<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC. 20549
Form 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 27, 2000
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.)
<PAGE>
Item 7. Financial Statements and Exhibits.
The following financial statements and pro forma financial information omitted
from the Form 8-K dated April 3, 2000, (March 27, 2000, date of earliest event
reported) in reliance upon Item 7 (a) (4) and 7 (b) (2) of Form 8-K are filed
herewith.
(a) (1) Consolidated Financial Statements of Spartan Communications, Inc. and
subsidiaries as of and for the year ended September 26, 1999.
Report of Independent Auditors.
Consolidated Balance Sheet.
Consolidated Statement of Operations.
Statement of Stockholders' Equity.
Consolidated Statement of Cash Flows.
Notes to Consolidated Financial Statements.
(2) Unaudited Condensed Consolidated Balance Sheet of Spartan
Communications, Inc. and subsidiaries as of March 26, 2000, and Unaudited
Condensed Consolidated Statements of Operations and Cash Flows for the six
months ended March 26, 2000, and March 28, 1999, and accompanying notes to
these financial statements.
b) Pro Forma Combined Condensed Financial Statements of Media General, Inc.
Pro Forma Combined Condensed Balance Sheet as of March 26, 2000.
Pro Forma Combined Condensed Statement of Operations for the year ended
December 26, 1999.
Pro Forma Combined Condensed Statement of Operations for the three months
ended March 26, 2000.
Notes to Pro Forma Combined Condensed Financial Statements.
c) Exhibits.
23.1 Consent of Ernst & Young LLP
2
<PAGE>
Report of Independent Auditors
Board of Directors
Spartan Communications, Inc.
We have audited the accompanying consolidated balance sheet of Spartan
Communications, Inc. and subsidiaries as of September 26, 1999, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Spartan
Communications, Inc. and subsidiaries at September 26, 1999, and the
consolidated results of their operations and their cash flows for the year then
ended, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
November 10, 1999, except as to
Note 9 as to which the date is
December 8, 1999
3
<PAGE>
Spartan Communications, Inc. and Subsidiaries
Consolidated Balance Sheet
September 26, 1999
Assets
Current assets:
Cash and cash equivalents $ 2,375,935
Trade accounts receivable 18,688,657
Prepaid expenses 786,695
Film broadcast rights - current portion 5,136,730
Refundable income taxes 151,656
-------------
Total current assets 27,139,673
Other assets:
Intangible assets including FCC license
agreements, network affiliation agreements,
goodwill and other intangible assets 155,501,296
Cash value of life insurance 2,553,020
Note receivable from shareholder 5,177,191
Film broadcast rights, less current portion 1,034,314
Deferred debt issuance costs 7,070,736
Other 1,242,816
-------------
Total other assets 172,579,373
Property and equipment:
Land 3,749,998
Buildings and improvements 20,672,648
Equipment 89,033,399
-------------
113,456,045
Allowance for depreciation (67,663,277)
-------------
Net property and equipment 45,792,768
-------------
Total assets $245,511,814
=============
4
<PAGE>
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued expenses:
Trade accounts $ 2,508,209
Accrued compensation 1,351,640
Accrued employee benefits 1,922,223
Interest payable 3,322,347
Other liabilities 654,915
-------------
9,759,334
Film contracts - current portion 5,566,809
Current portion of long-term debt 8,250,000
-------------
Total current liabilities 23,576,143
Long-term liabilities:
Deferred employee benefits 9,145,200
Deferred income taxes 8,832,567
Long-term debt, less current portion 192,461,355
Film contracts, less current portion 1,253,878
-------------
Total long-term liabilities 211,693,000
Stockholders' equity:
Common stock, $1 par value - authorized 1,000,000
shares, issued 500,000 shares, including 76,505
shares held in treasury 500,000
Retained earnings 10,963,279
-------------
11,463,279
Less cost of common stock in treasury (1,220,608)
-------------
Total stockholders' equity 10,242,671
-------------
Total liabilities and stockholders' equity $245,511,814
=============
See accompanying notes.
5
<PAGE>
Spartan Communications, Inc. and Subsidiaries
Consolidated Statement of Operations
Year ended September 26, 1999
Broadcasting income and other revenues $111,932,080
Operating, selling, administrative and
general expenses 81,888,447
--------------
30,043,633
Provision for depreciation and amortization 16,216,928
--------------
13,826,705
Interest expense, net 22,458,189
--------------
Loss from operations before income tax benefit (8,631,484)
Income tax benefit 1,328,106
--------------
Net loss $ (7,303,378)
==============
See accompanying notes.
6
<PAGE>
Spartan Communications, Inc. and Subsidiaries
Statement of Stockholders' Equity
<TABLE>
<CAPTION>
Total
Common Treasury Retained Stockholders'
Stock Stock Earnings Equity
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Balances at September 27, 1998 $500,000 $ (748,808) $18,776,988 $18,528,180
Cash dividends ($1.20 per share) - - (510,331) (510,331)
Treasury stock purchase - (471,800) - (471,800)
Net loss - - (7,303,378) (7,303,378)
-------------------------------------------------------------
Balances at September 26, 1999 $500,000 $(1,220,608) $10,963,279 $10,242,671
=============================================================
</TABLE>
See accompanying notes.
7
<PAGE>
Spartan Communications, Inc. and Subsidiaries
Consolidated Statement of Cash Flows
Year ended September 26, 1999
Operating activities
Net loss $(7,303,378)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 8,857,686
Amortization of intangibles 7,359,242
Amortization and write-off of deferred financing 1,212,266
costs
Amortization of film broadcast rights 6,060,459
Other non-cash interest charges 6,075,373
Deferred income taxes (1,616,440)
Payments for film contracts (5,905,111)
Loss on sale of assets 124,017
Changes in operating assets and liabilities:
Trade accounts receivable (2,131,282)
Prepaid expenses (92,098)
Refundable income taxes 337,278
Accounts payable, accrued expenses and other liabilities (1,205,023)
Deferred employee benefits 1,372,555
Other (422,461)
--------------
Net cash provided by operating activities 12,723,083
Investing activities
Repayment of note receivable from shareholder 512,031
Purchase of property and equipment (4,465,933)
Proceeds from sale of property and equipment 32,001
Increase in cash value of life insurance (565,250)
Purchase of television station (2,400,000)
--------------
Net cash used in investing activities (6,887,151)
Financing activities
Repayments of Senior Credit Facility (7,750,000)
Purchase of common stock (471,800)
Dividends paid (510,331)
--------------
Net cash used in financing activities (8,732,131)
--------------
Net decrease in cash and cash equivalents (2,896,199)
Cash and cash equivalents at beginning of year 5,272,134
--------------
Cash and cash equivalents at end of year $ 2,375,935
==============
See accompanying notes.
