UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 27, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 1-6383
MEDIA GENERAL, INC.
(Exact name of registrant as specified in its charter)
Commonwealth of Virginia 54-0850433
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
333 E. Franklin St., Richmond, VA 23219
(Address of principal executive offices) (Zip Code)
(804) 649-6000
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if
changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of November 1, 1998.
Class A Common shares: 26,211,709
Class B Common shares: 556,574
<PAGE>
MEDIA GENERAL, INC.
TABLE OF CONTENTS
FORM 10-Q REPORT
SEPTEMBER 27, 1998
Page
Part I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets - September 27, 1998,
and December 28, 1997 1
Consolidated Condensed Statements of Operations - Third
quarter and nine months ended September 27, 1998,
and September 28, 1997 3
Consolidated Condensed Statements of Cash Flows - Nine
months ended September 27, 1998, and September 28, 1997 4
Notes to Consolidated Condensed Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 15
(a) Exhibits
(b) Reports on Form 8-K
Signatures 16
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
MEDIA GENERAL, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(000's except shares)
September 27, December 28,
1998 1997
------------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 5,253 $ 3,504
Accounts receivable - net 100,460 109,287
Inventories 18,368 17,594
Other 47,779 32,268
------------ ------------
Total current assets 171,860 162,653
------------ ------------
Investments in unconsolidated affiliates 140,377 132,209
Other assets 43,537 28,519
Property, plant and equipment - net 500,685 504,906
Excess of cost over fair value
of net identifiable assets
of acquired businesses - net 657,491 572,458
FCC licenses and other intangibles - net 402,698 413,456
------------ ------------
$ 1,916,648 $ 1,814,201
============ ============
See accompanying notes.
1
<PAGE>
MEDIA GENERAL, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(000's except shares)
September 27, December 28,
1998 1997
------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 29,318 $ 31,599
Accrued expenses and other liabilities 118,035 98,190
Income taxes payable --- 1,422
------------ ------------
Total current liabilities 147,353 131,211
------------ ------------
Long-term debt 949,408 900,140
Deferred income taxes 244,996 249,649
Other liabilities and deferred credits 120,084 114,975
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 26,211,231 and 26,172,424
shares 131,056 130,862
Class B, authorized 600,000 shares;
issued 556,574 shares 2,783 2,783
Additional paid-in capital 18,565 16,733
Unearned compensation (1,313) (2,100)
Retained earnings 303,716 269,948
------------ ------------
Total stockholders' equity 454,807 418,226
------------ ------------
$ 1,916,648 $ 1,814,201
============ ============
See accompanying notes.
2
<PAGE>
MEDIA GENERAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(000's except for per share data)
<TABLE>
<CAPTION>
Third Quarter Ended Nine Months Ended
--------------------- ----------------------
Sept. 27, Sept. 28, Sept. 27, Sept. 28,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C>
Revenues $ 236,812 $ 221,975 $ 722,655 $ 667,546
--------- --------- --------- ---------
Operating costs:
Production costs 119,991 112,653 358,713 337,953
Selling, distribution and
administrative 57,755 57,478 176,641 171,655
Depreciation and amortization 25,113 23,363 76,588 70,330
--------- --------- --------- ---------
Total operating costs 202,859 193,494 611,942 579,938
--------- --------- --------- ---------
Operating income 33,953 28,481 110,713 87,608
--------- --------- --------- ---------
Other income (expense):
Interest expense (16,079) (16,324) (49,931) (49,399)
Investment income -
unconsolidated affiliates:
Southeast Paper
Manufacturing Co. 2,065 2,625 9,524 5,649
Denver Newspapers, Inc.:
Equity in net income 259 1,545 1,742 5,293
Preferred stock income 1,534 1,502 4,602 4,506
Other, net 1,057 231 107 2,220
--------- --------- --------- ---------
Total other expense (11,164) (10,421) (33,956) (31,731)
