GateHouse Takes Big Goodwill Write-Down On Stock Slump

By: Mark Fitzgerald

Community newspaper publisher GateHouse Media Inc. reported Friday it took a non-cash goodwill impairment charge of $226 million, reflecting a stock price that has plummeted from more than $22 a share to about $6.

GateHouse also significantly cut its dividend — which had been key to its business model of pushing up share prices by acquiring new newspapers and using the free cash flow to support dividends that were far higher than industry peers. GateHouse said it had declared a 20 cents per share dividend, half the 40 cents per share dividend it declared in June 2007.

To help stanch its dropping share price, GateHouse also announced a $75 million share repurchase program.

GateHouse’s strategy of snapping up newspapers pushed total revenues up 87% to $588.9 million for the full year of 2007 compared with 2006.

Fairport, N.Y.-based GateHouse’s cashflow, calculated as “as-adjusted EBITDA” (earnings before interest, taxes, deductions, and amortization) also surged for the fourth quarter and full year of 2007. As a newspaper company with a strategy of growing by acquiring new properties, GateHouse reports “as-adjusted” EBITDA, which excludes non-cash items such as depreciation and amortization and the one-time costs associated with acquit ions.

Q4 EBITDA soared 96.5% to $44.2 million, while the full year cashflow zoomed 105.2% compared to 2006 to $141 million.

GateHouse managed to increase its same-store EBITDA by 4.4% in the fourth quarter, but its Q4 same-store revenues dipped 2.5%. That result “significantly outperformed the industry,” GateHouse said.

GateHouse losses widened during 2007. It operating loss for the full year was $180.7 million. But excluding the goodwill operating income was $45.3 million — an increase of 38.8% over 2006.

Excluding the goodwill impairment, operating income increased 28% in the fourth quarter, GateHouse said.

Same-store cashflow for the year dipped 0.6%. Excluding corporate costs, as-adjusted EBITDA rose 2.8% on a same-store basis, GateHouse said.

Ad revenue decreased 3.0% on a same-store sales basis in the full year 2007, GateHouse said, driven by an 8.8% fall in classified. In the fourth quarter, ad revenues fell 3.7%, with classified down 11.2 on a same-store basis.

“Our business model of operating in small markets, combined with our internal revenue initiatives and our cash flow improvement opportunities, position us to weather this current economic slowdown as shown in our fourth quarter results,” GateHouse CEO Michael E. Reed said in a statement. “Despite the challenging advertising marketplace in 2007, we were able to grow our levered free cashflow per share by 5.4% in 2007 over 2006 before realizing many of the synergies relating to our acquisitions, which we expect to achieve in 2008.”

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