Inside Tucson Business: Friday is next deadline for Star's parent company

Friday is next deadline for Star's parent company

By David Hatfield, Inside Tucson Business
Published on Monday, January 12, 2009

For those who are following the financial woes saga of Lee Enterprises, parent company of the Arizona Daily Star, the next date that could be important is Friday (Jan. 16). By then, the company is supposed to have worked out some agreement concerning the terms of a loan used to finance its $1.46 billion acquisition of Pulitzer, including the Star, in 2005.

Without a successfull renegotiation of those terms, Lee Enterprises would be in default possibly forcing the company into filing for Chapter 11 bankruptcy protection. Even if it does find a way to satisfy lenders this week, Lee Enterprises faces another deadline in March when it is scheduled to repay $306 million on another debt.

Officials of the company, headquartered in Davenport, Iowa, aren’t talking publicly about their financial situation.

What’s surprising is that, unlike some other media companies in similar situations — the Tribune Co., McClatchy Newspapers, the New York Times Co. — Lee Enterprises hasn’t indicated it is looking to raise money by selling properties. Instead, it seems focused on trying to work out terms with lenders. That’s a tactic that, so far, hasn’t been working for Lee Enterprises.

The company had to delay filing its year-end report with the U.S. Securities and Exchange Commission but missed its own deadline of Dec. 29 by one day.

And even then, the report contained a notice from the accounting firm, KPMG, saying Lee Enterprises’ debt problems “raise substantial doubt about its ability to continue as a going concern.” The company says it’s still profitable, but not by enough to continue operating and making debt payments.

The report said it paid down its debt by $102 million in 2008 and, as of the end of its fiscal year on Sept. 30, had $149.5 million in cash and equivalents plus $168 million in credit borrowing capacity. The problem is that’s about $131 million short of what it’s scheduled to pay out in debt payments this year. And it would leave no money to cover any cash flow issues that might crop up.

In its filing, Lee Enterprises reported an $879 million net loss for the 2008 fiscal year.

Additionally, the company said it wrote down another $11.1 million in the asset value for its half-ownership of Tucson Newspapers, the agency responsible for the production of both the Star and the Gannett-owned Tucson Citizen. That means Lee Enterprises wrote off $104.5 million of the value for Tucson Newspapers, which had started the year on the books at $166.7 million.

Other items from Lee Enterprise’s year-end filing:

• Combined operating income from Tucson Newspapers fell 42 percent for the fiscal year ending Sept. 30 to $21.1 million. Total revenue was down 17 percent to $98 million. Expenses were down 5.5 percent to $77 million.

• Company-wide, Lee Enterprises’ advertising revenue was down 9.4 percent to $783 million. The biggest losses came in classified advertising that was down 17 percent to $234 million, with auto classifieds down 24 percent and help wanted ads down 22 percent.

• Online revenue was down just 1.7 percent to $55 million but on the positive side retail advertising on Lee Enterprises’ websites was up 19 percent.

As if all this weren’t enough, Lee Enterprises also had to announce it had received a notice from the New York Stock Exchange saying it faces the possibility of being delisted because its shares have traded for less than $1 apiece for more than 30 consecutive days.

Of all the issues facing the company, that may be among the least of its concerns. And it has plenty of company. There were 86 stocks on the New York Stock Exchange that were trading at $1 or less per share on Jan. 2.

Digital TV switchover

The federal government has run out of money for its coupon program for digital converters and there’s still plenty of confusion so President-elect Barack Obama sent a letter to Congress Jan. 8 urging the Feb. 17 planned analog-to-digital broadcast switchover be postponed.

Tucson TV stations report a test they conducted Jan. 7 went reasonably smoothly. If you have a question about the digital transition, send it to me. I’ll get them answered in next week’s column.

Contact David Hatfield at dhatfield@azbiz.com or (520) 295-4237. Inside Tucson Media appears weekly.