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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC. 20549

 

 

Form 10-Q

 

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 26, 2011

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to            

Commission file number: 1-6383

 

 

MEDIA GENERAL, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Commonwealth of Virginia   54-0850433

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

333 E. Franklin St.,

Richmond, VA

  23219
(Address of principal executive offices)   (Zip Code)

(804) 649-6000

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report.)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act).

 

Larger accelerated filer   ¨    Accelerated filer   x
Non-accelerated filer   ¨    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of July 31, 2011.

 

Class A Common shares:

     22,596,099   

Class B Common shares:

     548,564   

 

 

 


Table of Contents

MEDIA GENERAL, INC.

TABLE OF CONTENTS

FORM 10-Q REPORT

June 26, 2011

 

              Page  
Part I.  

Financial Information

  
  Item 1.    Financial Statements   
    

Consolidated Condensed Balance Sheets – June 26, 2011 and December 26, 2010

     1   
    

Consolidated Condensed Statements of Operations – Three and six months ended June 26, 2011 and June 27, 2010

     3   
    

Consolidated Condensed Statements of Cash Flows – Six months ended June 26, 2011 and June 27, 2010

     4   
    

Notes to Consolidated Condensed Financial Statements

     5   
  Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations      22   
  Item 3.    Quantitative and Qualitative Disclosure About Market Risk      28   
  Item 4.    Controls and Procedures      28   
Part II.  

Other Information

  
  Item 6.    Exhibits      29   
    

(a) Exhibits

  

Signatures

     30   


Table of Contents

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

MEDIA GENERAL, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS

(Unaudited)

(000’s except shares)

 

     June 26,
2011
     December 26,
2010
 

ASSETS

     

Current assets:

     

Cash and cash equivalents

   $ 13,599       $ 31,860   

Accounts receivable—net

     86,933         102,314   

Inventories

     5,765         7,053   

Other

     23,119         29,745   
  

 

 

    

 

 

 

Total current assets

     129,416         170,972   
  

 

 

    

 

 

 

Other assets

     38,215         40,629   

Property, plant and equipment—net

     388,134         398,939   

FCC licenses and other intangibles—net

     211,402         214,416   

Excess of cost over fair value of net identifiable assets of acquired businesses

     355,017         355,017   
  

 

 

    

 

 

 
   $ 1,122,184       $ 1,179,973   
  

 

 

    

 

 

 

See accompanying notes.

 

1


Table of Contents

MEDIA GENERAL, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS

(Unaudited)

(000’s except shares and per share data)

 

     June 26,
2011
    December 26,
2010
 

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

Current liabilities:

    

Accounts payable

   $ 24,900      $ 30,030   

Accrued expenses and other liabilities

     75,016        89,784   
  

 

 

   

 

 

 

Total current liabilities

     99,916        119,814   
  

 

 

   

 

 

 

Long-term debt

     658,985        663,341   

Retirement, post-retirement and post-employment plans

     163,608        170,670   

Deferred income taxes

     45,745        34,729   

Other liabilities and deferred credits

     26,514        27,497   

Stockholders’ equity:

    

Preferred stock ($5 cumulative convertible), par value $5 per share, authorized 5,000,000 shares; none outstanding

    

Common stock, par value $5 per share:

    

Class A, authorized 75,000,000 shares; issued 22,596,066 and 22,493,878 shares

     112,980        112,469   

Class B, authorized 600,000 shares; issued 548,564 shares

     2,743        2,743   

Additional paid-in-capital

     27,437        26,381   

Accumulated other comprehensive loss

     (123,741     (126,799

Retained earnings

     107,997        149,128   
  

 

 

   

 

 

 

Total stockholders’ equity

     127,416        163,922   
  

 

 

   

 

 

 
   $ 1,122,184      $ 1,179,973   
  

 

 

   

 

 

 

See accompanying notes.

 

2


Table of Contents

MEDIA GENERAL, INC.

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

(000’s except for per share data)

 

     Three Months Ended     Six Months Ended  
     June 26,
2011
    June 27,
2010
    June 26,
2011
    June 27,
2010
 

Revenues

        

Broadcast television

   $ 70,359      $ 72,509      $ 135,685      $ 139,594   

Digital media and other

     9,591        10,748        19,864        21,229   

Print

     74,836        82,905        148,180        164,203   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     154,786        166,162        303,729        325,026   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating costs:

        

Employee compensation

     70,880        72,445        149,099        148,037   

Production

     36,410        36,831        72,166        72,364   

Selling, general and administrative

     27,678        26,904        53,874        52,233   

Depreciation and amortization

     13,041        13,697        26,060        27,398   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating costs

     148,009        149,877        301,199        300,032   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     6,777        16,285        2,530        24,994   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense):

        

Interest expense

     (17,192     (17,089     (33,756     (36,912

Other, net

     252        166        517        541   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense

     (16,940     (16,923     (33,239     (36,371
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (10,163     (638     (30,709     (11,377

Income tax expense

     5,219        3,645        10,477        9,652   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (15,382   $ (4,283   $ (41,186   $ (21,029
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per common share – basic and assuming dilution

   $ (0.68   $ (0.19   $ (1.84   $ (0.94
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes.

 

3


Table of Contents

MEDIA GENERAL, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

(000’s)

 

     Six Months Ended  
     June 26,
2011
    June 27,
2010
 

Operating activities:

    

Net loss

   $ (41,186   $ (21,029

Adjustments to reconcile net loss:

    

Depreciation and amortization

     26,060        27,398   

Deferred income taxes

     12,432        15,013   

Intraperiod tax allocation

     (1,955     (3,254

Write-off of previously deferred debt issuance costs

     —          1,772   

Change in assets and liabilities:

    

Accounts receivable and inventories

     16,669        14,965   

Accounts payable, accrued expenses, and other liabilities

     (6,224     14,011   

Income taxes refundable

     (518     26,171   

Company owned life insurance (cash surrender value less policy loans including repayments)

     (587     (17,995

Retirement plan contributions

     (7,053     (1,611

Other, net

     (576     (2,019
  

 

 

   

 

 

 

Net cash (used) provided by operating activities

     (2,938     53,422   
  

 

 

   

 

 

 

Investing activities:

    

Capital expenditures

     (10,579     (8,796

Other, net

     259        520   
  

 

 

   

 

 

 

Net cash used by investing activities

     (10,320     (8,276
  

 

 

   

 

 

 

Financing activities:

    

Proceeds from issuance of senior notes

     —          293,070   

Increase in bank debt

     45,000        134,156   

Repayment of bank debt

     (50,000     (466,640

Debt issuance costs

     —          (12,078

Other, net

     (3     183   
  

 

 

   

 

 

 

Net cash used by financing activities

     (5,003     (51,309
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (18,261     (6,163

Cash and cash equivalents at beginning of period

     31,860        33,232   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 13,599      $ 27,069   
  

 

 

   

 

 

 

Cash paid for interest

   $ 32,288      $ 24,029   
  

 

 

   

 

 

 

See accompanying notes.

 

4


Table of Contents

MEDIA GENERAL, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

1. The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States, and with applicable quarterly reporting regulations of the Securities and Exchange Commission. They do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements and, accordingly, should be read in conjunction with the consolidated financial statements and related footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 26, 2010.

In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of interim financial information have been included.

