-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DlDUkGQZM2IwPsyjnZbcE5Zq/2+rXQ4OS9LCAsOZDH4Yt7sqjAF7YBCH4AqJnnO7 s7tMsFkEIsvI6WxawiHRCQ== 0000916641-98-000301.txt : 19980330 0000916641-98-000301.hdr.sgml : 19980330 ACCESSION NUMBER: 0000916641-98-000301 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19971228 FILED AS OF DATE: 19980327 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEDIA GENERAL INC CENTRAL INDEX KEY: 0000216539 STANDARD INDUSTRIAL CLASSIFICATION: NEWSPAPERS: PUBLISHING OR PUBLISHING & PRINTING [2711] IRS NUMBER: 540850433 STATE OF INCORPORATION: VA FISCAL YEAR END: 1226 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-06383 FILM NUMBER: 98575119 BUSINESS ADDRESS: STREET 1: 333 E GRACE ST CITY: RICHMOND STATE: VA ZIP: 23219 BUSINESS PHONE: 8046496000 10-K405 1 MEDIA GENERAL INC. FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 28, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period _______ to ________ Commission File No. 1-6383 MEDIA GENERAL, INC. (Exact name of registrant as specified in its charter) Commonwealth of Virginia 54-0850433 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 333 East Grace Street, Richmond, Virginia 23219 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (804) 649-6000 Securities registered pursuant to Section 12(b) of the Act: Class A Common Stock American Stock Exchange (Title of class) (Name of exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this form 10-K. [ X] The aggregate market value of voting stock held by nonaffiliates of the registrant, based upon the closing price of the Company's Class A Common Stock as reported on the American Stock Exchange, as of March 1, 1998, was approximately $1,075,000,000. The number of shares of Class A Common Stock outstanding on March 1, 1998, was 26,131,482. The number of shares of Class B Common Stock outstanding on March 1, 1998, was 556,574. Part I, Part II and Part IV incorporate information by reference from the Annual Report to Stockholders for the year ended December 28, 1997. Part III incorporates information by reference from the proxy statement for the Annual Meeting of Stockholders to be held on May 15, 1998. Index to Media General, Inc. Annual Report on Form 10-K for the Year Ended December 28, 1997
Item No. Page Part I 1. Business General 1 Publishing 2 Broadcast Television 3 Cable Television 5 Newsprint 7 2. Properties 7 3. Legal Proceedings 8 4. Submission of Matters to a Vote of Security Holders 8 Executive Officers of Registrant 9 Part II 5. Market for Registrant's Common Equity and Related Stockholder Matters 9 6. Selected Financial Data 9 7. Management's Discussion and Analysis of Financial Condition and Results of Operation 9 8. Financial Statements and Supplementary Data 10 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 10 Part III 10. Directors and Executive Officers of the Registrant 10 11. Executive Compensation 10 12. Security Ownership of Certain Beneficial Owners and Management 10 13. Certain Relationships and Related Transactions 10 Part IV 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 10 Schedule II 12 Index to Exhibits 13 Signatures 17
Part I Item 1. Business General Media General, Inc., is an independent, publicly owned communications company situated primarily in the Southeast with interests in newspapers, broadcast and cable television, recycled newsprint production and diversified information services. The Company employs approximately 8,800 people on a full or part-time basis. The Company's businesses are somewhat seasonal; the second and fourth quarters are typically stronger than the first and third quarters. As part of the Company's continuing commitment to a southeastern focus, it has completed a series of acquisitions and divestitures since 1995. On January 7, 1997, the Company acquired Park Acquisitions, Inc., parent of Park Communications, Inc. (Park). The total consideration approximated $715 million, representing the purchase of all the issued and outstanding common stock of Park, the assumption of liabilities (primarily $476 million of Park's high coupon long-term debt) and transaction costs. The acquisition of Park included ten network affiliated television stations, 28 daily newspapers and 82 weekly newspapers. As intended since that date, the Company has sold certain of the former Park properties, most all of which were located outside of the Southeast, for approximately $147 million and purchased new properties for approximately $53 million. These purchases were the Potomac News (Woodbridge, Virginia; circulation - 25,000 daily and Sunday) in February 1997, The Reidsville Review (Reidsville, North Carolina) and The Messenger (Madison, North Carolina) in April 1997. In order to comply with the Federal Communication Commission's requirement that WTVR-TV, a station acquired from Park, be divested within one year of its January 1997 purchase date, in August 1997 the Company completed the exchange of WTVR-TV (Richmond, Virginia) for three other stations, WSAV-TV (Savannah, Georgia), WJTV-TV (Jackson, Mississippi) and WHLT-TV (Hattiesburg, Mississippi). In August 1996, the Company acquired, for approximately $38 million, the Danville Register & Bee, a daily newspaper in Virginia (circulation - 23,000 daily, 27,000 Sunday). In May 1996, the Company acquired, for approximately $2 million, Professional Communications Systems (PCS), a provider of equipment and studio design services for television stations. In October 1995, the Company acquired for approximately $232 million the assets of several Virginia newspapers (Virginia Newspapers) from Worrell Enterprises, Inc., and its affiliates. Newspaper properties acquired include four daily and Sunday newspapers (combined current circulation - 98,000 daily, 111,000 Sunday). In addition, the acquisition included a number of weekly and other publications, located in Culpeper, Greene, Madison, Orange and Tazewell Counties, Virginia. 1 In early 1998, the Company acquired, for approximately $92 million, the Bristol Herald Courier, a daily newspaper in southwestern Virginia (circulation - - 44,000 daily, 47,000 Sunday), and two affiliated weekly newspapers. The Company has also agreed to purchase The Hickory Daily Record, a daily newspaper located in northwestern North Carolina (circulation - 20,000 daily and Sunday). This transaction is expected to close later in 1998. Additionally, the Company has agreed to sell its Kentucky newspaper properties, which include The (Somerset) Commonwealth Journal and related weekly publications. Industry Segments The Company is engaged in four significant industry segments. For financial information related to these segments see pages 33 and 34 of the 1997 Annual Report to Stockholders, which are incorporated herein by reference. Additional information related to each of the Company's significant industry segments is included below. Publishing Business At December 28, 1997, the Company's wholly owned publishing operations included daily and Sunday newspapers in Florida, North Carolina, Virginia and Kentucky. For a listing of the Company's daily and Sunday newspapers by location, see page 3 of the 1997 Annual Report to Stockholders, which is incorporated herein by reference. Combined daily circulation for the Florida, North Carolina and Virginia newspapers in 1997 was 247,000, 154,000 and 353,000, respectively; combined Sunday circulation for these newspapers was 336,000, 160,000 and 385,000, respectively. The Company also owns weekly newspapers, shoppers and other publications in Florida, North Carolina, Virginia and Kentucky, with weekly circulation of 2,000, 22,000, 24,000 and 37,000, respectively; and it holds 40% of the common stock and all of the preferred stock of Denver Newspapers, Inc., the parent company of The Denver Post, a daily newspaper in Denver, Colorado. As mentioned earlier, the Company has agreed to sell its Kentucky newspapers, including The (Somerset) Commonwealth Journal (circulation - 9,000 daily and Sunday). The newspaper publishing industry in the United States is comprised of hundreds of public and private companies ranging from large national and regional companies, publishing multiple newspapers across many states, to small privately held companies publishing one newspaper in one locality. Acquisitions and growth achieved by the Company over the past three years have placed the Company's newspaper circulation among the top twenty in the United States and situated the Company among the top fifteen publicly-held newspaper publishers in the country based on revenue. The publishing products of the Company reach almost one million households across the Southeast every week. Additionally, the Company's on-line news, information and entertainment services reach additional viewers and readers without geographic restriction. All of the Company's newspapers compete for circulation and advertising with other newspapers published nationally and in nearby cities and towns and for advertising with magazines, radio, television, the internet and other promotional media. All of the newspapers compete for circulation principally on the basis of content, service and price. 2 The primary raw material used by the Company in its publishing operations is newsprint, which is purchased from various Canadian and United States sources, including Garden State Paper Company, Inc., a wholly owned subsidiary of the Company, and Southeast Paper Manufacturing Co., in which the Company owns a one-third equity interest. The publishing operations of the Company consumed approximately 135,000 tons of newsprint in 1997. Management of the Company believes that sources of supply under existing arrangements will be adequate in 1998. Broadcast Television Business The ownership, operation and sale of broadcast television stations, including those licensed to the Company, are subject to the jurisdiction of the FCC, which engages in extensive and changing regulation of the broadcasting industry under authority granted by the Communications Act of 1934 (Communications Act). The Communications Act requires broadcasters to serve the public interest. Among other things, the FCC assigns frequency bands for broadcasting; assigns and controls the particular frequencies, locations and operating power of stations; issues, renews, revokes and modifies station licenses; assigns and controls whether to approve changes in ownership or control of station licenses; regulates equipment used by stations; adopts and implements regulations and policies that directly or indirectly affect the ownership, operation and employment practices of stations; regulates program content and has the authority to impose penalties for violations of its rules or the Communications Act. Pursuant to the Children's Television Act of 1990 (Children's Television Act), the FCC has adopted rules limiting advertising in children's television programming and requiring that broadcast television stations serve the educational and informational needs of children. The Children's Television Act specifically requires the FCC to consider compliance with these obligations in deciding whether to renew a television broadcast license. Reference should be made to the Communications Act, the Telecommunications Act of 1996 (1996 Telecom Act), the Children's Television Act and the FCC's rules, public notices and rulings for further information concerning the nature and extent of federal regulation of broadcast television stations. The Broadcast Television Division operates fourteen network-affiliated television stations in the southeastern United States. The following table sets forth certain information on each of these stations:
Expiration Expiration National Date of Date of Station Location Market Station Audience FCC Network and Affiliation Rank (a) Rank (a) * % Share (a) * License (b) Agreement --------------- -------- ---------- ------------- ----------- --------- WFLA-TV NBC 15 2 13% 2/1/05 12/31/04 Tampa, FL WIAT-TV CBS (c) 51 4 8% 4/1/05 12/31/04 Birmingham, AL WJWB-TV WB (d) 54 4 5% 2/1/05 1/12/99 Jacksonville, FL 3 Expiration Expiration National Date of Date of Station Location Market Station Audience FCC Network and Affiliation Rank (a) Rank (a) * % Share (a) * License (b) Agreement --------------- -------- ---------- ------------- ----------- --------- WTVQ-TV ABC 67 3 11% 8/1/05 1/1/06 Lexington, KY WSLS-TV NBC 68 3 13% 10/1/04 10/1/05 Roanoke, VA WDEF-TV CBS 86 3 14% 8/1/05 12/31/04 Chattanooga, TN WJTV-TV CBS 90 2 19% 6/1/05 12/31/04 Jackson, MS WJHL-TV CBS 93 2 17% 8/1/05 12/31/04 Johnson City, TN WSAV-TV NBC 100 2 13% 4/1/05 9/30/04 Savannah, GA WNCT-TV CBS 106 1 19% 12/1/04 12/31/04 Greenville, NC WHOA-TV ABC 114 4 8% 4/1/05 1/3/07 Montgomery, AL WCBD-TV NBC 117 2 18% 12/1/04 1/1/05 Charleston, SC WHLT-TV CBS 166 2 12% 6/1/05 8/31/05 Hattiesburg, MS KALB-TV NBC 178 1 32% 6/1/05 10/1/05 Alexandria, LA
(a) Source: November 1997 Nielson Rating Books. (b) Television broadcast licenses are granted for maximum terms of eight years and are subject to renewal upon application to the FCC. (c) Formerly WBMG-TV. (d) Formerly WJKS-TV; transferred network affiliation from ABC to Warner Brothers in February 1997. * Sign-On to Sign-Off. The primary source of revenues for the Company's television stations is the sale of time to national and local advertisers. Since each of the stations is network-affiliated, additional revenue is derived from the network programming carried by each. 4 The Company's television stations are in competition for audience and advertising revenues with other television and radio stations and cable television systems as well as magazines, newspapers and other promotional media. A number of cable television systems which operate generally on a subscriber payment basis are in business in the Company's broadcasting markets and compete for audience by importing out-of-market television signals and by presenting cable network and other program services. The television stations compete for audience on the basis of program content and quality of reception, and for advertising revenues on the basis of price, share of market and performance. The television broadcast industry presently is planning for the transition from analog to digital technology in accordance with a mandated conversion timetable established by the FCC. Although subject to revision by the FCC, this timetable requires television stations to inaugurate such digital service beginning May 1, 1999, at stations in large markets, through May 1, 2002, at stations in smaller markets. Due to the national market rank of the Company's Tampa station, it must comply with this transition in the early part of the conversion period. Congress and the FCC have under consideration, and in the future may consider and adopt, new laws, regulations and policies regarding a wide variety of matters that could affect, directly or indirectly, the operation, ownership and profitability of the Company's broadcast television stations and affect the ability of the Company to acquire additional stations. In addition to the matters noted above, these include, for example, spectrum use fees, political advertising rates, potential restrictions on the advertising of certain products (such as alcoholic beverages) and the rules and policies to be applied in enforcing the FCC's equal employment opportunity regulations. Other matters that could potentially affect the Company's broadcast properties include technological innovations and developments generally affecting competition in the mass communications industry, such as satellite radio and television broadcast service, wireless cable systems, low-power television stations, radio technologies and the advent of telephone company participation in the provision of video programming services. Cable Television Business The Cable Television Division includes two cable systems in northern Virginia, Media General Cable of Fairfax County, Inc., and Media General Cable of Fredericksburg, Inc., a cable advertising agency, Mega Advertising, Inc., and an interest in a cable advertising interconnect business serving five cable systems in the Washington, D.C. area. The Fairfax County system has 800 and 100 megahertz of forward and return capacity, respectively, on dual coaxial cables which pass approximately 336,000 homes. The Fredericksburg system has a 60-channel capacity and passes approximately 21,000 homes. The Company has cable television franchises to operate its existing systems in the overwhelming majority of Fairfax County, Virginia, adjoining cities and towns and in Fredericksburg and Spotsylvania County, Virginia, and a portion of Stafford County, Virginia. These jurisdictions have enacted extensive regulations governing cable television systems within their borders. In anticipation of a series of expiration dates presently commencing in 1998, franchise renewal proceedings are underway for the Company's Fairfax County system. Renewal proceedings also are underway for the Company's Stafford County franchise. At December 28, 1997, the Company's cable television systems served approximately 252,000 subscribers. 5 The Company's cable television systems have substantially the same competition for advertising as its television stations. The cable television systems compete for audience on the basis of price, program content and quality of reception and for advertising revenues on the basis of price, share of market and performance. The FCC has jurisdiction over and has adopted a regulatory program concerning the cable television industry. The FCC's regulations establish cable television service and programming requirements and govern cable television engineering standards, registration and reporting obligations and other matters. Among the regulatory limitations which impact the Company's costs and business, federal law establishes rate regulation for the cable services (other than premium and pay-per-view services) which the Company offers to subscribers. Ratemaking authority is divided between local franchisors and the FCC, and some of the Company's rates are under review by franchisors and under review by or on appeal to the FCC. While the Company believes that its rates have been established in compliance with applicable federal law, it is possible that rate refunds and/or rate adjustments may be ordered. The 1996 Telecom Act eliminates rate regulation after March 31, 1999, for all cable services except the "basic" tier, which is the service including the local broadcast signals carried by a cable system. It also removes previously applicable restrictions that prevented most local telephone companies from providing cable services within the areas in which they provided telephone services. This change, together with direct broadcast satellite and potential wireless cable and open video system offerings, will almost certainly lead to increased competition within the area served by the Company's cable systems. In early 1998, a local telephone company affiliate was certificated by the FCC to operate a competitive open video system in a portion of the franchise area served by the Company's Fairfax system. Once effective competition by a video programming provider exists generally in a franchise area, cable rate regulation for other than the basic tier will end in such area. The Company is studying several strategic planning initiatives for long-term implementation, including entry into the high-speed data transmission and commercial and residential telephone markets, for its Fairfax system. The Company estimates that the capital investment required for it to compete effectively in those markets could exceed $200 million over a ten-year period. Reference should be made to the Communications Act, the 1996 Telecom Act and the FCC's rules, public notices and rulings for further information concerning the nature and extent of federal regulation of cable television systems. The following table sets forth certain information with respect to the Company's largest cable operation: Media General Cable of Fairfax
