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EX-32 - EXHIBIT 32 - MEDIA GENERAL INCex32.htm
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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 24, 2012
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 website, 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 29, 2012.
  Class A Common shares:     22,733,767  
  Class B Common shares:     548,564  
 
 
 

 
 
MEDIA GENERAL, INC.
TABLE OF CONTENTS
FORM 10-Q REPORT
June 24, 2012
 
 
        Page
Part I.              Financial Information    
     
  Item 1.   Financial Statements    
           
     
Consolidated Condensed Balance Sheets – June 24, 2012 and December 25, 2011
   1
           
     
Consolidated Condensed Statements of Operations and Comprehensive Loss – Three and six months ended June 24, 2012 and June 26, 2011 
   3
           
     
Consolidated Condensed Statements of Cash Flows – Six months ended June 24, 2012 and June 26, 2011
   4
           
     
Notes to Consolidated Condensed Financial Statements 
   5
           
  Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations     23
           
  Item 3.   Quantitative and Qualitative Disclosure About Market Risk    30
           
  Item 4.   Controls and Procedures    30
           
Part II.             Other Information    
           
  Item 1A.   Risk Factors    31
           
  Item 6.   Exhibits    31
           
     
(a)         Exhibits
   
           
Signatures       32
 
 

 
 
PART I - FINANCIAL INFORMATION

Item 1.            Financial Statements

MEDIA GENERAL, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(000's except shares)

 
   
June 24,
2012
   
December 25,
2011
 
             
ASSETS
           
             
Current assets:
           
Cash and cash equivalents
  $ 16,661     $ 23,108  
Accounts receivable - net
    60,702       59,260  
Other
    18,796       17,513  
Assets of discontinued operations
    183,615       337,853  
Total current assets
    279,774       437,734  
                 
Other assets
    35,870       28,350  
                 
Property, plant and equipment - net
    159,408       169,827  
                 
FCC licenses and other intangibles - net
    201,250       203,023  
                 
Excess of cost over fair value of net identifiable assets of acquired businesses
    247,107       247,107  
    $ 923,409     $ 1,086,041  
 
See accompanying notes.
 
 
1

 
 
MEDIA GENERAL, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(000's except shares and per share data)

 
   
June 24,
2012
   
December 25,
2011
 
             
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
           
             
Current liabilities:
           
Accounts payable
  $ 19,334     $ 16,631  
Accrued expenses and other liabilities
    54,644       46,815  
Liabilities of discontinued operations
    32,547       38,269  
Total current liabilities
    106,525       101,715  
                 
Long-term debt
    651,911       658,199  
                 
Retirement, post-retirement and post-employment plans
    218,820       223,132  
                 
Deferred income taxes
    52,721       45,954  
                 
Other liabilities and deferred credits
    22,694       23,088  
                 
Stockholders' equity (deficit):
               
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 22,803,358 and 22,548,741 shares
    114,017       112,744  
Class B, authorized 600,000 shares; issued 548,564 shares
    2,743       2,743  
Additional paid-in capital
    44,922       28,711  
Accumulated other comprehensive loss
    (185,116 )     (185,116 )
Retained earnings (accumulated deficit)
    (105,828 )     74,871  
Total stockholders' equity (deficit)
    (129,262 )     33,953  
    $ 923,409     $ 1,086,041  
 
See accompanying notes.
 
 
2

 
 
MEDIA GENERAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
(Unaudited)
(000's except for per share data)

   
Three Months Ended
   
Six Months Ended
 
   
June 24,
2012
   
June 26,
2011
   
June 24,
2012
   
June 26,
2011
 
Revenues
                       
Broadcast television
  $ 80,631     $ 68,833     $ 152,783     $ 132,778  
Digital media and other
    3,481       2,889       6,448       6,232  
Total revenues
    84,112       71,722       159,231       139,010  
Operating costs:
                               
Employee compensation
    32,302       30,220       69,186       66,738  
Production
    18,923       17,779       37,011       34,882  
Selling, general and administrative
    10,423       10,263       19,189       19,104  
Depreciation and amortization
    6,110       7,279       13,425       14,497  
Total operating costs
    67,758       65,541       138,811       135,221  
Operating income
    16,354       6,181       20,420       3,789  
Other income (expense):
                               
Interest expense
    (21,657 )     (17,190 )     (36,808 )     (33,753 )
Debt modification and extinguishment costs
    (7,689 )     -       (18,097 )     -  
Other, net
    236       227       421       469  
Total other expense
    (29,110 )     (16,963 )     (54,484 )     (33,284 )
                                 