2. Inventories are principally raw materials (primarily newsprint).

3. The Company recorded non-cash income tax expense of $5.2 million and $10.5 million in the second quarter and first six months of 2011, compared to $3.6 million and $9.7 million in the equivalent quarter and six months of 2010. The year-over-year increase was due primarily to different amounts of intraperiod tax allocation related to Other Comprehensive Income adjustments recorded in the second quarter of 2010. The Company’s tax provision for all periods had an unusual relationship to pretax loss mainly because of the existence of a full deferred tax asset valuation allowance at the beginning of each period. 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 second quarter of 2011 reflects the accrual of approximately $6.2 million ($12.4 million for the first six months of 2011) of valuation allowance in connection with the tax amortization of the Company’s indefinite-lived intangible assets that is not available to offset existing deferred tax assets (termed a “naked credit”), partially offset by $1 million ($2 million for the first six months of 2011) 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; other tax adjustments and intraperiod tax allocations that are difficult to forecast may also affect the remainder of 2011. A full discussion of the naked credit issue is contained in Note 2 of Item 8 of the Company’s Form 10-K for the year ended December 26, 2010.

4. In the first quarter of 2010, the Company established a new financing structure; the Company simultaneously amended and extended its bank term loan facility and issued senior notes. As a result, the Company immediately expensed previously deferred debt issuance costs of $1.8 million. The senior notes mature in 2017 and have a face value of $300 million, an interest rate of 11.75%, and were issued at a price equal to 97.69% of face value. The proceeds from the senior notes were used to pay down existing bank credit facilities. The bank term loan facility matures in March 2013 and bears an interest rate of LIBOR plus a margin ranging from 3.75% to 4.75% (4.50% at June 26, 2011), determined by the Company’s leverage ratio, as defined in the agreement. The new agreements have two main financial covenants: a leverage ratio and a fixed charge coverage ratio which involve debt levels, interest expense as well as other fixed charges, and a rolling four-quarter calculation of EBITDA, all as defined in the agreements. The Company pledged its cash and assets as well as the stock of its subsidiaries as collateral; the Company’s subsidiaries also guaranteed the debt of the parent company. Additionally, there are restrictions on the Company’s ability to pay dividends (none are allowed in 2011), make capital expenditures above certain levels, repurchase its stock, and engage in certain other transactions such as making investments or entering into capital leases above certain levels. The bank term loan facility contains an annual requirement to use excess cash flow (as defined within the agreement) to repay debt. Other factors, such as the sale of assets, may also result in a mandatory prepayment of a portion of the bank term loan. The Company was in compliance with all covenants and expects that the covenants will continue to be met.

 

5


Table of Contents

The following table includes information about the carrying values and estimated fair values of the Company’s financial instruments at June 26, 2011 and December 26, 2010:

 

     June 26, 2011      December 26, 2010  

(In thousands)

   Carrying
Amounts
     Fair Value      Carrying
Amounts
     Fair Value  

Assets

           

Investments

           

Trading

   $ 286       $ 286       $ 249       $ 249   

Liabilities

           

Interest rate swaps

     1,877         1,877         6,891         6,891   

Long-term debt:

           

Bank term loan

     364,412         338,850         369,412         365,980   

11.75% senior notes

     294,424         291,380         293,929         320,608   

Revolving credit facility ($66 million available at 6/26/11)

     —           —           —           —     

Trading securities held by the Supplemental 401(k) plan are carried at fair value and are determined by reference to quoted market prices. The fair value of the bank term loan debt in the chart above was estimated using discounted cash flow analyses and an estimate of the Company’s bank borrowing rate (by reference to publicly traded debt rates as of June 26, 2011) for similar types of borrowings. As of June 26, 2011, the fair value of the 11.75% Senior Notes was valued at the most recent trade prior to the end of the quarter which approximates fair value. Under the fair value hierarchy, the Company’s trading securities fall under Level 1 (quoted prices in active markets), and its long term debt falls under Level 2 (other observable inputs).

In the third quarter of 2006, the Company entered into several interest rate swaps as part of an overall strategy to manage interest cost and risk associated with variable interest rates, primarily short-term changes in LIBOR. These interest rate swaps are cash flow hedges with original notional amounts totaling $300 million; swaps with notional amounts of $100 million matured in 2009, and the remaining swaps with nominal amounts of $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 Company’s Facilities. These swaps effectively convert a portion of the Company’s variable rate bank debt to fixed rate debt with a weighted average interest rate approximating 10.1% at June 26, 2011.

As of December 26, 2010, the interest rate swaps were carried at fair value based on the present value of the estimated cash flows the Company would have received or paid to terminate the swaps; the Company applied a discount rate that is predicated on quoted LIBOR prices and current market spreads for unsecured borrowings. Because the interest rate swaps expire in August 2011, the fair value as of June 26, 2011, was determined based on the value of the already determined remaining interest payments under the swap. In the first six months of both 2011 and 2010, $5.4 million was reclassified from Other Comprehensive Income (OCI) into interest expense on the Consolidated Condensed Statement of Operations as the effective portion of the interest rate swap. The pretax change in fair value deferred in OCI for the first six months of 2011 and 2010 was $5.0 million and $3.5 million, respectively. All amounts paid for these swaps are recorded in the Consolidated Condensed Statement of Operations during the accounting period in the “Interest expense” line. Based on the estimated current and future fair values of the swaps as of June 26, 2011, $1.9 million will be reclassified from OCI to interest expense in the next twelve months. Interest rate swaps are recorded on the Consolidated Condensed Balance Sheets in the line item “Accrued expenses and other liabilities.” Under the fair value hierarchy, the Company’s interest rate swaps fall under Level 2 (other observable inputs). The following table includes information about the Company’s derivative instruments as of June 26, 2011:

 

(In thousands)

   Fair Value as of
June 26, 2011
     Fair Value as of
December 26, 2010
 

Fair value of interest rate swaps

   $ 1,877       $ 6,891   

 

6


Table of Contents

5. The Company is a diversified communications company located primarily in the southeastern United States. The Company is comprised of five geographic segments (Virginia/Tennessee, Florida, Mid-South, North Carolina and Ohio/Rhode Island) along with a sixth segment that includes interactive advertising services and certain other operations.

Revenues for the geographic markets include revenues from 18 network-affiliated television stations, three metropolitan newspapers, and 20 community newspapers, all of which have associated websites. Additionally, more than 200 specialty publications that include weekly newspapers and niche publications (and the associated Web sites) are included in revenues for the geographic markets. Revenues for the sixth segment, Advertising Services & Other, are generated by three interactive advertising services companies and certain other operations including a broadcast equipment and studio design company.

Management measures segment performance based on profit or loss from operations before interest, income taxes, and acquisition-related amortization. Amortization of acquired intangibles is not allocated to individual segments although the intangible assets themselves are included in identifiable assets for each segment. Intercompany sales are primarily accounted for as if the sales were at current market prices and are eliminated in the consolidated financial statements. Certain promotions in the Company’s newspapers and television stations on behalf of its online shopping portal are recognized based on incremental cost. The Company’s reportable segments are managed separately, largely based on geographic market considerations and a desire to provide services to customers regardless of media platform. In certain instances, operations have been aggregated based on similar economic characteristics.

 

7


Table of Contents

The following table sets forth the Company’s current and prior-year financial performance by segment:

 

(In thousands)

   Revenues     Depreciation and
Amortization
    Operating Profit
(Loss)
 

Three Months ended June 26, 2011

      

Virginia/Tennessee

   $ 44,917      $ (3,154   $ 6,139   

Florida

     33,244        (1,602     (2,211

Mid-South

     41,012        (2,984     7,197   

North Carolina

     18,974        (1,398     697   

Ohio/Rhode Island

     14,071        (752     3,539   

Advertising Services & Other

     4,028        (246     (1,333

Eliminations

     (1,460     —          —     
      

 

 

 
         14,028   

Unallocated amounts:

      

Acquisition intangibles amortization

     —          (1,500     (1,500

Corporate expense

     —          (1,405     (7,966
  

 

 

   

 

 

   
   $ 154,786      $ (13,041  
  

 

 

   

 

 

   

Corporate interest expense

         (17,180

Other

         2,455   
      

 

 

 

Consolidated loss before income taxes

       $ (10,163
      

 

 

 

Three Months ended June 27, 2010

      

Virginia/Tennessee

   $ 48,947      $ (3,288   $ 10,483   

Florida

     37,393        (1,762     1,526   

Mid-South

     41,477        (3,010     9,563   

North Carolina

     19,212        (1,557     1,537   

Ohio/Rhode Island

     13,826        (835     3,681   

Advertising Services & Other

     5,942        (234     884   

Eliminations

     (635     —          —     
      

 

 

 
         27,674   

Unallocated amounts:

      

Acquisition intangibles amortization

     —          (1,571     (1,571

Corporate expense

     —          (1,440     (7,756
  

 

 

   

 

 

   
   $ 166,162      $ (13,697  
  

 

 

   

 

 

   

Corporate interest expense

         (17,083

Other

         (1,902
      

 

 

 

Consolidated loss before income taxes

       $ (638
      

 

 

 

 

8


Table of Contents

(In thousands)

   Revenues     Depreciation and
Amortization
    Operating Profit
(Loss)
 

Six Months ended June 26, 2011

      

Virginia/Tennessee

   $ 87,497      $ (6,331   $ 9,976   

Florida

     67,189        (3,202     (5,346

Mid-South

     79,304        (5,941     12,609   

North Carolina

     36,603        (2,808     824   

Ohio/Rhode Island

     26,428        (1,525     5,883   

Advertising Services & Other

     9,177        (486     (1,346

Eliminations

     (2,469     —          —     
      

 

 

 
         22,600   

Unallocated amounts:

      

Acquisition intangibles amortization

     —          (3,014     (3,014

Corporate expense

     —          (2,753     (16,238
  

 

 

   

 

 

   
   $ 303,729      $ (26,060  
  

 

 

   

 

 

   

Corporate interest expense

         (33,733

Other

         (324
      

 

 

 

Consolidated loss before income taxes

       $ (30,709
      

 

 

 

Six Months ended June 27, 2010

      

Virginia/Tennessee

   $ 94,798      $ (6,577   $ 18,092   

Florida

     75,466        (3,525     2,771   

Mid-South

     78,062        (6,020     14,239   

North Carolina

     38,021        (3,114     2,648   

Ohio/Rhode Island

     27,441        (1,669     6,962   

Advertising Services & Other

     12,278        (465     2,323   

Eliminations

     (1,040     —          —     
      

 

 

 
         47,035   

Unallocated amounts:

      

Acquisition intangibles amortization

     —          (3,142     (3,142

Corporate expense

     —          (2,886     (15,712
  

 

 

   

 

 

   
   $ 325,026      $ (27,398  
  

 

 

   

 

 

   

Corporate interest expense

         (36,897

Other

         (2,661
      

 

 

 

Consolidated loss before income taxes

       $ (11,377
      

 

 

 

 

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6. The Consolidated Condensed Statements of Operations include amortization expense from amortizing intangible assets of approximately $1.5 million for the second quarters of 2011 and 2010, and approximately $3 million for the first six months of 2011 and 2010. Currently, intangibles amortization expense is projected to be approximately $6 million in total for 2011, decreasing to $3 million in 2012, and to $2 million in 2013 to 2015.

The Company has recorded pretax cumulative impairment losses related to goodwill approximating $685 million through June 26, 2011. The following table shows the gross carrying amount and accumulated amortization for intangible assets as of June 26, 2011 and December 26, 2010:

 

     December 26, 2010      Change      June 26, 2011  

(In thousands)

   Gross Carrying
Amount
     Accumulated
Amortization
     Amortization
Expense
     Gross Carrying
Amount
     Accumulated
Amortization
 

Amortizing intangible assets(including network affiliation,advertiser, programming and subscriber relationships):

              

Virginia/Tennessee

   $ 55,326       $ 43,088       $ 355       $ 55,326       $ 43,443   

Florida

     1,055         1,055         —           1,055         1,055   

Mid-South

     84,048         66,057         2,144         84,048         68,201   

North Carolina

     11,931         10,316         74         11,931         10,390   

Ohio/Rhode Island

     9,157         5,222         179         9,157         5,401   

Advert. Serv. & Other

     6,614         3,847         262         6,614         4,109   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 168,131         129,585       $ 3,014       $ 168,131       $ 132,599   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Indefinite-lived intangible assets:

              

Goodwill:

              

Virginia/Tennessee

   $ 96,725             $ 96,725      

Florida

     43,123               43,123      

Mid-South

     118,153               118,153      

North Carolina

     20,896               20,896      

Ohio/Rhode Island

     61,408               61,408      

Advert. Serv. & Other

     14,712               14,712      
  

 

 

          

 

 

    

Total goodwill

     355,017               355,017      

FCC licenses

              

Virginia/Tennessee

     20,000               20,000      

Mid-South

     93,694               93,694      

North Carolina

     24,000               24,000      

Ohio/Rhode Island

     36,004               36,004      
  

 

 

          

 

 

    

Total FCC licenses

     173,698               173,698      

Other

     2,172               2,172      
  

 

 

          

 

 

    

Total

   $ 530,887             $ 530,887      
  

 

 

          

 

 

    

7. The following table sets forth the computation of basic and diluted earnings per share. There were approximately 0 shares and 18,000 shares that were not included in the computation of diluted EPS for the second quarter and first six months of 2011, respectively, because to do so would have been anti-dilutive for the periods presented. Additionally, there were approximately 181,000 shares and 119,000 shares that were not included in the computation of diluted EPS for the second quarter and first six months of 2010, respectively.

 

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Table of Contents

(In thousands, except per share amounts)

   Quarter Ended
June 26, 2011
    Quarter Ended
June 27, 2010
 

Numerator for basic and diluted earnings per share:

    

Loss available to common stockholders

   $ (15,382   $ (4,283
  

 

 

   

 

 

 

Denominator for basic and diluted earnings per share:

    

Weighted average shares outstanding

     22,488        22,343   
  

 

 

   

 

 

 

Loss per common share (basic and diluted)

   $ (0.68   $ (0.19
  

 

 

   

 

 

 

(In thousands, except per share amounts)

   Six Months Ended
June 26, 2011
    Six Months Ended
June 27, 2010
 

Numerator for basic and diluted earnings per share:

    

Loss available to common stockholders

   $ (41,186   $ (21,029
  

 

 

   

 

 

 

Denominator for basic and diluted earnings per share:

    

Weighted average shares outstanding

     22,444        22,316   
  

 

 

   

 

 

 

Loss per common share (basic and diluted)

   $ (1.84   $ (0.94
  

 

 

   

 

 

 

 

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8. The following table provides the components of net periodic employee benefits expense for the Company’s benefit plans for the second quarter and first six months of 2011 and 2010:

 

     Quarter Ended  
     Pension Benefits     Other Benefits  

(In thousands)

   June 26,
2011
    June 27,
2010
    June 26,
2011
    June 27,
2010
 

Service cost

   $ —        $ 19      $ 63      $ 51   

Interest cost

     5,613        5,630        405        560   

Expected return on plan assets

     (5,823     (5,960     —          —     

Amortization of prior-service cost

     —          —          411        410   

Amortization of net loss/(gain)

     947        635        (388     (243
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefit cost

   $ 737      $ 324      $ 491      $ 778   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

     Six Months Ended  
     Pension Benefits     Other Benefits  

(In thousands)