1997 1996 1995 ---- ---- ---- Subscribers 235,551 227,717 221,784 Penetration 70.2% 69.4% 69.2% Monthly revenue per home passed $33.79 $32.87 $31.82 Monthly average revenue per subscriber $48.64 $47.54 $46.25
6 Newsprint Paper Manufacturing Business Media General's newsprint operations consist of the Garden State Paper Company, a wholly owned newsprint mill in Garfield, New Jersey, with an annual capacity of 240,000 short tons, and a one-third interest in Southeast Paper Manufacturing Company (SEPCO) in Dublin, Georgia, with an annual capacity of 500,000 short tons. Both facilities use Media General's proprietary de-inking technology to produce 100 percent recycled, high quality newsprint from recovered old newspapers (ONP). Media General's share of their combined total capacity is approximately 405,000 short tons, making Media General the nation's leading producer of 100 percent recycled newsprint. The Company also earns licensing fees pursuant to a contract with SEPCO, in addition to its share of operating results. Garden State competes with approximately twenty Canadian and American companies in selling newsprint, its sole product, to newspaper publishers. Competition is based principally on price, quality of product and service, although the percentage of recovered fiber contained in manufactured newsprint is becoming increasingly important to newspaper publishers to meet various existing and proposed state and federal standards. In recent years, environmentally driven legislation has encouraged the use of recycled paper. With demand pushing against the practical limits of recovery, ONP costs accelerated during much of 1995, but began to decline to more reasonable levels by year end. ONP prices continued to decline gradually throughout all of 1996 and into 1997, with prices beginning to stabilize towards the close of 1997. Media General's strategically located and cost-effective newsprint recycling facilities have helped assure the Company of adequate supplies of ONP. The newsprint business has historically been a cyclical industry. In 1994, newsprint demand was on the rise, producing higher selling prices as most mills reached 96-97 percent of operating capacity. The trend upward continued through 1995, enabling Media General's newsprint operations to implement four price increases during that year. Prices peaked in early 1996 and then declined throughout the remainder of the year. However, prices began a gradual and steady ascent in 1997, reflecting the cyclical nature of newsprint prices inherent to the industry. Item 2. Properties The headquarters of Media General, Inc., and its Richmond Newspapers, Inc., subsidiary are currently located in downtown Richmond, Virginia, in five adjacent buildings. In the second quarter of 1998, the Company will lease a new corporate headquarters building which is currently being constructed by a third party. This new facility is also located in Richmond on land adjacent to the current headquarters. The Company will lease a new headquarters facility for Richmond Newspapers on adjacent land beginning in 1999. The Richmond newspaper is printed at a production and distribution facility located on an 86 acre site in Hanover County, Virginia, near Richmond. The Company owns eight other daily newspapers in Virginia, all of which are printed in or around their respective cities at production and distribution facilities situated on parcels of land ranging from one-half acre to six acres. The Tampa, Florida, newspaper is located in a single unit production plant and office building located on a six acre tract in that city. The headquarters of the Company's Brooksville and Sebring, Florida, daily newspapers are located on leased property in each respective city; however, these newspapers are printed at the Tampa production facility. The Winston-Salem newspaper is headquartered in one building in downtown Winston-Salem. Its newspapers are printed at a production and distribution facility located on a nearby 12 acre site. The remaining six daily newspapers in North 7 Carolina are printed at production and distribution facilities on sites which range from one-half acre to five acres, all located in or around their respective cities. Substantially all of the newspaper production equipment, land and buildings, are owned by the Company. As previously discussed, the Company has agreed to sell its Kentucky properties. The Company's fourteen television facilities are located in ten southeastern states. Two stations are located in each of the following states: Alabama, Florida, Mississippi and Tennessee. The six remaining stations are located in the following states: Georgia, Kentucky, Louisiana, North Carolina, South Carolina and Virginia. Substantially all of the television stations are located on land owned by the Company. Ten station tower sites are owned by the Company; four are leased. Media General Cable of Fairfax County, Inc., a subsidiary of the Company, has its headquarters located in one building owned by the Company in Chantilly, Virginia, and two signal retransmission centers are located in Fairfax County, Virginia, one on property owned by the Company and adjacent to its production studio and one on leased property. In addition, Fairfax Cable leases a facility for its service maintenance operations and fleet in Springfield, Virginia. The cable system includes a home subscriber network and a separate institutional network. Newsprint production facilities at Garden State consist of a Company-owned mill in Garfield, New Jersey, housing two paper-making machines adjacent to a Company-owned power plant which supplies it with steam and electric power. Garden State leases adequate storage facilities for waste paper in the general vicinity of the newsprint mill. The Company also leases four properties in New Jersey and one in New York for its recycling operations. The Company considers all of its properties, together with the related machinery and equipment contained therein, to be well-maintained, in good operating condition, and adequate for its present and foreseeable future needs. Item 3. Legal Proceedings None. Matters previously disclosed under this item either have been resolved for immaterial amounts or are so immaterial as not to require disclosure. Items 4. Submission of Matters to a Vote of Security Holders The Company's Class B stockholders, at a special meeting held on December 5, 1997, approved certain performance goals utilized and to be utilized in the Company's Annual Incentive Plan and its restricted stock awards. 8 Executive Officers of the Registrant
Name Age Position and Office Year First Took Office* J. Stewart Bryan III 59 Chairman, President, Chief Executive Officer 1990 Marshall N. Morton 52 Senior Vice President, Chief Financial Officer 1989 H. Graham Woodlief, Jr. 53 Vice President 1989 Stephen Y. Dickinson 52 Controller 1989 George L. Mahoney 45 General Counsel, Secretary 1993 Stephen R. Zacharias 48 Treasurer 1989
* The year indicated is the year in which the officer first assumed an office with the Company. Mr. Dickinson assumed executive officer responsibilities as of May 1994. Mr. Mahoney previously served as Assistant General Counsel of Dow Jones & Company, Inc., for more than five years. Mr. Zacharias assumed executive officer responsibilities as of December 1993. Officers of the Company are elected at the Annual Meeting of the Board of Directors to serve, unless sooner removed, until the next Annual Meeting of the Board of Directors and/or until their successors are duly elected and qualified. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters Reference is made to page 49 of the 1997 Annual Report to Stockholders, which is incorporated herein by reference, for information required by this item. Item 6. Selected Financial Data Reference is made to Note 5 on pages 33 and 34, and to pages 50 and 51 of the 1997 Annual Report to Stockholders, which are incorporated herein by reference, for information required by this item. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Reference is made to pages 42 through 48 of the 1997 Annual Report to Stockholders, which are incorporated herein by reference, for information required by this item. 9 Item 8. Financial Statements and Supplementary Data Consolidated financial statements of the Company as of December 28, 1997, and December 29, 1996, and for each of the three fiscal years in the period ended December 28, 1997, and the report of independent auditors thereon, as well as the Company's unaudited quarterly financial data for the fiscal years ended December 28, 1997, and December 29, 1996, are incorporated herein by reference from the 1997 Annual Report to Stockholders pages 25 through 41 and page 49. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None PART III Item 10. Directors and Executive Officers of the Registrant Incorporated herein by reference from the Company's definitive proxy statement for the Annual Meeting of Stockholders on May 15, 1998, except as to certain information regarding executive officers included in Part I. Item 11. Executive Compensation Incorporated herein by reference from the Company's definitive proxy statement for the Annual Meeting of Stockholders on May 15, 1998. Item 12. Security Ownership of Certain Beneficial Owners and Management Incorporated herein by reference from the Company's definitive proxy statement for the Annual Meeting of Stockholders on May 15, 1998. Item 13. Certain Relationships and Related Transactions Incorporated herein by reference from the Company's definitive proxy statement for the Annual Meeting of Stockholders on May 15, 1998. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) 1. and 2. The financial statements and schedule listed in the accompanying index to financial statements and financial statement schedules are filed as part of this annual report. 3. Exhibits The exhibits listed in the accompanying index to exhibits are filed as part of this annual report. (b) Reports on Form 8-K None 10 Index to Financial Statements and Financial Statement Schedules - Item 14(a)
Annual Report to Form 10-K Stockholders Media General, Inc. (Registrant) Report of independent auditors 41 Consolidated statements of operations for the fiscal years ended December 28, 1997, December 29, 1996, and December 31, 1995 25 Consolidated balance sheets at December 28, 1997, and December 29, 1996 26-27 Consolidated statements of stockholders' equity for the fiscal years ended December 28, 1997, December 29, 1996, and December 31, 1995 28 Consolidated statements of cash flows for the fiscal years ended December 28, 1997, December 29, 1996, and December 31, 1995 29 Notes to consolidated financial statements 30-40 Schedule: II - Valuation and qualifying accounts and reserves for the fiscal years ended December 28, 1997, December 29, 1996, and December 31, 1995 12
Schedules other than Schedule II, listed above, are omitted since they are not required or are not applicable, or the required information is shown in the financial statements or notes thereto. The consolidated financial statements of Media General, Inc., listed in the above index which are included in the Annual Report to Stockholders of Media General, Inc., for the fiscal year ended December 28, 1997, are incorporated herein by reference. With the exception of the pages listed in the above index and the information incorporated by reference included in Parts I, II and IV, the 1997 Annual Report to Stockholders is not deemed filed as part of this report. 11 Media General, Inc., and Subsidiaries Schedule II - Valuation and Qualifying Accounts and Reserves Fiscal Years Ended December 28, 1997, December 29, 1996, and December 31, 1995
Balance at Additions Balance beginning charged to Deductions at end of period expense-net net Transfers of period ---------- ----------- ---------- ---------- ----------- 1997 Allowance for doubtful accounts $5,270,765 $5,716,864 $6,122,261 $1,787,999 (a) $ 6,653,367 Reserve for warranties 4,146,005 --- 622,681 --- 3,523,324 ---------- ---------- ---------- ---------- ----------- Totals $9,416,770 $5,716,864 $6,744,942 $1,787,999 $10,176,691 ========== ========== ========== ========== =========== 1996 Allowance for doubtful accounts $4,529,960 $5,195,767 $4,546,572 $ 91,610 (a) $ 5,270,765 Reserve for warranties 3,040,833 1,700,000 594,828 --- 4,146,005 ---------- ---------- ---------- ---------- ----------- Totals $7,570,793 $6,895,767 $5,141,400 $ 91,610 $ 9,416,770 ========== ========== ========== ========== =========== 1995 Allowance for doubtful accounts $3,360,172 $4,224,695 $3,343,663 $ 288,756 (a) $ 4,529,960 Reserve for warranties 3,441,835 --- 401,002 --- 3,040,833 ---------- ---------- ---------- ---------- ----------- Totals $6,802,007 $4,224,695 $3,744,665 $ 288,756 $ 7,570,793 ========== ========== ========== ========== ===========
(a) Amount associated with the acquisition of properties. 12 Index to Exhibits Exhibit Number Description 2.1 Agreement and Plan of Merger dated July 19, 1996, by and among Media General, Inc., MG Acquisitions, Inc., and Park Acquisitions, Inc., incorporated by reference to Exhibit 2.1 of Form 8-K dated January 7, 1997. 2.2 First Amendment to Agreement and Plan of Merger dated as of January 7, 1997, by and among Media General, Inc., MG Acquisitions, Inc., and Park Acquisitions, Inc., incorporated by reference to Exhibit 2.2 of Form 8-K dated January 7, 1997. 3 (i) The Amended and Restated Articles of Incorporation of Media General, Inc., incorporated by reference to Exhibit 3.1 of Form 10-K for the fiscal year ended December 31, 1989. 3 (ii) Bylaws of Media General, Inc., amended and restated as of July 31, 1997, incorporated by reference to Exhibit 3 (ii) of Form 10-Q for the period ended September 28, 1997. 10.1 Form of Option granted under the 1976 Non-Qualified Stock Option Plan, incorporated by reference to Exhibit 2.2 of Registration Statement 2-56905. 10.2 Additional Form of Option to be granted under the 1976 Non-Qualified Stock Option Plan, incorporated by reference to Exhibit 2 to Post-Effective Amendment No. 3 Registration Statement 2-56905. 10.3 Addendum dated January 1984, to Form of Option granted under the 1976 Non-Qualified Stock Option Plan, incorporated by reference to Exhibit 10.13 of Form 10-K for the fiscal year ended December 31, 1983. 10.4 Addendum dated June 19, 1992, to Form of Option granted under the 1976 Non-Qualified Stock Option Plan, incorporated by reference to Exhibit 10.15 of Form 10-K for the fiscal year ended December 27, 1992. 10.5 The Media General, Inc., Amended and Restated Restricted Stock Plan, dated January 31, 1996, incorporated by reference to Exhibit 10.10 of Form 10-K for the fiscal year ended December 31, 1995. 10.6 Addendum dated June 19, 1992, to Form of Option granted under the 1987 Non-Qualified Stock Option Plan, incorporated by reference to Exhibit 10.20 of Form 10-K for the fiscal year ended December 27, 1992. 10.7 Media General, Inc., Executive Death Benefit Plan effective January 1, 1991, incorporated by reference to Exhibit 10.17 of Form 10-K for the fiscal year ended December 29, 1991. 13 10.8 Amendment to the Media General, Inc., Executive Death Benefit Plan dated July 24, 1991, incorporated by reference to Exhibit 10.18 of Form 10-K for the fiscal year ended December 29, 1991. 10.9 Shareholders Agreement, dated May 28, 1987, between Mary Tennant Bryan, Florence Bryan Wisner, J. Stewart Bryan III, and D. Tennant Bryan and J. Stewart Bryan III as trustees under D. Tennant Bryan Media Trust, and Media General, Inc., incorporated by reference to Exhibit 10.50 of Form 10-K for the fiscal year ended December 31, 1987. 10.10 Amended and Restated Redemption Agreement between Media General, Inc., and D. Tennant Bryan, dated April 7, 1994, incorporated by reference to Exhibit 10.21 of Form 10-Q for the period ended March 27, 1994. 10.11 Media General, Inc., Supplemental Thrift Plan, amended and restated as of November 17, 1994, incorporated by reference to Exhibit 10.27 of Form 10-K for the fiscal year ended December 25, 1994. 10.12 Media General, Inc., Executive Supplemental Retirement Plan, amended, and restated as of November 17, 1994, incorporated by reference to Exhibit 10.28 of Form 10-K for the fiscal year ended December 25, 1994. 10.13 Deferred Income Plan for Selected Key Executives of Media General, Inc., and form of Deferred Compensation Agreement thereunder dated as of December 1, 1984, incorporated by reference to Exhibit 10.29 of Form 10-K for the fiscal year ended December 31, 1989. 10.14 Media General, Inc., Management Performance Award Program, adopted November 16, 1990, and effective January 1, 1991, incorporated by reference to Exhibit 10.35 of Form 10-K for the fiscal year ended December 29, 1991. 10.15 Media General, Inc., Deferred Compensation Plan, amended and restated as of November 17, 1994, incorporated by reference to Exhibit 10.32 of Form 10-K for the fiscal year ended December 25, 1994. 