UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 28, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period _______ to ________
Commission File No. 1-6383
MEDIA GENERAL, INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
Commonwealth of Virginia 54-0850433
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
333 East Grace Street, Richmond, Virginia 23219
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (804) 649-6000
Securities registered pursuant to Section 12(b) of the Act:
Class A Common Stock American Stock Exchange
(Title of class) (Name of exchange on
which registered)
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
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 if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this form 10-K. [ X]
The aggregate market value of voting stock held by nonaffiliates of the
registrant, based upon the closing price of the Company's Class A Common Stock
as reported on the American Stock Exchange, as of March 1, 1998, was
approximately $1,075,000,000.
The number of shares of Class A Common Stock outstanding on March 1,
1998, was 26,131,482. The number of shares of Class B Common Stock outstanding
on March 1, 1998, was 556,574.
Part I, Part II and Part IV incorporate information by reference from
the Annual Report to Stockholders for the year ended December 28, 1997. Part III
incorporates information by reference from the proxy statement for the Annual
Meeting of Stockholders to be held on May 15, 1998.
Index to Media General, Inc.
Annual Report on Form 10-K for the Year Ended December 28, 1997
<TABLE>
<CAPTION>
Item No. Page
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Part I
1. Business
General 1
Publishing 2
Broadcast Television 3
Cable Television 5
Newsprint 7
2. Properties 7
3. Legal Proceedings 8
4. Submission of Matters to a Vote of Security Holders 8
Executive Officers of Registrant 9
Part II
5. Market for Registrant's Common Equity and Related Stockholder Matters 9
6. Selected Financial Data 9
7. Management's Discussion and Analysis of Financial Condition and Results
of Operation 9
8. Financial Statements and Supplementary Data 10
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 10
Part III
10. Directors and Executive Officers of the Registrant 10
11. Executive Compensation 10
12. Security Ownership of Certain Beneficial Owners and Management 10
13. Certain Relationships and Related Transactions 10
Part IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 10
Schedule II 12
Index to Exhibits 13
Signatures 17
</TABLE>
<PAGE>
Part I
Item 1. Business
General
Media General, Inc., 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 employs approximately 8,800 people on a full
or part-time basis. The Company's businesses are somewhat seasonal; the second
and fourth quarters are typically stronger than the first and third quarters.
As part of the Company's continuing commitment to a southeastern focus,
it has completed a series of acquisitions and divestitures since 1995. On
January 7, 1997, the Company acquired Park Acquisitions, Inc., parent of Park
Communications, Inc. (Park). 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 transaction costs. The acquisition of Park included
ten network affiliated television stations, 28 daily newspapers and 82 weekly
newspapers. As intended since that date, the Company has sold certain of the
former Park properties, most all of which were located outside of the Southeast,
for approximately $147 million and purchased new properties for approximately
$53 million. These purchases were the Potomac News (Woodbridge, Virginia;
circulation - 25,000 daily and Sunday) in February 1997, The Reidsville Review
(Reidsville, North Carolina) and The Messenger (Madison, North Carolina) in
April 1997.
In order to comply with the Federal Communication Commission's
requirement that WTVR-TV, a station acquired from Park, be divested within one
year of its January 1997 purchase date, in August 1997 the Company completed 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 August 1996, the Company acquired, for approximately $38 million,
the Danville Register & Bee, a daily newspaper in Virginia (circulation - 23,000
daily, 27,000 Sunday). In May 1996, the Company acquired, for approximately $2
million, Professional Communications Systems (PCS), a provider of equipment and
studio design services for television stations.
In October 1995, the Company acquired for approximately $232 million
the assets of several Virginia newspapers (Virginia Newspapers) from Worrell
Enterprises, Inc., and its affiliates. Newspaper properties acquired include
four daily and Sunday newspapers (combined current circulation - 98,000 daily,
111,000 Sunday). In addition, the acquisition included a number of weekly and
other publications, located in Culpeper, Greene, Madison, Orange and Tazewell
Counties, Virginia.
1
<PAGE>
In early 1998, the Company acquired, for approximately $92 million, the
Bristol Herald Courier, a daily newspaper in southwestern Virginia (circulation
- - 44,000 daily, 47,000 Sunday), and two affiliated weekly newspapers. The
Company has also agreed to purchase The Hickory Daily Record, a daily newspaper
located in northwestern North Carolina (circulation - 20,000 daily and Sunday).
This transaction is expected to close later in 1998. Additionally, the Company
has agreed to sell its Kentucky newspaper properties, which include The
(Somerset) Commonwealth Journal and related weekly publications.
Industry Segments
The Company is engaged in four significant industry segments. For
financial information related to these segments see pages 33 and 34 of the 1997
Annual Report to Stockholders, which are incorporated herein by reference.
Additional information related to each of the Company's significant industry
segments is included below.
Publishing Business
At December 28, 1997, the Company's wholly owned publishing operations
included daily and Sunday newspapers in Florida, North Carolina, Virginia and
Kentucky. For a listing of the Company's daily and Sunday newspapers by
location, see page 3 of the 1997 Annual Report to Stockholders, which is
incorporated herein by reference. Combined daily circulation for the Florida,
North Carolina and Virginia newspapers in 1997 was 247,000, 154,000 and 353,000,
respectively; combined Sunday circulation for these newspapers was 336,000,
160,000 and 385,000, respectively. The Company also owns weekly newspapers,
shoppers and other publications in Florida, North Carolina, Virginia and
Kentucky, with weekly circulation of 2,000, 22,000, 24,000 and 37,000,
respectively; and it holds 40% of the common stock and all of the preferred
stock of Denver Newspapers, Inc., the parent company of The Denver Post, a daily
newspaper in Denver, Colorado. As mentioned earlier, the Company has agreed to
sell its Kentucky newspapers, including The (Somerset) Commonwealth Journal
(circulation - 9,000 daily and Sunday).
The newspaper publishing industry in the United States is comprised of
hundreds of public and private companies ranging from large national and
regional companies, publishing multiple newspapers across many states, to small
privately held companies publishing one newspaper in one locality. Acquisitions
and growth achieved by the Company over the past three years have placed the
Company's newspaper circulation among the top twenty in the United States and
situated the Company among the top fifteen publicly-held newspaper publishers in
the country based on revenue. The publishing products of the Company reach
almost one million households across the Southeast every week. Additionally, the
Company's on-line news, information and entertainment services reach additional
viewers and readers without geographic restriction.
All of the Company's newspapers compete for circulation and advertising
with other newspapers published nationally and in nearby cities and towns and
for advertising with magazines, radio, television, the internet and other
promotional media. All of the newspapers compete for circulation principally on
the basis of content, service and price.
2
<PAGE>
The primary raw material used by the Company in its publishing
operations is newsprint, which is purchased from various Canadian and United
States sources, including Garden State Paper Company, Inc., a wholly owned
subsidiary of the Company, and Southeast Paper Manufacturing Co., in which the
Company owns a one-third equity interest. The publishing operations of the
Company consumed approximately 135,000 tons of newsprint in 1997. Management of
the Company believes that sources of supply under existing arrangements will be
adequate in 1998.
Broadcast Television Business
The ownership, operation and sale of broadcast television stations,
including those licensed to the Company, are subject to the jurisdiction of the
FCC, which engages in extensive and changing regulation of the broadcasting
industry under authority granted by the Communications Act of 1934
(Communications Act). The Communications Act requires broadcasters to serve the
public interest. Among other things, the FCC assigns frequency bands for
broadcasting; assigns and controls the particular frequencies, locations and
operating power of stations; issues, renews, revokes and modifies station
licenses; assigns and controls whether to approve changes in ownership or
control of station licenses; regulates equipment used by stations; adopts and
implements regulations and policies that directly or indirectly affect the
ownership, operation and employment practices of stations; regulates program
content and has the authority to impose penalties for violations of its rules or
the Communications Act.
Pursuant to the Children's Television Act of 1990 (Children's
Television Act), the FCC has adopted rules limiting advertising in children's
television programming and requiring that broadcast television stations serve
the educational and informational needs of children. The Children's Television
Act specifically requires the FCC to consider compliance with these obligations
in deciding whether to renew a television broadcast license.
Reference should be made to the Communications Act, the
Telecommunications Act of 1996 (1996 Telecom Act), the Children's Television Act
and the FCC's rules, public notices and rulings for further information
concerning the nature and extent of federal regulation of broadcast television
stations.
The Broadcast Television Division operates fourteen network-affiliated
television stations in the southeastern United States. The following table sets
forth certain information on each of these stations:
<TABLE>
<CAPTION>
Expiration Expiration
National Date of Date of
Station Location Market Station Audience FCC Network
and Affiliation Rank (a) Rank (a) * % Share (a) * License (b) Agreement
--------------- -------- ---------- ------------- ----------- ---------
<S> <C>
WFLA-TV NBC 15 2 13% 2/1/05 12/31/04
Tampa, FL
WIAT-TV CBS (c) 51 4 8% 4/1/05 12/31/04
Birmingham, AL
WJWB-TV WB (d) 54 4 5% 2/1/05 1/12/99
Jacksonville, FL
3
<PAGE>
Expiration Expiration
National Date of Date of
Station Location Market Station Audience FCC Network
and Affiliation Rank (a) Rank (a) * % Share (a) * License (b) Agreement
--------------- -------- ---------- ------------- ----------- ---------
WTVQ-TV ABC 67 3 11% 8/1/05 1/1/06
Lexington, KY
WSLS-TV NBC 68 3 13% 10/1/04 10/1/05
Roanoke, VA
WDEF-TV CBS 86 3 14% 8/1/05 12/31/04
Chattanooga, TN
WJTV-TV CBS 90 2 19% 6/1/05 12/31/04
Jackson, MS
WJHL-TV CBS 93 2 17% 8/1/05 12/31/04
Johnson City, TN
WSAV-TV NBC 100 2 13% 4/1/05 9/30/04
Savannah, GA
WNCT-TV CBS 106 1 19% 12/1/04 12/31/04
Greenville, NC
WHOA-TV ABC 114 4 8% 4/1/05 1/3/07
Montgomery, AL
WCBD-TV NBC 117 2 18% 12/1/04 1/1/05
Charleston, SC
WHLT-TV CBS 166 2 12% 6/1/05 8/31/05
Hattiesburg, MS
KALB-TV NBC 178 1 32% 6/1/05 10/1/05
Alexandria, LA
</TABLE>
(a) Source: November 1997 Nielson Rating Books.
(b) Television broadcast licenses are granted for maximum terms of eight
years and are subject to renewal upon application to the FCC.
(c) Formerly WBMG-TV.
(d) Formerly WJKS-TV; transferred network affiliation from ABC to Warner
Brothers in February 1997.
* Sign-On to Sign-Off.
The primary source of revenues for the Company's television stations is
the sale of time to national and local advertisers. Since each of the stations
is network-affiliated, additional revenue is derived from the network
programming carried by each.
4
<PAGE>
The Company's television stations are in competition for audience and
advertising revenues with other television and radio stations and cable
television systems as well as magazines, newspapers and other promotional media.
A number of cable television systems which operate generally on a subscriber
payment basis are in business in the Company's broadcasting markets and compete
for audience by importing out-of-market television signals and by presenting
cable network and other program services. The television stations compete for
audience on the basis of program content and quality of reception, and for
advertising revenues on the basis of price, share of market and performance.
The television broadcast industry presently is planning for the
transition from analog to digital technology in accordance with a mandated
conversion timetable established by the FCC. Although subject to revision by the
FCC, this timetable requires television stations to inaugurate such digital
service beginning May 1, 1999, at stations in large markets, through May 1,
2002, at stations in smaller markets. Due to the national market rank of the
Company's Tampa station, it must comply with this transition in the early part
of the conversion period.
Congress and the FCC have under consideration, and in the future may
consider and adopt, new laws, regulations and policies regarding a wide variety
of matters that could affect, directly or indirectly, the operation, ownership
and profitability of the Company's broadcast television stations and affect the
ability of the Company to acquire additional stations. In addition to the
matters noted above, these include, for example, spectrum use fees, political
advertising rates, potential restrictions on the advertising of certain products
(such as alcoholic beverages) and the rules and policies to be applied in
enforcing the FCC's equal employment opportunity regulations. Other matters that
could potentially affect the Company's broadcast properties include
technological innovations and developments generally affecting competition in
the mass communications industry, such as satellite radio and television
broadcast service, wireless cable systems, low-power television stations, radio
technologies and the advent of telephone company participation in the provision
of video programming services.
Cable Television Business
The Cable Television Division includes two cable systems in northern
Virginia, Media General Cable of Fairfax County, Inc., and Media General Cable
of Fredericksburg, Inc., a cable advertising agency, Mega Advertising, Inc., and
an interest in a cable advertising interconnect business serving five cable
systems in the Washington, D.C. area. The Fairfax County system has 800 and 100
megahertz of forward and return capacity, respectively, on dual coaxial cables
which pass approximately 336,000 homes. The Fredericksburg system has a
60-channel capacity and passes approximately 21,000 homes.
The Company has cable television franchises to operate its existing
systems in the overwhelming majority of Fairfax County, Virginia, adjoining
cities and towns and in Fredericksburg and Spotsylvania County, Virginia, and a
portion of Stafford County, Virginia. These jurisdictions have enacted extensive
regulations governing cable television systems within their borders. In
anticipation of a series of expiration dates presently commencing in 1998,
franchise renewal proceedings are underway for the Company's Fairfax County
system. Renewal proceedings also are underway for the Company's Stafford County
franchise. At December 28, 1997, the Company's cable television systems served
approximately 252,000 subscribers.
5
<PAGE>
The Company's cable television systems have substantially the same
competition for advertising as its television stations. The cable television
systems compete for audience on the basis of price, program content and quality
of reception and for advertising revenues on the basis of price, share of market
and performance.
The FCC has jurisdiction over and has adopted a regulatory program
concerning the cable television industry. The FCC's regulations establish cable
television service and programming requirements and govern cable television
engineering standards, registration and reporting obligations and other matters.
Among the regulatory limitations which impact the Company's costs and business,
federal law establishes rate regulation for the cable services (other than
premium and pay-per-view services) which the Company offers to subscribers.
Ratemaking authority is divided between local franchisors and the FCC, and some
of the Company's rates are under review by franchisors and under review by or on
appeal to the FCC. While the Company believes that its rates have been
established in compliance with applicable federal law, it is possible that rate
refunds and/or rate adjustments may be ordered.
The 1996 Telecom Act eliminates rate regulation after March 31, 1999,
for all cable services except the "basic" tier, which is the service including
the local broadcast signals carried by a cable system. It also removes
previously applicable restrictions that prevented most local telephone companies
from providing cable services within the areas in which they provided telephone
services. This change, together with direct broadcast satellite and potential
wireless cable and open video system offerings, will almost certainly lead to
increased competition within the area served by the Company's cable systems. In
early 1998, a local telephone company affiliate was certificated by the FCC to
operate a competitive open video system in a portion of the franchise area
served by the Company's Fairfax system. Once effective competition by a video
programming provider exists generally in a franchise area, cable rate regulation
for other than the basic tier will end in such area.
The Company is studying several strategic planning initiatives for
long-term implementation, including entry into the high-speed data transmission
and commercial and residential telephone markets, for its Fairfax system. The
Company estimates that the capital investment required for it to compete
effectively in those markets could exceed $200 million over a ten-year period.
Reference should be made to the Communications Act, the 1996 Telecom
Act and the FCC's rules, public notices and rulings for further information
concerning the nature and extent of federal regulation of cable television
systems.
The following table sets forth certain information with respect to the
Company's largest cable operation:
Media General Cable of Fairfax
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C>
Subscribers 235,551 227,717 221,784
Penetration 70.2% 69.4% 69.2%
Monthly revenue per home passed $33.79 $32.87 $31.82
Monthly average revenue per subscriber $48.64 $47.54 $46.25
</TABLE>
6
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Newsprint Paper Manufacturing Business
Media General's newsprint operations consist of the Garden State Paper
Company, a wholly owned newsprint mill in Garfield, New Jersey, with an annual
capacity of 240,000 short tons, and a one-third interest in Southeast Paper
Manufacturing Company (SEPCO) in Dublin, Georgia, with an annual capacity of
500,000 short tons. Both facilities use Media General's proprietary de-inking
technology to produce 100 percent recycled, high quality newsprint from
recovered old newspapers (ONP). Media General's share of their combined total
capacity is approximately 405,000 short tons, making Media General the nation's
leading producer of 100 percent recycled newsprint. The Company also earns
licensing fees pursuant to a contract with SEPCO, in addition to its share of
operating results.
