The company also disclosed that its outside auditor is questioning Lee's ability to remain a “going concern” if the company is unable to refinance some loans.
Industry analysts said Friday, however, that the auditor's assessment was largely a technicality, one likely to be mirrored as other newspaper companies file annual reports over the next few months that reflect a disappointing 2008.
Lee's daily papers include the Post-Dispatch, the Lincoln Journal Star in Nebraska, the Wisconsin State Journal in Madison, Wis., and the Missoulian, Billings Gazette, Helena Independent Record, Ravalli Republic and Montana Standard in Montana.
Lee said in a regulatory filing Wednesday that it generated sufficient cash flow in 2008 to reduce its debt by $102 million. But it will need to tap a revolving credit agreement to pay off $143 million in bank notes in 2009 and more than $166 million in notes due in 2010.
In addition, Lee has $306 million in debt it assumed when it bought the Post-Dispatch and the rest of the Pulitzer newspaper group in 2005. Pulitzer had taken on the debt in 2000, and those notes come due in April 2009.
Lee said negotiations were continuing with lenders to extend or refinance the Pulitzer notes, but the prospects were uncertain given “the abnormal condition of the domestic credit markets and the overall recessionary operating environment.”
Officials with Prudential Financial Inc., the lead holder of the Pulitzer notes, had no comment Friday.
Separately, Lee missed certain lender-imposed financial targets, known as covenants, because it took accounting charges to reduce the value of its goodwill and other intangible assets by nearly $1.1 billion in the fiscal year that ended Sept. 28.
Goodwill reflects the implied value of assets such as a company's brand, and it declines as share prices and revenue projections tumble. Shares in Lee, which fell 1 cent to 40 cents in midafternoon trading Friday, have dropped below the New York Stock Exchange's standards for listing, and the company said it will submit plans to return to compliance.
Lee has a waiver from lenders giving it a reprieve from meeting the financial targets until at least Jan. 16. After that, a violation of the convenants could trigger an acceleration of principal payments, according to the Davenport-based company's auditor, KPMG LLP.
The company's debt problems “raise substantial doubt about its ability to continue as a going concern,” KPMG said in a report accompanying Lee's filing with the Securities and Exchange Commission.
Lee spokesman Dan Hayes declined to comment Friday. Mike Simonton, a Fitch Ratings bond analyst who specializes in the media industry, said Lee's prospects are troubled, “but this type of ‘going concern' language from auditors is pretty standard.”
In Wednesday's filing, Lee said it posted a net loss of $880 million, or $19.83 a share, in fiscal 2008 on revenue of $1.03 billion. That compares with 2007 net income of $81 million, or $1.77 a share, on revenue of $1.12 billion.
Lee had earlier reported preliminary full-year losses at $683 million, or $15.23 per share. The difference reflects completion of calculations for goodwill and related charges.
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