   June 26,
2011
    June 27,
2010
    June 26,
2011
    June 27,
2010
 

Service cost

   $ —        $ 19      $ 113      $ 101   

Interest cost

     11,213        11,455        955        1,160   

Expected return on plan assets

     (11,998     (11,910     —          —     

Amortization of prior-service cost

     —          —          861        860   

Amortization of net loss/(gain)

     1,897        1,335        (513     (443
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefit cost

   $ 1,112      $ 899      $ 1,416      $ 1,678   
  

 

 

   

 

 

   

 

 

   

 

 

 

9. The Company’s comprehensive income (loss) consisted of the following:

 

     Quarter Ended     Six Months Ended  

(In thousands)

   June 26,
2011
    June 27,
2010
    June 26,
2011
    June 27,
2010
 

Net loss

   $ (15,382   $ (4,283   $ (41,186   $ (21,029

Unrealized gain on derivative contracts (net of deferred taxes)

     1,560        1,329        3,058        1,976   

Change in pension and postretirement (net of deferred taxes)

     —          3,114        —          3,114   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

   $ (13,822   $ 160      $ (38,128   $ (15,939
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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10. The Company accrues severance expense when payment of benefits is both probable and the amount is reasonably estimable. The Company records severance expense related to involuntary employee terminations in the “Employee compensation” line item on the Consolidated Condensed Statements of Operations. Targeted workforce reductions have been utilized in response to economic weakness and the Company’s continuing efforts to align its costs with available revenues. The Company recorded severance expense of $1.6 million and $1.7 million in the second quarter and first six months of 2011, as compared to $.1 million and $.4 million in the second quarter and first six months of 2010. Accrued severance costs are included in the “Accrued expenses and other liabilities” line item on the Consolidated Condensed Balance Sheet. The following table represents a summary of severance activity by segment (in thousands) for the six months ended June 26, 2011:

 

(In thousands)

   Virginia/
Tennessee
    Florida     Mid-
South
    North
Carolina
    Ohio/
Rhode Island
    Advertising
Services &
Other
    Corporate     Consolidated  

Accrued severance Dec. 26, 2010

   $ 260      $ —        $ —        $ 56      $ 233      $ 356      $ 14      $ 919   

Severance expense

     208        764        1        370        78        200        78        1,699   

Severance payments

     (352     (360     (1     (77     (233     (556     (92     (1,671
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Accrued severance June 26, 2011

   $ 116      $ 404      $ —        $ 349      $ 78      $ —        $ —        $ 947   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

11. The following table shows the Company’s Statement of Stockholders’ Equity as of June 26, 2011:

 

                         Additional
Paid-in
Capital
    Accumulated
Other

Comprehensive
Income (Loss)
    Retained
Earnings
    Total  

(In thousands, except shares)

   Class A
Shares
    Common Stock           
     Class A     Class B           

Balance at December 26, 2010

     22,493,878      $ 112,469      $ 2,743       $ 26,381      $ (126,799   $ 149,128      $ 163,922   

Net loss

       —          —           —          —          (41,186     (41,186

Unrealized gain on derivative contracts (net of deferred taxes of $1,955)

       —          —           —          3,058        —          3,058   
               

 

 

 

Comprehensive loss

                  (38,128

Exercise of stock options

     14,466        72        —           (41     —          —          31   

Performance accelerated restricted stock

     (22,374     (112     —           (6     —          —          (118

Issuance of stock to director upon retirement

     109,602        548        —           94            642   

Stock-based compensation

       —          —           1,033        —          —          1,033   

Other

     494        3        —           (24     —          55        34   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 26, 2011

     22,596,066      $ 112,980      $ 2,743       $ 27,437      $ (123,741   $ 107,997      $ 127,416   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

12. The Company’s subsidiaries guarantee the debt securities of the parent company. The Company’s subsidiaries are 100% owned except for the Company’s Supplemental 401(k) Plan; all subsidiaries except those in the non-guarantor column (which includes the Supplemental 401(k) Plan) currently guarantee the debt securities. These guarantees are full and unconditional and on a joint and several basis. The following financial information presents condensed consolidating balance sheets, statements of operations, and statements of cash flows for the parent company, the Guarantor Subsidiaries, and the Non-Guarantor Subsidiaries, together with certain eliminations.

 

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Table of Contents

Media General, Inc.

Condensed Consolidating Balance Sheet

As of June 26, 2011

(In thousands, unaudited)

 

     Media General
Corporate
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Media General
Consolidated
 

ASSETS

          

Current assets:

          

Cash and cash equivalents

   $ 11,940      $ 1,659      $ —        $ —        $ 13,599   

Accounts receivable—net

     —          86,933        —          —          86,933   

Inventories

     2        5,763        —          —          5,765   

Other

     4,647        18,472        —          —          23,119   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

     16,589        112,827        —          —          129,416   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Investment in and advances to subsidiaries

     274,642        1,975,659        —          (2,250,301     —     

Intercompany note receivable

     678,760        —          —          (678,760     —     

Other assets

     23,092        14,837        286        —          38,215   

Property, plant & equipment—net

     27,445        360,689        —          —          388,134   

FCC licenses and other intangibles—net

     —          211,402        —          —          211,402   

Excess of cost over fair value of net identifiable assets of acquired businesses

     —          355,017        —          —          355,017   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL ASSETS

   $ 1,020,528      $ 3,030,431      $ 286      $ (2,929,061   $ 1,122,184   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

          

Current liabilities:

          

Accounts payable

   $ 9,463      $ 15,443      $ —        $ (6   $ 24,900   

Accrued expenses and other liabilities

     36,885        38,131        —          —          75,016   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

     46,348        53,574        —          (6     99,916   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Long-term debt

     658,985        —          —          —          658,985   

Intercompany loan

     —          678,760        —          (678,760     —     

Retirement, post-retirement and post-employment plans

     163,608        —          —          —          163,608   

Deferred income taxes

     —          45,745        —          —          45,745   

Other liabilities and deferred credits

     21,889        3,879        746        —          26,514   

Stockholders’ equity

          

Common stock

     115,723        4,872        —          (4,872     115,723   

Additional paid-in capital

     29,719        2,434,816        (1,930     (2,435,168     27,437   

Accumulated other comprehensive loss

     (123,741     —          —          —          (123,741

Retained earnings

     107,997        (191,215     1,470        189,745        107,997   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

     129,698        2,248,473        (460     (2,250,295     127,416   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY

   $ 1,020,528      $ 3,030,431      $ 286      $ (2,929,061   $ 1,122,184   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Media General, Inc.

Condensed Consolidating Balance Sheet

As of December 26, 2010

(In thousands)

 

     Media General
Corporate
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Media General
Consolidated
 

ASSETS

          

Current assets:

          

Cash and cash equivalents

   $ 30,893      $ 967      $ —        $ —        $ 31,860   

Accounts receivable—net

     —          102,314        —          —          102,314   

Inventories

     2        7,051        —          —          7,053   

Other

     3,112        57,001        —          (30,368     29,745   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

     34,007        167,333        —          (30,368     170,972   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Investment in and advances to subsidiaries

     316,619        1,979,076        —          (2,295,695     —     

Intercompany note receivable

     673,265        —          —          (673,265     —     

Other assets

     23,266        17,114        249        —          40,629   

Property, plant and equipment—net

     27,518        371,421        —          —          398,939   

FCC licenses and other intangibles—net

     —          214,416        —          —          214,416   

Excess of cost over fair value of net identifiable assests of acquired businesses

     —          355,017        —          —          355,017   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL ASSETS

   $ 1,074,675      $ 3,104,377      $ 249      $ (2,999,328   $ 1,179,973   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

          

Current liabilities:

          

Accounts payable

   $ 9,289      $ 20,747      $ —        $ (6   $ 30,030   

Accrued expenses and other liabilities

     42,434        77,718        —          (30,368     89,784   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

     51,723        98,465        —          (30,374     119,814   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Long-term debt

     663,341        —          —          —          663,341   

Intercompany loan

     —          673,265        —          (673,265     —     

Retirement, post-retirement and post-employment plans

     170,670        —          —          —          170,670   

Deferred income taxes

     —          34,729        —          —          34,729   

Other liabilities and deferred credits

     22,594        4,039        864        —          27,497   

Stockholders’ equity

          

Common stock

     115,212        4,872        —          (4,872     115,212   

Additional paid-in capital

     28,806        2,435,790        (1,906     (2,436,309     26,381   

Accumulated other comprehensive loss

     (126,799     —          —          —          (126,799

Retained earnings

     149,128        (146,783     1,291        145,492        149,128   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

     166,347        2,293,879        (615     (2,295,689     163,922   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY

   $ 1,074,675      $ 3,104,377      $ 249      $ (2,999,328   $ 1,179,973   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

Media General, Inc.

Condensed Consolidating Statements of Operations

Three Months Ended June 26, 2011

(In thousands, unaudited)

 

     Media General
Corporate
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Media General
Consolidated
 

Revenues

   $ 7,891      $ 156,246      $ —        $ (9,351   $ 154,786   

Operating costs:

          

Employee compensation

     4,793        66,376        (289     —          70,880   

Production

     —          37,734        —          (1,324     36,410   

Selling, general and administrative

     575        35,130        —          (8,027     27,678   

Depreciation and amortization

     659        12,382        —          —          13,041   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating costs

     6,027        151,622        (289     (9,351     148,009   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     1,864        4,624        289        —          6,777   

Other income (expense):

          

Interest expense

     (17,180     (12     —          —          (17,192

Intercompany interest income (expense)

     17,210        (17,210     —          —          —     

Investment income (loss)—consolidated affiliates

     (18,502     —          —          18,502        —     

Other, net

     228        24        —          —          252   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense)

     (18,244     (17,198     —          18,502        (16,940
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     (16,380     (12,574     289        18,502        (10,163

Income tax expense (benefit)

     (998     6,217        —          —          5,219   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     (15,382     (18,791     289        18,502        (15,382

Other comprehensive income (net of tax)

     1,560        —          —          —          1,560   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

   $ (13,822   $ (18,791   $ 289      $ 18,502      $ (13,822
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

Media General, Inc.

Condensed Consolidating Statements of Operations

Three Months Ended June 27, 2010

(In thousands, unaudited)

 

     Media General
Corporate
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Media General
Consolidated
 

Revenues

   $ 10,475      $ 191,886      $ —        $ (36,199   $ 166,162   

Operating costs:

          

Employee compensation

     8,653        63,533        260        (1     72,445   

Production

     —          37,364        —          (533     36,831   

Selling, general and administrative

     342        62,229        —          (35,667     26,904   

Depreciation and amortization

     607        13,090        —          —          13,697   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating costs

     9,602        176,216        260        (36,201     149,877   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     873        15,670        (260     2        16,285   

Other income (expense):

          

Interest expense

     (17,083     (6     —          —          (17,089

Intercompany interest income (expense)

     13,028        (13,028     —          —          —     

Investment income (loss)—consolidated affiliates

     (5,167     —          —          5,167        —     

Other, net

     204        (38     —          —          166   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense)

     (9,018     (13,072     —          5,167        (16,923
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     (8,145     2,598        (260     5,169        (638

Income tax expense (benefit)

     (3,862     7,507        —          —          3,645   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     (4,283     (4,909     (260     5,169        (4,283

Other comprehensive income (net of tax)

     4,443        —          —          —          4,443   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

   $ 160      $ (4,909   $ (260   $ 5,169      $ 160   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

Media General, Inc.

Condensed Consolidating Statements of Operations

Six Months Ended June 26, 2011

(In thousands, unaudited)

 

     Media General
Corporate
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Media General
Consolidated
 

Revenues

   $ 17,219      $ 306,138      $ —        $ (19,628   $ 303,729   

Operating costs:

          

Employee compensation

     14,965        134,313        (179     —          149,099   

Production

     —          74,404        —          (2,238     72,166   

Selling, general and administrative

     963        70,301        —          (17,390     53,874   

Depreciation and amortization

     1,279        24,781        —          —          26,060   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating costs

     17,207        303,799        (179     (19,628     301,199   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     12        2,339        179        —          2,530   

Other income (expense):

          

Interest expense

     (33,733     (23     —          —          (33,756

Intercompany interest income (expense)

     34,364        (34,364     —          —          —     

Investment income (loss)—consolidated affiliates

     (44,253     —          —          44,253        —     

Other, net

     469        48        —          —          517   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense)

     (43,153     (34,339     —          44,253        (33,239
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     (43,141     (32,000     179        44,253        (30,709

Income tax expense (benefit)

     (1,955     12,432        —          —          10,477   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     (41,186     (44,432     179        44,253        (41,186

Other comprehensive income (net of tax)

     3,058        —          —          —          3,058   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

   $ (38,128   $ (44,432   $ 179      $ 44,253      $ (38,128
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

Media General, Inc.

Condensed Consolidating Statements of Operations

Six Months Ended June 27, 2010

(In thousands, unaudited)

 

     Media General
Corporate
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Media General
Consolidated
 

Revenues

   $ 18,889      $ 375,014      $ —        $ (68,877   $ 325,026   

Operating costs:

          

Employee compensation

     17,237        130,514        287        (1     148,037   

Production

     —          73,205        —          (841     72,364   

Selling, general and administrative

     207        120,061        —          (68,035     52,233   

Depreciation and amortization

     1,220        26,179        —          (1     27,398   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating costs

     18,664        349,959        287        (68,878     300,032   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     225        25,055        (287     1        24,994   

Other income (expense):

          

Interest expense

     (36,897     (15     —          —          (36,912

Intercompany interest income (expense)

     24,132        (24,132     —          —          —     

Investment income (loss)—consolidated affiliates

     (13,043     —          —          13,043        —     

Other, net

     579        (38     —          —          541   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense)

     (25,229     (24,185     —          13,043        (36,371
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     (25,004     870        (287     13,044        (11,377

Income tax expense (benefit)

     (3,975     13,627        —          —          9,652   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     (21,029     (12,757     (287     13,044        (21,029

Other comprehensive income (net of tax)

     5,090        —          —          —          5,090   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

   $ (15,939   $ (12,757   $ (287   $ 13,044      $ (15,939
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

Media General, Inc.

Condensed Consolidating Statements of Cash Flows

Six Months Ended June 26, 2011

(In thousands, unaudited)

 

     Media General
Corporate
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Media General
Consolidated
 

Cash flows from operating activities:

          

Net cash (used) provided by operating activities

   $ (7,596   $ 4,634      $ 24      $ —        $ (2,938

Cash flows from investing activities:

          

Capital expenditures

     (936     (9,643     —          —          (10,579

Net change in intercompany note receivable

     (5,495     —          —          5,495        —     

Other, net

     53        206        —          —          259   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash (used) provided by investing activities

     (6,378     (9,437     —          5,495        (10,320

Cash flows from financing activities:

          

Increase in bank debt

     45,000        —          —          —          45,000   

Repayment of bank debt

     (50,000     —          —          —          (50,000

Net change in intercompany loan

     —          5,495        —          (5,495     —     

Other, net

     21        —          (24     —          (3
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash (used) provided by financing activities

     (4,979     5,495        (24     (5,495     (5,003
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

     (18,953     692        —          —          (18,261

Cash and cash equivalents at beginning of year

     30,893        967        —          —          31,860   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 11,940      $ 1,659      $ —        $ —        $ 13,599   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Media General, Inc.

