibling National Enquirer. To shore up cash flow, Star is cutting $4.4 million with measures such as staff reductions and a "circulation adjustment" for April 1 that will eliminate unprofitable subscriptions and save $6 million in production and postage costs.

More broadly, the company is planning an April 1 jump in cover prices for the Enquirer, which will go to $3.29 from $2.99; Muscle & Fitness and Flex, which will go to $6.99 from $5.99; and tabloids such as the Globe and the Sun, which will add 20 cents.

'Shape' and 'Men's Fitness'
A spokesman said Star's newsstand sales have rebounded to above 720,000 this year as siblings such as Shape and Men's Fitness rack up impressive newsstand and ad-page sales.

The spokesman declined to make executives, including Chairman-CEO David J. Pecker, available for interviews as its restatements approach. Originally promised for Feb. 15, they are now due April 16.

One of the company's equity investors, though, said things are headed the right way. "We continue to think the future is much brighter for AMI than the last 18 months, which were challenging," said Anthony J. DiNovi, co-president, Thomas H. Lee Partners. "We continue to have a lot of confidence in the company and the management team."

A bondholder added: "There's still skepticism with respect to whether or not they're going to succeed, but there is some cautious optimism."
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