Media General Inc. has a market cap of $240.3 million; its shares were traded at around $10.45 with a P/E ratio of 38.7 and P/S ratio of 0.4. MEG is in the portfolios of Chuck Royce of Royce& Associates.
Highlight of Business Operations:The Company recorded a net loss of $4.3 million ($0.19 per share) and $21 million ($0.94 per share) in the second quarter and first six months of 2010, respectively, compared to net income of $21 million and a net loss of $.7 million in the equivalent 2009 periods. In the second quarter of 2009, the Company completed the divestiture of a held-for-sale station, WCWJ in Jacksonville, Florida, and recognized an after-tax gain of $7.1 million related to this divestiture. In 2009 the Company also sold a small business magazine located in the Virginia/Tennessee Market. These results were reported as discontinued operations and, excluding the above-mentioned gain, had limited impact on the Companys results in the second quarter of 2009. See Note 4 of this Form 10-Q for additional details regarding prior-year discontinued operations.
In the second quarter of 2010, the Company had a loss from continuing operations of $4.3 million ($0.19 per share) as compared to income from continuing operations of $13.3 million ($0.57 per share) in the comparable quarter of 2009. This quarter-over-quarter decline was more than accounted for by an increase in non-cash income tax expense and higher interest expense. Income taxes of $3.6 million in the second quarter of 2010, as compared to an income tax benefit of $11 million in the equivalent quarter of 2009, were the result of several issues, most notably a non-cash naked credit issue all of which is described in the Income Taxes section of this Form 10-Q. Interest costs rose 52%, reflecting the new financing structure put into place in February 2010; see the Liquidity section of this Form 10-Q for a further discussion. Focusing on operations, the Companys operating income increased 19% in the second quarter as five-out-of-six segments produced improved operating profits due to a 2% increase in revenues combined with a 2% reduction in segment costs. Corporate and Other expense was up a combined $2.9 million due to increased stock-based compensation expense and the absence in 2010 of employee furlough days and certain other cost containment measures.
The Company recorded a loss from continuing operations of $21 million ($0.94 per share) in the first six months of 2010, as compared to a loss from continuing operations of $8 million ($0.36) in the equivalent prior-year period. The overriding factors contributing to the year-over-year increased loss included a substantial increase in non-cash income tax expense and a 74% rise in interest costs for reasons similar to those detailed above in the second quarter discussion. Additionally, Corporate and Other expense was up a combined $2.9 million due to increased stock-based compensation expense, the absence of prior-year employee furlough days, and to lower fixed asset sales. In opposition to these higher costs were considerable expense savings in the areas of compensation and newsprint costs which facilitated a $23 million increase in operating income. Aggressive cost management yielded an 8% reduction in segment operating expense and was the driving force in the year-over-year operating improvement.
Interest expense increased $5.8 million and $15.7 million in the second quarter and first half of 2010 from the prior-year equivalent periods as a direct result of the Companys new financing structure that was completed in February 2010. Approximately one-third of the year-over-year increase in interest expense was attributable to debt issuance costs totaling $5.5 million that were immediately expensed upon entering into the financing structure. A $67 million decline in average debt levels in the second quarter of 2010 as compared to 2009 only partially mitigated a 400 basis point increase in the average interest rate. A $61 million decline in average debt levels in the first half of 2010 as compared to 2009, scarcely offset a 500 basis point increase in the average interest rate (excluding the impact of debt issuance costs immediately expensed). See the Liquidity section of this Form 10-Q for a more detailed discussion of the new financing structure.
The tax expense recorded in the second quarter of 2010 reflects the accrual of an additional $7.5 million ($15 million for the first half of 2010) valuation allowance in connection with the tax amortization of the Companys indefinite-lived intangible assets that is not available to offset existing deferred tax assets (termed a naked credit); these accruals were partially offset by a $1 million ($.7 million in the year to date) favorable adjustment related to a court ruling received in connection with a state income tax issue as well as a $2.8 million ($3.2 million in the year to date) tax benefit resulting from the intraperiod allocation of tax to other comprehensive income items. The year-to-date tax expense was further benefited by an $1.4 million increase (from the amount estimated at the end of 2009) in the Companys 2009 net operating loss (NOL) carryback, which was recorded in the first quarter. Last years $11 million tax benefit included $3.6 million from a favorable determination concerning a state tax issue and $7.5 million of tax benefit resulting from the intraperiod allocation of tax to Other Comprehensive Income Items. The Company expects the remaining non-cash naked credit of approximately $15 million to ratably affect income tax expense in the second half of 2010; other tax adjustments and intraperiod tax allocations may also affect the second half of the year. A full discussion of the naked credit issue is discussed in Note 3 of Item 8 of the Companys Form 10-K for the year ended December 27, 2009.
Net cash generated from operating activities grew from $3.3 million in the first half of 2009 to $53 million in the current period, including the effect of reinvesting $18 million in company owned life insurance by repaying policy loans. The Company received a tax refund in April of approximately $26 million, the majority of which was used to reduce debt. During 2010, the Company paid debt issuance costs of $12 million, made capital expenditures of $8.8 million and reduced debt by $39 million.
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