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 29, 1997
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 (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 August 3, 1997.
Class A Common shares: 26,119,099
Class B Common shares: 556,574
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MEDIA GENERAL, INC.
TABLE OF CONTENTS
FORM 10-Q REPORT
JUNE 29, 1997
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Page
----
Part I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets - June 29, 1997,
and December 29, 1996 1
Consolidated Condensed Statements of Operations - Second
quarter and six months ended June 29, 1997, and June 30, 1996 3
Consolidated Condensed Statements of Cash Flows - Six
months ended June 29, 1997, and June 30, 1996 4
Notes to Consolidated Condensed Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 15
(a) Exhibits
(b) Reports on Form 8-K
Signatures 16
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<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
MEDIA GENERAL, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(000's except shares)
<CAPTION>
<S> <C>
June 29, December 29,
1997 1996
----------------- ------------------
ASSETS
Current assets:
Cash and cash equivalents $ 5,087 $ 4,471
Accounts receivable - net 97,693 81,513
Inventories 19,307 16,329
Other 26,764 25,905
----------------- ------------------
Total current assets 148,851 128,218
----------------- ------------------
Investments in unconsolidated affiliates 120,948 113,872
Other assets 31,500 23,564
Property, plant and equipment - net 522,185 469,978
Intangibles - net 934,016 289,852
----------------- ------------------
$ 1,757,500 $ 1,025,484
================= ==================
See accompanying notes.
1
<PAGE>
MEDIA GENERAL, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(000's except shares)
<CAPTION>
June 29, December 29,
1997 1996
----------------- ------------------
LIABILITIES
Current liabilities:
Accounts payable $ 27,142 $ 30,154
Accrued expenses and other liabilities 97,682 72,310
Income taxes payable 6,705 1,381
Short-term borrowings --- 11,000
----------------- ------------------
Total current liabilities 131,529 114,845
----------------- ------------------
Long-term debt 940,000 265,000
Deferred income taxes 174,564 102,055
Other liabilities and deferred credits 120,496 106,344
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
26,064,728 and 25,950,287 shares 130,324 129,751
Class B, authorized 600,000 shares; issued
556,574 shares 2,783 2,783
Additional paid-in capital 14,317 11,393
Unearned compensation (3,283) (1,254)
Retained earnings 246,770 294,567
----------------- ------------------
Total stockholders' equity 390,911 437,240
----------------- ------------------
$ 1,757,500 $ 1,025,484
================= ==================
See accompanying notes.
2
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MEDIA GENERAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(000's except for per share data)
<CAPTION>
Second Quarter Ended Six Months Ended
------------------------------- -------------------------------
June 29, June 30, June 29, June 30,
1997 1996 1997 1996
------------- ------------- ------------- -------------
Revenues $ 229,426 $ 192,632 $ 445,571 $ 377,432
------------- ------------- ------------- -------------
Operating costs:
Production costs 113,305 100,881 225,300 204,122
Selling, distribution and
administrative 58,150 45,767 114,177 90,745
Depreciation and amortization 23,646 16,431 46,967 32,997
------------- ------------- ------------- -------------
Total operating costs 195,101 163,079 386,444 327,864
------------- ------------- ------------- -------------
Operating income 34,325 29,553 59,127 49,568
------------- ------------- ------------- -------------
Other income (expense):
Interest expense (17,461) (5,415) (33,075) (11,076)
Investment income -
unconsolidated affiliates:
Southeast Paper Manufacturing Co. 1,886 6,702 3,024 14,825
Denver Newspapers, Inc.:
Equity in net income 2,184 512 3,748 640
Preferred stock income 1,502 1,244 3,004 2,488
Other, net 1,308 113 1,989 (151)
------------- ------------- ------------- -------------
Total other income (expense) (10,581) 3,156 (21,310) 6,726
------------- ------------- ------------- -------------
Income before income taxes and
extraordinary item 23,744 32,709 37,817 56,294
Income taxes 9,854 11,829 15,694 20,358
------------- ------------- ------------- -------------
Income before extraordinary item 13,890 20,880 22,123 35,936
Extraordinary item from early redemption
of debt (net of income tax of $38,613) --- --- (63,000) ---
------------- ------------- ------------- -------------
Net income (loss) $ 13,890 $ 20,880 $ (40,877) $ 35,936
============= ============= ============= =============
Earnings (loss) per common share
and equivalent:
Income before extraordinary item $ 0.52 $ 0.78 $ 0.83 $ 1.35
Extraordinary item --- --- (2.37) ---
------------- ------------- ------------- -------------
Net income (loss) $ 0.52 $ 0.78 $ (1.54) $ 1.35
============= ============= ============= =============
Dividends paid per common share $ 0.13 $ 0.12 $ .26 $ 0.24
============= ============= ============= =============
Weighted average common shares
and equivalents 26,628 26,621 26,622 26,584
See accompanying notes.
3
<PAGE>
MEDIA GENERAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(000's)
Six Months Ended
--------------------------------------------
June 29, June 30,
1997 1996
----------------- ------------------
Operating activities:
Net income (loss) $ (40,877) $ 35,936
Adjustments to reconcile net income (loss):
Extraordinary item 63,000 ---
Depreciation and amortization 46,967 32,997
Deferred income taxes (1,315) 758
Investment income -- unconsolidated affiliates (9,776) (17,953)
Distribution from unconsolidated
newsprint affiliate --- 4,600
Change in assets and liabilities 4,739 (4,755)
----------------- ------------------
Net cash provided by operating activities 62,738 51,583
----------------- ------------------
Investing activities:
Capital expenditures (21,572) (12,019)
Purchase of businesses (277,326) (1,986)
Sale of businesses 139,564 ---
Other, net 308 1,423
----------------- ------------------
Net cash used by investing activities (159,026) (12,582)
----------------- ------------------
Financing activities:
Increase in debt 963,000 ---
Payment of debt (775,000) (32,000)
Premiums and costs related to early
redemption of debt (84,703) ---
Dividends paid (6,920) (6,350)
Other, net 527 (23)
----------------- ------------------
Net cash provided (used) by financing activities 96,904 (38,373)
----------------- ------------------
Net increase in cash and cash equivalents 616 628
Cash and cash equivalents at beginning of year 4,471 3,367
----------------- ------------------
Cash and cash equivalents at end of period $ 5,087 $ 3,995
================= ==================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of amount capitalized) $ 26,455 $ 11,690
Income taxes 7,008 19,393
See accompanying notes.
</TABLE>
4
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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 (SEC). 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 29, 1996.
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. Certain items in 1996 have
been reclassified to conform with the current year's presentation. The
reclassifications have no effect on net income as previously reported. The
results of operations for interim periods are not necessarily indicative of the
results that may be expected for the full fiscal year.
In January 1997, the SEC finalized its new disclosure rules
related to exposure to market risk and derivatives. The new rules require
quantitative as well as qualitative disclosures about each type of market risk
inherent in derivatives and other financial instruments. The market risk
disclosures are effective for the Company's 1998 year-end financial statements.
The new rules also require enhanced descriptions of specific aspects of a
company's accounting policies for derivatives which are effective for the
Company beginning with this Form 10-Q.
The Company uses the accrual method to account for all
interest rate swap agreements. Amounts due to or from counterparties are
recorded as an adjustment to interest expense in the periods in which they
accrue. Interest rate swap agreements, which are not held for trading purposes,
are designated to manage market risks resulting from fluctuations of variable
interest rates. Realized gains or losses on early terminations of interest rate
swap agreements are deferred and amortized over their remaining terms as an
adjustment to interest expense.
In February 1997, the Financial Accounting Standards Board
issued Statement No. 128, Earnings Per Share, which is effective for both
interim and annual financial statements ending after December 15, 1997. At that
time, the Company will change the method currently used to compute earnings per
share and will restate its earnings per share for all prior periods. Under the
new standard basic earnings per share will replace the present primary earnings
per share, with the dilutive effect of stock options excluded. The impact on
earnings per share of the Company is not expected to be material.