Condensed Consolidating Statements of Cash Flows

Six Months Ended June 27, 2010

(In thousands, unaudited)

 

     Media General
Corporate
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Media General
Consolidated
 

Cash flows from operating activities:

          

Net cash (used) provided by operating activities

   $ (13,833   $ 67,246      $ 9      $ —        $ 53,422   

Cash flows from investing activities:

          

Capital expenditures

     (1,027     (7,769     —          —          (8,796

Net change in intercompany note receivable

     59,449        —          —          (59,449     —     

Other, net

     60        460        —          —          520   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided (used) by investing activities

     58,482        (7,309     —          (59,449     (8,276

Cash flows from financing activities:

          

Proceeds from issuance of senior notes

     293,070        —          —          —          293,070   

Increase in bank debt

     134,156        —          —          —          134,156   

Repayment of bank debt

     (466,625     (15     —          —          (466,640

Debt issuance costs

     (12,078     —          —          —          (12,078

Net change in intercompany loan

     —          (59,449     —          59,449        —     

Other, net

     192        —          (9     —          183   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash (used) provided by financing activities

     (51,285     (59,464     (9     59,449        (51,309
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

     (6,636     473        —          —          (6,163

Cash and cash equivalents at beginning of year

     31,691        1,541        —          —          33,232   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 25,055      $ 2,014      $ —        $ —        $ 27,069   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

OVERVIEW

Media General is a multimedia communications company serving consumers and advertisers in strong local markets positioned primarily in the southeastern United States. It is committed to providing high-quality local content in growth markets over multiple platforms, to continually developing new products and services tailored to customer preferences, and to transitioning to a digital media model over time while continuing to nurture and, whenever possible, grow traditional audience viewership. The Company is comprised of five geographic segments (Virginia/Tennessee, Florida, Mid-South (which includes South Carolina, Georgia, Alabama, and Mississippi), North Carolina, and Ohio/Rhode Island) along with a sixth segment that includes interactive advertising services and certain other operations. Regardless of the delivery platform, the Company’s primary product is content and information, which is strategically delivered based on customers’ distinct needs and preferences within their individual markets. The Company’s strategic objective is to drive profitable growth across multiple platforms by engaging with communities on their own terms and by developing effective marketing opportunities that connect advertisers to the prospective customers they want to reach.

The Company’s fiscal year ends on the last Sunday in December.

RESULTS OF OPERATIONS

The Company recorded a net loss of $15 million ($0.68 per share) and $41 million ($1.84 per share) in the second quarter and first six months of 2011, respectively, compared to a net loss of $4.3 million and $21 million in the equivalent 2010 periods. Segment operating profits fell approximately 50% in the second quarter and first six months of 2011 from the prior-year similar periods. The primary factor contributing to this reduced year-over-year performance in the quarter and year to date was an approximate 7% decline in revenues in both periods. As the economic recovery has flattened this year, weakness in Print advertising has continued. Additionally, the absence of the Olympics and significantly reduced Political advertising in this odd-numbered year have both contributed to the revenue shortfall. In an effort to mitigate some of the revenue weakness, discretionary spending was held to a minimum as evidenced by a 1.2% quarter-over-quarter decrease in operating costs (despite a $1.5 million increase in severance expense) in the second quarter of 2011; operating costs were up less than one-half percent in the first six months of 2011 over the first half of 2010 (including a $1.3 million year-over-year increase in severance). While second-quarter interest expense was essentially level with the prior-year, there was an 8.6% decrease in the first half of the year that was more than fully attributable to the 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 increased $1.6 million and $.8 million in the second quarter and first half of 2011 as compared to the equivalent periods of 2010, chiefly due to different amounts of intraperiod tax allocation related to Other Comprehensive Income adjustments recorded in the second quarter of 2010.

 

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Table of Contents

SEGMENT RESULTS

Revenues

Revenues are grouped primarily into five major categories: Local, National, Political, Classified, and Subscription/Content/Circulation (which includes newspaper circulation, broadcast retransmission revenues, and interactive subscription and content revenues). The following chart summarizes the total consolidated period-over-period changes in these select revenue categories:

Change in Market Revenue by Major Category

2011 versus 2010

 

     Second Quarter Change     Year-to-date Change  

(In thousands)

   Amount     Percent     Amount     Percent  

Local

   $ 533        0.6      $ (753     (0.5

National

     (1,272     (4.4     (5,885     (10.1

Political

     (6,471     (91.6     (7,262     (90.3

Classified

     (4,186     (18.9     (7,405     (17.1

Subs/Content/Circulation

     (215     (1.0     (701     (1.6

As illustrated in the chart above, revenues were down across all major categories with the exception of second-quarter Local advertising. Contributing to the reduced revenues was a general weakness in advertising at the Company’s Print operations and the current-year absence of several items, including: more than $7 million in first-quarter 2010 Olympic revenues, nearly $1 million in prior-year first-quarter Super Bowl revenues (which aired on FOX this year), and approximately $1 million of second-quarter 2010 BP image advertising related to the Gulf of Mexico oil spill. As anticipated in this off-election year, Political advertising was down significantly. Classified continued to struggle in most, but not all, locations and generally had a greater impact in those markets with a heavier mix of newspapers. While not yet a major revenue category, the Company’s Printing and Distribution operations have continued to expand and are becoming an increasingly important contributor to overall revenues as evidenced by increases of 35% (to $4.5 million) in the second quarter and 30% (to $8.5 million) in the first half of 2011 over the equivalent prior-year periods.

Revenues in the Virginia/Tennessee Market fell approximately 8% in both the second quarter and first six months of 2011 as compared to the prior year. Advertising dollars were down across all categories. Classified advertising fell farthest from the mark (down 23% in the second quarter and 20% in the first half of 2011) and was the largest contributor to the year-over-year decline as legal advertising rates and real estate advertising volumes dropped significantly. National and Local advertising fell a combined 5% in both the second quarter and first half of 2011 from the equivalent periods last year. Revenues from third-party Printing and Distribution grew 26% and 16% in the second quarter and first six months of the year.

Revenues in the Florida Market decreased 11% in both the second quarter and first six months of 2011 compared to the same prior-year periods. The continued soft housing market and high unemployment in the Tampa Bay area remained factors in the Market’s overall revenue performance. National advertising suffered the largest decline (down 22% and 27% in the quarter and year to date, respectively) and was impacted by non-recurring revenues from both the second-quarter 2010 BP image advertising and the 2010 Winter Olympics. Local advertising (down 3.1% and 3.6% in the quarter and year to date, respectively) was also impacted by the absence of 2010 Olympic revenues, and decreased advertising in the department store, electronics and automotive categories. Classified advertising (down 18% and 17% in the quarter and first half of the year, respectively) dropped most significantly in the employment, automotive and real estate categories.

Revenues in the Mid-South Market decreased a moderate 1.1% in the second quarter of 2011 and, running counter to trend, increased 1.6% in the first half of 2011. Excluding Political advertising, total advertising revenues rose approximately 7% and 6% in the second quarter and first six months of 2011, respectively, due to solid growth in Local advertising (up approximately 5% in both the quarter and year to date) and National advertising (up 13% and 9.4% in the quarter and year to date, respectively). Displacement of Political advertising in 2011 freed up additional advertiser dollars and allowed for these solid gains in Local and National advertising. Partially mitigating the quarterly revenue decline induced by significantly diminished Political advertising, was an 83% increase in Printing and Distribution and a 8.4% rise in Subscription/Content/Circulation revenues. Contributing to the Market’s revenue improvement in the year to date was a 69% increase in Printing and Distribution revenues and growth of 7.6% in Subscription/Content/Circulation revenues.

