Cygnus Business Media is cutting all employee salaries by 7.5 percent, putting all hourly workers on a 37-hour workweek, and cutting the base compensation of “senior managers” by a significant but unspecified amount starting October 1 and continuing through the end of the year, co-CEOs Carr Davis and Tony O’Brien told staffers in an internal memo late Friday afternoon.

The dramatic cost cutting comes in response to greater-than-expected revenue shortfalls. “Recently we have begun to experience the decline in print revenue that has been affecting our industry for the last several years,” Davis and O’Brien wrote in the memo. “This decline has accelerated and is significantly larger than we projected during our business reviews, held less than three months ago. Because print represents more than 70 percent of the company’s revenue, the growth from other areas is not enough to cover our growing deficit.”

A source familiar with Cygnus who asked not to be named described the moves as a proactive measure intended to ensure bank covenants are met.

“It is not really a cash issue at all,” the source said. “It’s dealing with a lot of prior-year items from 2006 that we’re having to clean up. There is a compromising of this year’s financials from prior-year expenses.”

When Davis and O’Brien joined the company, the source said, their strategy was to invest in the brands, in anticipation of revenue growth. “But revenue from the businesses hasn’t come in as fast as planned,” the source added. “And this prior-year cleanup is affecting our EBITDA. At the end of the year, there are only so many areas you can go.”

A second source with no connection to the company described it as a “desperate and short-sighted move.”

”While busting a bank covenant is never a good thing, it is not uncommon or traumatic for private companies,” the second source said. “Bank amendments occur all the time with lenders who cooperate with management to get through difficult times. It is hard to imagine that the CEOs and/or ABRY are willing to make the company go through this trauma in order to avoid the modest costs and pain of a bank amendment.”

All this comes on the heels of a restructuring in July that organized the company around five brand-director positions overseeing the company’s 15 market sectors. Cygnus publishes 80 titles. At that time, Davis and O’Brien said the re-organization was aimed at “accelerating the rapid growth.”

And there has been significant growth. In their memo, Davis and O’Brien said the expo division is enjoying year-over-year growth of more than 9 percent, and that interactive sales have grown by more than 50 percent. Blog links: