UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 25, 2000
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 July 30, 2000.
Class A Common shares: 22,583,633
Class B Common shares: 556,574
<PAGE>
<TABLE>
MEDIA GENERAL, INC.
TABLE OF CONTENTS
FORM 10-Q REPORT
JUNE 25, 2000
Page
----
Part I. Financial Information
<S> <C>
Item 1. Financial Statements
Consolidated Condensed Balance Sheets - June 25, 2000,
and December 26, 1999 1
Consolidated Condensed Statements of Operations - Second quarter and
six months ended June 25, 2000, and June 27, 1999 3
Consolidated Condensed Statements of Cash Flows - Six
months ended June 25, 2000, and June 27, 1999 4
Notes to Consolidated Condensed Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 16
(a) Exhibits
(b) Reports on Form 8-K
Signatures 17
</TABLE>
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
MEDIA GENERAL, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(000's except shares)
<CAPTION>
(Unaudited)
June 25, December 26,
2000 1999
----------------- ------------------
ASSETS
<S> <C> <C>
Current assets:
Cash, cash equivalents and short-term investments $ 12,257 $ 646,046
Accounts receivable - net 125,010 102,834
Inventories 13,343 14,282
Other 33,967 33,572
----------------- ------------------
Total current assets 184,577 796,734
----------------- ------------------
Investments in unconsolidated affiliates 83,718 87,871
Other assets 57,451 58,945
Property, plant and equipment - net 445,001 381,476
Excess of cost over fair value of net identifiable assets
of acquired businesses - net 761,216 631,597
FCC licenses and other intangibles - net 912,453 383,751
----------------- ------------------
$ 2,444,416 $ 2,340,374
================= ==================
</TABLE>
See accompanying notes.
1
<PAGE>
<TABLE>
MEDIA GENERAL, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(000's except shares)
<CAPTION>
(Unaudited)
June 25, December 26,
2000 1999
----------------- ------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable $ 30,175 $ 32,032
Accrued expenses and other liabilities 93,728 75,190
Income taxes payable --- 508,966
Current maturity of long-term debt --- 13,000
----------------- ------------------
Total current liabilities 123,903 629,188
----------------- ------------------
Long-term debt 644,224 46,838
Deferred income taxes 360,745 217,437
Other liabilities and deferred credits 106,819 116,009
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
23,261,901 and 25,911,614 shares 116,310 129,558
Class B, authorized 600,000 shares; issued
556,574 shares 2,783 2,783
Additional paid-in capital --- 3,040
Accumulated other comprehensive income-
unrealized gains on equity securities 4,848 7,392
Unearned compensation (2,567) (2,973)
Retained earnings 1,087,351 1,191,102
----------------- ------------------
Total stockholders' equity 1,208,725 1,330,902
----------------- ------------------
$ 2,444,416 $ 2,340,374
================= ==================
</TABLE>
See accompanying notes.