--------- --------- --------- ---------
Income before income taxes and
extraordinary item 22,789 18,060 76,757 55,877
Income taxes 8,334 7,495 28,016 23,189
--------- --------- --------- ---------
Income before extraordinary item 14,455 10,565 48,741 32,688
Extraordinary item from early
redemption of debt (net of
income tax of $38,613) --- --- --- (63,000)
--------- --------- --------- ---------
Net income (loss) $ 14,455 $ 10,565 $ 48,741 $ (30,312)
========= ========= ========= =========
Earnings (loss) per common share
and equivalent:
Income before extraordinary
item $ 0.54 $ 0.40 $ 1.83 $ 1.24
Extraordinary item --- --- --- (2.39)
--------- --------- --------- ---------
Net income (loss) $ 0.54 $ 0.40 $ 1.83 $ (1.15)
========= ========= ========= =========
Earnings (loss) per common share
and equivalent - assuming
dilution:
Income before extraordinary
item $ 0.54 $ 0.39 $ 1.81 $ 1.23
Extraordinary item --- --- --- (2.37)
--------- --------- --------- ---------
Net income (loss) $ 0.54 $ 0.39 $ 1.81 $ (1.14)
========= ========= ========= =========
Dividends paid per common share $ 0.14 $ 0.13 $ 0.42 $ 0.39
========= ========= ========= =========
</TABLE>
See accompanying notes.
3
<PAGE>
MEDIA GENERAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(000's)
Nine Months Ended
--------------------------------
September 27, September 28,
1998 1997
------------ ------------
Operating activities:
Net income (loss) $ 48,741 $ (30,312)
Adjustments to reconcile net income (loss):
Extraordinary item --- 63,000
Depreciation and amortization 76,588 70,330
Deferred income taxes (7,135) (2,012)
Investment income -- unconsolidated
affiliates, net of distributions (8,168) (15,448)
Change in assets and liabilities (6,988) 7,320
------------ ------------
Net cash provided by operating activities 103,038 92,878
------------ ------------
Investing activities:
Capital expenditures (35,069) (30,495)
Purchase of businesses (1997-net of
$476 million of debt assumed) (132,680) (277,326)
Sale of businesses 23,645 147,267
Other, net 2,016 (1,668)
------------ ------------
Net cash used by investing activities (142,088) (162,222)
------------ ------------
Financing activities:
Increase in debt 382,000 963,000
Payment of debt (333,179) (800,000)
Premiums and costs related to early
redemption of Park debt --- (84,703)
Dividends paid (11,225) (10,387)
Other, net 3,203 2,168
------------ ------------
Net cash provided by financing activities 40,799 70,078
------------ ------------
Net increase in cash and cash equivalents 1,749 734
Cash and cash equivalents at beginning
of year 3,504 4,471
------------ ------------
Cash and cash equivalents at end of period $ 5,253 $ 5,205
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of amount capitalized) $ 49,229 $ 44,278
Income taxes $ 49,506 $ 17,569
See accompanying notes.
4
<PAGE>
MEDIA GENERAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying unaudited consolidated condensed financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial reporting, and with applicable quarterly
reporting regulations of the Securities and Exchange Commission. They do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements and, accordingly, should
be read in conjunction with the consolidated financial statements and related
footnotes included in the Company's Annual Report on Form 10-K for the year
ended December 28, 1997.
In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation of interim
financial information have been included. Certain items in 1997 have been
reclassified to conform with the current year's presentation. The
reclassifications have no effect on net income as previously reported. The
results of operations for interim periods are not necessarily indicative of the
results that may be expected for the full fiscal year.
In June 1998, the Financial Accounting Standards Board issued
Statement No. 133, Accounting for Derivative Instruments and Hedging Activities,
which is effective for fiscal years beginning after June 15, 1999. When adopted,
all derivatives will be recognized on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through income.
