Lee Posts Quarterly Loss on Goodwill Charge, Ad Revenue Plunge

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By: Mark Fitzgerald

Davenport, Iowa-based Lee Enterprises Inc. Thursday reported a loss of $146.3 million, or $1.16 per share, for its second fiscal quarter that included a large non-cash impairment charge — but also reflected a 24% decline in print and online advertising revenue.

Lee said its total operating revenue from continuing operations for the quarter ended March 29 fell 19.7% from a year ago to $198.8 million.

Operating cash flow plunged 35.1% from a year ago to $28.7 million.

Combined print and online advertising revenue dropped 24% to $141.5 million on declines in every category.

Retail advertising was off 17.6%, national was down 14.6% — and classified plunged 34.7%.

Inside classified, which includes both print and online, revenue from the help-wanted category plummeted 57.7%. Automotive fell 26.8% and real estate was down 32.2%.

Lee became the latest newspaper chain to report its online advertising revenue declined in the quarter. It was down 26.5% with a 44.8% slide in classified categories offsetting a 12.2% increase in retail.

And like other chains, Lee was able to wring more revenue from circulation, which was up 4.1%.

Lee’s operating loss included an estimated $154.8 million for goodwill impairment on its newspaper mastheads and other intangible assets. The non-cash charge is estimated to be $115.7 million after tax, said Lee, which added it will disclose a final number in regulatory filings by the end of June.

The quarter’s results also included a favorable earnings impact of $58.1 million, which lee said resulted from a reversal of a liability of $71.3 million initially recorded in March 2008 related to the redemption of a 5% minority interest in the former joint operating agency in St. Louis.

Chairman and CEO Mary Junck said while the recession cut deeply into all categories of advertising, there were some reasons to be hopeful.

“One glimmer is that year-over-year revenue declines have flattened over the last three months,” she said. “Still, we expect a tough road in the months ahead and have taken further steps to streamline our cost structure. As a result, we now expect to reduce 2009 cash costs 15 to 16% below 2008, a decrease of more than $120 million.”

And she said internal research “reaffirms that both our print and online audiences expanded in 2008 across all age groups, in direct contradiction to the negativity surrounding the future of our business.”

Lee said it reduced debt by $153 million in the quarter, including $120 million because of the refinancing of notes related to the acquisition of Pulitzer Inc. As reported, in February, Lee restructured future payments of its $1.1 billion bank debt.

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