2
<PAGE>
<TABLE>
MEDIA GENERAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(000's except for per share data)
<CAPTION>
Second Quarter Ended Six Months Ended
------------------------------- -------------------------------
June 25, June 27, June 25, June 27,
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues $ 211,299 $ 174,911 $ 383,757 $ 339,875
------------- ------------- ------------- -------------
Operating costs:
Production 85,886 72,231 159,886 144,993
Selling, distribution and
administrative 63,431 50,544 119,965 101,788
Depreciation and amortization 26,312 18,333 44,684 36,546
------------- ------------- ------------- -------------
Total operating costs 175,629 141,108 324,535 283,327
------------- ------------- ------------- -------------
Operating income 35,670 33,803 59,222 56,548
------------- ------------- ------------- -------------
Other income (expense):
Interest expense (10,655) (14,431) (12,013) (29,403)
Investment income (loss) -
unconsolidated affiliates 253 4,118 (1,312) 9,140
Other, net 3,390 1,498 11,720 2,050
------------- ------------- ------------- -------------
Total other income (expense) (7,012) (8,815) (1,605) (18,213)
------------- ------------- ------------- -------------
Income from continuing operations
before income taxes 28,658 24,988 57,617 38,335
Income taxes 11,605 10,209 23,297 15,742
------------- ------------- ------------- -------------
Income from continuing operations 17,053 14,779 34,320 22,593
Discontinued operations:
Income (loss) from discontinued
operations (1,445) 1,677 (4,350) 5,169
Loss on disposition of discontinued
operations (5,970) --- (5,970) ---
------------- ------------- ------------- -------------
Net income $ 9,638 $ 16,456 $ 24,000 $ 27,762
============= ============= ============= =============
Earnings per common share:
Income from continuing operations $ 0.71 $ 0.56 $ 1.38 $ 0.85
Income (loss) from discontinued
operations (0.31) 0.06 (0.42) 0.19
------------- ------------- ------------- -------------
Net income $ 0.40 $ 0.62 $ 0.96 $ 1.04
============= ============= ============= =============
Earnings per common share
- assuming dilution:
Income from continuing operations $ 0.70 $ 0.55 $ 1.36 $ 0.84
Income (loss) from discontinued
operations (0.31) 0.06 (0.41) 0.19
------------- ------------- ------------- -------------
Net income $ 0.39 $ 0.61 $ 0.95 $ 1.03
============= ============= ============= =============
Dividends paid per common share $ 0.16 $ 0.15 $ 0.32 $ 0.30
============= ============= ============= =============
</TABLE>
See accompanying notes.
3
<PAGE>
<TABLE>
MEDIA GENERAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(000's)
Six Months Ended
--------------------------------------------
June 25, June 27,
2000 1999
--------------------------------------------
Operating activities:
<S> <C> <C>
Net income $ 24,000 $ 27,762
Adjustments to reconcile net income:
Depreciation and amortization 48,430 52,633
Deferred income taxes (126) (1,529)
Investment income -- unconsolidated affiliates,
net of distributions 4,712 490
Gain on disposition of Cable operations (8,286) ---
Loss on disposition of Garden State Paper 14,256 ---
Change in assets and liabilities:
Accounts receivable and inventory (5,593) 5,277
Accounts payable (5,289) (17,802)
Taxes payable (518,855) 1,139
Other 8,877 (6,660)
----------------- ------------------
Net cash (used) provided by operating activities (437,874) 61,310
----------------- ------------------
Investing activities:
Capital expenditures (23,215) (30,203)
Proceeds from maturity of short-term investments 390,748 ---
Purchases of businesses (620,463) ---
Proceeds from disposition of Cable operations 10,063 ---
Proceeds from sale of other businesses --- 8,058
Other, net (3,378) (2,307)
----------------- ------------------
Net cash used by investing activities (246,245) (24,452)
----------------- ------------------
Financing activities:
Increase in debt 638,000 170,000
Payment of debt (54,164) (188,359)
Stock repurchase (136,520) (13,609)
Dividends paid (7,947) (8,066)
Other, net 1,709 1,618
----------------- ------------------
Net cash provided (used) by financing activities 441,078 (38,416)
----------------- ------------------
Net decrease in cash and cash equivalents (243,041) (1,558)
Cash and cash equivalents at beginning of year 255,298 7,637
----------------- ------------------
Cash and cash equivalents at end of period $ 12,257 $ 6,079
================= ==================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of amount capitalized) $ 12,359 $ 30,929
Income taxes $ 526,907 $ 15,437
</TABLE>
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 26, 1999.
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 1999 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.
2. On March 27, 2000, the Company acquired the common stock of
Spartan Communications, Inc. (Spartan) for approximately $610 million (net of
approximately $9 million of transaction costs and $5 million of cash received).
Approximately $500 million of the purchase price was funded with borrowings
under an existing $1.2 billion revolving credit facility. The acquisition
included 12 network-affiliated television stations and one UPN affiliate which
is operated under a local marketing agreement. Additionally, in early June 2000,
the Company acquired a group of weekly newspapers in southwestern Virginia from
Family Community Newspapers of Southwest Virginia, Inc., for approximately $9
million.
These transactions have been accounted for as purchases and
the Company's results of operations include the results of each from the dates
of acquisition. Purchase price was 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.