8
<PAGE>
Spartan Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 26, 1999
1. Summary of Significant Accounting Policies
Business Operations
The Company owns or operates ten broadcast television stations (and three
satellites stations). Eight of the stations are located in the southeastern
United States and two of the stations are located in the midwestern United
States.
Principles of Consolidation
The accounts of Spartan Communications, Inc. and its wholly owned subsidiaries
(the Company) are included in the accompanying consolidated financial
statements. All significant intercompany accounts and transactions have been
eliminated in consolidation.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Accounts Receivable
The Company performs periodic credit evaluations of its customers' financial
condition and generally does not require collateral. Receivables generally are
due within 30 days. Credit losses have been within management's expectations.
A significant portion of the Company's accounts receivable are due from local
and national advertising agencies. Such amounts are generally unsecured.
Film Broadcast Rights
Rights to films and programs available for broadcast are initially recorded at
the amount of total license fees payable under the license agreements and are
charged to operating expense based on program usage which generally results in
straight-line amortization over the contract term. The rights are classified as
current or long-term based on expected usage dates. The liability for film
contracts is classified as current or long-term, in accordance with the payment
terms of the various licenses.
9
<PAGE>
1. Summary of Significant Accounting Policies (continued)
Property and Equipment
Property and equipment are stated at cost. The Company provides for depreciation
computed on the straight-line method over the estimated useful lives of the
related assets which range from 3 to 20 years.
Intangible Assets
Intangible assets include FCC license agreements, network affiliation
agreements, the excess of cost over net assets of businesses acquired, and other
intangible assets. Intangible assets are being amortized using the straight-line
method over their respective useful lives, principally twenty-five years.
Carrying amounts are regularly reviewed by management for indicators of
impairment and are adjusted accordingly if appropriate.
Fair Values of Financial Instruments
The carrying values of cash and cash equivalents, trade accounts receivable,
cash value of life insurance, trade accounts payable, and long term debt
approximate fair value. The Company does not believe it is practicable to
estimate the fair value of the note receivable from shareholder due to the
related party nature of the note (see Note 6). The fair value of the Company's
long term debt is estimated using discounted cash flow analyses based on the
Company's current borrowing rates for similar types of borrowing arrangements
(see Note 2). The fair value of the interest rate swap agreements (see Note 2)
is estimated based on the projected cash flows over the term of the agreements.
Broadcast Revenues
Broadcast revenues are generated primarily from the sale of television
advertising time and are recognized in the period during which the time spots
are aired. Agency commissions relating to broadcast revenue were approximately
$14,291,000 in 1999 and are included in operating, selling, administrative and
general expenses.
Advertising Costs
Advertising costs are expensed in the period in which they are incurred.
Stock Based Compensation
The Company has elected to follow Accounting Principles Board Opinion (APB) No.
25, "Accounting for Stock Issued to Employees" and related interpretations, in
accounting for its employee stock options and adopted the disclosure-only
provisions of SFAS No. 123, "Accounting for Stock Based Compensation." The
Company grants stock options for a fixed number of shares to employees with an
exercise price equal to the fair value of the shares at the date of grant and,
accordingly, recognizes no compensation expense for the stock option grants.
10
<PAGE>
1. Summary of Significant Accounting Policies (continued)
Use of Estimates
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.
Recent Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which is
required to be adopted in years beginning after June 15, 2000. Because of the
Company's minimal use of derivatives, management does not anticipate that the
adoption of the new Statement will have a significant effect on earnings or the
financial position of the Company.
2. Long-Term Debt
Long-term debt at September 26, 1999 consists of the following:
Senior Credit Facility
Facility A $ 55,160,000
Facility B 74,250,000
--------------
129,410,000
Subordinated Notes due 2006, plus accrued
contingent rights liability of $2,342,855 at
September 26, 1999 71,301,355
--------------
200,711,355
Less amounts due within one year 8,250,000
--------------
$192,461,355
==============
The Senior Credit Facility provides for a total of $140,000,000 of term loans
(of which $129,410,000 was outstanding at September 26, 1999 under Facilities A
and B) and up to $25,000,000 of borrowings through June 2004 under a revolving
credit facility, with interest payable at variable rates under prime or
Eurodollar rate options plus margins, which vary based upon consolidated debt to
consolidated cash flow ratios. The Company pays a commitment fee of .50% on the
daily average amount of the unused portion of the revolving credit facility.
Principal payments are payable in varying quarterly installments through June
2004 and June 2005 on Facility A and B, respectively. The Senior Credit Facility
also provides for up to $5,000,000 in swingline loans (which carry the same
terms as the revolving credit facility) provided that borrowings under both the
swingline and revolving credit facility do not exceed $25,000,000. The revolving
credit facility and swingline loans are payable on June 30, 2004.
11
<PAGE>
2. Long-Term Debt (continued)
The Subordinated Notes ("Sub Notes") provide for a total of $125,000,000 of
subordinated debentures due in June 2006 at an interest rate of 12%. The Company
has issued $65,000,000 of Sub Notes to date with the remainder to be issued as
requested by the Company based on certain requirements (as defined). The Sub
Notes are redeemable at the option of the Company beginning on June 1, 2001 at a
redemption price of 106% and 103% if redeemed during the 12-month period
commencing on June 1, 2001 and June 1, 2002, respectively. The Company may
redeem the Sub Notes prior to June 1, 2003 at a redemption price of 103% in the
event of an initial public offering by the Company. Interest is payable semi-
annually on December 1 and June 1 with 50% to be paid in cash and the remainder
to be paid in additional Sub Notes to be issued in lieu of cash. The Company
issued $3,958,500 in additional Sub Notes in lieu of cash during 1999. The
additional notes bear interest at 12% per annum and are due in June 2006.
The Sub Notes have contingent rights attached and the Company issued 27,239 of
such rights with the initial borrowings under the Sub Notes. The Company will
issue up to 14,800 additional rights for future Sub Notes to be issued. The
contingent rights require the Company to pay to the holder, at the due date of
the Sub Notes, an amount equal to the number of rights times the per share value
(as defined) of the Company on such date. The Company is accruing and adding to
the principal amount of the Sub Notes the liability for the contingent rights
over their term. The aggregate liability at September 26, 1999 is estimated to
be approximately $14,109,501. Additionally, the Company will evaluate the fair
market value of its common stock at the end of each future fiscal year in order
to properly adjust the value of such rights. Such amount of increase or decrease
will be accrued over the remaining term of the notes.
