<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 24, 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 October 29, 2000.
Class A Common shares: 22,269,212
Class B Common shares: 556,574
<PAGE>
MEDIA GENERAL, INC.
TABLE OF CONTENTS
FORM 10-Q REPORT
SEPTEMBER 24, 2000
<TABLE>
<CAPTION>
Page
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets - September 24, 2000,
and December 26, 1999 1
Consolidated Condensed Statements of Operations - Third quarter
and nine months ended September 24, 2000, and September 26, 1999 3
Consolidated Condensed Statements of Cash Flows - Nine
months ended September 24, 2000, and September 26, 1999 4
Notes to Consolidated Condensed Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 17
(a) Exhibits
(b) Reports on Form 8-K
Signatures 18
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
MEDIA GENERAL, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(000's except shares)
<TABLE>
<CAPTION>
(Unaudited)
September 24, December 26,
2000 1999
----------------- ------------------
<S> <C>
ASSETS
Current assets:
Cash, cash equivalents and short-term investments $ 9,638 $ 646,046
Accounts receivable - net 104,862 102,834
Inventories 9,669 14,282
Other 46,310 33,572
----------------- ------------------
Total current assets 170,479 796,734
----------------- ------------------
Investments in unconsolidated affiliates 86,430 87,871
Other assets 67,783 58,945
Property, plant and equipment - net 388,210 381,476
Excess of cost over fair value of net identifiable assets
of acquired businesses - net 962,782 631,597
FCC licenses and other intangibles - net 908,193 383,751
----------------- ------------------
$ 2,583,877 $ 2,340,374
================= ==================
</TABLE>
See accompanying notes.
1
<PAGE>
MEDIA GENERAL, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(000's except shares)
<TABLE>
<CAPTION>
(Unaudited)
September 24, December 26,
2000 1999
----------------- ------------------
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 29,651 $ 32,032
Accrued expenses and other liabilities 104,927 75,190
Income taxes payable --- 508,966
Current maturity of long-term debt --- 13,000
----------------- ------------------
Total current liabilities 134,578 629,188
----------------- ------------------
Long-term debt 826,134 46,838
Deferred income taxes 346,959 217,437
Other liabilities and deferred credits 106,914 116,009
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
22,489,076 and 25,911,614 shares 112,445 129,558
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 2,947 7,392
Unearned compensation (2,342) (2,973)
Retained earnings 1,053,459 1,191,102
----------------- ------------------
Total stockholders' equity 1,169,292 1,330,902
----------------- ------------------
$ 2,583,877 $ 2,340,374
================= ==================
</TABLE>
See accompanying notes.
2
<PAGE>
MEDIA GENERAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(000's except for per share data)
<TABLE>
<CAPTION>
Third Quarter Ended Nine Months Ended
------------------------------- -------------------------------
Sept. 24, Sept. 26, Sept. 24, Sept. 26,
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C>
Revenues $ 201,865 $ 166,621 $ 585,622 $ 506,496
------------- ------------- ------------ -------------
Operating costs:
Production 86,807 68,167 246,693 213,160
Selling, distribution and
administrative 66,663 50,331 186,628 152,119
Depreciation and amortization 27,995 18,614 72,679 55,160
------------- ------------- ------------- -------------
Total operating costs 181,465 137,112 506,000 420,439
------------- ------------- ------------- -------------
Operating income 20,400 29,509 79,622 86,057
------------- ------------- ------------- -------------
Other income (expense):
Interest expense (14,173) (13,218) (26,186) (42,621)
Investment income (loss) -
unconsolidated affiliates 2,135 (140) 823 9,000
Gain on sale of Denver
Newspapers, Inc. common stock --- 30,958 --- 30,958
Other, net 3,410 450 15,130 2,500
------------- ------------- ------------- -------------
Total other income (expense) (8,628) 18,050 (10,233) (163)
------------- ------------- ------------- -------------
Income from continuing operations
before income taxes 11,772 47,559 69,389 85,894
Income taxes 3,314 19,372 26,611 35,114
------------- ------------- ------------- -------------
Income from continuing operations 8,458 28,187 42,778 50,780
Discontinued operations:
Income (loss) from discontinued
operations --- 2,259 (4,350) 7,428
Loss on disposition of discontinued
operations --- --- (5,970) ---
------------- ------------- ------------- -------------
Net income $ 8,458 $ 30,446 $ 32,458 $ 58,208
============= ============= ============= =============
Earnings per common share:
Income from continuing operations $ 0.37 $ 1.06 $ 1.76 $ 1.91
Income (loss) from discontinued
operations --- 0.09 (0.43) 0.28
------------- ------------- ------------- -------------
Net income $ 0.37 $ 1.15 $ 1.33 $ 2.19
============= ============= ============= =============
Earnings per common share
- assuming dilution:
Income from continuing operations $ 0.36 $ 1.05 $ 1.74 $ 1.89
Income (loss) from discontinued
operations --- 0.09 (0.42) 0.27
------------- ------------- ------------- -------------
Net income $ 0.36 $ 1.14 $ 1.32 $ 2.16
============= ============= ============= =============
Dividends paid per common share $ 0.16 $ 0.15 $ 0.48 $ 0.45
============= ============= ============= =============
</TABLE>
See accompanying notes.
3
<PAGE>
MEDIA GENERAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(000's)
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------------------------
September 24, September 26,
2000 1999
--------------------------------------------
<S> <C>
Operating activities:
Net income $ 32,458 $ 58,208
Adjustments to reconcile net income:
Depreciation and amortization 76,425 78,614
Deferred income taxes (1,005) (6,365)
Investment income -- unconsolidated affiliates (823) (10,243)
Distributions from unconsolidated affiliates 3,400 30,008
Loss on disposition of Garden State Paper 14,256 ---
Gain on disposition of Cable operations (8,286) ---
Gain on disposition of Denver Newspapers, Inc.
common stock --- (30,958)
Change in assets and liabilities:
Accounts receivable and inventory 1,400 7,066
Accounts payable (2,071) (6,440)
Taxes payable (516,263) 15,900
Other 2,305 (7,730)
----------------- ------------------
Net cash (used) provided by operating activities (398,204) 128,060
------------------ ------------------
Investing activities:
Capital expenditures (34,096) (48,094)
Proceeds from maturity of short-term investments 390,748 ---
Purchases of businesses (858,201) ---
Proceeds from disposition of Cable operations 10,063 ---
Proceeds from disposition of Garden State Paper 72,000
Proceeds from sale of other businesses 3,825 8,058
Denver Newspapers, Inc.:
Proceeds from disposition of common stock --- 39,000
Redemption of preferred stock --- 34,000
Other investments (12,256) (5,463)
Other, net 178 790
----------------- ------------------
Net cash (used) provided by investing activities (427,739) 28,291
------------------ ------------------
Financing activities:
Increase in debt 985,000 238,000
Payment of debt (219,247) (368,432)
Stock repurchase (177,735) (13,609)
Dividends paid (11,655) (12,054)
Other, net 3,920 1,895
----------------- ------------------
Net cash provided (used) by financing activities 580,283 (154,200)
----------------- ------------------
Net (decrease) increase in cash and cash equivalents (245,660) 2,151
Cash and cash equivalents at beginning of year 255,298 7,637
----------------- ------------------
Cash and cash equivalents at end of period $ 9,638 $ 9,788
================= ==================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of amount capitalized) $ 26,616 $ 44,355
Income taxes $ 527,018 $ 25,680
</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 August 1, 2000, the Company acquired, for approximately $239
million, the assets of certain newspaper groups from Thomson Newspapers; these
groups are located in South Carolina and Alabama. The transaction was funded
with borrowings under an existing $1.2 billion revolving credit facility. On
March 27, 2000, the Company acquired the common stock of Spartan Communications,
Inc. (Spartan) for approximately $610 million (including approximately $9
million of transaction costs and net of $5 million cash received). Approximately
$500 million of the purchase price was funded with borrowings under the
aforementioned 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 $895 million of intangible assets relating to these transactions
are included in the balance sheet at September 24, 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 nine months ended September 24, 2000, and
September 26, 1999, as if the Spartan acquisition had been completed at the
beginning of each period. Certain Spartan items have 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
Nine months ended Nine months ended
(In thousands, except per share amounts) September 24, 2000 September 26, 1999
------------------ ------------------
<S> <C>
Revenues $ 608,156 $ 589,013
============= =============
Income from continuing operations $ 37,187 $ 27,125
Discontinued operations (10,320) 7,428
------------- -------------
Net income $ 26,867 $ 34,553
============= =============
Income (loss) per common share -- assuming dilution:
Income from continuing operations $ 1.51 $ 1.01
Income (loss) from discontinued operations (0.42) 0.27
------------- -------------
Net income $ 1.09 $ 1.28
============= =============
</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) and its cable operations for all periods presented.
In September 2000, the Company consummated the sale of GSP to an
affiliate of Enron North America Corporation for approximately $72 million, plus
working capital amounts yet to be received. The $14.3 million loss on sale (net
of income tax benefit of $6.5 million) is subject to resolution with the buyer
of certain working capital, income tax and other items. The transaction also
includes a seven-year, financial fixed-price newsprint agreement which the
Company does not intend to retain. Concurrent with the sale, the Company retired
$20 million of 7.125% revenue bonds.
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 results of these discontinued operations for the three and
nine-month periods ended September 24, 2000 and September 26, 1999 were as
follows:
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
----------------------------- ----------------------------
Sept. 24, Sept. 26, Sept. 24, Sept. 26,
(in thousands) 2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C>
Revenues $ 20,724 $ 66,560 $ 55,656 $ 198,049
Costs and expenses 20,724 63,164 62,477 186,524
----------- ----------- ----------- -----------
Income (loss) before income taxes --- 3,396 (6,821) 11,525
Income taxes (benefit) --- 1,137 (2,471) 4,097
----------- ----------- ----------- -----------
Income (loss) from discont. operations $ --- $ 2,259 $ (4,350) $ 7,428
=========== =========== =========== ===========
</TABLE>
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 September 24, 2000,
approximately 3.8 million shares had been repurchased (3.5 million in 2000) at a
cost of approximately $191.4 million ($178.6 million in 2000) since the
program's inception. The program has continued in the fourth quarter.
5. Inventories are principally raw materials.
6. The following table sets forth the Company's financial performance
by segment.
<TABLE>
<CAPTION>
(In thousands) Publishing Broadcast Total
----------------------------------------------------------------------------------------------------------------
<S> <C>
Three Months Ended September 24, 2000
Consolidated revenues * $ 135,162 $ 66,703 $ 201,865
=================================================
Segment operating cash flow $ 38,547 $ 19,049 $ 57,596
Allocated amounts:
Equity in net loss of unconsolidated affiliates (634) (634)
Depreciation and amortization (6,846) (5,547) (12,393)
------------------------------------------------
Segment profit $ 31,067 $ 13,502 44,569
=============================
Unallocated amounts:
Interest expense (14,173)
Investment income - SP Newsprint 2,769
Acquisition intangible amortization (14,453)
Corporate expenses (8,856)
Other 1,916
-----------
Consolidated income from continuing operations before income taxes $ 11,772
===========
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
(In thousands) Publishing Broadcast Total
----------------------------------------------------------------------------------------------------------------
<S> <C>
Three Months Ended September 26, 1999
Consolidated revenues * $ 127,105 $ 39,516 $ 166,621
================================================
Segment operating cash flow $ 43,117 $ 10,149 $ 53,266
Allocated amounts:
Equity in net loss of unconsolidated affiliates (377) (377)
Depreciation and amortization (6,552) (2,793) (9,345)
------------------------------------------------
Segment profit $ 36,188 $ 7,356 43,544
=============================
Unallocated amounts:
Interest expense (13,218)
Investment income - SP Newsprint 237
Acquisition intangible amortization (8,483)
Corporate expenses (6,639)
Gain on disposition of Denver
Newspapers, Inc. common stock 30,958
Other 1,160
-----------
Consolidated income from continuing operations before income taxes $ 47,559
===========
----------------------------------------------------------------------------------------------------------------
Nine Months Ended September 24, 2000
Consolidated revenues * $ 405,078 $ 180,544 $ 585,622
================================================
Segment operating cash flow $ 125,715 $ 54,246 $ 179,961
Allocated amounts:
Equity in net loss of unconsolidated affiliates (1,573) (1,573)
Depreciation and amortization (19,717) (13,888) (33,605)
------------------------------------------------
Segment profit $ 104,425 $ 40,358 144,783
=============================
Unallocated amounts:
Interest expense (26,186)
Investment income - SP Newsprint 2,396
Acquisition intangible amortization (36,138)
Corporate expenses (25,662)
Other 10,196
-----------
Consolidated income from continuing operations before income taxes $ 69,389
===========
----------------------------------------------------------------------------------------------------------------
Nine Months Ended September 26, 1999
Consolidated revenues * $ 385,809 $ 120,687 $ 506,496
================================================
Segment operating cash flow $ 126,573 $ 32,794 $ 159,367
Allocated amounts:
Equity in net loss of unconsolidated affiliates (763) (763)
Depreciation and amortization (19,266) (8,216) (27,482)
------------------------------------------------
Segment profit $ 106,544 $ 24,578 131,122
=============================
Unallocated amounts:
Interest expense (42,621)
Investment income - SP Newsprint 6,590
Acquisition intangible amortization (25,450)
Corporate expenses (20,473)
Gain on disposition of Denver
Newspapers, Inc. common stock 30,958
Other 5,768
-----------
Consolidated income from continuing operations before income taxes $ 85,894
================================================================================================================
</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 September 24, 2000 Quarter Ended September 26, 1999
--------------------------------------- ----------------------------------------
(In thousands, except Income Shares Per Share Income Shares Per Share
per share amounts) (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
--------------------------------------- ----------------------------------------
<S> <C>
Basic EPS
Income from continuing operations
available to common stockholders $ 8,458 23,106 $ 0.37 $28,187 26,372 $ 1.06
========= =========
Effect of dilutive securities
Stock options 184 260
Restricted stock and other (5) 101 (8) 130
---------------------- ----------------------
Diluted EPS
Income from continuing operations
available to common stockholders
plus assumed conversions $ 8,453 23,391 $ 0.36 $28,179 26,762 $ 1.05
==================================== =====================================
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 24, 2000 Nine Months Ended September 26, 1999
--------------------------------------- ----------------------------------------
(In thousands, except Income Shares Per Share Income Shares Per Share
per share amounts) (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
--------------------------------------- ----------------------------------------
<S> <C>
Basic EPS
Income from continuing operations
available to common stockholders $42,778 24,315 $ 1.76 $50,780 26,534 $ 1.91
========= =========
Effect of dilutive securities
Stock options 195 262
Restricted stock and other (19) 98 (27) 121
---------------------- ----------------------
Diluted EPS
Income from continuing operations
available to common stockholders
plus assumed conversions $42,759 24,608 $ 1.74 $50,753 26,917 $ 1.89
==================================== =====================================
</TABLE>
8. The Company has reflected certain investments in common stock
which are included in the accompanying balance sheet in Other Assets, at fair
value. Comprehensive income consisted of the following:
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
------------------------- -------------------------
Sept. 24, Sept. 26, Sept. 24, Sept. 26,
(In thousands) 2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C>
Net income $ 8,458 $ 30,446 $ 32,458 $ 58,208
Unrealized gain (loss) (1,901) 12,105 (4,444) 12,105
--------- --------- --------- ---------
Comprehensive income $ 6,557 $ 42,551 $ 28,014 $ 70,313
========= ========= ========= =========
</TABLE>
9. The Company will adopt Statement of Financial Accounting Standard
(SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities on
January 1, 2001. The Company continues to review its contracts and agreements
for embedded derivatives. The Company has identified several interest rate swap
agreements that are derivatives and which are expected to qualify as cash flow
hedges under the new standard. These agreements are not expected to have an
impact on the Company's Statement of Operations but will affect the Company's
Balance Sheet and Statement of Stockholders' Equity. The magnitude of the impact
will be dependent on market LIBOR rates at the time of adoption.
9
<PAGE>
In conjunction with the sale of GSP, the Company entered into a
newsprint swap agreement that it does not intend to retain. The agreement, under
which the Company receives a variable price per metric ton and pays a fixed
price of $596 per metric ton, is being accounted for as a derivative.
Predominantly, the agreement hedges the Company's exposure to changes in the
cost of newsprint; however a portion of the agreement currently exceeds the
Company's newsprint usage and changes in the value of this portion of the
agreement are recorded in the Statement of Operations. Currently, a $1 increase
or decrease in the average newsprint price over the term of the contract would
result in income or expense, respectively, to the Company of approximately $80
thousand.
10
<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.
Over the past several years, the Company has undergone an evolution
distinguished by a series of acquisitions, exchanges, investments and
dispositions which have significantly intensified the Company's focus on
southeastern newspapers and television stations. Furthering this progression,
the Company acquired newspaper groups in South Carolina and Alabama, which
include five daily newspapers, from Thomson Newspapers for approximately $239
million in August of this year. Early in the second fiscal quarter of this year,
the Company acquired Spartan Communications, Inc. (Spartan) for approximately
$610 million. 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.
Further tightening its focus, during the third quarter of this year
the Company completed the sale of Garden State Paper (the Company's wholly owned
newsprint manufacturer) to an affiliate of Enron North America Corporation for
approximately $72 million, plus working capital amounts yet to be received. In
connection with this sale, the Company recorded a $14.3 million loss (net of
income tax benefit of $6.5 million) which is subject to resolution with the
buyer of certain working capital, income tax and other items. This transaction
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
online companies. These companies deliver various services from 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, its future plans include
creating, in 2001, an Interactive Media Division which will cultivate the vast
opportunities which rest within the Internet and the e-commerce arena.
As of September 24, 2000, approximately 3.8 million shares had been
repurchased since the program's inception at a cost of approximately $191
million. The Company continued its program to repurchase up to $250 million of
its Class A common stock in the fourth quarter.
RESULTS OF OPERATIONS
Results for the first nine months of 2000 continued to be meaningfully
influenced by the effects of two significant nonrecurring items which were
recorded in the second quarter of this year. These items were a $14.3 million
after-tax loss in connection with the 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 third quarter and first nine months of
11
<PAGE>
this year was $8.5 million ($0.37 per share, or $0.36 per share - assuming
dilution) and $32.5 million ($1.33 per share, or $1.32 per share - assuming
dilution).
For the quarter, income from continuing operations dropped to $8.5
million compared with $28.2 million ($1.06 per share, or $1.05 per share -
assuming dilution) in last year's same quarter. This $19.7 million decrease was
almost fully accounted for by the $19 million after-tax gain related to the
Company's 1999 third quarter sale of 20% of the outstanding common stock of
Denver Newspapers, Inc. (Denver). Other fluctuations included: a 14% decrease in
Publishing profits (driven by higher expenses) and a 70% increase in intangible
amortization related to acquisitions, partially offset by an 84% increase in
Broadcast Segment profits (the majority of which was attributable to the newly
acquired Spartan properties), a $3 million rise in other, net (primarily
attributable to the favorable outcome of litigation) and a $2.5 million increase
in the Company's share of SP Newsprint's (SPNC) results. SPNC's
quarter-over-quarter increased results were solely attributable to its Dublin
mill where an 8.7% increase in tons shipped and an 18.5% rise in average selling
price combined to produce the improved performance.
In the year to date, income from continuing operations decreased to
$42.8 million ($1.76 per share, or $1.74 per share - assuming dilution) from
$50.8 million ($1.91 per share, or $1.89 per share - assuming dilution) in the
prior year's first nine months. The single largest factor responsible for this
16% year-over-year decrease was the current-year absence of 1999's $19 million
after-tax gain from the Denver sale of stock; exclusive of this transaction,
income from continuing operations rose 35% year over year. Other significant
factors included: a 64% rise in Broadcast Segment profits (again, the majority
of which was produced by the Spartan stations) and a 58% decrease in net
interest expense due primarily to lower average debt levels, which more than
offset a 42% increase in intangibles amortization related to acquisitions.
SPNC's year-over year results decreased $4.2 million, primarily the result of
its Newberg mill which was acquired in November of 1999.
PUBLISHING
Operating income for the Publishing Division decreased $5.1 million and
$2.1 million in the third quarter and first nine months of 2000 from the
comparable 1999 levels. The recently acquired Thomson properties contributed
$1.8 million of operating income in each of these periods. Excluding the Thomson
properties, third quarter revenues increased $2 million but were more than
offset by a $8.9 million rise in operating expenses; in the year to date, a
$13.2 million increase in revenues was more than offset by a $17.1 million rise
in operating expenses. Both periods were affected by moderately reduced results
from equity investments. The following chart illustrates improved revenues in
both the third quarter and year to date in all advertising categories. Excluding
the Thomson properties, both the quarter and year-to-date revenue improvement
was driven by increases in classified advertising (led by the automotive
category) and by solid performances in general advertising (led by the
telecommunications category). Retail advertising remained relatively flat in
both the quarter and year-to-date period (due primarily to reduced department
store advertising) and continued to be the weakest source of revenue growth.
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<PAGE>
Publishing Segment
Advertising Revenues by Category
[GRAPH]
Third Quarter 9 Months YTD
--------------------------------- ----------------------------------
Retail Classified General Retail Classified General
------ ---------- ------- ------ ---------- -------
2000 47.5 47.3 8.6 142.3 142.8 26.7
1999 45.5 44.2 7.4 139.5 132.5 23.2
Excluding the Thomson properties, Publishing Segment operating expenses
rose significantly due to a combination of similar factors in both the third
quarter and first nine months of 2000. Employee compensation and benefit expense
increased $3.4 million and $6.1 million in the quarter and year to date as a
result of normal salary increases combined with staffing new positions for the
future Interactive Media Division. Newsprint expense rose $2.1 million and $1.2
million in those same periods due to increased consumption, coupled with higher
average cost per ton. Finally, other operating costs were up due to higher
circulation, marketing and promotion, and occupancy costs. 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. The $8.9 million quarter-over-quarter rise in
operating expenses was composed of the following expense categories, as
illustrated by the chart below:
Publishing Segment
Components of Increased Operating Expense
3rd Quarter
[GRAPH]
Employee Benefits & Salaries 39%
Newsprint 24%
Occupancy 7%
Circulation 5%
Marketing & Promotion 3%
All Other 22%
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<PAGE>
BROADCAST
Broadcast operating income rose $6.1 million and $15.8 million in the
third quarter and first nine months of this year; $5.9 million and $14.8 million
of these increases were due to the addition of the Spartan properties at the
beginning of the second quarter. Excluding Spartan, revenues rose a solid $3.5
million and $10.6 million in the current quarter and first nine months of this
year, while operating expenses increased $3.3 million and $9.6 million in those
same periods. The following chart illustrates improved time sales in all
advertising revenue categories: National revenues rose on the strength of the
automotive advertising category, Political advertising increased as a result of
the presidential and congressional primaries, and Local advertising improved due
to vigor in the fast food and telecommunications categories. Excluding Spartan,
the small to mid-size stations posted nearly 60% of this total advertising
revenue increase for both the quarterly and year-to-date periods, while the
Company's largest station, WFLA in Tampa, was responsible for the remainder.
WFLA is beginning to reap the benefits of its media convergence initiative with
The Tampa Tribune and TBO.com as evidenced by a continual increase in audience
share at that station from the end of 1999 throughout this year.