Approximately $680 million of intangible assets relating to these transactions
are included in the balance sheet at June 25, 2000, and are being amortized on a
straight-line basis over periods of 3-40 years.
The following summary presents the Company's pro forma
consolidated results of operations for the six months ended June 25, 2000 and
June 27, 1999, as if the Spartan acquisition had been completed at the beginning
of each period. Certain Spartan items has been reclassified to conform with
Media General's presentation. These pro formas, which have been prepared in
accordance with rules prescribed by Article 10 of Regulation S-X, do not purport
to be indicative of what would have occurred had the acquisition actually been
made as of such date, nor are they indicative of results which may occur in the
future.
5
<PAGE>
<TABLE>
<CAPTION>
Pro forma Pro forma
Six months ended Six months ended
(In thousands, except per share amounts) June 25, 2000 June 27, 1999
------------- -------------
<S> <C> <C>
Revenues $ 406,291 $ 387,504
============= =============
Income from continuing operations $ 28,729 $ 9,989
Discontinued operations (10,320) 5,169
------------- -------------
Net income $ 18,409 $ 15,158
============= =============
Income (loss) per common share -- assuming dilution:
Income from continuing operations $ 1.14 $ 0.37
Income (loss) from discontinued operations (0.41) 0.19
------------- -------------
Net income $ 0.73 $ 0.56
============= =============
</TABLE>
Concurrent with the Spartan acquisition, the Company entered
into several new interest rate swap agreements as part of an overall risk
management strategy. The objective is to manage interest cost and risk
associated with variable interest rates, primarily short-term changes in LIBOR,
not to trade such instruments for profit or loss. These interest rate swaps
total $300 million in notional amount with maturities that range from less than
one year to three years; they effectively convert a portion of the Company's
variable rate debt to fixed rate debt with a weighted average interest rate
approximating 7.4%.
3. The Company has included as discontinued operations in the
accompanying consolidated condensed statements of operations both Garden State
Paper (GSP), due to a pending sale of this wholly owned newsprint manufacturer
to an affiliate of Enron North America Corporation, and its cable operations,
due to the October 1999 sale to Cox Communications, Inc., for all periods
presented.
The sale of GSP for $72 million (subject to adjustments for
certain working capital and other items) also includes a multiyear, financial
fixed-price newsprint agreement. The Company has accrued the estimated loss on
sale, which includes estimated operating results through the expected date of
sale, approximating $14.3 million (net of a $7 million income tax benefit) in
its second quarter financial statements and expects that the transaction will
close in the third quarter. The sale agreement also requires the Company to
retire $20 million of 7.125% revenue bonds at or prior to close.
The Company sold its Cable operations to Cox Communications,
Inc. for approximately $1.4 billion in October 1999, at which time the Company
recognized a $799 million gain (net of income taxes of $510 million). In the
second quarter of this year, certain final post-closing adjustments related to
this sale resulted in an additional gain of $8.3 million (net of income taxes of
$3.6 million).
6
<PAGE>
The discontinued results of operations for the three and six
month periods ended June 25, 2000 and June 27, 1999 included the following:
<TABLE>
<CAPTION>
Quarter Ended Six months Ended
--------------------------- --------------------------
June 25, June 27, June 25, June 28,
(in thousands) 2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues $ 28,985 $ 64,508 $ 55,656 $ 131,489
Costs and Expenses 30,945 61,954 62,477 123,360
--------- --------- --------- ---------
Income before income taxes (1,960) 2,554 (6,821) 8,129
Income taxes (benefit) (515) 877 (2,471) 2,960
--------- --------- --------- ---------
Income from discontinued operations $ (1,445) $ 1,677 $ (4,350) $ 5,169
========= ========= ========= =========
</TABLE>
At June 25, 2000, the accompanying consolidated condensed
balance sheet included the following approximate amounts related to the GSP
sale: current assets of $25 million, noncurrent assets of $70 million, current
liabilities of $20 million, and noncurrent liabilities of $1 million.
4. In December 1999, the Company initiated a program to
repurchase up to $250 million of the Company's Class A common stock. As of June
25, 2000, approximately 2.9 million shares had been repurchased (2.7 million in
2000) at a cost of approximately $150 million ($137 million in 2000) since the
program's inception. The program has continued in the third quarter.
5. Inventories are principally raw materials.
6. The following table sets forth the Company's financial
performance by segment. GSP has been reclassified to discontinued operations,
and accordingly, has been excluded from this note due to its pending sale.
<TABLE>
<CAPTION>
(In thousands) Publishing Broadcast Total
----------------------------------------------------------------------------------------------------------------
Three Months Ended June 25, 2000
<S> <C> <C> <C>
Consolidated revenues * $ 137,840 $ 73,459 $ 211,299
================================================
Segment operating cash flow $ 45,205 $ 26,087 $ 71,292
Allocated amounts:
Equity in net loss of unconsolidated
affiliates (265) (265)
Depreciation and amortization (6,442) (5,377) (11,819)
------------------------------------------------
Segment profit $ 38,498 $ 20,710 59,208
=============================
Unallocated amounts:
Interest expense (10,655)
Investment income - SP Newsprint 518
Acquisition intangible amortization (13,590)
Corporate expenses (8,427)
Other 1,604
-----------
Consolidated income from continuing operations before income taxes $ 28,658
===========
----------------------------------------------------------------------------------------------------------------
7
<PAGE>
<CAPTION>
(In thousands) Publishing Broadcast Total
----------------------------------------------------------------------------------------------------------------
Three Months Ended June 27, 1999
Consolidated revenues * $ 130,801 $ 44,110 $ 174,911
================================================
Segment operating cash flow $ 44,009 $ 13,930 $ 57,939
Allocated amounts:
Equity in net income of unconsolidated
affiliate 128 128
Depreciation and amortization (6,385) (2,719) (9,104)
------------------------------------------------
Segment profit $ 37,752 $ 11,211 48,963
=============================
Unallocated amounts:
Interest expense (14,431)
Investment income - SP Newsprint 2,403
Acquisition intangible amortization (8,483)
Corporate expenses (7,034)
Other 3,570
-----------
Consolidated income from continuing operations before income taxes $ 24,988
===========
<CAPTION>
----------------------------------------------------------------------------------------------------------------
Six Months Ended June 25, 2000
Consolidated revenues * $ 269,916 $ 113,841 $ 383,757
================================================
Segment operating cash flow $ 87,168 $ 35,197 $ 122,365
Allocated amounts:
Equity in net loss of unconsolidated
affiliates (939) (939)
Depreciation and amortization (12,871) (8,341) (21,212)
------------------------------------------------
Segment profit $ 73,358 $ 26,856 100,214
=============================
Unallocated amounts:
Interest expense (12,013)
Investment loss - SP Newsprint (373)
Acquisition intangible amortization (21,685)
Corporate expenses (16,806)
Other 8,280
-----------
Consolidated income from continuing operations before income taxes $ 57,617
===========
<CAPTION>
----------------------------------------------------------------------------------------------------------------
Six Months Ended June 27, 1999
Consolidated revenues * $ 258,704 $ 81,171 $ 339,875
================================================
Segment operating cash flow $ 83,456 $ 22,645 $ 106,101
Allocated amounts:
Equity in net loss of unconsolidated
affiliate (386) (386)
Depreciation and amortization (12,714) (5,423) (18,137)
------------------------------------------------
Segment profit $ 70,356 $ 17,222 87,578
=============================
Unallocated amounts:
Interest expense (29,403)
Investment income - SP Newsprint 6,353
Acquisition intangible amortization (16,967)
Corporate expenses (13,834)
Other 4,608
-----------
Consolidated income from continuing operations before income taxes $ 38,335
================================================================================================================
</TABLE>
* Intercompany revenues are less than 1% of consolidated revenues and have been
eliminated.