Loss from continuing operations before income taxes
    (12,756 )     (10,782 )     (34,064 )     (29,495 )
Income tax expense
    3,409       2,558       6,817       5,154  
Loss from continuing operations
    (16,165 )     (13,340 )     (40,881 )     (34,649 )
Discontinued operations:
                               
Income (loss) from discontinued operations (net of taxes)
    1,566       (2,042 )     (8,142 )     (6,537 )
Loss related to divestiture of discontinued operations (net of taxes)
    (131,697 )     -       (131,697 )     -  
Net loss
    (146,296 )     (15,382 )     (180,720 )     (41,186 )
Unrealized gain on derivative contracts (net of deferred taxes of $997 and $1,955, respectively)
    -       1,560       -       3,058  
Comprehensive loss
  $ (146,296 )   $ (13,822 )   $ (180,720 )   $ (38,128 )
Net loss per common share:
                               
Loss from continuing operations
  $ (0.71 )   $ (0.59 )   $ (1.81 )   $ (1.54 )
Discontinued operations
    (5.77 )     (0.09 )     (6.20 )     (0.30 )
Net loss per common share – basic and assuming dilution
  $ (6.48 )   $ (0.68 )   $ (8.01 )   $ (1.84 )
 
See accompanying notes.
 
 
3

 
 
MEDIA GENERAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
 CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(000’s)
 
   
Six Months Ended
 
   
June 24,
2012
   
June 26,
2011
 
Operating activities:
           
Net loss
  $ (180,720 )   $ (41,186 )
Adjustments to reconcile net loss:
               
Depreciation and amortization
    21,086       26,060  
Deferred income taxes
    11,613       12,432  
Loss related to divestiture of discontinued operations (net of taxes)
    131,697       -  
Goodwill and other asset impairment (net of taxes)
    6,472       -  
Non-cash interest expense
    4,405       1,744  
Debt modification and extinguishment costs
    18,097       -  
Change in assets and liabilities:
               
Accounts receivable and inventories
    8,096       16,669  
Accounts payable, accrued expenses, and other liabilities
    9,819       (6,224 )
Retirement plan contributions
    (4,440 )     (7,053 )
Other, net
    (5,914 )     (5,380 )
Net cash provided (used) by operating activities
    20,211       (2,938 )
                 
Investing activities:
               
Capital expenditures
    (4,253 )     (10,579 )
Collateral deposit related to letters of credit
    (5,441 )     -  
Other, net
    1,836       259  
Net cash used by investing activities
    (7,858 )     (10,320 )
                 
Financing activities:
               
Increase in borrowings
    395,500       45,000  
Repayment of borrowings
    (387,098 )     (50,000 )
Debt issuance costs
    (27,172 )     -  
Other, net
    (30 )     (3 )
Net cash used by financing activities
    (18,800 )     (5,003 )
                 
Net decrease in cash and cash equivalents
    (6,447 )     (18,261 )
Cash and cash equivalents at beginning of period
    23,108       31,860  
Cash and cash equivalents at end of period
  $ 16,661     $ 13,599  
                 
Cash paid for interest
  $ 29,833     $ 32,288  
Non-cash financing activites:
               
Issuance of common stock warrants
  $ (16,912 )   $ -  
Discount accretion
    1,270       495  
Payment-in-kind interest
    972       -  
 
See accompanying notes.
 
 
4

 
 
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 25, 2011.
 
As explained further below, the Company has adjusted its historical financial statements to present certain components of the Company as discontinued operations for all periods presented.  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.         On the first day of the third quarter of 2012, the Company sold all of its newspapers (with the exception of the Tampa group) to World Media Enterprises, Inc. (World Media), a subsidiary of Berkshire Hathaway, for $142 million in cash subject to working capital adjustments and other specified items.  The Company is in discussions with other prospective buyers for its Tampa print assets and associated websites.  Additionally, in the second quarter of 2012, the Company sold DealTaker.com for a nominal amount and shut down its production services company which provided broadcast equipment and design services.  As illustrated in the following chart, the results of these newspapers (as well as their associated web sites), DealTaker.com and the Company’s production services unit have been presented as discontinued operations in the accompanying consolidated condensed statements of operations for the second quarters and six months ended June 24, 2012, and June 26, 2011.  Depreciation and amortization on assets related to these properties ceased during the second quarter of 2012.  The accompanying consolidated condensed balance sheets have been adjusted to present assets and liabilities of discontinued operations separately from those of continuing operations.  The Company also recorded a $132 million after-tax loss related to the expected divestiture of discontinued operations, in the second quarter.  The total after-tax loss includes an estimated loss on the sale of newspapers to World Media of $110 million, an estimated loss on the sale of the Tampa print properties of $18 million, and a loss on the sale of DealTaker.com of $4 million. The Company will provide transition services to World Media over the next twelve months in the areas of human resources, information technology and digital support.  Conversely, World Media will provide selected services (particularly the use of certain systems) which will primarily be utilized during the period the Company continues to operate the Tampa print properties.
 