Garden State competes with approximately twenty Canadian and American
companies in selling newsprint, its sole product, to newspaper publishers.
Competition is based principally on price, quality of product and service,
although the percentage of recovered fiber contained in manufactured newsprint
is becoming increasingly important to newspaper publishers to meet various
existing and proposed state and federal standards.
In recent years, environmentally driven legislation has encouraged the
use of recycled paper. With demand pushing against the practical limits of
recovery, ONP costs accelerated during much of 1995, but began to decline to
more reasonable levels by year end. ONP prices continued to decline gradually
throughout all of 1996 and into 1997, with prices beginning to stabilize towards
the close of 1997. Media General's strategically located and cost-effective
newsprint recycling facilities have helped assure the Company of adequate
supplies of ONP.
The newsprint business has historically been a cyclical industry. In
1994, newsprint demand was on the rise, producing higher selling prices as most
mills reached 96-97 percent of operating capacity. The trend upward continued
through 1995, enabling Media General's newsprint operations to implement four
price increases during that year. Prices peaked in early 1996 and then declined
throughout the remainder of the year. However, prices began a gradual and steady
ascent in 1997, reflecting the cyclical nature of newsprint prices inherent to
the industry.
Item 2. Properties
The headquarters of Media General, Inc., and its Richmond Newspapers,
Inc., subsidiary are currently located in downtown Richmond, Virginia, in five
adjacent buildings. In the second quarter of 1998, the Company will lease a new
corporate headquarters building which is currently being constructed by a third
party. This new facility is also located in Richmond on land adjacent to the
current headquarters. The Company will lease a new headquarters facility for
Richmond Newspapers on adjacent land beginning in 1999. The Richmond newspaper
is printed at a production and distribution facility located on an 86 acre site
in Hanover County, Virginia, near Richmond. The Company owns eight other daily
newspapers in Virginia, all of which are printed in or around their respective
cities at production and distribution facilities situated on parcels of land
ranging from one-half acre to six acres. The Tampa, Florida, newspaper is
located in a single unit production plant and office building located on a six
acre tract in that city. The headquarters of the Company's Brooksville and
Sebring, Florida, daily newspapers are located on leased property in each
respective city; however, these newspapers are printed at the Tampa production
facility. The Winston-Salem newspaper is headquartered in one building in
downtown Winston-Salem. Its newspapers are printed at a production and
distribution facility located on a nearby 12 acre site. The remaining six daily
newspapers in North
7
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Carolina are printed at production and distribution facilities on sites which
range from one-half acre to five acres, all located in or around their
respective cities. Substantially all of the newspaper production equipment, land
and buildings, are owned by the Company. As previously discussed, the Company
has agreed to sell its Kentucky properties.
The Company's fourteen television facilities are located in ten
southeastern states. Two stations are located in each of the following states:
Alabama, Florida, Mississippi and Tennessee. The six remaining stations are
located in the following states: Georgia, Kentucky, Louisiana, North Carolina,
South Carolina and Virginia. Substantially all of the television stations are
located on land owned by the Company. Ten station tower sites are owned by the
Company; four are leased.
Media General Cable of Fairfax County, Inc., a subsidiary of the
Company, has its headquarters located in one building owned by the Company in
Chantilly, Virginia, and two signal retransmission centers are located in
Fairfax County, Virginia, one on property owned by the Company and adjacent to
its production studio and one on leased property. In addition, Fairfax Cable
leases a facility for its service maintenance operations and fleet in
Springfield, Virginia. The cable system includes a home subscriber network and a
separate institutional network.
Newsprint production facilities at Garden State consist of a
Company-owned mill in Garfield, New Jersey, housing two paper-making machines
adjacent to a Company-owned power plant which supplies it with steam and
electric power. Garden State leases adequate storage facilities for waste paper
in the general vicinity of the newsprint mill. The Company also leases four
properties in New Jersey and one in New York for its recycling operations.
The Company considers all of its properties, together with the related
machinery and equipment contained therein, to be well-maintained, in good
operating condition, and adequate for its present and foreseeable future needs.
Item 3. Legal Proceedings
None. Matters previously disclosed under this item either have been
resolved for immaterial amounts or are so immaterial as not to require
disclosure.
Items 4. Submission of Matters to a Vote of Security Holders
The Company's Class B stockholders, at a special meeting held on
December 5, 1997, approved certain performance goals utilized and to be utilized
in the Company's Annual Incentive Plan and its restricted stock awards.
8
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Executive Officers of the Registrant
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<CAPTION>
Name Age Position and Office Year First Took Office*
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J. Stewart Bryan III 59 Chairman, President, Chief Executive Officer 1990
Marshall N. Morton 52 Senior Vice President, Chief Financial Officer 1989
H. Graham Woodlief, Jr. 53 Vice President 1989
Stephen Y. Dickinson 52 Controller 1989
George L. Mahoney 45 General Counsel, Secretary 1993
Stephen R. Zacharias 48 Treasurer 1989
</TABLE>
* The year indicated is the year in which the officer first assumed an
office with the Company. Mr. Dickinson assumed executive officer
responsibilities as of May 1994. Mr. Mahoney previously served as Assistant
General Counsel of Dow Jones & Company, Inc., for more than five years. Mr.
Zacharias assumed executive officer responsibilities as of December 1993.
Officers of the Company are elected at the Annual Meeting of the Board
of Directors to serve, unless sooner removed, until the next Annual Meeting of
the Board of Directors and/or until their successors are duly elected and
qualified.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Reference is made to page 49 of the 1997 Annual Report to Stockholders,
which is incorporated herein by reference, for information required by this
item.
Item 6. Selected Financial Data
Reference is made to Note 5 on pages 33 and 34, and to pages 50 and 51
of the 1997 Annual Report to Stockholders, which are incorporated herein by
reference, for information required by this item.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Reference is made to pages 42 through 48 of the 1997 Annual Report to
Stockholders, which are incorporated herein by reference, for information
required by this item.
9
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Item 8. Financial Statements and Supplementary Data
Consolidated financial statements of the Company as of December 28,
1997, and December 29, 1996, and for each of the three fiscal years in the
period ended December 28, 1997, and the report of independent auditors thereon,
as well as the Company's unaudited quarterly financial data for the fiscal years
ended December 28, 1997, and December 29, 1996, are incorporated herein by
reference from the 1997 Annual Report to Stockholders pages 25 through 41 and
page 49.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Registrant
Incorporated herein by reference from the Company's definitive proxy
statement for the Annual Meeting of Stockholders on May 15, 1998, except as to
certain information regarding executive officers included in Part I.
Item 11. Executive Compensation
Incorporated herein by reference from the Company's definitive proxy
statement for the Annual Meeting of Stockholders on May 15, 1998.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Incorporated herein by reference from the Company's definitive proxy
statement for the Annual Meeting of Stockholders on May 15, 1998.
Item 13. Certain Relationships and Related Transactions
Incorporated herein by reference from the Company's definitive proxy
statement for the Annual Meeting of Stockholders on May 15, 1998.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. and 2. The financial statements and schedule listed in the
accompanying index to financial statements and financial statement
schedules are filed as part of this annual report.
3. Exhibits
The exhibits listed in the accompanying index to exhibits are
filed as part of this annual report.
(b) Reports on Form 8-K
None
10
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Index to Financial Statements and Financial Statement Schedules - Item 14(a)
<TABLE>
<CAPTION>
Annual Report to
Form 10-K Stockholders
Media General, Inc.
(Registrant)
<S> <C>
Report of independent auditors 41
Consolidated statements of operations for the fiscal years ended
December 28, 1997, December 29, 1996, and December 31, 1995 25
Consolidated balance sheets at December 28, 1997, and
December 29, 1996 26-27
Consolidated statements of stockholders' equity for the fiscal
years ended December 28, 1997, December 29, 1996,
and December 31, 1995 28
Consolidated statements of cash flows for the fiscal years ended
December 28, 1997, December 29, 1996, and December 31, 1995 29
Notes to consolidated financial statements 30-40
Schedule:
II - Valuation and qualifying accounts and reserves for the fiscal
years ended December 28, 1997, December 29, 1996, and
December 31, 1995 12
</TABLE>
Schedules other than Schedule II, listed above, are omitted since they are not
required or are not applicable, or the required information is shown in the
financial statements or notes thereto.
The consolidated financial statements of Media General, Inc., listed in the
above index which are included in the Annual Report to Stockholders of Media
General, Inc., for the fiscal year ended December 28, 1997, are incorporated
herein by reference. With the exception of the pages listed in the above index
and the information incorporated by reference included in Parts I, II and IV,
the 1997 Annual Report to Stockholders is not deemed filed as part of this
report.
11
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Media General, Inc., and Subsidiaries
Schedule II - Valuation and Qualifying Accounts and Reserves
Fiscal Years Ended December 28, 1997, December 29, 1996, and December 31, 1995
<TABLE>
<CAPTION>
Balance at Additions Balance
beginning charged to Deductions at end
of period expense-net net Transfers of period
---------- ----------- ---------- ---------- -----------
<S> <C>
1997
Allowance for doubtful accounts $5,270,765 $5,716,864 $6,122,261 $1,787,999 (a) $ 6,653,367
Reserve for warranties 4,146,005 --- 622,681 --- 3,523,324
---------- ---------- ---------- ---------- -----------
Totals $9,416,770 $5,716,864 $6,744,942 $1,787,999 $10,176,691
========== ========== ========== ========== ===========
1996
Allowance for doubtful accounts $4,529,960 $5,195,767 $4,546,572 $ 91,610 (a) $ 5,270,765
Reserve for warranties 3,040,833 1,700,000 594,828 --- 4,146,005
---------- ---------- ---------- ---------- -----------
Totals $7,570,793 $6,895,767 $5,141,400 $ 91,610 $ 9,416,770
========== ========== ========== ========== ===========
1995
Allowance for doubtful accounts $3,360,172 $4,224,695 $3,343,663 $ 288,756 (a) $ 4,529,960
Reserve for warranties 3,441,835 --- 401,002 --- 3,040,833
---------- ---------- ---------- ---------- -----------
Totals $6,802,007 $4,224,695 $3,744,665 $ 288,756 $ 7,570,793
========== ========== ========== ========== ===========
</TABLE>
(a) Amount associated with the acquisition of properties.
12
<PAGE>
Index to Exhibits
Exhibit
Number Description
2.1 Agreement and Plan of Merger dated July 19, 1996, by and among
Media General, Inc., MG Acquisitions, Inc., and Park
Acquisitions, Inc., incorporated by reference to Exhibit 2.1
of Form 8-K dated January 7, 1997.
2.2 First Amendment to Agreement and Plan of Merger dated as of
January 7, 1997, by and among Media General, Inc., MG
Acquisitions, Inc., and Park Acquisitions, Inc., incorporated
by reference to Exhibit 2.2 of Form 8-K dated January 7, 1997.
3 (i) The Amended and Restated Articles of Incorporation of Media
General, Inc., incorporated by reference to Exhibit 3.1 of
Form 10-K for the fiscal year ended December 31, 1989.
3 (ii) Bylaws of Media General, Inc., amended and restated as of July
31, 1997, incorporated by reference to Exhibit 3 (ii) of Form
10-Q for the period ended September 28, 1997.
10.1 Form of Option granted under the 1976 Non-Qualified Stock
Option Plan, incorporated by reference to Exhibit 2.2 of
Registration Statement 2-56905.
10.2 Additional Form of Option to be granted under the 1976
Non-Qualified Stock Option Plan, incorporated by reference to
Exhibit 2 to Post-Effective Amendment No. 3 Registration
Statement 2-56905.
10.3 Addendum dated January 1984, to Form of Option granted under
the 1976 Non-Qualified Stock Option Plan, incorporated by
reference to Exhibit 10.13 of Form 10-K for the fiscal year
ended December 31, 1983.
10.4 Addendum dated June 19, 1992, to Form of Option granted under
the 1976 Non-Qualified Stock Option Plan, incorporated by
reference to Exhibit 10.15 of Form 10-K for the fiscal year
ended December 27, 1992.
10.5 The Media General, Inc., Amended and Restated Restricted Stock
Plan, dated January 31, 1996, incorporated by reference to
Exhibit 10.10 of Form 10-K for the fiscal year ended December
31, 1995.
10.6 Addendum dated June 19, 1992, to Form of Option granted under
the 1987 Non-Qualified Stock Option Plan, incorporated by
reference to Exhibit 10.20 of Form 10-K for the fiscal year
ended December 27, 1992.
10.7 Media General, Inc., Executive Death Benefit Plan effective
January 1, 1991, incorporated by reference to Exhibit 10.17 of
Form 10-K for the fiscal year ended December 29, 1991.
13
<PAGE>
10.8 Amendment to the Media General, Inc., Executive Death Benefit
Plan dated July 24, 1991, incorporated by reference to Exhibit
10.18 of Form 10-K for the fiscal year ended December 29,
1991.
10.9 Shareholders Agreement, dated May 28, 1987, between Mary
Tennant Bryan, Florence Bryan Wisner, J. Stewart Bryan III,
and D. Tennant Bryan and J. Stewart Bryan III as trustees
under D. Tennant Bryan Media Trust, and Media General, Inc.,
incorporated by reference to Exhibit 10.50 of Form 10-K for
the fiscal year ended December 31, 1987.
10.10 Amended and Restated Redemption Agreement between Media
General, Inc., and D. Tennant Bryan, dated April 7, 1994,
incorporated by reference to Exhibit 10.21 of Form 10-Q for
the period ended March 27, 1994.
10.11 Media General, Inc., Supplemental Thrift Plan, amended and
restated as of November 17, 1994, incorporated by reference to
Exhibit 10.27 of Form 10-K for the fiscal year ended December
25, 1994.
10.12 Media General, Inc., Executive Supplemental Retirement Plan,
amended, and restated as of November 17, 1994, incorporated by
reference to Exhibit 10.28 of Form 10-K for the fiscal year
ended December 25, 1994.
10.13 Deferred Income Plan for Selected Key Executives of Media
General, Inc., and form of Deferred Compensation Agreement
thereunder dated as of December 1, 1984, incorporated by
reference to Exhibit 10.29 of Form 10-K for the fiscal year
ended December 31, 1989.
10.14 Media General, Inc., Management Performance Award Program,
adopted November 16, 1990, and effective January 1, 1991,
incorporated by reference to Exhibit 10.35 of Form 10-K for
the fiscal year ended December 29, 1991.
10.15 Media General, Inc., Deferred Compensation Plan, amended and
restated as of November 17, 1994, incorporated by reference to
Exhibit 10.32 of Form 10-K for the fiscal year ended December
25, 1994.
10.16 Media General, Inc., ERISA Excess Benefits Plan, amended and
restated as of November 17, 1994, incorporated by reference to
Exhibit 10.33 of Form 10-K for the fiscal year ended December
25, 1994.
10.17 Media General, Inc., 1995 Long-Term Incentive Plan, adopted as
of May 19, 1995, incorporated by reference to Exhibit 10.33 of
Form 10-K for the fiscal year ended December 31, 1995.
10.18 Media General, Inc., 1996 Employee Non-Qualified Stock Option
Plan, adopted as of January 30, 1996, incorporated by
reference to Exhibit 10.20 of Form 10-K for the fiscal year
ended December 29, 1996.
10.19 Media General, Inc., 1997 Employee Restricted Stock Plan,
adopted as of May 16, 1997, incorporated by reference to
Exhibit 10.21 of Form 10-K for the fiscal year ended December
29, 1996.
14
<PAGE>
10.20 Media General, Inc., Directors' Deferred Compensation Plan,
adopted as of May 16, 1997, incorporated by reference to
Exhibit 10.22 of Form 10-K for the fiscal year ended December
29, 1996.
10.21 Amended and Restated Partnership Agreement, dated November 1,
1987, by and among Virginia Paper Manufacturing Corp., KR
Newsprint Company, Inc., and CEI Newsprint, Inc., incorporated
by reference to Exhibit 10.31 of Form 10-K for the fiscal year
ended December 31, 1987.
10.22 Amended and Restated License Agreement, dated November 1,
1987, by and among Media General, Inc., Garden State Paper
Company, Inc., and Southeast Paper Manufacturing Co.,
incorporated by reference to Exhibit 10.34 of Form 10-K for
the fiscal year ended December 31, 1987.
10.23 Amended and Restated Umbrella Agreement, dated November 1,
1987, by and among Media General, Inc., Knight - Ridder, Inc.,
and Cox Enterprises, Inc., incorporated by reference to
Exhibit 10.32 of Form 10-K for the fiscal year ended December
31, 1987.
10.24 Amended Newsprint Purchase Contract, dated November 1, 1987,
by and among Southeast Paper Manufacturing Co., Media General,
Inc., Knight-Ridder, Inc., and Cox Enterprises, Inc.,
incorporated by reference to Exhibit 10.35 of Form 10-K for
the fiscal year ended December 31, 1987.
10.25 Television affiliation agreement, dated February 10, 1995,
between WFLA-TV and the NBC Television Network incorporated by
reference to Exhibit 10.38 of Form 10-K for the fiscal year
ended December 25, 1994.
10.26 Amendments, dated May 17, 1993, to television affiliations
agreement, between WFLA-TV and National Broadcasting Company,
Inc., dated March 22, 1989, incorporated by reference to
Exhibit 10.47 of Form 10-K for the fiscal year ended December
26, 1993.
10.27 Franchise Agreements, dated September 30, 1982, between Media
General, Inc., Media General Cable of Fairfax County, Inc.,
and Fairfax County, Virginia, as amended January 30, 1984,
incorporated by reference to Exhibit 10.32 of Form 10-K for
the fiscal year ended December 31, 1983.
10.28 Second Amended and Restated Stock and Warrant Purchase and
Shareholders' Agreement dated May 20, 1994, by and among Media
General, Inc., Affiliated Newspapers Investments, Inc., and
Denver Newspapers, Inc., incorporated by reference to Exhibit
2 of Form 8-K dated September 28, 1994.
10.29 Asset Purchase Agreement dated February 13, 1997, by and among
Media General Newspapers, Inc., and Newspaper Holdings, Inc.,
incorporated by reference to Exhibit 10.36 of Form 10-K dated
March 27, 1997.
13 Media General, Inc., Annual Report to Stockholders for the
fiscal year ended December 28, 1997.
15
<PAGE>
21 List of subsidiaries of the registrant.
23 Consent of Ernst & Young LLP, independent auditors.
27.1 1997 Financial Data Schedule.
27.2 1996 Restated Financial Data Schedule.
27.3 1995 Restated Financial Data Schedule.
Note: Exhibits 10.1 - 10.20 are management contracts or
compensatory plans, contracts or arrangements.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: March 26, 1998
/s/ J. Stewart Bryan III
---------------------------------------------
J. Stewart Bryan III, Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C>
Vice Chairman and Director March 26, 1998
- ------------------------------------
James S. Evans
/s/ Marshall N. Morton Senior Vice President and March 26, 1998
- ------------------------------------
Marshall N. Morton Chief Financial Officer and Director
/s/ Stephen Y. Dickinson Controller March 26, 1998
- ------------------------------------
Stephen Y. Dickinson
/s/ Robert P. Black Director March 26, 1998
- ------------------------------------
Robert P. Black
/s/ Charles A. Davis Director March 26, 1998
- ------------------------------------
Charles A. Davis
/s/ Robert V. Hatcher, Jr. Director March 26, 1998
- ------------------------------------
Robert V. Hatcher, Jr.
/s/ John G. Medlin, Jr. Director March 26, 1998
- ------------------------------------
John G. Medlin, Jr.
/s/ Wyndham Robertson Director March 26, 1998
- ------------------------------------
Wyndham Robertson
/s/ Henry L. Valentine, II Director March 26, 1998
- ------------------------------------
Henry L. Valentine, II
</TABLE>
<TABLE>
<CAPTION>
Media General Operating Locations
<S> <C>
PUBLISHING The (Morganton) News Herald KALB-TV5 -- Alexandria, La.
Virginia The Reidsville Review WHLT-TV22 -- Hattiesburg, Miss.
Richmond Times-Dispatch The (Eden) Daily News WJTV-TV12 -- Jackson, Miss.
Bristol Herald Courier The (Marion) McDowell News WNCT-TV9 -- Greenville, N.C.
The (Lynchburg) News & Advance Florida WCBD-TV2 -- Charleston, S.C.
The (Charlottesville) Daily Progress The Tampa Tribune WDEF-TV12 -- Chattanooga, Tenn.
Potomac (Woodbridge) News (Sebring) Highlands Today WJHL-TV11 -- Johnson City, Tenn.
Danville Register & Bee (Brooksville) Hernando Today WSLS-TV10 -- Roanoke, Va.
The (Waynesboro) News Virginian Colorado Professional Communications
The Manassas Journal Messenger The Denver Post (40% ownership) Systems -- Tampa, Fla.
Culpeper Star-Exponent District of Columbia CABLE TELEVISION
Suffolk News-Herald Media General News Service Media General Cable and Mega
Beacon Press, Inc. -- Richmond Media General also owns more than Advertising -- Fairfax County, Va.
Virginia Business Magazine -- Richmond 100 weeklies and periodicals. Media General Cable of Fredericksburg --
Media General Financial Services -- BROADCAST TELEVISION Fredericksburg, Va.
Richmond WIAT-TV42 -- Birmingham, Ala. NEWSPRINT
North Carolina WHOA-TV32 -- Montgomery, Ala. Garden State Paper Company, Inc. --
Winston-Salem Journal WJWB-TV17 -- Jacksonville, Fla. Garfield, N.J.
(Concord & Kannapolis) Independent WFLA-TV8 -- Tampa, Fla. GSP Recycling -- Elmwood
Tribune WSAV-TV3 -- Savannah, Ga. Park, N.J.
The Hickory Daily Record* WTVQ-TV36 -- Lexington, Ky. Southeast Paper Manufacturing Company
Statesville Record & Landmark (33% ownership) -- Dublin, Ga.
</TABLE>
*Acquisition pending
3
<PAGE>
Media General, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Fiscal Years Ended
- -------------------------------------------------------------------------------------------------------------------------
December 28, December 29, December 31,
1997 1996 1995
(53 weeks)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
Revenues $ 909,987 $ 765,105 $ 707,766
Operating costs:
Production costs 453,937 410,659 391,940
Selling, distribution and administrative 228,289 187,059 182,243
Depreciation and amortization 98,316 64,951 60,590
- -------------------------------------------------------------------------------------------------------------------------
Total operating costs 780,542 662,669 634,773
- -------------------------------------------------------------------------------------------------------------------------
Operating income 129,445 102,436 72,993
- -------------------------------------------------------------------------------------------------------------------------
Other income (expense):
Interest expense (65,442) (21,267) (15,522)
Investment income - unconsolidated affiliates:
Southeast Paper Manufacturing Co. 8,334 19,508 12,780
Denver Newspapers, Inc.:
Equity in net income 6,695 2,704 1,817
Preferred stock income 6,008 4,976 4,437
Other, net 1,267 1,381 5,204
- -------------------------------------------------------------------------------------------------------------------------
Total other income (expense) (43,138) 7,302 8,716
- -------------------------------------------------------------------------------------------------------------------------
Income before income taxes and extraordinary item 86,307 109,738 81,709
Income taxes 33,797 39,240 28,477
- -------------------------------------------------------------------------------------------------------------------------
Income before extraordinary item 52,510 70,498 53,232
Extraordinary item from early redemption of debt
(net of income tax benefit of $38,613) (63,000) --- ---
- -------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (10,490) $ 70,498 $ 53,232
=========================================================================================================================
Earnings (loss) per common share and equivalent:
Income before extraordinary item $ 1.99 $ 2.68 $ 2.04
Extraordinary item (2.39) --- ---
- -------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (0.40) $ 2.68 $ 2.04
=========================================================================================================================
Earnings (loss) per common share and equivalent-
assuming dilution:
Income before extraordinary item $ 1.97 $ 2.65 $ 2.01
Extraordinary item (2.37) --- ---
- -------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (0.40) $ 2.65 $ 2.01
=========================================================================================================================
</TABLE>
Notes to Consolidated Financial Statements begin on page 30.
25
<PAGE>
Media General, Inc.
CONSOLIDATED BALANCE SHEETS
(In thousands, except shares)
<TABLE>
<CAPTION>
ASSETS
December 28, December 29,
1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
Current assets:
Cash and cash equivalents $ 3,504 $ 4,471
Accounts receivable (less allowance for doubtful
accounts 1997 - $6,653; 1996 - $5,271) 109,287 81,513
Inventories 17,594 16,329
Other 32,268 25,905
----------------- -----------------
Total current assets 162,653 128,218
- -------------------------------------------------------------------------------------------------------------------------
Investments in unconsolidated affiliates 132,209 113,872
- -------------------------------------------------------------------------------------------------------------------------
Other assets 28,519 23,564
- -------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, at cost:
Land 30,190 22,711
Buildings 158,775 151,834
Machinery and equipment 877,992 811,388
Construction in progress 16,245 11,642
Accumulated depreciation (578,296) (527,597)
----------------- -----------------
Net property, plant and equipment 504,906 469,978
- -------------------------------------------------------------------------------------------------------------------------
Excess of cost over fair value of net identifiable assets
of acquired businesses (less accumulated amortization
1997 - $24,732; 1996 - $16,091) 572,458 274,923
- -------------------------------------------------------------------------------------------------------------------------
FCC licenses and other intangibles (less accumulated
amortization 1997 - $18,601; 1996 - $2,518) 413,456 14,929
- -------------------------------------------------------------------------------------------------------------------------
Total assets $ 1,814,201 $ 1,025,484
=========================================================================================================================
</TABLE>
Notes to Consolidated Financial Statements begin on page 30.
26
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 28, December 29,
1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
Current liabilities:
Accounts payable $ 31,599 $ 30,154
Accrued expenses and other liabilities 98,190 72,310
Income taxes payable 1,422 1,381
Short-term borrowings --- 11,000
----------------- -----------------
Total current liabilities 131,211 114,845
- -------------------------------------------------------------------------------------------------------------------------
Long-term debt 900,000 265,000
- -------------------------------------------------------------------------------------------------------------------------
Deferred income taxes 249,649 102,055
- -------------------------------------------------------------------------------------------------------------------------
Other liabilities and deferred credits 115,115 106,344
- -------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Notes 10 and 11)
- -------------------------------------------------------------------------------------------------------------------------
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
26,172,424 and 25,950,287 shares 130,862 129,751
Class B, authorized 600,000 shares; issued
556,574 shares 2,783 2,783
Additional paid-in capital 16,733 11,393
Unearned compensation (2,100) (1,254)
Retained earnings 269,948 294,567
----------------- -----------------
Total stockholders' equity 418,226 437,240
- -------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 1,814,201 $ 1,025,484
=========================================================================================================================
</TABLE>
Notes to Consolidated Financial Statements begin on page 30.
27
<PAGE>
Media General, Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except shares and per share amounts)
<TABLE>
<CAPTION>
Common Stock Additional
----------------------- Paid-in Unearned Retained
Class A Class B Capital Compensation Earnings
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Balance at December 25, 1994 $ 128,699 $ 2,783 $ 6,787 $ (1,676) $ 196,770
Net income --- --- --- --- 53,232
Cash dividends ($0.48 per share) --- --- --- --- (12,695)
Exercise of options on 81,436
Class A shares 407 --- 699 --- ---
Issuance of 88,305 Class A shares
under restricted stock plan 442 --- 2,050 (2,492) ---
Income tax benefits relating to
restricted share dividends and
exercised options --- --- 557 --- ---
Issuance of 5,646 Class A shares
under dividend reinvestment plan 28 --- 149 --- ---
Amortization and forfeitures of
unearned compensation (50) --- (174) 1,595 ---
------------- ------------- ------------- ------------- -------------
Balance at December 31, 1995 129,526 2,783 10,068 (2,573) 237,307
- ---------------------------------------------------------------------------------------------------------------------------
Net income --- --- --- --- 70,498
Cash dividends ($0.50 per share) --- --- --- --- (13,238)
Purchase and retirement of 44,212
Class A shares (221) --- (1,238) --- ---
Exercise of options on 88,621
Class A shares 443 --- 1,470 --- ---
Income tax benefits relating to
restricted share dividends and
exercised options --- --- 1,016 --- ---
Issuance of 5,408 Class A shares
under dividend reinvestment plan 27 --- 149 --- ---
Amortization and forfeitures of
unearned compensation (24) --- (72) 1,319 ---
------------- ------------- ------------- ------------- -------------
Balance at December 29, 1996 129,751 2,783 11,393 (1,254) 294,567
- ---------------------------------------------------------------------------------------------------------------------------
Net loss --- --- --- --- (10,490)
Cash dividends ($0.53 per share) --- --- --- --- (14,129)
Exercise of options on 131,024
Class A shares 655 --- 1,991 --- ---
Issuance of 91,000 Class A shares
under restricted stock plan 455 --- 2,406 (2,861) ---
Income tax benefits relating to
restricted share dividends and
exercised options --- --- 918 --- ---
Issuance of 5,373 Class A shares
under dividend reinvestment plan 27 --- 157 --- ---
Amortization and forfeitures of
unearned compensation (26) --- (132) 2,015 ---
------------- ------------- ------------- ------------- -------------
Balance at December 28, 1997 $ 130,862 $ 2,783 $ 16,733 $ (2,100) $ 269,948
===========================================================================================================================
</TABLE>
Notes to Consolidated Financial Statements begin on page 30.
28
<PAGE>
Media General, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Fiscal Years Ended
--------------------------------------------------
December 28, December 29, December 31,
1997 1996 1995
(53 weeks)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
Cash flows from operating activities:
Net income (loss) $ (10,490) $ 70,498 $ 53,232
Adjustments to reconcile net income (loss):
Extraordinary item 63,000 --- ---
Depreciation and amortization 98,316 64,951 60,590
Deferred income taxes (4,227) (1,733) 4,271
Provision for doubtful accounts 5,228 5,084 4,188
Investment income - unconsolidated affiliates (18,337) (27,188) (19,034)
Distribution from unconsolidated newsprint
affiliate --- 15,600 ---
---------------- --------------- ---------------
Net cash provided by operations 133,490 127,212 103,247
Change in assets and liabilities:
Accounts receivable and inventories (13,074) (1,979) (16,730)
Other current assets 14,392 1,780 (3,814)
Accounts payable, accrued expenses
and other liabilities (13,495) (1,745) 11,959
Other, net (1,965) 1,235 8,641
----------------- --------------- ---------------
Net cash provided by operating activities 119,348 126,503 103,303
- -------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (41,599) (28,510) (29,076)
Purchase of businesses (1997 - net of $476
million of debt assumed) (276,823) (40,024) (231,900)
Sale of businesses 147,267 --- ---
Change in restricted bond proceeds held in trust --- 550 2,668
Other, net (1,146) 5,944 3,871
---------------- --------------- ---------------
Net cash used by investing activities (172,301) (62,040) (254,437)
- -------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Increase in debt 1,022,000 38,000 207,000
Payment of debt (874,000) (88,750) (52,750)
Premiums and costs related to early redemption
of Park debt (84,703) --- ---
Cash dividends paid (14,129) (13,238) (12,695)
Other, net 2,818 629 1,283
---------------- --------------- ---------------
Net cash provided (used) by financing activities 51,986 (63,359) 142,838
- -------------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (967) 1,104 (8,296)
Cash and cash equivalents at beginning of year 4,471 3,367 11,663
---------------- --------------- ---------------
Cash and cash equivalents at end of year $ 3,504 $ 4,471 $ 3,367
=========================================================================================================================
</TABLE>
Notes to Consolidated Financial Statements begin on page 30.