5
<PAGE>
2. On January 7, 1997, Media General, Inc., acquired Park
Acquisitions, Inc., parent of Park Communications, Inc. (Park). The acquisition
included ten network affiliated television stations, 28 daily newspapers and 82
weekly newspapers. The total consideration approximated $715 million,
representing the purchase of all the issued and outstanding common stock of
Park, the assumption of liabilities (primarily $476 million of Park's high
coupon long-term debt) and estimated transaction costs. In early February, the
Company redeemed Park's high coupon debt and recorded an extraordinary charge of
$63 million, or $2.37 per share, representing the debt prepayment premium and
the write-off of the associated debt issuance costs. The acquisition and
redemption were financed with borrowings under an existing revolving credit
facility. In connection with the additional borrowings, the Company entered into
additional interest rate swap agreements totaling $600 million (bringing total
debt covered by swap agreements to $800 million with eight counterparties) which
effectively converted variable rate debt, indexed on LIBOR, to fixed rate debt
at weighted average interest rates approximating 7% with maturities of four to
seven years.
Since the acquisition, the Company completed sales of certain
of the former Park properties for approximately $140 million and purchased new
properties for approximately $53 million, including The Potomac News
(Woodbridge, Virginia), the Reidsville Review (Reidsville, North Carolina) and
The Messenger (Madison, North Carolina). The Company utilized the remaining
sales proceeds to reduce long-term debt during the second quarter.
Subsequent to the end of the second quarter, the Company
completed the sale, for approximately $7.7 million, of WUTR-TV in Utica, New
York, which had been acquired from Park and has concluded the exchange of
WTVR-TV (Richmond, Virginia) for three other stations: WSAV-TV (Savannah,
Georgia), WJTV-TV (Jackson, Mississippi) and WHLT-TV (Hattiesburg, Mississippi)
in order to comply with the Federal Communication Commission's requirement that
WTVR-TV be divested within one year from its January 1997 purchase date.
The acquisitions have been accounted for as purchases and,
accordingly, the accompanying financial statements for the three and six-month
periods ended June 29, 1997, include the results of the former Park properties.
Results for The Potomac News, the Reidsville Review and The Messenger have been
included from February 14, 1997, April 1, 1997 and April 1, 1997, respectively.
The purchase price has been allocated to the assets acquired and liabilities
assumed based on their estimated fair values according to preliminary
appraisals. Such estimated values may change as the appraisals are finalized and
more facts become known. Approximately $650 million of intangible assets
relating to 1997 acquisitions are included in the balance sheet at June 29,
1997, and are being amortized on a straight-line basis over periods of 10-35
years.
The following summary presents the actual consolidated results
of operations for the six months ended June 29, 1997, and pro forma consolidated
results of operations for the six months ended June 30, 1996, as if the Park
acquisition had been completed at the beginning of the period. The pro forma
does not purport to be indicative of what would have occurred had the
acquisition actually been made as of such date, nor is it indicative of results
which may occur in the future.
6
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Actual Pro forma
Six months ended Six months ended
(In thousands, except per share amounts) June 29, 1997 June 30, 1996
------------- -------------
Revenues $ 445,571 $ 448,719
============= =============
Income before extraordinary item $ 22,123 $ 21,915
Extraordinary item (63,000) (63,000)
------------- -------------
Net loss $ (40,877) $ (41,085)
============= =============
Income (loss) per common share and equivalent:
Income before extraordinary item $ 0.83 $ 0.82
Extraordinary item (2.37) (2.37)
------------- -------------
Net loss $ (1.54) $ (1.55)
============= =============
</TABLE>
3. Inventories are principally raw materials.
4. 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.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
OVERVIEW
Media General is an independent, publicly owned communications company situated
primarily in the Southeast with interests in newspapers, broadcast and cable
television, recycled newsprint production, and diversified information services.
The Company's fiscal year ends on the last Sunday in December.
Media General, Inc.