10.16 Media General, Inc., ERISA Excess Benefits Plan, amended and restated as of November 17, 1994, incorporated by reference to Exhibit 10.33 of Form 10-K for the fiscal year ended December 25, 1994. 10.17 Media General, Inc., 1995 Long-Term Incentive Plan, adopted as of May 19, 1995, incorporated by reference to Exhibit 10.33 of Form 10-K for the fiscal year ended December 31, 1995. 10.18 Media General, Inc., 1996 Employee Non-Qualified Stock Option Plan, adopted as of January 30, 1996, incorporated by reference to Exhibit 10.20 of Form 10-K for the fiscal year ended December 29, 1996. 10.19 Media General, Inc., 1997 Employee Restricted Stock Plan, adopted as of May 16, 1997, incorporated by reference to Exhibit 10.21 of Form 10-K for the fiscal year ended December 29, 1996. 14 10.20 Media General, Inc., Directors' Deferred Compensation Plan, adopted as of May 16, 1997, incorporated by reference to Exhibit 10.22 of Form 10-K for the fiscal year ended December 29, 1996. 10.21 Amended and Restated Partnership Agreement, dated November 1, 1987, by and among Virginia Paper Manufacturing Corp., KR Newsprint Company, Inc., and CEI Newsprint, Inc., incorporated by reference to Exhibit 10.31 of Form 10-K for the fiscal year ended December 31, 1987. 10.22 Amended and Restated License Agreement, dated November 1, 1987, by and among Media General, Inc., Garden State Paper Company, Inc., and Southeast Paper Manufacturing Co., incorporated by reference to Exhibit 10.34 of Form 10-K for the fiscal year ended December 31, 1987. 10.23 Amended and Restated Umbrella Agreement, dated November 1, 1987, by and among Media General, Inc., Knight - Ridder, Inc., and Cox Enterprises, Inc., incorporated by reference to Exhibit 10.32 of Form 10-K for the fiscal year ended December 31, 1987. 10.24 Amended Newsprint Purchase Contract, dated November 1, 1987, by and among Southeast Paper Manufacturing Co., Media General, Inc., Knight-Ridder, Inc., and Cox Enterprises, Inc., incorporated by reference to Exhibit 10.35 of Form 10-K for the fiscal year ended December 31, 1987. 10.25 Television affiliation agreement, dated February 10, 1995, between WFLA-TV and the NBC Television Network incorporated by reference to Exhibit 10.38 of Form 10-K for the fiscal year ended December 25, 1994. 10.26 Amendments, dated May 17, 1993, to television affiliations agreement, between WFLA-TV and National Broadcasting Company, Inc., dated March 22, 1989, incorporated by reference to Exhibit 10.47 of Form 10-K for the fiscal year ended December 26, 1993. 10.27 Franchise Agreements, dated September 30, 1982, between Media General, Inc., Media General Cable of Fairfax County, Inc., and Fairfax County, Virginia, as amended January 30, 1984, incorporated by reference to Exhibit 10.32 of Form 10-K for the fiscal year ended December 31, 1983. 10.28 Second Amended and Restated Stock and Warrant Purchase and Shareholders' Agreement dated May 20, 1994, by and among Media General, Inc., Affiliated Newspapers Investments, Inc., and Denver Newspapers, Inc., incorporated by reference to Exhibit 2 of Form 8-K dated September 28, 1994. 10.29 Asset Purchase Agreement dated February 13, 1997, by and among Media General Newspapers, Inc., and Newspaper Holdings, Inc., incorporated by reference to Exhibit 10.36 of Form 10-K dated March 27, 1997. 13 Media General, Inc., Annual Report to Stockholders for the fiscal year ended December 28, 1997. 15 21 List of subsidiaries of the registrant. 23 Consent of Ernst & Young LLP, independent auditors. 27.1 1997 Financial Data Schedule. 27.2 1996 Restated Financial Data Schedule. 27.3 1995 Restated Financial Data Schedule. Note: Exhibits 10.1 - 10.20 are management contracts or compensatory plans, contracts or arrangements. 16 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MEDIA GENERAL, INC. Date: March 26, 1998 /s/ J. Stewart Bryan III --------------------------------------------- J. Stewart Bryan III, Chairman, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date Vice Chairman and Director March 26, 1998 - ------------------------------------ James S. Evans /s/ Marshall N. Morton Senior Vice President and March 26, 1998 - ------------------------------------ Marshall N. Morton Chief Financial Officer and Director /s/ Stephen Y. Dickinson Controller March 26, 1998 - ------------------------------------ Stephen Y. Dickinson /s/ Robert P. Black Director March 26, 1998 - ------------------------------------ Robert P. Black /s/ Charles A. Davis Director March 26, 1998 - ------------------------------------ Charles A. Davis /s/ Robert V. Hatcher, Jr. Director March 26, 1998 - ------------------------------------ Robert V. Hatcher, Jr. /s/ John G. Medlin, Jr. Director March 26, 1998 - ------------------------------------ John G. Medlin, Jr. /s/ Wyndham Robertson Director March 26, 1998 - ------------------------------------ Wyndham Robertson /s/ Henry L. Valentine, II Director March 26, 1998 - ------------------------------------ Henry L. Valentine, II
EX-13 2 EXHIBIT 13
Media General Operating Locations PUBLISHING The (Morganton) News Herald KALB-TV5 -- Alexandria, La. Virginia The Reidsville Review WHLT-TV22 -- Hattiesburg, Miss. Richmond Times-Dispatch The (Eden) Daily News WJTV-TV12 -- Jackson, Miss. Bristol Herald Courier The (Marion) McDowell News WNCT-TV9 -- Greenville, N.C. The (Lynchburg) News & Advance Florida WCBD-TV2 -- Charleston, S.C. The (Charlottesville) Daily Progress The Tampa Tribune WDEF-TV12 -- Chattanooga, Tenn. Potomac (Woodbridge) News (Sebring) Highlands Today WJHL-TV11 -- Johnson City, Tenn. Danville Register & Bee (Brooksville) Hernando Today WSLS-TV10 -- Roanoke, Va. The (Waynesboro) News Virginian Colorado Professional Communications The Manassas Journal Messenger The Denver Post (40% ownership) Systems -- Tampa, Fla. Culpeper Star-Exponent District of Columbia CABLE TELEVISION Suffolk News-Herald Media General News Service Media General Cable and Mega Beacon Press, Inc. -- Richmond Media General also owns more than Advertising -- Fairfax County, Va. Virginia Business Magazine -- Richmond 100 weeklies and periodicals. Media General Cable of Fredericksburg -- Media General Financial Services -- BROADCAST TELEVISION Fredericksburg, Va. Richmond WIAT-TV42 -- Birmingham, Ala. NEWSPRINT North Carolina WHOA-TV32 -- Montgomery, Ala. Garden State Paper Company, Inc. -- Winston-Salem Journal WJWB-TV17 -- Jacksonville, Fla. Garfield, N.J. (Concord & Kannapolis) Independent WFLA-TV8 -- Tampa, Fla. GSP Recycling -- Elmwood Tribune WSAV-TV3 -- Savannah, Ga. Park, N.J. The Hickory Daily Record* WTVQ-TV36 -- Lexington, Ky. Southeast Paper Manufacturing Company Statesville Record & Landmark (33% ownership) -- Dublin, Ga.
*Acquisition pending 3 Media General, Inc. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts)
Fiscal Years Ended - ------------------------------------------------------------------------------------------------------------------------- December 28, December 29, December 31, 1997 1996 1995 (53 weeks) - ------------------------------------------------------------------------------------------------------------------------- Revenues $ 909,987 $ 765,105 $ 707,766 Operating costs: Production costs 453,937 410,659 391,940 Selling, distribution and administrative 228,289 187,059 182,243 Depreciation and amortization 98,316 64,951 60,590 - ------------------------------------------------------------------------------------------------------------------------- Total operating costs 780,542 662,669 634,773 - ------------------------------------------------------------------------------------------------------------------------- Operating income 129,445 102,436 72,993 - ------------------------------------------------------------------------------------------------------------------------- Other income (expense): Interest expense (65,442) (21,267) (15,522) Investment income - unconsolidated affiliates: Southeast Paper Manufacturing Co. 8,334 19,508 12,780 Denver Newspapers, Inc.: Equity in net income 6,695 2,704 1,817 Preferred stock income 6,008 4,976 4,437 Other, net 1,267 1,381 5,204 - ------------------------------------------------------------------------------------------------------------------------- Total other income (expense) (43,138) 7,302 8,716 - ------------------------------------------------------------------------------------------------------------------------- Income before income taxes and extraordinary item 86,307 109,738 81,709 Income taxes 33,797 39,240 28,477 - ------------------------------------------------------------------------------------------------------------------------- Income before extraordinary item 52,510 70,498 53,232 Extraordinary item from early redemption of debt (net of income tax benefit of $38,613) (63,000) --- --- - ------------------------------------------------------------------------------------------------------------------------- Net income (loss) $ (10,490) $ 70,498 $ 53,232 ========================================================================================================================= Earnings (loss) per common share and equivalent: Income before extraordinary item $ 1.99 $ 2.68 $ 2.04 Extraordinary item (2.39) --- --- - ------------------------------------------------------------------------------------------------------------------------- Net income (loss) $ (0.40) $ 2.68 $ 2.04 ========================================================================================================================= Earnings (loss) per common share and equivalent- assuming dilution: Income before extraordinary item $ 1.97 $ 2.65 $ 2.01 Extraordinary item (2.37) --- --- - ------------------------------------------------------------------------------------------------------------------------- Net income (loss) $ (0.40) $ 2.65 $ 2.01 =========================================================================================================================
Notes to Consolidated Financial Statements begin on page 30. 25 Media General, Inc. CONSOLIDATED BALANCE SHEETS (In thousands, except shares)
ASSETS December 28, December 29, 1997 1996 - ------------------------------------------------------------------------------------------------------------------------- Current assets: Cash and cash equivalents $ 3,504 $ 4,471 Accounts receivable (less allowance for doubtful accounts 1997 - $6,653; 1996 - $5,271) 109,287 81,513 Inventories 17,594 16,329 Other 32,268 25,905 ----------------- ----------------- Total current assets 162,653 128,218 - ------------------------------------------------------------------------------------------------------------------------- Investments in unconsolidated affiliates 132,209 113,872 - ------------------------------------------------------------------------------------------------------------------------- Other assets 28,519 23,564 - ------------------------------------------------------------------------------------------------------------------------- Property, plant and equipment, at cost: Land 30,190 22,711 Buildings 158,775 151,834 Machinery and equipment 877,992 811,388 Construction in progress 16,245 11,642 Accumulated depreciation (578,296) (527,597) ----------------- ----------------- Net property, plant and equipment 504,906 469,978 - ------------------------------------------------------------------------------------------------------------------------- Excess of cost over fair value of net identifiable assets of acquired businesses (less accumulated amortization 1997 - $24,732; 1996 - $16,091) 572,458 274,923 - ------------------------------------------------------------------------------------------------------------------------- FCC licenses and other intangibles (less accumulated amortization 1997 - $18,601; 1996 - $2,518) 413,456 14,929 - ------------------------------------------------------------------------------------------------------------------------- Total assets $ 1,814,201 $ 1,025,484 =========================================================================================================================
Notes to Consolidated Financial Statements begin on page 30. 26 LIABILITIES AND STOCKHOLDERS' EQUITY
December 28, December 29, 1997 1996 - ------------------------------------------------------------------------------------------------------------------------- Current liabilities: Accounts payable $ 31,599 $ 30,154 Accrued expenses and other liabilities 98,190 72,310 Income taxes payable 1,422 1,381 Short-term borrowings --- 11,000 ----------------- ----------------- Total current liabilities 131,211 114,845 - ------------------------------------------------------------------------------------------------------------------------- Long-term debt 900,000 265,000 - ------------------------------------------------------------------------------------------------------------------------- Deferred income taxes 249,649 102,055 - ------------------------------------------------------------------------------------------------------------------------- Other liabilities and deferred credits 115,115 106,344 - ------------------------------------------------------------------------------------------------------------------------- Commitments and contingencies (Notes 10 and 11) - ------------------------------------------------------------------------------------------------------------------------- Stockholders' equity: Preferred stock ($5 cumulative convertible), par value $5 per share: Authorized 5,000,000 shares; none outstanding Common stock, par value $5 per share: Class A, authorized 75,000,000 shares; issued 26,172,424 and 25,950,287 shares 130,862 129,751 Class B, authorized 600,000 shares; issued 556,574 shares 2,783 2,783 Additional paid-in capital 16,733 11,393 Unearned compensation (2,100) (1,254) Retained earnings 269,948 294,567 ----------------- ----------------- Total stockholders' equity 418,226 437,240 - ------------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 1,814,201 $ 1,025,484 =========================================================================================================================
Notes to Consolidated Financial Statements begin on page 30. 27 Media General, Inc. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands, except shares and per share amounts)
Common Stock Additional ----------------------- Paid-in Unearned Retained Class A Class B Capital Compensation Earnings - --------------------------------------------------------------------------------------------------------------------------- Balance at December 25, 1994 $ 128,699 $ 2,783 $ 6,787 $ (1,676) $ 196,770 Net income --- --- --- --- 53,232 Cash dividends ($0.48 per share) --- --- --- --- (12,695) Exercise of options on 81,436 Class A shares 407 --- 699 --- --- Issuance of 88,305 Class A shares under restricted stock plan 442 --- 2,050 (2,492) --- Income tax benefits relating to restricted share dividends and exercised options --- --- 557 --- --- Issuance of 5,646 Class A shares under dividend reinvestment plan 28 --- 149 --- --- Amortization and forfeitures of unearned compensation (50) --- (174) 1,595 --- ------------- ------------- ------------- ------------- ------------- Balance at December 31, 1995 129,526 2,783 10,068 (2,573) 237,307 - --------------------------------------------------------------------------------------------------------------------------- Net income --- --- --- --- 70,498 Cash dividends ($0.50 per share) --- --- --- --- (13,238) Purchase and retirement of 44,212 Class A shares (221) --- (1,238) --- --- Exercise of options on 88,621 Class A shares 443 --- 1,470 --- --- Income tax benefits relating to restricted share dividends and exercised options --- --- 1,016 --- --- Issuance of 5,408 Class A shares under dividend reinvestment plan 27 --- 149 --- --- Amortization and forfeitures of unearned compensation (24) --- (72) 1,319 --- ------------- ------------- ------------- ------------- ------------- Balance at December 29, 1996 129,751 2,783 11,393 (1,254) 294,567 - --------------------------------------------------------------------------------------------------------------------------- Net loss --- --- --- --- (10,490) Cash dividends ($0.53 per share) --- --- --- --- (14,129) Exercise of options on 131,024 Class A shares 655 --- 1,991 --- --- Issuance of 91,000 Class A shares under restricted stock plan 455 --- 2,406 (2,861) --- Income tax benefits relating to restricted share dividends and exercised options --- --- 918 --- --- Issuance of 5,373 Class A shares under dividend reinvestment plan 27 --- 157 --- --- Amortization and forfeitures of unearned compensation (26) --- (132) 2,015 --- ------------- ------------- ------------- ------------- ------------- Balance at December 28, 1997 $ 130,862 $ 2,783 $ 16,733 $ (2,100) $ 269,948 ===========================================================================================================================
Notes to Consolidated Financial Statements begin on page 30. 28 Media General, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Fiscal Years Ended -------------------------------------------------- December 28, December 29, December 31, 1997 1996 1995 (53 weeks) - ------------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income (loss) $ (10,490) $ 70,498 $ 53,232 Adjustments to reconcile net income (loss): Extraordinary item 63,000 --- --- Depreciation and amortization 98,316 64,951 60,590 Deferred income taxes (4,227) (1,733) 4,271 Provision for doubtful accounts 5,228 5,084 4,188 Investment income - unconsolidated affiliates (18,337) (27,188) (19,034) Distribution from unconsolidated newsprint affiliate --- 15,600 --- ---------------- --------------- --------------- Net cash provided by operations 133,490 127,212 103,247 Change in assets and liabilities: Accounts receivable and inventories (13,074) (1,979) (16,730) Other current assets 14,392 1,780 (3,814) Accounts payable, accrued expenses and other liabilities (13,495) (1,745) 11,959 Other, net (1,965) 1,235 8,641 ----------------- --------------- --------------- Net cash provided by operating activities 119,348 126,503 103,303 - ------------------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Capital expenditures (41,599) (28,510) (29,076) Purchase of businesses (1997 - net of $476 million of debt assumed) (276,823) (40,024) (231,900) Sale of businesses 147,267 --- --- Change in restricted bond proceeds held in trust --- 550 2,668 Other, net (1,146) 5,944 3,871 ---------------- --------------- --------------- Net cash used by investing activities (172,301) (62,040) (254,437) - ------------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Increase in debt 1,022,000 38,000 207,000 Payment of debt (874,000) (88,750) (52,750) Premiums and costs related to early redemption of Park debt (84,703) --- --- Cash dividends paid (14,129) (13,238) (12,695) Other, net 2,818 629 1,283 ---------------- --------------- --------------- Net cash provided (used) by financing activities 51,986 (63,359) 142,838 - ------------------------------------------------------------------------------------------------------------------------- Net (decrease) increase in cash and cash equivalents (967) 1,104 (8,296) Cash and cash equivalents at beginning of year 4,471 3,367 11,663 ---------------- --------------- --------------- Cash and cash equivalents at end of year $ 3,504 $ 4,471 $ 3,367 =========================================================================================================================