29
<PAGE>
Media General, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Principles of Consolidation
The accompanying financial statements include the accounts of Media
General, Inc., and subsidiaries more than 50% owned (the Company). All
significant intercompany balances and transactions have been eliminated. See
Note 10 for a summary of the Company's accounting policies.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates. Certain
prior year financial information has been reclassified to conform with the
current year's presentation.
The Company's fiscal year ends on the last Sunday in December. Results for
1997 and 1996 are for the 52 week periods ended December 28, 1997, and December
29, 1996, respectively, while results for 1995 are for the 53 week period ended
December 31, 1995.
Note 2: Acquisitions
In January 1997, the Company 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
transaction costs. In early February 1997, the Company redeemed Park's high
coupon debt and recorded an extraordinary charge of $63 million ($2.39 per
share, or $2.37 per share - assuming dilution), representing the debt prepayment
premium and the write-off of associated debt issuance costs, net of a $38.6
million tax benefit. The acquisition and redemption were financed with
borrowings under an existing revolving credit facility (see Note 4).
As intended, after the acquisition the Company completed sales of certain
of the former Park properties for approximately $147 million and purchased new
properties for approximately $53 million. These purchases included The Potomac
News (Woodbridge, Virginia) in February 1997, and the Reidsville Review
(Reidsville, North Carolina) and The Messenger (Madison, North Carolina) in
April 1997.
In August 1997, the Company completed 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 of its January 1997 purchase date. The new stations'
results of operations have been included in the Company's operations beginning
with the exchange date.
The acquisitions were accounted for as purchases and the purchase price was
allocated to the assets acquired and liabilities assumed based upon their
estimated fair values. The amount allocated to FCC licenses and other
identifiable intangibles and to excess cost over the net assets acquired
relating to Park and the related sale, purchase, and exchange activities was
$415 million and $313 million, respectively. These amounts are being amortized
on a straight-line basis over periods ranging from 3 to 40 years. The results of
operations of these businesses, since their respective dates of acquisition,
have been included in the Company's consolidated results of operations.
The following summary presents the actual consolidated results of
operations for the year ended December 28, 1997, and unaudited pro forma
consolidated results of operations for the year ended December 29, 1996, as if
the acquisition had been completed at the beginning of fiscal year 1996. The pro
forma information is presented for comparative purposes only and does not
purport to be indicative of what would have occurred had the acquisition
actually been made as of such date, nor is it necessarily indicative of future
operating results:
<TABLE>
<CAPTION>
Actual Pro Forma
Year Ended Year Ended
(In thousands, except per share amounts) December 28, 1997 December 29, 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
Revenues $ 909,987 $ 914,846
============= =============
Income before extraordinary item $ 52,510 $ 44,443
Extraordinary item (63,000) (63,000)
------------- -------------
Net loss $ (10,490) $ (18,557)
============= =============
Income (loss) per common share and equivalent:
Income before extraordinary item $ 1.99 $ 1.69
Extraordinary item (2.39) (2.40)
------------- -------------
Net loss $ (0.40) $ (0.71)
============= =============
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
Actual Pro Forma
Year Ended Year Ended
December 28, 1997 December 29, 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
Income (loss) per common share and equivalent- assuming dilution:
Income before extraordinary item $ 1.97 $ 1.67
Extraordinary item (2.37) (2.37)
------------- -------------
Net loss $ (0.40) $ (0.70)
============= =============
</TABLE>
In August 1996, the Company acquired, for approximately $38 million, the
Danville Register & Bee, a daily newspaper in Virginia. Also, in May 1996, the
Company acquired, for approximately $2 million, Professional Communications
Systems, a provider of equipment and studio design services for television
stations. The results of operations of these businesses, since their respective
dates of acquisition, have been included in the Company's consolidated results
of operations.
In October 1995, the Company acquired, for approximately $232 million, the
assets of several Virginia newspapers (Virginia Newspapers) from Worrell
Enterprises, Inc., and its affiliates. The acquisition included four daily
newspapers as well as a number of weekly and other publications. Virginia
Newspapers' results of operations have been included in the Company's
consolidated results of operations since the date of acquisition.
Note 3: Investments in Unconsolidated Affiliates
The Company has a one-third partnership interest in Southeast Paper
Manufacturing Company (SEPCO), a domestic newsprint manufacturer which also pays
licensing fees to the Company. The Company also has a 40% interest in Denver
Newspapers, Inc. (DNI), the parent company of The Denver Post, a Denver,
Colorado, daily newspaper company.
Summarized financial information for these investments accounted for by the
equity method follows:
Southeast Paper Manufacturing Company:
<TABLE>
<CAPTION>
(In thousands) 1997 1996
- --------------------------------------------------------------------------------------------------------
<S> <C>
Current assets $ 74,667 $ 74,269
Noncurrent assets 318,478 309,550
Current liabilities 65,392 60,706
Noncurrent liabilities 118,894 139,256
- --------------------------------------------------------------------------------------------------------
(In thousands) 1997 1996 1995
- --------------------------------------------------------------------------------------------------------
Net sales $ 246,468 $ 277,543 $ 290,980
Gross profit 56,183 93,150 75,274
Net income 25,002 58,525 38,341
Company's equity in net income 8,334 19,508 12,780
- --------------------------------------------------------------------------------------------------------
Denver Newspapers, Inc.:
(In thousands) 1997 1996
- --------------------------------------------------------------------------------------------------------
Current assets $ 37,658 $ 38,855
Noncurrent assets 124,414 99,770
Current liabilities 35,836 40,961
Noncurrent liabilities 38,726 26,867
Mandatorily redeemable preferred stock 54,300 54,300
- --------------------------------------------------------------------------------------------------------
(In thousands) 1997 1996 1995
- --------------------------------------------------------------------------------------------------------
Net sales $ 214,593 $ 190,140 $ 168,836
Gross profit 101,114 74,987 67,800
Net income 19,437 9,461 7,242
Net income applicable to common stock 16,737 6,761 4,542
Company's equity in net income 6,695 2,704 1,817
- --------------------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE>
The summarized information for DNI includes its operating results for the
12 month periods ended November 30, 1997, 1996, and 1995. The Company
recognizes, on a one month lag, 40% of DNI's net income applicable to common
stockholders. The carrying value of the Company's investment in the DNI
mandatorily redeemable preferred stock, which is being held to maturity and is
included in investments in unconsolidated affiliates, was $49.3 million and $46
million, net of unamortized discounts of $12 million and $15.3 million, at
December 28, 1997, and December 29, 1996, respectively.
Other:
Retained earnings of the Company at December 28, 1997, includes $31.8
million related to undistributed earnings of unconsolidated affiliates. During
1997, the Company invested approximately $4.6 million to acquire 18% of the
common stock of Hoover's, Inc., a leading provider of on-line financial
information.
Note 4: Long-Term Debt
Long-term debt at December 28, 1997, and December 29, 1996, was as follows:
<TABLE>
<CAPTION>
(In thousands) 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
Revolving credit facility $ 810,000 $ 180,000
8.62% senior notes due annually from 1998 to 2002 65,000 65,000
7.125% revenue bonds due 2022 20,000 20,000
Bank lines 5,000 ---
------------- --------------
Long-term debt (see discussion of interest rate swap agreements below) $ 900,000 $ 265,000
=========================================================================================================================
</TABLE>
In December 1996, the Company entered into a seven-year revolving credit
facility committing a syndicate of banks to lend the Company up to $1.2 billion.
This facility has mandatory commitment reductions of 25% at the end of 2001 and
2002. Interest rates under the facility are typically based on London Interbank
Offered Rate (LIBOR) plus a margin ranging from .225% to .75% (.50% at December
28, 1997), based on the Company's debt to cash flow ratio (leverage ratio), as
defined. Under this facility, the Company pays commitment fees (.1875% at
December 28, 1997) on the unused portion of the facility at a rate based on its
leverage ratio.
In 1992, the Company issued $20 million of New Jersey Economic Development
Authority tax-exempt revenue bonds. The bonds are secured by a letter of credit,
under which the Company pays an annual fee equal to .125% plus a margin (.50% at
December 28, 1997) based on the Company's leverage ratio. The bonds contain
certain optional and mandatory redemption provisions, and the bond proceeds were
restricted for capital expenditures related to the Company's Garden State Paper
newsprint operations in New Jersey.
The Company's debt covenants contain a minimum net worth requirement ($349
million at December 28, 1997), and require the maintenance of an interest
coverage ratio and a leverage ratio, as defined. Long-term debt maturities
during the five years subsequent to December 28, 1997, aggregating $280,000,000,
are as follows: 1998 -- $18,000,000; 1999 -- $13,000,000; 2000 -- $13,000,000;
2001 -- $13,000,000; 2002 -- $223,000,000.
At December 28, 1997, the Company had borrowings of $5 million from bank
lines and $13 million of senior notes due in 1998 classified as long-term debt
in accordance with the Company's intention and ability to refinance these
obligations on a long-term basis under existing facilities.
The Company had interest rate swap agreements totaling $800 million at
December 28, 1997, with maturities of approximately one to six years which
effectively convert the Company's variable rate debt to fixed rate debt with a
weighted average interest rate of 6.8% at December 28, 1997. The Company enters
into interest rate swap agreements, which are not held for trading purposes, to
manage interest cost and risk associated with increasing variable interest
rates, primarily short-term increases in LIBOR. The Company uses the accrual
method to account for all interest rate swap agreements. Realized gains or
losses on termination of interest rate swaps are deferred and amortized over
their remaining original terms as an adjustment to interest expense. Amounts
which are due to or from interest rate swap counterparties are recorded as an
adjustment to interest expense in the periods in which they accrue. The
Company's exposure to credit loss on its interest rate swap agreements in the
event of nonperformance by the counterparties is believed to be remote due to
the Company's requirement that counterparties have a strong credit rating.
32
<PAGE>
Estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
(In thousands) 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- -----------------------------------------------------------------------------------------------------------------------
<S> <C>
Assets
Investment in DNI Preferred Stock (Note 3) $ 49,266 $ 51,500 $ 45,958 $ 45,958
Investment in Hoover's, Inc. 4,567 4,567 --- ---
Interest rate swap agreements --- --- --- 1,005
Liabilities
Long-term debt:
Revolving credit facility 810,000 810,000 180,000 180,000
8.62% senior notes 65,000 67,833 65,000 68,512
7.125% revenue bonds 20,000 22,539 20,000 22,502
Bank lines 5,000 5,000 --- ---
Interest rate swap agreements --- 12,337 --- ---
Short-term bank lines --- --- 11,000 11,000
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The fair value of the Company's investment in DNI Preferred Stock, which is
not publicly traded, was estimated by discounting expected future cash flows
using a current market rate applicable to the yield, credit quality and maturity
of the investment. The Company's investment in Hoover's, Inc. approximates its
fair value. The fair values of the interest rate swaps are based on the
estimated amounts the Company would receive or pay to terminate the swaps. Fair
values of the Company's long-term debt are estimated using discounted cash flow
analyses based on the Company's incremental borrowing rates for similar types of
borrowings. The borrowings under the Company's revolving credit facility and
bank lines approximate their fair value.
Note 5: Business Segments
The Company is a diversified communications company with four principal
business segments located primarily in the Southeast United States. The
Publishing Segment, the Company's largest segment based on revenues and
operating income, currently includes twenty daily (ten of which were acquired in
1997) and a number of weekly newspapers and other publications. The Broadcast
Television Segment consists of fourteen (eleven of which were acquired in 1997)
television stations and a provider of equipment and studio design services. The
Cable Television Segment includes two cable television operations and a cable
advertising unit. The Newsprint Segment includes the Company's recycled
newsprint operations. Intersegment sales (principally newsprint) comprise less
than 1% of consolidated totals and are not shown separately. Corporate assets
are principally property, plant and equipment and investments in unconsolidated
affiliates.
Other income, net, for 1995 includes a $3.6 million gain from the sale of
the Company's interest in a Mexican newsprint operation.
Operations for 1994 include recognition of a gain of $91.5 million ($83.3
million after-tax; $3.20 per share, or $3.17 per share - assuming dilution)
related to the sale of the Company's investment in Garden State Newspapers, Inc.
Information as to revenues, profitability and assets is as follows:
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
Revenues
Publishing $ 485,594 $ 407,791 $ 364,204 $ 338,088 $ 320,976
Broadcast Television 156,315 83,445 69,274 62,443 54,121
Cable Television 153,302 146,159 134,183 123,305 125,356
Newsprint 114,776 127,710 140,105 102,411 100,371
- ------------------------------------------------------------------------------------------------------------------------
Total $ 909,987 $ 765,105 $ 707,766 $ 626,247 $ 600,824
========================================================================================================================
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
Operating income (loss)
Publishing $ 88,150 $ 49,454 $ 25,303 $ 31,443 $ 19,400
Broadcast Television 16,392 25,872 25,195 20,647 14,281
Cable Television 31,887 24,646 10,654 13,691 20,897
Newsprint (6,984) 2,464 11,841 470 5,725
- ------------------------------------------------------------------------------------------------------------------------
129,445 102,436 72,993 66,251 60,303
Gain on sale of Garden State
Newspapers investment --- --- --- 91,520 ---
Interest expense (65,442) (21,267) (15,522) (16,948) (21,274)
Equity in net income (loss) of
unconsolidated affiliates 15,029 22,212 14,597 390 (990)
Preferred stock income 6,008 4,976 4,437 2,545 ---
Other, net 1,267 1,381 5,204 (789) 835
- ------------------------------------------------------------------------------------------------------------------------
Income before income taxes
and extraordinary item $ 86,307 $ 109,738 $ 81,709 $ 142,969 $ 38,874
========================================================================================================================
Identifiable assets
Publishing $ 724,840 $ 602,276 $ 589,026 $ 367,042 $ 354,905
Broadcast Television 700,767 51,090 52,483 40,697 42,208
Cable Television 137,706 149,265 165,933 181,221 186,744
Newsprint 85,671 82,530 86,173 84,042 84,295
Corporate 165,217 140,323 123,128 114,163 77,090
- ------------------------------------------------------------------------------------------------------------------------
Total $ 1,814,201 $ 1,025,484 $ 1,016,743 $ 787,165 $ 745,242
========================================================================================================================
Capital expenditures
Publishing $ 10,417 $ 4,877 $ 5,653 $ 34,710 $ 12,485
Broadcast Television 9,203 2,269 1,805 1,852 2,227
Cable Television 13,067 11,733 17,895 16,371 13,110
Newsprint 7,920 6,504 3,392 3,797 4,413
Corporate 992 3,127 331 189 602
- ------------------------------------------------------------------------------------------------------------------------
Total $ 41,599 $ 28,510 $ 29,076 $ 56,919 $ 32,837
========================================================================================================================
Depreciation and amortization
Publishing $ 36,881 $ 29,300 $ 24,328 $ 22,869 $ 23,245
Broadcast Television 28,404 2,760 2,794 3,066 3,397
Cable Television 26,557 26,530 26,914 22,812 23,126
Newsprint 6,474 6,361 6,554 6,703 7,079
- ------------------------------------------------------------------------------------------------------------------------
Total $ 98,316 $ 64,951 $ 60,590 $ 55,450 $ 56,847
========================================================================================================================
</TABLE>
Note 6: Taxes on Income
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109), which requires recognition of deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this "liability" method, deferred tax
liabilities and assets are determined based on the temporary differences between
the financial statement and tax bases of assets and liabilities by applying
enacted statutory tax rates applicable to future years in which the differences
are expected to reverse.
The Company's federal income tax returns through fiscal year 1993 have been
examined and closed by the Internal Revenue Service. The Company's federal
income tax returns for the years 1994 and 1995, and various state tax returns,
are currently under examination by the IRS and state tax authorities,
respectively. The results of these examinations are not expected to be material
to the Company's results of operations, financial position or cash flows.