If a derivative is a hedge, depending upon the nature of the hedge, a change in
its fair value will either be offset against the change in the fair value of the
hedged assets, liabilities, or firm commitments through earnings, or recognized
in other comprehensive income until the hedged item is recognized in earnings.
The ineffective portion of the hedge (generally the difference between fair
value of the hedge and the item being hedged) will be immediately recognized in
earnings.
The Company has not yet determined what the effect of Statement No.
133 will be on its results of operations and financial position. The Company
will adopt Statement No. 130, Reporting Comprehensive Income, concurrent with
the adoption of Statement No. 133.
2. On January 2, 1998, Media General, Inc. acquired, for approximately
$93 million, the assets of the Bristol Herald Courier, a daily newspaper in
southwestern Virginia, and two affiliated weekly newspapers. On July 1, 1998,
the Company acquired, for approximately $40 million, the assets of the Hickory
Daily Record, a daily newspaper in northwestern North Carolina. Both
transactions were accounted for as purchases and the Company's results of
operations include the results of Bristol and Hickory since their respective
dates of acquisition. Purchase price has been allocated to the assets acquired
based on preliminary appraisals of estimated fair values. Such estimated values
may change as the appraisals are finalized and more facts become known. On June
2, 1998, the Company completed the sale of its Kentucky newspaper properties for
approximately $24 million.
3. Inventories are principally raw materials. As of September 27, 1998,
$8.6 million of prepaid income tax was included in "Other" current assets.
5
<PAGE>
4. The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Quarter Ended September 27, 1998 Quarter Ended September 28, 1997
----------------------------------- ---------------------------------
(In thousands, except per Income Shares Per Share Income Shares Per Share
share amounts) (Numerator) (Denominator) Amount (Numerator)(Denominator) Amount
----------------------------------- ---------------------------------
<S> <C>
Basic EPS
Income available to common stock-
holders before extraordinary item $ 14,455 26,613 $ 0.54 $ 10,565 26,358 $ 0.40
====== =======
Effect of dilutive securities
Stock options 251 208
Restricted stock and other (5) 85 (10) 170
----------------------- -------------------
Diluted EPS
Income available to common stock-
holders + assumed conversions $ 14,450 26,949 $ 0.54 $ 10,555 26,736 $ 0.39
=============================== ===============================
<CAPTION>
Nine Months Ended September 27, 1998 Nine Months Ended September 28, 1997
------------------------------------ ------------------------------------
(In thousands, except Income Shares Per Share Income Shares Per Share
per share amounts) (Numerator) (Denominator) Amount (Numerator)(Denominator) Amount
------------------------------------ ------------------------------------
<S> <C>
Basic EPS
Income available to common stock-
holders before extraordinary item $ 48,741 26,565 $ 1.83 $ 32,688 26,335 $ 1.24
====== =======
Effect of dilutive securities
Stock options 252 152
Restricted stock and other (16) 78 (30) 162
----------------------- -------------------
Diluted EPS
Income available to common stock-
holders + assumed conversions $ 48,725 26,895 $ 1.81 $ 32,658 26,649 $ 1.23
================================ ===============================
</TABLE>
1 All of the above amounts have been presented in accordance with SFAS No. 128
"Earnings Per Share." In the prior year, the Company reported EPS before
extraordinary item of $1.22 for the nine months ended September 28, 1997. Due
to minor differences in the methodology under SFAS No. 128, EPS for that
period has been restated to $1.23.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
OVERVIEW
Media General is an independent, publicly owned communications company situated
primarily in the Southeast with interests in newspapers, broadcast and cable
television, recycled newsprint production, and diversified information services.
The Company's fiscal year ends on the last Sunday in December.
Media General, Inc.
