Media General Inc. has a market cap of $110.7 million; its shares were traded at around $4.81 with and P/S ratio of 0.2.
Highlight of Business Operations: The Company recorded a net loss of $26 million ($1.15 per share) in the first quarter of 2011, as compared to a net loss of $17 million ($0.75 per share) in the equivalent prior-year quarter. The driving force behind the reduced quarter-over-quarter performance was a 6.2% decline in revenues which brought about a 54% decrease in operating results. In this odd-numbered year, the absence of the Olympics and significantly reduced Political advertising both contributed to the revenue shortfall. In an effort to mitigate some of the revenue weakness, year-over-year operating expenses were held to a 2% increase. Additionally, lower interest and income tax expense helped to soften the year-over-year decrease in results. The 16% drop in interest expense was more than fully attributable to the current-year absence of $5.5 million of 2010 expense (due to debt issuance costs that were expensed immediately upon entering into the new financing structure in February 2010). Income taxes in 2011 decreased $.7 million as compared to the first quarter of 2010, chiefly the result of a decrease in the non-cash naked credit that is described in the Income Taxes section of this Form 10-Q.
Interest expense decreased from $20 million in the first quarter of 2010 to $17 million in the first three months of 2011. The prior-year quarter included $5.5 million in debt issuance costs that were immediately expensed when the Company entered into its new financing structure in February of 2010. Absent this write-off, interest expense would have increased in 2011 due to an increase in the average rate from 8.1% in the first quarter of 2010 to 9.9% in the first quarter of 2011, slightly offset by the effect of a $40 million reduction in average debt outstanding.
In the third quarter of 2006, the Company entered into three interest rate swaps (where it pays a fixed rate and receives a floating rate) to manage interest cost and cash flows associated with variable interest rates, primarily short-term changes in LIBOR, not to trade such instruments for profit or loss. The interest rate swaps are carried at fair value based on a discounted cash flow analysis (predicated on quoted LIBOR prices) of the estimated amounts the Company would have received or paid to terminate the swaps. These interest rate swaps were cash flow hedges with notional amounts originally totaling $300 million; swaps with notional amounts of $100 million matured in 2009, and the remaining $200 million will mature in the third quarter of 2011. Changes in cash flows of the interest rate swaps offset changes in the interest payments on the Companys bank debt. These swaps effectively convert the Companys variable rate bank debt to fixed rate debt with a weighted average interest rate approximating 9.9% at March 27, 2011.
The Company recorded non-cash income tax expense of $5.3 million in the first quarter of 2011 compared to $6 million in the equivalent quarter of 2010. The Companys tax provision for both periods had an unusual relationship to its pretax loss due primarily 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 first quarter of 2011 reflects the accrual of approximately $6.2 million of 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), partially offset by $900 thousand of tax benefit related to the intraperiod allocation items in Other Comprehensive Income. The Company expects the naked credit to result in approximately $25 million of non-cash income tax expense for the full-year 2011 (as previously discussed in the Companys Form 10-K for the year ended December 26, 2010). Other tax adjustments and intraperiod tax allocations that are difficult to forecast may also affect the remainder of 2011.
Net cash used by operating activities in the first quarter of 2011 was $3.9 million compared to $21 million provided by operations in the year-ago period. Cash collected from year-end accounts receivable and the drawdown of cash investments allowed the Company to make interest payments of $18 million on its senior notes, make capital expenditures of $4.6 million and to reduce debt by almost $5 million.
As of March 27, 2011, the Company had in place with its syndicate of banks a $364 million term loan that was fully drawn and a revolving credit facility with availability of $65 million and no outstanding balance. Also outstanding were 11.75% Senior Notes with a par value of $300 million that were sold at a discount and carried on the balance sheet at quarter end at $294 million. The bank credit facilities mature in March 2013 and bear an interest rate of LIBOR plus a margin (4.25% at the close of the first quarter) based on the Companys leverage ratio, as defined in the agreement. The agreements have two main financial covenants; a leverage ratio and a fixed charge coverage ratio. The leverage ratio is calculated as the ratio of total indebtedness (including long-term debt, short-term capitalized leases, guarantees and letters of credit) to earnings before interest, depreciation and amortization (EBITDA) (rolling four quarters of EBITDA adjusted for severance and other shutdown charges, non-operating non-cash charges less gains and broadcast film rights amortization charges less cash payments). The fixed charge coverage ratio is calculated as the ratio of EBITDA (as defined for the leverage ratio) less capital expenditures to fixed charge expense (cash interest paid plus cash taxes paid).
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