Just before the start of 2009, Lee Enterprises filed its long-delayed annual report originally due out in early December. Lee's fiscal 2008 year ended Sept. 28.
The report paints a bleak financial picture for the fourth largest newspaper chain in the country (owner of the Quad City Times) and raises questions about its long-term survival.
After Lee's stock meltdown from nearly $15 a share in January 2008 to 41 cents as of Friday (1/2/09), the firm wrote down the value of its goodwill by $909 million, and reported a net operating loss of $888 million for the year, or $19.83 per share.
The 10K report discusses the restructuring of the firm's $1.4 billion debt, and the company's accounting firm reported it is uncertain of the chain's ability to weather the financial storm from declining revenues and accelerating debt payments.
The KPMG LLP audit letter contains this ominous final paragraph:
"Our report dated December 31, 2008, contains an explanatory paragraph that states that the Company has short-term obligations that cannot be satisfied by available funds and has incurred violations of debt covenants that subject the related principal amounts to acceleration, all of which raise substantial doubt about its ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of that uncertainty."
To get the latest financial restructuring and waivers in place, the firm accelerated a $46.5 million payment, originally due in March and June of 2009, to this December. Lee also had to pay .5 percent to those "consenting lenders" totaling $6.3 million, and another $1.87 million in fees and expenses for the waivers to convenant violations of its credit agreements.
According to the Lee annual report:
"The Company’s ability to operate as a going concern is dependent on its ability to refinance or amend its debt agreements as they become due, or earlier if available liquidity is consumed.
The Company’s indebtedness could adversely affect its financial health in any or all of the following ways:
• Substantially all of the cash flows of the Company are required to be applied to payment of debt interest and principal, reducing funds available for investment, capital expenditures and other purposes;
• The Company reported significant net losses in 2008, due to impairment of goodwill and other assets resulting from the continuing and increasing difference between its stock price and the per share carrying value of its net assets. Reduced expectations of future cash flows were also an important factor in the determination of such impairment charges;
• The Company’s flexibility to react to changes in economic and industry conditions may be more limited;
• Increasing leverage could make the Company more vulnerable in the event of additional deterioration of general economic conditions or other adverse events; and
• There could be a material impact on the Company’s business if it is unable to meet the conditions of its debt agreements or obtain replacement financing."
The "good" news in the annual report is that Lee has in place a $162 million revolving credit arrangement to help it pay $142.5 million in principal payments due in 2009. In 2010, an additional $166 million in principal payments are due.
"The Company expects to utilize the remainder of its capacity under its revolving credit facility to fund a portion of the 2010 principal payments required," the Lee report said.
Much of Lee's debt stems from its 2005 purchase of the St. Louis Post-Dispatch newspaper and associated print properties for $1.46 billion.