Business Segment Information
(Unaudited)
<TABLE>
<CAPTION>
<S> <C>
Quarters Ended Six Months Ended
------------------------------- -------------------------------
June 29, June 30, June 29, June 30,
1997 1996 1997 1996
-------------- ------------- ------------- --------------
Revenues:
Publishing $ 120,945 $ 100,845 $ 236,702 $ 198,767
Broadcast Television 41,030 21,176 76,969 37,280
Cable Television 39,218 36,320 77,320 71,352
Newsprint 28,233 34,291 54,580 70,033
-------------- ------------- ------------- --------------
Total revenues $ 229,426 $ 192,632 $ 445,571 $ 377,432
============== ============= ============= ==============
Operating income (loss):
Publishing $ 21,617 $ 11,543 $ 40,368 $ 18,132
Broadcast Television 7,323 7,549 10,470 11,862
Cable Television 7,925 6,556 15,160 10,636
Newsprint (2,540) 3,905 (6,871) 8,938
-------------- ------------- ------------- --------------
Total operating income $ 34,325 $ 29,553 $ 59,127 $ 49,568
============== ============= ============= ==============
Operating cash flow:
Publishing $ 31,339 $ 18,826 $ 59,249 $ 32,727
Broadcast Television 13,072 8,292 22,226 13,329
Cable Television 14,415 13,262 28,168 24,171
Newsprint (855) 5,604 (3,549) 12,338
-------------- ------------- ------------- --------------
Total operating cash flow $ 57,971 $ 45,984 $ 106,094 $ 82,565
============== ============= ============= ==============
</TABLE>
The magnitude of our recent acquisitions has heightened the relevance of
operating cash flow information for purposes of developing a full understanding
of the Company's operating results. The effects of non-cash expenses are
integral to this understanding. Accordingly, for each business segment we have
presented operating cash flow information. The operating cash flow amounts
presented above represent operating income plus depreciation and amortization of
intangible assets. Such cash flow amounts vary from net cash provided by
operating activities as presented in the Consolidated Statements of Cash Flows
because cash payments for interest and taxes are not reflected, nor are the cash
flow effects of non-operating items or changes in certain operations-related
balance sheet accounts.
8
<PAGE>
ACQUISITIONS
On January 7, 1997, the Company acquired Park Acquisitions, Inc., parent of Park
Communications, Inc. (Park). In addition, the Company acquired The Potomac News,
the Reidsville Review and The Messenger in February 1997, April 1997 and April
1997, respectively. See Note 2 of this Form 10-Q for additional information
regarding acquisitions and dispositions.
CONSOLIDATED OPERATING RESULTS
(In thousands, except per share data)
<TABLE>
<CAPTION>
<S> <C>
Second Quarter Ended Six Months Ended
----------------------------------------- ----------------------------------------
June 29, June 30, June 29, June 30,
1997 1996 Change 1997 1996 Change
----------- ----------- ----------- ---------- ----------- ------------
Revenues $ 229,426 $ 192,632 19 % $ 445,571 $ 377,432 18 %
Net Income (loss) 13,890 20,880 (33) (40,877) * 35,936 ---
Earnings (loss) Per Share 0.52 0.78 (33) (1.54) * 1.35 ---
</TABLE>
* Includes extraordinary charge from early redemption of debt ($63 million net
of income tax benefits of $38.6 million; $2.37 per share)
SEGMENT OPERATING RESULTS
<TABLE>
<C> <S>
PUBLISHING
(In thousands)
<S> <C>
Second Quarter Ended Six Months Ended
----------------------------------------- ----------------------------------------
June 29, June 30, June 29, June 30,
1997 1996 Change 1997 1996 Change
----------- ----------- ----------- ---------- ----------- -----------
Revenues $ 120,945 $ 100,845 20 % $ 236,702 $ 198,767 19 %
Operating Expenses 99,328 89,302 11 196,334 180,635 9
Operating Income 21,617 11,543 87 40,368 18,132 123
Depreciation &
Amortization 9,722 7,283 33 18,881 14,595 29
Operating Cash Flow 31,339 18,826 66 59,249 32,727 81
</TABLE>
The preceding chart contains the operating results of the Publishing segment,
including recent acquisitions. As a direct result of these acquisitions,
Publishing revenues increased $14.9 million and $26.7 million, and operating
income rose $2.2 million and $3.8 million in the second quarter and first half
of 1997, respectively, over the comparable prior-year periods.
