Lee Enterprise's falling value results in 3Q loss

AP News
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Posted: Aug 05, 2011 8:22 PM
Lee Enterprise's falling value results in 3Q loss

Lee Enterprises Inc., publisher of the St Louis Post-Dispatch and more than 40 other daily newspapers, had a net loss of $156 million in the latest quarter because of a steep drop in its market value.

Accounting rules required Lee to make a noncash adjustment in the fiscal third quarter to show its holdings are worth less. The revisions were triggered by a sell-off in Lee's stock that is threatening to cost the publisher its listing on the New York Stock Exchange.

The loss translated to $3.46 per share, based on preliminary results announced Friday for the 13 weeks ending June 26. The numbers could change because Lee still is calculating the adjustment required. Lee earned $10 million, or 22 cents per share, at the same time last year.

Lee recorded $162 million in after-tax charges, mostly for the drop in market value. Excluding that, Lee said it would have earned 21 cents in this year's quarter compared with 26 cents per share last year.

The charges reflect debt worries that have been dogging the company in recent months.

The specter of a bankruptcy filing is hanging over Lee because it hasn't been able to refinance about $1 billion in debt left over from a 2005 acquisition that included the Post-Dispatch, the largest of the company's newspapers.

The $1 billion is due to be repaid in April 2012. Lee had just $24 million in available cash as of June 26 and its main source of revenue _ advertising _ is falling.

The company, based in Davenport, Iowa, set out to refinance the debt in April, only to back off a month later after meeting with about 150 investors and lenders across the country. Lee CEO Mary Junck told shareholders in a May letter that she was unwilling to agree to refinancing terms that she considered unreasonable. Junck is a member of the The Associated Press' board of directors.

"We are making good progress in discussions with our lenders toward a meaningful extension of our credit agreement," Junck said Friday in a statement accompanying the company's latest results. "We have been gratified by their interest and support and look forward to a satisfactory outcome."

Her message of reassurance came two days after The Wall Street Journal reported that two of Lee's major creditors, banker Goldman Sachs Group Inc. and distressed debt specialist Monarch Alternative Capital, are supporting a refinancing plan that would enable the company to avoid a bankruptcy filing.

If it can't win the backing of most of its creditors, the Journal reported, Lee will try to gain support for a reorganization plan before it files for Chapter 11 bankruptcy protection, in hopes that the company would be able to emerge from court protection more quickly. The Journal cited unnamed people familiar with the talks. Lee spokesman Dan Hayes declined to comment Friday.

Investors have already signaled their belief that Lee is destined for a date in bankruptcy court.

At the beginning of July, the 30-day trading average of the company's stock fell below $1. That drew a notice from The New York Stock Exchange, saying it will stop listing Lee's shares unless management can get the price back above $1 by early next year. Lee's shares closed Friday at 81 cents, up 2 cents. The quarterly results came after the market closed.

Before the entire newspaper industry entered a steep advertising slide in 2006, Lee's stock was trading in the $35 to $40 range.

What happened in the latest quarter is unlikely to improve Lee's negotiating leverage. The company's revenue fell 4.6 percent from the same time last year to $187 million. If last year's results hadn't included a book publishing division that Lee has since sold, the company's revenue would have been down 4.2 percent. Even that figure is worse than the declines of 3.8 percent and 1 percent in Lee's previous two quarters.

Like other newspaper publishers, Lee has been hurt by the Great Recession, a feeble recovery and a broad shift that has driven advertising from print to less expensive alternatives on the Internet. Lee's ad revenue fell by 5.6 percent it its latest quarter. Digital advertising revenue increased 22 percent, but it's only 12 percent of the total.

As it struggles to cope with less revenue, Lee has been eliminated jobs and cutting other costs. As of June 26, Lee employed about 5,800 full-time workers, down nearly 5 percent, or about 300 workers from the previous year.