Revenues in the North Carolina Market declined 1.2% and 3.7% in the second quarter and first half of 2011 from the comparative prior-year periods. Advertising revenues were down across all categories, with the

 

23


Table of Contents

exception of second-quarter Local advertising (up less than 1%). The lack of Olympic spending and weakness across many advertising categories led to reduced current-year revenues in the Market. Classified advertising struggled (down 19% and 18% in the quarter and year to date, respectively) due to lower legal and real estate advertising. National advertising posted declines of 9.2% in the second quarter and 15% in the first six months of the year as compared to equivalent 2010 periods. Conversely, Printing and Distribution revenues nearly doubled in the second quarter and more than doubled in the first half of 2011 with the addition of USA TODAY as a third-party customer towards the end of 2010.

Revenues in the Ohio/Rhode Island Market increased 1.8% in the second quarter, but decreased 3.7% in the first half of 2011. This is the Company’s only geographic market which does not include any newspapers and is therefore less influenced by Classified advertising, but more affected by the ebb and flow of Political and Olympic revenues in corresponding odd and even-numbered years. Both of this Market’s television stations are NBC affiliates and, consequently, reaped the full benefit of 2010 Winter Olympics advertising. Despite the lack of Olympic revenues and significantly diminished Political revenues in the current year, total advertising revenue was up 1.2% in the second quarter. Local advertising revenues improved (up 11% and 1.3% in the quarter and year to date, respectively) due to the success of new local business development. National advertising was impacted (down 1.9% and 9.8% in the quarter and year to date, respectively) by the weakened economy in advertising categories which rely heavily on disposable income such as entertainment and retail.

Operating Expenses

Total operating costs dropped 1.2% in the second quarter and rose less than 1% in the first half of 2011. The Company manages its expenses consistent with the revenue opportunities in each market. Over the past few years in particular, the Company has reacted to the challenging advertising environment by aggressively reducing costs across all markets and modifying its operations to achieve greater efficiencies. The slow pace of the economic recovery has prompted the Company to proactively manage discretionary spending and to implement both targeted reductions in force and a furlough program (which mandates employees take 15 unpaid days) for the second half of 2011. Workforce reductions are necessary to align expenses with the prevailing economic conditions and resulted in pretax severance costs of $1.6 million and $1.7 million in the second quarter and first half of 2011, respectively. After several years of virtually freezing all merit increases as well as suspending the Company’s 401(k) match, the Company reinstated modest merit increases and a 401(k) match of up to 2% of the employee’s salary effective with 2011’s first quarter. Despite these increased costs, employee compensation was down 2.2% in the second quarter due to lower employee counts and decreased stock-based compensation expense. In the first half of 2011, the same factors were in place, but in a different proportion, which resulted in an increase of less than 1% in employee compensation expense as compared to the first half of the prior year. Newsprint cost was up 14% and 22% in the second quarter and first half of 2011, respectively, from the equivalent prior-year periods due almost fully to a 13% and 21% increase in average cost per ton in those respective periods. Lower depreciation costs (due primarily to lower capital expenditures in recent years) provided additional savings in the quarter and helped mitigate the overall increase in operating expenses in the year to date.

Operating expenses in the Virginia/Tennessee Market increased approximately 1% in both the second quarter and first half of 2011. Higher newsprint costs (up 15% and 24% in the quarter and year to date, respectively) were primarily responsible for the increase, partially offset by a decrease in depreciation and amortization (due to lower capital expenditures) and lower employee compensation costs as a result of reduced employee counts.

Operating expenses in the Florida Market were down approximately 1% in the second quarter and essentially level in the first half of the year with the first six months of 2010. Lower depreciation and amortization costs, combined with concerted efforts to manage discretionary spending, more than offset higher newsprint expense (up 14% and 22% in the quarter and year to date, respectively). Savings from reduced departmental spending were achieved in numerous areas, but most significantly in marketing and promotion. Higher employee compensation included $.8 million of severance costs in both the quarter and first six months of 2011.

 

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Table of Contents

Operating expenses in the Mid-South Market rose 6% and 4.5% in the second quarter and first half of 2011 from the same periods in 2010. Higher employee compensation expense was responsible for the Market’s increased costs due not only to merit increases, but also to the Market’s strong performance in garnering Local and National advertising revenues which resulted in higher sales incentives and commissions. This market has a heavier mix of broadcast stations than newspapers and therefore, while newsprint costs were up, they were less significant to the overall cost increase than in most other markets.

Operating expenses in the North Carolina Market increased 3.4% and 1.1% in the second quarter and first half of 2011 as compared to 2010’s similar periods due in large part to higher newsprint costs (up 4.6% and 11% in the quarter and year to date, respectively) and a $.3 million quarter-over-quarter increase in severance costs in the second quarter of 2011. As was the case with all of the markets, a drop in depreciation and amortization expense (down 10% in both the quarter and year to date) aided the Market’s overall results.

Operating expenses in the Ohio/Rhode Island Market were up 3.8% in the second quarter and essentially level with the prior year for the first six months of 2011. Employee compensation costs rose as a result of merit increases and sales incentives associated with Local advertising success. Savings in depreciation and amortization expense, as well as reduced bad debt expense, partially offset higher employee costs in the quarter and year to date.

Advertising Services & Other

Advertising Services & Other (ASO) primarily includes:

 

   

Blockdot – an advergaming business that also produces other forms of branded entertainment;

 

   

DealTaker.com – an online social shopping portal;

 

   

NetInformer – a provider of mobile advertising and marketing services;

 

   

Production Services – comprised primarily of a provider of broadcast equipment and studio design services.

Revenues in ASO decreased 32% and 25% in the second quarter and first six months of 2011 from the comparative periods of 2010. The Market’s revenue decline was due in large part to a $1.7 million (77%) and $3.2 million (63%) reduction in revenues in the second quarter and first half of 2011, respectively, at DealTaker.com that was driven by a significant change in the way Internet search results are delivered by Google that affected many e-commerce businesses. Also contributing to the Market’s decreased revenues was a $.7 million (49%) and $.8 million (28%) decline in revenues in the quarter and year to date at Blockdot due to business softness. Partially offsetting DealTaker.com and Blockdot’s weak performance were a $.5 million (23%) and $.7 million (18%) increase in revenues in the Production Services operations due to higher broadcast equipment sales and installations and, to a lesser degree, revenue improvement at NetInformer. The Company performed an interim impairment test on DealTaker.com in the first quarter of 2011 and on Blockdot in the second quarter of this year by comparing the carrying values of the reporting units to their estimated fair values, with no impairment indicated.

Operating expenses were up approximately 6% in both the second quarter and first half of 2011 primarily due to higher cost of goods sold which were in line with the previously mentioned increased volume of work at Production Services, partially offset by small expense reductions at DealTaker.com and Blockdot.

Operating Profit (Loss)

The following chart shows the change in operating profit by market; the period-over-period movement in market operating profit was driven by the underlying fluctuations in revenue and expense as detailed in the previous discussion.