Excluding acquisitions, Publishing revenues improved $5.2 million and $11.2
million (5.1% and 5.6%) for the quarter and six-month period ended June 29,
1997, from the comparable 1996 periods. The revenue increases were primarily
attributable to the Company's metropolitan newspapers, where advertising
revenues rose as a result of expanded linage (up 3.1% and 4.2%) and higher
advertising rates (up an average of 2.8% and 3.3%) in the quarter and first six
months of this year. The quarterly and year-to-date increases were principally
attributable to a strong performance in classified advertising (largely due to
employment) and retail advertising. A small decrease in circulation revenues of
2.3% and 2.1% in the quarter and first half of 1997, resulting from a drop in
circulation volume (down 2.8% and 3.1%) partially offset by a higher average
rate (.6% and 1.1%), was more than offset by the above mentioned increases in
advertising revenues.
9
<PAGE>
Publishing operating expenses, excluding acquisitions, decreased $2.6 million
and $7.2 million in the second quarter and first six months of 1997. This drop
was primarily attributable to a $5.3 million and $12.2 million reduction in
newsprint expense from the comparable year-ago quarter and six month period, due
to decreased cost per ton. Partially offsetting the decrease in newsprint
expense for the most recent quarter and first half of 1997 was a $.7 million and
$1.7 million increase in employee compensation and benefit costs, as well as
$2.1 million and $2.7 million in other operating expenses, the most significant
of which related to re-engineering initiatives which began in late 1996 at the
Company's Tampa, Florida, daily newspaper and in early 1997 at the Company's
Richmond, Virginia, daily newspaper.
Operating income for Publishing, excluding acquisitions, rose $7.9 million and
$18.4 million (68% and 102%) in the second quarter and first half of 1997 from
the prior-year periods. This growth was due to increased revenues at the
Company's metropolitan newspapers, particularly at the Company's Richmond
newspaper, coupled with the substantial drop in newsprint prices.
<TABLE>
BROADCAST TELEVISION
(In thousands)
<CAPTION>
<S> <C>
Second Quarter Ended Six Months Ended
----------------------------------------- ----------------------------------------
June 29, June 30, June 29, June 30,
1997 1996 Change 1997 1996 Change
----------- ----------- ----------- ---------- ----------- -----------
Revenues $ 41,030 $ 21,176 94 % $ 76,969 $ 37,280 106 %
Operating Expenses 33,707 13,627 147 66,499 25,418 162
Operating Income 7,323 7,549 (3) 10,470 11,862 (12)
Depreciation &
Amortization 5,749 743 --- 11,756 1,467 ---
Operating Cash Flow 13,072 8,292 58 22,226 13,329 67
</TABLE>
The preceding chart includes the operating results of the Broadcast Television
segment, including recent acquisitions. As a direct result of these
acquisitions, Broadcast revenues grew $21.3 million and $41 million, and
operating income increased $1.9 million and $1 million in the quarterly and
year-to-date periods ended June 29, 1997, as compared to the equivalent
prior-year periods.
Broadcast revenues, excluding acquisitions, decreased $1.4 million and $1.3
million in the second quarter and first half of 1997, from the comparable
periods of 1996. The revenue decline was principally the result of decreases in
national spot sales (led by the automotive, hardware/lawn and transportation
categories). While local revenues for the quarter and first half of 1997 (driven
by the automotive category) were up, political revenues were down due to the
absence of several 1996 national and local political issues.
The operating expenses of Broadcast, excluding acquisitions, increased slightly
from the comparable periods of 1996.
Excluding acquisitions, Broadcast operating income declined $2.1 million and
$2.4 million in the second quarter and first six months of 1997 compared to the
equivalent year-ago periods. The drop was primarily attributable to reduced
national spot sales, especially at the Company's flagship station, WFLA-TV in
Tampa, where national ad spending in that market continues to suffer.