Notes to Consolidated Financial Statements begin on page 30. 29 Media General, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1: Principles of Consolidation The accompanying financial statements include the accounts of Media General, Inc., and subsidiaries more than 50% owned (the Company). All significant intercompany balances and transactions have been eliminated. See Note 10 for a summary of the Company's accounting policies. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Certain prior year financial information has been reclassified to conform with the current year's presentation. The Company's fiscal year ends on the last Sunday in December. Results for 1997 and 1996 are for the 52 week periods ended December 28, 1997, and December 29, 1996, respectively, while results for 1995 are for the 53 week period ended December 31, 1995. Note 2: Acquisitions In January 1997, the Company acquired Park Acquisitions, Inc., parent of Park Communications, Inc. (Park). The acquisition included ten network affiliated television stations, 28 daily newspapers and 82 weekly newspapers. The total consideration approximated $715 million, representing the purchase of all the issued and outstanding common stock of Park, the assumption of liabilities (primarily $476 million of Park's high coupon long-term debt) and transaction costs. In early February 1997, the Company redeemed Park's high coupon debt and recorded an extraordinary charge of $63 million ($2.39 per share, or $2.37 per share - assuming dilution), representing the debt prepayment premium and the write-off of associated debt issuance costs, net of a $38.6 million tax benefit. The acquisition and redemption were financed with borrowings under an existing revolving credit facility (see Note 4). As intended, after the acquisition the Company completed sales of certain of the former Park properties for approximately $147 million and purchased new properties for approximately $53 million. These purchases included The Potomac News (Woodbridge, Virginia) in February 1997, and the Reidsville Review (Reidsville, North Carolina) and The Messenger (Madison, North Carolina) in April 1997. In August 1997, the Company completed the exchange of WTVR-TV (Richmond, Virginia) for three other stations, WSAV-TV (Savannah, Georgia), WJTV-TV (Jackson, Mississippi) and WHLT-TV (Hattiesburg, Mississippi), in order to comply with the Federal Communication Commission's requirement that WTVR-TV be divested within one year of its January 1997 purchase date. The new stations' results of operations have been included in the Company's operations beginning with the exchange date. The acquisitions were accounted for as purchases and the purchase price was allocated to the assets acquired and liabilities assumed based upon their estimated fair values. The amount allocated to FCC licenses and other identifiable intangibles and to excess cost over the net assets acquired relating to Park and the related sale, purchase, and exchange activities was $415 million and $313 million, respectively. These amounts are being amortized on a straight-line basis over periods ranging from 3 to 40 years. The results of operations of these businesses, since their respective dates of acquisition, have been included in the Company's consolidated results of operations. The following summary presents the actual consolidated results of operations for the year ended December 28, 1997, and unaudited pro forma consolidated results of operations for the year ended December 29, 1996, as if the acquisition had been completed at the beginning of fiscal year 1996. The pro forma information is presented for comparative purposes only and does not purport to be indicative of what would have occurred had the acquisition actually been made as of such date, nor is it necessarily indicative of future operating results:
Actual Pro Forma Year Ended Year Ended (In thousands, except per share amounts) December 28, 1997 December 29, 1996 - ------------------------------------------------------------------------------------------------------------------- Revenues $ 909,987 $ 914,846 ============= ============= Income before extraordinary item $ 52,510 $ 44,443 Extraordinary item (63,000) (63,000) ------------- ------------- Net loss $ (10,490) $ (18,557) ============= ============= Income (loss) per common share and equivalent: Income before extraordinary item $ 1.99 $ 1.69 Extraordinary item (2.39) (2.40) ------------- ------------- Net loss $ (0.40) $ (0.71) ============= =============
30
Actual Pro Forma Year Ended Year Ended December 28, 1997 December 29, 1996 - ------------------------------------------------------------------------------------------------------------------- Income (loss) per common share and equivalent- assuming dilution: Income before extraordinary item $ 1.97 $ 1.67 Extraordinary item (2.37) (2.37) ------------- ------------- Net loss $ (0.40) $ (0.70) ============= =============
In August 1996, the Company acquired, for approximately $38 million, the Danville Register & Bee, a daily newspaper in Virginia. Also, in May 1996, the Company acquired, for approximately $2 million, Professional Communications Systems, a provider of equipment and studio design services for television stations. The results of operations of these businesses, since their respective dates of acquisition, have been included in the Company's consolidated results of operations. In October 1995, the Company acquired, for approximately $232 million, the assets of several Virginia newspapers (Virginia Newspapers) from Worrell Enterprises, Inc., and its affiliates. The acquisition included four daily newspapers as well as a number of weekly and other publications. Virginia Newspapers' results of operations have been included in the Company's consolidated results of operations since the date of acquisition. Note 3: Investments in Unconsolidated Affiliates The Company has a one-third partnership interest in Southeast Paper Manufacturing Company (SEPCO), a domestic newsprint manufacturer which also pays licensing fees to the Company. The Company also has a 40% interest in Denver Newspapers, Inc. (DNI), the parent company of The Denver Post, a Denver, Colorado, daily newspaper company. Summarized financial information for these investments accounted for by the equity method follows: Southeast Paper Manufacturing Company:
(In thousands) 1997 1996 - -------------------------------------------------------------------------------------------------------- Current assets $ 74,667 $ 74,269 Noncurrent assets 318,478 309,550 Current liabilities 65,392 60,706 Noncurrent liabilities 118,894 139,256 - -------------------------------------------------------------------------------------------------------- (In thousands) 1997 1996 1995 - -------------------------------------------------------------------------------------------------------- Net sales $ 246,468 $ 277,543 $ 290,980 Gross profit 56,183 93,150 75,274 Net income 25,002 58,525 38,341 Company's equity in net income 8,334 19,508 12,780 - -------------------------------------------------------------------------------------------------------- Denver Newspapers, Inc.: (In thousands) 1997 1996 - -------------------------------------------------------------------------------------------------------- Current assets $ 37,658 $ 38,855 Noncurrent assets 124,414 99,770 Current liabilities 35,836 40,961 Noncurrent liabilities 38,726 26,867 Mandatorily redeemable preferred stock 54,300 54,300 - -------------------------------------------------------------------------------------------------------- (In thousands) 1997 1996 1995 - -------------------------------------------------------------------------------------------------------- Net sales $ 214,593 $ 190,140 $ 168,836 Gross profit 101,114 74,987 67,800 Net income 19,437 9,461 7,242 Net income applicable to common stock 16,737 6,761 4,542 Company's equity in net income 6,695 2,704 1,817 - --------------------------------------------------------------------------------------------------------
31 The summarized information for DNI includes its operating results for the 12 month periods ended November 30, 1997, 1996, and 1995. The Company recognizes, on a one month lag, 40% of DNI's net income applicable to common stockholders. The carrying value of the Company's investment in the DNI mandatorily redeemable preferred stock, which is being held to maturity and is included in investments in unconsolidated affiliates, was $49.3 million and $46 million, net of unamortized discounts of $12 million and $15.3 million, at December 28, 1997, and December 29, 1996, respectively. Other: Retained earnings of the Company at December 28, 1997, includes $31.8 million related to undistributed earnings of unconsolidated affiliates. During 1997, the Company invested approximately $4.6 million to acquire 18% of the common stock of Hoover's, Inc., a leading provider of on-line financial information. Note 4: Long-Term Debt Long-term debt at December 28, 1997, and December 29, 1996, was as follows:
(In thousands) 1997 1996 - ------------------------------------------------------------------------------------------------------------------------- Revolving credit facility $ 810,000 $ 180,000 8.62% senior notes due annually from 1998 to 2002 65,000 65,000 7.125% revenue bonds due 2022 20,000 20,000 Bank lines 5,000 --- ------------- -------------- Long-term debt (see discussion of interest rate swap agreements below) $ 900,000 $ 265,000 =========================================================================================================================
In December 1996, the Company entered into a seven-year revolving credit facility committing a syndicate of banks to lend the Company up to $1.2 billion. This facility has mandatory commitment reductions of 25% at the end of 2001 and 2002. Interest rates under the facility are typically based on London Interbank Offered Rate (LIBOR) plus a margin ranging from .225% to .75% (.50% at December 28, 1997), based on the Company's debt to cash flow ratio (leverage ratio), as defined. Under this facility, the Company pays commitment fees (.1875% at December 28, 1997) on the unused portion of the facility at a rate based on its leverage ratio. In 1992, the Company issued $20 million of New Jersey Economic Development Authority tax-exempt revenue bonds. The bonds are secured by a letter of credit, under which the Company pays an annual fee equal to .125% plus a margin (.50% at December 28, 1997) based on the Company's leverage ratio. The bonds contain certain optional and mandatory redemption provisions, and the bond proceeds were restricted for capital expenditures related to the Company's Garden State Paper newsprint operations in New Jersey. The Company's debt covenants contain a minimum net worth requirement ($349 million at December 28, 1997), and require the maintenance of an interest coverage ratio and a leverage ratio, as defined. Long-term debt maturities during the five years subsequent to December 28, 1997, aggregating $280,000,000, are as follows: 1998 -- $18,000,000; 1999 -- $13,000,000; 2000 -- $13,000,000; 2001 -- $13,000,000; 2002 -- $223,000,000. At December 28, 1997, the Company had borrowings of $5 million from bank lines and $13 million of senior notes due in 1998 classified as long-term debt in accordance with the Company's intention and ability to refinance these obligations on a long-term basis under existing facilities. The Company had interest rate swap agreements totaling $800 million at December 28, 1997, with maturities of approximately one to six years which effectively convert the Company's variable rate debt to fixed rate debt with a weighted average interest rate of 6.8% at December 28, 1997. The Company enters into interest rate swap agreements, which are not held for trading purposes, to manage interest cost and risk associated with increasing variable interest rates, primarily short-term increases in LIBOR. The Company uses the accrual method to account for all interest rate swap agreements. Realized gains or losses on termination of interest rate swaps are deferred and amortized over their remaining original terms as an adjustment to interest expense. Amounts which are due to or from interest rate swap counterparties are recorded as an adjustment to interest expense in the periods in which they accrue. The Company's exposure to credit loss on its interest rate swap agreements in the event of nonperformance by the counterparties is believed to be remote due to the Company's requirement that counterparties have a strong credit rating. 32 Estimated fair values of the Company's financial instruments are as follows:
(In thousands) 1997 1996 - ----------------------------------------------------------------------------------------------------------------------- Carrying Fair Carrying Fair Amount Value Amount Value - ----------------------------------------------------------------------------------------------------------------------- Assets Investment in DNI Preferred Stock (Note 3) $ 49,266 $ 51,500 $ 45,958 $ 45,958 Investment in Hoover's, Inc. 4,567 4,567 --- --- Interest rate swap agreements --- --- --- 1,005 Liabilities Long-term debt: Revolving credit facility 810,000 810,000 180,000 180,000 8.62% senior notes 65,000 67,833 65,000 68,512 7.125% revenue bonds 20,000 22,539 20,000 22,502 Bank lines 5,000 5,000 --- --- Interest rate swap agreements --- 12,337 --- --- Short-term bank lines --- --- 11,000 11,000 - ------------------------------------------------------------------------------------------------------------------------
The fair value of the Company's investment in DNI Preferred Stock, which is not publicly traded, was estimated by discounting expected future cash flows using a current market rate applicable to the yield, credit quality and maturity of the investment. The Company's investment in Hoover's, Inc. approximates its fair value. The fair values of the interest rate swaps are based on the estimated amounts the Company would receive or pay to terminate the swaps. Fair values of the Company's long-term debt are estimated using discounted cash flow analyses based on the Company's incremental borrowing rates for similar types of borrowings. The borrowings under the Company's revolving credit facility and bank lines approximate their fair value. Note 5: Business Segments The Company is a diversified communications company with four principal business segments located primarily in the Southeast United States. The Publishing Segment, the Company's largest segment based on revenues and operating income, currently includes twenty daily (ten of which were acquired in 1997) and a number of weekly newspapers and other publications. The Broadcast Television Segment consists of fourteen (eleven of which were acquired in 1997) television stations and a provider of equipment and studio design services. The Cable Television Segment includes two cable television operations and a cable advertising unit. The Newsprint Segment includes the Company's recycled newsprint operations. Intersegment sales (principally newsprint) comprise less than 1% of consolidated totals and are not shown separately. Corporate assets are principally property, plant and equipment and investments in unconsolidated affiliates. Other income, net, for 1995 includes a $3.6 million gain from the sale of the Company's interest in a Mexican newsprint operation. Operations for 1994 include recognition of a gain of $91.5 million ($83.3 million after-tax; $3.20 per share, or $3.17 per share - assuming dilution) related to the sale of the Company's investment in Garden State Newspapers, Inc. Information as to revenues, profitability and assets is as follows:
(In thousands) 1997 1996 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------------ Revenues Publishing $ 485,594 $ 407,791 $ 364,204 $ 338,088 $ 320,976 Broadcast Television 156,315 83,445 69,274 62,443 54,121 Cable Television 153,302 146,159 134,183 123,305 125,356 Newsprint 114,776 127,710 140,105 102,411 100,371 - ------------------------------------------------------------------------------------------------------------------------ Total $ 909,987 $ 765,105 $ 707,766 $ 626,247 $ 600,824 ========================================================================================================================
33