 

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Table of Contents

Change in Market Operating Profits

2011 versus 2010

 

     Second Quarter Change     Year-to-date Change  

(In thousands)

   Amount     Percent     Amount     Percent  

Virginia/Tennessee

   $ (4,344     (41.4   $ (8,116     (44.9

Florida

     (3,737     NM        (8,117     NM   

Mid-South

     (2,366     (24.7     (1,630     (11.4

North Carolina

     (840     (54.7     (1,824     (68.9

Ohio/Rhode Island

     (142     (3.9     (1,079     (15.5

Adv. Services & Other

     (2,217     NM        (3,669     NM   
  

 

 

     

 

 

   

Total

   $ (13,646     (49.3   $ (24,435     (52.0
  

 

 

     

 

 

   

“NM” is not meaningful

All markets fell short of achieving their 2010 operating profit performance in both the quarter and first half of 2011, with the Florida and Virginia/Tennessee Markets falling farthest from the prior-year marks. Lower revenues (due to 2011 being an odd-numbered year and to weakness in advertising at the Company’s Print operations) drove the year-over-year declines for most markets. The exceptions to this trend were the Ohio/Rhode Island Market which produced revenue growth of 1.8% in the quarter on the strength of Local advertising and the Mid-South Market which posted a 1.6% improvement in revenues in the first half of 2011, due primarily to a strong first-quarter revenue performance.

INTEREST EXPENSE

Interest expense was essentially even (up less than 1%) in the second quarter with the prior year’s second quarter. A $13 million decrease in average debt outstanding was more than offset by a slight increase in the average interest rate (up approximately 25 basis points). Interest expense decreased $3.2 million in the first six months of 2011 from the equivalent year-ago period. The first half of the prior-year included $5.5 million in debt issuance costs that were immediately expensed when the Company entered into its new financing structure in February 2010. Absent this write-off, interest expense would have increased in 2011 due to an increase in the average interest rate from 9% in the first half of 2010 to 10% in the first six months of 2011, slightly offset by the effect of a $26 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 have historically been 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 August of 2011. Because the interest rate swaps expire in August 2011, the fair value as of June 26, 2011 was determined based on the value of the remaining interest payments under the swap. Changes in cash flows of the interest rate swaps offset changes in the interest payments on the Company’s bank debt. These swaps effectively convert the Company’s variable rate bank debt to fixed rate debt with a weighted average interest rate approximating 10.1% at June 26, 2011.

INCOME TAXES

The Company recorded non-cash income tax expense of $5.2 million and $10.5 million in the second quarter and first six months of 2011, compared to $3.6 million and $9.7 million in the equivalent quarter and six months of 2010. The year-over-year increase was primarily due to different amounts of intraperiod tax allocation related to Other Comprehensive Income (OCI) adjustments recorded in the second quarter of 2010. The Company’s tax provision for all periods had an unusual relationship to pretax loss due primarily to the existence of a full deferred tax asset valuation allowance at the beginning of each period. This circumstance generally

 

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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 second quarter of 2011 reflects the accrual of approximately $6.2 million ($12 million for the first six months of 2011) of valuation allowance in connection with the tax amortization of the Company’s indefinite-lived intangible assets that is not available to offset existing deferred tax assets (termed a “naked credit”), partially offset by $1 million ($2 million for the first six months of 2011) of tax benefit related to the intraperiod allocation items in OCI. The Company expects the naked credit to result in approximately $25 million of non-cash income tax expense for the full-year 2011; other tax adjustments and intraperiod tax allocations that are difficult to forecast may also affect the remainder of 2011.

LIQUIDITY

Net cash used by operating activities in the first half of 2011 was $2.9 million compared to $53 million provided by operations in the year-ago period. Cash collected from year-end accounts receivable and the drawdown of cash equivalents allowed the Company to make interest payments of $32 million, make capital expenditures of $10.6 million, make retirement plan contributions of $7.1 million and to reduce debt by $5 million.

As of June 26, 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 $66 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 (4.5% at the close of the second quarter) based on the Company’s 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).

The Company pledged its cash and assets as well as the stock of its subsidiaries as collateral; the Company’s subsidiaries also guarantee the debt of the parent company. Additionally, there are restrictions on the Company’s ability to pay dividends (none are allowed in 2011), make capital expenditures above certain levels, repurchase its stock, make pension plan contributions above the amount required to maintain 80% plan funding, and engage in certain other transactions such as making investments or entering into capital leases above certain preset levels. The Company was in compliance with all covenants as of June 26, 2011 and fully expects that the covenants in both the near and long-term will continue to be met. The Company is currently evaluating its options for refinancing the $364 million of bank debt due March 2013.

OUTLOOK

While the Company had aimed for and expected better results in the first half of 2011, the weakening economic recovery has resulted in further expense reductions that should better position the Company during the second half of the year. Even though this is an off-election year, the Company’s Broadcast stations are expected to benefit from issue advertising and early presidential campaign spending in the latter part of 2011. The Company remains optimistic about its Broadcast properties and digital offerings in the second half of the year and anticipates year-over-year improvement in several of its markets for the third quarter. However, the Company’s Print properties are expected to experience the effects of lower revenues and higher newsprint costs during the remainder of 2011. Targeted reductions in force and the previously described furlough program should allow the Company to keep its operating expenses down approximately 3% for the full year of 2011 as compared to 2010. The Company is responding to the ongoing changes in the packaging and delivery of news and information and is creating new revenue streams from multiple sources and leveraging all platforms available to it. The Company’s execution of this strategy is demonstrated by its success growing Local online revenues and in its relationships with both emerging and established online brands (such as Yahoo!, Zillow and Monster). Through these partnerships, diligent expense management and other market specific initiatives, the Company will be positioned well to capitalize on an economic recovery as it unfolds aided by the upcoming political and Olympic revenues in 2012.

 

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* * * * * * * *

Certain statements in this quarterly report that are not historical facts are “forward-looking” statements, as that term is defined by the federal securities laws. Forward-looking statements include statements related to expectations regarding interest expense, the economic recovery, the impact of cost-containment measures, reductions in force, income taxes, the Internet, debt compliance, general advertising levels and political and Olympic advertising levels. Forward-looking statements, including those which use words such as the Company “believes,” “anticipates,” “expects,” “estimates,” “intends,” “projects,” “plans,” “may” and similar words, are made as of the date of this filing and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in or implied by such statements.

Some significant factors that could affect actual results include: the effect of the economy on advertising demand, interest rates, the availability and pricing of newsprint, changes in consumer preferences for programming, health care cost trends and regulations, changes in return on pension plan assets, a natural disaster, the level of political advertising, and regulatory rulings and laws.

 

Item 3. Quantitative and Qualitative Disclosure About Market Risk.

The Company’s Annual Report on Form 10-K for the year ended December 26, 2010, details our disclosures about market risk. As of June 26, 2011, there have been no material changes in the Company’s market risk from December 26, 2010.

 

Item 4. Controls and Procedures

The Company’s management, including the chief executive officer and chief financial officer, performed an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the Company’s management, including the chief executive officer and chief financial officer, concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report. There have been no significant changes in the Company’s internal controls or in other factors that are reasonably likely to adversely affect internal control subsequent to the date of this evaluation.

 

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PART II. OTHER INFORMATION

 

Item 6. Exhibits

 

(a) Exhibits

 

31.1    Section 302 Chief Executive Officer Certification
31.2    Section 302 Chief Financial Officer Certification
32    Section 906 Chief Executive Officer and Chief Financial Officer Certification
101    The following financial information from the Media General, Inc. Quarterly Report on Form 10-Q for the quarter ended June 26, 2011, formatted in XBRL includes: (i) Consolidated Condensed Balance Sheets at June 26, 2011 and December 26, 2011, (ii) Consolidated Condensed Statements of Operations for the three and six months ended June 26, 2011 and June 27, 2010, (iii) Consolidated Condensed Statements of Cash Flows for the six months ended June 26, 2011 and June 27, 2010, and (iv) the Notes to Consolidated Condensed Financial Statements.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

    MEDIA GENERAL, INC.
DATE: August 5, 2011    

/s/ Marshall N. Morton

    Marshall N. Morton
    President and Chief Executive Officer
DATE: August 5, 2011    

/s/ John A. Schauss

    John A. Schauss
    Vice President - Finance and Chief Financial Officer

 

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