34
<PAGE>
Significant components of income taxes are as follows:
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Current
Federal $ 32,683 $ 35,143 $ 20,300
State 5,341 5,830 3,906
------------- ------------- ---------------
38,024 40,973 24,206
------------- ------------- ---------------
Deferred
Federal (3,722) (1,885) 4,073
State (505) 152 198
------------- ------------- ---------------
(4,227) (1,733) 4,271
------------- ------------- ---------------
$ 33,797 $ 39,240 $ 28,477
=============================================================================================================================
</TABLE>
Temporary differences which give rise to significant components of the
Company's deferred tax liabilities and assets at December 28, 1997, and
December 29, 1996, are as follows:
<TABLE>
<CAPTION>
(In thousands) 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Deferred tax liabilities:
Difference between book and tax bases of intangible assets $ 152,568 $ 2,987
Tax over book depreciation 123,296 123,649
Other 19,447 14,517
------------- ---------------
Total deferred tax liabilities 295,311 141,153
------------- ---------------
Deferred tax assets:
Employee benefits (39,688) (35,209)
Other (17,966) (14,096)
------------- ---------------
Total deferred tax assets (57,654) (49,305)
------------- ---------------
Deferred tax liabilities, net 237,657 91,848
Deferred tax assets included in other current assets 11,992 10,207
------------- ---------------
Deferred tax liabilities $ 249,649 $ 102,055
=============================================================================================================================
</TABLE>
Reconciliation of income taxes computed at the federal statutory tax rate
to actual income tax expense is as follows:
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Income taxes computed at federal statutory tax rate $ 30,208 $ 38,408 $ 28,598
Increase (reduction) in income taxes resulting from:
State income taxes, net of federal income tax benefit 3,143 3,888 2,664
Investment income -- unconsolidated affiliates (3,557) (2,150) (1,751)
Amortization of excess cost (goodwill) 2,900 247 139
Life insurance plans (1,625) (1,772) (1,674)
Other 2,728 619 501
------------- ------------- ---------------
$ 33,797 $ 39,240 $ 28,477
=============================================================================================================================
</TABLE>
Net of refunds, in 1997, 1996 and 1995, the Company paid income taxes of
$29.4 million, $42.9 million and $18.4 million, respectively.
Note 7: Common Stock and Stock Options
Holders of the Class A common stock are entitled to elect 30% of the Board
of Directors and, with the holders of Class B common stock, also are entitled to
vote on the reservation of shares for stock awards and on certain specified
types of major corporate reorganizations or acquisitions. Class B common stock
can be converted into Class A common stock on a share-for-share basis at the
option of the holder. Both classes of common stock receive the same dividends
per share.
In January 1997, the Directors' Deferred Compensation Plan became effective
for each non-employee member of the Board of Directors of the Company. The plan
provides that each non-employee Director shall receive half of his or her annual
compensation for services to the Board in the form of Deferred Stock Units
(DSU); each non-employee Director additionally may elect to receive the
35
<PAGE>
balance of his or her compensation in cash or DSU. DSU accounts do not entitle
non-employee Directors to any rights of a holder of common stock. DSU account
balances may be settled as of a non-employee Director's retirement date by a
cash lump-sum payment, a single distribution of common stock, or annual
installments of either cash or common stock over a period of up to ten years.
Expense recognized in 1997 under the plan was $550,000.
In May 1995, shareholders approved the 1995 Long-Term Incentive Plan (LTIP)
which reserved and made available 1,300,000 shares of Class A common stock for
stock-based awards to key employees, of which 1,000,000 are reserved for
nonqualified stock options and 300,000 are reserved for restricted stock awards.
The plan is administered by the Compensation Committee of the Board of
Directors. Grant prices of stock options are determined by the Committee and
shall not be less than the fair market value on the date of grant. Options are
exercisable during the continued employment of the optionee but not for a period
greater than ten years and not for a period greater than one year after
termination of employment, and they become exercisable at the rate of one-third
each year from the date of grant. Restricted stock is awarded in the name of
each of the participants; these shares have all the rights of other Class A
shares, subject to certain restriction and forfeiture provisions. In 1997,
91,000 shares, of which 89,000 shares remain restricted at December 28, 1997,
were granted under the terms of the plan. Restrictions on the shares expire no
more than ten years after the date of award, or earlier if pre-established
performance targets are met. The plan will continue until terminated by the
Company.
Options to purchase Class A common stock were granted to key employees
under the 1976 and 1987 nonqualified stock option plans prior to the 1995 LTIP.
The Company will not make any future awards under these plans and past awards
are not affected. Options outstanding under the plans are exercisable during the
continued employment of the optionee, but not for a period greater than ten
years after the date of grant for options granted subsequent to the 1991
amendment to the 1987 plan and for a period of not greater than three years
after termination of employment.
Restricted shares of the Company's Class A common stock were granted to
certain key employees under the 1991 restricted stock plan. The Company will not
make any future awards under the plan and past awards are not affected. At
December 28, 1997, 78,700, and 114,300 shares granted in 1995 and 1991,
respectively, remain restricted under the terms of the plan. Shares were awarded
in the name of each of the participants; these shares have all the rights of
other Class A shares, subject to certain restrictions and forfeiture provisions.
Restrictions on the shares expire no more than ten years after the date of the
award, or earlier if certain performance targets are met.
Unearned compensation was recorded at the date of the restricted stock
awards based on the market value of shares. Unearned compensation, which is
shown as a separate component of stockholder's equity, is being amortized to
expense over a vesting period (not exceeding ten years) based upon expectations
of meeting certain performance targets. The amount amortized to expense in 1997,
1996 and 1995 was $1,843,000, $1,198,000 and $1,361,000, respectively.
In 1996, the Company adopted the disclosure-only provisions of Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation." As permitted by the provisions of SFAS No. 123, the Company
continues to follow Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations in accounting for its
stock-based awards. Accordingly, since stock options are issued at fair market
value on the date of grant, the Company does not recognize compensation cost
related to its stock option plans.
The following information is provided solely in connection with the
disclosure requirements of SFAS No. 123. If the Company had elected to recognize
compensation cost related to its stock options granted in 1997, 1996 and 1995 in
accordance with the provisions of SFAS No. 123, earnings per share would have
declined $0.03, $0.02 and $0.01 in 1997, 1996 and 1995, and pro forma net income
(loss) and earnings (loss) per share would have been ($11,452,000), $69,896,000
and $52,936,000; and ($0.43), $2.63 and $2.00, respectively (per share amounts
assuming dilution are identical). The 1996 and 1995 pro forma amounts are not
indicative of future effects of applying the provisions of SFAS No. 123 since a
three year vesting period is used to measure pro forma compensation expense and
1996 and 1995 amounts reflect expense for two years and one year of vesting,
respectively. The fair value for these options was estimated at the date of
grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for 1997, 1996 and 1995, respectively: risk-free
interest rates of 6.54%, 5.57% and 7.78%; dividend yields of 1.57%, 1.75% and
2.03%; volatility factors of .287, .282 and .324; and an expected life of 8
years.
A summary of the Company's stock option activity, and related information
for the years ended December 28, 1997, December 29, 1996 and December 31, 1995
follows:
36
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------- ------------------------- ----------
Weighted- Weighted-
Average Average
Exercise Exercise
Options Shares Price Shares Price Shares
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Outstanding-beginning of year 1,066,722 $ 25.59 1,038,511 $ 24.68 1,022,649
Granted 144,500 31.44 130,400 31.81 130,400
Exercised (131,024) 20.20 (88,621) 21.59 (81,436)
Forfeited (31,101) 38.60 (13,568) 41.62 (33,102)
------------- ------------ --------------
Outstanding-end of year 1,049,097 26.68 1,066,722 25.59 1,038,511
------------- ------------ --------------
Price Range at end of year $ 2 to $46 $ 2 to $46 $ 2 to $46
Price Range for exercised shares $ 2 to $32 $ 2 to $32 $ 2 to $32
Available for grant at end of year 725,100 869,600 310,187
Exercisable at end of year 789,300 814,622 776,711
Weighted-average fair value of
options granted during the year $ 12.47 $ 11.44
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table summarizes information about stock options outstanding
at December 28, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ---------------------------------------------------------------------------------- ------------------------------------
Range of Weighted-Average
Exercise Number Remaining Weighted-Average Number Weighted-Average
Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C>
$ 2.50 16,400 * $ 2.50 16,400 $ 2.50
15.75 43,830 ** 15.75 43,830 15.75
18.81-20.19 345,800 4 years 19.58 345,800 19.58
27.63-31.81 492,067 8 years 29.91 232,270 28.52
32.50-46.50 151,000 ** 38.25 151,000 38.25
---------- ---------
2.50-46.50 1,049,097 26.68 789,300 25.21
========== =========
</TABLE>
(*) exercisable during lifetime of optionee
(**) exercisable during the continued employment of the optionee and for a
three-year period thereafter
Note 8: Retirement Plans
The Company has a non-contributory defined benefit retirement plan which
covers substantially all employees. Benefits are based on salary and years of
service. The Company's funding policy is to contribute annually the
tax-deductible amounts required by statute. Plan assets include marketable
securities, U.S. government obligations and cash equivalents. The Company also
has a non-contributory unfunded executive supplemental retirement plan which
supplements the coverage available to certain executives under the defined
benefit retirement plan.
Certain employees of the Company's newsprint operations participate in
multi-employer defined benefit and defined contribution pension plans. The plans
provide benefits to substantially all union employees.
Net pension cost for 1997, 1996 and 1995 is summarized below.
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Benefits earned during the year $ 4,845 $ 4,568 $ 4,067
Interest cost on projected benefit obligation 12,910 11,362 10,973
Actual return on plan assets (36,840) (24,566) (38,363)
Net amortization and deferral 18,665 8,074 22,490
------------- -------------- -------------
Defined benefit plan credit (420) (562) (833)
Supplemental retirement plan expense 2,955 2,705 2,371
Multi-employer plans expense 678 627 576
------------- -------------- -------------
Total expense $ 3,213 $ 2,770 $ 2,114
=============================================================================================================================
</TABLE>
37
<PAGE>
The non-contributory defined benefit retirement plan's status was as
follows:
<TABLE>
<CAPTION>
December 28, December 29,
(In thousands) 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C>
Actuarial present value of benefit obligation:
Vested $ 152,396 $ 123,813
Non-vested 4,109 3,887
-------------- ----------
Total accumulated benefit obligation $ 156,505 $ 127,700
- -------------------------------------------------------------------------------------------------------------
Plan assets at fair value $ 216,205 $ 187,611
Projected benefit obligation 182,259 155,196
------------- ---------
Plan assets in excess of projected benefit obligation 33,946 32,415
Unrecognized net gain (46,186) (43,372)
Unrecognized prior service costs 4,832 5,053
Unrecognized net asset from transition (3,300) (4,049)
------------- ----------
Net pension liability $ (10,708) $ (9,953)
=============================================================================================================
</TABLE>
Assumptions used in determining the funded status of the non-contributory
defined benefit retirement plan are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C>
Discount rate 7.25% 7.75% 7.50%
Average rate of increase in compensation levels 4.25% 4.75% 4.50%
Expected long-term rate of return on plan assets 10.50% 10.00% 10.00%
</TABLE>
The 1997 increases in the projected and accumulated benefit obligations are
attributable to the addition of employees due to acquisitions, the lower
discount rate, and a change in the mortality table used which reflects a longer
life expectancy. At December 28, 1997, and December 29, 1996, the accrued
pension cost of the supplemental retirement plan totaled $16.3 million and $14.4
million, respectively, and was included as a liability in the accompanying
balance sheet.
The Company also sponsors a thrift plan covering substantially all
employees. Company contributions represent a partial matching of employee
contributions up to a maximum of 3.3% of the employee's salary. Contributions
charged to expense under the plan were $4.5 million, $4.2 million and $4 million
in 1997, 1996 and 1995, respectively.
Note 9: Postretirement Benefits
The Company provides certain health and life insurance benefits for retired
employees. Substantially all full-time employees hired before 1992 may become
eligible for all or a portion of those benefits if they retire after age 55 with
at least ten years of service. Employees hired after 1991 are not eligible for
Company paid health care and life insurance benefits at retirement. The
postretirement health care plan for participants hired before 1992 and retiring
after December 31, 1991, is contributory and contains cost-sharing features. The
annual health care benefit paid by the Company is fixed and determined by years
of service and retirement age and is limited to $4,500 per employee. Company
paid life insurance benefits are based on age and compensation, with a maximum
insurance coverage limitation of $50,000 for post-1991 retirees. The Company's
policy is to fund postretirement benefits as claims and premiums are paid.
The following table sets forth components of the accumulated postretirement
benefit obligation included in the accompanying balance sheet at December 28,
1997, and December 29, 1996.
<TABLE>
<CAPTION>
(In thousands) Medical Plans Life Insurance Plans
- -----------------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C>
Retirees $ 14,642 $ 12,354 $ 5,809 $ 5,582
Fully eligible plan participants 994 907 416 422
Other active plan participants 8,681 8,710 2,163 2,465
---------- ---------- --------- ---------
Accumulated postretirement benefit obligation 24,317 21,971 8,388 8,469
Unrecognized accumulated net (loss) gain (5,553) (4,368) 960 647
---------- ---------- --------- ---------
Accrued postretirement benefit cost $ 18,764 $ 17,603 $ 9,348 $ 9,116
=============================================================================================================================
</TABLE>
38
<PAGE>
Net periodic postretirement benefit cost for 1997, 1996 and 1995 includes
the following components:
<TABLE>
<CAPTION>
(In thousands) Medical Plans Life Insurance Plans
- -----------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1997 1996 1995
----------- ----------- ----------- ----------- ----------- ----------
<S> <C>
Service cost $ 459 $ 410 $ 324 $ 110 $ 116 $ 114
Interest cost 1,836 1,620 1,383 601 624 570
Amortization of net loss 94 99 --- 31 38 ---
----------- ----------- ----------- ----------- ----------- ----------
Net periodic postretirement
benefit cost $ 2,389 $ 2,129 $ 1,707 $ 742 $ 778 $ 684
=============================================================================================================================
</TABLE>
The annual assumed rate of increase in the health care cost trend rate is
9.25% for 1998 (9.75% for 1997), and is assumed to decrease gradually to 5.25%
in 2006 and thereafter for both pre-age 65 and later benefits. Increasing the
health care cost trend rate assumption by one percentage point in each year
would increase the accumulated postretirement benefit obligation at December 28,
1997, and December 29, 1996, by approximately $1.2 million and $1 million, and
the aggregate of the service and interest cost components of net periodic
postretirement benefit cost for 1997 and 1996 by approximately $.1 million.
The discount rate used to determine the accumulated postretirement benefit
obligation was 7.25% and 7.75% for 1997 and 1996, respectively. The average rate
of increase in compensation levels used to determine life insurance benefits was
4.25% and 4.75% for 1997 and 1996, respectively.
Note 10: Other
Revenue recognition
Advertising revenue is recognized when advertisements are published or
aired, or when related advertising services are rendered. Subscription revenue
is recognized on a pro-rata basis over the term of the subscription. Newsprint
revenue is recognized upon shipment of newsprint.
Depreciation and amortization
Plant and equipment are depreciated, primarily on a straight-line basis,
over their estimated useful lives which are generally 40 years for buildings and
range from 3 to 20 years for machinery and equipment. Depreciation deductions
are computed by accelerated methods for income tax purposes.
Excess of cost over fair value of net identifiable assets of acquired
businesses through 1970 (approximately $33 million) is not amortized unless
there is evidence of diminution in value; such excess cost incurred after 1970
is being amortized by the straight-line method over periods not exceeding 40
years. FCC licenses and other intangibles are being amortized by the
straight-line method over periods ranging from 3 to 40 years. Management
periodically evaluates the recoverability of intangible assets acquired by
reviewing the current and projected profitability of each of the Company's
operations. Amortization of the excess of cost over fair value of net
identifiable assets of acquired businesses and FCC licenses and other
intangibles was $31.1 million, $7.9 million and $3.1 million in 1997, 1996 and
1995, respectively.
Interest
In 1997, 1996 and 1995, the Company's interest expense was $65.4 million,
$21.3 million and $15.5 million, respectively, which is net of $1.8 million, $.3
million and $.4 million of interest costs capitalized for those years. Interest
payments made during 1997, 1996 and 1995, net of amounts capitalized, were $62.2
million, $23.3 million and $14.4 million, respectively.
Cash and cash equivalents
Cash and cash equivalents include highly liquid investments with original
maturities of three months or less whose carrying amount approximates fair
value.
Inventories
Inventories, principally raw materials, are valued at the lower of cost or
market. The cost of raw material used in the production of newsprint is
determined on the basis of average cost. The cost of newsprint inventories is
determined on the first-in, first-out method.