The debt agreements require, among other things, that the Company (a) meet
certain working capital requirements, (b) limit the creation of additional
borrowings and lease obligations, (c) limit the payment of cash dividends, and
(d) maintain minimum levels of net worth and cash flows.
Maturities of the long-term debt for the next five fiscal years are $8,250,000
in 2000, $10,937,500 in 2001, $13,062,500 in 2002, $15,750,000 in 2003,
$10,910,000 in 2004 and $141,801,355 thereafter.
Interest paid during the year ended September 26, 1999 totaled $18,020,803.
Interest Rate Swap Agreements
The Company is party to interest rate swap agreements with notional amounts
totaling $62,000,000 at September 26, 1999 with a financial institution. The
swap agreements amortize over three to five years. The Company entered into
these interest rate swap agreements to manage interest rate risk on a portion of
its outstanding debt under the Senior Credit Facility by modifying the interest
characteristics. These agreements involve the exchange of amounts based on a
variable interest rate for amounts based on fixed interest rates, and vice
versa, over the life of the agreement without an exchange of the notional amount
upon which the payments are based. The differential to be paid or received is
accrued and recognized as an adjustment of interest expense related to the debt
(the accrual accounting method). There is no carrying value of the swap
agreements recorded in the financial statements. The combined fair value of the
swap agreements is estimated by the financial institution, based on the
projected cash flows over the life of the swap agreement, and was estimated to
be approximately a $16,368 liability as of September 26, 1999. In the event of
the early extinguishment of a designated debt obligation, any realized or
unrealized gain or loss from the swap would be recognized in income coincident
with the extinguishment.
12
<PAGE>
2. Long-Term Debt (continued)
These agreements are subject to market risk based on interest rate fluctuations
and credit risk as the other party to the agreement is a single financial
institution.
The interest rate swap agreements changed floating interest rate expense on
amounts outstanding under the Senior Credit Facility. The Company terminated the
interest rate swap agreement with a notional amount of $37,000,000 and fixed
interest rate of 5.94% during the year ended September 26, 1999, with no payment
to or by the Company. Under the interest rate swap agreement outstanding at
September 26, 1999, the Company fixed its interest rate at 5.98% on $62,000,000
of its floating rate debt through April 2, 2001. This swap agreement was
terminated subsequent to year end with a nominal payment.
3. Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The Company's deferred
tax liabilities and assets at September 26, 1999 are as follows:
<TABLE>
<S> <C>
Deferred tax liabilities:
Depreciation of property and equipment $ 4,696,344
Amortization of intangible assets 10,987,946
Other 788,474
-------------
Total deferred tax liabilities 16,472,764
Deferred tax assets:
Liability under supplemental executive
retirement plan, deferred compensation
plan, excess pension contribution and
other employee benefit plans 3,521,757
Interest on subordinated notes 870,085
Federal operating loss carryforwards 4,209,275
State operating loss carryforwards 384,080
-------------
Total deferred tax assets 8,985,197
Valuation allowance for deferred tax assets (1,345,000)
-------------
Net deferred tax assets 7,640,197
-------------
Net deferred tax liabilities (all non-current) $ 8,832,567
=============
</TABLE>
The deferred tax asset of $1,345,000 as of September 26, 1999 for the net
operating loss carryforward of a purchased subsidiary, is fully reserved by a
valuation allowance. The Company utilized approximately $561,000 of the
purchased subsidiary's net operating loss carryforward ("NOLs") in 1998 to
offset current taxable income. Use of these NOLs reduced the tax liability by
approximately $213,000 and was reflected as a reduction of intangible assets
and, therefore, did not impact income tax expense. The utilization of these
NOLs in the future will be reflected as a reduction of intangible assets. As of
September 26, 1999, the Company has remaining federal NOLs of approximately
$10,500,000 which begin expiring in 2007.
13
<PAGE>
3. Income Taxes (continued)
The components of income tax (benefit) expense for the year ended September 26,
1999 are as follows:
Current:
Federal $ 288,334
State -
--------------
288,334
Deferred:
Federal (1,469,491)
State (146,949)
--------------
(1,616,440)
--------------
$(1,328,106)
==============
A reconciliation of income tax benefit at the statutory federal income tax rate
and income tax benefit in the consolidated statement of operations for the year
ended September 26, 1999 is as follows:
Statutory rate applied to loss before income tax
benefit $(2,934,705)
State, net of federal (96,985)
Goodwill 178,628
Interest associated with Subordinated Notes 1,030,513
Other nondeductable item 140,524
Reduction of benefits recognized in prior years 353,919
-------------
Income tax benefit $(1,328,106)
=============
The Company made no income tax payments for the year ended September 26, 1999.
4. Stockholders' Equity
Stock Option Plan
Under the 1994 Employee Stock Option Plan, the Company may grant options to its
officers and key employees as incentive stock options for up to 50,000 shares of
common stock. The exercise price of each option equals the value of the
Company's stock on the date of grant and an option's maximum term is 10 years.
Options become exercisable as determined at the date of grant by a committee of
the Board of Directors.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related Interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation," requires the use of option valuation
models that were not developed for use in valuing employee stock options. Under
APB 25, because the exercise price of the Company's employee stock options
equals the approximate market price of the underlying stock on the date of
grant, no compensation expense is recognized.
14
<PAGE>
4. Stockholders' Equity (continued)
Stock Option Plan (continued)
Pro forma information regarding operating results is required by Statement 123,
which also requires that the information be determined as if the Company has
accounted for its employee stock options granted subsequent to July 30, 1995
under the fair value method of that Statement. The fair value for these options
was estimated using the "minimum value" method which may be used by nonpublic
companies to value an award. The "minimum value" of each option grant is
estimated on the date of grant as the excess of the fair value of the stock at
the date of grant over the present value of the exercise price using the
following weighted-average assumptions for grants in 1996, as no grants have
been made in the current or prior year: dividend yield of 0.6 percent,
risk-free interest rate of 6.86 percent, and expected life of 10 years.
