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Investors Remain Cool to Troubled Magazine Publisher's Stock

By Published on .

NEW YORK (AdAge.com) -- Primedia announced fourth-quarter and full-year results on Feb. 12 that pointed to a brightening financial picture.

In a conference call, top executives touted that the company had met or exceeded all revenue and earnings expectations. Investors, though, remained cool to the stock, which closed yesterday down 3 cents to $1.99.

The company for the fourth quarter reported a loss of $87.4 million, or 34 cents per share, compared with a loss of $628.2 million, or $2.60 per share, from the year-ago period. Factoring out the payment of preferred dividends, Primedia reported a net loss of $72.9 million.

Complex company
Primedia is a complex entity that

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publishes about 180 magazines, which mostly serve enthusiast or business-to-business niches. Tom Rogers, chairman-CEO, said that while the company's projections of a 20% to 30% rise in 2002's growth earnings before interest, taxes, depreciation and amortization -- or Ebitda, a yardstick of profitability favored by investors -- had been met with considerable doubt, "we ended hitting the high end of that range" as Ebitda rose 33%, to a total of $246.8 million.

But a substantial non-cash charge related to a change in impaired "goodwill" of asset value, totaling $388.5 million, though, made up the bulk of the company's net loss of $599.4 million for full-year 2002. The company's revenues rose slightly to $1.6 billion for the year.

Despite the uncertainty concerning a potential war with Iraq, Mr. Rogers stayed on his optimistic theme: "Our mood continues to be positive. The most difficult period is behind us."

Asset sales completed
Although it took the company longer than it had originally anticipated, Primedia in 2002 finally divested the $250 million worth of properties it had promised in the wake of its 2001 acquisition of Emap USA. The net of its divested properties, which included Chicago magazine, the American Baby Group and Modern Bride ended up being $345 million, which was put toward debt reduction.

For 2003, Mr. Rogers said he expected "modest revenue growth" but stronger Ebitda growth, as the company cycles through cost reductions instituted in 2002. The company's business-to-business titles, Mr. Rogers said, remained "soft," and, according to someone familiar with the company, Ebitda for those properties remain sharply down from their previous peaks.

Possible sale of 'Seventeen'
The company has retained investment banker Morgan Stanley to explore a potential sale or joint venture for its largest magazine, the 2.4-million circulation Seventeen, and some related businesses. Mr. Rogers said the company expected to complete that process in the second quarter of this year. People familiar with the financials, which Morgan Stanley began distributing to interested parties this week, said the properties for sale brought in around $90 million in revenue in 2002, and about $16 million in Ebitda.

Primedia remains a heavily leveraged company, with $1.7 billion in long-term debt at the end of 2002. (At the end of '01, its long-term debt was $1.9 billion.) Nevertheless, Charles McCurdy, Primedia's president, said the company's year-end leverage ratio -- that of total debt to the traditional print properties' Ebitda -- would be below the 5.2 times it reported at the end of September. Mr. McCurdy said this kept the company easily in compliance with the covenants it has with its bankers, which currently mandate a 6.0 leverage ratio.

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