<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 March 31, 1996
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)
Virginia 54-0850433
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
333 E. Grace 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 the number of shares outstanding of each of the issuer's classes of
common stock as of May 5, 1996.
Class A Common shares: 25,915,694
Class B Common shares: 556,574
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
MEDIA GENERAL, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(000's except shares)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,552 $ 3,367
Accounts receivable - net 70,287 76,532
Inventories 23,972 20,380
Other 27,936 25,812
----------- -----------
Total current assets 125,747 126,091
----------- -----------
Investments in unconsolidated affiliates 107,178 102,284
Other assets 40,337 42,718
Property, plant and equipment - net 487,721 498,132
Excess of cost of businesses acquired over
equity in net assets - net 245,956 247,518
----------- -----------
$1,006,939 $1,016,743
=========== ===========
</TABLE>
See accompanying notes.
<PAGE> 3
MEDIA GENERAL, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(000's except shares)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 27,056 $ 25,324
Accrued expenses and other liabilities 77,329 72,764
Income taxes payable 7,700 5,065
----------- -----------
Total current liabilities 112,085 103,153
----------- -----------
Long-term debt 299,750 326,750
Deferred income taxes 103,249 102,884
Other liabilities and deferred credits 105,268 106,845
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
25,907,481 and 25,905,237 shares 129,537 129,526
Class B, authorized 600,000 shares; issued
556,574 shares 2,783 2,783
Additional paid-in capital 10,447 10,068
Unearned compensation (2,194) (2,573)
Retained earnings 246,014 237,307
----------- -----------
Total stockholders' equity 386,587 377,111
----------- -----------
$1,006,939 $1,016,743
=========== ===========
</TABLE>
See accompanying notes.
<PAGE> 4
MEDIA GENERAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(000's except for per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31, March 26,
1996 1995
----------- -----------
<S> <C> <C>
Revenues $ 184,800 $ 165,154
Operating costs:
Production costs 103,241 91,215
Selling, distribution and administrative 44,978 42,959
Depreciation and amortization 16,566 15,078
----------- -----------
Total operating costs 164,785 149,252
----------- -----------
Operating income 20,015 15,902
----------- -----------
Other income (expense):
Interest expense (5,661) (3,585)
Investment income-unconsolidated affiliates:
Southeast Paper Manufacturing Co. 8,123 1,115
Denver Newspapers, Inc.:
Equity in net income 128 621
Preferred stock income 1,244 1,088
Other, net (note 4) (264) 3,985
----------- -----------
Total other income (expense) 3,570 3,224
----------- -----------
Income before income taxes 23,585 19,126
----------- -----------
Income taxes 8,529 6,451
----------- -----------
Net income $ 15,056 $ 12,675
=========== ===========
Earnings per common share and equivalent $ 0.57 $ 0.48
=========== ===========
Dividends paid per common share $ 0.12 $ 0.12
=========== ===========
Weighted average common shares
and equivalents 26,546 26,424
</TABLE>
See accompanying notes.
<PAGE> 5
MEDIA GENERAL, INC.
CONSOLIDATED CONDENSED STATEMENTS
OF CASH FLOWS
(Unaudited)
(000's)
<TABLE>
<CAPTION>
Three Months Ended
March 31, March 26,
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 15,056 $ 12,675
Adjustments to reconcile net income:
Depreciation and amortization 16,566 15,078
Deferred income taxes 738 582
Investment income -- unconsolidated affiliates (9,495) (2,824)
Distribution from unconsolidated
newsprint affiliate 4,600 ---
Change in assets and liabilities 7,365 (1,879)
----------- -----------
Net cash provided by operating activities 34,830 23,632
----------- -----------
Cash flows from investing activities:
Capital expenditures (4,363) (7,054)
Other, net (note 4) 204 4,956
----------- -----------
Net cash used by investing activities (4,159) (2,098)
----------- -----------
Cash flows from financing activities:
Net decrease in long-term debt (27,000) ---
Dividends paid (3,173) (3,172)
Other, net (313) 648
----------- -----------
Net cash used by financing activities (30,486) (2,524)
----------- -----------
Net increase in cash and cash equivalents 185 19,010
Cash and cash equivalents at beginning of year 3,367 11,663
----------- -----------
Cash and cash equivalents at end of period $ 3,552 $ 30,673
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of amount capitalized) $ 6,037 $ 3,468
Income taxes 4,360 1,743
</TABLE>
See accompanying notes.
<PAGE> 6
MEDIA GENERAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying unaudited consolidated condensed financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial reporting, 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
31, 1995.
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. The results of operations for interim
periods are not necessarily indicative of the results that may be expected for
the full fiscal year.