Business Segment Information
(Unaudited)
(000's)
Quarters Ended Nine Months Ended
--------------------- ---------------------
Sept. 27, Sept. 28, Sept. 27, Sept. 28,
1998 1997 1998 1997
--------- --------- --------- ---------
Revenues:
Publishing $ 125,298 $ 117,555 $ 383,514 $ 354,257
Broadcast Television 39,096 36,491 123,856 113,460
Cable Television 39,640 37,825 117,930 115,145
Newsprint 32,778 30,104 97,355 84,684
--------- --------- --------- ---------
Total revenues $ 236,812 $ 221,975 $ 722,655 $ 667,546
========= ========= ========= =========
Operating income (loss):
Publishing $ 23,173 $ 19,187 $ 72,334 $ 59,555
Broadcast Television 1,676 2,866 9,611 13,336
Cable Television 7,358 7,482 21,213 22,642
Newsprint 1,746 (1,054) 7,555 (7,925)
--------- --------- --------- ---------
Total operating income $ 33,953 $ 28,481 $ 110,713 $ 87,608
========= ========= ========= =========
Operating cash flow:
Publishing $ 33,259 $ 28,802 $ 102,417 $ 88,051
Broadcast Television 8,832 8,788 31,656 31,014
Cable Television 13,522 13,661 40,473 41,829
Newsprint 3,453 593 12,755 (2,956)
--------- --------- --------- ---------
Total operating cash
flow $ 59,066 $ 51,844 $ 187,301 $ 157,938
========= ========= ========= =========
ACQUISITIONS AND DISPOSITIONS
In January 1998 the Company acquired the Bristol Herald Courier (Bristol), a
daily newspaper in southwestern Virginia, and two affiliated weekly newspapers.
In June 1998 the Company sold its Kentucky newspaper properties (Kentucky)
acquired in 1997 with the purchase of Park Acquisitions, Inc. In July 1998 the
Company purchased The Hickory Daily Record (Hickory) located in northwestern
North Carolina. See Note 2 of this Form 10-Q for further details about these
transactions.
7
<PAGE>
CONSOLIDATED OPERATING RESULTS
(In thousands, except per share data)
Third Quarter Ended Nine Months Ended
---------------------------- ---------------------------
Sept. 27, Sept. 28, Sept. 27, Sept. 28,
1998 1997 Change 1998 1997 Change
-------- ------- ------- -------- ------- -------
Revenues $236,812 $221,975 7% $722,655 $667,546 8%
Net Income (Loss) 14,455 10,565 37 48,741 (30,312)* ---
Earnings (Loss)
Per Share 0.54 0.40 35 1.83 (1.15)* ---
Earnings (Loss)
Per Share -
Assuming Dilution 0.54 0.39 38 1.81 (1.14)* ---
* Includes extraordinary charge from early redemption of 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
The following discussion of segment operating results is primarily focused on
the year-over-year comparative performance of the Company. 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 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 thousands)
Third Quarter Ended Nine Months Ended
---------------------------- --------------------------
Sept. 27, Sept. 28, Sept. 27, Sept. 28,
1998 1997 Change 1998 1997 Change
-------- ------- ------- -------- ------- ------
Revenues $125,298 $117,555 7% $383,514 $354,257 8%
Operating Expenses 102,125 98,368 4 311,180 294,702 6
Operating Income 23,173 19,187 21 72,334 59,555 21
Depreciation &
Amortization 10,086 9,615 5 30,083 28,496 6
Operating Cash Flow 33,259 28,802 15 102,417 88,051 16
Publishing revenues improved $7.7 million and $29.3 million (7% and 8%) for the
quarter and nine month periods ended September 27, 1998, from the comparable
1997 periods. In the Company's metropolitan newspaper group, which includes its
three largest daily newspapers, revenues rose $3 million and $13.5 million in
the third quarter and first nine months of this year as a result of expanded
linage (up 1.8% and 3.9%, respectively) and higher advertising rates (up 2.9%
and 2.8%, respectively). These quarterly and year-to-date increases were
principally the result of strong performances in classified advertising (led by
the employment category) and retail advertising. The Company's current-year
8
<PAGE>
acquisitions, partially offset by the disposition of its Kentucky properties,
generated revenue increases of $3.7 million and $11.2 million in the third
quarter and first nine months of 1998. Additionally, the Company's other daily
and weekly community newspapers contributed revenue increases of $.7 million and
$3.9 million, primarily due to strong classified advertising revenues, in the
current quarter and year-to-date periods.