10
<PAGE>
<TABLE>
CABLE TELEVISION
(In thousands)
<CAPTION>
<S> <C>
Second Quarter Ended Six Months Ended
----------------------------------------- ----------------------------------------
June 29, June 30, June 29, June 30,
1997 1996 Change 1997 1996 Change
----------- ----------- ----------- ---------- ----------- -----------
Revenues $ 39,218 $ 36,320 8 % $ 77,320 $ 71,352 8 %
Operating Expenses 31,293 29,764 5 62,160 60,716 2
Operating Income 7,925 6,556 21 15,160 10,636 43
Depreciation &
Amortization 6,490 6,706 (3) 13,008 13,535 (4)
Operating Cash Flow 14,415 13,262 9 28,168 24,171 17
</TABLE>
Revenues at the Company's Cable Television segment rose $2.9 million and $6
million in the second quarter and first six months of 1997, up 8% and 8.4% from
the year-ago periods. The increases were primarily attributable to the Company's
Fairfax County, Virginia, cable system (Fairfax Cable), as a result of a 2.6%
expansion in the number of subscribers (to approximately 230,000 at June 29,
1997), together with higher average basic subscriber rates, up 8.7% in both the
quarter and first half of the year, and average increases of 6.2% and 7.7% in
expanded subscriber rates in the second quarter and first six months of 1997, as
compared to the equivalent prior-year periods.
Cable operating expenses rose $1.5 million and $1.4 million during the second
quarter and first half of 1997 from the comparable prior-year periods. These
increases were primarily attributable to a $1.2 million and $1.9 million rise in
programming costs for the second quarter and first six months of the year, due
principally to higher programming rates and the expanded subscriber base at
Fairfax Cable, which were partially offset by a $.4 million decrease in employee
compensation and benefit costs for the year-to-date period, reflecting the
results of a re-engineering process implemented at Fairfax Cable.
Cable operating income improved $1.4 million and $4.5 million in the second
quarter and first half of 1997 from the year-earlier periods. The improvement
reflects revenue growth at Fairfax Cable as a result of increases in both rate
and subscriber count, partially offset by higher Cable programming costs. An
operating profit improvement at MEGA Advertising, due to strong local
advertising time sales and lower operating expense levels, also contributed to
the growth in Cable segment profitability in the second quarter and first half
of 1997.
<TABLE>
NEWSPRINT
(In thousands)
<CAPTION>
<S> <C>
Second Quarter Ended Six Months Ended
----------------------------------------- ----------------------------------------
June 29, June 30, June 29, June 30,
1997 1996 Change 1997 1996 Change
----------- ----------- ----------- ---------- ----------- ------------
Revenues $ 28,233 $ 34,291 (18) % $ 54,580 $ 70,033 (22) %
Operating Expenses 30,773 30,386 1 61,451 61,095 1
Operating Income (2,540) 3,905 (165) (6,871) 8,938 (177)
Depreciation &
Amortization 1,685 1,699 (1) 3,322 3,400 (2)
Operating Cash Flow (855) 5,604 (115) (3,549) 12,338 (129)
</TABLE>
Newsprint segment revenues declined $6.1 million and $15.5 million in the second
quarter and first half of 1997, reflecting the results of the Company's Garden
State Paper (Garden State) newsprint mill, located in Garfield, New Jersey. The
decline resulted from a 21% and 27% decrease in the average realized selling
price per ton for the quarterly and year-to-date periods ended June 29, 1997,
11
<PAGE>
partially offset by a 4.3% and a 6.1% rise in tons sold. Average realized
newsprint selling prices fell from $645 per ton in the first six months of 1996
to $469 in the comparable period of 1997. Price increases have been implemented
which should raise the average selling price during the second half of 1997.
Newsprint operating expenses for both the second quarter and first half of 1997
remained essentially level with the year-earlier periods. The cost of Garden
State's principal raw material, recovered newspapers (ONP), dropped $1 million
and $2 million (both down 16%) in the most recent quarterly and year-to-date
periods, due principally to lower market demand, and energy cost declined by $.6
million and $1 million, mainly attributable to the mild 1997 winter. These
declines were offset by increases of $1.3 million and $3 million in production
costs for the second quarter and first six months of 1997, including increases
of $.6 million and $1.3 million in the cost of additive and bleaching chemicals
used to enhance the quality of paper produced.
Newsprint operating income declined $6.4 million and $15.8 million in the second
quarter and first six months of 1997 from the comparable periods of 1996. The
decrease resulted from a $133 and $174 decline in average realized selling price
per ton for the quarter and year-to-date periods, reflecting an industry-wide
generally unfavorable supply and demand imbalance during most of the first half
of 1997 compared to the same year-ago period. That imbalance began to lessen
late in the second quarter as newspaper consumption increased and newsprint
stocks declined, enabling the Company to increase its newsprint price.