2. Inventories are principally raw materials.
3. At March 31, 1996, 1,118,610 shares of Class A common stock were
reserved for issuance upon exercise of unqualified stock options granted.
4. First quarter 1995 results include a $3.6 million gain ($2.5 million
after-tax; $0.09 per share) from the sale of the Company's interest in a Mexican
newsprint operation.
5. Pursuant to the provisions of the Cable Television Consumer and
Competition Act of 1992 (the "1992 Cable Act"), the rates charged to subscribers
by the Company's Fairfax Cable subsidiary are subject to regulation and review
by local franchising authorities and the Federal Communications Commission
(FCC). The FCC is currently reviewing certain of the rates charged to
subscribers. The Company believes that it has complied with all provisions of
the 1992 Cable Act, including its rate setting provisions. However, since the
Company's rates for regulated services are subject to review, the Company may be
subject to a refund liability if its rates are successfully challenged.
<PAGE> 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
OVERVIEW
Media General, Inc., is an independent, publicly owned communications company
with interests in metropolitan newspapers, broadcast television, cable
television, newsprint production and diversified information services. The
Company also has investments in newspaper publishing and newsprint manufacturing
operations, the operating results of which are recognized under the equity
method of accounting.
The Company's businesses are somewhat seasonal; the second and fourth quarters
are typically stronger than the first and third quarters.
The Company's fiscal year ends on the last Sunday in December.
Media General, Inc.
Business Segment Information
(Unaudited)
Three Months Ended
March 31, March 26,
1996 1995
----------- -----------
Revenues:
Publishing $ 97,922 $ 86,748
Broadcast Television 16,104 15,798
Cable Television 35,032 32,411
Newsprint 35,742 30,197
----------- -----------
Total revenues $ 184,800 $ 165,154
=========== ===========
Operating income:
Publishing $ 6,589 $ 6,056
Broadcast Television 4,313 5,447
Cable Television 4,080 2,036
Newsprint 5,033 2,363
----------- -----------
Total operating income $ 20,015 $ 15,902
=========== ===========
Note: Effective with the first quarter of 1996, the Company's newspaper and
auxiliary operations, which were previously reported as separate segments, are
now combined and reported as the publishing segment.
The following comparisons of operating results focus much of their attention on
the comparative performance of the Company, excluding the results of the
Virginia Newspapers, Inc. (VNI), operations which were acquired in October 1995.
<PAGE> 8
REVENUES
Consolidated revenues in the first quarter of 1996 rose 11.9% (up $10.1
million or 6.1% excluding VNI) to $184.8 million from $165.2 million in the
comparable 1995 period.
Publishing revenues for the first quarter of 1996 of $97.9 million were up
12.9% from $86.7 million in the prior year period. Excluding VNI, segment
revenues increased approximately 2%. The 2% increase was primarily due to a
6.7% increase in circulation revenues (due to rate) at the Company's
metropolitan newspaper group, which includes its three largest daily newspapers.
Advertising revenues at our metropolitan newspapers were essentially flat with a
$1.1 million increase in classified revenues offset by a decline in retail
revenues.
Broadcast television revenues increased $.3 million (1.9%) in the first
quarter of 1996, from the comparable period of 1995. The rise was principally
the result of a $.3 million increase in political advertising revenues which,
combined with a modest increase in national spot sales (up at WFLA-TV in Tampa,
due to increases in transportation, entertainment, and food products
advertising) more than offset an approximate 2.5% decline in local advertising
time sales, largely due to a reduction in automotive advertising at the
Company's Jacksonville and Charleston stations.
Revenues of the Company's cable television segment rose to $35 million in
the first quarter of 1996 from $32.4 million in the comparable period of 1995.
The improvement came from the Company's Fairfax County, Virginia, cable system
(Fairfax Cable), largely the result of a 3.4% increase in the number of
subscribers from the year-ago period (to 223,000 at March 31, 1996) together
with a 2.8% subscriber rate increase on basic service and a 6.1% increase on
expanded service. In addition, pay-per-view revenues were up 75% due to strong
special event programming in the quarter.
Newsprint segment revenues increased $5.5 million (18.4%) in the first
quarter of 1996 from the year-ago period. The increase was attributable to the
Company's Garden State Paper newsprint mill, located in Garfield, New Jersey,
where average realized newsprint selling prices rose 41% above the prior year
period (to an average of $672 per ton in the first quarter of 1996 from an
average of $476 per ton in the same period of 1995). The rise in the average
realized selling price was attributable to the cumulative effects of selling
price changes (due to discount reductions or list price increases) implemented
in 1995. The increase resulting from improved selling prices was partially
offset by a decline in tons sold, which were down 13% from the prior year period
due mainly to lower demand. Recent data indicate that newsprint selling prices
may have peaked during the quarter and may moderate over the coming months.