Other current assets
Other current assets include program rights of $10.8 million and $5.8
million at December 28, 1997, and December 29, 1996, respectively.
Accrued expenses and other liabilities
Accrued expenses and other liabilities consist of the following:
<TABLE>
<CAPTION>
(In thousands) 1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C>
Payroll $ 19,492 $ 17,828
Program rights 11,604 5,724
Advances from unconsolidated newsprint affiliate 6,667 6,667
Unearned revenue 19,855 7,204
Other 40,572 34,887
------------- --------------
Total $ 98,190 $ 72,310
=====================================================================================================
</TABLE>
39
<PAGE>
Lease obligations
The Company and its subsidiaries rent certain facilities and equipment
under operating leases. These leases extend for varying periods of time up to 22
years and in most cases contain renewal options. Total rental expenses amounted
to $8.8 million in 1997, $8.3 million in 1996 and $7 million in 1995. Minimum
rental commitments under operating leases with noncancelable terms in excess of
one year are as follows: 1998 -- $7.0 million; 1999 -- $5.9 million; 2000 --
$4.6 million; 2001-- $3.6 million; 2002 -- $3.0 million; subsequent years --
$6.9 million.
Concentrations of credit risk
Media General is a diversified communications company which sells products
and services to a wide variety of customers located principally in the eastern
United States. The Company's trade receivables result primarily from its
publishing, broadcast television, cable television and newsprint operations. The
Company routinely assesses the financial strength of significant customers, and
this assessment, combined with the large number and geographic diversity of its
customer base, limits its concentration of risk with respect to trade
receivables.
Earnings per share
The Company has adopted SFAS No. 128, "Earnings Per Share," which was
issued by the Financial Accounting Standards Board in February 1997 and became
effective for financial statements for periods ending after December 15, 1997.
The following chart is a reconciliation of the numerators and the denominators
of the basic and diluted per-share computations for income before extraordinary
item, as presented in the Consolidated Statements of Operations.
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------------- -------------------------------- -------------------------------------
(In thousands, except Income Shares Per Share Income Shares Per Share Income Shares Per Share
per share amounts) (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Basic EPS
Income available to
common stock-
holders before
extraordinary item $ 52,510 26,353 $ 1.99 $ 70,498 26,273 $ 2.68 $ 53,232 26,136 $ 2.04
====== ====== ======
Effect of Dilutive
Securities
Stock Options 169 179 171
Restricted Stock (37) 172 (24) 120 (41) 167
------ ------- ------ ------ ------- ------
Diluted EPS
Income available to
common stock-
holders + assumed
conversions $ 52,473 26,694 $ 1.97 $ 70,474 26,572 $ 2.65 $ 53,191 26,474 $ 2.01
===============================================================================================================================
</TABLE>
Commitments and contingencies
Over the next four years the Company is committed to purchase approximately
$28.7 million of program rights which currently are not available for broadcast,
including programs not yet produced. If such programs are not produced the
Company's commitment would expire without obligation.
During 1997, the Company entered into a lease agreement whereby the owner
would construct and own real estate facilities at a cost of up to $60 million
and lease the facilities to the Company for a term of up to 5 years. The
Company's occupancy is expected to occur in the second quarter 1998. The Company
may cancel the lease by purchasing or arranging for the sale of the facilities.
The Company has guaranteed recovery of a portion (88%) of the owner's cost. Such
cost approximated $17 million at December 28, 1997.
The Company entered into a stock redemption agreement in 1985, which was
amended in 1988, and 1994, with Mr. D. Tennant Bryan, former Chairman of the
Executive Committee of the Board of Directors. The amended agreement provides
that upon Mr. Bryan's death, his estate has the option to sell and the Company
has a separate option to buy the lesser of (a) 15% of the Company's Class A
stock owned by Mr. Bryan at his death and (b) a sufficient number of shares of
Class A stock to fund estate taxes and certain other expenses. The purchase
price for each share redeemed under the amended agreement will equal 90% of the
average daily closing price for a share of Class A stock during the 91 days
preceding the date that is 30 days after the date of death. If the Company or
the estate had exercised an option, respectively, to buy or sell, the maximum
cost to the Company of the redemption would have approximated $12 million at
December 28, 1997.
Note 11: Subsequent Events
In early 1998 the Company acquired, for approximately $92 million, the
Bristol Herald Courier, a daily newspaper in southwestern Virginia, and two
affiliated weekly newspapers. Additionally, the Company agreed to purchase The
Hickory Daily Record located in northwestern North Carolina and announced the
sale of its Kentucky newspaper properties acquired with the 1997 purchase of
Park. These transactions are expected to close later in 1998. The acquisitions
will be included in the Company's results of operations from their dates of
acquisition.
40
<PAGE>
Media General, Inc. Management Statement
Primary responsibility for the integrity and objectivity of the Company's
financial statements rests with Management. The financial statements report on
Management's stewardship of Company assets. They are prepared in conformity with
generally accepted accounting principles and accordingly include amounts that
are based on Management's informed estimates and judgments. Nonfinancial
information included in the annual report has also been prepared by Management
and is consistent with the financial statements.
Media General, Inc., maintains an accounting system and related controls
designed to provide reasonable assurance that there is proper authorization and
accounting for all transactions, that financial records are reliable for
preparing financial statements, and that assets are safeguarded against loss or
unauthorized use. The system is supported by written policies and guidelines, a
program of internal audit and the selection and training of qualified personnel.
Based on work begun in early 1996 the Company implemented a new payroll and
human resource management system at the beginning of 1997. Additionally, the
Company is currently laying the groundwork for the implementation of a new
comprehensive financial information system which will become fully operational
at the beginning of the 1999 fiscal year.
The Audit Committee of the Board of Directors, which is composed solely of
outside directors, meets periodically with Management, internal auditors and the
independent auditors to review their respective activities and the discharge of
their responsibilities.
Media General operates under a strict Code of Ethics that all employees are
required to follow without exception. The Code requires ethical standards in all
of the Company's relationships, including those with customers, suppliers and
government agencies.
January 26, 1998
<TABLE>
<S> <C>
J. Stewart Bryan III Marshall N. Morton
Chairman, President and Chief Executive Officer Senior Vice President and Chief Financial Officer
</TABLE>
Report of Independent Auditors
The Board of Directors and Stockholders,
Media General, Inc.
We have audited the accompanying consolidated balance sheets of Media
General, Inc., as of December 28, 1997, and December 29, 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three fiscal years in the period ended December 28, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Media General, Inc., at December 28, 1997, and December 29, 1996, and the
consolidated results of its operations and its cash flows for each of the three
fiscal years in the period ended December 28, 1997, in conformity with generally
accepted accounting principles.
January 26, 1998
Richmond, Virginia ERNST & YOUNG LLP
41
<PAGE>
MEDIA GENERAL, INC., FINANCIAL REVIEW AND MANAGEMENT ANALYSIS
This discussion addresses the principal factors affecting the Company's
operations during the past three years and should be read in conjunction with
the Company's financial statements and the Ten-Year Financial Summary which
appear elsewhere in this report. Operating results for fiscal years 1997 and
1996 included 52 weeks, while fiscal year 1995 included 53 weeks.
ACQUISITIONS
In January 1997, the Company acquired Park Acquisitions, Inc., parent
of Park Communications, Inc. (Park), which 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 transaction
costs. In early February 1997, the Company redeemed Park's high coupon debt and
recorded an extraordinary charge of $63 million ($2.39 per share, or $2.37 per
share - assuming dilution), representing the debt prepayment premium and the
write-off of associated debt issuance costs, net of a $38.6 million tax benefit.
In conjunction with the acquisition, the Company completed sales of
certain of the former Park properties for approximately $147 million and
purchased new properties for approximately $53 million. These purchases included
the Potomac News (Woodbridge, Virginia) in February 1997, and the Reidsville
Review (Reidsville, North Carolina) and The Messenger (Madison, North Carolina)
in April 1997.
In August 1997, the Company completed 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 of its January 1997 purchase date.
In August 1996, the Company acquired, for approximately $38 million,
the Danville Register & Bee (Danville), a daily newspaper in Virginia. In May
1996, the Company acquired, for approximately $2 million, Professional
Communications Systems (PCS), a provider of equipment and studio design services
for television stations.
In October 1995, for approximately $232 million, the Company acquired
newspaper properties in Lynchburg, Charlottesville, Culpeper and Suffolk,
Virginia (Virginia Newspapers) which included four daily and Sunday newspapers
and a number of weekly and other publications.
The aforementioned transactions were accounted for as purchases and
accordingly, the operations of the acquired properties have been included in the
Company's consolidated results of operations since their dates of purchase. The
following discussion of segment operating results is primarily focused on the
year-over-year comparative performance of the Company excluding the operating
impact of acquisitions and exchanges during the periods.
Subsequent to the end of the fiscal year, the Company acquired, for
approximately $92 million, the Bristol Herald Courier, a daily newspaper in
southwestern Virginia, and two affiliated weekly newspapers. Additionally, the
Company agreed to purchase The Hickory Daily Record located in northwestern
North Carolina and announced the sale of its Kentucky newspaper properties
acquired with the 1997 purchase of Park. These transactions are expected to
close later in 1998. The acquisitions will be included in the Company's results
of operations from their dates of acquisition.
CONSOLIDATED OPERATING RESULTS
(In millions, except per share amounts)
<TABLE>
<CAPTION>
Change from Change from
1997 prior year 1996 prior year 1995
---- ---------- ---- ---------- ----
<S> <C>
Revenues $ 910.0 19% $ 765.1 8% $ 707.8
Operating Income 129.4 26 102.4 40 73.0
Net Income (Loss) (10.5) * --- 70.5 32 53.2
Earnings (Loss) Per Share (0.40) * --- 2.68 31 2.04
Earnings (Loss) Per Share - assuming dilution (0.40) * --- 2.65 32 2.01
</TABLE>
*Includes extraordinary charge from early redemption of Park debt ($63
million, net of a tax benefit of $38.6 million; $2.39 per share, or $2.37 per
share-assuming dilution)
SEGMENT OPERATING RESULTS
Each segment's operating results include operating cash flow
information in addition to revenues, operating expenses and operating income.
Operating cash flow amounts presented with business segment information
represent operating income plus depreciation and amortization of intangible
assets. Such cash flow
42
<PAGE>
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. The Company
believes the presentation of operating cash flow amounts is important for
several reasons. First, fluctuations in depreciation and amortization from year
to year are not necessarily indicative of the underlying performance of a
company. Second, the year-over-year change in operating cash flow can be a
useful measure of performance and present a meaningful indicator of results that
may occur in future periods. Finally, acquisition values of communications and
media businesses are often based on multiples of operating cash flow.
PUBLISHING
(In millions)
<TABLE>
<CAPTION>
Change from Change from
1997 prior year 1996 prior year 1995
---- ---------- ---- ---------- ----
<S> <C>
Revenues $ 485.6 19% $ 407.8 12% $ 364.2
Operating Expenses 397.4 11 358.3 6 338.9
Operating Income 88.2 78 49.5 95 25.3
Depreciation & Amortization 36.8 26 29.3 20 24.3
Operating Cash Flow 125.0 59 78.8 59 49.6
</TABLE>
The preceding chart contains the operating results of the Publishing
Segment, including recent acquisitions. In 1997, Publishing Segment revenues
increased $53.1 million and operating income rose $10.1 million over 1996 as a
direct result of acquisitions. In 1996, Publishing Segment revenues and
operating income increased $36.6 million and $9.2 million, respectively, over
1995, due to 1996 and 1995 acquisitions.
1997 Compared to 1996
Excluding 1997 and 1996 acquisitions, Publishing Segment revenues rose
$24.7 million (6%) in 1997. At the Company's metropolitan newspapers, which
include its three largest daily newspapers, advertising revenues increased $20
million as a result of expanded linage (up 4.1%) combined with higher
advertising rates (up an average of 3.4%). The year-over-year increase was
principally attributable to strong performances in classified advertising, led
by the employment and automotive categories, and in retail advertising. A small
decrease in circulation revenues of 1.8%, resulting from a decline in
circulation volume (down 2.3%) coupled with slightly higher average rates, was
more than offset by the growth in general advertising revenues.
Publishing Segment operating expenses, excluding 1997 and 1996
acquisitions, decreased $3.9 million in the current year compared to the prior
year. This drop was attributable to a $13.1 million reduction in newsprint
expense, due to decreased cost per ton, partially offset by a $2.4 million
increase in employee compensation and benefit costs combined with a moderate
increase in depreciation expense. Additionally, certain other operating expenses
increased, including approximately $4.2 million in one-time costs incurred in
1997 related to re-engineering initiatives at several of the Segment's locations
including the Company's Tampa, Florida, and Richmond, Virginia, daily
newspapers. The majority of the savings generated by these re-engineering
efforts will be realized in 1998 and subsequently.
Operating income for the Publishing Segment, excluding 1997 and 1996
acquisitions, rose $28.6 million (59%) in 1997. This growth came principally
from increased revenues at the Company's metropolitan newspapers, particularly
in classified and retail advertising, coupled with the substantial decline in
newsprint expense.
1996 Compared to 1995
Publishing Segment revenues, excluding 1996 and 1995 acquisitions,
increased $7 million (2%) in 1996. At the Company's metropolitan newspapers,
advertising revenues increased $5.5 million, reflecting the effect of a 1.8%
average rate increase together with a slight rise in advertising inches.
Classified advertising, led by the employment and automotive categories, was the
primary contributor to the overall revenue improvement. A small increase in
general advertising revenue was more than offset by a decline in retail
advertising revenue. Circulation revenues rose 2% in 1996, the result of a 6.3%
average rate increase partially offset by a 4% drop in circulation volume.
Publishing Segment operating expenses, excluding 1996 and 1995
acquisitions, decreased $8 million in 1996. Employee compensation and benefit
costs dropped $4 million, primarily the result of a re-engineering program
implemented at the Company's Winston-Salem, North Carolina, daily newspaper
during the last half of 1995. Other expense reductions were due to the absence
of $2.9 million of costs related to the aforementioned re-engineering program at
Winston-Salem, and a $2.1 million reduction in depreciation and amortization,
primarily the result of certain intangibles becoming fully amortized in 1995. In
addition, advertising, promotion and incentive costs dropped $1 million. These
reductions more than offset a $2.2 million rise in newsprint expense, due to
increased cost per ton.
Operating income for the Publishing Segment, excluding 1996 and 1995
acquisitions, rose $15 million in 1996 from 1995. The majority of this increase
was from the Company's metropolitan
43
<PAGE>
newspapers, reflecting growth in classified advertising revenue and reduced
employee compensation and benefit costs.
BROADCAST TELEVISION
(In millions)
<TABLE>
<CAPTION>
Change from Change from
1997 prior year 1996 prior year 1995
---- ---------- ---- ---------- ----
<S> <C>
Revenues $ 156.3 87% $ 83.4 20% $ 69.3
Operating Expenses 139.9 143 57.5 31 44.1
Operating Income 16.4 (37) 25.9 3 25.2
Depreciation & Amortization 28.4 --- 2.8 (1) 2.8
Operating Cash Flow 44.8 57 28.6 2 28.0
</TABLE>
The preceding chart includes the operating results of the Broadcast
Television Segment, including recent acquisitions. As a direct result of the
acquisitions occurring in 1997, revenues increased $77.3 million and operating
income decreased $3.9 million from 1996. In 1996, revenues and operating income
increased from 1995 by $9.2 million and $.1 million, respectively, solely as a
result of the 1996 acquisition of PCS.
1997 Compared to 1996
Broadcast Television Segment revenues, excluding acquisitions,
decreased $4.4 million in 1997 from 1996. The decline was principally the result
of soft national and political advertising revenues (the latter due to the
absence of several 1996 national and local political issues), which were only
partially offset by an increase in local advertising revenues (driven by the
automotive category).
Broadcast Television Segment operating expenses, excluding
acquisitions, remained essentially flat in 1997. A modest increase in program
costs was partially offset by a small decrease in employee compensation and
benefit expense.