UNCONSOLIDATED AFFILIATES
The Company's investment income from unconsolidated affiliates fell $2.9 million
and $8.2 million in the second quarter and first half of 1997 from the
comparable periods of 1996. The decrease was caused by the Company's share of
the operating results of its Southeast Paper Manufacturing Company (SEPCO)
newsprint affiliate, which decreased $4.8 million from the second quarter of
1996 and $11.8 million from the second half of 1996. Despite a 7.4 % and 7.7 %
increase in tons sold in the second quarter and first half of 1997, compared to
the same periods in 1996, revenues declined 17% and 23% as a result of SEPCO's
average realized selling price falling to $475 per ton in the first half of 1997
from $658 per ton in the comparable prior-year period, also the result of the
previously described unfavorable supply and demand imbalance.
Income earned from the Company's Denver Newspapers, Inc. (DNI), affiliate grew
$1.9 and $3.6 million in the second quarter and first six months of 1997 over
the comparable periods of 1996 due to a $1.7 million and $3.1 million increase
in the Company's share of net income applicable to common stockholders and a $.2
million and $.5 million rise in income from the Company's DNI preferred stock
investment. DNI's improved operating results for both the current second quarter
and year-to-date period were attributable to strong advertising revenue growth
coupled with reduced newsprint expense which, together, more than offset the
effects of a modest decrease in circulation revenues and a slight increase in
operating expenses.
12
<PAGE>
INTEREST EXPENSE
Interest expense of $17.5 million and $33.1 million in the second quarter and
year-to-date period ended June 29, 1997, increased $12 million and $22 million
over the comparable year-earlier periods. This was due primarily to increases of
$731 million and $686 million in average debt outstanding in the second quarter
and first half of 1997, the result of recent acquisitions, slightly offset by a
reduction in the Company's average effective borrowing rate to 6.7% for both the
quarterly and year-to-date periods.
NON-OPERATING ITEMS
Other income, net, increased $1.2 million and $2.1 million in the second quarter
and first half of 1997 from the comparable periods in 1996, principally the
result of a rise in interest income.
INCOME TAXES
Excluding the extraordinary item, the Company's effective tax rate was 41.5% in
both the second quarter and first six months of 1997, up from 36.2% in the
previous year's comparable periods. Income tax expense declined $2 million and
$4.7 million (17% and 23%) in the quarter and first half of 1997 on a pretax
earnings decrease of $9 million and $18.5 million, respectively. The Company's
effective tax rate rose in 1997 due to an increase in nondeductible intangible
asset amortization related to recent acquisitions.
NET INCOME (LOSS)
The Company incurred a net loss of $40.9 million ($1.54 per share) in the first
six months of 1997 as the result of a $63 million charge, net of tax benefits of
$38.6 million, ($2.37 per share) related to the redemption of Park's high coupon
debt in February 1997. Excluding this extraordinary item, net income declined
from $20.9 million to $13.9 million in the second quarter and from $35.9 million
to $22.1 million in the first half of 1997 from the comparable periods of 1996,
principally the result of decreased newsprint profits related to weak
industry-wide selling prices. Interest and intangible amortization expenses
associated with the recent acquisitions increased significantly, but were
entirely offset by the operating profits of those acquired operations combined
with strong growth in operating income from pre-existing Publishing and Cable
operations.
LIQUIDITY AND CAPITAL RESOURCES
Funds generated by operating activities during the first six months of 1997
totaled $62.7 million, up $11.2 million from the comparable period of 1996. The
increase was due principally to a rise in depreciation and intangibles
amortization expense combined with this year's lower non-cash income. Partially
offsetting this was a decline in net income (excluding the extraordinary item),
principally due to poor performance in Newsprint and the absence of a prior-year
$4.6 million distribution from SEPCO. Funds generated from operating activities,
coupled with funds provided by financing and investing activities, supplied the
$277 million used for acquisitions (excluding the liabilities assumed), the
$21.6 million for capital expenditures and the $6.9 million used for the payment
of dividends to stockholders.