Publishing operating expense increased $3.7 million and $16.5 million in the
third quarter and first nine months of 1998, approximately two-thirds and
one-half of which were related to acquisitions and dispositions. Excluding
acquisitions and dispositions, the increases over the comparable year-ago
periods were attributable to a combination of factors, including: a 5.1% and
11.4% rise in newsprint expense due to increased newsprint prices and increased
current-year costs at Tampa associated with new niche products.
Operating income for Publishing rose $4 million and $12.8 million (both 21%) in
the third quarter and first nine months of 1998 from the prior-year periods. The
increases were principally due to the combination of robust advertising revenues
and the acquisition of Bristol and Hickory, partially offset by increased
newsprint expense.
BROADCAST TELEVISION
(In thousands)
Third Quarter Ended Nine Months Ended
---------------------------- --------------------------
Sept. 27, Sept. 28, Sept. 27, Sept. 28,
1998 1997 Change 1998 1997 Change
-------- ------- ------- -------- ------- -----
Revenues $ 39,096 $36,491 7% $123,856 $113,460 9%
Operating Expenses 37,420 33,625 11 114,245 100,124 14
Operating Income 1,676 2,866 (42) 9,611 13,336 (28)
Depreciation &
Amortization 7,156 5,922 21 22,045 17,678 25
Operating Cash Flow 8,832 8,788 1 31,656 31,014 2
Broadcast revenues increased $2.6 and $10.4 million (7% and 9%) in the third
quarter and first nine months of 1998. These increases were due to strong
political advertising revenues resulting from primaries for upcoming elections
combined with local and national issue-oriented advertising, as well as solid
local advertising revenues (led by the fast foods and automotive categories) in
the year-to-date period of 1998. In addition, PCS, the Company's provider of
equipment and studio design services, generated particularly strong revenues in
both the current quarter and first nine months, reflecting increased sales to
broadcast groups constructing and upgrading equipment and facilities.
Operating expenses in the Broadcast Segment increased $3.8 million and $14.1
million in the third quarter and first nine months of 1998. Programming costs
were up 17% and 26%, respectively, and employee compensation and benefits
expense rose 9% and 11%, respectively, for the quarter and first nine months of
the year. The higher expense levels in 1998 were anticipated as steps were
initiated in 1997 to invigorate the performance at the recently acquired
stations. These steps included upgrading programming and equipment and fully
staffing and competitively compensating personnel in conjunction with the
repositioning and relaunching of these stations. May rating books indicated
increased audience share at nine of the Company's fourteen stations, reflecting
the positive results achieved from these efforts. Depreciation and amortization
expense also rose $1.2 million and $4.4 million in the third quarter and first
nine months of 1998.
9
<PAGE>
Broadcast operating income decreased $1.2 million and $3.7 million in the third
quarter and first nine months of 1998. The decline was principally attributable
to increased expenditures at the recently acquired stations to enhance their
performance and to position them to compete more effectively in their markets,
which more than offset improved quarterly and year-to-date revenues.
CABLE TELEVISION
(In thousands)
Third Quarter Ended Nine Months Ended
---------------------------- --------------------------
Sept. 27, Sept. 28, Sept. 27, Sept. 28,
1998 1997 Change 1998 1997 Change
-------- ------- ------- -------- ------- ------
Revenues $ 39,640 $37,825 5% $117,930 $115,145 2%
Operating Expenses 32,282 30,343 6 96,717 92,503 5
Operating Income 7,358 7,482 (2) 21,213 22,642 (6)
Depreciation &
Amortization 6,164 6,179 --- 19,260 19,187 ---
Operating Cash Flow 13,522 13,661 (1) 40,473 41,829 (3)
In June 1998, the Company renewed its cable franchise agreement with Fairfax
County for a 15-year term. As part of this agreement, the Company agreed not to
raise subscriber rates for a period of one year. This rate increase moratorium
affected the third quarter and, to a lesser extent, the year-to-date results of
the Segment. The long-term benefits of this agreement override this short-term
negative impact on the Company.