   
Three Months
Ended
   
Three Months
Ended
   
Six Months
Ended
   
Six Months
Ended
 
(In thousands)
 
June 24,
2012
   
June 26,
2011
   
June 24,
2012
   
June 26,
2011
 
Revenues
  $ 74,999     $ 83,064     $ 149,394     $ 164,719  
Costs and expense
    71,034       82,445       156,350       165,933  
Income before income taxes
    3,965       619       (6,956 )     (1,214 )
Income taxes
    2,399       2,661       1,186       5,323  
Income (loss) from discontinued operations
  $ 1,566     $ (2,042 )   $ (8,142 )   $ (6,537 )
 
The Company performed an interim impairment test on DealTaker.com as of the end of the first quarter, which resulted in a non-cash goodwill and other intangible asset impairment charge of $6.5 million net of a tax benefit of $3.6 million.  This impairment charge is included in the loss from discontinued operations for the six months ended June 24, 2012.
 
 
5

 
 
The assets of discontinued operations consisted of approximately $40 million and $47 million of current assets and $144 million and $291 million of long-lived assets at June 24, 2012 and December 25, 2011, respectively.  Long-lived assets at June 24, 2012, included $200 million of fixed assets, $69 million of allocated goodwill, $2 million of other intangible assets, and $5 million of other assets (primarily software) which were offset by the $132 million loss related to divestiture of discontinued operations.  Long-lived assets at December 25, 2011, included $205 million of fixed assets, $78 million of allocated goodwill, $3 million of other intangible assets, and $5 million of other assets (primarily software).
 
Liabilities of discontinued operations of approximately $33 million and $38 million at June 24, 2012 and December 25, 2011, respectively primarily represent accounts payable and accrued expenses.
 
3.         The Consolidated Condensed Statements of Operations include amortization expense from amortizing intangible assets of $.4 million and $1.4 million for the second quarters of 2012 and 2011, respectively, and $1.8 million and $2.7 million for the respective first six months of 2012 and 2011.  Currently, intangibles amortization expense is projected to be approximately $2.8 million in total for 2012, decreasing to $1.8 million in 2013 and for each year through 2017.
 
The Company has recorded pretax cumulative impairment losses related to goodwill approximating $724 million through June 24, 2012.  For impairment tests, the Company compares the carrying value of the reporting unit or asset tested to its estimated fair value. The estimated fair value is determined using a combination of the income approach and the market approach. The income approach utilizes the estimated discounted cash flows expected to be generated by the assets. The market approach employs comparable company information, and where available, recent transaction information for similar assets. The determination of fair value requires the use of significant judgment and estimates about assumptions that management believes are appropriate in the circumstances although it is reasonably possible that actual performance will differ from these assumptions. These assumptions include those relating to revenue growth, compensation levels, capital expenditures, discount rates and market trading multiples for comparable assets.  The fair value measurements determined for purposes of performing the Company’s impairment tests are considered to be Level 3 under the fair value hierarchy because they required significant unobservable inputs to be developed using estimates and assumptions determined by the Company and reflecting those that a market participant would use.
 
 
6

 
 
The following table shows the gross carrying amount and accumulated amortization for intangible assets as of June 24, 2012 and December 25, 2011:
 
   
December 25, 2011
   
Change
   
June 24, 2012
 
(In thousands)
 
Gross Carrying
Amount
   
Accumulated
Amortization
   
Amortization
Expense
   
Gross Carrying
Amount
   
Accumulated
Amortization
 
Amortizing intangible assets
                             
(including network affiliation, advertiser and programming relationships):
                             
Virginia/Tennessee
  $ 30,537     $ 19,338     $ 298     $ 30,537     $ 19,636  
Florida
    -       -       -       -       -  
Mid-South
    78,118       65,169       1,205       78,118       66,374  
North Carolina
    7,276       5,808       73       7,276       5,881  
Ohio/Rhode Island
    9,157       5,580       179       9,157       5,759  
Advert. Serv. & Other
    2,820       2,802       18       2,820       2,820  
Total
  $ 127,908     $ 98,697     $ 1,773     $ 127,908     $ 100,470  
                                         
Indefinite-lived intangible assets:
                                       
Goodwill:
                                       