(In thousands) 1997 1996 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------------ Operating income (loss) Publishing $ 88,150 $ 49,454 $ 25,303 $ 31,443 $ 19,400 Broadcast Television 16,392 25,872 25,195 20,647 14,281 Cable Television 31,887 24,646 10,654 13,691 20,897 Newsprint (6,984) 2,464 11,841 470 5,725 - ------------------------------------------------------------------------------------------------------------------------ 129,445 102,436 72,993 66,251 60,303 Gain on sale of Garden State Newspapers investment --- --- --- 91,520 --- Interest expense (65,442) (21,267) (15,522) (16,948) (21,274) Equity in net income (loss) of unconsolidated affiliates 15,029 22,212 14,597 390 (990) Preferred stock income 6,008 4,976 4,437 2,545 --- Other, net 1,267 1,381 5,204 (789) 835 - ------------------------------------------------------------------------------------------------------------------------ Income before income taxes and extraordinary item $ 86,307 $ 109,738 $ 81,709 $ 142,969 $ 38,874 ======================================================================================================================== Identifiable assets Publishing $ 724,840 $ 602,276 $ 589,026 $ 367,042 $ 354,905 Broadcast Television 700,767 51,090 52,483 40,697 42,208 Cable Television 137,706 149,265 165,933 181,221 186,744 Newsprint 85,671 82,530 86,173 84,042 84,295 Corporate 165,217 140,323 123,128 114,163 77,090 - ------------------------------------------------------------------------------------------------------------------------ Total $ 1,814,201 $ 1,025,484 $ 1,016,743 $ 787,165 $ 745,242 ======================================================================================================================== Capital expenditures Publishing $ 10,417 $ 4,877 $ 5,653 $ 34,710 $ 12,485 Broadcast Television 9,203 2,269 1,805 1,852 2,227 Cable Television 13,067 11,733 17,895 16,371 13,110 Newsprint 7,920 6,504 3,392 3,797 4,413 Corporate 992 3,127 331 189 602 - ------------------------------------------------------------------------------------------------------------------------ Total $ 41,599 $ 28,510 $ 29,076 $ 56,919 $ 32,837 ======================================================================================================================== Depreciation and amortization Publishing $ 36,881 $ 29,300 $ 24,328 $ 22,869 $ 23,245 Broadcast Television 28,404 2,760 2,794 3,066 3,397 Cable Television 26,557 26,530 26,914 22,812 23,126 Newsprint 6,474 6,361 6,554 6,703 7,079 - ------------------------------------------------------------------------------------------------------------------------ Total $ 98,316 $ 64,951 $ 60,590 $ 55,450 $ 56,847 ========================================================================================================================
Note 6: Taxes on Income The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109), which requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this "liability" method, deferred tax liabilities and assets are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities by applying enacted statutory tax rates applicable to future years in which the differences are expected to reverse. The Company's federal income tax returns through fiscal year 1993 have been examined and closed by the Internal Revenue Service. The Company's federal income tax returns for the years 1994 and 1995, and various state tax returns, are currently under examination by the IRS and state tax authorities, respectively. The results of these examinations are not expected to be material to the Company's results of operations, financial position or cash flows. 34 Significant components of income taxes are as follows:
(In thousands) 1997 1996 1995 - ----------------------------------------------------------------------------------------------------------------------------- Current Federal $ 32,683 $ 35,143 $ 20,300 State 5,341 5,830 3,906 ------------- ------------- --------------- 38,024 40,973 24,206 ------------- ------------- --------------- Deferred Federal (3,722) (1,885) 4,073 State (505) 152 198 ------------- ------------- --------------- (4,227) (1,733) 4,271 ------------- ------------- --------------- $ 33,797 $ 39,240 $ 28,477 =============================================================================================================================
Temporary differences which give rise to significant components of the Company's deferred tax liabilities and assets at December 28, 1997, and December 29, 1996, are as follows:
(In thousands) 1997 1996 - ----------------------------------------------------------------------------------------------------------------------------- Deferred tax liabilities: Difference between book and tax bases of intangible assets $ 152,568 $ 2,987 Tax over book depreciation 123,296 123,649 Other 19,447 14,517 ------------- --------------- Total deferred tax liabilities 295,311 141,153 ------------- --------------- Deferred tax assets: Employee benefits (39,688) (35,209) Other (17,966) (14,096) ------------- --------------- Total deferred tax assets (57,654) (49,305) ------------- --------------- Deferred tax liabilities, net 237,657 91,848 Deferred tax assets included in other current assets 11,992 10,207 ------------- --------------- Deferred tax liabilities $ 249,649 $ 102,055 =============================================================================================================================
Reconciliation of income taxes computed at the federal statutory tax rate to actual income tax expense is as follows:
(In thousands) 1997 1996 1995 - ----------------------------------------------------------------------------------------------------------------------------- Income taxes computed at federal statutory tax rate $ 30,208 $ 38,408 $ 28,598 Increase (reduction) in income taxes resulting from: State income taxes, net of federal income tax benefit 3,143 3,888 2,664 Investment income -- unconsolidated affiliates (3,557) (2,150) (1,751) Amortization of excess cost (goodwill) 2,900 247 139 Life insurance plans (1,625) (1,772) (1,674) Other 2,728 619 501 ------------- ------------- --------------- $ 33,797 $ 39,240 $ 28,477 =============================================================================================================================
Net of refunds, in 1997, 1996 and 1995, the Company paid income taxes of $29.4 million, $42.9 million and $18.4 million, respectively. Note 7: Common Stock and Stock Options Holders of the Class A common stock are entitled to elect 30% of the Board of Directors and, with the holders of Class B common stock, also are entitled to vote on the reservation of shares for stock awards and on certain specified types of major corporate reorganizations or acquisitions. Class B common stock can be converted into Class A common stock on a share-for-share basis at the option of the holder. Both classes of common stock receive the same dividends per share. In January 1997, the Directors' Deferred Compensation Plan became effective for each non-employee member of the Board of Directors of the Company. The plan provides that each non-employee Director shall receive half of his or her annual compensation for services to the Board in the form of Deferred Stock Units (DSU); each non-employee Director additionally may elect to receive the 35 balance of his or her compensation in cash or DSU. DSU accounts do not entitle non-employee Directors to any rights of a holder of common stock. DSU account balances may be settled as of a non-employee Director's retirement date by a cash lump-sum payment, a single distribution of common stock, or annual installments of either cash or common stock over a period of up to ten years. Expense recognized in 1997 under the plan was $550,000. In May 1995, shareholders approved the 1995 Long-Term Incentive Plan (LTIP) which reserved and made available 1,300,000 shares of Class A common stock for stock-based awards to key employees, of which 1,000,000 are reserved for nonqualified stock options and 300,000 are reserved for restricted stock awards. The plan is administered by the Compensation Committee of the Board of Directors. Grant prices of stock options are determined by the Committee and shall not be less than the fair market value on the date of grant. Options are exercisable during the continued employment of the optionee but not for a period greater than ten years and not for a period greater than one year after termination of employment, and they become exercisable at the rate of one-third each year from the date of grant. Restricted stock is awarded in the name of each of the participants; these shares have all the rights of other Class A shares, subject to certain restriction and forfeiture provisions. In 1997, 91,000 shares, of which 89,000 shares remain restricted at December 28, 1997, were granted under the terms of the plan. Restrictions on the shares expire no more than ten years after the date of award, or earlier if pre-established performance targets are met. The plan will continue until terminated by the Company. Options to purchase Class A common stock were granted to key employees under the 1976 and 1987 nonqualified stock option plans prior to the 1995 LTIP. The Company will not make any future awards under these plans and past awards are not affected. Options outstanding under the plans are exercisable during the continued employment of the optionee, but not for a period greater than ten years after the date of grant for options granted subsequent to the 1991 amendment to the 1987 plan and for a period of not greater than three years after termination of employment. Restricted shares of the Company's Class A common stock were granted to certain key employees under the 1991 restricted stock plan. The Company will not make any future awards under the plan and past awards are not affected. At December 28, 1997, 78,700, and 114,300 shares granted in 1995 and 1991, respectively, remain restricted under the terms of the plan. Shares were awarded in the name of each of the participants; these shares have all the rights of other Class A shares, subject to certain restrictions and forfeiture provisions. Restrictions on the shares expire no more than ten years after the date of the award, or earlier if certain performance targets are met. Unearned compensation was recorded at the date of the restricted stock awards based on the market value of shares. Unearned compensation, which is shown as a separate component of stockholder's equity, is being amortized to expense over a vesting period (not exceeding ten years) based upon expectations of meeting certain performance targets. The amount amortized to expense in 1997, 1996 and 1995 was $1,843,000, $1,198,000 and $1,361,000, respectively. In 1996, the Company adopted the disclosure-only provisions of Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation." As permitted by the provisions of SFAS No. 123, the Company continues to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its stock-based awards. Accordingly, since stock options are issued at fair market value on the date of grant, the Company does not recognize compensation cost related to its stock option plans. The following information is provided solely in connection with the disclosure requirements of SFAS No. 123. If the Company had elected to recognize compensation cost related to its stock options granted in 1997, 1996 and 1995 in accordance with the provisions of SFAS No. 123, earnings per share would have declined $0.03, $0.02 and $0.01 in 1997, 1996 and 1995, and pro forma net income (loss) and earnings (loss) per share would have been ($11,452,000), $69,896,000 and $52,936,000; and ($0.43), $2.63 and $2.00, respectively (per share amounts assuming dilution are identical). The 1996 and 1995 pro forma amounts are not indicative of future effects of applying the provisions of SFAS No. 123 since a three year vesting period is used to measure pro forma compensation expense and 1996 and 1995 amounts reflect expense for two years and one year of vesting, respectively. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 1997, 1996 and 1995, respectively: risk-free interest rates of 6.54%, 5.57% and 7.78%; dividend yields of 1.57%, 1.75% and 2.03%; volatility factors of .287, .282 and .324; and an expected life of 8 years. A summary of the Company's stock option activity, and related information for the years ended December 28, 1997, December 29, 1996 and December 31, 1995 follows: 36
1997 1996 1995 -------------------------- ------------------------- ---------- Weighted- Weighted- Average Average Exercise Exercise Options Shares Price Shares Price Shares - ----------------------------------------------------------------------------------------------------------------------------- Outstanding-beginning of year 1,066,722 $ 25.59 1,038,511 $ 24.68 1,022,649 Granted 144,500 31.44 130,400 31.81 130,400 Exercised (131,024) 20.20 (88,621) 21.59 (81,436) Forfeited (31,101) 38.60 (13,568) 41.62 (33,102) ------------- ------------ -------------- Outstanding-end of year 1,049,097 26.68 1,066,722 25.59 1,038,511 ------------- ------------ -------------- Price Range at end of year $ 2 to $46 $ 2 to $46 $ 2 to $46 Price Range for exercised shares $ 2 to $32 $ 2 to $32 $ 2 to $32 Available for grant at end of year 725,100 869,600 310,187 Exercisable at end of year 789,300 814,622 776,711 Weighted-average fair value of options granted during the year $ 12.47 $ 11.44 - ------------------------------------------------------------------------------------------------------------------------------
The following table summarizes information about stock options outstanding at December 28, 1997:
Options Outstanding Options Exercisable - ---------------------------------------------------------------------------------- ------------------------------------ Range of Weighted-Average Exercise Number Remaining Weighted-Average Number Weighted-Average Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price - ------------------------------------------------------------------------------------------------------------------------------ $ 2.50 16,400 * $ 2.50 16,400 $ 2.50 15.75 43,830 ** 15.75 43,830 15.75 18.81-20.19 345,800 4 years 19.58 345,800 19.58 27.63-31.81 492,067 8 years 29.91 232,270 28.52 32.50-46.50 151,000 ** 38.25 151,000 38.25 ---------- --------- 2.50-46.50 1,049,097 26.68 789,300 25.21 ========== =========
(*) exercisable during lifetime of optionee (**) exercisable during the continued employment of the optionee and for a three-year period thereafter Note 8: Retirement Plans The Company has a non-contributory defined benefit retirement plan which covers substantially all employees. Benefits are based on salary and years of service. The Company's funding policy is to contribute annually the tax-deductible amounts required by statute. Plan assets include marketable securities, U.S. government obligations and cash equivalents. The Company also has a non-contributory unfunded executive supplemental retirement plan which supplements the coverage available to certain executives under the defined benefit retirement plan. Certain employees of the Company's newsprint operations participate in multi-employer defined benefit and defined contribution pension plans. The plans provide benefits to substantially all union employees. Net pension cost for 1997, 1996 and 1995 is summarized below.
(In thousands) 1997 1996 1995 - ----------------------------------------------------------------------------------------------------------------------------- Benefits earned during the year $ 4,845 $ 4,568 $ 4,067 Interest cost on projected benefit obligation 12,910 11,362 10,973 Actual return on plan assets (36,840) (24,566) (38,363) Net amortization and deferral 18,665 8,074 22,490 ------------- -------------- ------------- Defined benefit plan credit (420) (562) (833) Supplemental retirement plan expense 2,955 2,705 2,371 Multi-employer plans expense 678 627 576 ------------- -------------- ------------- Total expense $ 3,213 $ 2,770 $ 2,114 =============================================================================================================================
37 The non-contributory defined benefit retirement plan's status was as follows:
December 28, December 29, (In thousands) 1997 1996 - ------------------------------------------------------------------------------------------------------------- Actuarial present value of benefit obligation: Vested $ 152,396 $ 123,813 Non-vested 4,109 3,887 -------------- ---------- Total accumulated benefit obligation $ 156,505 $ 127,700 - ------------------------------------------------------------------------------------------------------------- Plan assets at fair value $ 216,205 $ 187,611 Projected benefit obligation 182,259 155,196 ------------- --------- Plan assets in excess of projected benefit obligation 33,946 32,415 Unrecognized net gain (46,186) (43,372) Unrecognized prior service costs 4,832 5,053 Unrecognized net asset from transition (3,300) (4,049) ------------- ---------- Net pension liability $ (10,708) $ (9,953) =============================================================================================================
Assumptions used in determining the funded status of the non-contributory defined benefit retirement plan are as follows:
1997 1996 1995 ---- ---- ---- Discount rate 7.25% 7.75% 7.50% Average rate of increase in compensation levels 4.25% 4.75% 4.50% Expected long-term rate of return on plan assets 10.50% 10.00% 10.00%
The 1997 increases in the projected and accumulated benefit obligations are attributable to the addition of employees due to acquisitions, the lower discount rate, and a change in the mortality table used which reflects a longer life expectancy. At December 28, 1997, and December 29, 1996, the accrued pension cost of the supplemental retirement plan totaled $16.3 million and $14.4 million, respectively, and was included as a liability in the accompanying balance sheet. The Company also sponsors a thrift plan covering substantially all employees. Company contributions represent a partial matching of employee contributions up to a maximum of 3.3% of the employee's salary. Contributions charged to expense under the plan were $4.5 million, $4.2 million and $4 million in 1997, 1996 and 1995, respectively. Note 9: Postretirement Benefits The Company provides certain health and life insurance benefits for retired employees. Substantially all full-time employees hired before 1992 may become eligible for all or a portion of those benefits if they retire after age 55 with at least ten years of service. Employees hired after 1991 are not eligible for Company paid health care and life insurance benefits at retirement. The postretirement health care plan for participants hired before 1992 and retiring after December 31, 1991, is contributory and contains cost-sharing features. The annual health care benefit paid by the Company is fixed and determined by years of service and retirement age and is limited to $4,500 per employee. Company paid life insurance benefits are based on age and compensation, with a maximum insurance coverage limitation of $50,000 for post-1991 retirees. The Company's policy is to fund postretirement benefits as claims and premiums are paid. The following table sets forth components of the accumulated postretirement benefit obligation included in the accompanying balance sheet at December 28, 1997, and December 29, 1996.