Had compensation cost for the Company's stock option plan been determined
consistent with the method prescribed by FASB Statement 123, the Company's net
loss for the year ended September 26, 1999 would have been changed to the pro
forma amounts indicated below:
Net loss:
As reported $(5,557,160)
Pro forma (5,755,934)
A summary of the status of the Company's stock option plan as of September 26,
1999 is presented below:
Weighted
Average
Fixed Options Shares Exercise Price
--------------------------------------------------------------------
Outstanding at beginning and end of year 18,300 $193
========================
Weighted-average fair value of
options exercisable at year-end 15,300 $193
========================
The following table summarizes information about stock options outstanding at
September 26, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------------------------------------------------
Weighted
Number Average Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise Prices at 9/26/99 Contractual Life Exercise Price at 9/26/99 Exercise Price
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$184 3,300 5.7 $184 3,300 $184
$195 15,000 6.7 195 12,000 195
----------------- ----------------
$184 to $195 18,300 6.5 193 15,300 193
================= ================
</TABLE>
15
<PAGE>
5. Retirement Benefits
Defined Benefit Pension
The Company is the sponsor of a defined benefit pension plan covering
substantially all of the Company's eligible employees. The benefits are based on
years of service and the average of the highest five consecutive plan years of
basic compensation paid during the ten plan years preceding the actual
retirement date. The Company's funding policy is to contribute the maximum
deductible contribution for federal income tax purposes. Contributions are
intended to provide not only for benefits attributed to service to date, but
also for those expected to be earned in the future.
The plan's funded status and amounts recognized in the Company's consolidated
balance sheet at September 26, 1999 are as follows:
Benefit obligation $ 6,043,454
Fair value of plan assets 4,887,313
-------------
Funded status $(1,156,141)
=============
Accrued benefit cost recognized in
the consolidated balance sheet $ 2,221,783
=============
Other components of the Company's defined benefit pension plan for the year
ended September 26, 1999 are as follows:
Benefit cost $1,103,301
Employer contribution 456,914
Benefits paid 79,634
Assumptions used in accounting for the defined benefit pension plan as of and
for the year ended September 26, 1999 are as follows:
Weighted average discount rate 7.75%
Weighted average expected rate of return on
assets 8.50%
Rate of compensation increases 6.00%
Profit Sharing and 401(k) Plan
In addition to providing pension benefits, the Company also sponsors a Profit
Sharing Plan covering substantially all of the Company's full-time employees.
Funding is determined annually by the Board of Directors. The Plan also
includes a 401(k) savings option whereby the Company will match an employee's
contribution based on a formula as determined by the Board of Directors each
year (up to a maximum of 5% of the employee's annual compensation in 1999). The
Company's expense for the year ended September 26, 1999 for the Profit Sharing
Plan was $1,149,145 and the expense for the 401(k) plan was $351,489 for the
year ended September 26, 1999.
16
<PAGE>
5. Retirement Benefits (continued)
Other Postretirement Benefits
The Company offers a limited number of postretirement benefits, primarily health
care, to retirees, who have satisfied certain minimum service requirements.
Adoption of SFAS 106 during 1996 changed the Company's method of accounting for
such postretirement benefits as an expense when claims were incurred to accrual
of the costs of such benefits during the periods employees provide service to
the Company. The Company's policy is to fund these benefits as they are paid.
The Company has elected to recognize the transition obligation of adopting SFAS
106 over a period of twenty-three years.
The following table presents the plan's funded status reconciled with amounts
recognized in the Company's balance sheet at September 26, 1999.
Accumulated postretirement benefit obligation:
Benefit obligation $ 835,786
Fair value of plan assets -
-----------
Funded status $(835,786)
===========
Accrued benefit cost recognized in
the consolidated balance sheet $ 550,614
===========
Other components of the Company's postretirement benefit plan for the year ended
September 26, 1999 are as follows:
Benefit cost $147,563
Employer contribution 6,295
Plan participants' contributions 9,480
Benefits paid 15,775
Actuarial assumptions used in determining cost and the accumulated
postretirement benefit obligation include a discount rate of 7.75% in 1999.
The health care cost trend rate assumption for 1999 is 6%, and is expected to
remain at 6% hereafter. The trend rate reflects the Company's prior experience
and management's expectation of future rates.
17
<PAGE>
5. Retirement Benefits (continued)
Deferred Compensation
The Company has non-qualified deferred compensation agreements with certain
officers and key employees, whereby the officers or key employees or their
beneficiaries would be provided specific amounts of annual income, totaling 50%
of the average of the last three years' compensation for each employee, for a
period of fifteen years beginning at age 65. The Company is accruing the present
value of such retirement benefits over the related vesting periods, ranging from
three to ten years, plus interest at a rate of 7.75%. Certain officers
automatically become 100% vested upon involuntary termination as a result of a
change in ownership. The agreements also permit the deferral of a portion of the
employee's salary with a guaranteed rate of return. Total benefits expense for
the deferred compensation agreements was approximately $615,337 for the year
ended September 26, 1999.
To fund the deferred compensation agreements, the Company purchased life
insurance contracts on the related officers and key employees. The Company paid
life insurance premiums of $829,888 for the year ended September 26, 1999 of
which $696,741 was charged to operations and the difference is recorded as cash
surrender value or as prepaid expense. If all of the assumptions regarding
mortality, interest rates, policy dividends, and other factors are realized, the
Company expects that the life insurance or the cash value thereon will fund the
non-qualified deferred compensation agreements.
Executive Excess Retirement Plan
The Company has an excess retirement plan for certain officers and key
employees, whereby the officers or key employees or their beneficiaries would be
provided amounts contributed by the Company on their behalf upon retirement. The
excess retirement plan is comprised of an excess profit sharing plan and an
excess pension plan. Funding for the excess profit sharing plan is determined
annually by the Board of Directors (up to a maximum of 5% of the individual's
excess compensation in 1999). Total benefit expense for the excess profit
sharing plan was approximately $42,275 for the year ended September 26, 1999.
The amounts contributed to the excess pension plan on the individuals' behalf
are determined in the same manner as the Company's profit sharing plan.
6. Related Party Transactions
The Company has a note receivable for $5,177,191 as of September 26, 1999 from
an officer, director and stockholder of the Company. The note receivable is in
connection with a transaction whereby the Company agreed to finance the officer,
director and stockholder's ownership interest in an entity. The note bears
interest at 6%, which is payable to the Company quarterly, is due on December 1,
2002 and is collateralized by the officer, director and stockholder's common
stock holdings in the Company. During 1999, the Company recorded interest income
of approximately $337,000 on the note. In connection with the note receivable,
the officer, director and stockholder has agreed to pay the Company a contingent
interest fee of up to 23% of the note receivable, compounded annually, upon the
occurrence of certain events. No amount of the contingent interest has been
included in the accompanying financial statements as such amounts, if any, are
not presently determinable.