Virginia/Tennessee
  $ 22,025                     $ 22,025          
Florida
    40,663                       40,663          
Mid-South
    112,564                       112,564          
North Carolina
    8,545                       8,545          
Ohio/Rhode Island
    61,408                       61,408          
Advert. Serv. & Other
    1,902                       1,902          
Total goodwill
    247,107                       247,107          
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
    114                       114          
Total
  $ 420,919                     $ 420,919          
 
4.            The Company recorded non-cash income tax expense from continuing operations of $3.4 million and $6.8 million in the second quarter and first six months of 2012, compared to $2.6 million and $5.2 million in the equivalent quarter and six months of 2011. The Company’s tax provision for each period 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. However, tax expense recorded in the second quarters of 2012 and 2011 included the accrual of non-cash tax expense of approximately $3.4 million and $3.6 million, respectively, of additional valuation allowance in connection with the tax amortization of the Company’s indefinite-lived intangible assets that was not available to offset existing deferred tax assets (termed a “naked credit”). Both periods reflected approximately $6 million of non-cash tax expense in total that was allocated between continuing and discontinued operations. The “naked credit” expense was partially offset in the second quarter of 2011 by approximately $1 million of tax benefit related to the intraperiod allocation items in Other Comprehensive Income. After the sale of discontinued operations, the Company expects the naked credit to generate approximately $14 million of non-cash income tax expense from continuing operations for the full-year 2012; other discrete tax adjustments and intraperiod tax allocations that are difficult to forecast may impact the remainder of 2012. A full discussion of the naked credit issue is contained in Note 3 of Item 8 of the Company’s Form 10-K for the year ended December 25, 2011.
 
 
7

 
 
5.            On May 24 2012, the Company consummated a financing arrangement with BH Finance LLC, an affiliate of Berkshire Hathaway, that provides the Company with a $400 million term loan and a $45 million revolving credit line.  The funding of the new financing arrangement’s term loan and an initial draw of the revolving credit facility resulted in cash proceeds to the Company of $382.5 million, which were immediately used to fully repay all amounts outstanding under the Company’s existing credit facility, pay fees and expenses related to the financing and to fund working capital requirements.  The new loan was issued at a discount of 11.5% and was secured pari passu with the Company’s existing 11.75% senior secured notes due 2017.   The new term loan has an interest rate of 10.5%, which could step down to 9% if total leverage were to reach 3.50x.  While the new financing arrangement does not contain financial covenants, there are restrictions, in whole or in part, on certain activities including the incurrence of additional debt, repurchase of shares, and the payment of dividends.  The term loan may be voluntarily repaid prior to maturity, in whole or in part, at a price equal to 100% of the principal amount repaid plus accrued and unpaid interest, plus a premium as set forth in the agreement.  Other factors, such as the sale of assets may result in a mandatory prepayment or an offer to prepay a portion of the term loan without premium or penalty.  In addition, the Company may apply up to a maximum of $80 million of the proceeds from the sale of newspapers to World Media to its term loan at par without premium or penalty. The Company considers the prepayment feature to be an embedded derivative which it has bifurcated from the term loan as shown in the chart below.  The new loan and revolving credit facility will mature in May of 2020 and is guaranteed by the Company’s subsidiaries.  The revolving credit line bears interest at a rate of 10% and is subject to a 2% commitment fee.
 
Concurrent with the funding of the new financing arrangement and pursuant to a Warrant Agreement entered into on May 24, 2012, the Company issued warrants to Berkshire Hathaway to purchase 4.6 million shares of Class A common stock, which represented approximately 19.9% of the number of then outstanding shares of the Company’s common stock.  The warrants are exercisable immediately at a price of $0.01 per share and expire on May 24, 2020.  The Warrant Agreement contains customary anti-dilution provisions that increase the amount of shares that each warrant is exercisable for in the event that certain dilutive events occur.
 
In conjunction with the secured financing with Berkshire Hathaway and the repayment of the previous credit facility in the second quarter of 2012, the Company recorded debt modification and extinguishment costs of $7.7 million, primarily due to the write-off of unamortized fees related to the former credit agreement.  In addition, the Company capitalized $11 million of arrangement and legal fees related to the new financing; these fees will be amortized as interest expense over the term of the new financing arrangement.  In March of 2012, the Company amended its previous bank credit agreement which resulted in a $10.4 million of expense for debt modification and extinguishment costs including certain advisory, arrangement, and legal fees related to that refinancing. 