(In thousands) Medical Plans Life Insurance Plans - ----------------------------------------------------------------------------------------------------------------------------- 1997 1996 1997 1996 --------- --------- --------- --------- Retirees $ 14,642 $ 12,354 $ 5,809 $ 5,582 Fully eligible plan participants 994 907 416 422 Other active plan participants 8,681 8,710 2,163 2,465 ---------- ---------- --------- --------- Accumulated postretirement benefit obligation 24,317 21,971 8,388 8,469 Unrecognized accumulated net (loss) gain (5,553) (4,368) 960 647 ---------- ---------- --------- --------- Accrued postretirement benefit cost $ 18,764 $ 17,603 $ 9,348 $ 9,116 =============================================================================================================================
38 Net periodic postretirement benefit cost for 1997, 1996 and 1995 includes the following components:
(In thousands) Medical Plans Life Insurance Plans - ----------------------------------------------------------------------------------------------------------------------------- 1997 1996 1995 1997 1996 1995 ----------- ----------- ----------- ----------- ----------- ---------- Service cost $ 459 $ 410 $ 324 $ 110 $ 116 $ 114 Interest cost 1,836 1,620 1,383 601 624 570 Amortization of net loss 94 99 --- 31 38 --- ----------- ----------- ----------- ----------- ----------- ---------- Net periodic postretirement benefit cost $ 2,389 $ 2,129 $ 1,707 $ 742 $ 778 $ 684 =============================================================================================================================
The annual assumed rate of increase in the health care cost trend rate is 9.25% for 1998 (9.75% for 1997), and is assumed to decrease gradually to 5.25% in 2006 and thereafter for both pre-age 65 and later benefits. Increasing the health care cost trend rate assumption by one percentage point in each year would increase the accumulated postretirement benefit obligation at December 28, 1997, and December 29, 1996, by approximately $1.2 million and $1 million, and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for 1997 and 1996 by approximately $.1 million. The discount rate used to determine the accumulated postretirement benefit obligation was 7.25% and 7.75% for 1997 and 1996, respectively. The average rate of increase in compensation levels used to determine life insurance benefits was 4.25% and 4.75% for 1997 and 1996, respectively. Note 10: Other Revenue recognition Advertising revenue is recognized when advertisements are published or aired, or when related advertising services are rendered. Subscription revenue is recognized on a pro-rata basis over the term of the subscription. Newsprint revenue is recognized upon shipment of newsprint. Depreciation and amortization Plant and equipment are depreciated, primarily on a straight-line basis, over their estimated useful lives which are generally 40 years for buildings and range from 3 to 20 years for machinery and equipment. Depreciation deductions are computed by accelerated methods for income tax purposes. Excess of cost over fair value of net identifiable assets of acquired businesses through 1970 (approximately $33 million) is not amortized unless there is evidence of diminution in value; such excess cost incurred after 1970 is being amortized by the straight-line method over periods not exceeding 40 years. FCC licenses and other intangibles are being amortized by the straight-line method over periods ranging from 3 to 40 years. Management periodically evaluates the recoverability of intangible assets acquired by reviewing the current and projected profitability of each of the Company's operations. Amortization of the excess of cost over fair value of net identifiable assets of acquired businesses and FCC licenses and other intangibles was $31.1 million, $7.9 million and $3.1 million in 1997, 1996 and 1995, respectively. Interest In 1997, 1996 and 1995, the Company's interest expense was $65.4 million, $21.3 million and $15.5 million, respectively, which is net of $1.8 million, $.3 million and $.4 million of interest costs capitalized for those years. Interest payments made during 1997, 1996 and 1995, net of amounts capitalized, were $62.2 million, $23.3 million and $14.4 million, respectively. Cash and cash equivalents Cash and cash equivalents include highly liquid investments with original maturities of three months or less whose carrying amount approximates fair value. Inventories Inventories, principally raw materials, are valued at the lower of cost or market. The cost of raw material used in the production of newsprint is determined on the basis of average cost. The cost of newsprint inventories is determined on the first-in, first-out method. Other current assets Other current assets include program rights of $10.8 million and $5.8 million at December 28, 1997, and December 29, 1996, respectively. Accrued expenses and other liabilities Accrued expenses and other liabilities consist of the following:
(In thousands) 1997 1996 - ----------------------------------------------------------------------------------------------------- Payroll $ 19,492 $ 17,828 Program rights 11,604 5,724 Advances from unconsolidated newsprint affiliate 6,667 6,667 Unearned revenue 19,855 7,204 Other 40,572 34,887 ------------- -------------- Total $ 98,190 $ 72,310 =====================================================================================================
39 Lease obligations The Company and its subsidiaries rent certain facilities and equipment under operating leases. These leases extend for varying periods of time up to 22 years and in most cases contain renewal options. Total rental expenses amounted to $8.8 million in 1997, $8.3 million in 1996 and $7 million in 1995. Minimum rental commitments under operating leases with noncancelable terms in excess of one year are as follows: 1998 -- $7.0 million; 1999 -- $5.9 million; 2000 -- $4.6 million; 2001-- $3.6 million; 2002 -- $3.0 million; subsequent years -- $6.9 million. Concentrations of credit risk Media General is a diversified communications company which sells products and services to a wide variety of customers located principally in the eastern United States. The Company's trade receivables result primarily from its publishing, broadcast television, cable television and newsprint operations. The Company routinely assesses the financial strength of significant customers, and this assessment, combined with the large number and geographic diversity of its customer base, limits its concentration of risk with respect to trade receivables. Earnings per share The Company has adopted SFAS No. 128, "Earnings Per Share," which was issued by the Financial Accounting Standards Board in February 1997 and became effective for financial statements for periods ending after December 15, 1997. The following chart is a reconciliation of the numerators and the denominators of the basic and diluted per-share computations for income before extraordinary item, as presented in the Consolidated Statements of Operations.
1997 1996 1995 --------------------------------- -------------------------------- ------------------------------------- (In thousands, except Income Shares Per Share Income Shares Per Share Income Shares Per Share per share amounts) (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount - --------------------------------------------------------------------------------------------------------------------------------- Basic EPS Income available to common stock- holders before extraordinary item $ 52,510 26,353 $ 1.99 $ 70,498 26,273 $ 2.68 $ 53,232 26,136 $ 2.04 ====== ====== ====== Effect of Dilutive Securities Stock Options 169 179 171 Restricted Stock (37) 172 (24) 120 (41) 167 ------ ------- ------ ------ ------- ------ Diluted EPS Income available to common stock- holders + assumed conversions $ 52,473 26,694 $ 1.97 $ 70,474 26,572 $ 2.65 $ 53,191 26,474 $ 2.01 ===============================================================================================================================
Commitments and contingencies Over the next four years the Company is committed to purchase approximately $28.7 million of program rights which currently are not available for broadcast, including programs not yet produced. If such programs are not produced the Company's commitment would expire without obligation. During 1997, the Company entered into a lease agreement whereby the owner would construct and own real estate facilities at a cost of up to $60 million and lease the facilities to the Company for a term of up to 5 years. The Company's occupancy is expected to occur in the second quarter 1998. The Company may cancel the lease by purchasing or arranging for the sale of the facilities. The Company has guaranteed recovery of a portion (88%) of the owner's cost. Such cost approximated $17 million at December 28, 1997. The Company entered into a stock redemption agreement in 1985, which was amended in 1988, and 1994, with Mr. D. Tennant Bryan, former Chairman of the Executive Committee of the Board of Directors. The amended agreement provides that upon Mr. Bryan's death, his estate has the option to sell and the Company has a separate option to buy the lesser of (a) 15% of the Company's Class A stock owned by Mr. Bryan at his death and (b) a sufficient number of shares of Class A stock to fund estate taxes and certain other expenses. The purchase price for each share redeemed under the amended agreement will equal 90% of the average daily closing price for a share of Class A stock during the 91 days preceding the date that is 30 days after the date of death. If the Company or the estate had exercised an option, respectively, to buy or sell, the maximum cost to the Company of the redemption would have approximated $12 million at December 28, 1997. Note 11: Subsequent Events In early 1998 the Company acquired, for approximately $92 million, the Bristol Herald Courier, a daily newspaper in southwestern Virginia, and two affiliated weekly newspapers. Additionally, the Company agreed to purchase The Hickory Daily Record located in northwestern North Carolina and announced the sale of its Kentucky newspaper properties acquired with the 1997 purchase of Park. These transactions are expected to close later in 1998. The acquisitions will be included in the Company's results of operations from their dates of acquisition. 40 Media General, Inc. Management Statement Primary responsibility for the integrity and objectivity of the Company's financial statements rests with Management. The financial statements report on Management's stewardship of Company assets. They are prepared in conformity with generally accepted accounting principles and accordingly include amounts that are based on Management's informed estimates and judgments. Nonfinancial information included in the annual report has also been prepared by Management and is consistent with the financial statements. Media General, Inc., maintains an accounting system and related controls designed to provide reasonable assurance that there is proper authorization and accounting for all transactions, that financial records are reliable for preparing financial statements, and that assets are safeguarded against loss or unauthorized use. The system is supported by written policies and guidelines, a program of internal audit and the selection and training of qualified personnel. Based on work begun in early 1996 the Company implemented a new payroll and human resource management system at the beginning of 1997. Additionally, the Company is currently laying the groundwork for the implementation of a new comprehensive financial information system which will become fully operational at the beginning of the 1999 fiscal year. The Audit Committee of the Board of Directors, which is composed solely of outside directors, meets periodically with Management, internal auditors and the independent auditors to review their respective activities and the discharge of their responsibilities. Media General operates under a strict Code of Ethics that all employees are required to follow without exception. The Code requires ethical standards in all of the Company's relationships, including those with customers, suppliers and government agencies. January 26, 1998 J. Stewart Bryan III Marshall N. Morton Chairman, President and Chief Executive Officer Senior Vice President and Chief Financial Officer
Report of Independent Auditors The Board of Directors and Stockholders, Media General, Inc. We have audited the accompanying consolidated balance sheets of Media General, Inc., as of December 28, 1997, and December 29, 1996, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three fiscal years in the period ended December 28, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Media General, Inc., at December 28, 1997, and December 29, 1996, and the consolidated results of its operations and its cash flows for each of the three fiscal years in the period ended December 28, 1997, in conformity with generally accepted accounting principles. January 26, 1998 Richmond, Virginia ERNST & YOUNG LLP 41 MEDIA GENERAL, INC., FINANCIAL REVIEW AND MANAGEMENT ANALYSIS This discussion addresses the principal factors affecting the Company's operations during the past three years and should be read in conjunction with the Company's financial statements and the Ten-Year Financial Summary which appear elsewhere in this report. Operating results for fiscal years 1997 and 1996 included 52 weeks, while fiscal year 1995 included 53 weeks. ACQUISITIONS In January 1997, the Company acquired Park Acquisitions, Inc., parent of Park Communications, Inc. (Park), which included ten network affiliated television stations, 28 daily newspapers and 82 weekly newspapers. The total consideration approximated $715 million, representing the purchase of all the issued and outstanding common stock of Park, the assumption of liabilities (primarily $476 million of Park's high coupon long-term debt) and transaction costs. In early February 1997, the Company redeemed Park's high coupon debt and recorded an extraordinary charge of $63 million ($2.39 per share, or $2.37 per share - assuming dilution), representing the debt prepayment premium and the write-off of associated debt issuance costs, net of a $38.6 million tax benefit. In conjunction with the acquisition, the Company completed sales of certain of the former Park properties for approximately $147 million and purchased new properties for approximately $53 million. These purchases included the Potomac News (Woodbridge, Virginia) in February 1997, and the Reidsville Review (Reidsville, North Carolina) and The Messenger (Madison, North Carolina) in April 1997. In August 1997, the Company completed the exchange of WTVR-TV (Richmond, Virginia) for three other stations, WSAV-TV (Savannah, Georgia), WJTV-TV (Jackson, Mississippi) and WHLT-TV (Hattiesburg, Mississippi), in order to comply with the Federal Communication Commission's requirement that WTVR-TV be divested within one year of its January 1997 purchase date. In August 1996, the Company acquired, for approximately $38 million, the Danville Register & Bee (Danville), a daily newspaper in Virginia. In May 1996, the Company acquired, for approximately $2 million, Professional Communications Systems (PCS), a provider of equipment and studio design services for television stations. In October 1995, for approximately $232 million, the Company acquired newspaper properties in Lynchburg, Charlottesville, Culpeper and Suffolk, Virginia (Virginia Newspapers) which included four daily and Sunday newspapers and a number of weekly and other publications. The aforementioned transactions were accounted for as purchases and accordingly, the operations of the acquired properties have been included in the Company's consolidated results of operations since their dates of purchase. The following discussion of segment operating results is primarily focused on the year-over-year comparative performance of the Company excluding the operating impact of acquisitions and exchanges during the periods. Subsequent to the end of the fiscal year, the Company acquired, for approximately $92 million, the Bristol Herald Courier, a daily newspaper in southwestern Virginia, and two affiliated weekly newspapers. Additionally, the Company agreed to purchase The Hickory Daily Record located in northwestern North Carolina and announced the sale of its Kentucky newspaper properties acquired with the 1997 purchase of Park. These transactions are expected to close later in 1998. The acquisitions will be included in the Company's results of operations from their dates of acquisition. CONSOLIDATED OPERATING RESULTS (In millions, except per share amounts)
Change from Change from 1997 prior year 1996 prior year 1995 ---- ---------- ---- ---------- ---- Revenues $ 910.0 19% $ 765.1 8% $ 707.8 Operating Income 129.4 26 102.4 40 73.0 Net Income (Loss) (10.5) * --- 70.5 32 53.2 Earnings (Loss) Per Share (0.40) * --- 2.68 31 2.04 Earnings (Loss) Per Share - assuming dilution (0.40) * --- 2.65 32 2.01
*Includes extraordinary charge from early redemption of Park debt ($63 million, net of a tax benefit of $38.6 million; $2.39 per share, or $2.37 per share-assuming dilution) SEGMENT OPERATING RESULTS Each segment's operating results include operating cash flow information in addition to revenues, operating expenses and operating income. Operating cash flow amounts presented with business segment information represent operating income plus depreciation and amortization of intangible assets. Such cash flow 42 amounts vary from net cash provided by operating activities, as presented in the Consolidated Statements of Cash Flows, because cash payments for interest and taxes are not reflected, nor are the cash flow effects of non-operating items or changes in certain operations-related balance sheet accounts. The Company believes the presentation of operating cash flow amounts is important for several reasons. First, fluctuations in depreciation and amortization from year to year are not necessarily indicative of the underlying performance of a company. Second, the year-over-year change in operating cash flow can be a useful measure of performance and present a meaningful indicator of results that may occur in future periods. Finally, acquisition values of communications and media businesses are often based on multiples of operating cash flow. PUBLISHING (In millions)
Change from Change from 1997 prior year 1996 prior year 1995 ---- ---------- ---- ---------- ---- Revenues $ 485.6 19% $ 407.8 12% $ 364.2 Operating Expenses 397.4 11 358.3 6 338.9 Operating Income 88.2 78 49.5 95 25.3 Depreciation & Amortization 36.8 26 29.3 20 24.3 Operating Cash Flow 125.0 59 78.8 59 49.6