18
<PAGE>
7. Commitments and Contingencies
In March 1996, the Company entered into a time brokerage agreement (commonly
referred to as an LMA) with a third party ("Licensee"). The Licensee holds the
FCC license of WASV, a new television station in Asheville, North Carolina.
Under the LMA, the Company provides substantially all of the programming for
WASV for the term of the agreement. The Company has the sole right to sell
advertising to be placed in all programming broadcast on WASV and retains all
revenues from such advertising sales and any additional revenues generated by
the operation of the station. The LMA term is five years with a one year
extension exercisable under certain circumstances.
Under the agreement, the Company paid $9 million on the effective date and is
obligated to reimburse the Licensee over the term of the LMA for certain
operating and other expenses. The Company also entered into an option agreement
with the Licensee, whereby for an additional $2 million, the Licensee granted
the Company an assignable thirty-month option to purchase all, but not less than
all, of the assets of WASV. If the Company exercises the option, an additional
payment of $2.5 million becomes due and the LMA would be terminated. The total
cost of the LMA and option agreement is non-refundable and is being amortized
over 25 years beginning on the date the station commenced operations in
September 1997. The Company paid $2.4 million during 1999 to exercise the
option agreement. The remaining $100,000 will be paid upon approval by the FCC
and the LMA will be terminated, resulting in ownership of the FCC License by the
Company.
Film broadcast rights under contract but not yet available for telecasting and
the related contract liabilities have not been recorded and amounted to
$4,724,638 at September 26, 1999.
The Company leases certain property and equipment with lease terms expiring in
various years through 2018. Rental expense totaled $1,408,305 for the year
ended September 26, 1999. Future minimum rental payments under noncancellable
operating leases with terms of one year or more at September 26, 1999 are:
$1,003,203 in 2000, $857,978 in 2001, $616,027 in 2002, $341,065 in 2003,
$99,770 in 2004 and $552,714 in 2005 and thereafter.
The FCC recently issued a timetable whereby broadcasters in the industry would
be required to begin transmitting High Definition Television or HDTV.
Transmitting HDTV will require the Company to purchase a significant amount of
digital compatible equipment.
The Company is the guarantor of a $2,000,000 Line of Credit extended to a
certain automobile leasing company from which the Company leases its
automobiles.
8. Year 2000 (Unaudited)
The Company is currently implementing an assessment, remediation and testing
program which will identify and assess the adequacy of Year 2000 readiness.
Based on the results of this assessment process, management estimates that the
total Year 2000 project cost for the Company will not be significant. Any
costs the Company does incur will be expensed as incurred.
19
<PAGE>
8. Year 2000 (Unaudited) (continued)
The Year 2000 remediation project is estimated to be completed no later than
December 1999, which is prior to any anticipated impact on its operating
systems. The costs of the project and the date on which management believes it
will complete the Year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future events,
including the availability of certain resources and other factors. There can be
no guarantee that these estimates will be achieved, and actual results could
differ materially from those anticipated. Should any computer programs,
purchased software, or internally developed software utilizing time sensitive
data not be remediated for Year 2000 compliance, system failures could occur and
cause disruptions of operations.
The Company has initiated communications with all of its significant suppliers
and larger customers to determine the extent to which the Company's interface
systems are vulnerable to those third parties' failure to remediate their own
Year 2000 Issues. However, there can be no guarantee that the systems of other
companies on which the Company's systems rely will be timely converted and would
not have an adverse effect on the Company's systems.
9. Subsequent Event
On December 8, 1999, the Company and certain principal shareholders entered into
a Plan and Agreement of Merger (Agreement) with Media General, Inc. and certain
of its subsidiaries whereby the Company, pursuant to conditions as specified in
the Agreement, would be acquired by a subsidiary of Media General, Inc.
In addition, certain principal shareholders and certain other shareholders have
entered into a Voting Agreement approving the Agreement and agreeing to vote
their shares in favor of the adoption and approval of the merger.
20
<PAGE>
Spartan Communications, Inc. and Subsidiaries
Condensed Consolidated Balance Sheet
March 26, 2000
Assets
Current assets:
Cash and cash equivalents $ 5,193,161
Trade accounts receivable, less allowance
of $352,267 16,422,334
Note receivable from shareholder 12,747,969
Prepaid expenses and other 1,101,826
Film broadcast rights - current portion 2,568,926
Refundable income taxes 1,000,515
Cash value of life insurance 993,702
---------------
Total current assets 40,028,433
Other assets:
Intangible assets including FCC license
agreements, network affiliation agreements,
goodwill and other intangible assets 151,746,760
Film broadcast rights, less current portion 1,236,627
Other 650,364
---------------
Total other assets 153,633,751
Property and equipment:
Land 3,667,441
Buildings and improvements 20,151,068
Equipment 94,473,907
---------------
118,292,416
Allowance for depreciation 71,773,818
---------------
Net property and equipment 46,518,598
---------------
Total assets $240,180,782
===============
See accompanying notes.
21
<PAGE>
Liabilities and stockholders' equity (deficit)
Current liabilities:
Accounts payable and accrued expenses:
Trade accounts $ 2,469,705
Accrued compensation 1,662,082
Accrued employee benefits 24,305,869
Interest payable 3,215,158
Merger transaction fees and related payables 9,140,532
Other liabilities 7,883,480
---------------
48,676,826
Film contracts - current portion 2,509,484
Current portion of long-term debt 218,134,314
---------------
Total current liabilities 269,320,624
Long-term liabilities -- film contracts,
less current portion 1,456,191
Stockholders' equity (deficit):
Common stock, $1 par value - authorized
1,000,000 shares, issued 500,000 shares,
including 76,505 shares held in treasury 500,000
Retained earnings (deficit) (29,875,425)
---------------
(29,375,425)
Less cost of common stock in treasury 1,220,608
---------------
Total stockholders' equity (deficit) (30,596,033)
---------------
Total liabilities and stockholders' equity $240,180,782
===============
See accompanying notes.