Excluding acquisitions, Broadcast Television Segment operating income
declined $5.6 million in the current year. The drop was primarily attributable
to reduced national and political advertising revenues, especially at the
Company's largest station, WFLA-TV in Tampa. The Company completed the transfer
of the network affiliation at its Jacksonville station (WJWB-TV) from ABC to
Warner Brothers in February 1997. As anticipated, WJWB-TV posted weak 1997
results. Conversely, the full-year impact of the network switch from ABC to NBC
in August 1996 at the Company's WCBD-TV station in Charleston resulted in
growth, but only partially compensated for WJWB-TV's reduced results.
1996 Compared to 1995
Broadcast Television Segment revenues, excluding acquisitions,
increased $4.9 million in 1996, up 7.1% from 1995. The revenue growth was
principally the result of increases in political, national and local spot sales
at the Company's Tampa station. National and local revenues were aided by the
broadcast of the Summer Olympics, as well as increases in the automotive and
department store categories, while political revenues increased due to state
issues and strong presidential and state election advertising. These increases
were partially offset by a decrease in revenues at the Company's station in
Jacksonville, largely attributable to advertiser reluctance in the face of that
station's then impending network switch from ABC to Warner Brothers.
Broadcast Television Segment operating expenses, excluding
acquisitions, rose $4.4 million in 1996 over 1995. The majority of this increase
was attributable to increased programming costs of $3.2 million (51%) due to the
addition of new programs in the fall of 1995 at WFLA-TV , as well as a rise in
employee compensation and benefit costs of $.8 million (4.4%) over 1995 levels.
Broadcast Television Segment operating income, excluding acquisitions,
increased $.6 million in 1996. The improvement was attributable to strong
revenue growth at the Company's WFLA-TV station in Tampa, which more than offset
increased programming costs and lackluster performances at the Company's
Jacksonville and Charleston television stations.
CABLE TELEVISION
(In millions)
<TABLE>
<CAPTION>
Change from Change from
1997 prior year 1996 prior year 1995
---- ---------- ---- ---------- ----
<S> <C>
Revenues $ 153.3 5% $ 146.1 9% $ 134.2
Operating Expenses 121.4 --- 121.5 (2) 123.5
Operating Income 31.9 30 24.6 131 10.7
Depreciation & Amortization 26.6 --- 26.5 (1) 26.9
Operating Cash Flow 58.5 14 51.2 36 37.6
</TABLE>
1997 Compared to 1996
Revenues at the Company's Cable Television Segment rose $7.2 million in
1997, up 4.9% from 1996. The increase was attributable to the Company's Fairfax
County, Virginia, cable system (Fairfax Cable), as a result of a 3.4% increase
in the number of subscribers (to 235,500 at December 28, 1997), together with a
combined average increase of 5.4% in basic and expanded subscriber rates. This
rate increase along with subscriber growth produced a 2.6% improvement in
average revenue per subscriber (excluding pay-per-view).
The Telecommunications Act of 1996 (1996 Act) eliminated rate
regulation of cable services other than the basic service tier after March 31,
1999. The 1996 Act also removed previously applicable
44
<PAGE>
restrictions that had prevented most local telephone companies from offering
cable services in the areas where they provide telephone services. This
development and the advent of wireless and direct broadcast satellite services
likely will increase competition in the areas served by the Company's cable
systems. The Company is developing several strategic initiatives for its Fairfax
Cable system, including entry into the high speed data transmission and
commercial and residential telephone markets. The Company estimates that the
capital investment required for it to compete effectively in those markets could
exceed $200 million over a ten-year period.
Cable Television Segment operating expenses remained essentially flat
in the current year. An increase in programming costs more than offset
reductions in compensation and employee benefit costs and depreciation expense.
Cable Television Segment operating income improved $7.3 million (30%)
in 1997 from 1996. The increase was due principally to revenue growth at Fairfax
Cable of $7.2 million, up 5.3% in 1997 as a result of both rate and subscriber
count increases. These subscriber count increases prompted a commensurate rise
in programming costs, which were essentially offset by reduced compensation and
employee benefits costs; this reduction reflected the current-year benefit of
the restructuring process implemented in 1996 at Fairfax Cable.
1996 Compared to 1995
Cable Television Segment revenues rose $12 million in 1996, up 9% from
1995. The increase was attributable to the Company's Fairfax Cable system, as a
result of a 2.7% increase in the number of subscribers (to 227,700 at December
29, 1996), together with average increases in basic and expanded subscriber
rates of 6.5% and 9.2%, respectively. These rate increases combined with
subscriber growth produced a 7% improvement in average revenue per subscriber
(excluding pay-per-view).
Cable Television Segment operating expenses decreased $2 million in
1996 from 1995. A $3.1 million (11%) decline in 1996 of employee compensation
and benefit costs, reflecting the results of a restructuring process implemented
at Fairfax Cable, and a $1.3 million decrease in maintenance and repair expense,
more than offset a $3.3 million (12%) increase in programming costs.
Cable Television Segment operating income increased $14 million in 1996
from 1995. The increase reflects revenue growth at Fairfax Cable, up 10.4% in
1996 as a result of both rate and subscriber count increases, as well as reduced
compensation and employee benefit costs; together, these more than offset an
increase in programming costs.
NEWSPRINT
(In millions)
<TABLE>
<CAPTION>
Change from Change from
1997 prior year 1996 prior year 1995
---- ---------- ---- ---------- ----
<S> <C>
Revenues $ 114.8 (10%) $ 127.7 (9%) $ 140.1
Operating Expenses 121.8 (3) 125.2 (2) 128.3
Operating Income (Loss) (7.0) --- 2.5 (79) 11.8
Depreciation & Amortization 6.5 2 6.4 (3) 6.6
Operating Cash Flow (0.5) --- 8.8 (52) 18.4
</TABLE>
1997 Compared to 1996
Newsprint Segment revenues declined $12.9 million (10%) in 1997,
largely reflecting the results of the Company's Garden State Paper (Garden
State) newsprint mill, located in Garfield, New Jersey. The decline resulted
from a 14.5% decrease in the average realized selling price per ton, partially
offset by a 5.1% rise in tons sold. Average realized newsprint selling prices
fell during the current year from $572 per ton in 1996 to $488 per ton in 1997.
However, the market showed continued improvement throughout the year, as
evidenced by a 7% average selling price increase from $456 per ton during the
first quarter of 1997 to the above-mentioned $488 per ton for the full year.
Newsprint Segment operating expenses dropped $3.4 million in 1997 from
the comparable 1996 amount. The cost of Garden State's principal raw material,
recovered newspapers (ONP), dropped $3.7 million (15%). The average cost of ONP
in 1997 was $73 per ton, down 16% from last year's $87 per ton, due to lower
market demand for ONP during the current year. The decline in ONP cost together
with decreases of $1.1 million in maintenance costs, due mainly to improved
production and decreased downtime, and $.7 million in energy expense,
attributable to lower average fuel prices during the year, more than offset a
$1.9 million increase in the cost of chemicals used to enhance the quality of
newsprint produced.
The Newsprint Segment produced an operating loss of $7 million in 1997,
a sharp contrast to the $2.5 million income posted in 1996. The decline resulted
from an $84 decrease in average realized selling price per ton as compared to a
year ago, partially offset by a drop in ONP expense. During 1997, as newsprint
consumption increased the Company's average realized newsprint selling price per
ton rose and, in the fourth quarter of 1997, began to exceed equivalent 1996
levels. This trend of gradual improvement in realized newsprint selling prices
is expected to continue into 1998.
45
<PAGE>
1996 Compared to 1995
Newsprint Segment revenues declined $12.4 million (9%) in 1996, largely
reflecting the results of the Company's Garden State Paper newsprint mill. The
decline resulted from a 9% decrease in tons sold, as the average realized
selling price remained essentially even with 1995. Average newsprint selling
prices began the year at $652 per ton, and dropped to $444 per ton by year-end,
reflecting the results of an industry cycle of declining selling prices and weak
demand.
Newsprint Segment operating expenses dropped $3 million in 1996 from
the comparable 1995 amount, due to a $12 million (32%) drop in the cost of ONP.
The average cost of ONP in 1996 was $87 per ton, down 28% from 1995's $121 per
ton, due to lower market demand throughout the year. This decline in ONP expense
more than offset the rise in other expenses, including a $4.4 million (18%)
increase in energy costs due to a severe winter which limited the available
supply of low cost fuel, a $2.8 million (32%) rise in maintenance and repair
expense related to production problems, a $1.3 million increase in consultant
fees related to a process re-engineering project at Garden State, a $1 million
increase in chemical costs in order to increase quality, and a $1 million rise
in employee compensation and benefit costs.
Newsprint Segment operating income fell $9.4 million in 1996 from 1995.
The decrease resulted from the reduction in tons sold in the current year (down
9% from prior year levels), which more than offset the decrease in operating
costs.
UNCONSOLIDATED AFFILIATES
1997 Compared to 1996
The Company's investment income from unconsolidated affiliates
decreased $6.2 million in 1997 from the comparable 1996 amount. The decrease was
attributable to the Company's share of reduced operating results at its
Southeast Paper Manufacturing Company (SEPCO) newsprint affiliate, which
decreased $11.2 million from last year. Despite a 5.6% increase in tons sold,
revenues declined 11.2% as a result of a decrease in SEPCO's average realized
newsprint selling price to $492 per ton in 1997 from $583 per ton in 1996.
Income earned from the Company's Denver Newspapers, Inc. (DNI),
affiliate increased $5 million in 1997 over 1996 due to a $4 million increase in
the Company's share of DNI's net income applicable to common stockholders and a
$1 million increase in income from the Company's DNI preferred stock investment.
DNI's improved results were attributable to solid advertising revenue growth
coupled with reduced newsprint expense which, together, more than offset the
effects of a modest decrease in circulation revenues and increases in other
operating expenses.
1996 Compared to 1995
The Company's investment income from unconsolidated affiliates rose
$8.2 million in 1996 over 1995. The most significant portion of the increase
came from the Company's share of the operating results of its SEPCO newsprint
affiliate, which increased $6.7 million over the previous year. SEPCO
established new annual records for income and production in 1996. The
improvement was primarily attributable to significantly lower production costs
(mainly due to reduced ONP expense), as well as a slight increase in revenues.
For the year, SEPCO's average realized selling price approximated $583 per ton
compared to $578 per ton in 1995.
Income earned from the Company's Denver Newspapers, Inc., affiliate
increased $1.4 million in 1996 over 1995 due to a $.9 million increase in the
Company's share of DNI's net income applicable to common stockholders and a $.5
million increase in income from the Company's DNI preferred stock investment.
DNI's improved operating results were attributable to strong advertising revenue
growth which more than offset the effect of increased operating expenses
(principally newsprint).
INTEREST EXPENSE
Interest expense of $65.4 million represented a $44.2 million increase
over 1996. This was due primarily to a $654 million rise in average debt
outstanding in 1997, the result of recent acquisitions. The Company's average
effective borrowing rate of 6.9% in 1997 was up slightly from 1996.
Interest expense of $21.3 million in 1996 represented a $5.7 million
increase over the prior year. The increase was due primarily to the $108 million
rise in average debt outstanding, the result of 1996 and 1995 acquisitions,
partially offset by a reduction in the Company's average effective borrowing
rate to 6.8%.
NON-OPERATING ITEMS
Other income, net, remained relatively flat in 1997 from 1996. A
reduction in gains from sales of miscellaneous fixed assets was essentially
offset by a rise in current-year interest income on proceeds from the sales of
former Park properties together with the absence of prior-year expenses related
to acquisitions.
Other income, net, decreased $3.8 million in 1996 from 1995. The
decline was primarily the result of the absence of 1995's $3.6 million pre-tax
gain on the sale of the Company's interest in a Mexican newsprint affiliate,
combined with a decline of interest earned
46
<PAGE>
on short-term investments held by the Company prior to the 1995 Virginia
Newspapers acquisition. Together, these offset an increase in gains from
various fixed asset sales.
PROVISION FOR INCOME TAXES
Excluding the extraordinary item, the Company's effective tax rate was
39.2% in 1997, up from 35.8% in the previous year. Income tax expense declined
$5.4 million (14%) in 1997 on a pretax earnings decrease of $23.4 million (21%).
The increase in effective rate was due to a higher proportion of nondeductible
intangible asset amortization related to recent acquisitions. See Note 6 to the
accompanying consolidated financial statements for additional information
regarding income taxes.
Excluding the gain and related income taxes on the Company's first
quarter 1995 sale of its interest in a Mexican newsprint operation, the
Company's effective tax rate was 35.8% in 1996, up slightly from 35% in the
previous year. Income tax expense rose $11.9 million (43%) over 1995 on a pretax
earnings increase of $31.6 million (40%).
NET INCOME
The Company incurred a net loss of $10.5 million ($.40 per share; both
basic and assuming dilution) in 1997 as the result of a $63 million charge, net
of a tax benefit of $38.6 million, ($2.39 per share, or $2.37 per share -
assuming dilution) related to the redemption of Park's high coupon debt in
February 1997. Excluding this extraordinary item, net income declined from $70.5
million in 1996 to $52.5 million in the current year. This $18 million ($23
million pre-tax) decrease in net income was primarily attributable to newsprint
related operations; Garden State's pre-tax operating profit declined $9.5
million and the Company's share of SEPCO's income was down $11.2 million.
Increases in interest expense ($44.2 million) and amortization expense ($25.7
million) related to acquisitions slightly more than offset operating profit
increases in other businesses. The Publishing Segment and Cable Segment had
particularly strong performances with increases in operating profits of 78% and
29%, respectively.
Net income for 1996 was $70.5 million ($2.68 per share, or $2.65 per
share - assuming dilution) compared to $53.2 million ($2.04 per share, or $2.01
per share - assuming dilution) in 1995. Net income for 1995 included the
after-tax gain of $2.5 million ($.10 per share, or $.09 per share - assuming
dilution) from the sale of the Company's interest in a Mexican newsprint
affiliate. Excluding the impact of the 1995 gain, 1996 net income was up 39%
from the prior year reflecting strong growth in operating income in the
Publishing Segment due to improvements at the metropolitan daily newspapers, the
addition of the Virginia Newspaper properties, and increased operating income in
the Cable Television Segment due mainly to revenue growth.
LIQUIDITY AND CAPITAL RESOURCES
Funds generated by operating activities during 1997 totaled $119.3
million, down $7.2 million from 1996. The decrease was due to a decline in net
income (excluding the extraordinary item) and the absence of the prior-year
distribution of $15.6 million from SEPCO, partially offset by a rise in non-cash
amortization resulting from recent acquisitions. Funds generated from operating
activities coupled with funds provided from the sales of non-southeastern Park
properties and new borrowings, supplied $277 million for acquisitions (excluding
the debt and other liabilities assumed), $85 million for premiums and costs
related to the early redemption of Park debt, $42 million for capital
expenditures and $14 million for the payment of dividends to stockholders.
Total debt outstanding at December 28, 1997, was $900 million, up $624
million (principally the result of the Park acquisition) from the year-ago level
of $276 million, but down $148 million from the March 30, 1997, level of $1,048
million. The majority of the debt reduction in the current year was funded with
the net proceeds from the sales of certain of the former Park properties; the
balance was derived from cash flow from operations. At December 28, 1997, the
Company had $390 million in unused credit lines available from its committed
revolving credit facility expiring in 2003.
In connection with the borrowings related to the Park acquisition, in
1997 the Company entered into additional interest rate swap agreements
aggregating $600 million. These interest rate swaps, coupled with existing ones,
have maturities ranging from one to six years and totaled $800 million at
December 28, 1997. These instruments are used solely to manage interest rate
risk and effectively convert the Company's variable rate debt to fixed rate debt
with a weighted average interest rate of 6.8% at December 28, 1997. See Note 4
to the accompanying consolidated financial statements for additional information
regarding interest rate swaps.
The Company anticipates that internally generated funds provided by
operations during 1998, 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 in the
future. Additionally, the Company expects to receive $58.6 million in dividends
and return of principal on its mandatorily redeemable preferred stock investment
in Denver Newspapers, Inc., by June 30, 1999, that security's redemption date.