OPERATING COSTS
Total production costs increased $12 million (13.2%) in the first quarter
of 1996 from $91.2 million in the comparable 1995 period (an $8.7 million
increase excluding VNI). The $8.7 million increase includes the effects of: an
approximate $4.5 million rise in the cost of newsprint at the Company's
metropolitan newspapers, the result of a 40% increase in price per ton, offset
by a 6.1% decline in tons consumed (the result of decreased advertising and
circulation volume); a $2.3 million increase in programming costs in the
broadcast and cable television segments due to the addition of new programs in
the fall of 1995 at WFLA-TV, to higher programming rates and to the increased
subscriber base at Fairfax Cable; and a $1.5 million increase in energy costs
<PAGE> 9
at the Garfield newsprint mill, due to both increased price and consumption.
Compensation and employee benefit costs decreased $.4 million, reflecting the
result of last year's rightsizing program implemented at the Company's Winston-
Salem, North Carolina, daily newspaper and a similar 1996 effort at Fairfax
Cable.
Selling, distribution and administrative costs increased $2 million (4.7%)
from the year-ago quarter (a $.1 million increase excluding VNI). The $.1
million increase attributable to continuing comparable operations includes $.5
million of severance costs in connection with the work force reduction at
Fairfax Cable, offset by a decline in ongoing compensation and employee benefit
costs, resulting from rightsizing at the Winston-Salem Journal and Fairfax
Cable.
Depreciation and amortization expense increased $1.5 million (9.9%) to
$16.6 million in the first quarter of 1996 from the comparable period of 1995.
Excluding VNI, depreciation and amortization decreased $.5 million, largely the
result of certain newspaper intangible assets becoming fully amortized at the
end of 1995.
OTHER INCOME (EXPENSE)
Interest expense increased $2.1 million in the quarter ended March 31,
1996, from the comparable prior year period due primarily to the increase in
average debt outstanding, up approximately $143 million, as a result of the
acquisition of VNI.
The Company's share of the operating results of its Southeast Paper (SEPCO)
newsprint affiliate increased $7 million to $8.1 million in the first quarter of
1996 compared to $1.1 million in the same period in 1995. The substantial
increase was due to the significant improvement in newsprint selling prices
which occurred during 1995. At SEPCO, selling prices rose to an average of $676
per ton in the first quarter of 1996 from an average of $493 in the comparable
year-ago quarter. As previously discussed, however, recent data indicate that
newsprint selling prices recently may have peaked.
Income earned from the Company's Denver Newspapers, Inc. (DNI), affiliate
decreased $.3 million in the first quarter of 1996 to $1.4 million from $1.7
million in the prior year quarter, principally the result of a decline in DNI's
net income applicable to common stockholders. The share of DNI's net income
recognized by the Company in the first quarter of 1996 reflects a decline in
DNI's operating margins, principally the result of the significant increase in
the price of newsprint, which more than exceeded DNI's strong revenue growth
(paced by classified and retail advertising).
Other, net, declined $4.2 million in the first quarter of 1996 compared to
the equivalent 1995 period, largely the result of the absence of 1995's first
quarter $3.6 million pretax gain from the sale of the Company's interest in a
Mexican newsprint affiliate and interest earned on short-term cash equivalents.
NET INCOME
Net income for the quarter ended March 31, 1996, was $15.1 million compared
to $12.7 million in the comparable period of 1995, an increase of $2.4 million
or 18.8%. Excluding the impact of the $.09 per share gain on the sale of the
Company's interest in a Mexican newsprint affiliate in the first quarter of
1995, net income was up approximately 48% in the 1996 first quarter. The
<PAGE> 10
earnings impact of VNI was not significant to the Company's first quarter 1996
net income.
The following focuses on the pretax operating income of each of the
Company's principal business segments, and on income taxes.
Publishing segment operating income increased $.5 million in the first
quarter of 1996, up 8.8% from the year-ago period (a 29% decrease excluding
VNI). The 29% decrease in publishing segment operating income was mainly due to
increased newsprint costs, which more than offset the effects of a 2% rise in
revenues and reduced compensation and employee benefit costs (mainly at the
Winston-Salem Journal).
Broadcast television segment operating income declined 21% in the first
quarter of 1996, to $4.3 million from $5.4 million in the same period last year,
principally the result of increased programming costs which more than offset a
slight rise in advertising revenues.