The previous bank credit facility had an interest rate of LIBOR (with a 1.5% floor) plus a margin of 7% and commitment fees of 2.5%, which were determined by the Company’s leverage ratio, as defined in the agreement.  In addition to this cash interest, the Company accrued payment-in-kind (PIK) interest of 1.5%.  PIK interest increased the bank term loan by nearly $1 million between March and May and was paid in cash upon repayment of the entire facility.
 
8

 
 
As of June 24, 2012, the Company had in place a $400 million term loan that was fully drawn and a revolving credit facility with an $18.5 million outstanding balance and availability of $26.5 million. 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 $295 million.  The new term loan with BH Finance matures in March 2020 and bears an interest rate of 10.5%, but could decrease to 9% based on the Company’s leverage ratio, as defined in the agreement.  The Company was in compliance with all provisions at June 24, 2012. The chart below summarizes the carrying value of long-term debt at June 24, 2012:
 
   
June 24, 2012
 
(In thousands)
 
Carrying
Amount
 
Term loan:
     
Face value
  $ 400,000  
Remaining original issue discount
    (45,497 )
Remaining warrant discount
    (16,727 )
Embedded derivative liability
    8,809  
Remaining embedded derivative discount
    (8,713 )
Carrying value
    337,872  
         
         
Revolving credit facility ($26.5 million remaining availability)
    18,500  
         
Senior notes:
       
Face value
    300,000  
Remaining original issue discount
    (4,595 )
Carrying value
    295,405  
         
Capital lease liability
    134  
         
Total carrying value
  $ 651,911  
 
Subsequent to the end of the second quarter, the Company completed the sale of its newspapers to World Media Enterprises (a subsidiary of Berkshire Hathaway) for $142 million in cash, subject to normal adjustments.  The Company has used the net proceeds from the newspaper sale to further reduce debt.  The Company has repaid $54 million on the term loan at par and the $18.5 million balance on the revolver.  On June 29, 2012, the Company commenced a cash tender offer to purchase up to $45 million of its 11.75% senior notes due 2017.  The tender offer expired on July 30, 2012, with only $200,000 of acceptances received.  The Company has offered and Berkshire Hathaway will accept repayment at par for the amount the noteholders elected not to take.  Any early repayment will result in additional interest expense from accelerated recognition of a pro rata portion of discounts and deferred issuance costs.
 
In the third quarter of 2011, the Company’s last remaining interest rate swaps matured.  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 was predicated on quoted LIBOR prices and current market spreads for unsecured borrowings.  In the first six months of 2011, $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 deferred in OCI in the first six months of 2011 was $5.0 million, which was recorded in the Consolidated Condensed Statement of Operations in the “Interest expense” line.
 
 
9

 
 
The following table includes information about the carrying values and estimated fair values of the Company’s financial instruments at June 24, 2012 and December 25, 2011:
 
   
June 24, 2012
   
December 25, 2011
 
(In thousands)
 
Carrying
Amount
   
Fair
Value
   
Carrying
Amount
   
Fair
Value
 
Assets:
                       
Investments
                       
Trading
  $ 180     $ 180     $ 205     $ 205  
Liabilities:
                               
Long-term debt:
                               
Revolving credit facility ($26.5 million available at 6/24/2012)
    18,500       18,500       -       -  
Term loan (including embedded derivative)
    337,872       420,000       363,126       340,639  
11.75% senior notes
    295,405       322,500       294,919       285,000  
Stockholders' Equity (Deficit):
                               
Common stock warrants
    16,912       18,585       -       -  
                                 
 
Trading securities held by the Supplemental 401(k) Plan are carried at fair value and are determined by reference to quoted market prices.  At June 24, 2012, the fair values of the revolving credit facility and term loan were determined using a discounted cash flow analysis and an estimate of the current yield by reference to market interest rates for the Company’s senior notes.  At December 25, 2011, the fair value of the bank term loan debt was estimated using discounted cash flow analyses and the Company’s bank borrowing rate.  The fair value of the 11.75% senior notes was valued by reference to the most recent trade prior to the end of the applicable period.  The fair value of the common stock warrants at June 24, 2012, was determined by reference to a Black-Scholes model.  Under the fair value hierarchy, the Company’s trading securities fall under Level 1 (quoted prices in active markets), its senior notes, its common stock warrants, and it term loan that existed at December 25,  2011, fall under Level 2 (other observable inputs).  Its revolving credit facility and term loan at June 24, 2012, fall under Level 3 (unobservable inputs).
 
6.             The Company is a diversified communications company located primarily in the southeastern United States.  The Company is comprised of five geographic market segments (Virginia/Tennessee, Florida, Mid-South, North Carolina and Ohio/Rhode Island) along with a sixth segment that includes interactive advertising service companies.  See Note 2 of this Form 10-Q for a complete discussion regarding what comprises discontinued operations and is consequently excluded from the following segment disclosure.
 