The preceding chart contains the operating results of the Publishing Segment, including recent acquisitions. In 1997, Publishing Segment revenues increased $53.1 million and operating income rose $10.1 million over 1996 as a direct result of acquisitions. In 1996, Publishing Segment revenues and operating income increased $36.6 million and $9.2 million, respectively, over 1995, due to 1996 and 1995 acquisitions. 1997 Compared to 1996 Excluding 1997 and 1996 acquisitions, Publishing Segment revenues rose $24.7 million (6%) in 1997. At the Company's metropolitan newspapers, which include its three largest daily newspapers, advertising revenues increased $20 million as a result of expanded linage (up 4.1%) combined with higher advertising rates (up an average of 3.4%). The year-over-year increase was principally attributable to strong performances in classified advertising, led by the employment and automotive categories, and in retail advertising. A small decrease in circulation revenues of 1.8%, resulting from a decline in circulation volume (down 2.3%) coupled with slightly higher average rates, was more than offset by the growth in general advertising revenues. Publishing Segment operating expenses, excluding 1997 and 1996 acquisitions, decreased $3.9 million in the current year compared to the prior year. This drop was attributable to a $13.1 million reduction in newsprint expense, due to decreased cost per ton, partially offset by a $2.4 million increase in employee compensation and benefit costs combined with a moderate increase in depreciation expense. Additionally, certain other operating expenses increased, including approximately $4.2 million in one-time costs incurred in 1997 related to re-engineering initiatives at several of the Segment's locations including the Company's Tampa, Florida, and Richmond, Virginia, daily newspapers. The majority of the savings generated by these re-engineering efforts will be realized in 1998 and subsequently. Operating income for the Publishing Segment, excluding 1997 and 1996 acquisitions, rose $28.6 million (59%) in 1997. This growth came principally from increased revenues at the Company's metropolitan newspapers, particularly in classified and retail advertising, coupled with the substantial decline in newsprint expense. 1996 Compared to 1995 Publishing Segment revenues, excluding 1996 and 1995 acquisitions, increased $7 million (2%) in 1996. At the Company's metropolitan newspapers, advertising revenues increased $5.5 million, reflecting the effect of a 1.8% average rate increase together with a slight rise in advertising inches. Classified advertising, led by the employment and automotive categories, was the primary contributor to the overall revenue improvement. A small increase in general advertising revenue was more than offset by a decline in retail advertising revenue. Circulation revenues rose 2% in 1996, the result of a 6.3% average rate increase partially offset by a 4% drop in circulation volume. Publishing Segment operating expenses, excluding 1996 and 1995 acquisitions, decreased $8 million in 1996. Employee compensation and benefit costs dropped $4 million, primarily the result of a re-engineering program implemented at the Company's Winston-Salem, North Carolina, daily newspaper during the last half of 1995. Other expense reductions were due to the absence of $2.9 million of costs related to the aforementioned re-engineering program at Winston-Salem, and a $2.1 million reduction in depreciation and amortization, primarily the result of certain intangibles becoming fully amortized in 1995. In addition, advertising, promotion and incentive costs dropped $1 million. These reductions more than offset a $2.2 million rise in newsprint expense, due to increased cost per ton. Operating income for the Publishing Segment, excluding 1996 and 1995 acquisitions, rose $15 million in 1996 from 1995. The majority of this increase was from the Company's metropolitan 43 newspapers, reflecting growth in classified advertising revenue and reduced employee compensation and benefit costs. BROADCAST TELEVISION (In millions)
Change from Change from 1997 prior year 1996 prior year 1995 ---- ---------- ---- ---------- ---- Revenues $ 156.3 87% $ 83.4 20% $ 69.3 Operating Expenses 139.9 143 57.5 31 44.1 Operating Income 16.4 (37) 25.9 3 25.2 Depreciation & Amortization 28.4 --- 2.8 (1) 2.8 Operating Cash Flow 44.8 57 28.6 2 28.0
The preceding chart includes the operating results of the Broadcast Television Segment, including recent acquisitions. As a direct result of the acquisitions occurring in 1997, revenues increased $77.3 million and operating income decreased $3.9 million from 1996. In 1996, revenues and operating income increased from 1995 by $9.2 million and $.1 million, respectively, solely as a result of the 1996 acquisition of PCS. 1997 Compared to 1996 Broadcast Television Segment revenues, excluding acquisitions, decreased $4.4 million in 1997 from 1996. The decline was principally the result of soft national and political advertising revenues (the latter due to the absence of several 1996 national and local political issues), which were only partially offset by an increase in local advertising revenues (driven by the automotive category). Broadcast Television Segment operating expenses, excluding acquisitions, remained essentially flat in 1997. A modest increase in program costs was partially offset by a small decrease in employee compensation and benefit expense. Excluding acquisitions, Broadcast Television Segment operating income declined $5.6 million in the current year. The drop was primarily attributable to reduced national and political advertising revenues, especially at the Company's largest station, WFLA-TV in Tampa. The Company completed the transfer of the network affiliation at its Jacksonville station (WJWB-TV) from ABC to Warner Brothers in February 1997. As anticipated, WJWB-TV posted weak 1997 results. Conversely, the full-year impact of the network switch from ABC to NBC in August 1996 at the Company's WCBD-TV station in Charleston resulted in growth, but only partially compensated for WJWB-TV's reduced results. 1996 Compared to 1995 Broadcast Television Segment revenues, excluding acquisitions, increased $4.9 million in 1996, up 7.1% from 1995. The revenue growth was principally the result of increases in political, national and local spot sales at the Company's Tampa station. National and local revenues were aided by the broadcast of the Summer Olympics, as well as increases in the automotive and department store categories, while political revenues increased due to state issues and strong presidential and state election advertising. These increases were partially offset by a decrease in revenues at the Company's station in Jacksonville, largely attributable to advertiser reluctance in the face of that station's then impending network switch from ABC to Warner Brothers. Broadcast Television Segment operating expenses, excluding acquisitions, rose $4.4 million in 1996 over 1995. The majority of this increase was attributable to increased programming costs of $3.2 million (51%) due to the addition of new programs in the fall of 1995 at WFLA-TV , as well as a rise in employee compensation and benefit costs of $.8 million (4.4%) over 1995 levels. Broadcast Television Segment operating income, excluding acquisitions, increased $.6 million in 1996. The improvement was attributable to strong revenue growth at the Company's WFLA-TV station in Tampa, which more than offset increased programming costs and lackluster performances at the Company's Jacksonville and Charleston television stations. CABLE TELEVISION (In millions)
Change from Change from 1997 prior year 1996 prior year 1995 ---- ---------- ---- ---------- ---- Revenues $ 153.3 5% $ 146.1 9% $ 134.2 Operating Expenses 121.4 --- 121.5 (2) 123.5 Operating Income 31.9 30 24.6 131 10.7 Depreciation & Amortization 26.6 --- 26.5 (1) 26.9 Operating Cash Flow 58.5 14 51.2 36 37.6
1997 Compared to 1996 Revenues at the Company's Cable Television Segment rose $7.2 million in 1997, up 4.9% from 1996. The increase was attributable to the Company's Fairfax County, Virginia, cable system (Fairfax Cable), as a result of a 3.4% increase in the number of subscribers (to 235,500 at December 28, 1997), together with a combined average increase of 5.4% in basic and expanded subscriber rates. This rate increase along with subscriber growth produced a 2.6% improvement in average revenue per subscriber (excluding pay-per-view). The Telecommunications Act of 1996 (1996 Act) eliminated rate regulation of cable services other than the basic service tier after March 31, 1999. The 1996 Act also removed previously applicable 44 restrictions that had prevented most local telephone companies from offering cable services in the areas where they provide telephone services. This development and the advent of wireless and direct broadcast satellite services likely will increase competition in the areas served by the Company's cable systems. The Company is developing several strategic initiatives for its Fairfax Cable system, including entry into the high speed data transmission and commercial and residential telephone markets. The Company estimates that the capital investment required for it to compete effectively in those markets could exceed $200 million over a ten-year period. Cable Television Segment operating expenses remained essentially flat in the current year. An increase in programming costs more than offset reductions in compensation and employee benefit costs and depreciation expense. Cable Television Segment operating income improved $7.3 million (30%) in 1997 from 1996. The increase was due principally to revenue growth at Fairfax Cable of $7.2 million, up 5.3% in 1997 as a result of both rate and subscriber count increases. These subscriber count increases prompted a commensurate rise in programming costs, which were essentially offset by reduced compensation and employee benefits costs; this reduction reflected the current-year benefit of the restructuring process implemented in 1996 at Fairfax Cable. 1996 Compared to 1995 Cable Television Segment revenues rose $12 million in 1996, up 9% from 1995. The increase was attributable to the Company's Fairfax Cable system, as a result of a 2.7% increase in the number of subscribers (to 227,700 at December 29, 1996), together with average increases in basic and expanded subscriber rates of 6.5% and 9.2%, respectively. These rate increases combined with subscriber growth produced a 7% improvement in average revenue per subscriber (excluding pay-per-view). Cable Television Segment operating expenses decreased $2 million in 1996 from 1995. A $3.1 million (11%) decline in 1996 of employee compensation and benefit costs, reflecting the results of a restructuring process implemented at Fairfax Cable, and a $1.3 million decrease in maintenance and repair expense, more than offset a $3.3 million (12%) increase in programming costs. Cable Television Segment operating income increased $14 million in 1996 from 1995. The increase reflects revenue growth at Fairfax Cable, up 10.4% in 1996 as a result of both rate and subscriber count increases, as well as reduced compensation and employee benefit costs; together, these more than offset an increase in programming costs. NEWSPRINT (In millions)
Change from Change from 1997 prior year 1996 prior year 1995 ---- ---------- ---- ---------- ---- Revenues $ 114.8 (10%) $ 127.7 (9%) $ 140.1 Operating Expenses 121.8 (3) 125.2 (2) 128.3 Operating Income (Loss) (7.0) --- 2.5 (79) 11.8 Depreciation & Amortization 6.5 2 6.4 (3) 6.6 Operating Cash Flow (0.5) --- 8.8 (52) 18.4
1997 Compared to 1996 Newsprint Segment revenues declined $12.9 million (10%) in 1997, largely reflecting the results of the Company's Garden State Paper (Garden State) newsprint mill, located in Garfield, New Jersey. The decline resulted from a 14.5% decrease in the average realized selling price per ton, partially offset by a 5.1% rise in tons sold. Average realized newsprint selling prices fell during the current year from $572 per ton in 1996 to $488 per ton in 1997. However, the market showed continued improvement throughout the year, as evidenced by a 7% average selling price increase from $456 per ton during the first quarter of 1997 to the above-mentioned $488 per ton for the full year. Newsprint Segment operating expenses dropped $3.4 million in 1997 from the comparable 1996 amount. The cost of Garden State's principal raw material, recovered newspapers (ONP), dropped $3.7 million (15%). The average cost of ONP in 1997 was $73 per ton, down 16% from last year's $87 per ton, due to lower market demand for ONP during the current year. The decline in ONP cost together with decreases of $1.1 million in maintenance costs, due mainly to improved production and decreased downtime, and $.7 million in energy expense, attributable to lower average fuel prices during the year, more than offset a $1.9 million increase in the cost of chemicals used to enhance the quality of newsprint produced. The Newsprint Segment produced an operating loss of $7 million in 1997, a sharp contrast to the $2.5 million income posted in 1996. The decline resulted from an $84 decrease in average realized selling price per ton as compared to a year ago, partially offset by a drop in ONP expense. During 1997, as newsprint consumption increased the Company's average realized newsprint selling price per ton rose and, in the fourth quarter of 1997, began to exceed equivalent 1996 levels. This trend of gradual improvement in realized newsprint selling prices is expected to continue into 1998. 45 1996 Compared to 1995 Newsprint Segment revenues declined $12.4 million (9%) in 1996, largely reflecting the results of the Company's Garden State Paper newsprint mill. The decline resulted from a 9% decrease in tons sold, as the average realized selling price remained essentially even with 1995. Average newsprint selling prices began the year at $652 per ton, and dropped to $444 per ton by year-end, reflecting the results of an industry cycle of declining selling prices and weak demand. Newsprint Segment operating expenses dropped $3 million in 1996 from the comparable 1995 amount, due to a $12 million (32%) drop in the cost of ONP. The average cost of ONP in 1996 was $87 per ton, down 28% from 1995's $121 per ton, due to lower market demand throughout the year. This decline in ONP expense more than offset the rise in other expenses, including a $4.4 million (18%) increase in energy costs due to a severe winter which limited the available supply of low cost fuel, a $2.8 million (32%) rise in maintenance and repair expense related to production problems, a $1.3 million increase in consultant fees related to a process re-engineering project at Garden State, a $1 million increase in chemical costs in order to increase quality, and a $1 million rise in employee compensation and benefit costs. Newsprint Segment operating income fell $9.4 million in 1996 from 1995. The decrease resulted from the reduction in tons sold in the current year (down 9% from prior year levels), which more than offset the decrease in operating costs. UNCONSOLIDATED AFFILIATES 1997 Compared to 1996 The Company's investment income from unconsolidated affiliates decreased $6.2 million in 1997 from the comparable 1996 amount. The decrease was attributable to the Company's share of reduced operating results at its Southeast Paper Manufacturing Company (SEPCO) newsprint affiliate, which decreased $11.2 million from last year. Despite a 5.6% increase in tons sold, revenues declined 11.2% as a result of a decrease in SEPCO's average realized newsprint selling price to $492 per ton in 1997 from $583 per ton in 1996. Income earned from the Company's Denver Newspapers, Inc. (DNI), affiliate increased $5 million in 1997 over 1996 due to a $4 million increase in the Company's share of DNI's net income applicable to common stockholders and a $1 million increase in income from the Company's DNI preferred stock investment. DNI's improved results were attributable to solid advertising revenue growth coupled with reduced newsprint expense which, together, more than offset the effects of a modest decrease in circulation revenues and increases in other operating expenses. 1996 Compared to 1995 The Company's investment income from unconsolidated affiliates rose $8.2 million in 1996 over 1995. The most significant portion of the increase came from the Company's share of the operating results of its SEPCO newsprint affiliate, which increased $6.7 million over the previous year. SEPCO established new annual records for income and production in 1996. The improvement was primarily attributable to significantly lower production costs (mainly due to reduced ONP expense), as well as a slight increase in revenues. For the year, SEPCO's average realized selling price approximated $583 per ton compared to $578 per ton in 1995. Income earned from the Company's Denver Newspapers, Inc., affiliate increased $1.4 million in 1996 over 1995 due to a $.9 million increase in the Company's share of DNI's net income applicable to common stockholders and a $.5 million increase in income from the Company's DNI preferred stock investment. DNI's improved operating results were attributable to strong advertising revenue growth which more than offset the effect of increased operating expenses (principally newsprint). INTEREST EXPENSE Interest expense of $65.4 million represented a $44.2 million increase over 1996. This was due primarily to a $654 million rise in average debt outstanding in 1997, the result of recent acquisitions. The Company's average effective borrowing rate of 6.9% in 1997 was up slightly from 1996. Interest expense of $21.3 million in 1996 represented a $5.7 million increase over the prior year. The increase was due primarily to the $108 million rise in average debt outstanding, the result of 1996 and 1995 acquisitions, partially offset by a reduction in the Company's average effective borrowing rate to 6.8%. NON-OPERATING ITEMS Other income, net, remained relatively flat in 1997 from 1996. A reduction in gains from sales of miscellaneous fixed assets was essentially offset by a rise in current-year interest income on proceeds from the sales of former Park properties together with the absence of prior-year expenses related to acquisitions. Other income, net, decreased $3.8 million in 1996 from 1995. The decline was primarily the result of the absence of 1995's $3.6 million pre-tax gain on the sale of the Company's interest in a Mexican newsprint affiliate, combined with a decline of interest earned 46 on short-term investments held by the Company prior to the 1995 Virginia Newspapers acquisition. Together, these offset an increase in gains from various fixed asset sales. PROVISION FOR INCOME TAXES Excluding the extraordinary item, the Company's effective tax rate was 39.2% in 1997, up from 35.8% in the previous year. Income tax expense declined $5.4 million (14%) in 1997 on a pretax earnings decrease of $23.4 million (21%). The increase in effective rate was due to a higher proportion of nondeductible intangible asset amortization related to recent acquisitions. See Note 6 to the accompanying consolidated financial statements for additional information regarding income taxes. Excluding the gain and related income taxes on the Company's first quarter 1995 sale of its interest in a Mexican newsprint operation, the Company's effective tax rate was 35.8% in 1996, up slightly from 35% in the previous year. Income tax expense rose $11.9 million (43%) over 1995 on a pretax earnings increase of $31.6 million (40%). NET INCOME The Company incurred a net loss of $10.5 million ($.40 per share; both basic and assuming dilution) in 1997 as the result of a $63 million charge, net of a tax benefit of $38.6 million, ($2.39 per share, or $2.37 per share - assuming dilution) related to the redemption of Park's high coupon debt in February 1997. Excluding this extraordinary item, net income declined from $70.5 million in 1996 to $52.5 million in the current year. This $18 million ($23 million pre-tax) decrease in net income was primarily attributable to newsprint related operations; Garden State's pre-tax operating profit declined $9.5 million and the Company's share of SEPCO's