22
<PAGE>
Spartan Communications, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
Six month period ended
March 26, March 28,
2000 1999
-----------------------------------
Broadcasting income and other revenues $ 48,221,567 $48,931,924
Operating, selling, administrative and
general expenses 31,641,738 33,031,189
Provision for depreciation and amortization 8,084,431 8,144,871
Expenses (income) as a result of the
Merger Transaction (Note 2):
Gain from sales of assets (8,003,140) -
Expenses related to the Merger
Transaction 42,236,789 -
-----------------------------------
(25,738,251) 7,755,864
Interest expense, net 10,450,127 11,086,658
-----------------------------------
Loss before income tax benefit and
extraordinary charge (36,188,378) (3,330,794)
Income tax benefit 9,680,989 623,953
-----------------------------------
Loss before extraordinary charge (26,507,389) (2,706,841)
Extraordinary charge on early retirement
of debt 14,077,119 -
-----------------------------------
Net loss $(40,584,508) $(2,706,841)
===================================
See accompanying notes.
23
<PAGE>
Spartan Communications, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Six month period ended
March 26, March 28,
2000 1999
----------------------------------
Operating activities
Net loss $(40,584,508) $(2,706,841)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Extraordinary charge 14,077,119 -
Depreciation 4,327,106 4,400,764
Amortization of intangibles 3,757,325 3,744,105
Amortization of deferred financing costs 534,752 219,281
Amortization of film broadcast rights 2,650,410 2,294,666
Other non-cash interest charges 19,485,459 -
Deferred income taxes (8,832,567) -
Payments for film contracts (3,139,900) (2,489,672)
Gain on sales of assets (432,362) -
Gain on note receivable from an officer,
director and shareholder (7,570,778) -
Changes in operating assets and liabilities:
Trade accounts receivable 2,266,305 758,795
Prepaid expenses (315,131) (350,718)
Refundable income taxes (848,859) (643,528)
Accounts payable, accrued expenses and
other liabilities 6,722,135 (3,982,927)
Deferred employee benefits 14,147,687 418,911
Other 624,371 739,269
----------------------------------
Net cash provided by operating activities 6,868,564 2,402,105
Investing activities
Purchase of property and equipment (3,739,318) (1,825,501)
Proceeds from sale of property and equipment 445,260 -
Decrease (increase) in cash value of life
insurance 1,559,317 (263,476)
----------------------------------
Net cash used in investing activities (1,734,741) (2,088,977)
Financing activities
Repayments of Senior Credit Facility (2,062,500) (1,747,027)
Purchase of common stock - (10,200)
Dividends paid (254,097) (255,544)
----------------------------------
Net cash used in financing activities (2,316,597) (2,012,771)
----------------------------------
Net increase (decrease) in cash and cash
equivalents 2,817,226 (1,699,643)
Cash and cash equivalents at beginning of
period 2,375,935 5,272,134
----------------------------------
Cash and cash equivalents at end of period $ 5,193,161 $ 3,572,491
==================================
See accompanying notes.
24
<PAGE>
Spartan Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
March 26, 2000
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of
Spartan Communications, Inc. (Spartan) have been prepared in accordance with
generally accepted accounting principles for interim financial information and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the six months period
ended March 26, 2000 are not necessarily indicative of the results that may be
expected for future periods.
2. Merger Transaction
Spartan and certain principal shareholders entered into a Plan and Agreement of
Merger (Merger Transaction) with Media General, Inc. and certain of its
affiliates whereby Media General and certain of its wholly owned subsidiaries
agreed to purchase the outstanding common stock of Spartan. The Merger
Transaction was completed on March 27, 2000.
In connection with the Merger Transaction, Spartan entered into or agreed to
certain other transactions which have been recorded in the accompanying
condensed financial statements. Such amounts are as follows:
Gain from sales of assets:
Purchase of a note receivable by an officer,
director and stockholder of Spartan -
see Note 3 $7,570,778
Certain other property and investments 432,362
----------
$8,003,140
==========
25
<PAGE>
2. Merger Transaction (continued)
<TABLE>
<S> <C>
Expenses related to the Merger Transaction:
Settlement of contingent rights agreements $17,416,704
Settlement, in addition to existing accruals,
of supplement executive retirement plan and
certain other related retirement plans 15,368,607
Expenses of the Merger Transaction
including fees to amend a broadcast
agreement 9,451,478
-----------
$42,236,789
===========
</TABLE>
Long-term debt and certain accruals and receivables in connection with the
amounts described above were paid or settled with funds from the Merger
Transaction.
3. Related Party Transactions
Spartan has a note receivable as of March 26, 2000 from an officer, director and
stockholder. The note receivable is in connection with a transaction whereby
Spartan agreed to finance the officer, director and stockholder's ownership
interest in an entity.
In connection with the Merger Transaction, the officer, director and stockholder
of Spartan agreed to purchase the note for $12,747,969. The difference in the
purchase price and the carrying value is reflected in the condensed consolidated
statement of operations for the six month period ended March 26, 2000 as a gain
from the note as a result of the Merger Transaction.
4. Income Taxes
The income tax benefit for the six month periods ended March 26, 2000 and March
28, 1999 reflects adjustments for amounts which are not deductible for income
tax purposes including insurance premiums on Company-owned life insurance,
amortization of the excess cost over net assets acquired, certain interest
expense and other expenses which are not deductible for tax purposes. A
valuation allowance was provided in the six-month period ended March 26, 2000 to
reduce the income tax benefit to the amount of net deferred tax liabilities.
26
<PAGE>
Media General, Inc.
Pro Forma Combined Condensed Financial Statements
(Unaudited)
The following unaudited pro forma combined condensed balance sheet (balance
sheet) as of March 26, 2000, and the pro forma combined condensed statements of
operations for the year ended December 26, 1999, and for the three months ended
March 26, 2000, (statements of operations), give effect to the acquisition, by
Media General, Inc. (the Company), of all the issued and outstanding common
stock of Spartan Communications, Inc. (Spartan), on March 27, 2000, for total
consideration of approximately $610 million (net of approximately $9 million of
transaction costs and $5 million of cash received). The acquisition has been
accounted for using the purchase method of accounting.
The pro forma combined condensed balance sheet presents the financial position
of the Company and Spartan as of March 26, 2000, assuming the acquisition
occurred as of that date. The pro forma combined condensed statements of
operations have been prepared assuming the acquisition occurred as of the
beginning of the periods presented. The acquisition actually occurred on March
27, 2000.