8
<PAGE>
7. The following table sets forth the computation of basic and
diluted earnings per share from continuing operations:
<TABLE>
<CAPTION>
Quarter Ended June 25, 2000 Quarter Ended June 27, 1999
------------------------------------ --------------------------------------
Income Shares Per Share Income Shares Per Share
(In thousands, except per share amounts) (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
------------------------------------ --------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Income from continuing operations
available to common stockholders $17,053 24,184 $ 0.71 $14,779 26,586 $ 0.56
========= =========
Effect of dilutive securities
Stock options 191 262
Restricted stock and other (6) 98 (9) 119
---------------------- -----------------------
Diluted EPS
Income from continuing operations
available to common stockholders
plus assumed conversions $17,047 24,473 $ 0.70 $14,770 26,967 $ 0.55
==================================== ======================================
Six Months Ended June 25, 2000 Six Months Ended June27, 1999
------------------------------------ --------------------------------------
Income Shares Per Share Income Shares Per Share
(In thousands, except per share amounts) (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
------------------------------------ --------------------------------------
Basic EPS
Income from continuing operations
available to common stockholders $34,320 24,920 $ 1.38 $22,593 26,616 $ 0.85
========= =========
Effect of dilutive securities
Stock options 201 263
Restricted stock and other (12) 95 (19) 116
---------------------- -----------------------
Diluted EPS
Income from continuing operations
available to common stockholders
plus assumed conversions $34,308 25,216 $ 1.36 $22,574 26,995 $ 0.84
==================================== ======================================
</TABLE>
8. The Company has reflected its investment in the common stock
of Hoover's, Inc., which is included in the accompanying balance sheet in Other
Assets, at fair value and has recognized $4.9 million and $2.5 million, net of
tax, for the unrealized loss on the investment during the second quarter and the
first half of 2000, respectively. Comprehensive income was $4.6 and $16.5 for
the quarterly periods, and $21.5 and $27.8 for the year-to-date periods, ended
June 25, 2000 and June 27, 1999, respectively.
9. In August 2000, subsequent to the close of the second quarter,
the Company acquired three newspaper groups from Thomson Newspapers for
approximately $237 million. The groups are located in South Carolina and
Alabama.
9
<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, television,
interactive media, recycled newsprint, and diversified information services.
The Company's fiscal year ends on the last Sunday in December.
The past several years have been distinguished by a series of
acquisitions, exchanges, investments and dispositions which have significantly
intensified the Company's focus on southeastern newspapers and television
stations. Continuing this strategy, the Company acquired Spartan Communications,
Inc. (Spartan) for approximately $610 million (net of approximately $9 million
of transaction costs and $5 million of cash received) early in the second fiscal
quarter of this year. The Spartan acquisition included 12 major
network-affiliated television stations and one UPN affiliate which is operated
under a local marketing agreement. In June of this year the Company also
acquired a group of weekly newspapers in southwestern Virginia for approximately
$9 million. Additionally, the Company recognized an $8.3 million gain (net of
income taxes of $3.6 million) as a result of certain final post-closing
adjustments related to the Company's October 1999 sale of its Cable operations.
Subsequent to the close of the second quarter, the Company acquired
three newspaper groups in its core southeastern region from Thomson Newspapers
for approximately $237 million. Further tightening its vision, the Company
announced early in the third quarter the sale of Garden State Paper (the
Company's wholly owned newsprint manufacturer) to an affiliate of Enron North
America Corporation and recorded a loss, which necessarily includes estimates,
of approximately $14 million (net of an approximate income tax benefit of $7
million). This transaction is expected to close in the third quarter of this
year; due to its pending sale, Garden State has been included in discontinued
operations for all periods presented and discussion of its operations has been
excluded for purposes of this narrative.
Over the past several years, the Company has begun to invest in several
leading online companies. These companies provide services from delivering daily
television newscasts and other media, to providing financial information, to
creating commercial web sites. The Publishing and Broadcast Segments have
already been, and increasingly will be, affected by the influence of the
Internet. While the Company's initial investment in these online endeavors
remains relatively modest to date, it plans to continue to embrace the
opportunities which the Internet and e-commerce will undoubtedly present.
Additionally, the Company continues its program to repurchase up to
$250 million of its Class A common stock. As of June 25, 2000, approximately 2.9
million shares had been repurchased since the program's inception at a cost of
approximately $150 million.