Revenues for the geographic markets include revenues from 18 network-affiliated television stations and their associated websites.  Revenues for the sixth segment, Advertising Services & Other, are generated by two interactive advertising services companies.
 
Management measures segment performance based on profit or loss from operations before acquisition-related amortization, impairment charges, and other corporate-related charges such as debt modification and extinguishment costs.  Impairment charges and amortization of acquired intangibles are 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.  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.
 
 
10

 
 
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 24, 2012
                 
Virginia/Tennessee
  $ 6,736     $ (349 )   $ 2,011  
Florida
    15,120       (383 )     5,646  
Mid-South
    36,588       (2,719 )     9,457  
North Carolina
    7,562       (371 )     1,790  
Ohio/Rhode Island
    17,146       (738 )     6,603  
Advertising Services & Other
    1,203       (544 )     (977 )
Eliminations
    (243 )     -       32  
                      24,562  
Unallocated amounts:
                       
Acquisition intangibles amortization
    -       (442 )     (442 )
Corporate expense
    -       (564 )     (8,492 )
    $ 84,112     $ (6,110 )        
                         
Corporate interest expense
                    (21,641 )
Debt modification and extinguishment costs
                    (7,689 )
Other
                    946  
                         
Consolidated loss from continuing operations before income taxes
            $ (12,756 )
 
Three Months Ended June 26, 2011
                 
Virginia/Tennessee
  $ 5,653     $ (378 )   $ 1,039  
Florida
    12,944       (422 )     3,067  
Mid-South
    32,488       (2,557 )     6,567  
North Carolina
    5,840       (428 )     504  
Ohio/Rhode Island
    14,070       (752 )     3,540  
Advertising Services & Other
    1,009       (722 )     (1,033 )
Eliminations
    (282 )     -       43  
                      13,727  
Unallocated amounts:
                       
Acquisition intangibles amortization
    -       (1,361 )     (1,361 )
Corporate expense
    -       (659 )     (8,423 )
    $ 71,722     $ (7,279 )        
                         
Corporate interest expense
                    (17,180 )
Other
                    2,455  
                         
Consolidated loss from continuing operations before income taxes
            $ (10,782 )

 
11

 
 
(In thousands)
 
Assets
   
Revenues
   
Depreciation and Amortization
   
Operating Profit (Loss)
 
Six Months Ended June 24, 2012
                       
Virginia/Tennessee
  $ 65,342     $ 12,644     $ (697 )   $ 3,399  
Florida
    78,506       29,090       (793 )     9,996  
Mid-South
    332,163       71,662       (5,435 )     18,660  
North Carolina
    47,081       13,547       (742 )     2,179  
Ohio/Rhode Island
    130,099       30,476       (1,393 )     9,784  
Advertising Services & Other
    10,114       2,276       (1,094 )     (1,391 )
Eliminations
    -       (464 )     -       59  
                              42,686  
Unallocated amounts:
                               
Acquisition intangibles amortization
    -       -       (1,773 )     (1,773 )
Corporate
    76,489       -       (1,498 )     (17,359 )
Assets of discontinued operations
    183,615                          
    $ 923,409     $ 159,231     $ (13,425 )        
Corporate interest expense
                            (36,777 )
Debt modification and extinguishment costs
                            (18,097 )
Other
                            (2,744 )
                                 
Consolidated loss from continuing operations before income taxes
                    $ (34,064 )
 
                   
Six Months Ended June 26, 2011
                 
Virginia/Tennessee
  $ 10,764     $ (760 )   $ 1,754  
Florida
    25,826       (851 )     6,030  
Mid-South
    62,581       (5,091 )     11,630  
North Carolina
    11,151       (857 )     671  
Ohio/Rhode Island
    26,428       (1,525 )     5,883  
Advertising Services & Other
    2,738       (1,425 )     (1,481 )
Eliminations
    (478 )     -       76  
                      24,563  
Unallocated amounts:
                       
Acquisition intangibles amortization
    -       (2,709 )     (2,709 )
Corporate expense
    -       (1,279 )     (17,292 )
    $ 139,010     $ (14,497 )        
                         
Corporate interest expense
                    (33,733 )
Other
                    (324 )
                         
                         
Consolidated loss from continuing operations before income taxes
                  $ (29,495 )
 
 
12

 
 
7.           The following table sets forth the computation of basic and diluted earnings per share.  There were approximately 1.6 million shares and 0.8 million shares (representing the weighted-average of common stock warrants issued to Berkshire Hathaway) that were not included in the computation of diluted EPS for the second quarter and first six months of 2012, respectively, because to do so would have been anti-dilutive for the periods presented.  Additionally, there were approximately 0 shares and 18,000 shares (representing the weighted-average of outstanding stock options) 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.
 