These pro forma combined condensed financial statements, which have been
prepared in accordance with rules prescribed by Article 11 of Regulation S-X,
are provided for informational purposes only and are not necessarily indicative
of the past or future results of operations or financial position of the
Company. In the pro forma combined condensed financial statements, significant
transactions, such as the October 1, 1999 sale of the Company's Cable Division
for $1.4 billion, are presented as they actually occurred historically
regardless of when the Spartan acquisition was assumed to have occurred. The pro
forma results would differ had alternative assumptions been used. Additionally,
the pro forma combined condensed financial statements have been prepared on the
basis of preliminary estimates of the fair value of the assets acquired and may
change as appraisals are completed and more facts become known.
This information should be read in conjunction with the previously filed Form 8-
K, dated April 3, 2000, the previously filed historical consolidated financial
statements and accompanying notes of Media General, Inc., contained in its
Annual Report on Form 10-K for the fiscal year ended December 26, 1999, and in
its 2000 Quarterly Report on Form 10-Q, and in conjunction with the historical
financial statements and accompanying notes of Spartan included elsewhere in
this Form 8-K/A.
27
<PAGE>
Media General, Inc.
Pro Forma Combined Condensed Balance Sheet
As of March 26, 2000
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Media Pro Forma
General Spartan Adjustments Pro Forma
---------- --------- ------------ ----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 126,212 $ 5,193 $(125,000) 1(a) $ 6,405
Accounts receivable - net 94,042 16,422 110,464
Inventories 12,354 19 12,373
Other 28,030 18,394 (12,748) 1(b) 32,675
(1,001) 1(c)
---------- -------- --------- ----------
Total current assets 260,638 40,028 (138,749) 161,917
---------- -------- --------- ----------
Investments in unconsolidated affiliates 86,306 86,306
Other assets 66,894 1,887 68,781
Property, plant and equipment - net 381,980 46,519 28,508 1(d) 457,007
Excess of cost over fair value of net
identifiable assets of acquired
businesses - net 627,247 13,428 138,536 1(e) 779,211
FCC licenses and other intangibles - net 379,982 138,319 389,079 1(e) 907,380
---------- -------- --------- ----------
Total assets $1,803,047 $240,181 $ 417,374 $2,460,602
========== ======== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 26,839 $ 2,470 $ 29,309
Accrued expenses and other liabilities 79,810 48,717 (36,632) 1(f) 91,895
Income taxes payable 63,725 (1,001) 1(c) 62,724
Current maturity of long-term debt --- 218,134 (218,134) 1(g) ---
---------- -------- --------- ----------
Total current liabilities 170,374 269,321 (255,767) 183,928
---------- -------- --------- ----------
Long-term debt 47,313 490,581 1(h) 537,894
Deferred income taxes 218,773 151,964 1(i) 370,737
Other liabilities and deferred credits 114,329 1,456 115,785
Stockholders' equity (deficit) 1,252,258 (30,596) 30,596 1(j) 1,252,258
---------- -------- --------- ----------
Total liabilities and stockholders'
equity $1,803,047 $240,181 $ 417,374 $2,460,602
========== ======== ========= ==========
</TABLE>
See notes to the pro forma combined condensed financial statements.
28
<PAGE>
Media General, Inc.
Pro Forma Combined Condensed Statement of Operations
For the year ended December 26, 1999
(In thousands except per share amounts)
<TABLE>
<CAPTION>
(Unaudited)
Media Pro Forma (Unaudited)
General Spartan* Adjustments Pro Forma
--------- --------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues $795,408 $111,932 $ --- $907,340
-------- -------- -------- --------
Operating costs:
Production 386,987 --- 51,604 2(a) 438,591
Selling, distribution and administrative 218,535 81,888 (51,604) 2(a) 245,119
(3,700) 2(b)
Depreciation and amortization 79,520 16,217 20,300 2(c) 116,037
-------- -------- -------- --------
Total operating costs 685,042 98,105 16,600 799,747
-------- -------- -------- --------
Operating income 110,366 13,827 (16,600) 107,593
-------- -------- -------- --------
Other income (expense):
Interest expense (46,554) (22,458) 22,458 2(d) (78,579)
(32,025) 2(e)
Investment income - unconsolidated affiliates 9,067 --- 9,067
Gain on sale of Denver Newspapers,
Inc. common stock 30,983 --- 30,983
Other, net 11,548 --- (8,950) 2(f) 2,598
-------- -------- -------- --------
Total other income (expense) 5,044 (22,458) (18,517) (35,931)
-------- -------- -------- --------
Income (loss) from continuing operations before
income taxes and extraordinary item 115,410 (8,631) (35,117) 71,662
-------- -------- -------- --------
Income taxes 45,463 (1,328) (13,607) 2(g) 30,528
-------- -------- -------- --------
Income (loss) from continuing operations
before extraordinary item 69,947 (7,303) (21,510) 41,134
Discontinued operations:
Income from operations of Cable Segment
(net of income taxes of $8,544) 13,978 13,978
Gain on disposition of Cable operations
(net of income taxes of $509,760) 798,719 798,719
Extraordinary item from early redemption of
debt (net of income tax benefit of $800) (1,328) (1,328)
-------- -------- -------- --------
Net income (loss) $881,316 $ (7,303) $(21,510) $852,503
======== ======== ======== ========
Earnings (loss) per common share:
Income from continuing operations before
extraordinary item $ 2.64 $ 1.55
Income from discontinued Cable operations 30.66 30.66
Extraordinary item (0.05) (0.05)
-------- --------
Net income $ 33.25 $ 32.16
======== ========
Earnings (loss) per common share-assuming
dilution:
Income from continuing operations before
extraordinary item $ 2.60 $ 1.53
Income from discontinued Cable operations 30.23 30.23
Extraordinary item (0.05) (0.05)
-------- --------
Net income $ 32.78 $ 31.71
======== ========
Weighted average common shares 26,506 26,506
Diluted weighted average common shares 26,885 26,885
</TABLE>
*Spartan amounts are for the fiscal year ended September 26, 1999.
See notes to the pro forma combined condensed financial statements.
29
<PAGE>
Media General, Inc.
