Media General Inc. has a market cap of $129.2 million; its shares were traded at around $5.16 with and P/S ratio of 0.2. MEG is in the portfolios of Francis Chou of Chou Associates Management Inc., Mario Gabelli of GAMCO Investors, Chuck Royce of Royce& Associates.
Highlight of Business Operations:The Company recorded a net loss of $10.7 million ($0.48 per share) and $31.7 million ($1.42 per share) in the third quarter and first nine months of 2010, respectively, compared to a net loss of $62.5 million and $63.1 million in the equivalent 2009 periods. The 2009 third quarter and nine-month period included an impairment charge and discontinued operations embedded within its results. The Company recorded an after-tax non-cash impairment charge of $64.8 million in the third quarter of 2009. See Note 7 of this Form 10-Q for a complete discussion regarding this impairment charge. In the second quarter of 2009, the Company completed the divestiture of a held-for-sale station, WCWJ in Jacksonville, Florida; in the third quarter of 2009, the Company also sold a small business magazine located in the Virginia/Tennessee Market. The Company recognized after-tax gains of $5.1 million in the first nine months of 2009 related to these divestitures. Their results were reported as discontinued operations and, excluding the above-mentioned gain, had limited impact on the Companys results in 2009. See Note 4 of this Form 10-Q for additional details regarding prior-year discontinued operations.
In the third quarter of 2010, the Company had a loss from continuing operations before income taxes of $5.4 million as compared to a loss of $77.1 million in the comparable quarter of 2009; excluding the $84.2 million pretax impairment charge in 2009, income from continuing operations before income taxes was $7.2 million in the third quarter. This quarter-over-quarter decline was accounted for by higher interest expense and increased operating costs. Interest costs rose 62%, reflecting the new financing structure put into place in February 2010; see the Liquidity section of this Form 10-Q for a further discussion. Despite a 3% increase in revenues, segment operating income decreased 4% in the third quarter from the similar prior-year quarter. Segment operating costs were up 4% due primarily to higher employee compensation costs as the third quarter of 2009 reflected 4 days of furlough and the third quarter of 2010 included the expense associated with the reimbursement to employees of 2 days furlough time (which was paid to the employees early in the fourth quarter). Corporate expense was up $3.1 million primarily because 2009 included a $2 million gain resulting from the final freeze on a retirement plan and the impact of employee furlough days. Additionally, total operating costs in 2009 were favorably impacted by a $1.9 million gain associated with an insurance recovery and substantially higher gains on fixed assets sales. Income taxes of $5.3 million in the third quarter of 2010, as compared to an income tax benefit of $16.7 million in the equivalent quarter of 2009, were the result of several matters, most notably a non-cash naked credit, all of which are described in the Income Taxes section of this Form 10-Q.
The Company recorded a loss from continuing operations before income taxes of $16.7 million in the first nine months of 2010, as compared to $96 million loss in the equivalent prior-year period; excluding the $84.2 million pretax impairment charge in 2009, loss from continuing operations before income taxes was $11.8 million in the first nine months of 2009. The largest factor contributing to the year-over-year increased loss was a 70% rise in interest costs for reasons similar to those detailed above in the third quarter discussion. Corporate expense was up $3.6 million due to the combined impact of the furlough program and the inclusion in 2009 of a $2 million gain from the final freeze on a retirement plan. Additionally, there were several singular 2009 gains similar to those discussed in the preceding paragraph. Offsetting these items were considerable expense savings in the areas of compensation and newsprint costs, combined with other successful cost management efforts that yielded a 4% reduction in segment operating expense. Income taxes of $14.9 million in the first nine months of 2010, as compared to an income tax benefit of $27.6 million in the equivalent period of 2009, were primarily the result of the non-cash naked credit issue and more fully described in the Income Taxes section of this Form 10-Q.
Interest expense increased $6.5 million and $22.2 million in the third quarter and first nine months 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-quarter 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 $55 million decline in average debt levels in the third quarter of 2010 as compared to 2009 only partially mitigated a 430 basis point increase in the average interest rate. A $59 million decline in average debt levels in the first nine months of 2010 as compared to 2009, minimally offset a 370 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 Company recorded income tax expense of $5.3 million and $14.9 million in the third quarter and first nine months of 2010 as compared to an income tax benefit of $16.7 million and $27.6 million for the same periods in 2009. The Companys tax provision for both the current and prior-year periods had an unusual relationship to the pretax loss from continuing operations primarily due to the existence of a full deferred tax asset valuation allowance at the beginning of both periods. This circumstance generally results in a zero net tax provision since the income tax expense or benefit that would otherwise be recognized is offset by the change to the valuation allowance. The tax expense recorded in the third quarter of 2010 reflects the accrual of an additional $7.5 million ($22.5 million for the first nine months 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 $1.5 million ($2.9 million in the year to date) tax refund related to the Companys 2009 net operating loss (NOL) carryback claim, as well as a $.7 million ($3.9 million in the year to date) tax benefit related to the intraperiod allocation to items in Other Comprehensive Income (OCI). The year-to-date tax expense was further benefited by a favorable adjustment to the reserve for uncertain tax positions. Last years $16.7 million and $27.6 million benefit related primarily to the non-cash impairment charge and also included $3.6 million in the year-to-date from a favorable determination concerning a state tax issue. The Company expects the remaining non-cash naked credit of approximately $7.5 million to affect income tax expense in the fourth quarter of 2010; other tax adjustments and intraperiod tax allocations that are difficult to forecast may also affect the fourth quarter 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 to $54.9 million in the current period from $9.4 million in the first nine months of 2009. The Company received a tax refund in April of approximately $26 million, the majority of which was used to reduce debt. Higher cash flow generation by the operating segments was another significant contributor. During 2010, the Company made retirement plan contributions of $20 million, paid debt issuance costs of $12 million, made capital expenditures of $15.6 million and reduced debt by $39 million.
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