Broadcast Segment
Advertising Time Sales by Categories
[GRAPH]
Third Quarter
--------------------------------
Local National Political
----- -------- ---------
2000 Media General Stations 23.4 14.4 2.6
2000 Spartan Stations 13.6 10.1 1.0
1999 Media General Stations 23.1 14.0 0.8
9 Months YTD
-------------------------------
Local National Political
----- ------- ---------
2000 Media General Stations 73.6 47.5 4.0
2000 Spartan Stations 28.6 21.9 1.5
1999 Media General Stations 71.3 44.8 1.0
Excluding Spartan, the higher Broadcast operating expenses resulted for
similar reasons in both the quarter and year to date: a 4% and 6% increase in
programming costs in the third quarter and nine-month period related to the
addition of enhanced programming and a rise of approximately 4.5% in employee
compensation and benefit expense due to staffing new positions for the future
Interactive Media Division 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 mentioned above as well as to higher occupancy costs
as WFLA moved into the Company's new fully digital, state-of-the-art multimedia
center early this year.
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<PAGE>
INTEREST INCOME AND EXPENSE
Interest expense increased $1 million in the third quarter and
decreased $16.4 million in the first nine months of 2000 from the equivalent
year-ago periods. The quarterly increase was due to a $28.5 million rise in
average debt outstanding, as well as to a slight rise in the effective interest
rate. The year-over-year decrease resulted from a $337 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 and the third quarter
purchase of the Thomson properties increased the Company's debt; however,
average debt outstanding still remained appreciably lower than prior-year
levels. The effective interest rate rose modestly from approximately 7% in both
the third quarter and first nine months of 1999 to approximately 7.3% 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 decreased $16.1 million and
$8.5 million in the current quarter and nine-month period of this year on a
pretax earnings decrease of $35.8 million and $16.5 million. Compounding the
positive effect on taxes of these decreased earnings, especially during the
quarter, was a drop in the Company's year-to-date effective tax rate (from 40.9%
to 38.4%), due primarily to a lower effective state tax rate as a result of a
reorganization of corporate entities following recent acquisitions and
dispositions.
LIQUIDITY
The proceeds from the maturity of short-term investments, from the sale
of GSP, 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 transactions
during the first nine months 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), approximately $239 million for the purchase of the Thomson
properties, in excess of $178 million of current-year stock repurchases, and a
scheduled $13 million installment payment on senior note debt in the first
quarter. These funds also supplied $34 million for capital expenditures,
approximately $9 million for the purchase of a group of small weekly newspapers
in southwestern Virginia, and $11.7 million for the payment of dividends to
stockholders.
The stock repurchase program initiated in December of 1999 continued
into this year's fourth quarter. Additionally, the Company presently expects to
invest approximately $70 million over the next 18 months implementing the
transition to digital broadcasting. The Company anticipates that internally
generated funds provided by operations, together with existing credit
facilities, will be more than adequate to finance projected capital
expenditures, dividends to stockholders and working capital needs throughout the
remainder of 2000, as well as other corporate initiatives.
15
<PAGE>
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 inaugurated its
state-of-the-art multimedia center in Tampa which is capitalizing on the
advantages of media convergence. With the sale of Garden State Paper, the
Company is now channeling its efforts and focusing its energy toward its chosen
interests in southeastern newspapers and television stations, as well as
interactive media, which will become a separate division in 2001. The Broadcast
Segment is positioned for a solid fourth quarter, primarily on the strength of
the hotly contested presidential and congressional political races. The Spartan
stations are already contributing in the short time that the Company has owned
them and they are expected to produce strong cash flow in the future. While
rising newsprint prices are expected to adversely affect the Publishing
Division's results, our share of earnings from SP Newsprint should more than
compensate. As the Company evolves from its recent acquisitions and
dispositions, the future holds opportunities to simultaneously advance its
strategy of southeastern expansion, to pursue the advantages of media
convergence, and to develop our role in the interactive media world.
* * * * * *
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.
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.
16
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule for the period ended September 24, 2000.
27.2 Restated Financial Data Schedule for the period ended September
26, 1999.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter
ended September 24, 2000.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MEDIA GENERAL, INC.
DATE: November 7, 2000 /s/ J. Stewart Bryan III
--------------------------------------------
J. Stewart Bryan III, Chairman, President and
Chief Executive Officer
DATE: November 7, 2000 /s/ Marshall N. Morton
--------------------------------------------
Marshall N. Morton
Senior Vice President and Chief Financial
Officer
18
