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Saturday, September 23, 2006

Weekend Edition: The Ten Worst Managed Companies In America: Final List

From 24/7 Wall St.

We set out to pick the ten worst managed companies in America for the year that began June 2005 and ended June 2007. At this point virtually all companies have reported their June financials and filed their 10-Qs.

We looked only at companies with market capitalizations of over $1 billion. Most of the companies on the list are much larger. We looked at several financial measurements: return on invested, return on asset, return on equity, gross margins, sales growth over one, three and five years and operating income growth over the same period. To be fair, we made the comparisons within industries so we would not be comparing airlines with banks.

The other important aspect to our evaluation, and the most difficult, is picking companies where management was responsible for decisions that went wrong. In an industry where all companies are doing very poorly, management may not be the single most important key to financial and stock market performance. Even in strong industries bad management may cripple a company. We looked for a combination of poor long-term strategic decisions and tactical mistakes in areas like marketing, operations, or manufacturing.

The companies are not presented in any particularly order. The first company on the list is not considered more poorly managed than the company presented in the sixth or seventh place. We will cover two companies each day for the week so that by Friday the full list of ten will have been posted.

9. Journal Register (JRC) Journal Register does not really belong on this list. The stock’s market capitalization is below $1 billion. But, that has not always been the case. The newspaper publisher’s stock now trades at $5.74. Looking back as far as 1997, the stock has not been anywhere near this low. The stock traded at near $20 in September 2005. Some on Wall St. would say that picking on newspaper stocks is unfair because the entire industry has been undermined by the internet, high paper and transportation prices, and falling circulation. However, when the drop of these stocks has been the worst, over the last twelve months, Journal Register has sold off over 60%. Gannett and The Tribune Company are off only about 20%.Moody’s recently cut some of the company’s senior secured term loans to “junk” status. Ad revenue continues to fall. In August, it was off another 4.7%. The company is currently looking for buyers for some of its properties.Revenue for the quarter ending July 25, 2006 was $142.2 million, down from $145.9 million in the same period the year before. Net income dropped from $15.4 million in the period last year to $9.8 million in 2006. Free cash flow also dropped from $24.2 million in the July period a year ago to $16.1 million this year.Journal Register has long term debt of $727 million. The company made the wild decision to buy 21st Century Newspapers in August 2004. Journal Register paid $415 million for the newspaper group, located in Michigan. The amount assigned to Goodwill in that transaction was $274 million. That is more than the Journal Register’s entire market cap today. Nice move.

10. Conexant (CNXT) In February 2004, Conexant’s stock traded above $7.50. It currently changes hands at $1.82. The maker of semiconductor for broadband and digital home networks has not made much progress lately. For the fiscal year ending September 30, 2004, revenue was $902 million. The company has an operating loss of $201 million for the period. For the year ending September 30, 2005, revenue dropped to $723 million, but the operating loss rose to $235 million.Revenue has risen very modestly each of the last three quarters when compared to the immediately previous quarters, but operating income has stayed negative. When the company announced its numbers for the June 2006 quarter, it guided down. Also, the company has well over $500 million in debt due over the next twelve months, but has a cash position of only $375 million.Credit Suisse recently downgraded Conexant from “neutral” to “underperform”. It is not hard to see why.Full list.

1. The Ford Motor Company
2. Affymetrix
3. Bristol-Myers Squibb
4. Amazon
5. Ciena
6. Avon
7. Kodak
8. H&R Block

Douglas A. McIntyre

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