(In thousands, except per share amounts)
 
Three Months Ended June 24, 2012
   
Three Months Ended June 26, 2011
 
             
Numerator for basic and diluted earnings per share:
           
Loss from continuing operations available to common stockholders
  $ (16,165 )   $ (13,340 )
                 
Denominator for basic and diluted earnings per share:
               
Weighted average shares outstanding
    22,563       22,488  
                 
Loss from continuing operations per common share (basic and diluted)
  $ (0.71 )   $ (0.59 )
 
(In thousands, except per share amounts)
 
Six Months Ended June 24, 2012
   
Six Months Ended June 26, 2011
 
                 
Numerator for basic and diluted earnings per share:
               
Loss from continuing operations available to common stockholders
  $ (40,881 )   $ (34,649 )
                 
Denominator for basic and diluted earnings per share:
               
Weighted average shares outstanding
    22,559       22,444  
                 
Loss from continuing operations per common share (basic and diluted)
  $ (1.81 )   $ (1.54 )
 
 
13

 
 
8.         The following table provides the components of net periodic employee benefits expense for the Company’s benefit plans for the second quarters and first six months of 2012 and 2011:
 
   
Three Months Ended
 
   
Pension Benefits
   
Other Benefits
 
(In thousands)
 
June 24,
2012
   
June 26,
2011
   
June 24,
2012
   
June 26,
2011
 
Service cost
  $ -     $ -     $ 50     $ 63  
Interest cost
    5,281       5,613       440       405  
Expected return on plan assets
    (5,927 )     (5,823 )     -       -  
Amortization of prior-service cost
    -       -       304       411  
Amortization of net loss/(gain)
    1,449       947       (235 )     (388 )
Net periodic benefit cost
  $ 803     $ 737     $ 559     $ 491  
 
   
Six Months Ended
 
   
Pension Benefits
   
Other Benefits
 
(In thousands)
 
June 24,
2012
   
June 26,
2011
   
June 24,
2012
   
June 26,
2011
 
Service cost
  $ -     $ -     $ 100     $ 113  
Interest cost
    10,581       11,213       890       955  
Expected return on plan assets
    (11,852 )     (11,998 )     -       -  
Amortization of prior-service cost
    -       -       629       861  
Amortization of net loss/(gain)
    2,824       1,897       (410 )     (513 )
Net periodic benefit cost
  $ 1,553     $ 1,112     $ 1,209     $ 1,416  
 
9.         The following table shows the Company’s Statement of Stockholders’ Equity (Deficit) as of June 24, 2012:
 
   
Class A
   
Common Stock
   
Additional
Paid-in
   
Accumulated
Other
Comprehensive
   
Retained
Earnings
(Accumulated
       
(In thousands, except shares and per share amounts)
 
Shares
   
Class A
   
Class B
   
Capital
   
Income (Loss)
   
Deficit)
   
Total
 
Balance at December 25, 2011
    22,548,741     $ 112,744     $ 2,743     $ 28,711     $ (185,116 )   $ 74,871     $ 33,953  
Net loss
            -       -       -       -       (180,720 )     (180,720 )
Exercise of stock options
    20,899       104       -       (59 )     -       -       45  
Performance accelerated restricted stock
    233,553       1,168       -       (1,252 )     -       21       (63 )
Stock-based compensation
            -       -       650       -       -       650  
Issuance of common stock warrants
            -       -       16,912       -       -       16,912  
Other
    165       1       -       (40 )     -       -       (39 )
Balance at June 24, 2012
    22,803,358     $ 114,017     $ 2,743     $ 44,922     $ (185,116 )   $ (105,828 )   $ (129,262 )
 
10.   The Company’s network affiliation agreements with NBC were originally scheduled to expire on December 31, 2011 but have been extended through September 1, 2012, as negotiations for a long-term agreement continue.
 
11.        The Company’s subsidiaries guarantee the debt securities of the parent company. The Company’s subsidiaries are 100% owned except for the Supplemental 401(k) Plan; all subsidiaries except those in the non-guarantor column (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.
 