Year-over-year cable television segment operating income rose $2 million to
$4.1 million in the first quarter of 1996 from the year-ago quarter. The
improvement was principally due to a $2.6 million increase in revenues, largely
the result of both rate and subscriber count increases, and to reduced
compensation and employee benefit costs (down mainly due to the previously
mentioned rightsizing program), the effects of which more than offset an
increase in programming costs.
Newsprint segment operating income more than doubled in the first quarter
of 1996, to $5 million from $2.4 million, the result of strong revenue growth
due to higher selling prices, which more than offset an 8.3% rise in operating
costs, including a $1.5 million increase in energy costs.
Income taxes rose $2.1 million in the first quarter of 1996 compared to the
prior year period. Excluding the gain and related income taxes applicable to
the Company's 1995 sale of its interest in a Mexican newsprint operation, income
tax expense in the first quarter of 1996 rose $3.2 million (60%) from the 1995
period on pretax earnings increases of 52%. The Company's effective tax rate,
excluding the previously mentioned gain item, rose to 36.2% in the first quarter
of 1996 from 34.4% in the prior comparable period, principally the result of a
decline in certain affiliate income subject to dividend exclusion.
LIQUIDITY AND CAPITAL RESOURCES
Funds generated by operating activities during the first quarter of 1996
totaled $34.8 million, up $11.2 million from the comparable period of 1995. The
rise was principally due to a decrease in the level of funds applied to reduce
current liabilities, to a $4.6 million distribution from SEPCO, the Company's
newsprint affiliate, and to a larger decrease in accounts receivable. Net cash
used by investing activities increased $2.1 million in the first quarter of 1996
from the comparable year-ago quarter as a result of the absence of $3.6 million
of 1995 proceeds from the sale of a Mexican newsprint affiliate, which more than
offset a decline in capital expenditures.
The primary use of cash in the first quarter of 1996 was $27 million for
the reduction in long-term borrowings, $4.4 million for capital expenditures and
$3.2 million for dividends to stockholders.
<PAGE> 11
Total debt at March 31, 1996, was $299.8 million, down $27 million from
December 31, 1995, but up $127.3 million from the year-ago level of $172.5
million (the result of the acquisition of VNI). The Company's unused credit
lines available from its committed five-year revolving credit facility ($165
million unused as of March 31, 1996), together with the agreement with an
insurance company which makes available to the Company, on an uncommitted basis,
the opportunity to borrow up to $150 million under senior notes at prevailing
interest rates, will ensure continued flexibility should unexpected needs arise.
Also, the Company has significant additional debt capacity should further growth
opportunities arise.
OUTLOOK
While recent data indicate that newsprint selling prices may have peaked
during the quarter and may moderate over the coming months, the Company is
optimistic that the remainder of 1996 will continue to be favorable.
<PAGE> 12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
On January 4, 1996, the Company filed a Form 8-K/A which contained financial
statements and pro forma information omitted (in reliance upon Item 7(a)(4) and
7(b)(2) of Form 8-K) from the Form 8-K filed on November 7, 1995 (related to the
October 26, 1995, acquisition by Virginia Newspapers, Inc., a newly formed,
wholly owned subsidiary of Media General, Inc., of the assets of several
Virginia newspapers from Worrell Enterprises, Inc., and its affiliates).
<PAGE> 13
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: May 13, 1996 /s/ J. Stewart Bryan III
---------------------------------
J. Stewart Bryan III, Chairman,
President and Chief Executive Officer
DATE: May 13, 1996 /s/ Marshall N. Morton
---------------------------------
Marshall N. Morton,
Senior Vice President and Chief
Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MEDIA
GENERAL, INC.'S CONSOLIDATED CONDENSED BALANCE SHEETS AND CONSOLIDATED CONDENSED
STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-END> MAR-31-1996
<CASH> 3,552
<SECURITIES> 0
<RECEIVABLES> 70,287
<ALLOWANCES> 0
<INVENTORY> 23,972
<CURRENT-ASSETS> 125,747
<PP&E> 487,721
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,006,939
<CURRENT-LIABILITIES> 112,085
<BONDS> 299,750
0
0
<COMMON> 132,320
<OTHER-SE> 254,267
<TOTAL-LIABILITY-AND-EQUITY> 1,006,939
<SALES> 184,800
<TOTAL-REVENUES> 184,800
<CGS> 103,241
<TOTAL-COSTS> 103,241
<OTHER-EXPENSES> 16,566
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,661
<INCOME-PRETAX> 23,585
<INCOME-TAX> 8,529
<INCOME-CONTINUING> 15,056
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,056
<EPS-PRIMARY> 0.57
<EPS-DILUTED> 0
</TABLE>