13
<PAGE>
Total debt outstanding at June 29, 1997, was $940 million, up $645 million
(principally the result of the Park acquisition) from the year-ago level of $295
million, but down $108 million from the March 30, 1997, level of $1,048 million.
The majority of the debt reduction in the current quarter was funded with
proceeds from the sale of certain of the former Park newspaper properties; the
remaining balance was derived from operations. At June 29, 1997, the Company had
$345 million in unused credit lines available from its committed seven-year $1.2
billion revolving credit facility. Augmenting this credit facility's borrowing
capacity, the Company continues to have an arrangement with an insurance company
which makes available an uncommitted credit facility allowing the Company to
borrow up to an additional $150 million under senior notes at prevailing
interest rates.
In early 1997, in connection with the borrowings related to the Park
acquisition, the Company entered into an additional $600 million of interest
rate swap agreements which effectively converted variable rate debt to fixed
rate debt at interest rates approximating 7% over four to seven year periods.
The Company anticipates that internally generated funds provided by operations
during 1997, together with existing credit facilities, will be more than
adequate to finance other possible acquisitions, projected capital expenditures,
dividends to stockholders, and working capital needs.
OUTLOOK
With the exception of Newsprint, all of the Company's segments are expected to
show year-over-year operating improvement during the balance of 1997, with
Publishing showing particularly strong results. Results for the Newsprint
segment are directly affected by the newsprint market's price levels, which are
expected to increase only moderately throughout the remainder of 1997. The quick
integration of the former Park properties into Media General has strengthened
the Company's ability to provide communications throughout the Southeast and to
capitalize on emerging opportunities.
14
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Media General, Inc., was held on May 16, 1997,
for the purpose of electing a board of directors.
Each nominee for director was elected by the following vote:
<TABLE>
<CAPTION>
<S> <C>
Class A Class A
Shares Voted Shares Voted
Class A Directors "FOR" "WITHHELD"
----------------- ---------------------- -------------------------
Charles A. Davis 17,369,344 6,824,125
Robert V. Hatcher, Jr. 17,705,566 6,487,903
John G. Medlin, Jr. 17,723,645 6,469,824
Class B Class B
Shares Voted Shares Voted
Class B Directors "FOR" "WITHHELD"
----------------- ---------------------- -------------------------
Robert P. Black 552,920 ---
J. Stewart Bryan III 552,920 ---
James S. Evans 552,920 ---
Marshall N. Morton 552,920 ---
Wyndham Robertson 552,920 ---
Henry L. Valentine, II 552,920 ---
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter
ended June 29, 1997.
15
<PAGE>
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 11, 1997 /s/ J. Stewart Bryan III
------------------------------------
J. Stewart Bryan III, Chairman, President and
Chief Executive Officer
DATE: August 11, 1997 /s/ Marshall N. Morton
------------------------------------
Marshall N. Morton
Senior Vice President and Chief Financial
Officer
16
<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> 6-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-END> JUN-29-1997
<CASH> 5,087
<SECURITIES> 0
<RECEIVABLES> 104,324
<ALLOWANCES> 6,631
<INVENTORY> 19,307
<CURRENT-ASSETS> 148,851
<PP&E> 1,081,446
<DEPRECIATION> 559,261
<TOTAL-ASSETS> 1,757,500
<CURRENT-LIABILITIES> 131,529
<BONDS> 940,000
0
0
<COMMON> 133,107
<OTHER-SE> 257,804
<TOTAL-LIABILITY-AND-EQUITY> 1,757,500
<SALES> 445,571
<TOTAL-REVENUES> 445,571
<CGS> 225,300
<TOTAL-COSTS> 225,300
<OTHER-EXPENSES> 46,967
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,075
<INCOME-PRETAX> 37,817
<INCOME-TAX> 15,694
<INCOME-CONTINUING> 22,123
<DISCONTINUED> 0
<EXTRAORDINARY> (63,000)
<CHANGES> 0
<NET-INCOME> (40,877)
<EPS-PRIMARY> (1.54)
<EPS-DILUTED> 0
</TABLE>