47
<PAGE>
YEAR 2000
As is true with many companies today, the Company is heavily reliant on
technology to deliver its services. Because some forms of technology in use
today employ systems that are not capable of dealing with the year 2000
transition, the Company has assembled a taskforce to review all its systems to
ensure against a year 2000 malfunction. While we have found that such systems do
exist in Media General, the growth of the Company and the availability of new
technology have jointly caused us to upgrade or replace substantial portions of
our fundamental systems in recent years with year 2000 compliant systems. In
addition, we are in the process of installing a new, corporate-wide, financial
information system and have just completed the first replacement phase of a new
human resources information system, both of which are year 2000 compliant. While
the overall cost of this effort is still being evaluated, the benefits received
from the new technology for many of its operational systems are expected to
amply justify the cost of replacement; these costs are not expected to be
material to the Company's consolidated results of operations or financial
position.
OUTLOOK FOR 1998
The quick integration of recently acquired companies into Media General
has strengthened the Company's ability to provide communications throughout the
Southeast and to capitalize on emerging opportunities. The Company anticipates
that all of its segments will produce year-over-year operating income and cash
flow increases, and the Publishing Segment is expected to show particularly
strong results. Results for the Newsprint Segment are directly affected by the
newsprint market's price levels, which have shown gradual improvement throughout
1997 and are expected to show continued improvement in 1998. Due to strong
growth in advertising and newsprint revenues, the Company's net income is
expected to increase.
48
<PAGE>
<TABLE>
<CAPTION>
Media General, Inc.
Quarterly Review
(In thousands, except per share amounts)
First Second Third Fourth
Quarter Quarter Quarter Quarter
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
1997
Revenues $ 216,145 $ 229,426 $ 221,975 $ 242,441
- ----------------------------------------------------------------------------------------------------------------
Operating income 24,802 34,325 28,481 41,837
Income before extraordinary 8,233 13,890 10,565 19,822
item
Extraordinary item (63,000) --- --- ---
Net income (loss) (54,767) 13,890 10,565 19,822
Income per share before
extraordinary item 0.31 0.53 0.40 0.75
Income per share before extra-
ordinary item - assuming 0.31 0.52 0.39 0.75
dilution
Net income (loss) per share (2.08) 0.53 0.40 0.75
Net income (loss) per share -
assuming dilution (2.06) 0.52 0.39 0.75
- ----------------------------------------------------------------------------------------------------------------
Shares traded 2,761 2,978 2,498 1,876
Stock price range $ 29.38-32.75 $ 28.38-35.25 $ 34.50-40.00 $ 37.25-44.63
Quarterly dividend paid $ 0.13 $ 0.13 $ 0.13 $ 0.14
- ----------------------------------------------------------------------------------------------------------------
1996
Revenues $ 184,800 $ 192,632 $ 188,003 $ 199,670
Operating income 20,015 29,553 23,199 29,669
Net income 15,056 20,880 15,623 18,939
Net income per share 0.57 0.79 0.60 0.72
Net income per share -
assuming dilution 0.57 0.78 0.59 0.71
- ----------------------------------------------------------------------------------------------------------------
Shares traded 2,661 1,756 2,597 2,095
Stock price range $ 29.88-39.38 $ 34.75-39.50 $ 27.63-37.50 $ 29.38-32.63
Quarterly dividend paid $ 0.12 $ 0.12 $ 0.13 $ 0.13
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
o Media General, Inc., Class A common stock is listed on the American Stock
Exchange under the symbol MEG.A. The approximate number of equity security
holders of record at March 1, 1998, was: Class A common -- 2,380, Class B
common -- 16.
o First quarter 1997 results include an extraordinary charge of $63 million,
net of a tax benefit of $38.6 million ($2.39 per share, or $2.37 per share
- assuming dilution), representing the debt prepayment premium and the
write-off of associated debt issuance costs related to the redemption of
debt assumed in the January 1997, acquisition of Park.
o During the fourth quarter 1997, the Company received updated appraisal
information related to the Park acquisition which principally resulted in
adjustments to intangible assets, deferred taxes and the effective income
tax rate. Values assigned by the appraisal to identifiable intangible
assets increased and excess of cost over fair value decreased while total
appraised value remained unchanged.
49
<PAGE>
Media General, Inc.
Ten-Year Financial Summary
(In thousands, except per share amounts)
Certain of the following data were compiled from the consolidated financial
statements of Media General, Inc., and should be read in conjunction with those
statements and the financial review and management analysis which appear
elsewhere in this report.
<TABLE>
<CAPTION>
1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C>
Summary of Operations
Operating revenues (a) $ 909,987 $ 765,105 $ 707,766 $ 626,247
- -----------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (10,490) $ 70,498 $ 53,232 $ 117,009
Adjustments to reconcile to operating
cash flow:
Extraordinary item (b) 63,000 --- --- ---
Gain on sale of Garden State
Newspapers investment --- --- --- (91,520)
Cumulative effect of changes in
accounting principles (c) --- --- --- ---
Investment (income) loss --
unconsolidated affiliates (21,037) (27,188) (19,034) (2,935)
Other, net (1,267) (1,381) (5,204) 789
Interest expense 65,442 21,267 15,522 16,948
Income taxes 33,797 39,240 28,477 25,960
----------- ----------- ---------- ----------
Operating income (a)(d) 129,445 102,436 72,993 66,251
Depreciation and amortization 98,316 64,951 60,590 55,450
----------- ----------- ---------- ----------
Operating cash flow $ 227,761 $ 167,387 $ 133,583 $ 121,701
=======================================================================================================================
Per Share Data: (b)(c)(e)
Income (loss) before extraordinary item and
cumulative effect of changes in accounting
principles $ 1.99 $ 2.68 $ 2.04 $ 4.50
Extraordinary item (2.39) --- --- ---
Cumulative effect of changes in accounting
principles --- --- --- ---
----------- ----------- ---------- -----------
Net income (loss) $ (0.40) $ 2.68 $ 2.04 $ 4.50
=======================================================================================================================
Per Share Data - assuming dilution: (b)(c)(e)
Income (loss) before extraordinary item and
cumulative effect of changes in accounting
principles $ 1.97 $ 2.65 $ 2.01 $ 4.45
Extraordinary item (2.37) --- --- ---
Cumulative effect of changes in accounting
principles --- --- --- ---
----------- ----------- ---------- ----------
Net income (loss) $ (0.40) $ 2.65 $ 2.01 $ 4.45
=======================================================================================================================
Other Financial Data:
Total assets $ 1,814,201 $ 1,025,484 $ 1,016,743 $ 787,165
Working capital 31,442 13,373 22,938 14,833
Capital expenditures 41,599 28,510 29,076 56,919
Total debt 900,000 276,000 326,750 172,500
Cash dividends per share 0.53 0.50 0.48 0.44
=======================================================================================================================
</TABLE>
(a) In 1988, the Company discontinued its Broadcast Services operations and
sold its media placement division, and agreed to dispose of its West Coast
newsprint mill and related operations. Revenues for 1988 include disposed
broadcast operation revenues of $62.4 million and disposed newsprint
operation revenues of $74.3 million. Operating income for 1988 includes
disposed broadcast operation operating losses of $59.3 million and disposed
newsprint operation operating profits of $14.8 million.
(b) In 1997 the Company incurred a charge of $63 million (net of a tax benefit
of $38.6 million), representing the debt prepayment premium and write-off
of associated debt issuance costs related to the redemption of debt assumed
in the January 1997, Park acquisition.
(c) Includes the recognition, at the beginning of fiscal 1992, of the
accumulated postretirement benefit obligation related to prior service
costs of $22.8 million ($14.4 million after-tax; $0.55 per share, basic and
assuming dilution) as the cumulative effect of a change in accounting
principle for the adoption of Statement of Financial Accounting Standards
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions" and the adoption of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" which increased 1992 net income by $15.1
million ($0.58 per share, basic and assuming dilution), which represented
the net decrease in the Company's deferred tax liability at that date.
50
<PAGE>
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989 1988
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
$ 600,824 $ 577,659 $ 585,900 $ 613,667 $ 595,132 $ 738,871
- ---------------------------------------------------------------------------------------------------------------------------
$ 25,708 $ 19,000 $ (62,091) $ 25,480 $ 20,720 $ 8,819
--- --- --- --- --- ---
--- --- --- --- --- ---
--- (687) --- --- --- ---
990 4,926 75,640 1,303 (10,562) (16,507)
(835) (6,131) (2,659) (814) (684) (369)
21,274 17,559 16,056 19,831 25,385 18,089
13,166 7,946 9,395 18,025 9,280 5,380
---------- ---------- ---------- --------- ------------- ----------
60,303 42,613 36,341 63,825 44,139 15,412
56,847 54,550 49,943 47,547 45,635 47,635
---------- ---------- ---------- --------- ------------- ----------
$ 117,150 $ 97,163 $ 86,284 $ 111,372 $ 89,774 $ 63,047
===========================================================================================================================
$ 0.99 $ 0.70 $ (2.40) $ 0.99 $ 0.80 $ 0.31
--- --- --- --- --- ---
--- 0.03 --- --- --- ---
--------- ------------ --------- -------- ------------ -----------
$ 0.99 $ 0.73 $ (2.40) $ 0.99 $ 0.80 $ 0.31
===========================================================================================================================
$ 0.98 $ 0.70 $ (2.40) $ 0.98 $ 0.80 $ 0.31
--- --- --- --- --- ---
--- 0.03 --- --- --- ---
--------- ------------ --------- -------- ------------ -----------
$ 0.98 $ 0.73 $ (2.40) $ 0.98 $ 0.80 $ 0.31
===========================================================================================================================
$ 745,242 $ 787,425 $ 762,311 $ 775,944 $ 782,657 $ 852,764
9,551 9,657 3,668 21,333 62,210 55,488
32,837 92,319 115,383 73,686 69,117 77,717
261,756 320,506 277,202 234,565 275,928 274,985
0.44 0.44 0.44 0.44 0.42 0.39
===========================================================================================================================
</TABLE>
(d) Operating income includes the following pre-tax special charges: 1991 --
$11.3 million for early retirement program and newspaper merger costs; 1989
-- $10.3 million for the write-off of unrecovered costs related to a
lawsuit against William B. Tanner and others; 1988 -- $66.3 million
primarily related to the Company's discontinuance of Broadcast Services
operations.
(e) In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share", which is effective for periods ending after
December 15, 1997. Accordingly, the Company has changed the method used to
compute earnings per share and has restated its earnings per share for all
prior periods. Under the new standard, basic earnings per share, which
excludes the dilutive effect of stock options, replaces primary earnings
per share.
51
<PAGE>
Exhibit 21
Subsidiaries of the Registrant
Listed below are the major subsidiaries of the Company, including
equity investees, each of which is in the consolidated financial statements of
the Company and its Subsidiaries, and the percentage of ownership by the Company
(or if indented, by the subsidiary under which it is listed). Subsidiaries
omitted from the list would not, if aggregated, constitute a significant
subsidiary:
<TABLE>
<CAPTION>
Jurisdiction of Securities
Name of Subsidiary Incorporation Ownership
<S> <C>
Beacon Press, Inc. Virginia 100%
Denver Newspapers, Inc. Delaware 40%
Garden State Paper Company, Inc. Virginia 100%
Media General Business Communications, Inc. Virginia 100%
Media General Cable of Fairfax County, Inc. Virginia 100%
Media General Cable of Fredericksburg, Inc. Virginia 100%
Media General Communications, Inc. Delaware 100%
Media General Newspapers, Inc. Delaware 100%
Media General Broadcasting, Inc. New York 100%
MG Broadcasting of Birmingham, Inc. Alabama 100%
Media General Broadcasting of Montgomery, Inc. Alabama 100%
Media General Financial Services, Inc. Virginia 100%
Mega Advertising, Inc. Virginia 100%
NES II, Inc. Virginia 100%
Piedmont Publishing Company, Inc. North Carolina 100%
Richmond Newspapers, Inc. Virginia 100%
The Tribune Company Florida 100%
Virginia Newspapers, Inc. Virginia 100%
Virginia Paper Manufacturing Corp. Virginia 100%
Southeast Paper Manufacturing Co.
(Partnership) Georgia 33.33%
</TABLE>
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Media General, Inc.
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Media General, Inc., of our report dated January 26, 1998, included in the
1997 Annual Report to Stockholders of Media General, Inc.
Our audits also included the financial statement schedule of Media General,
Inc., listed in Item 14(a). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, the financial statement schedule referred to above, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
We also consent to the incorporation by reference in the following Registration
Statements of our report dated January 26, 1998, with respect to the
consolidated financial statements of Media General, Inc., incorporated herein by
reference, and our report included in the preceding paragraph with respect to
the financial statement schedule of Media General, Inc., included in this Annual
Report (Form 10-K) of Media General, Inc., for the fiscal year ended December
28, 1997:
Registration Statement Number Description
2-56905 Form S-8
33-29478 Form S-8
33-23698 Form S-8
33-26853 Form S-3
33-52472 Form S-8
333-16731 Form S-8
333-16737 Form S-8
ERNST & YOUNG LLP
Richmond, Virginia
March 25, 1998
<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>
<CIK> 0000216539
<NAME> 1
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-END> DEC-28-1997
<CASH> 3,504
<SECURITIES> 0
<RECEIVABLES> 115,940
<ALLOWANCES> 6,653
<INVENTORY> 17,594
<CURRENT-ASSETS> 162,653
<PP&E> 1,083,202
<DEPRECIATION> 578,296
<TOTAL-ASSETS> 1,814,201
<CURRENT-LIABILITIES> 131,211
<BONDS> 900,000
0
0
<COMMON> 133,645
<OTHER-SE> 284,581
<TOTAL-LIABILITY-AND-EQUITY> 1,814,201
<SALES> 909,987
<TOTAL-REVENUES> 909,987
<CGS> 453,937
<TOTAL-COSTS> 453,937
<OTHER-EXPENSES> 98,316
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 65,442
<INCOME-PRETAX> 86,307
<INCOME-TAX> 33,797
<INCOME-CONTINUING> 52,510
<DISCONTINUED> 0
<EXTRAORDINARY> (63,000)
<CHANGES> 0
<NET-INCOME> (10,490)
<EPS-PRIMARY> (0.40)
<EPS-DILUTED> (0.40)
</TABLE>
<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 TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000216539
<NAME> 2
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-END> DEC-29-1996
<CASH> 4,471
<SECURITIES> 0
<RECEIVABLES> 86,784
<ALLOWANCES> 5,271
<INVENTORY> 16,329
<CURRENT-ASSETS> 128,218
<PP&E> 997,575
<DEPRECIATION> 527,597
<TOTAL-ASSETS> 1,025,484
<CURRENT-LIABILITIES> 114,845
<BONDS> 265,000
0
0
<COMMON> 132,534
<OTHER-SE> 304,706
<TOTAL-LIABILITY-AND-EQUITY> 1,025,484
<SALES> 765,105
<TOTAL-REVENUES> 765,105
<CGS> 410,659
<TOTAL-COSTS> 410,659
<OTHER-EXPENSES> 64,951
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,267
<INCOME-PRETAX> 109,738
<INCOME-TAX> 39,240
<INCOME-CONTINUING> 70,498
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 70,498
<EPS-PRIMARY> 2.68
<EPS-DILUTED> 2.65
</TABLE>
<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>
<CIK> 0000216539
<NAME> 3
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 3,367
<SECURITIES> 0
<RECEIVABLES> 81,062
<ALLOWANCES> 4,530
<INVENTORY> 20,380
<CURRENT-ASSETS> 126,091
<PP&E> 982,543
<DEPRECIATION> 484,411
<TOTAL-ASSETS> 1,016,743
<CURRENT-LIABILITIES> 103,153
<BONDS> 326,750
0
0
<COMMON> 132,309
<OTHER-SE> 244,802
<TOTAL-LIABILITY-AND-EQUITY> 1,016,743
<SALES> 707,766
<TOTAL-REVENUES> 707,766
<CGS> 391,940
<TOTAL-COSTS> 391,940
<OTHER-EXPENSES> 60,590
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,522
<INCOME-PRETAX> 81,709
<INCOME-TAX> 28,477
<INCOME-CONTINUING> 53,232
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 53,232
<EPS-PRIMARY> 2.04
<EPS-DILUTED> 2.01
</TABLE>