Revenues at the Company's Cable Television Segment rose $1.8 million and $2.8
million (5% and 2%) in the third quarter and first nine months of 1998. These
increases were primarily attributable to the Company's Fairfax County, Virginia,
cable system (Fairfax Cable), as a result of a 3% year-over-year increase in the
number of subscribers (to approximately 240,000 at September 27, 1998), together
with a combined average increase of 1% and 2% in basic and expanded subscriber
rates for the quarter and year to date.
Cable operating expenses rose $1.9 million and $4.2 million during the third
quarter and first nine months of 1998 from the comparable prior-year periods.
These increases were primarily attributable to increases of $1.2 million and $3
million in programming costs for the third quarter and first nine months of the
year, combined with the increased costs associated with the expansion of the
subscriber base at Fairfax Cable.
Cable operating income declined $.1 million and $1.4 million in the third
quarter and first nine months of 1998 from the year-earlier periods. These
decreases reflected increased programming costs at Fairfax Cable due to higher
contractual rates, partially offset by increased revenue as a result of
Fairfax's growing subscriber base.
10
<PAGE>
NEWSPRINT
(In thousands)
Third Quarter Ended Nine Months Ended
---------------------------- --------------------------
Sept. 27, Sept. 28, Sept. 27, Sept. 28,
1998 1997 Change 1998 1997 Change
-------- ------- ------- -------- ------- -------
Revenues $ 32,778 $30,104 9% $ 97,355 $84,684 15%
Operating Expenses 31,032 31,158 --- 89,800 92,609 (3)
Operating Income
(Loss) 1,746 (1,054) --- 7,555 (7,925) ---
Depreciation &
Amortization 1,707 1,647 4 5,200 4,969 5
Operating Cash Flow 3,453 593 --- 12,755 (2,956) ---
Newsprint Segment revenues increased $2.7 million and $12.7 million (9% and 15%)
in the third quarter and first nine months of 1998, reflecting the improved
results of the Company's Garden State Paper (Garden State) newsprint mill,
located in Garfield, New Jersey. These increases resulted from a rise of 3.3%
and 8% in the average realized selling price per ton for the quarterly and
year-to-date periods ended September 27, 1998, combined with a 5.1% and 6.7%
increase in tons sold. Newsprint selling prices gradually increased throughout
1997 and remained essentially flat in 1998, such that the average realized price
has risen from $481 per ton in the first nine months of 1997 to $520 per ton in
the comparable period of 1998.
Newsprint Segment operating expense dropped $.1 million and $2.8 million in the
quarterly and year-to-date periods of 1998 from the comparable 1997 amounts.
These declines were principally the result of a $.6 million and $2.1 million
decrease in chemical expense in the third quarter and first nine months of the
year due to deinking process improvements, combined with a $.3 million and $1.2
million reduction in maintenance and repair expense, the result of cost cutting
efforts in contracted maintenance. Additionally, energy costs declined $.3
million and $1.6 million in the quarterly and year-to-date periods due a shift
to purchasing gas in the competitively-priced open market as well as, in the
year to date, a mild winter. These decreases were partially offset by a $.9
million and $1.2 million rise in recovered newspaper (ONP) expense for the
current quarter and year-to-date periods, due to both increased consumption and
demand-driven price increases.
Newsprint operating income rose $2.8 million and $15.5 million, from losses of
$1.1 million and $7.9 million in the third quarter and first nine months of
1997, to income of $1.7 million and $7.6 million in the comparable 1998 periods.