income was down $11.2 million. Increases in interest expense ($44.2 million) and amortization expense ($25.7 million) related to acquisitions slightly more than offset operating profit increases in other businesses. The Publishing Segment and Cable Segment had particularly strong performances with increases in operating profits of 78% and 29%, respectively. Net income for 1996 was $70.5 million ($2.68 per share, or $2.65 per share - assuming dilution) compared to $53.2 million ($2.04 per share, or $2.01 per share - assuming dilution) in 1995. Net income for 1995 included the after-tax gain of $2.5 million ($.10 per share, or $.09 per share - assuming dilution) from the sale of the Company's interest in a Mexican newsprint affiliate. Excluding the impact of the 1995 gain, 1996 net income was up 39% from the prior year reflecting strong growth in operating income in the Publishing Segment due to improvements at the metropolitan daily newspapers, the addition of the Virginia Newspaper properties, and increased operating income in the Cable Television Segment due mainly to revenue growth. LIQUIDITY AND CAPITAL RESOURCES Funds generated by operating activities during 1997 totaled $119.3 million, down $7.2 million from 1996. The decrease was due to a decline in net income (excluding the extraordinary item) and the absence of the prior-year distribution of $15.6 million from SEPCO, partially offset by a rise in non-cash amortization resulting from recent acquisitions. Funds generated from operating activities coupled with funds provided from the sales of non-southeastern Park properties and new borrowings, supplied $277 million for acquisitions (excluding the debt and other liabilities assumed), $85 million for premiums and costs related to the early redemption of Park debt, $42 million for capital expenditures and $14 million for the payment of dividends to stockholders. Total debt outstanding at December 28, 1997, was $900 million, up $624 million (principally the result of the Park acquisition) from the year-ago level of $276 million, but down $148 million from the March 30, 1997, level of $1,048 million. The majority of the debt reduction in the current year was funded with the net proceeds from the sales of certain of the former Park properties; the balance was derived from cash flow from operations. At December 28, 1997, the Company had $390 million in unused credit lines available from its committed revolving credit facility expiring in 2003. In connection with the borrowings related to the Park acquisition, in 1997 the Company entered into additional interest rate swap agreements aggregating $600 million. These interest rate swaps, coupled with existing ones, have maturities ranging from one to six years and totaled $800 million at December 28, 1997. These instruments are used solely to manage interest rate risk and effectively convert the Company's variable rate debt to fixed rate debt with a weighted average interest rate of 6.8% at December 28, 1997. See Note 4 to the accompanying consolidated financial statements for additional information regarding interest rate swaps. The Company anticipates that internally generated funds provided by operations during 1998, together with existing credit facilities, will be more than adequate to finance other possible acquisitions, projected capital expenditures, dividends to stockholders, and working capital needs in the future. Additionally, the Company expects to receive $58.6 million in dividends and return of principal on its mandatorily redeemable preferred stock investment in Denver Newspapers, Inc., by June 30, 1999, that security's redemption date. 47 YEAR 2000 As is true with many companies today, the Company is heavily reliant on technology to deliver its services. Because some forms of technology in use today employ systems that are not capable of dealing with the year 2000 transition, the Company has assembled a taskforce to review all its systems to ensure against a year 2000 malfunction. While we have found that such systems do exist in Media General, the growth of the Company and the availability of new technology have jointly caused us to upgrade or replace substantial portions of our fundamental systems in recent years with year 2000 compliant systems. In addition, we are in the process of installing a new, corporate-wide, financial information system and have just completed the first replacement phase of a new human resources information system, both of which are year 2000 compliant. While the overall cost of this effort is still being evaluated, the benefits received from the new technology for many of its operational systems are expected to amply justify the cost of replacement; these costs are not expected to be material to the Company's consolidated results of operations or financial position. OUTLOOK FOR 1998 The quick integration of recently acquired companies into Media General has strengthened the Company's ability to provide communications throughout the Southeast and to capitalize on emerging opportunities. The Company anticipates that all of its segments will produce year-over-year operating income and cash flow increases, and the Publishing Segment is expected to show particularly strong results. Results for the Newsprint Segment are directly affected by the newsprint market's price levels, which have shown gradual improvement throughout 1997 and are expected to show continued improvement in 1998. Due to strong growth in advertising and newsprint revenues, the Company's net income is expected to increase. 48
Media General, Inc. Quarterly Review (In thousands, except per share amounts) First Second Third Fourth Quarter Quarter Quarter Quarter - ---------------------------------------------------------------------------------------------------------------- 1997 Revenues $ 216,145 $ 229,426 $ 221,975 $ 242,441 - ---------------------------------------------------------------------------------------------------------------- Operating income 24,802 34,325 28,481 41,837 Income before extraordinary 8,233 13,890 10,565 19,822 item Extraordinary item (63,000) --- --- --- Net income (loss) (54,767) 13,890 10,565 19,822 Income per share before extraordinary item 0.31 0.53 0.40 0.75 Income per share before extra- ordinary item - assuming 0.31 0.52 0.39 0.75 dilution Net income (loss) per share (2.08) 0.53 0.40 0.75 Net income (loss) per share - assuming dilution (2.06) 0.52 0.39 0.75 - ---------------------------------------------------------------------------------------------------------------- Shares traded 2,761 2,978 2,498 1,876 Stock price range $ 29.38-32.75 $ 28.38-35.25 $ 34.50-40.00 $ 37.25-44.63 Quarterly dividend paid $ 0.13 $ 0.13 $ 0.13 $ 0.14 - ---------------------------------------------------------------------------------------------------------------- 1996 Revenues $ 184,800 $ 192,632 $ 188,003 $ 199,670 Operating income 20,015 29,553 23,199 29,669 Net income 15,056 20,880 15,623 18,939 Net income per share 0.57 0.79 0.60 0.72 Net income per share - assuming dilution 0.57 0.78 0.59 0.71 - ---------------------------------------------------------------------------------------------------------------- Shares traded 2,661 1,756 2,597 2,095 Stock price range $ 29.88-39.38 $ 34.75-39.50 $ 27.63-37.50 $ 29.38-32.63 Quarterly dividend paid $ 0.12 $ 0.12 $ 0.13 $ 0.13 - ----------------------------------------------------------------------------------------------------------------
o Media General, Inc., Class A common stock is listed on the American Stock Exchange under the symbol MEG.A. The approximate number of equity security holders of record at March 1, 1998, was: Class A common -- 2,380, Class B common -- 16. o First quarter 1997 results include an extraordinary charge of $63 million, net of a tax benefit of $38.6 million ($2.39 per share, or $2.37 per share - assuming dilution), representing the debt prepayment premium and the write-off of associated debt issuance costs related to the redemption of debt assumed in the January 1997, acquisition of Park. o During the fourth quarter 1997, the Company received updated appraisal information related to the Park acquisition which principally resulted in adjustments to intangible assets, deferred taxes and the effective income tax rate. Values assigned by the appraisal to identifiable intangible assets increased and excess of cost over fair value decreased while total appraised value remained unchanged. 49 Media General, Inc. Ten-Year Financial Summary (In thousands, except per share amounts) Certain of the following data were compiled from the consolidated financial statements of Media General, Inc., and should be read in conjunction with those statements and the financial review and management analysis which appear elsewhere in this report.
1997 1996 1995 1994 - ----------------------------------------------------------------------------------------------------------------------- Summary of Operations Operating revenues (a) $ 909,987 $ 765,105 $ 707,766 $ 626,247 - ----------------------------------------------------------------------------------------------------------------------- Net income (loss) $ (10,490) $ 70,498 $ 53,232 $ 117,009 Adjustments to reconcile to operating cash flow: Extraordinary item (b) 63,000 --- --- --- Gain on sale of Garden State Newspapers investment --- --- --- (91,520) Cumulative effect of changes in accounting principles (c) --- --- --- --- Investment (income) loss -- unconsolidated affiliates (21,037) (27,188) (19,034) (2,935) Other, net (1,267) (1,381) (5,204) 789 Interest expense 65,442 21,267 15,522 16,948 Income taxes 33,797 39,240 28,477 25,960 ----------- ----------- ---------- ---------- Operating income (a)(d) 129,445 102,436 72,993 66,251 Depreciation and amortization 98,316 64,951 60,590 55,450 ----------- ----------- ---------- ---------- Operating cash flow $ 227,761 $ 167,387 $ 133,583 $ 121,701 ======================================================================================================================= Per Share Data: (b)(c)(e) Income (loss) before extraordinary item and cumulative effect of changes in accounting principles $ 1.99 $ 2.68 $ 2.04 $ 4.50 Extraordinary item (2.39) --- --- --- Cumulative effect of changes in accounting principles --- --- --- --- ----------- ----------- ---------- ----------- Net income (loss) $ (0.40) $ 2.68 $ 2.04 $ 4.50 ======================================================================================================================= Per Share Data - assuming dilution: (b)(c)(e) Income (loss) before extraordinary item and cumulative effect of changes in accounting principles $ 1.97 $ 2.65 $ 2.01 $ 4.45 Extraordinary item (2.37) --- --- --- Cumulative effect of changes in accounting principles --- --- --- --- ----------- ----------- ---------- ---------- Net income (loss) $ (0.40) $ 2.65 $ 2.01 $ 4.45 ======================================================================================================================= Other Financial Data: Total assets $ 1,814,201 $ 1,025,484 $ 1,016,743 $ 787,165 Working capital 31,442 13,373 22,938 14,833 Capital expenditures 41,599 28,510 29,076 56,919 Total debt 900,000 276,000 326,750 172,500 Cash dividends per share 0.53 0.50 0.48 0.44 =======================================================================================================================
(a) In 1988, the Company discontinued its Broadcast Services operations and sold its media placement division, and agreed to dispose of its West Coast newsprint mill and related operations. Revenues for 1988 include disposed broadcast operation revenues of $62.4 million and disposed newsprint operation revenues of $74.3 million. Operating income for 1988 includes disposed broadcast operation operating losses of $59.3 million and disposed newsprint operation operating profits of $14.8 million. (b) In 1997 the Company incurred a charge of $63 million (net of a tax benefit of $38.6 million), representing the debt prepayment premium and write-off of associated debt issuance costs related to the redemption of debt assumed in the January 1997, Park acquisition. (c) Includes the recognition, at the beginning of fiscal 1992, of the accumulated postretirement benefit obligation related to prior service costs of $22.8 million ($14.4 million after-tax; $0.55 per share, basic and assuming dilution) as the cumulative effect of a change in accounting principle for the adoption of Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" and the adoption of Financial Accounting Standards No. 109, "Accounting for Income Taxes" which increased 1992 net income by $15.1 million ($0.58 per share, basic and assuming dilution), which represented the net decrease in the Company's deferred tax liability at that date. 50
1993 1992 1991 1990 1989 1988 - --------------------------------------------------------------------------------------------------------------------------- $ 600,824 $ 577,659 $ 585,900 $ 613,667 $ 595,132 $ 738,871 - --------------------------------------------------------------------------------------------------------------------------- $ 25,708 $ 19,000 $ (62,091) $ 25,480 $ 20,720 $ 8,819 --- --- --- --- --- --- --- --- --- --- --- --- --- (687) --- --- --- --- 990 4,926 75,640 1,303 (10,562) (16,507) (835) (6,131) (2,659) (814) (684) (369) 21,274 17,559 16,056 19,831 25,385 18,089 13,166 7,946 9,395 18,025 9,280 5,380 ---------- ---------- ---------- --------- ------------- ---------- 60,303 42,613 36,341 63,825 44,139 15,412 56,847 54,550 49,943 47,547 45,635 47,635 ---------- ---------- ---------- --------- ------------- ---------- $ 117,150 $ 97,163 $ 86,284 $ 111,372 $ 89,774 $ 63,047 =========================================================================================================================== $ 0.99 $ 0.70 $ (2.40) $ 0.99 $ 0.80 $ 0.31 --- --- --- --- --- --- --- 0.03 --- --- --- --- --------- ------------ --------- -------- ------------ ----------- $ 0.99 $ 0.73 $ (2.40) $ 0.99 $ 0.80 $ 0.31 =========================================================================================================================== $ 0.98 $ 0.70 $ (2.40) $ 0.98 $ 0.80 $ 0.31 --- --- --- --- --- --- --- 0.03 --- --- --- --- --------- ------------ --------- -------- ------------ ----------- $ 0.98 $ 0.73 $ (2.40) $ 0.98 $ 0.80 $ 0.31 =========================================================================================================================== $ 745,242 $ 787,425 $ 762,311 $ 775,944 $ 782,657 $ 852,764 9,551 9,657 3,668 21,333 62,210 55,488 32,837 92,319 115,383 73,686 69,117 77,717 261,756 320,506 277,202 234,565 275,928 274,985 0.44 0.44 0.44 0.44 0.42 0.39 ===========================================================================================================================
(d) Operating income includes the following pre-tax special charges: 1991 -- $11.3 million for early retirement program and newspaper merger costs; 1989 -- $10.3 million for the write-off of unrecovered costs related to a lawsuit against William B. Tanner and others; 1988 -- $66.3 million primarily related to the Company's discontinuance of Broadcast Services operations. (e) In February 1997, the Financial Accounting Standards Board issued Statement No. 128, "Earnings Per Share", which is effective for periods ending after December 15, 1997. Accordingly, the Company has changed the method used to compute earnings per share and has restated its earnings per share for all prior periods. Under the new standard, basic earnings per share, which excludes the dilutive effect of stock options, replaces primary earnings per share. 51 EX-21 3 EXHIBIT 21 Exhibit 21 Subsidiaries of the Registrant Listed below are the major subsidiaries of the Company, including equity investees, each of which is in the consolidated financial statements of the Company and its Subsidiaries, and the percentage of ownership by the Company (or if indented, by the subsidiary under which it is listed). Subsidiaries omitted from the list would not, if aggregated, constitute a significant subsidiary:
Jurisdiction of Securities Name of Subsidiary Incorporation Ownership Beacon Press, Inc. Virginia 100% Denver Newspapers, Inc. Delaware 40% Garden State Paper Company, Inc. Virginia 100% Media General Business Communications, Inc. Virginia 100% Media General Cable of Fairfax County, Inc. Virginia 100% Media General Cable of Fredericksburg, Inc. Virginia 100% Media General Communications, Inc. Delaware 100% Media General Newspapers, Inc. Delaware 100% Media General Broadcasting, Inc. New York 100% MG Broadcasting of Birmingham, Inc. Alabama 100% Media General Broadcasting of Montgomery, Inc. Alabama 100% Media General Financial Services, Inc. Virginia 100% Mega Advertising, Inc. Virginia 100% NES II, Inc. Virginia 100% Piedmont Publishing Company, Inc. North Carolina 100% Richmond Newspapers, Inc. Virginia 100% The Tribune Company Florida 100% Virginia Newspapers, Inc. Virginia 100% Virginia Paper Manufacturing Corp. Virginia 100% Southeast Paper Manufacturing Co. (Partnership) Georgia 33.33%
EX-23 4 EXHIBIT 23 Exhibit 23 CONSENT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders Media General, Inc. We consent to the incorporation by reference in this Annual Report (Form 10-K) of Media General, Inc., of our report dated January 26, 1998, included in the 1997 Annual Report to Stockholders of Media General, Inc. Our audits also included the financial statement schedule of Media General, Inc., listed in Item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in the following Registration Statements of our report dated January 26, 1998, with respect to the consolidated financial statements of Media General, Inc., incorporated herein by reference, and our report included in the preceding paragraph with respect to the financial statement schedule of Media General, Inc., included in this Annual Report (Form 10-K) of Media General, Inc., for the fiscal year ended December 28, 1997: Registration Statement Number Description 2-56905 Form S-8 33-29478 Form S-8 33-23698 Form S-8 33-26853 Form S-3 33-52472 Form S-8 333-16731 Form S-8 333-16737 Form S-8 ERNST & YOUNG LLP Richmond, Virginia March 25, 1998 EX-27.1 5 1997 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MEDIA GENERAL,INC.'S CONSOLIDATED CONDENSED BALANCE SHEETS AND CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000216539 1 1,000 YEAR DEC-28-1997 DEC-28-1997 3,504 0 115,940 6,653 17,594 162,653 1,083,202 578,296 1,814,201 131,211 900,000 0 0 133,645 284,581 1,814,201 909,987 909,987 453,937 453,937 98,316 0 65,442 86,307 33,797 52,510 0 (63,000) 0 (10,490) (0.40) (0.40)
EX-27.2 6 1996 RESTATED FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MEDIA GENERAL, INC.'S CONSOLIDATED CONDENSED BALANCE SHEETS AND CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY TO SUCH FINANCIAL STATEMENTS. 0000216539 2 1,000 YEAR DEC-29-1996 DEC-29-1996 4,471 0 86,784 5,271 16,329 128,218 997,575 527,597 1,025,484 114,845 265,000 0 0 132,534 304,706 1,025,484 765,105 765,105 410,659 410,659 64,951 0 21,267 109,738 39,240 70,498 0 0 0 70,498 2.68 2.65
EX-27.3 7 1995 RESTATED FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MEDIA GENERAL, INC.'S CONSOLIDATED CONDENSED BALANCE SHEETS AND CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000216539 3 1,000 YEAR DEC-31-1995 DEC-31-1995 3,367 0 81,062 4,530 20,380 126,091 982,543 484,411 1,016,743 103,153 326,750 0 0 132,309 244,802 1,016,743 707,766 707,766 391,940 391,940 60,590 0 15,522 81,709 28,477 53,232 0 0 0 53,232 2.04 2.01
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