RESULTS OF OPERATIONS
---------------------
Results for the second quarter and first half of 2000 were meaningfully
influenced by the effects of two significant nonrecurring items. The Company
recorded a $14.3 million after-tax loss in connection with the pending sale of
GSP, as well as an $8.3 million after-tax gain resulting from settlement of
post-closing adjustments related to the prior-year sale of its Cable operations.
Inclusive of these items, net income for the second quarter and first half of
this year was $9.6 million ($0.40 per share, or $0.39 per share - assuming
dilution) and $24 million ($0.96 per share, or $0.95 per share - assuming
dilution).
10
<PAGE>
For the quarter, income from continuing operations rose to $17.1
million ($0.71 per share, or $0.70 per share - assuming dilution) compared with
$14.8 million ($0.56 per share, or $0.55 per share - assuming dilution) in last
year's same quarter. This 15% increase resulted from a combination of factors
which include an 85% increase in Broadcast Segment profits (the majority of
which was attributable to the newly acquired Spartan properties) and a 26%
decrease in interest expense due primarily to lower average debt levels,
partially offset by a 60% increase in intangible amortization related to the
Spartan purchase.
In the year to date, income from continuing operations rose to $34.3
million ($1.38 per share, or $1.36 per share - assuming dilution) from $22.6
million ($0.85 per share, or $0.84 per share - assuming dilution) in the prior
year's first half. This 52% increase resulted from reasons similar to those for
the quarter: a 56% rise in Broadcast Segment profits (the majority of which was
generated by the recently acquired Spartan stations), a 59% decrease in interest
expense due primarily to lower average debt levels, and $8 million of interest
income resulting from the investment of sale proceeds from the 1999 Cable sale,
partially offset by a 28% increase in intangible amortization related to the
Spartan purchase and a drop in the Company's income from its share of SP
Newsprint (SPNC) from $6.4 million in 1999 to a loss of $.4 million in 2000.
SPNC's year-over year decreased results were shared evenly among its Newberg and
Dublin mills. A 4% drop in tons shipped and a 3% decline in average selling
price combined to produce the lower results at the Dublin mill; the Company's
share of the results of SPNC's recently acquired Newberg mill amounted to a $3.5
million loss.
PUBLISHING
----------
Operating income for the Publishing Division increased $.7 million (2%)
and $3 million (4%) in the second quarter and first half of 2000 over the
comparable 1999 levels. The second quarter includes a $7 million increase in
revenues, partially offset by a $ 5.9 million rise in operating expenses; in the
year to date, an $11.2 million increase in revenues was partially offset by a
$7.6 million rise in operating expenses. Both periods were affected by slightly
reduced results from equity investments. As illustrated by the following chart,
improved revenues in both the second quarter and year to date were driven by
strong increases in classified advertising (led by the automotive and employment
categories) and solid performances in general advertising (led by the airline
and telecommunications categories). While retail advertising showed moderate
improvement in the quarter (driven by the department store category), it
continued to be the weakest source of revenue growth in the year-to-date period.