Pro Forma Combined Condensed Statement of Operations
For the three months ended March 26, 2000
(In thousands except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Media Pro Forma
General Spartan Adjustments Pro Forma
--------- --------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues $199,195 $ 22,534 $ --- $221,729
-------- -------- ---------- --------
Operating costs:
Production 101,053 8,828 3(a) 109,881
Selling, distribution and
administrative 58,760 14,300 (8,828) 3(a) 63,307
(925) 3(b)
Depreciation and amortization 20,245 3,870 5,075 3(c) 29,190
-------- -------- ---------- --------
Total operating costs 180,058 18,170 4,150 202,378
-------- -------- ---------- --------
Operating income 19,137 4,364 (4,150) 19,351
-------- -------- ---------- --------
Other income (expense):
Interest expense (1,739) (4,850) 4,850 3(d) (3,060)
(1,321) 3(e)
Investment income
- unconsolidated affiliates (1,565) (1,565)
Other, net 8,265 (34,234) 34,234 3(f) 449
(7,816) 3(g)
-------- -------- ---------- --------
Total other income (expense) 4,961 (39,084) 29,947 (4,176)
-------- -------- ---------- --------
Income (loss) before income taxes and
extraordinary item 24,098 (34,720) 25,797 15,175
-------- -------- ---------- --------
Income taxes 9,736 (9,388) 6,056 3(h) 6,404
-------- -------- ---------- --------
Income (loss) before extraordinary item 14,362 (25,332) 19,741 8,771
Extraordinary item (14,077) 14,077 3(f)
-------- -------- ---------- --------
Net income (loss) $ 14,362 $(39,409) $ 33,818 $ 8,771
======== ======== ========== ========
Earnings per common share $ 0.56 $ 0.34
======== ========
Earnings per common share -
assuming dilution $ 0.55 $ 0.34
======== ========
Weighted average common shares 25,657 25,657
Diluted weighted average common shares 25,959 25,959
</TABLE>
See notes to the pro forma combined condensed financial statements.
30
<PAGE>
Media General, Inc.
Notes to Pro Forma Combined Condensed Financial Statements
BALANCE SHEET
-------------
March 26, 2000 Adjustments:
1(a) Use invested cash to fund a portion of the acquisition.
1(b) Eliminate note receivable from a Spartan officer, director and
stockholder repaid in conjunction with the transaction.
1(c) Reclass Spartan's refundable income taxes to reduce income taxes
payable.
1(d) Adjust property, plant and equipment to preliminary estimated fair
market value.
1(e) Adjust identifiable intangibles to preliminary estimated fair market
value and adjust to record the excess of acquisition cost over the fair
value of net assets acquired. The allocation of purchase price is
subject to change as appraisals are completed and more facts become
known.
1(f) Eliminate benefit and transaction-related accruals satisfied with funds
from the purchase price paid by Media General.
1(g) Repay Spartan debt from the purchase price paid by Media General.
1(h) Borrow additional funds to make the acquisition.
1(i) Adjust deferred income taxes relating to the increased fair market value
of assets, primarily identifiable intangible assets.
1(j) Eliminate Spartan's stockholders' deficit.
For purposes of these Pro Forma Combined Condensed Financial Statements the
purchase price was allocated based on preliminary estimated fair market value as
follows (in thousands):
<TABLE>
<S> <C>
Purchase price $ 607,236
Transaction costs 9,054
---------
Adjusted purchase price 616,290
Working capital acquired (13,434)
Property, plant & equipment (75,027)
Identifiable intangibles, principally FCC licenses and network affiliations (527,398)
Other assets acquired (1,887)
Other liabilities assumed 1,456
Deferred income taxes recorded in conjunction with acquisition 151,964
---------
Excess cost of business acquired over equity in net assets $ 151,964
=========
</TABLE>
STATEMENTS OF OPERATIONS
------------------------
Adjustments for the twelve months ended December 26, 1999:
2(a) Allocate Spartan's operating expenses among selling, distribution and
administrative expense and production expense to be consistent with
Media General's presentation.
2(b) Reduce operating expense due to the absence of Spartan corporate
expenses, net of additional costs in Media General's Television Segment.
2(c) Increase in depreciation expense resulting from adjustment of fixed
assets to preliminary estimated fair market value with lives based upon
remaining estimated useful life, and increase
31
<PAGE>
in amortization expense resulting from adjustment of intangibles to
preliminary estimated fair market value with lives ranging from 3-40
years.
2(d) Eliminate Spartan's historical interest expense associated with the debt
which would have been paid off as part of Media General's acquisition of
Spartan.
2(e) Increase in interest expense based on assumed borrowings of
approximately $610 million for the acquisition for the first nine months
of the year (at an approximate effective rate of 7%). In early October
1999, the Company sold its cable operations for approximately $1.4
billion in cash. After immediately repaying its bank debt, the Company
actually had approximately $670 million of investable cash.
2(f) Reduce Media General interest income on cash investments based on the
assumption available cash would have been used to reduce long-term debt,
leaving an excess of approximately $28 million to be invested at
approximately 5.8% for the last three months of 1999.
2(g) Record income tax adjustment which would reflect the Company's assumed
effective tax rate of 42.6%.
Adjustments for the three months ended March 26, 2000:
3(a) Allocate Spartan's operating expenses among selling, distribution and
administrative expense and production expense to be consistent with
Media General's presentation.
3(b) Reduce operating expense due to the absence of Spartan corporate
expenses, net of additional costs in Media General's Television Segment.
3(c) Increase in depreciation expense resulting from adjustment of fixed
assets to preliminary estimated fair market value with lives based upon
remaining estimated useful life, and increase in amortization expense
resulting from adjustment of intangibles to preliminary estimated fair
market value with lives ranging from 3-40 years.
3(d) Eliminate Spartan's historical interest expense associated with the debt
which would have been paid off as part of Media General's acquisition of
Spartan.
3(e) Increase in interest expense based on acquisition borrowings of
approximately $490 million which were assumed to be outstanding for the
last two weeks of the quarter (at an approximate effective rate of 7%).
In early October 1999, the Company sold its cable operations for
approximately $1.4 billion in cash and recorded a gain of approximately
$800 million (net of income taxes of $510 million, the majority of which
were paid in mid-March 2000).
3(f) Eliminate Spartan's net nonrecurring expenses related to the merger
transaction.
3(g) Reduce Media General interest income on cash investments based on the
assumption, for purposes of this presentation, that available cash would
have been used to reduce long-term debt, leaving an excess of
approximately $28 million to be invested at approximately 5.8% for the
first two and one-half months of 2000.
3(h) Record income tax adjustment which would reflect the Company's assumed
effective tax rate of 42.2%.
32
<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: June 9, 2000 /s/ Marshall N. Morton
----------------------
Marshall N. Morton
Senior Vice President and Chief Financial Officer
33
