SBJ Staff Report 

Morris Publishing Group, LLC. has released its 1^st Qtr. 2010 operating results, a period during which the company filed for bankruptcy protection and emerged with reductions in overall debt, but tighter restrictions on use of the company’s cash, and absolute requirements that interest payments on new secured loans must be paid.

Advertising revenues dropped another (10.16%) versus the same period in 2009, a higher decline rate than industry performance numbers being reported nationally, including by companies such as McClatchy which owns newspapers in Macon and Columbus, Georgia, as well as the Hilton Head Island Packet.

Within Morris Publishing's daily newspapers, Savannah did the best of the company’s four daily newspapers in the local area. Advertising revenue at Jacksonville was down $2.5 million, or 18.4%, and St. Augustine was down $0.1 million, or 4.8%. Augusta was down $0.3 million, or 5.1%,  and Savannah was down $0.1 million, or 1.0%.

The company lost approximately $3.6 on operations after interest expense charges of $ 6.2 million during the quarter.  

Morris booked a one-time accounting gain of $164 million through the debt written off in the bankruptcy process that created a “book” gain, but not an operational gain or a cash profit.

After successfully emerging from bankruptcy, the company is now reporting a new total debt burden of $151.5 million as of March 31, 2010, including principal and interest, with an average interest rate of 10.34%. That means the company must significantly alter its operations to produce more than $10 million a year in profit to make interest payments, plus have cash on hand for operational needs, including surviving the tough months that are part of the newspaper business.

However, for the 150 days after emerging from bankruptcy, the company is being allowed to pay lower interest payments, roughly $833,000 a quarter, which is important as the company has been unable to make interest payments on its debt for more than two years.  

The new secured debt includes different terms the company had not previously faced versus its previous bond debt.  Morris is now only allowed to retain only $7 million in cash to run the company. Any cash over that amount must be applied to reduce the debt principal.

On April 26, “the Company had available cash on hand totaling $10,464,000 resulting in total excess cash of $3,464, with $3,211, plus $21 in accrued interest, being applied on to the total debt on April 23, 2010,” according to the company’s May 14, 2010 filings with the SEC.  

The payment was made the same day that the company managed to set up a senior, secured Loan and Line of Credit Agreement with Columbus Bank & Trust Company (the “Bank”), for a revolving line of credit in the amount of $10,000,000, which is available until its maturity date of May 15, 2011 and at a minimum rate of 6%

In the Morris SEC filings, the company states that the cash it has available may not be sufficient to operate in the less profitable months of the business.  

And, the company’s 10Q filing gave the first look into the company’s remaining assets and liabilities after exiting bankruptcy.  The company lists assets of $ 167 million and liabilities of $ 195 million, functionally still bankrupt.

An option to reduce the debt and interest payments, and improve the balance sheet, would be for Morris to sell off more of its newspapers and remaining assets, hinted at by the company’s filings:  

“We expect that, for the reasonably foreseeable future, cash generated from operations, together with the proceeds from the Working Capital Facility, and if applicable, any proceeds from the liquidation or sale of select businesses or assets, will be sufficient to allow us to service our debt, fund our operations, and to fund planned capital expenditures and expansions. However, our cash reserves or the Working Capital Facility may not be able to cover any significant unexpected periods of negative cash flow. 

“Our stronger capital position and increased liquidity affords us additional time and resources to execute our broader business restructuring strategy, including refinement of our business model, liquidation or sale of select businesses or assets, and efficiency enhancements. We will continue to focus on owning and operating newspapers and other publications in small and mid-size communities. We also will continue to implement strategies in response to declining advertising revenues and changing market conditions, including by restructuring the operations of our business and implementing various initiatives to increase revenues and decrease our costs.”

Editor’s Note:  The company has repeatedly declined to respond to questions from the media regarding its performance.