11
<PAGE>
Publishing Segment
Advertising Revenues by Category
2nd Quarter Six Months YTD
----------- --------------
Retail Classified General Retail Classified General
------ ---------- ------- ------ ---------- -------
2000 49.4 48.4 9.4 94.7 95.4 18.1
1999 47.9 44.9 8.0 94.0 88.3 15.9
Publishing Segment operating expenses rose due to a combination of
factors. In the second quarter, increased expenses resulted from: a $1.6 million
rise in employee compensation as a result of normal salary increases, a $.7
million increase in newsprint expense due to increased consumption coupled with
higher average cost per ton, and finally, an increase in other operating costs
including circulation, repairs and maintenance, and occupancy costs. In the year
to date, higher expenses resulted from: a $3 million rise in employee
compensation due to normal salary increases, as well as increases in other
operating costs among the newspapers for the same reasons as mentioned in the
quarter. The Tampa Tribune incurred additional expenses and rental costs related
to moving its newsroom to the Company's new multimedia center, which also houses
WFLA-TV and the Company's area online presence, TBO.com. These combined
year-over-year increases more than offset a $.9 million decrease in newsprint
expense due to lower average cost per ton
BROADCAST
---------
Broadcast operating income rose $9.5 million and $9.6 million in the
second quarter and first half of this year; $8.8 million of each of these
increases was due to the addition of the Spartan properties early in the second
quarter. Excluding Spartan, revenues rose a solid $2.8 million and $6.1 million
in the current quarter and first six months of this year, while operating
expenses increased $2.1 million and $5.3 million as well. The following chart
illustrates improved time sales in all advertising revenue categories: National
advertising rose on the strength of the automotive category, Political
advertising increased as a result of the presidential and congressional
primaries, and Local advertising improved due to vigor in the automotive and
fast food categories. Excluding Spartan, the small to mid-size stations posted
nearly 50% and 75% of this total advertising revenue increase for the quarterly
and year-to-date periods, while the Company's largest station, WFLA in Tampa,
was responsible for the remainder. This strong showing at the small to mid-size
stations indicates that the Company's investment in personnel and programming is
reaping benefits as reflected in average annual audience share increases at nine
of these twelve stations.
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Broadcast Segment
Advertising Time Sales by Categories
2nd Quarter
-----------
Local National Political
----- -------- ---------
2000 Other Stations 27.3 17.9 0.7
2000 Spartan Stations 15.1 11.8 0.6
1999 Stations 25.9 16.7 0.1
Six Months YTD
--------------
Local National Political
----- -------- ---------
2000 Other Stations 50.2 33.1 1.4
2000 Spartan Stations 15.1 11.8 0.6
1999 Stations 48.3 30.7 0.2
Excluding Spartan, the higher Broadcast operating expenses resulted for
similar reasons in both the quarter and year to date: an 8% increase in
programming costs in both periods related to the addition of enhanced
programming and to a rise of approximately 5% in employee compensation and
benefit expense due to upgraded staffing as well as normal increases. The
Company's Tampa station was responsible for the largest portion of these
increased operating expenses due to the reasons above as well as to higher
occupancy costs as WFLA moved into the Company's new fully digital,
state-of-the-art multimedia center.
INTEREST INCOME AND EXPENSE
---------------------------
Interest expense in the second quarter and first six months of 2000
decreased $3.8 million and $17.4 million from the equivalent year-ago periods
due to a $262 million and $541 million reduction in average debt outstanding.
This debt reduction was effected when a portion of the proceeds from the October
1999 sale of the Company's Cable operations was used to repay all bank debt then
outstanding and to terminate associated interest rate swaps. The second quarter
purchase of Spartan increased the Company's debt; however, average debt
outstanding still remained appreciably lower than prior-year levels. The
effective interest rate rose modestly from just under 7% in both the second
quarter and first half of 1999 to slightly over 7% in the equivalent periods of
2000.
The Company earned interest income of $8.2 million in the first quarter
of 2000 from its investments predominantly in prime-rated commercial paper.
INCOME TAXES
------------
Income taxes from continuing operations increased $1.4 million and $7.6
million in the current quarter and first half of this year on a pretax earnings
rise of $3.7 million and $19.3 million. Slightly offsetting the effect on taxes
of these increased earnings was a modest decrease in the Company's effective tax
rate.
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LIQUIDITY
---------
The proceeds from the maturity of short-term investments and from the
settlement of post-closing issues related to the Cable disposition, together
with cash on hand and funds generated from operating and financing activities,
combined to provide funds for several large anticipated payments during the
first half of this year. The most significant of these included the following:
approximately $610 million for the purchase of Spartan, approximately $527
million of federal and state tax payments (the majority of which were
attributable to the gain on the October 1999 sale of the Company's Cable
operations), in excess of $136 million of stock repurchases, and a scheduled $13
million installment on senior note debt in the first quarter. These funds also
supplied $23 million for capital expenditures, approximately $9 million for the
purchase of a group of small weekly newspapers in southwestern Virginia, and $8
million for the payment of dividends to stockholders.
