Lee suspends 401(k) contributions

The letter from Mary Junck:

October 31, 2008

Dear Lee Employee:

Like many other businesses and media companies, Lee has been battered by the unprecedented economic turmoil and credit crisis. Consumers are suffering and spending less, which means our advertisers are suffering and spending less. As a result, our revenue and earnings have fallen.

While we believe that the economy will improve and that Lee will emerge strong, no one can predict when the upturn will begin. Until it does, we must protect our financial health by reducing spending even more while continuing to drive revenue as aggressively as we can.

Until economic conditions improve, the company’s profit-sharing contribution to most employee 401(k) retirement accounts is being suspended beginning in December. Also, the company’s match to employee contributions is being reduced. For most employees, the reduction is half of the current levels.

We regret having to take these steps and look forward to the time when these benefits can be reinstated.

As you know, significant expense cuts have already been made in all areas of our business. In addition, executive pay has been frozen, corporate executive bonuses have been suspended for the full year, and future stock grant programs have been suspended. Also, we have renegotiated credit terms with our lenders and suspended stockholder dividends.

Thank you for all you do for Lee. I am grateful for your perseverance in this extraordinary time of challenge.

We’ll get past this. In the meantime, I think it helps to remember how vitally important our newspapers and websites are in the communities we serve. No competitor comes close to providing the value we do for readers and advertisers, and our audiences continue to grow.

With appreciation and best regards,

Mary Junck

Yesterday, Lee announced it would suspend its dividends.

Posted by Lee Watch at 1:32 PM

Labels: 401(k), Lee Enterprises, Mary Junck, retirement

Newspaper co. Lee Enterprises suspends dividends, pays higher interest as advertising weakens

NEW YORK (AP) — Lee Enterprises Inc., struggling like all other newspaper publishers from plunging revenue in a weakening economy, said Thursday it was suspending dividend payments and paying higher interest rates to gain more flexibility with lenders.

A new credit agreement with lenders changes the formula-based financial targets that Lee must meet to avoid technical default, which ultimately could force the company to sell assets or declare bankruptcy. It raises one threshold and lowers another to account for reduced cash flow.

The new agreement also reduces Lee’s revolving credit line to $375 million, from $450 million. The company said it had drawn only $207 million as of Sept. 30.

As part of the agreement, Lee cannot pay dividends until it can lower debt to no more than 4.5 times its cash flow, not expected before September 2010. The new terms let Lee take on debt of as much as 6.75 times its cash flow.

Although Lee and other newspaper companies have been paying off debt, the reduction hasn’t been as fast as the decline in advertising revenue, causing what’s known as the leverage ratio to approach or exceed the maximum permitted.

The changes and new agreement with lenders are similar to those obtained over the past two months by The McClatchy Co., A.H. Belo Corp. and Morris Publishing Group LLC. Gannett Co. also said last week it was nearing a new deal with lenders.

Freedom Communications Inc. has said it likely missed targets for the July-September quarter and was in talks with lenders, while Media General Inc. said it has begun negotiations because its projections show the company coming “too close for comfort” in upcoming years as revenue keeps dropping.

In Lee’s case, Chief Financial Officer Carl Schmidt said the company likely met its targets for the fiscal year that ended in September. However, the old agreement had called for tighter requirements to start in the current quarter.

“Accordingly, given the uncertainty of the current economic environment, we and our lenders believed certain adjustments were appropriate at the present time,” he said in a statement. “It is encouraging that even in a tumultuous credit environment, such amendments can be obtained.”

Lee, which reports its fiscal fourth quarter earnings on Nov. 13, had $1.24 billion in net debt as of June 29, much of it a result of its 2005 acquisition of Pulitzer Inc.

Mary Junck, Lee’s chairman and chief executive, said the suspension of dividends, while mandated under the new agreement, should produce annual savings of $34 million to further reduce debt.

Separately, Belo Corp., a television station operator that spun off its newspaper operations into A.H. Belo Corp. this year, said Wednesday it drew down $364 million from its revolving line of credit to pay off a similar amount of other debt due Nov. 3.

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CHICAGO Lee Enterprises Inc.. continued the string of bad newspaper earnings reports Thursday, announcing a plunge in ad revenue that included a 9.1% fall-off in online advertising.

Lee on Thursday reported earnings for its third fiscal quarter ended June 29 fell to 6 cents per share from 49 cents per share a year ago. Lee said the decline included a 19 cent-per-share decline due to its previously announced $709 million non-cash goodwill impairment charge.

Without the impairment charge and certain unusual items, earnings per share were 28 cents, compared with 49 cents for the year-ago quarter, Lee said.

Operating cash flow for the quarter plummeted 26% percent compared with a year ago to $53.8 million. Lee said its operating income, which includes equity in earnings of associated companies, depreciation and amortization, and non-cash charges for impairment of goodwill and other assets, dropped 61.3% to $21.0 million.

Total operating revenue from continuing operations for the quarter decreased 8.3% to $256.4 million.

Print advertising revenue fell 10.1% — and online ad revenue stopped growing, with Lee reporting a 9.1% decline.

Combined print and online ad revenue was down 10% to $195.5 million.

Print and online classified ad revenue, calculated on a same-property basis, fell 17.2% on big declines in employment (off 26.5%); automotive (off 12.2%); and real estate (off 24.2%).

Retail ad rfevenue fell 3.1% fo the quarter, Lee said.

National advertising revenue decreased 21.2%, and circulation revenue was down 2.7%.

Lee cut its operati8ng expenses by 2.3% to $202.1 million, with wages and compensation down 3%, and newsprint and ink declining 0.2%.

Lee reduced the number of full-time equivalent employees by 4.9% for the quarter.

Lee Chairman and CEO Mary Junck said she believes the advertising slump will reverse when the economy improves, and said even in the downturn Lee’s retail ad revenue was relatively stable.

“We continue to produce strong cash flow, allowing us to reduce net debt by $4.8 million during the quarter and also complete the planned liquidation of a $17.9 million unfunded retirement plan,” she said in a statement. “We believe our financial outlook remains solid.”

Junck said the company expects to reduce expenses by another 5% to 7% by the beginning of its new fiscal year in the fall.

The analysis of the Lee health plans is based on information the company has provided to the Guild and to WNN accounting firm, which conducted the analysis.