 
14

 
 
 Media General, Inc.
 Condensed Consolidating Balance Sheet
 As of June 24, 2012
 (In thousands, unaudited)
 
   
Media General
Corporate
   
Guarantor
Subsidiaries
   
Non-Guarantor
Subsidiaries
   
Eliminations
   
Media General
Consolidated
 
ASSETS
                             
Current assets:
                             
Cash and cash equivalents
  $ 15,419     $ 1,242     $ -     $ -     $ 16,661  
Accounts receivable - net
    -       60,702       -       -       60,702  
Other
    9,782       9,014       -       -       18,796  
Assets of discontinued operations
    -       183,615       -       -       183,615  
Total current assets
    25,201       254,573       -       -       279,774  
                                         
Investment in and advances to subsidiaries
    62,133       1,997,804       -       (2,059,937 )     -  
Intercompany note receivable
    677,941       -       -       (677,941 )     -  
Other assets
    29,244       6,446       180       -       35,870  
Property, plant and equipment - net
    22,445       136,963       -       -       159,408  
FCC licenses and other intangibles - net
    -       201,250       -       -       201,250  
Excess cost over fair value of net identifiable assets of acquired businesses
    -       247,107       -       -       247,107  
TOTAL ASSETS
  $ 816,964     $ 2,844,143     $ 180     $ (2,737,878 )   $ 923,409  
                                         
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                                        
Current liabilities:
                                       
Accounts payable
  $ 14,605     $ 4,735     $ -     $ (6 )   $ 19,334  
Accrued expenses and other liabilities
    39,374       15,270       -       -       54,644  
Liabilities of discontinued operations
    -       32,547       -       -       32,547  
Total current liabilities
    53,979       52,552       -       (6 )     106,525  
                                         
Long-term debt
    651,904       7       -       -       651,911  
Intercompany loan
    -       677,941       -       (677,941 )     -  
Retirement, post-retirement and post-employment plans
    218,820       -       -       -       218,820  
Deferred income taxes
    -       52,721       -       -       52,721  
Other liabilities and deferred credits
    19,456       2,463       775       -       22,694  
                                         
Stockholders' equity (deficit):
                                       
Common stock
    116,760       4,872       -       (4,872 )     116,760  
Additional paid-in capital
    46,989       2,435,790       (2,034 )     (2,435,823 )     44,922  
Accumulated other comprehensive loss
    (185,116 )     -       -       -       (185,116 )
Retained earnings (accumulated deficit)
    (105,828 )     (382,203 )     1,439       380,764       (105,828 )
Total stockholders' equity (deficit)
    (127,195 )     2,058,459       (595 )     (2,059,931 )     (129,262 )
                                         
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)
  $ 816,964     $ 2,844,143     $ 180     $ (2,737,878 )   $ 923,409  
 
 
15

 
 
 Media General, Inc.
 Condensed Consolidating Balance Sheet
 As of December 25, 2011
 (In thousands)
 
   
Media General
Corporate
   
Guarantor
Subsidiaries
   
Non-Guarantor
Subsidiaries
   
Eliminations
   
Media General
Consolidated
 
ASSETS
                             
Current assets:
                             
Cash and cash equivalents
  $ 21,674     $ 1,434     $ -     $ -     $ 23,108  
Accounts receivable - net
    -       59,260       -       -       59,260  
Other
    3,698       13,815       -       -       17,513  
Assets of discontinued operations
    -       337,853       -       -       337,853  
Total current assets
    25,372       412,362       -       -       437,734  
                                         
Investment in and advances to subsidiaries
    233,450       1,985,266       -       (2,218,716 )     -  
Intercompany note receivable
    677,469       -       -       (677,469 )     -  
Other assets
    19,694       8,451       205       -       28,350  
Property, plant and equipment - net
    25,813       144,014       -       -       169,827  
FCC licenses and other intangibles - net
    -       203,023       -       -       203,023  
Excess of cost over fair value of net identifiable assets of acquired businesses
    -       247,107       -       -       247,107  
TOTAL ASSETS
  $ 981,798     $ 3,000,223     $ 205     $ (2,896,185 )   $ 1,086,041  
                                         
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                                        
                                   
Current liabilities:
                                       
Accounts payable
  $ 11,390     $ 5,247     $ -     $ (6 )   $ 16,631  
Accrued expenses and other liabilities
    33,430       13,385       -       -       46,815  
Liabilities of discontinued operations
    -       38,269       -       -       38,269  
Total current liabilities
    44,820       56,901       -       (6 )     101,715  
                                         
Long-term debt
    658,199       -       -       -       658,199  
Intercompany loan
    -       677,469       -       (677,469 )     -  
Retirement, post-retirement and post-employment plans
    223,132       -       -       -       223,132  
Deferred income taxes
    -       45,954       -       -       45,954  
Other liabilities and deferred credits
    19,403       2,890       795       -