Subsequent to the end of the second quarter, on August 1, 2000, the
Company purchased three newspaper groups from Thomson Newspapers for
approximately $237 million. Additionally, the stock repurchase program initiated
in December of 1999 continues in the third quarter. Also noteworthy, the Company
anticipates receiving approximately $72 million in cash from the sale of Garden
State Paper which is expected to close in the third quarter of this year. The
Company anticipates that internally generated funds provided by operations,
together with existing credit facilities and funds from dispositions, will be
more than adequate to finance projected capital expenditures, dividends to
stockholders and working capital needs throughout 2000, as well as other
corporate initiatives.
OUTLOOK
-------
Already this year the Company has doubled the size of its Broadcast
Segment to 26 stations, extended its reach in the Southeast with the purchase of
Thomson's South Carolina and Alabama newspapers and continues to explore the
advantages of media convergence. With the announcement of the sale of Garden
State Paper, the Company will be able to channel its efforts and focus its
energy toward its chosen interests in southeastern newspapers and television
stations, as well as interactive media. The Broadcast Segment is positioned for
a strong second half; the hotly contested political races and upcoming Olympics
should significantly bolster revenues. The Spartan stations have already posted
solid results in the short time that the Company has owned them and they are
expected to produce strong cash flow in the future. Despite a newsprint price
increase announced early in the second quarter, the Publishing Segment is
expected to enjoy continued growth throughout the year. With the Company's
recent acquisitions, the future holds opportunities to simultaneously advance
its strategy of southeastern and interactive expansion, while utilizing the
advantages of media convergence.
* * * * * *
Certain statements in this Form 10-Q that are not historical facts are
"forward-looking" statements, as that term is defined by the federal securities
laws. Forward-looking statements include statements related to the sale of
Garden State Paper, the Company's share repurchase program and expectations
regarding newsprint prices, advertising levels and broadcast ratings.
Forward-looking statements, including those which use words such as the company
"believes," "anticipates," "expects," "estimates" and similar statements, are
made as of the date of this report and are subject to risks and uncertainties
that could cause actual results to differ materially from those expressed in or
implied by such statements.
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Some significant factors that could affect actual results include:
changes in advertising demand, the availability and pricing of newsprint,
changes in interest rates, regulatory rulings and the effects of acquisitions,
investments and dispositions on the Company's results of operations and its
financial condition.
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PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Media General, Inc., was held on May 19, 2000,
for the purpose of electing a board of directors. Each nominee for director was
elected by the following vote:
Class A Class A
Shares Voted Shares Voted
Class A Directors "FOR" "WITHHELD"
----------------- ---------- ----------
Charles A. Davis 14,250,893 7,872,196
Robert V. Hatcher, Jr. 14,261,692 7,861,397
John G. Medlin, Jr. 14,263,603 7,859,486
Class B Class B
Shares Voted Shares Voted
Class B Directors "FOR" "WITHHELD"
----------------- --------- ----------
Robert P. Black 552,244 380
J. Stewart Bryan III 552,244 380
Marshall N. Morton 552,244 380
Roger H. Mudd 552,244 380
Wyndham Robertson 552,244 380
Henry L. Valentine, II 552,244 380
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule for the period ended June 25, 2000.
27.2 Restated Financial Data Schedule for the period ended June
27, 1999.
(b) Reports on Form 8-K
On April 3, 2000, the Company filed a Form 8-K to report the March 27,
2000, purchase of Spartan Communications, Inc. On June 9, 2000, the
Company filed a Form 8-K/A which contained financial statements and pro
forma information omitted (in reliance upon Item 7(a)(4) and 7(b)(2) of
Form 8-K) from the above-mentioned Form 8-K.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MEDIA GENERAL, INC.
DATE: August 8, 2000 /s/ J. Stewart Bryan III
------------------------
J. Stewart Bryan III, Chairman, President
and Chief Executive Officer
DATE: August 8, 2000 /s/ Marshall N. Morton
----------------------
Marshall N. Morton
Senior Vice President and Chief Financial
Officer
17