The increases resulted primarily from a $16 and a $39 increase in average
realized selling price per ton for the current quarter and year-to-date periods.
In addition, improved production efficiency at Garden State and a mild 1998
winter also contributed to the overall operating profit improvement.
UNCONSOLIDATED AFFILIATES
The Company's investment income from unconsolidated affiliates decreased $1.8
million in the third quarter, but increased $.4 in the first nine months of 1998
from the comparable periods of 1997. The Company's share of such income from its
Southeast Paper Manufacturing Company (SEPCO) newsprint affiliate decreased $.5
million from the third quarter of 1997 and increased $3.9 million from the first
nine months of 1997. In the third quarter, SEPCO's revenues decreased 3.2% as a
result of a 6% decrease in tons sold due to a planned shutdown for routine
maintenance. The lower sales volume more than offset a 3% rise in the average
realized selling price. SEPCO's revenues rose 5.3% in the first nine months of
11
<PAGE>
1998 as a result of an 8.1% rise in the average realized selling price, which
more than offset the effects of a 3.1% decrease in tons sold. Income earned from
the Company's Denver Newspapers, Inc. (DNI), affiliate decreased $1.3 million
and $3.5 million in the third quarter and first nine months of 1998 from the
comparable periods of 1997. The third quarter decrease was due to higher
circulation and advertising costs which exceeded increased circulation revenues.
The year-to-date decline was attributable to a rise in newsprint costs,
principally due to higher prices, which together with increased advertising and
circulation costs, were only partially offset by strong advertising revenue
growth.
INTEREST EXPENSE
Interest expense of $16.1 million and $49.9 million in the quarter and year to
date represented a $.2 million decrease and a $.5 million increase from the
third quarter and year-to-date periods of 1998 over the comparable year-earlier
periods. The quarterly decrease was due to a slight drop in the Company's
effective borrowing rate to 6.8%, partially offset by an increase from the
comparable year-ago period of $20.5 million in average debt outstanding due
principally to the Hickory acquisition. The year-to-date increase resulted from
a slight rise over the equivalent year-earlier period in the Company's average
effective borrowing rate to approximately 7%, partially offset by a $18 million
decrease in average debt outstanding.
NON-OPERATING ITEMS
Other, net, increased $.8 million in the third quarter, but decreased $2.1
million in the first nine months of 1998 from the comparable periods of 1997.
The quarterly increase was primarily related to an insurance recovery at Garden
State Paper, while the year-to-date decrease resulted from a reduction in
interest income combined with a loss incurred in anticipation of the October
sale of certain commercial printing assets.
INCOME TAXES
The Company's effective tax rate was 36.6% and 36.5% in the third quarter and
first nine months of 1998, down from 41.5% (excluding the extraordinary item) in
the previous year's comparable periods. The decline was principally the result
of a higher level of deferred tax credits on intangible assets and the favorable
settlement of a state tax examination. Income tax expense rose $.8 million and
$4.8 million from the third quarter and first nine months of last year due to
pretax earnings increases.
NET INCOME (LOSS)
Net income for 1998's third quarter was $14.5 million ($0.54 per share, basic
and assuming dilution) compared to $10.6 million in the equivalent prior-year
period. Year-to-date 1998 net income was $48.7 million ($1.83 per share, or
$1.81 per share - assuming dilution) compared to a $30.3 million loss in 1997,
the result of a $63 million extraordinary charge, net of a tax benefit of $38.6
million, ($2.39 per share, or $2.37 per share - assuming dilution) related to
the early redemption of Park's high coupon debt in February 1997. Excluding this
extraordinary item, net income rose $16.1 million, 49% above the year-ago
period. The strong rise in net income was due to a positive turnaround in
Newsprint operating profits of $2.8 million and $15.5 million in the third
quarter and first nine months of this year, coupled with an increase in
Publishing operating profits of 21% for both periods. These improved
performances more than offset declines in Broadcast and Cable Television
operating income.
