business
Insignia Systems axes 34 workers
- Article by: DAVID SHAFFER , Star Tribune
- Updated: March 6, 2012 - 9:30 PM
Declining sales at the in-store advertising company forced a restructuring that also reduced base pay for executives.
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Insignia Systems Inc., an in-store advertising company that spent years battling part of Rupert Murdoch's media empire, has cut 34 workers after losing money in the second half of 2011.
Shares of the Brooklyn Park-based company fell 12 percent Tuesday, a day after Insignia reported a 43 percent drop in sales for 2011, to $17 million.
In addition to cutting a little more than a quarter of its employees, the company said it reduced the pay of its CEO and others.
The actions capped a tumultuous year that began with Murdoch's News America Marketing paying Insignia $125 million to settle charges that it used predatory practices to hurt Insignia.
A year after Insignia executives got bonuses for that deal, the company announced a second consecutive quarter of losses, for a total of $2.1 million, and warned investors of another likely loss in the current quarter.
"We're trying to make the right decision to stop hemorrhaging cash and turn the business around," CEO Scott Drill said in a conference call with investors.
Drill took a 50 percent cut in his base salary, which was $314,133 in 2010, not including bonuses and stock options. Base salaries also were lowered for salespeople and other executives.
The cuts will save the company $3.1 million, and will result in a first-quarter restructuring charge of $450,000.
Insignia helps companies market their products in retail stores, especially supermarkets, using shelf signs. But it has faced competition on many fronts, including social media and Internet coupon marketing.
The company reported net income of $51.1 million for 2011, but that included the money it received from News America, part of the Murdoch empire that also includes disgraced British tabloids that were caught hacking celebrities' cellphones. Murdoch also owns Fox Broadcasting and the Wall Street Journal in the United States.
In its long legal battle, Insignia accused News America of bad-mouthing its products, engaging in predatory pricing and other anti-competitive tactics. After legal fees, Insignia collected $89.7 million in the settlement.
'Horrendous' third quarter
With the litigation over, Insignia had hoped for a new, positive relationship with News America that would boost sales. Instead, Insignia began losing money, resulting in what Drill called a "horrendous" $1.7 million loss in the third quarter, followed by a $388,000 loss in the fourth quarter ending Dec. 31.
Fourth-quarter sales fell 42 percent to $4.2 million.
That happened after top executives of Insignia collected nearly $4 million in bonuses for their "diligent and persistent" efforts in the 10-year legal campaign against News America. Drill got the most, $2.4 million, just months before the company's slide. Investors also got a $2 per share special dividend.
Drill said the company's board first talked of making staff cuts late last year, and took action when a hoped-for turnaround didn't come.
To make money, he said, the company needs $5.5 million per quarter in revenue, more than it took in during 2011. "We think this is achievable in the near future," Drill said.
The stock touched a 52-week low Tuesday before closing at $1.75, down 24 cents.
David Shaffer • 612-673-7090
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