12
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Funds generated by operating activities during the first nine months of 1998
totaled $103 million, up $10.2 million from the comparable period of 1997. The
increase was due to several factors, including a $16.1 million increase in net
income (excluding the extraordinary item) combined with a $5 million
distribution from SEPCO, partially offset by an increase in funds used for
working capital. Funds generated from operating and financing activities,
coupled with the proceeds from the sale of the Kentucky properties, supplied the
$133 million used for the acquisition of Bristol and Hickory, the $35.1 million
for capital expenditures and the $11.2 million used for the payment of dividends
to stockholders.
Total debt outstanding at September 27, 1998, was $949.4 million, up $34.2
million from the year-ago level of $915.2 million, and up $49.3 million from
$900.1 million at December 28, 1997. Both of these increases were attributable
to the $133 million in borrowings related to the acquisition of Bristol and
Hickory in 1998, combined with a $27 million estimated tax payment in the third
quarter of this year. A substantial portion of these borrowings have already
been repaid with funds generated from operations along with proceeds from the
sale of the Company's Kentucky newspaper operations. The Company's unused credit
lines available from its committed revolving credit facility were $330 million
at September 27, 1998.
The Company has interest rate swaps totaling $800 million with maturities
ranging from less than one year to six years. These swap agreements effectively
convert variable rate debt to fixed rate debt at interest rates approximating
6.7% at September 27, 1998.
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.
YEAR 2000
The Company continues to address issues regarding the transition to the Year
2000 through a specially created task force comprised of corporate, divisional
and operating unit personnel. The project has been divided into five phases:
1) identification/analysis, 2) plan development/scheduling, 3) remediation, 4)
testing/integration, and 5) monitoring/continuous improvement. The Company has
substantially completed the first two phases for both information systems and
operating systems with embedded technology. All phases are expected to be
completed by the third quarter of 1999.
Inherent in all phases is assessing the Year 2000 compliance of key suppliers
and customers. The Company has initiated formal communications with these
parties and most have indicated that there should be no disruption in their
relationship with us. However, the Company cannot assure timely compliance of
third parties and therefore could be adversely affected by failure of a
significant third party to become Year 2000 compliant.
Amounts expended exclusively to ensure Year 2000 compliance continue to be
funded by cash flow from operations and are not expected to have a material
impact on the Company's financial position, results of operations, or cash
flows. If the Company does not successfully complete significant portions of its
Year 2000 project, its financial condition could be adversely impacted; the
Company does not consider the possibility of such an occurrence to be reasonably
likely. The Company believes that its initiatives and its existing business
recovery plans are adequate to address reasonably likely Year 2000 issues; if
13
<PAGE>
unforeseen circumstances arise, the Company will attempt to develop contingency
plans for these situations.
OUTLOOK
The Company anticipates that the fourth quarter will sustain the excellent
year-over-year growth evident in the first three quarters. As has been the trend
throughout the year, the Publishing Segment anticipates strong results due in
large part to robust advertising revenues. The Newsprint Segment is expected to
show year-over-year profit growth despite the leveling-off of newsprint selling
prices. The repositioning efforts undertaken at the broadcast television
stations, which recently resulted in generally stronger May audience ratings,
are also expected to begin to demonstrate improved performance. Despite the
prevailing air of uncertainty regarding the current world economy, the
above-mentioned factors are expected to collectively produce higher
year-over-year net income for the Company.
14
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule for the period ended September 27, 1998.
27.2 Restated Financial Data Schedule for the period ended September 28,
1997.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter ended
September 27, 1998.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MEDIA GENERAL, INC.
DATE: November 4, 1998 /s/ J. Stewart Bryan III
------------------------------
J. Stewart Bryan III, Chairman,
President and
Chief Executive Officer
DATE: November 4, 1998 /s/ Marshall N. Morton
------------------------------
Marshall N. Morton
Senior Vice President and Chief
Financial Officer
16
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MEDIA
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